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Rex Increasing Budget for Marcellus Drilling

Buoyed by a new gas processing plant and 10 Marcellus Shale wells drilled in the first quarter, Rex Energy Corp. is increasing its capital budget by $26.7 million for the year to support increased drilling activities.

Of its new $175.4 million budget, $134 million would pay for 34 gross (22 net) operated and 20 gross (eight net) non-operated wells in the Marcellus, where the Pennsylvania company holds a majority interest in Butler County leases and a minority interest in other western Pennsylvania properties. The remainder would go to projects in Illinois and the Rockies, where the company also drills.

Rex produced nearly 28 MMcfe/d during the first quarter, up 47% from 19 MMcfe/d during the first quarter of 2010. The production was 51% natural gas and 49% liquids.

Although Rex generated $23.4 million in operating revenue during the first quarter, up from $16.7 million during the first three months of 2010, the company posted a $7.5 million net loss (minus 17 cents/share), down from a $2 million (5 cents/share) gain in the first quarter of 2010. Rex reported $10 million in cash flow for the first quarter, down from more than $33 million at the end of the first quarter of 2010. But the company said it has only drawn $30 million from a revolving line of credit, with $130 million still available to help fund increased activity this year.

Rex is running three rigs in Butler County, north of Pittsburgh, through its 70/30 joint venture formed last year with Summit Discovery Resources II LLC, a subsidiary of Japan's Sumitomo Corp. (see Daily GPI, Sept. 1, 2010).

To date, Rex has drilled 10 gross wells this year and placed 10 gross wells into service on its 54,000 gross (37,000 net) acres in Butler County, but it still has 11 wells awaiting completion and another three currently being drilled. While those are primarily Marcellus wells, Rex plans to drill its first Upper Devonian and Utica Shale test wells this summer.

Rex also maintains a 40% interest in Williams' leases in Westmoreland County, east of Pittsburgh, and in the central Pennsylvania counties of Clearfield and Centre. Williams drilled 10 gross wells in those regions during the first quarter and placed three into service, but it plans to drop one rig after the second quarter.

Rex expects its production to increase 10-16% in the second quarter to between 30.6 and 32.3 MMcfe/d and expects production to continue increasing to as much as 48.5 MMcfe/d by the end of the year as more wells are brought into service.

Through Keystone Midstream Services, its joint venture with Stonehenge Energy Resources LP and Sumitomo, Rex brought the Sarsen cryogenic gas processing plant online in December (see Shale Daily, March 28; Feb. 18). The plant is currently producing 24 MMcf/d of its 34 MMcf/d capacity, but Keystone plans to expand capacity to 40 MMcf/d by the end of the year and Rex believes it can increase production to match.

Motivated by Rex's drilling, Keystone recently increased capacity for a second plant, the planned Bluestone plant, to 50 MMcf/d, up from 40 MMcf/d. It hopes to break ground in June and bring the plant online next year. Keystone also recently filed permits with the Pennsylvania Department of Environmental Protection for a third cryogenic plant in Butler County.

Rex also holds 56,000 gross (39,000 net) acres in the Niobrara Shale in the Denver-Julesburg Basin in Colorado and Wyoming. Rex is currently drilling its fifth well in the area. Of the previous four, two had initial production rates of 67 boe/d and 202 boe/d, one was deemed "non-commercial" and the last is still awaiting completion. Rex is budgeting $27 million for Niobrara activity this year.

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