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Ohio Utica Shale

Rex Energy drills three 2013 wells in Ohio's Utica shale

By Bob Downing Published: May 1, 2013

From Pennsylvania-based Rex Energy, an active player in Ohio's Utica shale in Carroll and surrounding counties:

April 30, 2013

Rex Energy Reports First Quarter 2013 Operational and Financial Results

 

  • Average net daily production of 75.3 MMcfe/d exceeded high end of company guidance
  • Recently completed Breakneck Beagle Club wells produced into sales at an average 5-day rate of 6.2 MMcfe/d (assuming full ethane recovery)
  • Most recent "Super Rich" Marcellus well, the Wack 9H, produced 1,328 BTU gas at an average 5-day sales rate of 5.8 MMcfe/d (assuming full ethane recovery) with 57% liquids
  • Second Upper Devonian Burkett well, Drushel 6 HD, produced into sales at a 30-day rate of 6.9 MMcfe/d (assuming full ethane recovery)
  • Completed acreage trade in Warrior North Prospect; added approximately 20 net locations
  • Ended first quarter 2013 with approximately $439 million of liquidity (pro forma for issuance of senior notes)

STATE COLLEGE, Pa., April 30, 2013 (GLOBE NEWSWIRE) -- Rex Energy Corporation (Nasdaq:REXX) today announced its first quarter 2013 operational and financial results.

First Quarter Financial Results

Operating revenues from continuing operations for the three months ended March 31, 2013 were $47.5 million, which represents an increase of 40% over the same period in 2012 and an increase of 5% over the fourth quarter of 2012. Commodity revenues, including cash-settled derivatives, were $44.6 million, an increase of 26% over the comparable period of 2012 and an increase of 2% over the fourth quarter of 2012. Commodity revenues and cash-settled derivatives from oil and natural gas liquids (NGLs) represented 54% of total commodity revenues for the three months ended March 31, 2013.

Lease operating expense (LOE) from continuing operations was $13.4 million, or $1.98 per Mcfe for the quarter. Cash general and administrative expenses (G&A) from continuing operations were $6.5 million, or $0.96 per Mcfe, for the three months ended March 31, 2013. Results for LOE and cash G&A from continuing operations were both within the company's previously announced guidance.

Loss from continuing operations attributable to Rex Energy common shareholders for the three months ended March 31, 2013 was $2.8 million, or $0.05 per share. Adjusted net income, a non-GAAP measure, for the three months ended March 31, 2013 was $5.1 million, or $0.10 per share. A reconciliation of adjusted net income to GAAP net income for first quarter 2013, as well as a discussion of the uses of the measure, is presented in the appendix attached to this release.

EBITDAX from continuing operations, a non-GAAP measure, was $26.1 million for the first quarter, an increase of 21% over the first quarter of 2012. A reconciliation of EBITDAX to GAAP net income for first quarter 2013, as well as a discussion of the uses of the measure, is presented in the appendix attached to this release.

Production Update

First quarter 2013 production volumes were 75.3 MMcfe/d, an increase of 24% over the first quarter of 2012 and 2% over the fourth quarter of 2012, consisting of 53.2 MMcf/d of natural gas and 3.7 Mboe/d of oil and NGLs. Oil and NGLs accounted for 29% of net production during the first quarter and increased by 3% over the fourth quarter of 2012. First quarter 2013 production of 75.3 MMcfe/d exceeded the high end of the company's previously announced guidance of 71.5 — 73.5 MMcfe/d by 2%.

Including the effect of cash-settled derivatives, realized prices for the three months ended March 31, 2013, were $4.28 per Mcf for natural gas, $90.70 per barrel for oil and condensate and $45.92 per barrel for NGLs, which was approximately 49% of the average quoted NYMEX oil price for the first quarter. Realized prices before the effects of hedging were $3.51 per Mcf for natural gas, $91.52 per barrel for oil and condensate and $44.86 per barrel for NGLs, which was approximately 48% of the average quoted NYMEX oil price for the first quarter.

First Quarter 2013 Capital Investments

For the first quarter of 2013, the company made operational capital investments of approximately $71.7 million, of which $54.1 million was used to fund Marcellus and Ohio Utica operations, $14.2 million was used to fund conventional drilling, water flood enhancement and ASP projects in the Illinois Basin, and $3.4 million was capitalized interest and corporate expenditures. The Marcellus and Ohio Utica capital investment funded the drilling of seven gross (5.8 net) wells, fracture stimulation of 11 gross (8.3 net) wells, placing six gross (4.2 net) wells into sales and other projects related to drilling and completing wells in the Appalachian Basin. The Illinois Basin capital investment funded the drilling of seven gross (7.0 net) wells, fracture stimulation of nine gross (9.0 net) wells, placing six gross (6.0 net) wells into sales and other projects related to drilling and completing wells.

Total capital investments for leasing and proved property acquisitions were $5.0 million for the first quarter of 2013. Further details are provided below in the land update.

