PostRock Energy Corporation (Nasdaq:PSTR) today
announced the filing of its Quarterly Report on Form 10-Q for the
period ended June 30, 2010.
Management Comment
David C. Lawler, President and Chief Executive Officer of
PostRock said, "During the second quarter we successfully completed
our 2010 development plan in the Cherokee Basin, completing and
connecting 114 new wells on time and under budget. Also during the
quarter, we increased our Cherokee Basin well service activity,
returning 190 wells to production in order to capitalize on more
attractive natural gas prices. We remain focused on reducing debt,
lowering costs and simplifying our capital structure."
Results of Operations for the Three Months Ended June
30, 2010
Oil and gas sales increased $4.0 million, or 24.9%, to $20.1
million during the three months ended June 30, 2010 from $16.1
million during the three months ended June 30, 2009. This increase
was primarily due to an increase in average realized natural gas
prices which resulted in increased revenues of $5.7 million,
partially offset by lower production volumes, which decreased
revenue by $1.7 million. Average realized prices on an equivalent
basis (Mcfe) increased to $4.10 per Mcfe for the three months ended
June 30, 2010, from $2.93 per Mcfe for the three months ended June
30, 2009.
Third party natural gas pipeline revenue decreased $3.9 million,
or 51.1%, to $3.7 million during the three months ended June 30,
2010, from $7.6 million during the three months ended June 30,
2009. The decrease was primarily due to the loss of a significant
interstate pipeline customer during the fourth quarter of 2009 and
renegotiated contracts at lower volumes and rates with another
existing interstate pipeline customer.
Oil and gas production costs, which include lease operating
expenses, severance taxes and ad valorem taxes, decreased $0.3
million, or 3.4%, to $7.0 million during the three months ended
June 30, 2010, from $7.3 million during the three months ended June
30, 2009. The decrease was primarily due to lower lease operating
expenses of $1.4 million offset by increased ad valorem and
severance taxes of $1.1 million. Production costs were $1.43 per
Mcfe for the three months ended June 30, 2010 as compared to $1.32
per Mcfe for the three months ended June 30, 2009. Pipeline
operating expense decreased $0.2 million, or 3.1%, to $6.7 million
during the three months ended June 30, 2010, from $6.9 million
during the three months ended June 30, 2009.
General and administrative expenses decreased $2.5 million, or
24.1%, to $8.0 million during the three months ended June 30, 2010,
from $10.5 million during the three months ended June 30, 2009.
Expenses decreased as a result of higher costs in 2009 for the
reaudit and restatement of previously issued financials and fees to
financial advisors offset by expenses incurred in 2010 on
activities to refinance outstanding debt.
Depreciation, depletion and amortization decreased approximately
$4.2 million, or 46.2%, during the three months ended June 30, 2010
to $4.9 million from $9.1 million during the three months ended
June 30, 2009. This decrease was primarily due to an increase to
oil and natural gas reserves as a result of higher prices in 2010
which decreased the depreciation rate per unit in the current
quarter compared to the prior year quarter as well as an impairment
of $165.7 million on long lived pipeline related assets recorded
during the fourth quarter of 2009, which subsequently lowered the
depreciable basis of these assets.
Adjusted EBITDA decreased $36.0 million, or 78.8%, to $9.7
million during the three months ended June 30, 2010, from $45.7
million during the three months ended June 30, 2009. The decrease
was primarily driven by reduced realized gains on derivative
financial instruments of $39.1 million. During June 2009, the
Company amended or exited certain above market derivative contracts
in order to generate $26 million for the repayment of a credit
facility borrowing base deficiency. The remainder was the result of
lower volumes hedged at lower prices as well as reduced gas
pipeline revenues primarily due to the loss of a significant
customer in the fourth quarter of 2009.
