Rex Energy Corporation Q2 2010 Earnings Call Transcript

Rex Energy Corporation Q2 2010 Earnings Call Transcript
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Rex Energy Corporation (REXX)

Q2 2010 Earnings Call

August 4, 2010 10:00 am ET

Executives

Benjamin Hulburt - President and CEO

Tom Stabley - EVP and CFO

Pat McKinney - EVP and COO

Analysts

Brian Lively - Tudor, Pickering, Holt

Jeff Hayden - Rodman and Renshaw

Ron Mills - Johnson Rice

Marshall Carver - Capital One Southcoast

Derrick Whitfield - Canaccord Genuity

Ray Deacon - Pritchard Capital

Mike Scialla - Stifel Nicolaus

Leo Mariani - RBC Capital

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Rex Energy second quarter 2010 conference call. (Operator Instructions) I would now like to introduce to your host for today's conference, Benjamin Hulburt, President and CEO of Rex Energy Corporation.

Benjamin Hulburt

Good morning. Thank for joining us on our call to discuss financial and operational results for the second quarter and first six months of 2010. As a reminder, we issued our earnings press release last evening and posted the conference call slides on rexenergy.com.

I'll start the call this morning on Slide 3, with some key takeaways from the quarter. First, our production in the second quarter was in line with our guidance and represented an increase of 21% over the same period in 2009. Our production in the first half of 2010 was also up 22% over the first half of 2009. This is predominantly a result of our teams successful Marcellus Shale drilling operations and it is a trend we fully intend on continuing.

Taking a look at our total revenue, we were up 23% in the second quarter over the same period in 2009 and up 27% in the first half of the year over the first half of 2009. At the same time our lease operating expenses were up only 11% and 13% respectively, which demonstrates our continued commitment to improving our per unit operating expenses, as we continue to grow our production and revenue.

As a result our EBITDAX in the second quarter grew 42% over the same period in 2009, and 52% over the first half of 2009. Operationally this has been a very active first half of the year for the company, which we continue to believe will result in significant production and cash flow growth in the second half of this year and beyond.

Most recently, our newest jointly owned well in Westmoreland County, Pennsylvania has been flow tested and a peak rate of 4.9 million cubic feet of natural gas per day over a 24 hour of period. And our two most recent wells in Butler County, Pennsylvania have flow tested at a combined rate of 6.7 million cubic feet of natural gas equivalent over a 24 hour of period. All three of these new wells exceed our current Marcellus type curves.

Our drilling operations in Butler County remain ahead of schedule and we continue to expect our cryogenic gas processing plant to commence start-up operations during October of this year. Lastly, we recently closed on our previously announced 18,000 net acre acquisition in the DJ Basin, which is part of our new Niobrara Shale project.

This brings our current net acreage position in the DJ Basin to approximately 40,000 net acres. I'm also pleased to report that we have begun drilling our first Niobrara horizontal well in Laramie County, Wyoming.

I'll now turn the call over to Tom Stabley, Executive Vice President and Chief Financial Officer, to review a few of the financial results.

Tom Stabley

Thank you, Ben. The comparison on Slide 4, provide a little more detail on our changes in production mix and realized prices. While we've experienced modest oil product declines, our realized pricing per barrel has offset the loss production. Therefore, our oil revenue including the effects of cash settled derivatives increased 7% in the second quarter of 2010 from the second quarter of 2009, and 10% in the first half of 2010 from the first half of 2009.

On the natural gas side, while we continue to realize lower natural gas prices, the increases in production far exceed the slight decreases in the realized pricing. As you can see, our natural gas production has grown 113% over the second quarter of 2009, and 115% over the first half of 2010, as a result of our Marcellus Shale drilling operations.

As a result, natural gas revenue and including the effects of cash settled derivatives increased 95% quarter-over-quarter and 99% six months over the six month period.

Continuing on Slide 5, the companywide impact of these revenue increases in the second quarter and the first half of 2010 was 23% and 27% respectively, compared to the prior year period as Ben mentioned. Looking at our expenses our leased operating expenses in the second quarter of 2010 were approximately $5.8 million, up 11% from the same period in 2009, but slightly below our guidance for the quarter.

Our G&A expenses were $4.6 million in the second quarter of 2010, up 5% from the period in 2009, but again slightly below our guidance for the quarter. Of the second quarter 2010 G&A, approximately $520,000 were for non-cash compensation expenses.

One item to point out was our exploration expenses for the quarter was higher than usual at approximately $2.3 million. Predominantly due to our share of the 42 square mile 3-D seismic shoot we participated in with our partners in Westmoreland County, Pennsylvania. Because we used successful efforts accounting methods, these costs are expenses rather than capitalized.

Going forward, we expect this line item to fall back to historical norms of approximately $1 million per quarter. Earnings comparable to analyst estimates represented a loss of $1.7 million or $0.04 per share. As Ben mentioned, our EBITDAX, a non-GAAP measure, grew 41% over the second quarter of 2009 to $5.8 million or $0.13 per share in the second quarter of 2010.

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