PostRock Energy Corporation (Nasdaq:PSTR) today
announced results for the first quarter of 2011. Revenues totaled
$24.8 million, a 20.9% decrease from the prior-year quarter. The
decline was primarily due to significantly lower realized gas
prices and a slight decline in production, partially offset by
higher pipeline revenue. Average realized prices for the period,
excluding hedging, decreased to $4.33 per Mcfe, a 22.9% decrease.
Excluding prior-year production from Appalachian assets that have
been sold, production declined 1.5% from the prior year period to
an average of 51.9 Mmcfe per day. The decrease was primarily due to
adverse weather in the Cherokee Basin during February which
deferred production. Pipeline revenue increased 18.6% to $3.2
million, primarily due to higher volumes and additional short-term
contracts. Realized hedging gains in the quarter increased to $9.2
million, a 35.3% increase from the year earlier period.
Production costs, including lease operating expenses ("LOE") and
production taxes totaled $12.4 million, a 2.6% decrease from the
prior-year quarter. The decline was primarily due to a $0.7 million
reduction in ad valorem taxes and $0.2 million lower severance
taxes, offset by $0.6 million higher LOE. The reduction in taxes
reflected the lower realized gas prices. LOE increased primarily as
a result of higher than expected one-time well repair expense on
oil wells in Oklahoma. Total production costs were $2.66 per Mcfe
for the period, a slight increase from that reported in the prior
year. During the quarter, the Company recovered $1.4 million of the
cost to operate the gathering system through third party gathering
fees. These fees are recorded as revenues. LOE net of this recovery
was $1.91 per Mcfe. Pipeline operating expense totaled $1.7
million, a 5.0% decrease from the prior-year quarter.
General and administrative expenses totaled $4.9 million, a 33%
decrease from the prior-year period as accounting, tax, audit and
financial advisory fees decreased $1.6 million and legal fees
decreased $900,000 from the year-ago period. These reductions
resulted from efficiencies achieved through the recombination of
PostRock's predecessors in March 2010 and its re-capitalization in
September.
In the quarter, the Company added $9.5 million to its litigation
reserves, bringing the total to $10.5 million. This amount is the
current estimated exposure relating to royalty litigation pending
in Oklahoma and Kansas. These lawsuits represent the last known
significant contingent liability remaining from the predecessor
entities. The Company will continue to vigorously defend these
lawsuits.
Debt and Liquidity
At March 31, 2011, PostRock had $203.9 million of outstanding
debt. This consisted of $181.5 million under its Borrowing Base
Facility, $12.0 million of Secured Pipeline debt and $10.4 million
on its non-recourse QER Loan. The Secured Pipeline Loan will be
paid off in equal installments over the next twelve months.
Including $1.5 million of outstanding letters of credit available
liquidity at March 31, 2011 approximated $42.0 million.
Amounts available under the Borrowing Base Facility will be
redetermined as of March 31, 2011. The redetermination will be
effective July 31, 2011. The borrowing base is determined based on
the value of oil and gas reserves using its lenders' price
forecasts. Primarily due to a reduction in lender price forecasts
since the last redetermination, a reduction of the borrowing base
is anticipated. At March 31, 2011, the Company was in compliance
with all financial covenants.
|
December 31,
2010 |
March 31, 2011 |
|
(in thousands) |
Cash and equivalents |
$ 730 |
$ 11 |
|
|
|
Long-term debt (including current
maturities) |
|
|
Borrowing Base Facility |
$ 187,000 |
$ 181,500 |
Secured Pipeline Loan |
13,500 |
12,000 |
QER Loan |
19,721 |
10,423 |
Total |
$ 220,221 |
$ 203,923 |
|
|
|
Redeemable Preferred Stock |
$ 50,622 |
$ 52,091 |
Stockholders' deficit |
$ (12,792) |
$ (17,822) |
Total capitalization |
$ 258,051 |
$ 238,192 |
Hedges
PostRock holds natural gas hedges covering 37.1 Mmcf a day for
the remaining three quarters of 2011 at an average price of $6.27
per Mcf. The Company also holds hedges covering 30.1 Mmcf a day in
2012 at an average price of $6.56 per Mcf and 24.7 Mmcf a day in
2013 at an average price of $6.58 per Mcf. The fair value of the
Company's hedges at March 31, 2011 was $50.7 million. The fair
value of the hedges changes daily based on oil and gas price
fluctuations.
