Rex Energy Corp. has agreed to purchase 207,000 net acres from Royal Dutch Shell plc affiliate SWEPI LP for $120 million, in a move that it said will significantly bolster its liquids-rich core in western Pennsylvania.
The acquisition covers a broad swath of eight counties: Armstrong, Beaver, Butler, Lawrence, Mercer and Venango counties, PA, and Columbiana and Mahoning counties in northeast Ohio. Key to the purchase, financial analysts said, is the expansion in Butler County, where Rex's core operations in the Marcellus Shale have driven-up both its overall production and liquids volumes (see Shale Daily, Aug. 7).
Analysts at Tudor, Pickering, Holt & Co. said Rex is essentially paying production value to extend its current position in southwest Butler County farther north and west into Lawrence County. Rex said the acquisition expands its core Butler Operated area by 230%. At about $200/acre, both TPH and Wells Fargo Securities analysts said the acquisition was an inexpensive one.
The acreage is prospective for the Marcellus, Utica and Upper Devonian shales. Of the total being acquired, 50,000 net acres are located in Butler County and 66,100 net acres are located in Lawrence County.
On Wednesday, Rex said it would offer 1.4 million convertible preferred shares to generate $135.2 million in proceeds for the cash purchase, which is expected to close in September. It also plans to add one or two rigs to the new acreage next year. Financial analysts said the company had indicated that it would either look for a joint venture partner or sell its non-core assets in central Pennsylvania to help fund the additional capital expenditures.
For Shell's part, the sale comes as no surprise. The major said in March that it would lay-off a sizable portion of its U.S. exploration and production staff and look to ditch uneconomical onshore assets in the Appalachian Basin and elsewhere in the U.S. and Canada (see Daily GPI, March 13).
The assets being sold include 16 MMcf/d of current or available production with minimal investment, Rex said. Another 13 MMcf/d is expected from wells in various stages of development. Rex estimates that the acreage holds 241 new liquids-rich drilling locations on 750 foot spacing, but said that bolt-ons and a multi-year development plan will likely increase that number to 400 locations.
Rex also said that there's 80 MMcf/d of firm transportation under agreement, most likely in western Pennsylvania, but the company did not provide further detail. For now, much of the acreage in Mercer and Venango counties appears less attractive, the region is home to a significant amount of vertical drilling, while unconventional operators have spud wells to hold land with production (see Shale Daily, June 27).
Across the state line in Mahoning County, OH, several operators have left in favor of more promising acreage in the southeast, while operators in Columbiana County, OH, remain relatively active.
Rex said more than 65% of the acreage being acquired has leases with options to extend and the rest is either held by production or has "manageable lease expirations."
Rex CEO Tom Stabley called the purchase a "milestone" for his company, and added that steadily improving results from its core area in western Pennsylvania made the purchase a "natural fit" for the company's long-term development plans.