As of June 30, 2010, PostRock had derivative positions that
provided price protection for approximately 8.2 Bcfe of its
Cherokee Basin natural gas production for the remainder of 2010 at
a volume weighted average price of $5.90 per Mcfe and positions
that protect prices on the majority of its proved developed
producing Cherokee Basin reserves from 2011 to 2013 at increasing
prices. PostRock's natural gas and crude oil derivative positions
are shown in the following table:
Natural Gas
Derivative Contract Summary |
|
Remaining 2010 |
2011 |
2012 |
2013 |
|
Price |
Volume |
Price |
Volume |
Price |
Volume |
Price |
Volume |
|
($/Mcf) |
(Mmcf) |
($/Mcf) |
(Mmcf) |
($/Mcf) |
(Mmcf) |
($/Mcf) |
(Mmcf) |
|
|
|
|
|
|
|
|
|
Southern Star Swaps |
$5.94 |
6,301 |
$6.43 |
5,000 |
$6.72 |
2,000 |
$-- |
-- |
|
|
|
|
|
|
|
|
|
NYMEX Swaps |
$6.45 |
1,896 |
$7.01 |
8,550 |
$7.22 |
9,000 |
$7.28 |
9,000 |
Southern Star Basis Swaps |
($0.66) |
1,896 |
($0.67) |
8,550 |
($0.70) |
9,000 |
($0.71) |
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
Derivative Contract Summary |
|
Remaining 2010 |
2011 |
2012 |
2013 |
|
Price |
Volume |
Price |
Volume |
Price |
Volume |
Price |
Volume |
|
($/Bbl) |
(Bbls) |
($/Bbl) |
(Bbls) |
($/Bbl) |
(Bbls) |
($/Bbl) |
(Bbls) |
|
|
|
|
|
|
|
|
|
NYMEX Swaps |
$87.50 |
15,000 |
$-- |
-- |
$-- |
-- |
$-- |
-- |
Liquidity Update
At June 30, 2010, PostRock's outstanding debt balance was $321.4
million and total cash balance was $19.6 million. While PostRock
successfully negotiated amendments to its various credit facilities
allowing the Company to accomplish the recombination, its current
portion of long-term debt obligations as of June 30, 2010 was
$305.2 million, of which $6.8 million was paid in July 2010. A
payment due on July 11, 2010 under the PostRock Energy Services
credit facility of $20.5 million, which includes accrued interest
and fees, was extended by the Company's lender to October 9, 2010.
Based on the operating results for the six months ended June 30,
2010, the Company was not in compliance with its PostRock Midstream
credit agreement, but the Company has secured a compliance waiver
until September 15, 2010. The Company recently remediated a
borrowing base deficiency of $13.6 million on its PostRock
MidContinent Production credit facility using available funds, and
as a result, the Company's cash balance has decreased to
approximately $14.6 million as of August 2, 2010. The Company is
actively pursuing the refinancing of its credit facilities, which
could include the issuance of a significant amount of equity
capital. There can be no assurance that the Company will be
successful in these efforts or that it will have sufficient funds
to pay these amounts when they come due.
PostRock Energy
Corporation and Subsidiaries |
Capitalization
Table |
|
|
|
(In thousands) |
June 30, 2010 |
March 31, 2010 |
|
|
|
Cash and Equivalents |
$19,579 |
$27,361 |
|
|
|
Long-term debt (including
current maturities) |
|
|
PostRock Energy Services Corporation |
|
|
Term loan |
$32,118 |
$31,091 |
Revolving line of credit |
7,300 |
5,700 |
Promissory notes |
1,334 |
1,292 |
|
|
|
PostRock MidContinent Production,
LLC |
|
|
Quest Cherokee credit agreement |
131,800 |
141,000 |
Second lien loan agreement |
30,118 |
29,969 |
|
|
|
PostRock Midstream, LLC |
|
|
Credit agreement |
118,728 |
118,728 |
|
|
|
Notes payable to banks
and finance companies |
47 |
57 |
Total long-term
debt |
$321,445 |
$327,837 |
|
|
|
Equity |
|
|
|
|
|
Total stockholders'
deficit |
(59,786) |
(50,750) |
Total
capitalization |
$261,659 |
$277,087 |
About PostRock Energy Corporation
PostRock Energy Corporation is a vertically integrated
independent energy company engaged in the acquisition, exploration,
development, production and transportation of oil and natural gas
in the Cherokee Basin, the Appalachian Basin, and Central Oklahoma.
PostRock has over 2,800 wells and nearly 2,200 miles of natural gas
gathering pipelines in the Cherokee Basin, over 400 natural gas and
oil producing wells and undeveloped acreage in the Appalachian
Basin and Marcellus shale, and more than 1,100 miles of interstate
natural gas transmission pipelines in Oklahoma, Kansas, and
Missouri. For more information, visit PostRock's website at
www.pstr.com.
The PostRock Energy Corp. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7221
Forward-Looking Statements
Opinions, forecasts, projections or statements, other than
statements of historical fact, are forward-looking statements that
involve risks and uncertainties. Forward-looking statements in this
announcement are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Although PostRock
believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Actual results may differ
materially due to a variety of factors, some of which may not be
foreseen by PostRock. These risks and other risks are detailed in
PostRock's filings with the Securities and Exchange Commission,
including risk factors listed in PostRock's Annual Report on Form
10-K and other filings with the SEC. You can find PostRock's
filings with the SEC at www.pstr.com or www.sec.gov. By making
these forward-looking statements, PostRock undertakes no obligation
to update these statements for revisions or changes after the date
of this release.
Reconciliation of Non-GAAP Financial
Measures
PostRock defines adjusted EBITDA as net income (loss) before
interest expense, net; income taxes; depreciation, depletion and
amortization; gain (loss) on sale of assets; loss (recovery) from
misappropriation of funds; impairments; other income (expense) and
change in fair value of derivative instruments. The following table
represents a reconciliation of PostRock's net income (loss) to
EBITDA and adjusted EBITDA for the period presented:
|
|
|
|
(Predecessor) |
(Predecessor) |
|
Three Months Ended June 30,
2010 |
Three Months Ended June 30,
2009 |
March 6, 2010 to June 30,
2010 |
January 1, 2010 to March 5,
2010 |
Six Months Ended June 30,
2009 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling
interest |
$ (9,587) |
$ (18,019) |
$ 7,423 |
$ 11,778 |
$ (69,405) |
Adjusted for: |
|
|
|
|
|
Net income (loss) attributable to
non-controlling interest |
-- |
(12,511) |
-- |
9,958 |
(40,165) |
Income tax expense |
-- |
-- |
-- |
-- |
-- |
Interest expense, net |
6,325 |
6,858 |
8,423 |
5,336 |
13,746 |
Depreciation, depletion, accretion and
amortization |
4,905 |
9,086 |
6,008 |
4,164 |
25,206 |
EBITDA |
$ 1,643 |
$ (14,586) |
$ 21,854 |
$ 31,236 |
$ (70,618) |
Other (income) expense, net |
(51) |
(83) |
230 |
4 |
(139) |
Unrealized (gain) loss from derivative
financial instruments |
8,080 |
63,784 |
(7,359) |
(21,573) |
41,154 |
Recovery of misappropriated funds, net of
liabilities assumed |
-- |
(3,397) |
-- |
-- |
(3,397) |
Impairment of oil and gas
properties |
-- |
-- |
-- |
-- |
102,902 |
Adjusted EBITDA |
$ 9,672 |
$ 45,718 |
$ 14,725 |
$ 9,667 |
$ 69,902 |
Although adjusted EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting
principles, or GAAP, PostRock management considers it an important
measure of PostRock's performance. Adjusted EBITDA is not a
substitute for the GAAP measures of earnings or cash flow and is
not necessarily a measure of PostRock's ability to fund PostRock's
cash needs. In addition, it should be noted that companies
calculate adjusted EBITDA differently, and therefore adjusted
EBITDA as presented herein may not be comparable to adjusted EBITDA
reported by other companies. Adjusted EBITDA has material
limitations as a performance measure because it excludes, among
other things, (a) interest expense, which is a necessary element of
PostRock's business to the extent that PostRock incurs debt, (b)
depreciation, depletion, amortization and accretion, which are
necessary elements of PostRock's business because PostRock uses
capital assets, (c) impairments of oil and gas properties, which
may at times be a material element of PostRock's business, and (d)
income taxes, which may become a material element of PostRock's
operations in the future. Because of its limitations, adjusted
EBITDA should not be considered a measure of discretionary cash
available to us to invest in the growth of PostRock's business.