Operational Update

Note: Unless specifically stated otherwise in this operational update, all numbers are gross.

Appalachian Basin — Butler Operated Area, Pennsylvania

In the Butler Operated Area, the company drilled four gross (2.8 net) wells in the first quarter of 2013, with nine gross (6.3 net) wells fracture stimulated and six gross (4.2 net) wells placed into sales. The company had 13 gross (9.1 net) wells drilled and awaiting completion as of March 31, 2013.

During the first quarter, the company completed and placed into sales the four-well Breakneck Beagle Club ("BBC") pad. The four BBC wells were drilled to an average lateral length of 2,824' and were completed using the company's 150' per stage "Super Frac" design.

As previously announced, the company completed its second Upper Devonian Burkett well during the first quarter of 2013, the Drushel 6 HD. The well, which has a lateral length of 4,036', was completed with the 150' per stage "Super Frac" design with a total of 27 stages. The company also used its "Super Frac" design to complete the Meyer 2H during the quarter. The Meyer 2H has a lateral length of 4,028'and was completed with a 27-stage fracture stimulation.

The company also previously announced that it drilled two "Super Rich" Marcellus wells in 2012: the Wack 9H with a lateral length of 3,856' and the Grubbs 2H with a lateral length of 3,136'. The Wack 9H was completed in 26 stages, using the company's "Super Frac" design, in the first quarter of 2013 and was placed into sales in April 2013. Based on composition analysis, the gas being produced is approximately 1,328 BTU, further delineating the company's previously identified "Super Rich" line. The Grubbs 2H was completed in 21 stages, also using the company's "Super Frac" design, in the second quarter of 2013 and is expected to be placed into sales in May 2013. The Wack 9H and Grubbs 2H, together with the 2-well Pallack pad and the 2-well Plesniak pad, further define the potential for increased liquids content in the northwest portion of the Butler Operated Area.

The table below lists, where available, the 5-day and 30-day sales rates for the company's recent completions.

 

 
5-Day Sales Rate (Average Per Well)1
Well Name Target Formation Natural Gas (Mcf/d) Condensate (Bbls/d) NGLs (Bbls/d) Total — Ethane Recovery (Mcfe/d) % Liquids Total - Ethane Rejection (Mcfe/d)
Meyer 2H Marcellus 3,544 2 562 6,929 49% 4,922
BBC, 1H, 2H, 3H, 4H Marcellus 3,011 0 529 6,185 51% 4,381
Wack 9H "Super Rich" Marcellus 2,506 18 532 5,805 57% 4,071
Drushel 6HD Upper Devonian 3,748 12 580 7,302 49% 5,206
1 Placed into sales using various shut-in periods and choke sizes

 

 

 
30-Day Sales Rate (Average Per Well)1
Well Name Target Formation Natural Gas (Mcf/d) Condensate (Bbls/d) NGLs (Bbls/d) Total — Ethane Recovery (Mcfe/d) % Liquids Total - Ethane Rejection (Mcfe/d)
Meyer 2H Marcellus 3,378 3 535 6,603 49% 4,691
BBC, 1H, 2H, 3H, 4H Marcellus 2,604 1 457 5,355 51% 3,795
Drushel 6HD Upper Devonian 3,558 10 551 6,928 49% 4,936
1 Placed into sales using various shut-in periods and choke sizes

The company currently expects to drill its fifth Upper Devonian Burkett Shale well in the second quarter and plans to complete the three Upper Devonian Burkett wells in its inventory during 2013. To date, the company has drilled four Upper Devonian Burkett wells and completed two. By the end of 2013, the company expects to have five Upper Devonian Burkett wells flowing into sales. Two of these wells, the Burgh 2HD and the Perry Township 1HD, lie within the company's "Super Rich" Marcellus area.

 

 
Total Operated Area — Butler County, PA
  Wells Drilled Wells Fracture Stimulated Wells Placed Into Sales Wells Awaiting Completion
YTD 2013 4 9 6 13
FY 2013 Forecast 19 22 21 15

Appalachian Basin — Warrior North Prospect, Carroll County, Ohio

To date during 2013, Rex Energy has drilled three gross (3.0 net) wells in the Warrior North Prospect, with two gross (2.0 net) wells fracture stimulated and no wells placed into sales. The two wells on the G. Graham pad in the Warrior North Prospect were drilled between the fourth quarter of 2012 and the first quarter of 2013, completed in the first quarter of 2013 and have been shut-in since completion. Both of these wells are expected to be placed into sales by early May 2013. Completion operations on the Brace West pad are expected to begin in May 2013. The company expects to have five gross (5.0 net) wells placed into sales in the Warrior North Prospect by August of 2013.

Appalachian Basin — Warrior South Prospect, Guernsey, Noble & Belmont Counties, Ohio

The company drilled and completed its first three wells in the Warrior South Prospect in the fourth quarter of 2012 and tested the production of these wells in the first quarter of 2013. Assuming full ethane recovery, the Guernsey 2H, the Guernsey 1H and the Noble 1H produced at 24-hour test rates of 3,111 Boe/d, 2,968 Boe/d and 2,938 Boe/d, respectively. The wells have been shut-in since completion and will be placed into sales once the related infrastructure is in place, which is currently expected to be in June 2013.

The company has begun drilling operations on the first well of the five-well J. Anderson pad. Wells on the J. Anderson pad are estimated to have an average lateral length of approximately 5,000'. Following the completion of drilling operations, the rig will move back to the Warrior North Prospect for the remainder of 2013.

For a more detailed listing of the company's planned 2013 drilling and completion activity, see pages 32 to 34 of the company's May 2013 corporate presentation, which can be found at www.rexenergy.com.

 

 
Total Operated Area — Ohio Utica Shale
  Wells Drilled Wells Fracture Stimulated Wells Placed Into Sales Wells Awaiting Completion
YTD 2013 3 2 0 2
FY 2013 Forecast 11 9 12 3

Appalachian BasinWestmoreland, Clearfield and Centre Counties, Pennsylvania

In the company's non-operated area in Westmoreland County, Pennsylvania, where WPX Energy serves as the operator, WPX Energy plans to drill 11 wells, fracture stimulate 14 wells and place into sales nine wells in 2013. WPX Energy estimates that at the end of 2013, four wells will be awaiting completion and five wells will be shut in for their resting period. As previously announced, Rex Energy has increased its operational capital expenditure budget by $25 million due to the increased drilling and completion activity in its non-operated Westmoreland County area.

In the company's non-operated Westmoreland, Clearfield and Centre counties, Pennsylvania, the combined average production for a recent 5-day period was 49.2 MMcfe/d.

 

 
Total Non-Operated Area — Westmoreland, Clearfield and Centre Counties, PA
  Wells Drilled Wells Fracture Stimulated Wells Placed Into Sales Wells Awaiting Completion
YTD 2013 0 0 0 7
FY 2013 Forecast 11 14 9 4

Illinois Basin — Conventional

In the Illinois Basin, the company is continuing the conventional drilling and re-completion program it commenced in 2012 to increase its oil production. In the first quarter of 2013, the company drilled 7 wells, performed completion or re-completion operations on 9 wells and placed 6 wells into sales. The 6 wells that were placed into sales in the first quarter of 2013 produced at a peak daily rate of 284 gross BOPD. The 23 wells that were completed in 2012 produced at an average daily rate of 558 gross BOPD for the first quarter of 2013. The company is currently completing its first horizontal test well in the region. As previously announced, the company plans to spend approximately $18 million during 2013 to drill and complete or re-complete a total of 26 wells to further delineate its acreage and test multiple zones in the Illinois Basin.

Land Update

During the first quarter of 2013, the company spent approximately $4.1 million of capital related to leasing and acreage acquisitions in the Appalachian and Illinois Basin. In the Butler Operated area of the Appalachian Basin, the company added approximately 1,200 net acres, increasing its total leasehold in the region to approximately 49,600 net acres. In the Ohio Utica, the company completed an acreage trade with an industry peer that added approximately 20 net wells to the company's inventory. The company plans to provide a full land update in its second quarter 2013 earnings release.

Liquidity Update

During the first quarter of 2013, Rex Energy increased the borrowing base under its senior secured credit facility from $240 million to $325 million. In addition, the company extended the maturity of the facility from September 2015 to March 2018. In April 2013, the company completed an offering of an additional $100 million in aggregate principal amount of 8.875% senior notes ("Senior Notes") due 2020 in a private placement. The Senior Notes were issued at an issue price of 105% of par plus accrued interest from December 12, 2012. The company estimates net proceeds to be approximately $102.8 million plus accrued interest, after deducting the initial purchasers' discount and estimated offering expenses. The company intends to use the net proceeds of the offering to fund a portion of its 2013 capital expenditures and for general corporate purposes. As of March 31, 2013, the company had approximately $114 million of cash (pro forma for the issuance of Senior Notes) and no outstanding borrowings under its credit facility.

Second Quarter and Full Year 2013 Guidance

Rex Energy is providing its initial guidance for the second quarter and maintaining its full year 2013 guidance ($ in millions):

 

  2Q2013 Full Year 2013
Production 84.0 — 88.0 MMcfe/d 90.5 — 94.5 MMcfe/d
Lease Operating Expense $13.5 - $15.5 $58 - $62
Cash G&A $6.8 - $7.8 $26 - $29
Capital Expenditures1 -- $255 - $275
1 Land acquisition expense is not included in the capital expenditures budget
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Ohio Environmental Protection Agency.

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Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

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Rig Count Interactive Map by Baker Hughes, an energy services company.

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Stop Fracking Ohio.

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Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

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Allegheny Front, environmental public radio for Western Pennsylvania.