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Rex Energy takes on the never ending industry downslide

Rex Energy has a few ways it hopes will help the deal with the ongoing downturn in the oil and gas industry.

The company plans on selling some of its assets and teaming up with other companies to develop the remaining acreage it has in the Appalachian region.  To help battle the downturn, Rex Energy is also planning to continue drilling operations through 2016 with only one rig.  This is a plan the company put in place at the beginning of the second quarter.

By using the one rig program, the company plans on drilling an estimated 25 to 30 wells.  This will allow the company to “hold by production” so its leases do not expire.

As reported by the Pittsburg Post-Gazette, “Analysts at Moody’s Investor Services said it’s good that Rex is following through with its plans laid out earlier this year.”  The firm gave Rex Energy a B3 negative rating and continues to maintain that rating.  Vice President and Senior Analyst for Moody’s Sreedhar Kona made the following comment regarding Rex Energy’s plan:

That shows us, at least from us on the credit analyst side, that they’re doing what they can do to protect their creditors.

However, while continuing to scale back, Rex Energy’s CEO Tom Stabley expresses that he believes natural gas production will increase 10 percent to 15 percent by the end of this year, year-over-year. Rex Energy has no plans to alter its operating budget, which currently sits at $135 million to $145 million.

According to Rex Energy, it has already finished two deals that will make an effort in helping boost its liquidity.  As reported by the Pittsburgh Post-Gazette, “In July, it sold its 60 percent stake in a subsidiary, Water Solutions Holdings, for $67 million to American Water Works Co. Inc. In March, Rex also inked a joint venture agreement with ArcLight Capital Partners to develop 32 wells in Butler County, with ArcLight funding 35 percent of the well costs.”  By making the deal with ArcLight, Rex Energy was able to cut its budget by $60 million.

While these numbers seem small, Kona explained that they do add up, and due to the industry’s current state, cash is an “important factor.”

Along with cutting back on production, Rex Energy is also looking to sell its assets located in Westmoreland, Centre and Clearfield counties in Pennsylvania, along with assets in Ohio and Illinois.

Leo Mariani, an analyst with RBC Capital Markets, commented on Rex Energy’s cutbacks:

They’re continuing to hunker down and curtail their spending versus prior years … It’s a prudent move to preserve their financial liquidity. Their leverage is still high, but they have plenty of liquidity.

Rex Energy is one of several companies cutting back due to the downturn.  Recently, Noble Energy announced it will stop drilling new wells in the Marcellus Shale formation as part of a joint venture it has made with Consol Energy.  Consol has also shared that it, too, will be cutting back on its rig count for at least the next year and a half.

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