OKLAHOMA CITY, Aug. 10, 2010 (GLOBE NEWSWIRE) -- 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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