Rex Buys Shell Positions in Marcellus, Utica Plays

YOUNGSTOWN, Ohio -- Rex Energy Corp., a company reaping strong returns in the southern tier of the Utica shale, is now training its sites on the northern portion of the play.

The State College, Pa.-based company announced Tuesday that it is acquiring 208,000 leasehold acres from SWEPI LP, a subsidiary of Royal Dutch Shell, in a $120 million cash deal that includes positions in Mahoning and Columbiana counties.

The deal also calls for Rex to acquire SWEPI leaseholds in Armstrong, Beaver, Butler, Lawrence, Mercer and Venango counties in Pennsylvania.

"We are proud to announce this acquisition, which is a milestone for Rex Energy," said Tom Stabley, CEO. "The proximity of the Shell acreage to our Butler [Pa.] Operated Area, combined with our solid operating history, strong recent production results, and the attractive economics of our projects in the area made this transaction a natural fit for Rex Energy."

Rex says the deal would expand the company's position by 200% in the Appalachian Basin and by 230% in its Butler Operated Area. The acquisition increases its holdings in the Butler area to 298,000 acres, and would add an expected 13 million cubic feet of production per day from wells in various stages of development, the company said.

The agreement also opens up the potential of 400 drilling locations in the liquids-rich areas of the region, and would also include a large contiguous acreage position in the dry gas area for future development, Rex announced.

Since 2010, SWEPI has secured 40 horizontal well permits in Lawrence County, 11 permits in Mercer County and 69 permits in Butler County, according to the Pennsylvania Department of Environmental Protection.

The leasehold acreage in Lawrence County includes positions in Little Beaver, North Beaver, Perry, Scott and Slippery Rock Townships, DEP records show.

One of SWEPI's wells, the Patterson well in Little Beaver Township, produced 293.6 million cubic feet of natural gas during the second half of 2013, according to the DEP.

SWEPI's leasehold position in Mercer County includes acreage in Lake and Perry Townships, records show.

In Ohio, SWEPI was issued a single permit to drill a well in Columbiana County on land in Unity Township, according to the Ohio Department of Natural Resources. That well was never drilled, records show.

In Mahoning County, the energy giant holds a small number of leases -- just 11 -- that amount to less than 300 acres near the Pine Lake Road area in Springfield Township and along McCartney Road in the city of Campbell, according to a search with Mahoning County Recorders office. SWEPI has no wells permitted in the county.

The purchase agreement with Rex comes as SWEPI's parent, Royal Dutch Shell, is contemplating building a multi-billion dollar cracker plant in Butler County, which would convert ethane from the wet gas areas of the Marcellus and Utica shale plays into ethylene.

While energy companies such as Hilcorp Energy Co. step up their activity in western Pennsylvania counties such as Lawrence and Mercer, SWEPI's permitting activity in the region has all but dried up, records show. The last new horizontal well issued to SWEPI was on Nov. 19, 2013.

Other energy companies such as BP America, Halcon Energy Resources and Consol Energy have pulled out of the northern Utica, which generally encompasses Mahoning, Columbiana and Trumbull counties in Ohio, and Lawrence and Mercer counties in western Pennsylvania.

Before the Shell transaction, Rex Energy reported just one permitted well in Lawrence County and no permits in Mercer County, Pa.

The company has instead accelerated its drilling program in the southern tier of the Utica shale in eastern Ohio, concentrating on developing wells in Carroll, Noble and Guernsey counties, according to ODNR.

Since 2011, Rex Energy affiliate RE Gas Development LLC has placed eight wells into production in Carroll County, five into production in Guernsey County, and hold three producing wells in Noble County.

The company's J. Anderson 1H well in Guernsey County produced an impressive 429.9 million cubic feet of natural gas during the first quarter of 2014, its best producing well in the Utica, ODNR reported last month. Three other wells on the same pad are also experiencing strong returns.

Published by The Business Journal, Youngstown, Ohio.
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