With falling commodities prices putting a dent in the operational gains made by Rex Energy Corp. during the fourth quarter, the company is heading into the new year looking to monetize a series of assets to offset its growing leverage as oil and gas prices remain depressed.
Since late last year, the company has been publicly discussing plans to sell a 60% stake in its water distribution subsidiary, Keystone Clearwater Solutions. Rex has also discussed ongoing negotiations to find a joint venture partner for its newly acquired Moraine East drilling area in northern Butler County, PA, that company officials said could both help lower its capital spending and increase this year’s production (see Shale Daily, Aug. 13, 2014).
“We expect to be actively in the market during the remainder of the first quarter, and it’s a second quarter event for us to close the transaction on Keystone,” said CEO Tom Stabley. “On the Moraine East activity, since year-end, we’ve completed drilling the first two wells, which has given us log data in the area that allows prospective partners to see the direct correlation of the geology between the legacy [Butler Operated] area and our new Moraine area.”
CFO Thomas Rajan went a step farther Thursday during a 4Q2014 earnings call with financial analysts and said the company could also explore the potential sale of its interests in non-operated assets in Westmoreland, Clearfield and Centre counties, PA, this year.
Fourth quarter production increased to 196 MMcfe/d from 110 MMcfe/d in the year-ago period. Sequential production was up 15%, and year-over-year production was up 66%, going from 92.7 MMcfe/d in 2013 to 154.4 MMcfe/d in 2014 — well above last year’s guidance. Year-end proved reserves also increased from 2013 by 57% to 1.3 Tcfe
But the company took a hit on falling natural gas prices during the fourth quarter. Its Appalachian basis averaged $1.26 off the Henry Hub average of $4, which was wider than the company’s full-year average of 87 cents off the benchmark price.
Rex was also forced to make a $132.6 million writedown on its conventional assets in the Illinois Basin as a result of the steep drop in the price of oil. The company has focused little on those assets in recent years, which account for a small portion of its production, but it spent $38.6 million on operations there last year and plans to spend another $20 million in the basin this year.
The company completed and placed into sales about 38 wells last year in its core operating areas of Ohio and Pennsylvania. This year, it expects to complete 23-35 Utica and Marcellus wells.
Rex has been drilling longer laterals across much of its acreage, drilling more wells on each pad and tightening downspacing in its key Butler Operated area in western Pennsylvania. In November, company officials said they were already planning to pare capital spending and let drilling efficiencies help increase production this year (see Shale Daily, Nov. 5, 2014).
On Thursday, Stabley said Rex averaged about 1,800 pounds of sand per lateral foot last year on its Marcellus wells. The volume has since increased to between 2,200 and 2,500 pounds of sand per foot, which he said has “had a dramatic effect on initial production rates,” resulting in shallower decline curves and better estimated ultimate recoveries. With more data, Stabley said the company would likely increase its type curves in western Pennsylvania from 10.7 Bcfe to 14 Bcfe by year’s end.
Well costs have also come down, management said, going from about $5.7 million at the end of 2014 to $5.5 million this month, mainly as a result of declining service costs and improving completion techniques. The company also expects those cost savings to help keep it at the low end of its $180-220 million budget this year.
First quarter production, though, is expected to remain flat at 190-196 MMcfe/d. Rex said 11.1 MMcfe/d of volumes would be curtailed due to an unplanned outage on the Appalachia-to-Texas Express (ATEX) ethane pipeline, which ruptured and exploded in January (see Shale Daily, Jan. 26). Although that pipeline is back in operation, downtime on a Blue Racer Midstream LLC compressor station is also cutting into the company’s production in Ohio.
Stabley said the company will keep some of its ethane in the gas stream until April for better pricing and added that the Blue Racer compressor is expected to be down for another two weeks.
Fourth quarter revenue increased to $70.2 million from $63.5 million in the year-ago period. Full-year revenue was also up to $298 million from $214 million in 2013.
The company reported a fourth quarter net loss of $71.7 million ($1.35/share), compared to a $14.6 million loss (26 cents/share) during the same time last year. Rex’s full-year net loss was $50 million (94 cents/share), compared to a $2.1 million loss (5 cents/share) in 2013.
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