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Ohio Utica Shale

Rex Energy reports on Ohio, Pennsylvania wells

By Bob Downing Published: February 22, 2014

From Rex Energy on Wednesday:

 

  • Average daily production from oil and NGLs reached a record level of 5.7 MBoe/day, a 7 percent increase over the third quarter of 2013.
  • Fourth quarter adjusted EBITDAX reached $40.7 million, the highest level in company history
  • Increased proved reserves at December 31, 2013 by 37% over December 31, 2012; Appalachian Basin drill-bit F&D of $0.70/Mcfe for 2013
  • Baillie Trust pad continues to perform well; 30-day sales rate of 5.1 MMcfe/d per well from four vertically offset stacked laterals
  • Currently drilling the three-well Schilling pad, with an estimated lateral length of ~ 5,800 feet, the longest average lateral length of any combination of wells drilled in the Butler Operated Area
  • Drilling final well of six-well Grunder pad in Warrior North Prospect; nine wells in the Warrior North Prospect to be placed into sales in second quarter of 2014
  • Exited 2013 with approximately 79,000 gross acres in the Butler Operated Area

STATE COLLEGE, Pa., Feb. 19, 2014 (GLOBE NEWSWIRE) -- Rex Energy Corporation (Nasdaq:REXX) today announced its fourth quarter and full year 2013 operational and financial results.

Fourth Quarter Financial Results

Operating revenues from continuing operations for the three months ended December 31, 2013 were $72.1 million, which represents an increase of 60% over the same period in 2012. Commodity revenues, including the net cash received from derivatives, were $65.1 million, an increase of 49% over the comparable period of 2012. Commodity revenues from oil and natural gas liquids (NGLs), including net cash received from derivatives, represented 56% of total commodity revenues for the three months ended December 31, 2013.

Lease operating expense (LOE) from continuing operations was $18.4 million, or $1.82 per Mcfe for the quarter, a 6% decrease on a per unit basis compared to the same period in 2012. DD&A expense for the fourth quarter of 2013 was $23.6 million, an increase of $10.4 million over the fourth quarter of 2012 and $7.3 million over the third quarter of 2013. This increase in depletion is due to the significant production growth in the Appalachian Basin assets and higher finding costs in the Illinois Basin.

The company incurred a non-cash impairment charge of approximately $29.7 million during the fourth quarter of 2013, largely due to higher finding costs on its exploration program in the Illinois Basin as well as decreases in expected future prices for crude oil.

Loss from continuing operations attributable to common shareholders for the three months ended December 31, 2013 was $13.9 million, or $0.26 per share. Adjusted net income, a non-GAAP measure, for the three months ended December 31, 2013 was $5.4 million, or $0.10 per share.

EBITDAX from continuing operations, a non-GAAP measure, was $40.7 million for the fourth quarter, an increase of 54% over the fourth quarter of 2012 and 17% over the third quarter of 2013.

Reconciliations of cash G&A expenses to GAAP G&A expenses, adjusted net income to GAAP net income, and EBITDAX to GAAP net income for the three months ended December 31, 2013, as well as a discussion of the uses of each measure, are presented in the appendix attached to this release.

Full Year 2013 Financial Results

Operating revenues from continuing operations for the full year 2013 were $237.9 million, which is an increase of 61% over full year 2012 operating revenues. Commodity revenues, including the net cash received from derivatives, were $221.0 million, an increase of 47% over full year 2012. Commodity revenues from oil and NGLs, including net cash received from derivatives, represented 56% of total commodity revenues for the full year 2013.

LOE from continuing operations was $62.1 million, or $1.84 per Mcfe for the full year 2013. Cash G&A expenses from continuing operations, a non-GAAP measure which excludes stock based compensation, were $27.7 million for the full year 2013. DD&A expense for the full year 2013 was $63.9 million, an increase of $18.5 million over the full year 2012. This increase in depletion is due to the significant production growth in the Appalachian Basin assets and higher finding costs in the Illinois Basin.

