STATE COLLEGE, Pa., Feb. 10, 2009 (GLOBE NEWSWIRE) -- Rex Energy Corporation ("Rex Energy") (Nasdaq:REXX) announced 2008 fourth quarter production from continuing operations of 246,928 Barrels of Oil Equivalent ("BOE"), or approximately 2,684 BOE per day. Fourth quarter production (approximately 82% attributable to oil) represented a 3.5% increase over third quarter production and was within the company's previously issued guidance for the quarter of 226,000 to 251,000 BOE.
Reserves
Rex Energy's estimates of proved reserves for natural gas and crude oil as of December 31, 2008 for continuing operations are 11.0 Mmboe, of which 53.3% is attributable to oil and 46.7% is attributable to natural gas. Of the 11.0 Mmboe of total proved reserves, 65% are categorized as proved developed and 35% are proved undeveloped.
Proven reserves in the Illinois Basin as of December 31, 2008, which are all attributable to oil, decreased by approximately 51%, when compared to the same period in 2007. This decline was primarily a result of a 56% decrease in oil price ($51.50 per barrel lower in 2008) from the previous year's reserve estimate. Proven reserves in the Appalachian Basin as of December 31, 2008, which are all natural gas based, increased by approximately 142%. The increase in the Appalachian proved reserves is primarily attributable to the company's Marcellus Shale exploration activities during the year, which was partially offset by the 16% decline in natural gas price ($1.08 per Mcf lower in 2008) from the previous year's reserve estimate. Additionally, Rex Energy's year-end proven reserves exclude reserves associated with discontinued operations in the Southwestern region, which, as previously announced, the company expects to divest in the first quarter of 2009 for net proceeds of approximately $17.6 million.
The present value of future cash flows before income taxes from continuing operations as of December 31, 2008, discounted at 10% (SEC PV10, a non-GAAP measure), totaled $84.0 million. This value was based on year-end benchmark prices of $5.71 per Mcf for natural gas and $41.00 per barrel for crude oil.
A new regulation promulgated by the SEC, effective January 1, 2010, will allow for the valuation of reserves using the year's average commodity price rather than the current practice of utilizing commodity pricing on December 31, 2008. Under the new SEC regulation, Rex Energy's proven reserves for continuing operations at December 31, 2008 would have been approximately 16.9 Mmboe, and the present value of future cash flows before income tax would have totaled approximately $415.6 million.
The independent reservoir engineering firm of Netherland, Sewell & Associates, Inc. prepared the company's year-end reserve report for all properties (excluding Marcellus Shale properties). The independent reservoir engineering firm of Schlumberger Data & Consulting Services prepared the year-end reserve report for the company's Marcellus Shale properties located in the Appalachian Basin.
Impairments and Non-Cash Expenses
During the fourth quarter 2008, depreciation, depletion and amortization ("DD&A") costs were $23.2 million. Approximately 75% of this expense was due to a decrease in the estimated reserve lives of the company's evaluated oil and gas properties, which accelerated the units-of-production DD&A rates during the quarter.
Based on commodity prices at December 31, 2008, and in accordance with Statement of Financial Accounting Standards ("SFAS") Nos. 19 and 144, the company expects to record a non-cash impairment charge of approximately $47.4 million against its oil and gas properties, of which approximately $8.7 million is related to the company's Southwestern region assets that are currently classified as held for sale. Additionally, the company expects to record non-cash charges of $32.7 million associated with goodwill.
Operational Update
The company is continuing to prepare for its 2009 Marcellus Shale drilling program, which is expected to consist of 6-8 wells during the year. The company expects to commence its 2009 Marcellus Shale drilling program during the first quarter of 2009. Also during the first quarter, the company expects to complete and fracture stimulate one vertical Marcellus Shale well, and participate (for 50%) with its partner in the completion and stimulation of two additional vertical Marcellus Shale wells.
In the Illinois Basin, the company is continuing to work with its third party consultants to analyze the results of its two Alkali-Surfactant-Polymer (ASP) pilots and design its first operational ASP development unit following the completion of the pilot analysis. This analysis is expected to be completed by the end of the first quarter of 2009. Upon completion of the pilot analysis, the company will update its 2009 capital budget to adjust for any changes in the size or scope of planned ASP related activity to be commenced during the year.
Liquidity and Hedges
At year-end 2008, the company had $15 million drawn on its line of credit with a borrowing base of $90 million. The borrowing base is scheduled to be reduced to $80 million upon closing on the sale of the company's Southwestern region assets, which is expected to occur during the first quarter of 2009. The company had approximately $7 million in cash on hand at year-end and continues to maintain conservative oil and gas hedging on its current production. The following table summarizes the company's comprehensive hedging positions for the following years:
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Percent of
Current
Volume Average Average
Year Volume Hedged Floor Ceiling
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Crude Oil
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2009 623 MBbls 84% $63.50 $75.31
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2010 588 MBbls 82% $62.71 $79.31
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2011 240 MBbls 35% $75.00 $121.00
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Natural Gas
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2009 950 Mmcf 95% $7.01 $8.91
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2010 960 Mmcf 100% $7.56 $10.48
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2011 720 Mmcf 78% $8.00 $14.75
Commenting on the results, Benjamin Hulburt, President and Chief Executive Officer, said, "I am pleased with the fourth quarter production, which was towards the upper end of our guidance, and in the progress our operations team is making in reducing expenses to conserve cash. Our conservative debt level, available capacity on our line of credit, strong hedging position and the expected net proceeds of $17.6 million from our Southwestern region asset sale have positioned us well to succeed in this challenging environment. I continue to believe strongly in the potential of both our Marcellus Shale acreage of over 60,000 net acres, and our ASP flood in the Illinois Basin. However, given the current environment, we will continue to monitor our cash flows and debt levels and adjust our capital expenditures to ensure our long-term success."
About Rex Energy Corporation
Rex Energy Corporation is an independent oil and gas company operating in the Illinois Basin and the Appalachian Basin of the United States. The company has pursued a balanced growth strategy of exploiting its sizable inventory of lower risk developmental drilling locations, pursuing its higher potential exploration drilling prospects and actively seeking to acquire complementary oil and natural gas properties.
The Rex Energy logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5489
Forward-Looking Statements
Except for historical information, statements made in this release, including those relating to significant potential, future earnings, cash flow, capital expenditures, production growth and planned number of wells, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and the company's future performance are subject to a wide range of business risks and uncertainties, and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the volatility of oil and gas prices, the costs and results of drilling and operations, the timing of production, mechanical and other inherent risks associated with oil and gas production, weather, the availability of drilling equipment, changes in interest rates, litigation, uncertainties about reserve estimates, environmental risks and the occurrence of any unanticipated acquisition opportunities. The company undertakes no obligation to publicly update or revise any forward-looking statements. Further information on risks and uncertainties is available in the company's filings with the Securities and Exchange Commission, which are incorporated by reference.
The company's internal estimates of reserves may be subject to revision and may be different from estimates by the company's external reservoir engineers at year end. Although the company believes the expectations and forecasts reflected in these and other forward-looking statements are reasonable, it can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties.