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Rex Considers Selling Ohio Utica Property to Focus on Marcellus

Rex Energy Corp. outlined plans on Wednesday to further refine its core operations and become a Utica and Marcellus pure-play operator focused primarily on just two counties in Western Pennsylvania, with asset sales in Ohio and the Illinois Basin possible this year.

As commodity prices continued to slide at the end of last year, Rex moved to bolster its liquidity and announced a plan to sell a 60% stake in its water distribution subsidiary and monetize non-core assets in Westmoreland, Clearfield and Centre counties operated by WPX Energy Inc., which is currently in the process of exiting the basin (see Shale Daily, May 4; Feb. 19).

After announcing a joint venture (JV) with private equity firm ArcLight Capital Partners LLC in April for the company's core assets in Butler County, PA, Rex's management said Wednesday during a call to discuss first quarter earnings that it's looking to deploy more capital to its operations there (see Shale Daily, March 31).

CFO Thomas Rajan said the company has "little running room for growth" in its Warrior South Prospect in Noble, Belmont and Guernsey counties, Ohio, where the company has dry Utica gas assets. He said the company could sell them soon.

"We're a little bit tight down there with pretty much the three or four major [operators] in that area," added CEO Tom Stabley. "So, I think that's an asset that we've talked about if the pricing is right we could potentially monetize."

A sale of the Warrior South would still leave the company with its Warrior North prospect in Carroll County, OH. Rex has a combined 21,600 net acres in the state. Capital from those assets, along with others in the Illinois Basin in Illinois, Indiana and Kentucky, and the WPX operated properties would also be reallocated to Lawrence County, PA. Rex plans to eventually begin Utica Shale development there in an area where few mid-sized or larger independents have produced the formation.

"We are still in the early stages of marketing our Illinois Basin assets, given the stabilization and strong upside bias in oil prices, we made the strategic decision to exit the Illinois Basin," Stabley said. "One thing I will note, assuming these transactions can be completed, we would expect to exit 2015 with cash on the balance sheet and nothing drawn on our revolver."

The bulk of Rex's acreage is located in Butler County, where it's dedicated about 80% of this year's capital budget. The assets have continued to drive production gains. The company produced 196 MMcfe/d last quarter, up 61% from the year-ago period, but flat from the fourth quarter.

Longer laterals, more wells on each pad and tighter downspacing in the Butler Operated area also prompted Rex to increase its full-year guidance by 4% at the midpoint to 193-203 MMcfe/d.

"The increase in production guidance is also due to better-than-expected performance of our most recent completed wells in the Butler Operated area and the Ohio Utica," Stabley said. "All of these wells have been completed with increased sand concentrations ranging from 2,000 pounds per [lateral] foot to 2,300 pounds per foot."

The company's legacy Illinois Basin assets continue to cost it, however. Those properties led to a $132.6 million write-down in the fourth quarter and contributed to another $7 million property impairment last quarter. Rex remains leveraged and is hoping it can begin executing asset sales by the end of the second quarter.

Sinking commodity prices also cut revenue and profit last quarter. Including hedges, the company's realized oil price went from $91.39/bbl in the year-ago period to $51.42/bbl last quarter, while its realized natural gas price declined from $4.80/Mcf to $2.92/Mcf over the same time. Year-over-year revenue went from $81.3 million to $54.1 million.

Rex reported a first quarter net loss of $20.2 million (negative 38 cents/share), compared to net income of $9 million (17 cents/share) at the same time last year and a net loss of $71.7 million (negative $1.35/share) in the fourth quarter.

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