Targeting Marcellus, Utica Shale, Rex Energy plans to continue rapid production growth

By Oil & Gas Financial Journal staff

Driven by Marcellus Shale activity, Rex Energy Corp. (NYSE: REXX) put up high production growth for the second quarter 2011 and plans to continue its growth with a large backlog in place, an acquisition targeting the natural gas-bearing Utica Shale, and an increased borrowing base.

Total production during 2Q11 for the State College, PA-based oil and gas exploration and production company averaged nearly 35.2 MMcfed, a 27% sequential and 87% year-over-year increase. As a result of higher IP rates, increased efficiencies in operations and the addition of 35.0 MMcfd of pipeline capacity in Westmoreland County, Rex is increasing its 2011 mid-point production guidance from 37.05 MMcfed to 38.7 MMcfed, and 3Q11 mid-point guidance of 41.25 MMcfed.

Utica/Marcellus Shales
In addition to its Marcellus holdings, Rex Energy is looking to ramp up potential opportunity in the area by acquiring rights in the Utica Shale. The company plans to lease nearly 11,000 net acres in Carroll County, Ohio to explore the gas-bearing formation. The $40 million, $3,600/acre, transaction comes on the heels of a report by Chesapeake Energy touting the economic viability of the Ohio Utica Shale.

For the remainder of the year, Rex Energy plans to drill an additional six Marcellus wells, one Upper Devonian Shale well and one Utica Shale well in the Butler County area. Including the Upper Devonian and Utica Shale wells, the company plans to fracture stimulate an additional nine wells and place into service ten additional wells for the remainder of the year.

“Rex has increased the EUR type curve on the wells in the Butler area from 4.4 bcfe to a range of 4.4 to 5 bcfe, reflecting better than expected production,” noted Global Hunter Securities (GHS) in an August 3 report.

Also in the Marcellus Shale, in Westmoreland County, Rex Energy’s partner Williams (NYSE: WMB) drilled seven Marcellus wells, fracked eight wells, and placed eight wells into service in 2Q11. For the remainder of 2011, Williams plans to drill an additional eight Marcellus wells, frac 18 wells, and place into service an additional nine wells. Gross production from the Westmoreland County JV for June was 21.8 MMcfd. According to GHS, Rex is “increasing the EUR type curve of these wells from 3.0 Bcf to 4.0 Bcf to 5.0 Bcf based on encouraging performance so far.”

Outlook
Rex Energy’s (NYSE: REXX) success in developing proved undeveloped locations, improving well performance and increasing estimated ultimate recoveries has led to an increase in the company’s existing revolver from $300 million to $500 million. The borrowing base was also increased from $160 million to $240 million. The bank group has also agreed to extend the term of the facility for two years, setting maturity at September 2015.

The bank group is comprised of KeyBank NA, which continues to lead and serve as Administrative Agent of the facility; Royal Bank of Canada; Manufacturers and Traders Trust Company; Capital One NA; Bank of Montreal; Union Bank NA; Wells Fargo Bank NA US Bank National Association; and SunTrust Bank.

“The company looks set up to continue this growth with its large backlog in place,” said analysts at GHS. Commissioning of the second cryogenic processing plant, the Bluestone plant, is expected to play a large role in the company’s outlook when it comes online in the first quarter of 2012. “The company is growing production rapidly but must ensure that it continues to have the proper takeaway capacity in place to allow growth to continue,” continued GHS.



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