Rex Energy Corporation (NASDAQ:REXX) announced its second quarter 2017 financial and operational results.
Marketing Agreement with BP Energy Company
The company recently entered into a comprehensive marketing arrangement with BP Energy Company, an indirect wholly-owned subsidiary of BP plc (NYSE:BP), pursuant to which BP Energy Company will market the majority of Rex’s liquid C3+ products stream, and provide credit support on behalf of Rex Energy. The arrangement also enhances several of the company’s existing marketing initiatives in the Butler and Warrior North operating areas.
Beginning January 1, 2018, BP Energy Company will purchase the majority of the company’s C3+ products stream for an extended term. The pricing structure compares favorably to actual 2016 and projected 2017 prices. The new pricing structure will help to mitigate the historical fluctuations between summer and winter pricing and stabilize the company’s quarterly cash flows. As part of the new marketing arrangement, Rex Energy has reduced outstanding letters of credit by approximately $14.1 million, immediately increasing liquidity on the company’s $300 million delayed draw term loan facility. Also, as part of the broader marketing initiatives, BP Energy Company will market a portion of Rex Energy’s Warrior North gas at an improved differential to the current Dom South pricing.
“I’m very excited to expand our existing relationship with BP,” said Tom Stabley, Rex Energy’s President and Chief Executive Officer. “The relationship we have developed and grown with BP over the past several years has been a major key to Rex Energy’s success. This is another testament to the confidence placed in the company’s reserves and development capabilities. I look forward to this new, deeper relationship, and to continuing to expand it in the years to come.”
Sale of Salineville Waterline
In July, the company sold its Salineville, OH waterline and related assets to Keystone Clearwater Services (KCS) for a total consideration of approximately $8.0 million. The Salineville waterline provided water for completions in the Warrior North area. In connection with the sale of the waterline, Rex Energyentered into a lease agreement with KCS to secure water services for future completions in the Warrior North area.
Warrior North Area Condensate
Rex Energy has entered into a new term condensate agreement with Marathon Petroleum Corporation pursuant to which the company will receive an improved condensate differential on all of its production in the Warrior North Area beginning September 1, 2017.
Improving Natural Gas Basis Differentials
During the first half of 2017, the company’s realized natural gas prices improved due to tightening differentials in the northeast markets and the full realization of its Gulf Coast transport contracts. The unhedged realized natural gas price for the first half of 2017 was $2.94 and the natural gas basis differential was ($0.24) off of NYMEX. As a result, the company expects its full-year 2017 natural gas basis differential, including the effects of basis hedging, to improve to ($0.35) – ($0.45) off of NYMEX as compared to the previous estimate of ($0.58) – ($0.68) off of NYMEX.
Second Quarter Financial Results
Operating revenue from continuing operations for the three and six months ended June 30, 2017 was $47.5 million and $99.5 million, respectively, which represents an increase of 52% and 75% over the same periods in 2016. Commodity revenues, including settlements from derivatives, for the three and six months ended June 30, 2017 were $45.4 million and $94.0 million, respectively, a decrease of 7% and an increase of 7% from the same periods in 2016. Commodity revenues from natural gas liquids (NGLs) and condensate, including settlements from derivatives, represented 39% of total commodity revenues for the three months ended June 30, 2017.
Lease operating expense (LOE) from continuing operations was $29.4 million, or $1.82 per Mcfe for the quarter. For the six months ended June 30, 2017, LOE was approximately $58.3 million, or $1.84 per Mcfe. General and administrative (G&A) expenses from continuing operations were $4.3 million for the second quarter of 2017, or $0.27 per Mcfe. For the six months ended June 30, 2017, G&A expenses from continuing operations were $8.8 million, or $0.28 per Mcfe. Cash G&A expenses from continuing operations (a non-GAAP measure) for the three months ended June 30, 2017 were $3.8 million, or $0.23 per Mcfe, a 16% increase on a per unit basis as compared to the same period in 2016. For the six months ended June 30, 2017, cash G&A expenses from continuing operations (a non-GAAP measure) were $8.3 million, or $0.26 per Mcfe, consistent on a per unit basis when compared to the same period in 2016.
Net loss attributable to common shareholders for the three months ended June 30, 2017 was $10.2 million, or $1.03 per basic share. Net loss attributable to common shareholders for the six months ended June 30, 2017 was $8.1 million, or $0.83 per basic share. Adjusted net loss, a non-GAAP measure, for the three months ended June 30, 2017 was $9.2 million, or $0.93 per share. Adjusted net loss for the six months ended June 30, 2017 was $14.7 million, or $1.50 per share.
EBITDAX from continuing operations, a non-GAAP measure, was $12.4 million for the second quarter of 2017 and $28.0 million for the six months ended June 30, 2017.
Reconciliations of adjusted net loss to GAAP net loss, EBITDAX to GAAP net loss and G&A to cash G&A for the three and six months ended June 30, 2017, as well as a discussion of the uses of each measure, are presented in the appendix of this release.
Production Results and Price Realizations
Second quarter 2017 production volumes from continuing operations were 177.1 MMcfe/d, consisting of 108.7 MMcf/d of natural gas, 4.8 Mbbls/d of C3+ NGLs, 5.8 Mbbls/d of ethane and 0.8 Mbbls/d of condensate. NGLs (including ethane) and condensate accounted for 39% of net production for the second quarter of 2017. Second quarter production was constrained during the quarter due to unplanned maintenance downtime in the company’s midstream services. The unplanned maintenance downtime adversely effected production during the second quarter by approximately 3.5 MMcfe/d.
