PostRock Energy (PSTR) 8-K PostRock Reports Second Quarter Results and Filing of Form 10-Q

Exhibit 99.1

News Release
For Immediate Release
Company Contact:
North Whipple
Manager, Corporate Development and Investor Relations
Website: www.pstr.com

PostRock Reports Second Quarter Results and Filing of Form 10-Q

OKLAHOMA CITY– August 10, 2010 –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.

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			Three Months			March 6, 2010			January 1,			Six Months
	Ended June 30,			Ended June 30,			to June 30,			2010 to March			Ended June
	2010			2009			2010			5, 2010			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)
										January 1,
	Three Months			Three Months			March 6,			2010 to			Six Months
	Ended June			Ended June 30,			2010 to June			March 5,			Ended June
	30, 2010			2009			30, 2010			2010			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,			December
	2010			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,			January 1,			Six Months
	2010 to June			2010 to March			Ended June
	30, 2010			5, 2010			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