Loss from continuing operations attributable to common shareholders for the full year 2013 was $1.9 million, or $0.04 per share. Adjusted net income, a non-GAAP measure, for the full year 2013 was $23.8 million, or $0.45 per share.

EBITDAX from continuing operations, a non-GAAP measure, was $134.9 million for the full year 2013, an increase of 52% over the full year 2012.

Reconciliations of cash G&A expenses to GAAP G&A expenses, adjusted net income to GAAP net income, and EBITDAX to GAAP net income for the twelve months ended December 31, 2013, as well as a discussion of the uses of each measure, are presented in the appendix attached to this release.

Production Update

Fourth quarter 2013 production volumes were 110.4 MMcfe/d, an increase of 12% over the third quarter of 2013 and 49% over the fourth quarter of 2012, consisting of 76.4 MMcf/d of natural gas and 5.7 Mboe/d of oil and NGLs. Oil and NGLs accounted for 31% of net production during the fourth quarter and increased by 7% over the third quarter of 2013. For full year 2013, production volumes increased by 38% over 2012 to 92.7 MMcfe/d, consisting of 64.2 MMcf/d of natural gas and 4.8 Mboe/d of oil and NGLs. Oil and NGLs increased by 59% over 2012 and accounted for 31% of net production during 2013. Both the company's fourth quarter 2013 and full year 2013 average daily production volumes exceeded the midpoint of the company's previously announced fourth quarter 2013 and full year 2013 production guidance.

Including the effects of cash-settled derivatives, realized prices for the three months ended December 31, 2013 were $90.30 per barrel for oil and condensate, $4.03 for natural gas and $52.19 per barrel for NGLs. For the full year 2013, realized prices including the effects of cash-settled derivatives were $91.30 per barrel for oil and condensate, $4.17 for natural gas and $48.34 per barrel for NGLs. Before the effects of hedging, realized prices for the three months ended December 31, 2013 were $93.33 per barrel for oil and condensate, $3.60 for natural gas and $54.81 per barrel for NGLs. For the full year 2013, realized prices prior the effects of hedging were $95.12 per barrel for oil and condensate, $3.71 for natural gas and $48.66 per barrel for NGLs.

Full Year 2013 Capital Investments

For the full year 2013, the company made operational capital investments of approximately $303.2 million, of which $233.0 million was used to fund Marcellus and Ohio Utica operations and $70.2 million was used to fund conventional drilling, water flood enhancement and facility upgrades in the Illinois Basin. The Marcellus and Ohio Utica capital investment funded the drilling of 42.0 gross (29.8 net) wells, fracture stimulation of 44.0 gross (30.0 net) wells, placing 47.0 gross (31.7 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 19 gross (19.0 net) wells, fracture stimulation of 29 gross (29.0 net) wells and placing 29 gross (29.0 net) wells into sales and other projects related to drilling and completing wells.

In addition to operational capital investments, investments for leasing and property acquisitions were $35.6 million and capitalized interest was $7.5 million for the full year 2013.

Estimated Proved Reserves

Rex Energy previously reported proved oil, NGL and natural gas reserves as of December 31, 2013 of 849.8 Bcfe, an increase of 37% over December 31, 2012. Of the proved reserves, 39% was attributable to oil, natural gas liquids and condensate, assuming 55% ethane recovery. The proved developed portion of the reserves increased to 356.5 Bcfe from 257.9 Bcfe as of December 31, 2012 and accounted for 42% of proved reserves. Drill-bit finding and development costs on a per unit basis were $0.91 per Mcfe for 2013 and $0.70 per Mcfe for the Appalachian Basin. The proved reserves estimates as of December 31, 2013 were prepared by the company's independent reservoir engineers, Netherland, Sewell & Associates, Inc. For more information on proved reserves and related information, see "Note on Hydrocarbon Volumes and Estimates" below.

