1473061--3/19/2010--PostRock_Energy

related topics

{gas, price, oil}

{operation, natural, condition}

{loss, insurance, financial}

{cost, regulation, environmental}

{debt, indebtedness, cash}

{financial, litigation, operation}

{stock, price, operating}

{provision, law, control}

{tax, income, asset}

{capital, credit, financial}

{regulation, change, law}

{condition, economic, financial}

{operation, international, foreign}

{competitive, industry, competition}

{personnel, key, retain}

{regulation, government, change}

{acquisition, growth, future}

{loan, real, estate}

{stock, price, share}

The recent financial crisis and current economic conditions have had, and may continue to have, a material adverse impact on our business and financial condition. Energy prices are very volatile, and if commodity prices remain low or decline, our revenues, profitability and cash flows will be adversely affected. A sustained or further decline in oil and natural gas prices may adversely affect our business, financial condition or results of operations and our ability to fund our capital expenditures and meet our financial commitments. Future price declines may result in a write-down of our asset carrying values. We recorded an impairment charge on our interstate and gathering pipelines and related contract-based intangible assets in 2009. As a result of our financial condition, we have had to significantly reduce our capital expenditures, which will ultimately reduce cash flow and result in the loss of some leases. There may be events of default under QRCP s, QELP s and QMLP s indebtedness enabling the lenders to accelerate such indebtedness, which could lead to the foreclosure of collateral and the bankruptcy of us, QRCP, QELP and QMLP. Our credit agreements have substantial restrictions and financial covenants that restrict our business and financing activities. An increase in market interest rates will cause our debt service obligations to increase. Former senior management were terminated in 2008 following the discovery of various misappropriations of funds of QRCP and QELP. QRCP and QELP are involved in securities lawsuits that may result in judgments, settlements, and/or indemnity obligations that are not covered by insurance and that may have a material adverse effect on us. U.S. government investigations could affect our results of operations and financial condition. We may be unable to pass through all of our costs and expenses for gathering and compression to royalty owners under our gas leases, which would reduce our net income and cash flows. We depend on one customer for sales of substantially all our Cherokee Basin natural gas. A reduction by this customer in the volumes of gas it purchases from us could result in a substantial decline in our revenues and net income. We are exposed to trade credit risk in the ordinary course of our business activities. Unless we replace the reserves that we produce, our existing reserves and production will decline, which would adversely affect our revenues, profitability and cash flows. There is a significant delay between the time we drill and complete a CBM well and when the well reaches peak production. As a result, there will be a significant lag time between when we make capital expenditures and when we will begin to recognize significant cash flow from those expenditures. Our estimated reserves are based on assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. Drilling for and producing oil and gas is a costly and high-risk activity with many uncertainties that could adversely affect our financial condition or results of operations. We have less information regarding reserves and decline rates in the Marcellus Shale than in the Cherokee Basin. Wells drilled to the Marcellus Shale are deeper, more expensive and more susceptible to mechanical problems in drilling and completing than wells in the Cherokee Basin. The revenues of our interstate pipeline business are generated under contracts that must be renegotiated periodically. Our hedging activities could result in financial losses or reduce our income. Because of our lack of asset and geographic diversification, adverse developments in our operating areas would adversely affect our results of operations. The oil and gas industry is highly competitive and we may be unable to compete effectively with larger companies, which may adversely affect our results of operations. Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or event occurs that is not fully insured, our operations and financial results could be adversely affected. Shortages of crews could delay our operations, adversely affect our ability to increase our reserves and production and adversely affect our results of operations. Certain of our undeveloped acreage is subject to leases or other agreements that may expire in the near future. Our identified drilling location inventories will be developed over several years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling, resulting in temporarily lower cash from operations, which may impact our results of operations. We may incur losses as a result of title deficiencies in the properties in which we invest. A change in the jurisdictional characterization of some of our gathering assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of our gathering assets, which may indirectly cause our revenues to decline and operating expenses to increase. The KPC Pipeline is subject to regulation by FERC, which could have an adverse impact on our ability to establish transportation rates that would allow us to recover the full cost of operating the KPC pipeline, plus a reasonable return, which may affect our business and results of operations. We could be subject to penalties and fines if we fail to comply with FERC regulations. We may incur significant costs and liabilities in the future resulting from a failure to comply with new or existing environmental and operational safety regulations or an accidental release of hazardous substances into the environment. We may face unanticipated water and other waste disposal costs. Pipeline integrity programs and repairs may impose significant costs and liabilities on us. Recent and future environmental laws and regulations may significantly limit, and increase the cost of, our exploration, production and transportation operations. Increased regulation of hydraulic fracturing could result in reductions or delays in natural gas production in unconventional plays, which could adversely impact our revenues. Growing our business by constructing new assets is subject to regulatory, political, legal and economic risks. Our ability to grow and to increase our profitability depends in part on our ability to make acquisitions. Our acquisition strategy is subject to a number of risks. If third-party pipelines and other facilities interconnected to our natural gas pipelines become unavailable to transport or produce natural gas, our revenues and cash available for distribution could be adversely affected. Failure of the natural gas that we gather on our gas gathering systems to meet the specifications of interconnecting interstate pipelines could result in curtailments by the interstate pipelines. Our interstate natural gas pipeline has recorded certain assets that may not be recoverable from our customers. Operational limitations of the KPC Pipeline could cause a significant decrease in our revenues and operating results. We do not own all of the land on which our pipelines are located or on which we may seek to locate pipelines in the future, which could disrupt our operations and growth. Our success depends on our key management personnel, the loss of any of whom could disrupt our business. Risks Related to the Ownership of Our Common Stock The price of our common stock may experience volatility. Our charter and bylaws contain provisions that may make it more difficult for a third party to acquire control of us, even if a change in control would result in the purchase of our stockholders common stock at a premium to the market price or would otherwise be beneficial to our stockholders.

Full 10-K form ▸

1473061--3/19/2010--PostRock_Energy_Corp