PostRock Energy Corporation (Nasdaq:PSTR) today
announced its results for the quarter ended March 31, 2014.
Highlights
- Revenue totaled $21.8 million, up 36% from the prior-year
period.
- Production, using a 19:1 oil-to-gas economic equivalency,
averaged 47.5 MMcfe per day, down 2% from the prior-year period due
primarily to adverse weather in the quarter.
- Oil production averaged 595 barrels a day, a 64% increase from
the prior-year period.
- Oil contributed 23% of revenues, compared to 18% in the
prior-year period.
- A settlement was reached with Constellation Energy Partners,
LLC ("CEP") and Sanchez Energy Partners I, L.P. ("SEPI"). To date,
the Company has received $9.1 million pursuant to the settlement
and hopes to recover an additional $12.5 million by year end.
- April's oil production was 695 net barrels a day, or 17% above
the first quarter's average.
- By April 30, debt had decreased $9.0 million from its March 31
level to $86.0 million.
Operational Discussion
Winter Impact on Production–Oil and gas
production was negatively impacted, primarily in the Cherokee
Basin, from December through early March due to the extreme winter.
The Company estimates that first quarter production was reduced by
approximately 1.1 net MMcf per day and 40 net barrels of oil per
day, or 1.9 net MMcfe per day at a 19:1 economic equivalency, due
to weather. By April 30, gas production had nearly returned to
expected rates, and oil production was above expectations. On an
economic equivalency basis, April production averaged 50.1 net
MMcfe per day, a 5% increase over the first quarter and 2% above
the year earlier period.
Central Oklahoma – Oil production for the first
quarter averaged 356 net barrels per day. While modest, this was a
120% increase over the prior-year period. During the quarter, the
Company worked over three wells targeting the Hunton Carbonate.
Since March 31, an additional seven workovers have been performed.
Initial results have been positive, as the initial eight
development workovers, now online, have increased production by
approximately 190 net barrels of oil per day, and, collectively,
are expected to generate in excess of 100% IRR. As a result,
production for the month of April averaged 461 net barrels a day,
29% higher than the first quarter's average. The remaining two
workovers were put on production on May 7. The Company is also
currently drilling a horizontal well targeting the Hunton
formation.
On January 31, the Company purchased additional interests in
producing properties it acquired in November 2013. The additional
interests were purchased for $1.8 million, including $900,000 cash
and 725,806 shares of common stock.
For the balance of the year, the Company plans to spend $20
million on new horizontal and vertical wells targeting multiple
formations, including the Hunton Carbonate and the Woodford Shale.
We also expect to perform additional development workovers
throughout the year.
Cherokee Basin–Gas and oil production for the
first quarter averaged 34.8 net MMcf per day and 212 net barrels
per day, respectively. On an economic equivalency basis, production
declined 9% from the prior-year period to an average of 38.8 net
MMcfe per day. The decline in gas volume was largely due to weather
and the lack of ongoing development in the Basin.
One of the Company's most significant and challenging projects
over the last 18 months has been the reconfiguration of its
Cherokee Basin compression system. The project was designed to
improve energy efficiency and reduce gathering costs. The project
was completed on May 6 at a total cost of $8.5 million. It is
expected to result in annual rental savings of $4.6 million and to
reduce fuel consumption by approximately 1.6 MMcf a day, which
should add approximately $2.6 million in revenues and cash flow on
an annual basis at current gas prices.
Financial Discussion
Revenues increased 36% from the prior-year period to $21.8
million. Despite lower volumes, gas revenue increased 28% to $16.0
million, due to a 47% increase in realized prices to $4.90 per Mcf.
Oil revenue increased 73% to $5.1 million, as production grew 64%
and the realized price of $95.27 per barrel was 5% higher than the
prior-year period. Gas gathering revenue increased 12% to $735,000,
as higher gas pricing more than offset lower third-party
volumes.
