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Rex Reports Improving Appalachia Results With Better Well Mechanics

Rex Energy Corp. on Wednesday announced lower than expected capital expenditures for this year, while projecting a significant increase in production volumes from its assets in the Appalachian Basin as it gets a better grip on drilling and completion techniques in multiple formations.

In an extensive operational update, the State College, PA-based company said its six-well Baillie Trust pad in Butler County, PA, produced at an average five-day sales rate of 6 MMcfe/d per four vertically stacked laterals in the Upper Devonian-Burkett and Marcellus Shale formations. Results included a mix of 52% natural gas liquids (NGL), 47% gas and 1% condensate.

The Baillie pad is considered crucial to Rex's operations in Pennsylvania because it's the first time the company has tested vertically offset laterals. Gordon Douthat, an analyst at Wells Fargo Securities, said early results demonstrate evidence that Rex’s drilling methods have the potential to develop stacked-play opportunities, which is slowly becoming the norm for most unconventional operators.

Overall, Rex said production volumes increased in 2013 year/year by 38% to 92.7 MMcfe/d. Oil and NGL production increased by 59% and accounted for 31% of annual net production.

Rex this year plans spend up to $365 million for capital expenses, mostly on exploration and production efforts. The company has allocated up to $185 million for development in Pennsylvania and $115 million for Ohio. Production guidance was issued at 143-149 MMcfe/d for 2014, up on expectations that what it learns at the Baillie pad may be used for optimal field development in Pennsylvania. It also expects to see more takeaway and processing capacity.

Production from the Baillie pad has filled the 90 MMcf/d processing capacity of MarkWest Energy Partners LP's Sarsen and Bluestone facilities in Butler County. Construction of a second Bluestone facility is on schedule and is expected to be commissioned before the end of June, adding another 120 MMcf/d of capacity (see Shale Daily, May 9, 2012).

In the Warrior North Prospect of the Utica Shale in Ohio, Rex is currently drilling the fourth of five wells on the Grunder pad in Carroll County, where it expects to begin completion operations this quarter, with sales expected in the second quarter. Also in Carroll County, Rex has started completion operations on the three-well Ocel pad, which also is expected to be producing before the end of June.

The company's five-well J. Anderson pad in Guernsey, OH, in an area of the Warrior South Prospect, is producing at a five-day sales rate of 1,852 boe/d. Well costs for Rex were reduced by 10% last year and the company anticipates that average well costs this year would average $5.9 million per well on 4,000 foot laterals -- a decrease of 9% from $6.5 million per well in 2013.

Rex also said Wednesday it has completed its second horizontal well in Kentucky's Illinois Basin. The company plans to continue conventional drilling and a recompletion program throughout the year.

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