Rex Energy Corporation (Nasdaq:REXX) (“the company”) today
announced its two-year financial and operational plan and provided
a financial update.
Highlights:
- Expect capital spend in 2017 and 2018 to be aligned with cash
flow from operations and asset sales
- Debt-to-EBITDAX reduction of ~50% by end of 2018 driven by
significant production growth, improved basis differentials and
enhanced price realizations
- Targeting a two-year compounded annual production growth rate
of 10% - 15% by 2018
- Exit rate production growth for 2017 of 15% - 20% (Dec. 2017
vs. Dec. 2016)
- Expect ~40% differential improvement to NYMEX for natural gas
realizations in 2017 and ~15% improvement in 2018
- Expect C3+ NGL pricing in 2017 to be 43% - 48% of WTI; 45% -
50% in 2018
- Benefit Street Partners LLC elected into five additional wells
for approximately $15.8 million for a total capital commitment to
date of $135.9 million
- BP Energy Co. added to bank group allowing for expanded hedging
program to further protect cash flow
- ~82% of all PDP production hedged for 2017 and ~40% for
2018
- Expect to have ~1,300 gross / 1,000 net locations HBP or HBO by
year-end 2017
Two-Year Financial and Operational Plan
Note: a detailed breakdown of the two-year financial and
operational plan can be found in the company’s January 2017
corporate presentation on slides 5 through 10. In addition, all
2017 and 2018 forecasts, projections and comparisons to prior
periods do not include any contribution from assets divested or any
future impacts related to adjustments to the capital structure.
2017 Financial and Operational Plan
Capital Expenditures and Drilling Activity
Rex Energy’s net operational capital expenditures for 2017 are
expected to be in the range of $70.0 - $80.0 million, with
approximately 80% allocated to the development of the Marcellus and
Upper Devonian Burkett shales in the Moraine East and Legacy Butler
Operated Areas. Approximately 20% is allocated to the development
of the Utica Shale in the Warrior North Area. The 2017 capital
budget is expected to be funded through cash flow from operations
and asset divestitures.
The company plans to run one drilling rig in its Butler Operated
and Ohio Utica Warrior North Area and expects to drill 21.0 gross
(11.1 net) wells, complete 26.0 gross (12.7 net) wells and place
into sales 23.0 gross (11.2 net) wells. Of the 23.0 gross (11.2
net) wells scheduled to be placed into sales in 2017, only four
gross (1.4 net) wells will be placed into sales in the first half
of 2017, with the remaining 19.0 gross (9.8 net) wells placed into
sales in the second half of 2017. The 2017 development plan in the
Butler Operated and Warrior North Area is aligned with the
company’s HBP/HBO goals for 2017; upon completion of the 2017
development program, the majority of the company’s drillable
acreage will be held by production.
Production Guidance
Average daily production is estimated to be in the range of
194.0 – 204.0 MMcfe/d, representing year-over-year growth of
approximately 5% to 10% as compared to the company’s full-year 2016
production guidance. With only four gross (1.4 net) wells expected
to be placed into sales in the first half of 2017, the majority of
the company’s production growth will occur in the second half of
2017. Liquids production is expected to account for approximately
38% of 2017 production at the midpoint of guidance. In addition,
2017 exit rate production (December 2017 vs. December 2016) is
estimated to increase approximately 15% - 20%. Second half
production growth will be driven by pipeline construction into the
eastern portion of the company’s Moraine East Area.
Price Realizations
In 2017, Rex Energy will realize a full year of Gulf Coast
transport and the related positive impact this transportation will
have on its natural gas price differentials. The company expects to
sell approximately 50% of its natural gas volumes to the Gulf Coast
with the remaining volumes sold into local markets at which the
company has approximately 60% of the basis differential hedged at a
premium to the current spot price. Overall natural gas
differentials are expected to improve by approximately 40% over
full-year 2016 basis differentials to ($0.53) – ($0.63) off of
NYMEX. In addition, with the improvement in local differentials for
C3+ NGLs, the company expects C3+ NGL pricing to be approximately
43% - 48% of WTI pricing.