Total production costs, which consist of lease operating
expenses ("LOE"), gathering expenses, and severance and ad valorem
taxes ("production taxes") increased 5% from the prior-year period
to $10.3 million. The increase was largely due to lower capitalized
labor and equipment costs of $666,000, as a result of a lower
number of development projects in 2014. Also contributing to the
increase were higher repair and maintenance costs of $320,000,
largely due to the wells drilled in the Company's 2013 development
program which increased well count by approximately 5%, and higher
production taxes of $177,000 due to higher gas pricing and
increased oil production. Partially offsetting the increase were
compressor rental savings resulting from the compressor
reconfiguration project, of approximately $600,000, coupled with a
reduction of labor and equipment costs of $250,000.
General and administrative expenses increased 10%, or $363,000,
from the prior-year period to $3.9 million. Excluding expenses of
$29,000 associated with the CEP litigation and a one-time payroll
tax expense of $62,000 for executive deferred compensation, G&A
increased by 8%. Of the increase, $144,000 was related to higher
licensing and implementation costs for new accounting, planning and
technical software. Additionally, $128,000 was due to an increase
in wages as the average employee headcount at the Company's
headquarters increased by five due to the Company's production and
leasehold acquisitions in Oklahoma. Going forward, both
license/software implementation costs and wages should moderate as
expected system cost savings and the impact of recent employee
departures are realized throughout the year.
Due to the accounting treatment of the Series A mandatorily
redeemable preferred stock, an additional $2.6 million of non-cash
interest expense was added during the quarter. Excluding this
expense, net interest expense was $965,000, an increase of 50% over
the prior-year period, as debt outstanding increased.
The Company had a $2.5 million realized hedging loss in the
quarter compared to a loss of $873,000 in the prior-year period, as
a result of rising gas and oil prices.
Due to appreciation of the market price of CEP units during the
first quarter, a mark-to-market gain of $1.6 million was
recorded.
Hedges
The Company's natural gas and crude oil swaps cover an average
of 28.2 MMcf and 317 barrels per day for the remaining nine months
of 2014 at weighted average prices of $4.01 per Mcf and $95.19 per
barrel. Compared to the Company's 2014 PDP production forecast and
total proved reserves production forecast in its December 31, 2013
reserve report, this represents approximately 82% and 81% of gas
production, respectively, and 64% and 49% of oil production,
respectively. The following table summarizes the Company's
derivative positions at March 31, 2014. The Company has no Southern
Star basis swaps outstanding.
|
April - Dec. |
|
|
|
2014 |
2015 |
2016 |
NYMEX Gas Swaps |
|
|
|
Volume (MMBtu) |
7,745,679 |
8,983,560 |
7,814,028 |
Weighted Average Price ($/MMBtu) |
$ 4.01 |
$ 4.01 |
$ 4.01 |
NYMEX Oil Swaps |
|
|
|
Volume (Bbls) |
87,057 |
71,568 |
65,568 |
Weighted Average Price ($/Bbl) |
$ 95.19 |
$ 92.73 |
$ 90.33 |
Debt
At March 31, $95.0 million was borrowed under the revolving
credit facility, an increase of $3.0 million from year end. As of
April 30, the Company had $86.0 million drawn on the facility and
$1.4 million in letters of credit outstanding, resulting in $27.6
million remaining available on the facility. The initial payment of
$8.3 million received from the CEP lawsuit settlement, discussed
below, was used to reduce debt.
At March 31, PostRock elected to pay in-kind its quarterly
dividend on its Series A preferred stock, increasing the
liquidation value of the preferred by $3.1 million to $105.9
million. As part of the dividend, White Deer also received 2.4
million additional warrants with a weighted average strike price of
$1.27 a share. At March 31, White Deer held a total of 22.6 million
warrants exercisable at an average price of $1.51 a share and 11.0
million common shares.
|
December
31, |
March
31, |
|
2013 |
2014 |
Capitalization |
(in
thousands) |
Long-term debt |
$ 92,000 |
$ 95,000 |
Mandatorily redeemable preferred stock |
64,523 |
64,933 |
Redeemable preferred stock |
23,828 |
26,098 |
Stockholders' deficit |
(30,034) |
(34,715) |
Total capitalization |
$ 150,317 |
$ 151,316 |
Capital Expenditures
During the quarter, capital expenditures totaled $6.8 million.
This included $2.0 million spent on development projects which
include the three Central Oklahoma development workovers.
Maintenance related projects, primarily the Company's compressor
reconfiguration project, were $2.7 million, producing property
acquisition costs in Central Oklahoma, discussed above, were $1.8
million and leasehold costs were approximately $300,000.
CEP Settlement
On March 31, a settlement of the Company's CEP lawsuit was
reached. The Company expects to recover a target of $21.6 million.
At the time of settlement, all of the Company's CEP Class A units
and 414,938 Class B units were transferred to SEPI. Simultaneously,
PostRock received an initial payment of approximately $8.3 million.
Over the next nine to twelve months, the Company intends to sell
its remaining 5,503,956 Class B units in orderly block and other
market transactions, subject to minimum price, volume and other
limitations set forth in the settlement agreement. As of April 30,
the Company had sold 291,767 Class B units at an average price of
$2.52.
Webcast and Conference Call
PostRock will host a webcast and conference call tomorrow, May
14, 2014, at 10:00 a.m. Central Time. The 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.
PostRock Energy Corporation is engaged in the acquisition,
exploration, development, production and gathering of crude oil and
natural gas. Its primary production activity is focused in the
Cherokee Basin, a 15-county region in southeastern Kansas and
northeastern Oklahoma, and Central 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 and operates minor oil and gas
producing properties in the Appalachian Basin.
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
such expectations will prove correct. Actual results may differ
materially due to a variety of factors, some of which may not be
foreseen. These risks and other risks are detailed in the Company's
filings with the Securities and Exchange Commission, including risk
factors listed in the Annual Report on Form 10-K and other filings.
The Company's SEC filings 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.
Production for the Current and Prior-Year
Periods
The following table represents total period production for the
current and prior-year periods:
|
Total Period
Production |
|
Three Month Ended
March 31, |
|
2013 |
2014 |
|
|
|
Production |
|
|
Natural gas (MMcf) |
|
|
Cherokee Basin |
3,587 |
3,131 |
Central Oklahoma |
— |
9 |
Appalachian Basin |
133 |
118 |
Total natural gas |
3,720 |
3,258 |
Crude oil (Bbls) |
|
|
Cherokee Basin |
13,782 |
19,061 |
Central Oklahoma |
14,606 |
32,056 |
Appalachian Basin |
4,291 |
2,469 |
Total crude oil |
32,679 |
53,586 |
Total Production - Natural Gas
Equivalent (MMcfe) |
|
|
Economic equivalent, 19:1 oil-to-gas basis
(1) |
|
|
Cherokee Basin |
3,849 |
3,493 |
Central Oklahoma |
278 |
618 |
Appalachian Basin |
215 |
165 |
Total natural gas equivalent |
4,342 |
4,276 |
Energy equivalent, 6:1 oil-to-gas basis
(2) |
|
|
Cherokee Basin |
3,670 |
3,245 |
Central Oklahoma |
88 |
201 |
Appalachian Basin |
159 |
133 |
Total natural gas equivalent |
3,917 |
3,579 |
|
|
|
Realized price (excluding hedges) |
|
|
Crude oil (per Bbl) |
$ 90.49 |
$ 95.27 |
Natural gas (per Mcf) |
$ 3.34 |
$ 4.90 |
|
|
|
(1) Oil and natural gas are converted
at the rate of one barrel equals 19 Mcfe based upon the approximate
revenue per unit of production (Mcf or Bbl) realized during the
period; $95.27 per barrel of oil and $4.90 per Mcf of gas factors
down to a 19:1 ratio. |
(2) Oil and natural gas are converted
at the rate of one barrel equals six Mcfe based upon the
approximate relative energy content of oil to natural gas. |
Reconciliation of Non-GAAP Financial
Measures
The following table represents a reconciliation of net income
(loss) to EBITDA and adjusted EBITDA, as defined, for the periods
presented.
|
Three Months
Ended March 31, |
|
2013 |
2014 |
|
(in
thousands) |
Net (loss) |
$ (7,894) |
$ (6,323) |
Adjusted for: |
|
|
Interest expense, net |
641 |
3,530 |
Depreciation, depletion and
amortization |
6,428 |
6,902 |
EBITDA |
$ (825) |
$ 4,109 |
Other income, net |
(13) |
— |
Gain from equity investment |
(3,582) |
(1,619) |
Unrealized loss from derivative financial
instruments |
6,248 |
2,608 |
(Gain) loss on disposal of assets |
31 |
(19) |
Non-cash compensation |
928 |
979 |
Acquisition costs |
— |
34 |
CEPM legal fees |
— |
29 |
Adjusted EBITDA |
$ 2,787 |
$ 6,121 |
Although EBITDA and adjusted EBITDA are not measures of
performance calculated in accordance with generally accepted
accounting principles ("GAAP"), management considers them important
measures of performance. Neither EBITDA nor adjusted EBITDA are a
substitute for the GAAP measures of earnings or cash flow or
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. EBITDA and adjusted EBITDA have material
limitations as a performance measure because they exclude, among
other things, (a) interest expense, which is a necessary element of
business to the extent that an entity incurs debt, (b)
depreciation, depletion and amortization, 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 their limitations, neither EBITDA nor
adjusted EBITDA should 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 |
(Unaudited)
|
|
Three Months
Ended March 31, |
|
2013 |
2014 |
|
(in thousands, except
per share data) |
|
|
|
Revenues |
|
|
Natural gas sales |
$ 12,442 |
$ 15,963 |
Crude oil sales |
2,957 |
5,105 |
Gathering |
654 |
735 |
Total |
16,053 |
21,803 |
Costs and expenses |
|
|
Production |
9,775 |
10,272 |
General and administrative |
3,546 |
3,911 |
Depreciation, depletion and
amortization |
6,428 |
6,902 |
(Gain) loss on disposal of assets |
31 |
(19) |
Acquisition costs |
— |
34 |
Total |
19,780 |
21,100 |
Operating income (loss) |
(3,727) |
703 |
Other income (expense) |
|
|
Realized loss from derivative financial
instruments |
(873) |
(2,507) |
Unrealized loss from derivative financial
instruments |
(6,248) |
(2,608) |
Gain on investment |
3,582 |
1,619 |
Other income (expense), net |
13 |
— |
Interest expense, net |
(641) |
(3,530) |
Total |
(4,167) |
(7,026) |
Loss before income taxes |
(7,894) |
(6,323) |
Income taxes |
— |
— |
Net loss |
(7,894) |
(6,323) |
Preferred stock dividends |
(2,740) |
(929) |
Accretion of redeemable preferred stock |
(778) |
(370) |
Net loss attributable to common
stockholders |
$ (11,412) |
$ (7,622) |
Net loss per common share |
|
|
Basic loss per share |
$ (0.50) |
$ (0.25) |
Diluted loss per share |
$ (0.50) |
$ (0.25) |
Weighted average common shares
outstanding |
|
|
Basic |
22,763 |
31,015 |
Diluted |
22,763 |
31,015 |
|
|
PostRock Energy
Corporation |
Condensed Consolidated
Balance Sheets |
|
|
December 31, |
March 31, |
|
2013 |
2014 |
|
|
(Unaudited) |
|
(in
thousands) |
ASSETS |
|
|
Current assets |
|
|
Cash and equivalents |
$ 37 |
$ 151 |
Restricted cash |
— |
23 |
Accounts receivable—trade, net |
7,722 |
9,332 |
Other receivables |
194 |
8,446 |
Inventory |
886 |
838 |
Other |
820 |
1,753 |
Derivative financial instruments |
54 |
4 |
Total |
9,713 |
20,547 |
Oil and natural gas properties, full cost
method of accounting, net |
141,911 |
142,462 |
Other property and equipment, net |
14,180 |
13,780 |
Investment, net |
14,588 |
7,873 |
Derivative financial instruments |
652 |
469 |
Other, net |
2,038 |
1,920 |
Total assets |
$ 183,082 |
$ 187,051 |
LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
|
Current liabilities |
|
|
Accounts payable |
$ 7,406 |
$ 7,449 |
Revenue payable |
4,397 |
4,921 |
Accrued expenses and other |
4,055 |
3,881 |
Derivative financial instruments |
1,937 |
4,917 |
Total |
17,795 |
21,168 |
Derivative financial instruments |
1,796 |
1,191 |
Long-term debt |
92,000 |
95,000 |
Mandatorily redeemable preferred stock |
64,523 |
64,933 |
Asset retirement obligations |
13,099 |
13,345 |
Other |
75 |
31 |
Total liabilities |
189,288 |
195,668 |
Commitments and contingencies |
|
|
Series A Cumulative Redeemable Preferred
Stock |
23,828 |
26,098 |
Stockholders' deficit |
|
|
Preferred stock |
1 |
1 |
Common stock |
299 |
316 |
Additional paid-in capital |
397,170 |
399,900 |
Treasury stock, at cost |
(512) |
(1,617) |
Accumulated deficit |
(426,992) |
(433,315) |
Total stockholders' deficit |
(30,034) |
(34,715) |
Total liabilities and stockholders'
deficit |
$ 183,082 |
$ 187,051 |
|
|
PostRock Energy
Corporation |
Condensed Consolidated
Statements of Cash Flows |
(Unaudited) |
|
|
Three Months
Ended March 31, |
|
2013 |
2014 |
|
(in
thousands) |
Cash flows from operating activities |
|
|
Net loss |
$ (7,894) |
$ (6,323) |
Adjustments to reconcile net loss to net
cash flows from (used in) operating activities |
|
|
Depreciation, depletion and
amortization |
6,428 |
6,902 |
Share-based and other compensation |
928 |
968 |
Amortization of deferred loan costs |
104 |
129 |
Change in fair value of derivative
financial instruments |
6,248 |
2,608 |
(Gain) loss on disposal of assets |
31 |
(19) |
Gain on investment |
(3,582) |
(1,619) |
Other non-cash changes to items affecting
net loss |
(15) |
2,566 |
Changes in operating assets and
liabilities |
|
|
Accounts receivable |
153 |
(1,528) |
Accounts payable |
(5,559) |
(1,128) |
Other |
329 |
(1,037) |
Net cash flows from (used in) operating
activities |
(2,829) |
1,519 |
Cash flows from investing activities |
|
|
Restricted cash |
— |
(23) |
Expenditures for equipment, development
and leasehold |
(9,211) |
(4,430) |
Proceeds from sale of assets |
12 |
59 |
Net cash flows used in investing
activities |
(9,199) |
(4,394) |
Cash flows from financing activities |
|
|
Proceeds from debt |
23,500 |
19,000 |
Repayments of debt |
(15,000) |
(16,000) |
Debt and equity financing costs |
(224) |
(11) |
Proceeds from issuance of common
stock |
3,292 |
— |
Net cash flows from financing activities |
11,568 |
2,989 |
Net increase (decrease) in cash and cash
equivalents |
(460) |
114 |
Cash and equivalents beginning of period |
525 |
37 |
Cash and equivalents end of period |
$ 65 |
$ 151 |
CONTACT: Company Contact:
Stephen L. DeGiusti
EVP, General Counsel & Secretary
sdegiusti@pstr.com
(405) 702-7420
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