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Rex Energy Corp.

Mon, 15 Dec 2008|



-- and then over president CEO Rex energy corporation -- you can read you are forward looking statements. Later time. Not Rex energy corporations listed on the NASDAQ. We have about 36 point six million shares outstanding market camp continues to fluctuate as everybody is. Probably a bit lower net 210 million dollars now. We do have -- hand at the end of the third quarter. -- -- camp ratios Euro zone in the third quarter we did have zero debt. We still -- -- that. We still had about 25 million dollars in cash. And then balance it in the third quarters and it's a very conservative -- We do have been ninety million dollar credit facility which we -- -- used. So it's very conservative balance sheet with -- position us nicely for liquidity especially in today's market. For reserve base is about fifteen point nine million -- are proved reserves are waited about 80% oil and 80% -- developed. Current production at the end of the third quarter. Was just 12600. -- -- That does exclude our production in the Permian Basin which we have listed as assets held for sale. Rex energy operates in the Appalachian basin and the Illinois basin. As I mentioned we -- have operations in the Permian -- are continuing to market those for sale. In the Illinois basin we are the largest producer in the basin all of our properties there are oil. Predominantly water flooded properties and we continue to drill developmental wells in that -- and every year but more importantly. We have a very large tertiary recovery project in Illinois basin in the Lawrence field. Which is the largest field in the base and was a billion barrel field. When it was discovered 1906. We are in the process of testing. Localized effect and polymer flooding. In the Illinois basin which started to pilots in -- field and this year and I can go through some of that initial results of that but we're very pleased -- what we're seeing so far. Our initial engineering was that we can recover about 84 million barrels of net reserves out of that project through this ASP -- Again it in a fifty dollar oil price that makes the net present value of that project about 700 million yourself so it's very robust economics. When misconception about this type project is it requires I don't know. And RF and -- cost we estimate should be somewhere between eleven and fifteen dollars a barrel. So certainly it's very economical project and oil prices fairly substantially below fifty dollars. In the Appalachian basin. We operate. About 500 -- so shallow -- -- gas wells but more importantly we started leasing in the Marcellus Shale. About a year ago -- right now where somewhere around 6465000. Net acres. In the Marcellus Shale in areas that we believe -- perspective. We did begin drilling vertical test wells this year. We've done five to date should TD another one today. But we're very pleased we're seeing in the Marcella she I don't know go through where -- operating. In each of those areas. This -- some of our historical highlights and how we've grown the company since 2004. We did just take the public that company public last July of 2007. We've grown our revenue are even accept production in -- reserve growth substantially. During that -- time period and consistently year over year and we believe that with projects we have we can continue on that -- Capital budgets in 2000 and they are capital budget was about a 140 million dollars. About 50% of our capital budget in 2008 was allocated towards the Marcellus Shale and the vast majority of that was in leasing. As we move forward into 2009. Our budget. Was announced earlier this year -- about a 115 million I think given today's environment we will continue to look for ways to scaled it down. But we still be allocating about half of our capital towards Marcellus Shale in 2009 it will almost exclusively -- horizontal drilling. In the remainder towards our -- -- -- In the -- base in this kind of shows our operations and our oil operations said we are the largest producer. In the Illinois basin gets us a few advantages. First we get about four dollars that are per barrel for our oil in the days and then posted price -- -- -- Second services in -- tend to not be a problem force in the basin because largest purchaser of services there. And we -- you have about 390. Pride in PD and key locations in the owning basin. Predominately less than 15100 feet very very low -- -- drilling opportunities. That are very very economical fifty. But more importantly -- -- ESP project. The Lawrence field was discovered in 1906. Produced about 400 million barrels since that -- we own and operate -- 100% of this field. The majority of that 400 million barrels came from to -- and stones at Bridgeport sandstone in the Cyprus against them. Marathon and on this field for most of its life and water flooded in the 1950s. And in the 60s70s and eighties -- it's affected polymer flooding. In several places in the only -- -- but to have the tests were in the Lawrence field itself one in the Bridgeport sandstone and one in the -- in stone. Those of the two -- -- that we are now testing alkaline it's effective house flooding it. Our Lawrence -- ASP project begin a few years ago with initial lab testing in core work. -- it would done 26. Radio -- flight tests in the Bridgeport and Cyprus -- stone. And demonstrated that in the Bridgeport -- and stone who could recover up to 24%. Of the original place. And in the -- Ian stone up to 21% of the original oil in place. Those numbers are important because when I said. That we estimate we could recover about 84 million net barrels that's -- on an assumption that we would recover about 22 point 9% of the original oil in place. So in the laboratory. Laboratory core work continued to to demonstrates that was very feasible. Objective in this project. Moving forward last this year in May we started to pilot tests in that Lawrence field when in the Bridgeport -- in -- in one in the Cyprus in stone. Our pilots where they're small they're about four acres each and their design Q1 -- the process in the field but also to allow us to start looking proved reserves. In the ASP process which we haven't done. The field totals about thirteen 1500 acres we've hydrated that down to about 101000 acres. That we think -- very perspective for this -- peace process. This kind of show you real briefly how -- flooding works. It's a very very similar process to -- holders are effective polymer -- that were done in the sixties and seventies. These are fact -- is a it's a so. It's injected in the reservoir to break the chemical bond. Between the oil that to force base -- -- -- -- The process in this disease vaccines it was that when marathon tested in the field and sixty cents. The localize the difference. Its effectiveness -- very expensive chemical what the -- -- client allows you to do. Is used much less -- acting in your chemical