Operational Update

Note: Unless specifically stated otherwise in this operational update, all numbers are gross; all well results assume full ethane recovery and all wells were completed using the company's 150' stage spacing "Super Frac" design.

Appalachian Basin - Butler Operated Area, Pennsylvania

In the Butler Operated Area, the company drilled 19.0 gross (13.3 net) wells in 2013, with 26.0 gross (18.2 net) wells fracture stimulated and 26.0 gross (18.2 net) wells placed into service. The company had 11.0 gross (7.7 net) wells drilled and awaiting completion as of December 31, 2013.

As previously reported, the company placed into sales the six-well Baillie Trust pad, which produced into sales at an average five-day sales rate per well (excluding downtime) of 5,957 Mcfe/d (52% NGLs, 47% gas, 1% condensate), assuming full ethane recovery. The six wells have gone on to produce at an average 30-day sales rate per well (excluding downtime) of 5,192 Mcfe/d (52% NGLs, 47% gas, 1% condensate), assuming full ethane recovery. In addition, the company tested slightly different landing zones for the laterals on two of the six wells drilled. Based on the results of these wells, the company plans to target its historical landing zone in the high organic section of the reservoir for future laterals in its Butler Operated Area. The 30-day sales rate per well for the four wells landed in the high organic section of the reservoir was 5.5 MMcfe/d.

The company is currently drilling the third of three wells on the Schilling pad. The three wells will be drilled with an average lateral length of approximately 5,800 feet, which represents the longest average lateral length of any combination of wells drilled in the Butler Operated Area. The company expects to finish drilling the wells during the first quarter of 2014 and begin completion operations in the second quarter of 2014.

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)
Well Name Target Formation Natural Gas (Mcf/d) NGLs / Condensate (Bbls/d) % Liquids Total - Ethane Recovery (Mcfe/d) Total - Ethane Rejection (Mcfe/d)
Baillie Trust(1) 2H, 4H, 5H(2), 6H (2) Marcellus / Upper Devonian 2,826 531 53% 6,009 4,105
Baillie Trust 1H, 3H Marcellus 2,711 524 54% 5,854 4,023
 
30-Day Sales Rate (Average Per Well)
Well Name Target Formation Natural Gas (Mcf/d) NGLs / Condensate (Bbls/d) % Liquids Total - Ethane Recovery (Mcfe/d) Total - Ethane Rejection (Mcfe/d)
Baillie Trust(1) 2H, 4H, 5H(2), 6H (2) Marcellus / Upper Devonian 2,405 450 53% 5,106 3,486
Baillie Trust 1H, 3H Marcellus 2,487 479 54% 5,364 3,685
(1) Stacked laterals
(2) Upper Devonian wells

 

 
Total Operated Area - Butler County, PA
  Wells Drilled Wells Fracture Stimulated Wells Placed Into Sales Wells Awaiting Completion
FY 2014 Forecast 40 - 45 35 - 38 35 - 38 16 - 18

Butler Operated Area - Midstream Capacity

As previously reported, the company's existing 90 MMcf/d of processing capacity at the Sarsen and Bluestone facilities has been substantially filled and the company expects the plant to remain at or near capacity until the Bluestone II facility, which is currently under construction, is commissioned. The company continues to expect that the Bluestone II facility will be commissioned in the second quarter of 2014, adding an incremental 120 MMcf/d of processing capacity in the Butler Operated Area (of which 100 MMcf/d is dedicated to Rex Energy). The company currently expects to place 10 - 12 wells into sales in the second quarter of 2014 in its Butler Operated Area due to the additional processing capacity at the Bluestone II facility.

In addition, Rex Energy recently secured approximately 48 MMcf/d of additional future firm residue transportation through Dominion Transmission in the Butler Operated Area. The company now has approximately 133 MMcf/d of firm transportation in the Butler Operated Area. The additional firm transportation will be used to support the expected production growth in the Butler Operated Area once the Bluestone II facility is commissioned in the second quarter of 2014.

