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Rex Energy Stayed Focused on Marcellus/Utica Core, Balance Sheet in 2Q

Rex Energy Corp. continued to make progress on a series of balance sheet initiatives to shore up its liquidity during the second quarter, while it steadily drilled acreage in Pennsylvania to hold it by production and made in-roads in the Utica Shale.

The primary focus of Rex's program this year and next will be the Moraine East area in Western Pennsylvania’s Butler County, which lies to the north of its core acreage. At its current pace, Rex plans to have 63% of its 40,000 gross acre goal held-by-production. Rex acquired the Moraine assets as part of a 2014 deal with a Royal Dutch Shell plc affiliate (see Shale DailyAug. 13, 2014).

Rex also placed its three well Goebeler pad into sales in the Warrior North area of Carroll County, OH, during the quarter. The Utica wells produced at an average 24-hour rate per well of 2,100 boe/d, of which 72% was liquids.

"Through a combination of operational efficiencies, including reduced drilling days, more stages per day and further cost reductions, we have successfully reduced our well costs in the Warrior North area to $6.6 million from $7.2 million for a 6,700 foot lateral," said CEO Tom Stabley. "Given this cost improvement, enhancements in condensate yield differentials and well performance in our most recent nine wells, the company is very pleased with the overall well economics."

Rex has faced a liquidity crunch during the commodities downturn, but the outlook has improved with a series of balance sheet initiatives completed since the beginning of the year. During 2Q2016 and 3Q2016, it swapped its senior notes for common stock to save more than $22 million in cash interest savings. Similar moves in 1Q2016 saved it $75.4 million in interest and dividend payments (see Shale DailyMay 11).

Those initiatives, combined with the $40 million sale of its Illinois Basin assets in Illinois, Indiana and Kentucky, along with two joint ventures that it has inked since last year to keep rigs running and improving results from the Warrior North, have management thinking more clearly about how it develops the core assets.

"I think the plan really hasn't changed," Stabley told financial analysts during a call on Wednesday to discuss the second quarter results. "Butler remains a core asset and Warrior North remains a core asset given the high liquids concentrations there and the condensate rates we've seen. Warrior South continues to be an asset we could monetize and still Westmoreland. We continue to look at options there."

Rex management has said since last year that it could divest its Warrior South prospect in Ohio's Noble, Belmont and Guernsey counties, where it doesn't envision much room to grow. Management is also still considering the sale of Rex’s nonoperated assets in Pennsylvania, which include those in Westmoreland County, PA.

The company had delays in starting up a gathering line and a high pressure system in the Moraine East during the second quarter. It now expects those systems to come online between September and October. But the delays and discontinued operations in the Illinois Basin, prompted the company to lower its third quarter and full-year guidance. Rex had been aiming for year/year 2016 growth of 5-10%, but given the delays it pushed that forecast to the low end and said volumes would likely grow this year by 5%.

Rex produced 199.1 MMcfe/d during the second quarter, down from 200 MMcfe/d in 1Q2016 and 206.8 MMcfe/d in the year-ago period, mainly as a result of the Illinois Basin sale (see Shale DailyJune 15). Including hedges, average realized natural gas prices were up to $2.73/Mcf, an improvement from $2.10/Mcf in 1Q2016 and $2.53/Mcf in the year-ago period. Revenue was down slightly to $31.3 million, compared with $35.8 million at the same time last year.

Rex reported net income of $16 million (22 cents/share), compared to a net loss of $155.2 million (minus $2.87) in 2Q2015. The company converted the value of some of its preferred stock during the second quarter, generating more income for shareholders. Stay up to date on 2Q2016 earnings and projections for the remainder of the year with NGI's Earnings Call and Coverage sheet.

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