Capital Expenditures
In the quarter, capital expenditures totaled $8.9 million, a
$900,000 increase from the prior-year period. The Company spent
$8.2 million on production, $500,000 on equipment and maintenance
and $200,000 on land.
Shelf Registration Statement
On May 3, 2011, PostRock filed a $100 million universal shelf
registration statement on Form S-3 with the Securities and Exchange
Commission (SEC). Once declared effective by the SEC, the Company
may issue securities under the shelf in one or more offerings over
a 12 consecutive month period having a total value not to exceed
one-third of the Company's equity public float. At present, that
limit approximates $21.7 million.
The shelf registration statement is intended to give PostRock
the flexibility to sell securities if and when market conditions
and circumstances warrant, to provide funding for growth or other
strategic initiatives, for debt reduction or refinancing and for
other general corporate purposes. The actual amount and type of
securities, or combination of securities, and the terms of those
securities, will be determined at the time of sale, if such sale
occurs. If and when a particular series of securities is offered,
the prospectus supplement relating to that offering will set forth
the intended use of net proceeds.
Management Comment
Commenting on the results, David C. Lawler, President and Chief
Executive Officer, said: "While we found it necessary to reserve a
substantial amount in the quarter related to royalty litigation,
our core business performance was solid. In January, we closed on
the second of an anticipated three phase sale of certain
Appalachian assets to Magnum Hunter. The proceeds were used to
further reduce the outstandings under our non-recourse QER loan.
This sale was has allowed us to refocus our attention on the
Cherokee Basin. We hope to close the third phase in the second
quarter and to eliminate the remaining non-recourse loan
balance."
"During the first quarter, we drilled and connected 39
development wells, completed 9 new wells drilled in prior periods,
recompleted or connected 20 wells and returned 30 wells to
production in the Cherokee Basin. Our average cost for a new
development well was $142,000, a 9% decrease from the fiscal year
2010 average of $156,000. In aggregate, the average new
development well is expected to provide a 24% rate of return and is
currently producing at above expected rates. While initial results
are encouraging, it is too early to tell if production from the new
wells will continue to rise and reach the anticipated peak.
However, if our development continues to meet or exceed
expectations, we would expect to see production grow
year-over-year."
"Gross margin of our pipeline operations improved by 63% from
the year-ago period to $1.5 million as a result of our focused
efforts to increase utilization, add new transportation contracts
and reduce operating costs. We believe our improved credit
profile, expanding services, cost reductions and potential exposure
to the emerging Mississippian play in north central Oklahoma will
continue to attract additional customers and new transportation
contracts to provide a consistent stream of revenue."
PostRock Energy Corporation is engaged in the acquisition,
exploration, development, production and transportation of oil and
natural gas, primarily in the Cherokee Basin of Kansas and
Oklahoma. The Company owns and operates over 3,000 wells and
nearly 2,200 miles of gas gathering lines in the Basin. It
also owns a 1,120 mile interstate natural gas pipeline, which
transports natural gas from northern Oklahoma and western Kansas to
Wichita and Kansas City
PostRock's logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7221.
Webcast and Conference Call
PostRock will host its quarterly webcast and conference call
tomorrow, Thursday, May 12, 2011 at 10:00 a.m. Central Time. The
live webcast will be accessible on the 'Investors' page at
www.pstr.com, where it will also be available for replay. The
conference call number for participation is 866-516-1003.
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 the
Company 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 the Company's filings with the Securities and Exchange
Commission, including risk factors listed in the Company's Annual
Report on Form 10-K and other filings with the SEC. The Company's
filings with the SEC may be found at www.pstr.com or www.sec.gov.
