Rex Energy 2011 Review, Looks Ahead to 2012

Rex Energy, a prolific driller in the Marcellus Shale, reported its 2011 financial and operational results along with 2012 capital budget projects on Tuesday. In what has become a near unanimous refrain from drilling companies, Rex also says less drilling in the dry gas areas and more drilling in the natural gas liquids areas.

From the Rex press release:

Full-Year 2011 Financial and Operational Results

Operating revenues from continuing operations for the full-year 2011 were $114.6 million, which is an increase of 67% over full year 2010 operating revenues. Commodity revenues, including cash-settled derivatives, were $118.1 million for the full year 2011, of which 62% was attributable to oil and natural gas liquids and 38% was attributable to natural gas. Realized prices for oil, including cash-settled derivatives were $90.50 per barrel. Realized prices for natural gas, including cash-settled derivatives were $5.05 per Mcf and realized prices for NGLs were $53.66 per barrel, which was 56% of the average quoted NYMEX oil price for 2011.

For the full-year 2011, production and lease operating expenses from continuing operations were $33.1 million, which is an increase of 34% over full year 2010. The increase is attributable to the company’s growing number of producing wells in the Appalachia Basin. Cash general and administrative expenses from continued operations were$22.0 million, increasing from $16.2 million in 2010.

Net income from continuing operations for the full-year 2011 was $18.1 million, or $0.41 per share. Loss from discontinued operations for the full-year 2011 was $33.5 million, or $0.76 per share. EBITDAX from continuing operations, a non-GAAP measure, was $64.5 million for the full year 2011, representing an increase of 139% over the full-year 2010.

Revised 2012 Capital Expenditure Budget

Given the recent weakness in natural gas prices, the company is reducing and reallocating its capital expenditure budget for 2012 into its more liquids-rich areas. With the changes outlined below, the company will now have 85% of its total capital budget allocated to its oil and liquids-rich project areas.

In the Butler County operated areas of Pennsylvania, the capital program targeting the dry gas portion of the Utica Shale has been reduced from drilling three gross (2.1 net) wells and completing one gross (0.7 net) well to drilling one gross (0.7 net) Utica Shale well. The capital from the remaining two gross (1.4 net) Utica shale wells will be used to drill two gross (1.4 net) Marcellus Shale wells, which are in the liquids-rich zone. In addition, the company plans to drill and complete one gross (0.7 net) Upper Devonian/Rhinestreet Shale well. The Rhinestreet Shale lies approximately 400 feet above the Burkett Shale and is 130 feet thick in the Butler County area. Based on log analysis, the Rhinestreet Shale appears to be similar to the Marcellus and Burkett Shales in terms of organic carbon content and porosity. Since the Rhinestreet Shale is approximately 400 and 600 feet shallower than the Burkett and Marcellus Shales, respectively, the company anticipates it will produce at a higher liquids content than either of the deeper plays.

In the company’s non-operated areas of Westmoreland, Clearfield and Centre Counties, Pennsylvania, where WPX Energy serves as the operator, the company has reduced the number of wells expected to be drilled from the previously announced 17 gross (6.8 net) wells to 7 gross (2.8 net) wells. Rex Energy has also reduced the number of wells expected to be fracture stimulated in 2012 from the previously announced 16 gross (6.4 net) wells to 1 gross (0.4 net) wells. The number of wells expected to be placed into service during 2012 has also been reduced from the previously announced 16 gross (6.4 net) to zero. The company expects to have 10 gross (4.0 net) wells drilled and awaiting completion in the non-operated area at the end of 2012. Midstream capital in these areas was reduced from $9.0 million to $5.0 million. Total capital in the Westmoreland, Clearfield and Centre County non-operated areas has been reduced from $56.4 million to $22.0 million or 61%.

Operational Update

Appalachia Basin – Butler County, Pennsylvania Operated Area

In the Butler operated area, the company’s midstream partner, Keystone Midstream Services, has commissioned the Voll Compressor Station which will increase the inlet capacity of the Sarsen plant by 6 MMcf/d. This increase of inlet capacity is expected to bring the Sarsen plant to its fully rated capacity of 40 MMcf/d.

Keystone Midstream also remains on schedule to commission the Bluestone cryogenic processing plant in May of this year. Bluestone will have a full inlet capacity of 50 MMcf/d and will not require additional field compression.

Rex Energy has completed pipeline construction to its first Utica Shale test well in Butler County, the Cheeseman #1H. The well is expected to have first sales by March 1^st. Updated well information will be provided on the company’s first quarter call.

The company has recently fracture stimulated and placed into service the remaining four wells on the seven well Grosick pad.  The company expects to provide an update on the Grosick pad during its first quarter conference call. The company has also completed drilling activities on the two well Plesniak pad, and the wells are currently awaiting completion.

Appalachia Basin – Warrior Prospect, Carroll County, Ohio

In the Warrior Prospect, Rex Energy is expecting to spud its first Utica Shale well in April and anticipates completion results to be available during the second quarter conference call in August. The locations of the first two wells have been disclosed in the company’s current corporate presentation under its Warrior Prospect section.

To date the company has closed on approximately 13,700 net acres of the previously announced 15,000 net acres. The remaining acreage is expected to close during the first quarter of the year.

Appalachia Basin – Westmoreland, Clearfield, and Centre Counties Non-Operated Area

In the company’s non-operated area in Westmoreland County, Pennsylvania, where WPX Energy serves as the operator, WPX has completed drilling operations on the three well Corbett pad. The drilling rig is currently moving onto the Gera pad, where it will drill one well. There are currently no additional completion operations planned.

In the Westmoreland County non-operated area, the seven previously announced wells on the Marco #1 pad and the National Metals #1 pad had combined average 60 day sales rates of 4.1 MMcf/d per well. These results are approximately 41% above the company’s current 30 day rate (3.1 MMcf/d) and 56% above the company’s current 60 day rate (2.6 MMcf/d) given for a 4.2 Bcf well type curve for this area. WPX continues to increase sales rates in the Westmoreland County area, with average gross sales rates of approximately 65.2 MMcf/d in the Westmoreland field during the month of January.*

*Rex Energy (Feb 21, 2012) – Rex Energy Announces Fourth Quarter and Full-Year 2011 Operational and Financial Results, Provides Revised 2012 Capital Budget and Operational Update