OKLAHOMA CITY, Oct. 9, 2014 (GLOBE NEWSWIRE) -- PostRock Energy Corporation (Nasdaq:PSTR) ("PostRock" or the "Company") today provided an update on its Central Oklahoma development program and announced that approximately a third of its preferred securities will be converted into common stock. Drilling results in Oklahoma continue to significantly increase the Company's oil production and reserves. To help support the ongoing development program and reduce PostRock's fixed charges, White Deer Energy is exchanging a sizeable portion of its preferred for common stock.
Central Oklahoma Development
As previously reported, two horizontal wells were drilled during the second quarter in the Hunton formation of the Searight Field in Seminole County. The first is currently producing approximately 260 barrels of oil a day, having produced almost 35,000 barrels since coming on line in late June. The second well, which was put on production in July, is producing approximately 100 barrels a day and has produced almost 9,500 barrels to date. Based on current oil and gas futures prices, the wells in combination are projected to have a payback of approximately 13 months and an IRR of 100+%. The two wells, which were drilled for a combined cost of $6.2 million, are substantially exceeding pre-drill forecasts. The Company expects to drill two additional Hunton wells before year-end.
In June 2014, a joint venture was formed between PostRock and Silver Creek Oil & Gas covering approximately 17,900 gross acres in Cleveland and Pottawatomie Counties, Oklahoma. PostRock contributed 3,800 net acres, roughly 10% of its Central Oklahoma acreage, in exchange for a 30% interest in the venture. The venture is currently drilling its first two Woodford horizontal tests. The first should come on production shortly. The second well has been drilled and should be on line by the end of this month.
Due to the success of the initial Hunton wells and a successful workover program earlier in the year, PostRock's oil production reached a record 960 barrels of oil a day in August, 52% above the prior-year period. As noted above, the Company should have its initial joint venture wells on stream by the end of October and it expects to drill two additional Hunton wells in the fourth quarter. On a preliminary basis, PostRock expects to drill or participate in the drilling of an additional eight to ten wells targeting the Hunton and Woodford formations in Central Oklahoma in 2015.
Debt and Preferred Conversion
Based on increasing internal cash flow and proceeds from sales of its Constellation units, PostRock has begun to reduce its debt. Bank debt has fallen to $80 million and should continue to decline through year-end. The Company is exploring a sale of its West Virginia properties. Assuming the sale of its remaining Constellation units and the potential sale of the West Virginia properties, debt could fall below $65 million by year-end.
To reduce the Company's fixed charges and to begin to simplify its balance sheet, White Deer and the PostRock Board have approved an exchange of Series A Preferred Stock held by White Deer with a liquidation value of $35 million for PostRock common stock. That represents almost one-third of White Deer's total preferred position. The exchange will reduce annual dividends, currently classified as interest, by almost $4.4 million per year. Based on an assumed price for the common stock of $1.09 a share--the average closing price during the past ten trading days--the exchange will result in the issuance of roughly 32.1 million common shares, increasing the total common shares outstanding to approximately 62.9 million.
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.