Rex Energy Corp. (NASDAQ: REXX) posted a solid quarter to end 2014 but is now looking to sell itself out of a jam.
While Rex has liquidity to keep it afloat in 2015, beyond that its outspend may be a problem, analysts said.
Since late last year, Rex has pursued a sale of its 60% interest in water service subsidiary Keystone Clearwater Solutions (KCS). Rex indicated it could complete a deal as early as the second quarter of 2015.
The company is also seeking a joint venture (JV) partner and leadership is considering the sale of selected assets in the Marcellus.
Based on $15 million annual cash flow capitalized to Rex’s interest, Wells Fargo Securities estimates KCS should fetch about $70 million, said Gordon Douthat, senior analyst.
Rex is also in discussions with both financial and strategic partners for a JV in the Appalachian’s Moraine East. The JV would have a similar timeline to KCS sale.
“Beyond this, the company could sell interest in WPX operated Marcellus,” Douthat said.
Executives said that to further enhance liquidity they could sale their nonoperated position in Westmoreland, Centre and Clearfield counties, Pa.
Raising cash is a priority for the company, Thomas Rajan, CFO, said in a Feb. 19 conference call.
“Our primary focus at this time is a securing JV partners for Moraine East and monetizing the Keystone business,” he said.
It remains to be seen how much of a help the divestitures would be.
Andrew Smith, senior analyst, Global Hunter Securities, put net proceeds for KCS at about $100 million and said a JV at Moraine East could allow the company to breakeven on cash flow in 2015.
Douthat sees the company’s position differently. Entering the New Year, Rex had nothing drawn on its $400 million credit facility. Modeling cash flow at $45 million in 2015 and capex at the low end of the company’s $180-220 million guidance, “that translates to outspend of about $140 million,” Douthat said.
Rex should remain in compliance with its debt covenants in 2015 but without asset sales, “breach occurs in 2016,” he said.
At the end of 2014, Rex said it had $325 million in liquidity consisting of a $305 million borrowing base and about $20 million in cash. At year’s end, the company’s net debt was $659.9 million.
Liquidity effectively remains at about $200 million to remain within its debt covenants, Douthat said.
Rex reported Feb. 18 that it had reached a record annual average daily production of 154.4 million cubic feet equivalent per day (MMcfe/d), a 66% increase from 2013. Total proved reserves increased 57% to 1.3 Tcfe.
“At $2.90/Mcf gas, we model sufficient liquidity through 2015, though asset sales are needed to fund growth beyond in our view,” he said.
The sale of Rex’s asset packages should help fund near-term outspend, but are unlikely to address longer term spending and the company’s leverage remains elevated in the absence of rebound in gas prices, Douthat said.
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