Appalachian Basin - Warrior North Prospect, Carroll County, Ohio

In the Warrior North Prospect, the company drilled nine gross (9.0 net) wells in 2013, with four gross (4.0 net) wells fracture stimulated and four gross (4.0 net) wells placed into service. The company had six gross (6.0 net) wells awaiting completion as of December 31, 2013.

The company is drilling the last well on the six-well Grunder pad in the Warrior North Prospect. The six wells will average total measured depth of approximately 12,905 feet with an average lateral length of approximately 4,800 feet. The company recently added a sixth well to the Grunder pad in order to test 500 foot and 650 foot down spacing. Rex Energy expects to begin completion operations during the first quarter of 2014 and expects to place the wells into sales in the second quarter of 2014.

The company recently completed the three-well Ocel pad. The three wells on the pad were completed on 750 foot spacing and were drilled to an average total measured depth of approximately 12,700 feet with an average lateral length of approximately 4,400 feet and were completed with an average of 29 frac stages. The wells are expected to be placed into sales in the second quarter of 2014.

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

In the Warrior South Prospect, the company drilled five gross (3.9 net) wells in 2013, with five gross (3.9 net) wells fracture stimulated and eight gross (6.2 net) wells placed into service. The company had no wells awaiting completion as of December 31, 2013.

As previously reported, the company placed the five-well J. Anderson pad into sales during the fourth quarter of 2013. The wells produced at an average five-day sales rate (excluding downtime) of 1,886 Boe/d on an average 18/64 inch choke and have subsequently gone on to produce at an average 30-day sales rate (excluding downtime) of 1,721 Boe/d and a average last 5-day sales rate of 1,515 Boe/d. These wells, along with the initial three Warrior South Prospect wells placed into sales in June 2013, continue to flow into sales without processing constraints.

The company expects to start drilling operations on the six-well J. Hall pad, located in Guernsey County, in the second quarter of 2014. The six-wells on the J. Hall pad are expected to be drilled with an average lateral length of approximately 5,500 feet and are testing approximately 650 foot spacing between the laterals on this pad. The six-well J. Hall pad is expected to be completed in the third quarter of 2014 and placed into sales near the end of 2014.

 

 
Total Operated Area - Ohio Utica Shale
  Wells Drilled Wells Fracture Stimulated Wells Placed Into Sales Wells Awaiting Completion
FY 2014 Forecast 11 17 11 0

Appalachian Basin - Well Cost Reduction

As previously reported, the company reduced its cost to drill and complete wells in the Appalachian Basin by approximately 10% in 2013 through a combination of improved pricing on service costs and operational efficiencies in both the Butler Operated Area and Ohio Utica Warrior Prospects. Rex Energy expects well costs in the Butler Operated Area to average approximately $5.9 million per well for a 4,000 foot lateral, a decrease of approximately 9% over the $6.5 million average per well from one year ago.

Appalachian Basin - Westmoreland, Clearfield and Centre Counties, Pennsylvania

In the company's non-operated area in Westmoreland County, Pennsylvania, where WPX Energy serves as the operator, WPX drilled nine wells and placed 10 wells into sales during 2013. As of December 31, 2013, WPX had five wells awaiting completion.

In the company's non-operated Westmoreland, Clearfield and Centre counties, Pennsylvania, the combined average production for a recent 5-day period was 55.2 MMcf/d.

 

 
Total Non-Operated Area - Westmoreland, Clearfield and Centre Counties, PA
  Wells Drilled Wells Fracture Stimulated Wells Placed Into Sales Wells Awaiting Completion
FY 2014 Forecast 1 4 9 0

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 2013, the company drilled 19 vertical wells, performed completion or re-completion operations on 29 wells and placed 29 wells into sales.