2018 Financial and Operational Plan
Capital Expenditures and Drilling Activity
Full-year 2018 net operational capital expenditures are expected
to be in the range of $20.0 - $40.0 million, with approximately
100% of the net operational capital expenditures allocated to the
development of the Marcellus and Upper Devonian shales in the
Moraine East and Legacy Butler Operated Areas. The 2018 capital
budget is expected to be funded through cash flow from operations
and cash on the balance sheet.
The company plans to run one drilling rig in its Butler Operated
Area and expects to drill four gross (2.8 net) wells, complete six
gross (3.8 net) wells and place into sales nine gross (5.3 net)
wells.
Production Guidance
For full-year 2018, Rex Energy estimates that average daily
production will be in the range of 223.0 – 233.0 MMcfe/d,
representing 15% - 20% year-over-year growth as compared to the
midpoint of 2017 production guidance. Liquids production is
expected to account for approximately 45% of the company’s 2018
production at the midpoint of guidance.
Price Realizations / Per Unit LOE
For 2018, the company expects approximately 50% of its natural
gas volumes to be sold into the Gulf Coast market and expects its
overall natural gas basis differentials to be in the range of
($0.48) – ($0.58) off of NYMEX. In addition, C3+ NGL pricing is
expected to be approximately 45% - 50% of WTI pricing. Per unit LOE
is expected to decrease by approximately 5% - 10% compared to
full-year 2017 due to an overall reduction in reservation fees due
to increased production during the year.
Leverage Ratio
With the plan to fund 2017 and 2018 net operational capital
expenditures from cash flow from operations and asset divestitures,
the company expects to grow its EBITDAX by approximately 80% - 85%
in 2017 and 10% - 15% in 2018. The targeted increase in EBITDAX
assumes current strip pricing as of December 31, 2016 and is driven
by expected production growth of 5% - 10% in 2017 and 15% - 20% in
2018 combined with hedging at favorable pricing. With these
factors, the company anticipates reducing its debt-to-EBITDAX ratio
by approximately 35% - 40% in 2017 and 15% - 20% in 2018, on a
year-over-year basis and a total reduction of approximately 50%
from year-end 2016 to year-end 2018
“Rex Energy’s two-year plan is a clear, transparent road map for
our future operation strategy. We designed the plan to enhance cash
flow, provide strong production growth, and significantly reduce
the company’s overall debt metrics – all while living within cash
flow,” said Tom Stabley, President and CEO of Rex Energy. “The plan
builds on the success of our 2016 initiatives; with the quality of
our acreage, and strong support from our partners and dedicated
employees, we’re confident we can deliver.”
2017 & 2018 Guidance
The following table outlines Rex Energy’s 2017 and 2018
guidance:
Production |
2017 |
2018 |
Average Daily Production (MMcfe/d) |
194.0 – 204.0 |
223.0 – 233.0 |
Natural Gas Production (MMcf/d) |
120.0 – 125.0 |
125.0 – 130.0 |
NGL Production (Mbbls/d) |
5.8 – 6.2 |
6.3 – 6.7 |
Ethane Production (Mbbls/d) |
5.9 – 6.2 |
9.4 – 9.6 |
Condensate Production (Mbbls/d) |
0.7 – 0.8 |
0.7 – 0.9 |
|
|
|
Capital Expenditures ($MM) |
|
|
Net Operational Capital |
$70.0 - $80.0 |
$20.0 - $40.0 |
|
|
|
Price Realizations |
|
|
Natural Gas Basis Differential ($/Mcfe) |
($0.53) – ($0.63) |
($0.48) – ($0.58) |
Condensate Basis Differential ($/Bbl) |
($5.50) – ($6.50) |
($5.50) – ($6.50) |
C3+ as % of WTI |
43% - 48% |
45% - 50% |
|
|
|
Per Unit Costs ($/Mcfe) |
|
|
Lease Operating Expenses (LOE) |
$1.70 - $1.80 |
$1.60 - $1.70 |
Cash General & Administrative |
$0.20 - $0.25 |
$0.17 – 0.22 |
|
|
|
Leverage Ratio |
|
|
Net Debt-to-EBITDAX Reduction |
35% - 40% |
15% - 20% |
Senior Secured Borrowings-to-EBITDAX |
1.5x – 2.0x |
1.1x – 1.6x |
|
|
|
Financial Update
Joint Development Agreement
Rex Energy’s joint development partner, Benefit Street Partners
L.L.C. (“BSP”) has elected into an additional five wells in the
2017 development program. BSP’s additional capital commitment for
the five wells is approximately $15.8 million, increasing BSP’s
total capital commitment to date from $120.1 million to $135.9
million. BSP retains the option to participate in six additional
wells which would increase its total capital commitment to
approximately $160.0 million.
