Rex Energy (REXX) is an independent exploration and production company based in State College, Pennsylvania. Rex Energy has a market cap of $512 million with 44.5 million shares outstanding.
The company ended 2010 with proved reserves of 201.7 Bcfe and 41% of proven reserves were oil or natural gas liquids. Rex has a strong balance sheet and good liquidity. The company’s borrowing base was just increased 50% to $240 million. This year should see production growth of +/- 100%.
Rex operates in three regions: the Illinois Region, the Rockies Region (Niobrara Shale), and the Appalachian Region (Marcellus Shale and Utica Shale).
The 2011 capital budget is 235.6 million. By region the budget was allocated $14.3 million to the Illinois Region, $23.3 million to the Rockies Region and the balance of $198 million (85%) to the Appalachian Region (Marcellus and Utica).
In the Illinois Basin, Rex Energy’s position is concentrated in the Lawrence Field with 13,100 gross (13,000 net) acres. This mature field has produced 400 million barrels since 1906. The field currently produces 1,600 gross (1,250) barrels per day under water flood. Their ASP tertiary recovery pilot project is producing positive results and when expanded will have the potential to increase their Illinois Basin production from 1,600 barrels per day to 3,200 over a 3- to 5-year time frame.
In the Rockies Region, Rex Energy has 56,000 gross (39,000 net) acres. The Niobrara is a hot new oil play that has been attracting a lot of interest. Rex entered the Niobrara with their acquisition of the above described acreage last year. They currently have drilled five horizontal wells and have three wells completed. Rex is still optimizing completion methods in this play. Expected well costs are $3.5 to $4.2 million per well. The Steege 11-31H well is currently being fracture stimulated and results are expected soon.
The majority of Rex Energy’s production, reserves, acreage and operations are in the Appalachian Region. Within the Appalachian Region, Rex has 63,300 gross (43,500 net) acres in the Butler County, Pa., area (extreme Western Pennsylvania) which are operated by Rex. Additionally, they have 41,900 gross (16,600 net) acres in Westmoreland, Centre and Clearfield Counties Pennsylvania which are non-operated.
The Westmoreland, Centre and Clearfield County wells are dry gas, and the wells cost $5 million apiece for drilling and completion costs. The initial average production rate for the 17 gross wells completed last year was 4.0 MMcf/d. The Butler County properties, as noted, are company operated and have wet gas which improves the economics. The Butler County wells are running approximately $4.7 million to drill and complete with an initial average production rate of 3.3 MMcfe/d.
The liquids and condensate volume are running about 1.64 gallons per thousand cubic feet (39 barrels per MMcf). The wet gas adds about 40% to the value of the produced product at current prices. The concentrated acreage position in Butler County allows for minimal rig movement, maximizes unitized acreage and decreases rig drilling time. They have approximately 385 future drilling locations in the Marcellus Shale on the operated leases in Butler County. Additional upside is provided by the fact that the entire parcel is prospective for production possibilities in the Utica Shale and Upper Devonian Shale.
With respect to the Utica Shale, Rex Energy has 83,500 gross (57,900 net) acres in the play. The breakdown of acreage by county is Butler County (Western Pennsylvania) 63,200 gross (43,500 net) operated acres, the Carroll County, Ohio “Warrior Prospect” 11,000 gross (11,000 net) acres and Mercer County (Western Pennsylvania) 9,300 gross (3,400 net) acres.
Rex Energy will be targeting the Point Pleasant Formation, which is located in the lower portion of the Utica Shale and above the Trenton Limestone. The Point Pleasant Formation is a mixed carbonate/shale interval that is believed to be the source rock for oil and gas in shallow Clinton sandstones and Knox reservoirs. The Point Pleasant Formation averages approximately 140 feet in thickness.
The 11,000 net acre Warrior Prospect in Carroll County, Ohio is the acreage that has us most excited. This prime parcel is located at what we call “ground zero” for the liquids-rich window of the Utica Shale. With all of the activity going on in Carroll County by Chesapeake Energy (CHK) and EV Energy Partners (EVEP), we expect that Rex Energy will benefit this year by the halo effect when the Chesapeake/EV Energy Carroll County well results are made public later this year. The Chesapeake/EV energy activity may also serve to de-risk the Rex Warrior Prospect acreage.
With the September 28 press release from Chesapeake Energy disclosing its initial horizontal well drilling results in the wet gas window of the Utica Shale in Eastern Ohio, we are quite confident that the Rex acreage is in the heart of the wet gas/oil window of the play. We would note that the results from the first three horizontal wells drilled in the wet gas window have averaged 2,051 barrels of oil equivalent per day. We note further that two of the three wells were located in Carroll County (where the Warrior Prospect is).
Rex is currently drilling their first Utica Shale well in Butler County and should begin drilling the key Warrior Prospect next year. We would further note that Rex feels that they have 80 net potential Utica Shale drilling locations on the Warrior Prospect.
We feel Rex Energy will be one of the key smaller E&P companies to participate in the Utica Shale oil play.