By making these forward-looking statements, the Company 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
income taxes; interest expense, net; depreciation, depletion and
amortization; other (income) expense; change in fair value of
derivative instruments; loss (gain) on sale of assets; stock based
compensation and impairments. The following table represents a
reconciliation of net income (loss) to EBITDA and adjusted EBITDA
for the period presented:
|
|
|
|
(Predecessors) |
|
|
Three Months Ended March 31,
2010 |
Three Months Ended March 31,
2011 |
|
(in
thousands) |
|
|
|
Net income (loss) attributable to controlling
interest |
$ 28,788 |
$ (3,861) |
Adjusted for: |
|
|
Net income (loss) attributable to
non-controlling interest |
9,958 |
-- |
Interest expense, net |
7,434 |
2,689 |
Depreciation, depletion, accretion
and amortization |
5,267 |
6,891 |
EBITDA |
$ 51,447 |
$ 5,719 |
Other (income) expense, net |
113 |
(334) |
Unrealized (gain) loss from derivative
financial instruments |
(37,012) |
10,057 |
Stock based compensation |
891 |
299 |
Loss (Gain) on sale of assets |
172 |
(9,922) |
Adjusted EBITDA |
$ 15,611 |
$ 5,819 |
Legal expense |
1,728 |
9,743 |
Other addbacks |
1,172 |
17 |
Excluded subsidiaries |
(660) |
70 |
Debt Covenant EBITDA |
$ 17,851 |
$ 15,649 |
Although adjusted EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting
principles, or GAAP, management considers it an important measure
of performance. Adjusted EBITDA is not a substitute for the GAAP
measures of earnings or cash flow and is not necessarily a measure
of the Company's ability to fund its 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 business to the extent that an
entity incurs debt, (b) depreciation, depletion, amortization and
accretion, which are necessary elements of any business that uses
capital assets, (c) impairments of oil and gas properties, which
may at times be a material element of an independent oil company's
business, and (d) income taxes, which may become a material element
of the Company'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 |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(in thousands, except
per share data) |
(Unaudited) |
|
|
|
|
|
(Predecessors) |
|
|
|
January 1, 2010 to March 5,
2010 |
March 6, 2010 to March 31,
2010 |
Three Months Ended March 31,
2011 |
|
|
Revenues |
|
|
|
Oil and gas sales |
$ 18,659 |
$ 8,471 |
$ 20,237 |
Gathering |
1,076 |
430 |
1,356 |
Pipeline |
1,749 |
927 |
3,173 |
Total revenues |
21,484 |
9,828 |
24,766 |
Costs and expenses |
|
|
|
Production expense |
8,645 |
4,118 |
12,434 |
Pipeline expense |
1,110 |
637 |
1,660 |
General and administrative |
5,735 |
1,584 |
4,888 |
Litigation reserve |
-- |
1,570 |
9,500 |
Depreciation, depletion and
amortization |
4,164 |
1,103 |
6,891 |
(Gain) loss from sale of
assets |
-- |
172 |
(9,922) |
Total |
19,654 |
9,184 |
25,451 |
|
|
|
|
Operating income |
1,830 |
644 |
(685) |
|
|
|
|
Other income (expense) |
|
|
|
Gain (loss) from derivative financial
instruments |
25,246 |
18,573 |
(821) |
Other income (expense), net |
(4) |
(109) |
334 |
Interest expense, net |
(5,336) |
(2,098) |
(2,689) |
Total other income (expense) |
19,906 |
16,366 |
(3,176) |
|
|
|
|
Income before income taxes and
non-controlling interests |
21,736 |
17,010 |
(3,861) |
Income taxes |
-- |
-- |
-- |
Net income |
21,736 |
17,010 |
(3,861) |
Net income attributable to non-controlling
interest |
(9,958) |
-- |
-- |
Net income attributable to controlling
interest |
$ 11,778 |
$ 17,010 |
$ (3,861) |
Preferred dividends |
-- |
-- |
(1,859) |
Accretion of redeemable preferred stock |
-- |
-- |
(355) |
Net income (loss) available to common
stock |
$ 11,778 |
$ 17,010 |
$ (6,075) |
Net income (loss) per common share |
|
|
|
Basic |
$ 0.37 |
$ 2.12 |
$ (0.74) |
Diluted |
$ 0.36 |
$ 2.04 |
$ (0.74) |
Weighted average shares outstanding |
|
|
|
Basic |
32,137 |
8,038 |
8,256 |
Diluted |
32,614 |
8,348 |
8,256 |
Dilution
At March 31, 2011, we had 8,290,482 shares of common stock
issued and outstanding. In addition, White Deer holds warrants
to purchase 19,875,191 shares of common stock at a weighted average
exercise price of $3.21, and we have 392,000 unvested restricted
stock units outstanding. Consequently, if these shares were
included as outstanding, our outstanding shares would be 28,557,673
of which White Deer's warrants represent approximately 70%. Because
we recorded a loss for the quarter, the warrants and restricted
stock units would be antidilutive so they are excluded from our
diluted share calculations. By exercising their warrants,
White Deer can benefit from their respective percentage of all of
our profits and growth. In addition, if White Deer begins to sell
significant amounts of our common stock, or if public markets
perceive that they may sell significant amounts of our common
stock, the market price of our common stock may be significantly
impacted.