“The increased capital commitment from BSP, together with
proceeds from the recently announced Warrior South sale, will
provide Rex Energy with an additional $46 million of liquidity to
begin 2017,” said Tom Stabley, President and CEO of Rex Energy.
“The added liquidity further enables us to execute our two-year
plan for the company.”
BP Energy Co. Added to Bank Group
Rex Energy recently added BP Energy Co., an indirect,
wholly-owned subsidiary of BP plc (NYSE:BP), as a participant in
its senior secured credit facility. The addition of BP Energy Co.
allows the company to expand its hedging program.
“We are excited about our new relationship with BP and the
opportunity to expand on our already robust hedge portfolio,” said
Tom Stabley. “In addition, we look forward to the energy marketing
and supply solutions that BP can bring to Rex Energy.
Hedge Portfolio
The company continues to add to its hedge portfolio for 2017 and
2018 at prices that provide additional certainty regarding its
expected cash flows. For 2017, the company now has approximately
80% of its natural gas production hedged with an average floor
price of $3.02 and 72% of its NGL and condensate production hedged
with an average floor price for C3+ NGLs of $24.04. For 2018,
approximately 30% of natural gas production is hedged with an
average floor price of $3.04 and 31% of NGL and condensate
production hedged with an average floor price for C3+ NGLs of
$27.27. With a high percentage of 2017 production hedged at
favorable pricing, the company has provided further certainty for
its expected cash flows to execute on its capital plans.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities and Exchange Act of 1934. All
forward-looking statements in this release are based on
management’s current beliefs and expectations and contain
assumptions or estimates that involve risks and uncertainties,
including future financial market conditions, industry conditions,
changes in commodities prices, Rex’s liquidity position, access to
development capital, and the other risks discussed in detail in the
company’s Annual Report on Form 10-K for the year ended December
31, 2015 and other subsequent filings with the Securities and
Exchange Commission. Readers are cautioned that all statements
regarding Rex Energy’s financial and operational plans, forecasts,
and projections for 2017 and 2018 are forward-looking statements
with estimates based on management’s assumptions and information
available at this time; these estimates may change, and any changes
may significantly alter the expected outcomes. Readers should not
place undue reliance on any of these forward-looking statements,
which are made only as of the date hereof. Rex Energy has no
duty, and assumes no obligation, to update forward-looking
statements as a result of new information, future events or changes
in the Company’s expectations. Please see our SEC filings for
more information.
About Rex Energy Corporation
Headquartered in State College, Pennsylvania, Rex Energy is an
independent oil and gas exploration and production company with its
core operations in the Appalachian Basin. The company’s strategy is
to pursue higher potential exploration drilling prospects while
acquiring oil and natural gas properties complementary to its
portfolio.
For more information contact:
Investor Relations
(814) 278-7130
InvestorRelations@rexenergycorp.com
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