Rex Energy Corp. is pulling back slightly on spending and its rig count in the Appalachian Basin for 2015 after building its asset base and experimenting with technologies and strategies in recent quarters, management said Wednesday in reporting third quarter results.
The company maintained its momentum and increased production from the second quarter with improved completion techniques, reduced drilling days and greater scale (see Shale Daily, Aug. 7), but it has tempered its outlook for 2015. Management discussed the results and what’s ahead during a conference call on Wednesday.
Rex's natural gas differentials in the Appalachian Basin, which CFO Michael Hodges forecast to be 60-80 cents below the Henry Hub index next year, combined with the weak outlook for oil prices, and after a year in which the company spent heavily to build its asset base in the Marcellus Shale, plans to keep 2015 capital spending and the rig count relatively flat (see Shale Daily, Nov. 3)
The company's preliminary capital budget in 2015 is expected to be $325-375 million, mostly unchanged from a 2014 budget of $350-365 million. After announcing a plan in September to potentially add up to two rigs to develop a 50,000 acre stretch in a key area of Butler County, PA, purchased in a 207,000 net acre deal with Royal Dutch Shell plc affiliate SWEPI LP (see Shale Daily, Sept. 16; Aug. 13), the company said its rig count would likely remain flat next year.
It plans to keep running one rig in Ohio's Utica Shale and continue with two rigs in Pennsylvania, with one dedicated to legacy acreage in Butler County and another in its Moraine East area, which it acquired from Shell.
The third quarter results were mostly solid. Rex produced 169.7 MMcfe/d, up 72% from the 98.7 MMcfe/d in the year-ago period. Liquids production also increased from 5,300 boe/d in 3Q2013 to 10,400 boe/d.
Roughly a year ago, the company said it planned to begin drilling longer laterals on much of its acreage, drill more wells at each pad and tighten downspacing in the Butler operated area of western Pennsylvania and its Warrior North Prospect in Ohio (see Shale Daily, Nov. 11). On Wednesday, CEO Thomas Stabley said Rex has increased its average lateral length this year from 4,000 feet in 2013 to 5,000 feet, while increasing well costs by 7% to $5.9 million from $5.5 million.
Going forward, Stabley said all of Rex's wells are to be drilled with a minimum 5,000 foot lateral. COO Patrick McKinney added that all future wells in the Butler and Warrior North areas would now have 600-650 foot downspacing.
"We continue to work toward creating further operational efficiencies and expect that we will be able to further reduce cycle times and costs going forward," Stabley said. "We have realized an increase in condensate yields in the Marcellus too."
Spud-to-sale time has been cut nearly in half since last year, Stabley added. And longer laterals have led the company to increase its type curve in the Butler operated area. Stabley said Rex is averaging about 1.5 bbl of condensate per MMcf at most of its Marcellus wells in the Butler operated area, with some as high as 7 bbl per MMcf.
Realized natural gas prices decreased year/year to $3.73/Mcf from $3.99/Mcf in 3Q2013, including the effect of hedges (see Shale Daily, Oct. 30; Oct. 28; Oct. 24). The company reported net income of $5.7 million (11 cents/share) in the third quarter, up from the $1.6 million (3 cents) in the year-ago period.