Rex Energy is reporting a 104% annual increase in natural gas production for 2010, primarily on increased gas sales from its Sarsen Plant in Butler County, PA.

The State College, PA-based company produced 8,462 Mcf/d of natural gas and 70 b/d of natural gas liquids in 2010 from its properties in the Marcellus Shale in Pennsylvania, as well as from the Illinois basin, and the Niobrara Shale in Wyoming and Colorado.

Rex plans to expand its Marcellus Shale drilling this year.

In Butler County, Rex holds 34,100 net acres 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), including more than 21,000 acres located in a four-township area near a Dominion gas sales pipeline and the Sarsen cryogenic gas plant.

Of the 17 wells drilled in the area, 11 are producing and six still need to be hydraulically fractured. Rex plans to fracture (frack) the five-well Drushel pad in March and is currently drilling the second of three wells at the Talerico pad, which it expects to frack in May.

Rex plans to use two rigs to drill 24 wells in Butler County this year. Those plans include drilling one Upper Devonian shale horizontal test well. Rex said it has all its permits and title work in hand for 2011 and even some for 2012.

Additional drilling could help Rex meet capacity expansions planned for its Sarsen plant, which came online in December. Rex is now producing 20 MMcf/d into the plant. The plant has a current capacity of 30 MMcf/d, which Rex expects to increase this quarter.

“We believe this gives Rex a real good chance of filling up the Sarsen plant and its 40 MMcf/d inland plant capacity in the third quarter,” Patrick M. McKinney, Rex’s executive vice president and chief operating officer, said in a conference call Wednesday.

Rex is permitting a second 40 MMcf/d cryogenic processing facility that it expects to be online in 2012 and is closing on an additional 9,000 acres at its Butler County holdings. The company is reporting total exploration, development and production costs of around $2.18 per Mcfe, largely the result of its drilling in Butler County.

“This is really the key to the economics in the liquids rich section of the Marcellus Shale and the reason why we feel we can thrive at lower natural gas prices in this area,” McKinney said.

As seen by the Upper Devonian well, and by its work in the liquids-rich Niobrara, Rex is focusing its capital budget on oil and natural gas liquids. “We feel that these areas will provide the greatest return for our investors,” CEO Dan Churay said.

Rex also holds a 40% interest in two Williams Appalachia projects in the Marcellus Shale, one in Westmoreland County and another in Centre and Clearfield counties. Williams plans to drill 20 wells using two rigs in Westmoreland County this year.

Midstream capacity in the area is currently constrained at 14 MMcf/d, but the companies expect to complete a jointly owned gathering system connecting to the Equitrans pipeline by May. That would increase midstream capacity to 26-38 MMcf/d.

Williams has four wells in service in Centre and Clearfield Counties producing 6.5 MMcf/d in aggregate. The company is currently drilling four additional wells there.

Williams completed a tie-in to the Columbia Pipeline last October to begin sales. The pipeline has a capacity of 10 MMcf/d with an option to expand to 30 MMcf/d.

Rex is also planning work in Illinois and Wyoming for 2011.