Including the effects of cash-settled derivatives, realized prices for the three months ended June 30, 2017 were $2.78 per Mcf for natural gas, $21.62 per barrel for C3+ NGLs, $9.93 per barrel for ethane and $44.35 per barrel for condensate. Before the effects of hedging, realized prices for the three months ended June 30, 2017 were $2.94 per Mcf for natural gas, $23.03 per barrel for C3+ NGLs, $9.96 per barrel for ethane and $42.35 per barrel for condensate.
Including the effects of cash-settled derivatives, realized prices for the six months ended June 30, 2017 were $2.91 per Mcf for natural gas, $23.37 per barrel for C3+ NGLs, $9.84 per barrel for ethane and $45.26 per barrel for condensate. Before the effects of hedging, realized prices for the six months ended June 30, 2017 were $3.05 per Mcf for natural gas, $26.86 per barrel for C3+ NGLs, $9.74 per barrel for ethane and $44.25 per barrel for condensate.
Second Quarter 2017 Capital Investments
For the second quarter of 2017, net operational capital investments were approximately $29.1 million. The company expects to be reimbursed by joint development partners for approximately $13.4 million of previously incurred costs that were not billed until the third quarter of 2017. Capital investments in the second quarter of 2017 funded the drilling of six gross (4.8 net) wells, fracture stimulation of six gross (3.1 net) wells and other projects related to drilling and completing wells in the Appalachian Basin. Net operated capital expenditures for the full-year 2017 are still expected to be within the range of the company’s previously issued guidance of $115.0 million – $130.0 million.
Moraine East Area
In the Moraine East Area, the company drilled two gross (two net) wells, completed six gross (3.1 net) wells and placed into sales four gross (1.4 net) wells in the second quarter of 2017. In addition, the company had nine gross (4.9) net wells awaiting completion at the end of the second quarter.
The company has begun initial sales from its six-well Shields pad. The six wells were drilled to an average lateral length of approximately 8,800 feet and completed in an average of 49 stages. In addition, the company has completed two of the Shields wells with engineered spacing designs as compared to its standard spacing design. The company expects to provide an update on the performance of the pad in the coming weeks.
The company recently finished completing the four wells on the Mackrell pad, which were drilled to an average lateral length of 7,630 feet. The wells are expected to be placed into sales in early September 2017 as scheduled. Lastly, the company recently finished drilling the two-wells on the Frye pad, which were drilled to an average lateral length of approximately 6,300 feet. The two-well Frye pad is currently being completed and is expected to be placed into sales in the third quarter of 2017.
The twelve wells discussed above are all on the eastern side of the Moraine East Area and will be the final delineation of the field. The company now expects to place additional compression for the Moraine East Area into service in early January 2018, a delay compared to previous estimates of early fourth quarter service, which, in turn, will defer peak production from the area until January 2018.
Legacy Butler Operated Area
In the Legacy Butler Operated Area, the company has begun completing the four-well Wilson pad. The four wells were drilled to an average lateral length of approximately 9,300 feet and are expected to be placed into sales in the fourth quarter of 2017.
Warrior North Area
In the Warrior North Area, the company has finished drilling the three-well Jenkins pad. The three wells were drilled to an average lateral length of approximately 6,500 feet and in an average of 13.2 drilling days, the best average the company has achieved in the Warrior North Area. The three wells are expected to be completed at the end of the fourth quarter of 2017.
Third Quarter and Full Year 2017 Guidance
Rex Energy is providing guidance for the third quarter of 2017 and adjusted full-year 2017. Full-year 2017 production guidance has been reduced to 180.0 – 190.0 MMcfe/d due to midstream restrictions and delays in placing the Vaughn and Baird pads into sales in the first half of 2017. The company still expects to achieve its year-end 2017 exit rate production growth rate guidance of 15% – 20% upon the commissioning of its fourth compressor in the Moraine East Area, which is scheduled for January 5, 2018. This will allow the company to remain on target to meet its full-year 2018 production guidance of 255.0 – 265.0 MMcfe/d.
Shares of Rex Energy are rallying nearly 8% to $2.95 in after-hours trading Tuesday. REXX has a 1-year high of $9.80 and a 1-year low of $2.30. The stock’s 50-day moving average is $2.90 and its 200-day moving average is $1.62.
On the ratings front, REXX has been the subject of a number of recent research reports. In a report issued on July 20, RBC analyst Kurt Hallead reiterated a Buy rating on REXX, with a price target of $4.00, which implies an upside of 44% from current levels. On July 17, Northland Securities’ Jeff Grampp reiterated a Hold rating on the stock and has a price target of $4.00.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Kurt Hallead and Jeff Grampp have a yearly average loss of -3.2% and -13.8% respectively. Hallead has a success rate of 35% and is ranked #4363 out of 4628 analysts, while Grampp has a success rate of 31% and is ranked #4521.
Rex Energy Corp. is an independent energy company, which engages in acquisition, production, exploration and development of oil, natural gas and natural gas liquids with properties concentrated in the Appalachian and Illinois regions of the United States. It operates through the Exploration and Production and Field Services segment. The Exploration and Production segment engages in the exploration, acquisition, development and production of oil, natural gas and Liquids. The Field Services segment operates and manages water sourcing, water transfer and water disposal services, primarily in the Appalachian Basin.