In an ongoing effort to better monetize its assets and generate more cash flow for this year's drilling program, Rex Energy Corp. said late Thursday it has secured another joint venture (JV) with a private investment firm that could net it up to $175 million and reduce this year's budget.
Rex said it has teamed up with an affiliate of Benefit Street Partners LLC (BSP) to jointly develop 58 wells in the company's Moraine East area in Western Pennsylvania's northern Butler County and in its Warrior North prospect of Ohio's Carroll County. The JV, Rex said, is ultimately aimed at protecting the company's leasehold from expiration in both areas. It would cover 42,000 acres in the Moraine and 6,300 acres in the Warrior North.
Under the agreement, BSP made an initial commitment of $37 million to fund the drilling and completion of 16 Marcellus Shale wells in the Moraine. Twelve wells already are finished. The initial investment would also help fund six Utica Shale wells in the Warrior North, three of which have already been completed. Rex said BSP would then have the option to participate in another 36 wells across the JV development area for $138 million and a 15-20% interest in each unit it participates in.
The agreement allows Rex to complete 15 additional wells this year and lower the 2016 capital budget to only $30-40 million. Rex's initial 2016 forecast in January estimated a spend this year of $45-65 million from $135-145 million spent in 2015. The company has yet to release its year-end financial and operational results and has not scheduled a date to do so.
Once the first 15 wells are flowing to sales, Rex would receive $20 million because the wells were completed last year. After the first 22 wells are finished, 30% of the Moraine acreage would be held by production (HBP). When all 58 wells are finished, the company would have 42,000 acres in the Moraine and 10,400 acres in the Warrior North HBP.
Rex acquired most of its Moraine acreage in a broader 207,000 net acre deal in Ohio and Pennsylvania in 2014 in a $120 million deal with a Royal Dutch Shell plc affiliate(see Shale Daily, Aug. 13, 2014). The acreage lies to the north of its core in Butler County.
The first two Moraine wells were completed in 1Q2015 and test results showed 57% of the four-well pad's production was condensate (see Shale Daily, June 11, 2015). Those wells started flowing recently with the commissioning of Stonehenge Energy Resources II LP's 400 MMcf/d natural gas gathering system (see Shale Daily, June 4, 2014). Rex said it intends to place all 12 of its initial Moraine wells into sales over the next two weeks.
Rex's management made clear at the end of 3Q2015 that it would need more cash to fund its 2016 operations. At the time, CEO Thomas Stabley said the company was "exploring a variety of structural financial instruments" to fund the one-rig program this year, including a JV or buying back a portion of its unsecured bonds to generate additional capital (see Shale Daily, Nov. 11, 2015). The company announced an exchange offer for some of its senior notes in February that expires on Thursday.
About a year ago, the company also entered a JV with ArcLight Capital Partners LLC that netted it $67 million in exchange for a 35% working interest in 32 wells in the Moraine and its core Butler operated area (see Shale Daily, March 31, 2015). Since the third quarter, some of the company's financial metrics have also sank. It had just $3.2 million in cash on hand at the end of the quarter and $69 million outstanding under its $350 million borrowing base, which has since been lowered to $200 million.
The company also suspended payment of its regular quarterly dividend on shares of its 6% Series A preferred stock. Its shares have been trading for less than $1 on the Nasdaq for more than a month. The company also has not offered an update on the potential sale of its legacy assets in the Illinois Basin.