PostRock Sells Pipeline Subsidiary

Transaction Type
Announce Date
Post Date
Close Date
Estimated Price
54MM
Description

Sale of 1,120-mile interstate pipeline with assets in northern Oklahoma and western Kansas to Wichita and Kansas City.

PostRock Energy Corp. (Nasdaq: PSTR) sold its pipeline subsidiary, PostRock KPC Pipeline LLC to MV Pipelines LLC for $53.5 million in cash.

About $500,000 of the sale price will be placed in escrow pending cleanup of a former KPC site. In addition, PostRock may receive additional payments of $1 million a year for the next four years if its former pipeline subsidiary reports EBITDA (earnings before interest, depreciation and amortization) exceeds pre-defined targets. The sale is also subject to an adjustment for working capital. After about $2 million in estimated transaction costs, PostRock will record a loss on the sale of about $6 million.

Net proceeds from the sale will be used to repay PostRock’s credit facility. Its borrowing base has been reduced to $120 million. PostRock's next borrowing base redetermination will be based on its reserves on June 30 and become effective Oct. 31.

After applying the sales proceeds, PostRock's debt totaled $104.3 million.

"After reviewing strategic alternatives, we concluded that a sale offered the greatest value to our shareholders. Although the sale will result in a loss in the third quarter, we believe the price is attractive to the company,” said PostRock president and chief executive Terry W. Carter.

He added that the sale of KPC comes at a time when PostRock is seeking to become a pure-play oil and gas production and development company and will strengthen the company’s balance sheet.

KPC is a 1,120 mile interstate pipeline, which transports natural gas from northern Oklahoma and western Kansas to Wichita and Kansas City.

PostRock Energy Corp. is an upstream oil and natural gas company with operations primarily in the Cherokee Basin of Kansas and Oklahoma. Based in Oklahoma City, Okla., it owns and operates over 3,000 wells and nearly 2,200 miles of gas gathering lines in the Cherokee Basin. It also owns and operates minor oil producing properties in central Oklahoma and oil and gas producing properties in the Appalachian Basin.

MV Pipelines, LLC is a privately owned company whose owners also operate MV Purchasing, LLC. MV Purchasing, LLC is a privately owned energy logistics company headquartered in Wichita, Kan.