updated 11/10/2010 4:45:51 PM ET 2010-11-10T21:45:51

OKLAHOMA CITY, Nov. 10, 2010 (GLOBE NEWSWIRE) -- PostRock Energy Corporation (Nasdaq:PSTR) today announced its results for the third quarter of 2010. Revenues increased $1.4 million, or 5.7%, to $25.3 million during the quarter. The increase was primarily due to higher realized gas prices offset by lower production volume and a decline in pipeline revenue. Production volumes fell to 53.9 Mcfe a day, a 10% decline from the prior year period primarily due to a lack of drilling in late 2008 and 2009. With increasing capital expenditures starting in the second quarter of 2010, production has stabilized at approximately 54 Mcfe a day. Average prices for the period, excluding realized hedging gains, increased to $4.33 per Mcfe. Realized hedging gains in the quarter decreased to $6.8 million from $19.6 million a year earlier. Pipeline revenue decreased $1.8 million, or 31.8%, to $3.8 million primarily due to the loss of a significant interstate pipeline customer in late 2009.

Production costs, including lease operating expenses ("LOE"), severance and ad valorem taxes, decreased $3.1 million, or 35.4%, to $5.6 million. The decline was primarily due to $2.7 million lower ad valorem taxes and $0.6 million lower LOE offset by $0.2 million higher severance taxes. The reduction in ad valorem taxes reflects reduced tax assessments. LOE decreased primarily as a result of improved labor utilization. Total production costs were $1.14 per Mcfe for the three months ended September 30, 2010, a sharp drop from the $1.59 per Mcfe reported in the prior year. Pipeline operating expense decreased $1.5 million, or 18.8%, to $6.7 million during the three months ended September 30, 2010. Contributing to the decrease in operating expense were lower ad valorem taxes. General and administrative expenses fell 58.9% in the quarter to $4.7 million. The decline reflected the absence of the reaudit and the cost of recombining our predecessor entities along with the related fees to financial advisors. 

At September 30, 2010, the Company had natural gas hedges in places covering 44.5 Mmcf a day for the remainder of 2010 at an average price of $6.14 per Mcf. It also held hedges covering the majority of its proved developed producing reserves through 2013. After the end of the quarter, new crude oil hedges were entered into covering 48,000 barrels of 2011 production at an average price of $85.90 a barrel and 42,000 barrels of 2012 production at an average price of $87.90. Hedging positions as of September 30, 2010, are shown below.

At September 30, 2010, PostRock had $248.8 million of outstanding debt and $34.8 million of available liquidity. In the recent refinancing, the current portion of long-term debt was reduced from $305.2 million at June 30th to $9.0 million at September 30th. The current portion represents the next twelve months of amortization on the Pipeline Loan. The first monthly payment on the Loan was made in October. At September 30, 2010, the Company was in compliance with all financial covenants. 

In the first nine months of 2010, capital expenditures totaled $22.9 million, a sharp increase from the $6.4 million spent in the prior year period. Expenditures in 2010 included $17.2 million spent in the Cherokee Basin, $3.4 million in Appalachia and $2.3 million on our interstate pipeline and miscellaneous other items.

Commenting, David C. Lawler, President and Chief Executive Officer of the Company, said, "During the third quarter we successfully recapitalized the Company. With $60 million of new capital from White Deer Energy, we reduced debt by $72.7 million over the quarter, restructured our remaining indebtedness and initiated an effort to sell most of our Appalachian assets. The restructuring eliminated our liquidity issues, greatly reduced our borrowing costs and freed us to pursue a more aggressive capital expenditure program.

"Also during the quarter, we drilled and completed 27 new wells and returned 42 wells to production in the Cherokee Basin, bringing our year to date totals to 141 and 232, respectively. Although the majority of our project work was delivered on schedule and under budget, a fair number of wells completed in Q1 and Q2 did not achieve peak production rate as expected. We have conducted a series of detailed engineering studies to determine the cause of the underperformance, and learned that our historical approach to zonal fracture treatments is too standardized, and not as transferrable across the basin as we once believed. On future development projects, custom fracture treatments tailored to zone and region will be employed to maximize the effectiveness of each completion stage. We will keep you posted on our progress as we continue to develop and refine our fracture treatment program.

"At long last, we are positioned to create meaningful value for our stockholders and are optimistic about the Company's potential. As we develop our 2011 budget, our focus will be on efficiently growing reserves and production, lowering costs and further reducing debt. We look forward to keeping you abreast of our progress in the year ahead."

Webcast and Conference Call

PostRock will host its quarterly webcast and conference call tomorrow, Thursday, November 11, 2010 at 9:00 a.m. (Central Time). The webcast will be accessible on the 'Investors' page at www.pstr.com . Conference call numbers for participation are 866-516-1003 in the U.S. and 760-536-8545 internationally.  The webcast will be available for replay on the Company's website following the conference call.

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 2,800 wells and nearly 2,200 miles of gas gathering lines in the Basin. It also owns a 1,100 mile of interstate gas pipeline systems serving parts of Oklahoma, Kansas and Missouri.

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 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. You can find the Company's filings with the SEC at www.pstr.com or www.sec.gov. By making these forward-looking statements, the Company's 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 (recovery) from misappropriation of funds; stock based compensation and impairments. The following table represents a reconciliation of net income (loss) to EBITDA and adjusted EBITDA for the period presented:

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.

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