|
|
|
POSTROCK ENERGY
CORPORATION |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(in
thousands) |
|
|
|
|
December 31,
2010 |
March 31, 2011 |
|
|
(Unaudited) |
ASSETS |
Current assets |
|
|
Cash and cash equivalents |
$ 730 |
$ 11 |
Accounts receivable — trade,
net |
11,845 |
10,494 |
Other receivables |
1,153 |
994 |
Inventory |
6,161 |
5,817 |
Other assets |
2,799 |
3,960 |
Derivative financial
instruments |
31,588 |
29,588 |
Total |
54,276 |
50,864 |
Oil and gas properties, full
cost accounting, net |
116,488 |
118,451 |
Pipeline assets, net |
61,148 |
60,843 |
Other property and equipment, net |
15,964 |
14,946 |
Other, net |
9,303 |
10,306 |
Derivative financial instruments |
39,633 |
32,474 |
Total assets |
$ 296,812 |
$ 287,884 |
|
|
|
LIABILITIES AND
EQUITY |
Current liabilities |
|
|
Accounts payable |
$ 7,030 |
$ 8,583 |
Revenue payable |
5,898 |
5,123 |
Accrued expenses |
7,190 |
6,761 |
Litigation reserve |
1,020 |
10,520 |
Current portion of long-term debt |
10,500 |
12,000 |
Derivative financial
instruments |
3,792 |
4,705 |
Total |
35,430 |
47,692 |
Derivative financial
instruments |
6,681 |
6,666 |
Asset retirement obligations |
7,150 |
7,334 |
Long-term debt |
209,721 |
191,923 |
Total liabilities |
258,982 |
253,615 |
|
|
|
Commitments and contingencies |
|
|
Series A Cumulative Redeemable Preferred
Stock |
50,622 |
52,091 |
|
|
|
Stockholders' Equity |
|
|
Preferred stock |
2 |
2 |
Common stock |
82 |
83 |
Additional paid-in capital |
377,538 |
376,368 |
Accumulated deficit |
(390,414) |
(394,275) |
Total deficit |
(12,792) |
(17,822) |
Total liabilities and equity |
$ 296,812 |
$ 287,884 |
|
|
|
|
POSTROCK ENERGY
CORPORATION |
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(in
thousands) |
(Unaudited) |
|
|
|
|
|
(Predecessors) |
|
|
|
January 1, 2010 to March 5,
2010 |
March 6, 2010 to December 31,
2010 |
Three Months Ended March 31,
2011 |
|
|
|
|
Cash flows from operating
activities |
|
|
|
Net income (loss) |
$ 21,736 |
$ 17,010 |
$ (3,861) |
Adjustments to reconcile net income
(loss) to cash provided by operations |
|
|
|
Depreciation, depletion and
amortization |
4,164 |
1,103 |
6,891 |
Stock-based compensation |
808 |
83 |
299 |
Amortization of deferred loan
costs |
2,094 |
396 |
421 |
Change in fair value of derivative
financial instruments |
(21,573) |
(15,439) |
10,057 |
Ltigation reserve |
-- |
1,450 |
9,500 |
Loss (gain) on disposal of property
and equipment |
-- |
172 |
(9,922) |
Other non-cash changes to net
income |
-- |
111 |
(291) |
Change in assets and
liabilities |
|
|
|
Receivables |
777 |
481 |
1,535 |
Payables |
743 |
1,460 |
187 |
Other |
468 |
(2,553) |
(2,227) |
Cash flows from operating
activities |
9,217 |
4,274 |
12,589 |
|
|
|
|
Cash flows from investing
activities |
|
|
|
Restricted cash |
(1) |
155 |
28 |
Proceeds from sale of oil and gas
properties |
-- |
-- |
5,763 |
Equipment, development, leasehold
and pipeline |
(2,282) |
(2,241) |
(8,530) |
Cash flows from investing
activities |
(2,283) |
(2,086) |
(2,739) |
|
|
|
|
Cash flows from financing
activities |
|
|
|
Proceeds from debt |
900 |
500 |
-- |
Repayments of debt |
(41) |
(4,004) |
(10,569) |
Cash flows from financing
activities |
859 |
(3,504) |
(10,569) |
Net increase (decrease) in
cash |
7,793 |
(1,316) |
(719) |
Cash and equivalents-beginning of
period |
20,884 |
28,677 |
730 |
Cash and equivalents-end of
period |
$ 28,677 |
$ 27,361 |
$ 11 |
CONTACT: Company Contacts:
Jack Collins
Chief Financial Officer
(405) 702-7460
North Whipple
Manager, Corporate Development & Investor Relations
(405) 702-7423
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