Rex Energy Corp. (REXX) tossed more ballast overboard June 18 as it made good on its expected sale of subsidiary Water Solutions Holdings LLC to American Water Works Company Inc. (AWK).

Rex, faced with debt and overspending that has been dragging on the company, sold its 60% interest in its Keystone Clearwater Solutions in a $130 million transaction that nets Rex $66 million in proceeds. The company expected proceeds of between $60 million and $80 million.

"This transaction marks a critical step for Rex Energy as we continue to enhance our balance sheet and provide the necessary flexibility for the development of our core assets in the Appalachian Basin," said Tom Stabley, Rex's CEO. "We look forward to our new partnership with American Water and the successful development of our Appalachian Basin assets."

Keystone, based in Hershey, Pa., is a water service provider serving the oil and gas industry in the Appalachian region of Pennsylvania, Ohio and West Virginia.

Daniel Katzenberg, analyst, Baird Equity Research, said the Water Solutions sale should offset 67% of Rex’s estimated $98 million outspend in 2015.

Rex is primarily spending in the Butler operated area in the Appalachian Basin, where overall capex is $124- and $134 million in fiscal year 2015. It is also spending $11 million in the Illinois Basin.

Proceeds will be used to pay down the company’s revolving line of credit and for general corporate purposes. In the purchase and sale agreement, American Water will continue to provide field and water-related services to Rex Energy within its Appalachian Basin properties in Pennsylvania and Ohio

The deal buys time for Rex but it will still need to sell more assets, said Gordon Douthat, senior analyst, Wells Fargo Securities. The company is exploring several sales or joint ventures (JV) as a way to compensate for overspending in the next few years as commodity prices remain flat.

“The transaction extends flexibility three more quarters into the first quarter of 2017,” compared to Douthat’s previous model that Rex would violate its debt covenant in the second quarter of 2016. “Beyond this, additional asset sales or a commodity price recovery are needed in our view to alleviate leverage concerns with Illinois Basin assets currently on the market, along with nonop Marcellus.”

Wells Fargo estimates the company’s Illinois basin asset is worth $35 million, down from estimates in April of $56 million. Rex incurred a noncash impairment charge in the Illinois Basin of about $132.6 million in the fourth quarter of 2014. The reduction in value was related to the decline in expected future prices for crude oil.

The Utica also offers opportunities. Katzenberg said Rex has 21,000 net acres prospective for the shale across Guernsey, Noble and Belmont counties, Ohio.

“Given the scarcity value of this acreage we expect positive stock reactions on any successful well results going forward and/or a potential monetization down the road if management decides to go that route,” he said.

American Water bills itself as the largest publicly traded U.S. water and wastewater utility company. The company already operates in shale plays.

Keystone will be a separate, independent subsidiary, said Susan Story, president and CEO of American Water.

Keystone provides turn-key water solutions to the shale gas industry in a safe and environmentally responsible manner, Story said.

"We are excited because Keystone's offerings are in line with American Water's core competencies: supplying, transmitting, pumping and storing water and building the infrastructure required,” she said, adding that the company has grown into a market leader in the shale gas water services segment. “We will continue leveraging the expertise of the talented team of Keystone employees who have built this successful organization."

Story said that some investors may ask why American Water is buying the company given the volatility of oil and gas.

“There is a compelling case for role of shale gas and oil as global energy markets continue to be volatile,” she said. “The current environment provides a good entry point for us.”

Story said the company will acquire 95% of the company for a $123.5 million while the company founders will retain 5% ownership.

RBC Capital Markets advised Water Solutions Holdings LLC on the transaction.