Since the commencement of the Illinois Basin conventional program, the company's vertical well program has produced at a median 24-hour peak production rate of approximately 55-80 barrels per day and a median 30-day production rate of approximately 20-30 barrels per day.

To date, the recompletion program has produced at a median 24-hour peak production rate of approximately 30-70 barrels per day and a median 30-day production rate of approximately 10-40 barrels per day.

 

 
Total Operated Area - Illinois Conventional Program
  Wells Drilled Wells Fracture Stimulated(1) Wells Placed Into Sales Wells Awaiting Completion
FY 2014 Forecast 9 - 11 29 - 31 9 - 11 0
(1) Includes approximately 20 re-completions of existing wellbores

Water Service Subsidiary

The company's water service subsidiary, Keystone Clearwater Solutions, continues to expand its position as a premier water solutions provider in the Appalachian Basin. Over the past six months, Keystone Clearwater Solutions has made additional capital investments in bolt-on services such as waterline construction, frac tank rentals and water hauling. For 2013, Keystone Clearwater Solutions generated approximately $32.6 million of revenue and $6.7 million of EBITDAX (before inter-segment eliminations). For 2014, Keystone Clearwater Solutions has budgeted $8 - $12 million in capital expenditures to support its planned growth. Rex Energy holds a 60% membership interest in Keystone Clearwater Solutions.

Land Update

During 2013, the company spent approximately $35.6 million related to leasing and acreage acquisitions in the Appalachian and Illinois Basins. In the Butler Operated Area of the Appalachian Basin, the company leased approximately 9,500 gross (6,200 net) acres during 2013, increasing its total leasehold in the region to approximately 78,900 gross (54,600 net) acres, an increase of 13% over 2012. In addition, the company's leasing activity in 2013 added approximately 30.0 net potential Marcellus drilling locations and 29.0 net potential Upper Devonian drilling locations.

In the Ohio Utica, the company added approximately 1,500 gross (1,200 net) acres, increasing its total leasehold in the region to approximately 21,200 net acres. The 2013 leasing program and strategic acreage trades in the Ohio Utica added approximately 21.0 net drilling locations in the Ohio Utica.

In the Illinois Basin, the company added approximately 33,500 net acres in Illinois & Indiana, increasing its total operated leasehold in the region to approximately 62,200 net acres.

Liquidity Update

As of December 31, 2013, Rex Energy had approximately $2 million of cash and $59 million of its $325 million borrowing base outstanding under its senior secured credit facility. The company's borrowing base, which as of December 31, 2013 had $266 million available, is scheduled for its next redetermination in March 2014. As of December 31, 2013, the company had approximately $268 million of total liquidity.

First Quarter and Full Year 2014 Guidance

Rex Energy is providing its guidance for the first quarter and maintaining its full year 2014 guidance ($ in millions):

 

 
  1Q2014 Full Year 2014
Production 115.0 -- 118.0 MMcfe/d 143.0 -- 149.0 MMcfe/d
Lease Operating Expense $18.5 -- $19.5 $95.0 -- $101.0
Cash G&A $8.3 -- $9.3 $36.0 -- $39.0
Operational Capital Expenditures(1) -- $350.0 -- $365.0
(1) Land acquisition expense, capitalized interest and Keystone Clearwater Solutions are not included in the operational capital expenditures budget

The company currently expects that its production results for the second quarter and third quarter of 2014 will sequentially increase by 12% - 18% and 20% - 30%, respectively, when the Bluestone II processing facility is completed in its Butler Operated Area. These production results are based upon the expectation that the Bluestone II plant will be completed on May 15, 2014. The company currently expects to place 10 - 12 wells into sales in the second quarter of 2014 in its Butler Operated Area due to the additional processing capacity at the Bluestone II facility. In addition, the company currently expects to place nine Warrior North Prospect wells into sales during the second quarter of 2014.

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