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8-K - FORM 8-K - PostRock Energy Corp | h82223e8vk.htm |
Exhibit 99.1
For Immediate Release
PostRock Reports First Quarter Results
OKLAHOMA CITY May 11, 2011 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 PostRocks 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, | March 31, | |||||||
2010 | 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 Companys 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 Companys 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
PostRocks 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 Companys
filings with the Securities and Exchange Commission, including risk factors listed in the Companys
Annual Report on Form 10-K and other filings with the SEC. The Companys 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.
Company Contacts: |
||
Jack Collins
|
North Whipple | |
Chief Financial Officer
|
Manager, Corporate Development & Investor Relations | |
(405) 702-7460
|
(405) 702-7423 |
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 | Three Months | |||||||
Ended March 31, | Ended March 31, | |||||||
2010 | 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 Companys 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 companys business, and (d) income taxes, which may become
a material element of the Companys 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 PostRocks business.
POSTROCK ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
(Predecessors) January 1, |
March 6, 2010 | Three Months | ||||||||||
2010 to March | to March 31, | Ended March | ||||||||||
5, 2010 | 2010 | 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 Deers 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)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, | March 31, | |||||||
2010 | 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)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
(Predecessors) | ||||||||||||
January 1, 2010 | March 6, 2010 | Three Months | ||||||||||
to March 5, | to December 31, | Ended March 31, | ||||||||||
2010 | 2010 | 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 | |||||||
Litigation reserve |
| 1,450 | 9,500 | |||||||||
Loss (gain) on disposal of property and equipment |
| 172 | (9,922 | ) | ||||||||
Other non-cash changes to net income (loss) |
| 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,
developement, 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 | ||||||