Rex Energy Holds On With $175 Million Appalachia JV

Rex Energy Corp. (NASDAQ: REXX) said March 1 it entered a deal with a credit provider to sell working interest in existing and future Appalachia wells in exchange for capital, giving the debt-stricken company a lifeline worth $175 million.

The State College, Pa.-based company has entered into a joint venture (JV) agreement with an affiliate of credit manager Benefit Street Partners LLC (BSP) to develop 58 wells in Rex's Moraine East and Warrior North operated areas.

Rex will trade interest in its wells to shore up its HBP core acreage in the Appalachian Basin. The deal gives Rex enough capital to complete 15 additional wells in 2016. Rex, struggling to cover overspend, is still in need of a larger balance sheet restructuring, said Gordon Douthat, senior analyst with Wells Fargo Securities LLC. The JV agreement sets the company off in the right direction.

"The agreement provides Rex some valuable liquidity and increases the acreage amount they're capable of holding through 2016, while reducing a previously released capital budget by $15 million to $25 million," Douthat said in a report.

Breakdown

The JV agreement staggers BSP’s commitment to Rex and pays for new wells and some already completed. Initially the firm will contribute $37 million for 22 wells.

BSP also has an option to participate in the completion of an additional 36 wells for another $138 million. Additionally, the New York firm will earn a 15-20% assignment interest for all acreage on which they developed a well.

BSP will fund 15% of the first 16 Moraine East wells, 12 of which have already been drilled and completed, earning 15% working interest in the wells.

BSP will also pay 65% of costs associated with six Warrior North wells, half of which have been drilled and completed. As with the Moraine East wells, BSP will receive a 65% interest in the Warrior North wells.

Rex gets an additional $20 million from BSP when the company’s previously completed Moraine East and Warrior North wells are placed into sales.

The company expects to place all 12 of its initial Moraine East wells into sales over the next two weeks. Final commissioning of the system's high-pressure phase is anticipated in April, the release said.

As a result of the JV, Rex will lower its net operational capital guidance to between $30 million and $40 million. Previously, the company's capital budget was $45 million to $65 million.

In addition, Rex will have about 30% of its Moraine East acreage HBP following the completion of the initial 22 wells. If the entire 58-well program is completed, the company will have 80%, or 42,000 acres, of its Moraine East acreage HBP and 60%, or 10,400 acres, of its Warrior North acreage HBP, Douthat said.

Budget Woes

Rex Energy’s JV is a bright spot in the company's already rocky 2016.

Earlier in January, Rex suspended payment of its quarterly dividend on its preferred stock. The suspension created an additional $2.4 million of liquidity per quarter.

By February, the company's borrowing base under its senior secured credit facility was reduced by $150 million, down to $200 million. The facility is due 2019.

At the end of third-quarter 2015, the company had about $3.2 million of cash and $69 million outstanding under its facility. The company also received net proceeds of $71.1 million from the sale of its subsidiary Keystone Clearwater Solutions in July.

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Rex also has exchange offers outstanding and set to expire on March 3.

SunTrust Robinson Humphrey Inc. is Rex's financial adviser for its JV with BSP.

Established in 2008, BSP is an affiliate of Providence Equity Partners. BSP and its affiliates manage more than $11 billion in assets across a broad range of credit strategies, the release said.

Emily Moser can be reached at emoser@hartenergy.com.