POSTROCK ENERGY
CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(in thousands, except
per share data) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
(Predecessor) |
|
(Predecessor) |
(Predecessor) |
|
Three Months Ended June 30,
2010 |
Three Months Ended June 30,
2009 |
March 6, 2010 to June 30,
2010 |
January 1, 2010 to March 5,
2010 |
Six Months Ended June 30,
2009 |
|
(in thousands, except
share data) |
Revenue: |
|
|
|
|
|
Oil and gas sales |
$ 20,120 |
$ 16,107 |
$ 28,591 |
$ 18,659 |
$ 38,382 |
Gas pipeline revenue |
3,706 |
7,586 |
5,063 |
2,825 |
15,389 |
Total revenues |
23,826 |
23,693 |
33,654 |
21,484 |
53,771 |
Costs and expenses: |
|
|
|
|
|
Oil and gas production |
7,024 |
7,274 |
9,529 |
5,266 |
14,960 |
Pipeline operating |
6,645 |
6,861 |
8,895 |
4,489 |
14,021 |
General and administrative |
7,960 |
10,486 |
11,114 |
5,735 |
18,368 |
Depreciation, depletion and
amortization |
4,905 |
9,086 |
6,008 |
4,164 |
25,206 |
Impairment of oil and gas
properties |
-- |
-- |
-- |
-- |
102,902 |
Recovery of misappropriated funds, net of
liabilities assumed |
-- |
(3,397) |
-- |
-- |
(3,397) |
Total costs and expenses |
26,534 |
30,310 |
35,546 |
19,654 |
172,060 |
|
|
|
|
|
|
Operating income (loss) |
(2,708) |
(6,617) |
(1,892) |
1,830 |
(118,289) |
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
Gain (loss) from derivative financial
instruments |
(605) |
(17,138) |
17,968 |
25,246 |
22,326 |
Other income (expense), net |
51 |
83 |
(230) |
(4) |
139 |
Interest expense, net |
(6,325) |
(6,858) |
(8,423) |
(5,336) |
(13,746) |
Total other income (expense) |
(6,879) |
(23,913) |
9,315 |
19,906 |
8,719 |
Income (loss) before income taxes and
non-controlling interests |
(9,587) |
(30,530) |
7,423 |
21,736 |
(109,570) |
Income tax expense |
-- |
-- |
-- |
-- |
-- |
Net income (loss) |
(9,587) |
(30,530) |
7,423 |
21,736 |
(109,570) |
Net (income) loss attributable to
non-controlling interest |
-- |
12,511 |
-- |
(9,958) |
40,165 |
Net income (loss) attributable to controlling
interest |
$ (9,587) |
$ (18,019) |
$ 7,423 |
$ 11,778 |
$ (69,405) |
Net income (loss) per common share: |
|
|
|
|
|
Basic |
$ (1.19) |
$ (0.57) |
$ 0.92 |
$ 0.37 |
$ (2.18) |
Diluted |
$ (1.19) |
$ (0.57) |
$ 0.91 |
$ 0.36 |
$ (2.18) |
Weighted average shares outstanding: |
|
|
|
|
|
Basic |
8,049 |
31,868 |
8,047 |
32,137 |
31,799 |
Diluted |
8,049 |
31,868 |
8,116 |
32,614 |
31,799 |
|
|
|
POSTROCK ENERGY
CORPORATION AND SUBSIDIARIES |
|
|
CONDENSED CONSOLIDATED
BALANCE SHEETS |
|
|
(in thousands, except
share and per share data) |
|
|
|
|
(Predecessor) |
|
June 30, 2010 |
December 31,
2009 |
|
(Unaudited) |
|
ASSETS |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 19,579 |
$ 20,884 |
Restricted cash |
565 |
718 |
Accounts receivable — trade,
net |
10,425 |
13,707 |
Other receivables |
676 |
2,269 |
Other current assets |
6,391 |
8,141 |
Inventory |
7,375 |
9,702 |
Current derivative financial instrument
assets |
23,722 |
10,624 |
Total current assets |
68,733 |
66,045 |
Oil and gas properties under full cost method
of accounting, net |
44,848 |
40,478 |
Pipeline assets, net |
139,016 |
136,017 |
Other property and equipment, net |
18,688 |
19,433 |
Other assets, net |
2,407 |
2,727 |
Long-term derivative financial instrument
assets |
32,855 |
18,955 |
Total assets |
$ 306,547 |
$ 283,655 |
LIABILITIES AND
EQUITY |
|
|
Current liabilities: |
|
|
Accounts payable |
$ 13,876 |
$ 10,852 |
Revenue payable |
4,792 |
5,895 |
Accrued expenses |
11,304 |
11,417 |
Current portion of notes
payable |
305,191 |
310,015 |
Current derivative financial instrument
liabilities |
1,676 |
1,447 |
Total current liabilities |
336,839 |
339,626 |
|
|
|
Long-term derivative financial instrument
liabilities |
6,406 |
8,569 |
Other liabilities |
6,834 |
6,552 |
Notes payable |
16,254 |
19,295 |
|
|
|
Commitments and contingencies |
|
|
Equity: |
|
|
Preferred stock |
-- |
-- |
Common stock |
80 |
33 |
Additional paid-in capital |
368,346 |
299,010 |
Treasury stock, at cost |
-- |
(7) |
Accumulated deficit |
(428,212) |
(447,413) |
Total stockholders' deficit before
non-controlling interests |
(59,786) |
(148,377) |
Non-controlling interests |
-- |
57,990 |
Total equity |
(59,786) |
(90,387) |
Total liabilities and equity |
$ 306,547 |
$ 283,655 |
|
|
|
|
POSTROCK ENERGY
CORPORATION AND SUBSIDIARIES |
|
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
|
|
|
(in
thousands) |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
(Predecessor) |
(Predecessor) |
|
March 6, 2010 to June 30,
2010 |
January 1, 2010 to March 5,
2010 |
Six Months Ended June 30,
2009 |
|
(in thousands) |
Cash flows from operating
activities: |
|
|
|
Net income (loss) |
$ 7,423 |
$ 21,736 |
$ (109,570) |
Adjustments to reconcile net income
(loss) to cash provided by operations: |
|
|
|
Depreciation, depletion and
amortization |
6,008 |
4,164 |
25,206 |
Stock-based
compensation |
634 |
808 |
819 |
Impairment of oil and gas
properties |
-- |
-- |
102,902 |
Amortization of deferred loan
costs |
1,558 |
2,094 |
2,097 |
Change in fair value of
derivative financial instruments |
(7,359) |
(21,573) |
41,154 |
Loss (gain) on disposal of
property and equipment |
140 |
-- |
-- |
Non-cash portion of recovery of
misappropriated funds |
-- |
-- |
(977) |
Other non-cash changes to items affecting
net income |
111 |
-- |
-- |
Change in assets and
liabilities: |
|
|
|
Accounts receivable |
3,519 |
(237) |
1,322 |
Other receivables |
579 |
1,014 |
2,336 |
Other current assets |
(2,305) |
466 |
386 |
Other assets |
(3) |
2 |
116 |
Accounts payable |
646 |
(83) |
(16,152) |
Revenue payable |
(946) |
(157) |
480 |
Accrued expenses |
1,710 |
983 |
1,817 |
Other long-term liabilities |
(9) |
-- |
(1) |
Other |
-- |
-- |
(57) |
Cash flows from operating
activities |
11,706 |
9,217 |
51,878 |
|
|
|
|
Cash flows from investing
activities: |
|
|
|
Restricted cash |
154 |
(1) |
(201) |
Proceeds from sale of oil and gas
properties |
101 |
-- |
8,730 |
Equipment, development, leasehold and
pipeline |
(9,944) |
(2,282) |
(5,256) |
Cash flows from investing
activities |
(9,689) |
(2,283) |
3,273 |
|
|
|
|
Cash flows from financing
activities: |
|
|
|
Proceeds from bank borrowings |
-- |
-- |
1,430 |
Repayments of bank borrowings |
(13,215) |
(41) |
(9,662) |
Proceeds from revolver |
2,100 |
900 |
-- |
Repayments of revolver note |
-- |
-- |
(17,902) |
Refinancing costs |
-- |
-- |
(389) |
Cash flows from financing
activities |
(11,115) |
859 |
(26,523) |
Net increase (decrease) in cash |
(9,098) |
7,793 |
28,628 |
Cash and cash equivalents beginning of
period |
28,677 |
20,884 |
13,785 |
Cash and cash equivalents end of
period |
$ 19,579 |
$ 28,677 |
$ 42,413 |
CONTACT: PostRock Energy Corporation
North Whipple, Manager, Corporate Development and
Investor Relations
www.pstr.com
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