mixture alkaline reacts with the acid in Iraq -- -- itself in -- in actual effective. So it reduces the amount -- -- fact -- that you put into the ground by 90%. Now applies to much cheaper chemical so brings down here and TV cost pretty substantially. The power armor in our process does the same thing as -- fielder marathon process does it in improves this week efficiency of the water flood. Sort overcomes the water channeling helped push the chemicals out in parts of the -- for. The shows one of us are fact of polymer flood that was done. In our field in the Lawrence field by marathon this is on the Robin sleaze is a 25 Acre lease in the middle of the field. And you can see by 1982. This lease was essentially depleted after years and years of water flooding. So here 1982 marathon begin injecting -- expected and polymer into the reservoir. In over the net course of the next six years drove the oil production from seven barrels a day to 370 barrels -- day. And more importantly the oil cut from 1% to 21%. Marathon recovered an incremental 21% of the original complaints from this test project. This was essentially the thesis for why we began. -- flooding in the field. This project recovered an incremental 450000. Barrels of oil. From just 25 acres in the middle of the field in only one of the -- -- instant again feel this thirteen 1500 acres. So it gives you an idea of magnitude project. -- two ASP pilots as they said begin in May of this year. They are both small pilots five producers and -- actors and pilot very tight space. And they were designed that way. To attempt to get this same production profile. Inside at eight months instead of the years that we can actually begin bookings -- So -- -- Bridgeport pilot. Both of the pilots actually -- size such that our technical consultants search tech. Estimated that it would take three to four months to get an initial response and the pilots. We did see that in both of our pilots in their -- -- month period. And when I say -- response what we were looking for. Was this oil cut which started at about zero in both pilots to begin to change on a -- rate. By the end of the third quarter those had risen from zero up to about five to 6%. We're looking for those to get to around 20% peak production. It was estimated it would take six to eight months to hitting peak production which puts a Santa right about the end of this year. So we've not yet hit that peak production. But we are very pleased to see that the chemical process would appear to be working in both pilots. The show some of the ASP economic sensitivities -- oil prices and -- recovery factors. What we've done here this is our base case cost assumption of about eleven dollars a barrel in after. And I know these are hard to see but. This is our base case assumption of 22 point 9% of the regional in places recovered. You can see a fifty dollar oil. The net present value is around 700 million -- -- If we only recovered about 15% of the original inflation it's the -- -- very economical project anything -- fifty dollar oil. All the way down to probably about thirty. We've also run economics -- -- costs and increase the mall by 50%. We -- these economics during that the height of -- oil and gas industries six months ago we're seeing a lot of cost increases. And you can continue to see -- air base case assumption. Of recovery factors the project is very very economical well above or below fifty dollars a barrel. And even at lower recovery factors of 15% herself continues to be very economical that world oil prices. -- we continue to be extremely excited about this process. Brings us to our Appalachian basin operations. We are headquartered in the Appalachian basin. We do operate few hundred -- so natural gas wells in the base and but we began leasing in the Marcellus Shale about a year ago. And I'll just go through each of our kind of project areas that were working on currently. We do have about 4800 net acres or so in Fayette County. The vast majority of that is held by production. And they we don't operate that area so we're not actively drilling in the Marcellus for that right now but we do think -- logically it's very good area. Here in Westmoreland county we have about 151000 acres or so we own and operate a 100% of it we -- three vertical test wells there. To the Marcellus Shale in the third quarter two of those wells have been -- so far. We encountered good gas shows in both wells. Outlawed characteristics were very encouraging. The first two wells that we've tracked are cleaning up from flowing back. -- for actually the third one will be -- -- Looks like next week at this point but from the initial -- rates were pretty pleased what we're seeing those three wells. We showed. We drilled two vertical test -- here in butler county earlier in the year butler county was quite -- -- 5000 feet deep. We encountered about 75 feet -- -- show. Initial wells floated about 675. -- -- today which for that area we are very very pleased with. We do have a 50% partner network areas well. Here in center. Central Pennsylvania clear -- county and -- accountants we -- not when he thousand acres now we own and operate under percent of it. We ever read their drilling right now should TD first vertical well hopefully today if not tomorrow. But we have logs in the area where we think. The -- could be as much as 300 feet -- there so we're pretty excited about that area as well. And we do have about 3800 acres -- -- in Cuyahoga County that I believe we're gonna put into a joint venture with another operator. Trying to estimate what the Marcellus Shale can mean for Rex energy. We take our 64000. Net acres yourself and discount them by about 65% so we assume only 65% of the -- -- Hundred Acre spacing and horizontal or forty Acre spacing on verticals. We get these well potential well numbers on the -- -- basis. Looking at. Using point 96 BC after vertical wells. Which there have been some other companies that have come out -- that numbers as their average for vertical. Or estimating about three BCF and horizontal wells just based on some initial IP rates from from other companies -- now. About a 50% landowner royalties. Which is our leases a lot of personal twelve and half percent were probably little bit better now. He either waving. The ultimate -- risk potential reserves for Rex energy are far larger than current size of our our company. I should mention where we -- today. Market values this is about six dollars per proved the only. We still not booked any Marcellus or any XP. So all of these things ASP in the Marcellus there are completely free as well as a portion proportionally -- proved reserves right now. So -- Marcellus -- presents a major opportunity for us. We are very pleased what we're seeing in the initial vertical wells in each of the areas that we're doing so far. That brings us to the end of the story enough to -- break our. Thank you.

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