Rex Energy canceling lease agreements

After signing a lease with Rex Energy in January, 2012, and waiting months for Rex to sign (they said there was a "problem" with how my land was held in trust), my lawyer informed me this past Friday that Rex contacted him and said they were no longer leasing land in Carroll County, Ohio. Does anyone know anything about this? I heard Rex might be selling out to Chesapeake.

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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on May 28, 2012 at 5:10am

Rex has been trying to sell to CHK from the moment they took their first lease.  

Permalink Reply by Mike h on May 28, 2012 at 9:27am

I think Rex is probably being very selective about what they are leasing at this point. There are folks that were in SURE group "A" - like myself - that they will probably trade to CHK because the parcels don't do anything for them (isolated and surrounded by CHK). I don't mind because I have a decent lease. Unless you have a strategic parcel or enough land to form a unit, why would they lease a parcel at this point? They are an operating company, not a flipper.

On the other hand there are parcels that REX will likely get from CHK (or others) for similar reasons. At this point the cards are dealt and the companies are going to do some rationalizing of their holdings.

I took the time to go to the Rex annual shareholder meeting and I didn't get the sense that they are trying to sell out to anyone. They have some good assets and are in a position to develop them over time. 

One of the questions I asked was whether they would be able to drill their holdings in the Utica (currently 17,500 acres) without running into cost issues on the lease payments or having to let leases lapse. Their CEO discussed their drilling program and indicated that they believe they can complete their program. I also asked about the impact of a drop in NGL/Oil prices and they discussed that. Their sale of their Keystone midstream assets is a strong positive for them financially.

The principals are O&G people and seem to like what they are doing. They have substantial equity positions and continue to buy shares on the open market. So contrary to what Marcus says I don't buy that their goal has been to sell out to CHK from the start.

Permalink Reply by Jack Straw on May 28, 2012 at 11:13am

RE: "There are folks that were in SURE group "A" - like myself - that they will probably trade to CHK because the parcels don't do anything for them (isolated and surrounded by CHK)."

Mike, what you suggest could very well be correct.

Another possibility is that REX maintains ownership of the lease and has a "working interest" in the wells. REX would pay a proportionate portion of CHK's well costs for a proportionate percentage of the well(s). CHK would be the Operator, but REX would have an equity interest. The amount (equity) REX would pay/receive would be the percentage that REX's leased acreage represented within the Unit.

This might be attractive to CHK, with their current cash flow difficulties.

There is more than one way to skin a feline.

 

All IMHO,

               JS

Permalink Reply by Mike h on May 28, 2012 at 11:52am

I don't think so on the working interest Jack. I spoke with the CEO of Rex and he said the companies with holdings in the area were at the point where there would be trading going on. In our case we are only 55 acres totally surrounded by lots of parcels controlled by CHK. If Rex had more land adjacent or close by a working interest might make sense.

I just wanted to respond to Ram936 regarding Rex. I don't see them selling out to CHK. They took Sumitomo in as a partner on another  project and I see them doing something similar with non-operator investors going forward if push comes to shove. They just got more for Keystone than they had previously indicated they would get for Keystone + their Rocky Mountain midstream assets. I think they will ride out the current storm (NG pricing, CHK problems impacting the overall market as well as Utica, etc).

The next key thing to watch with Rex will be results for the Brace 1H well which they spudded last month. This is close to the CHK Mangun well North of Carrollton off of 9. They are planning on announcing results in August.

 

Permalink Reply by Jack Straw on May 28, 2012 at 12:00pm

All you said makes perfect sense.

CHK are currently experiencing cash flow issues; they bit off more than they can chew (at $2.60.mcf Natural Gas).

CHK are looking to sell out of some entire plays in order to obtain cash to allow them to meet ongoing commitments.

If CHK had ever entertained thoughts of buying out  REX (and I have no evidence that they ever did), the current state of CHK's balance sheet precludes such a purchase.

 

ALL IMHO,

                      JS

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on May 28, 2012 at 3:06pm

"If CHK had ever entertained thoughts of buying out  REX (and I have no evidence that they ever did), the current state of CHK's balance sheet precludes such a purchase."

Bad balance sheets never stopped them from betting the house in the past.

Permalink Reply by Mike h on May 29, 2012 at 4:40am

Utica Shale,

Why are you indicating 2 years? The bulk of the SURE group leases were signed June of last year or later. They  are 5 years with a 3 year extension (payments for each of the 3 years). Also to clarify, the units specified in the SURE lease are 640 acres. I haven't heard of them coming back and asking for larger units. Even with these parameters I would expect Rex to be able to drill what they need to in the given timeframe.

Two wells this year was their stated Utica program for 2012 in their annual report as well as the discussion at the shareholders meeting. I'm not commenting as to whether this is good/bad or right/wrong but it isn't a surprise in terms of disclosure.

Permalink Reply by Mike h on May 29, 2012 at 5:43am

Gotchya Utica Shale. I think the point (we are agreeing on) is that anyone signed with Rex in Carroll where there is enough acreage to do a unit or Rex has enough to drill and giving CHK an operating interest but still control the drilling is likely to get drilled within the 5 year primary term of the leases.

There is still the question of when and where collection lines will go in.

Permalink Reply by Mike h on May 29, 2012 at 7:40am

Utica Shale,

They've been installing collection lines earlier than that - but not necessarily because of Utica drilling. There is a line that was put in across our place in 2003 (North Coast Energy). There is another line that runs E-W just North of us that crosses Alamo  Road a little bit south of the Airport. Representatives of CHK called us last year about surveying a N-S collection line that might go through our property but I told them without an agreement I wasn't interested.

To be honest, I'm not as eager as some other folks to get money for a pipeline through our place. I figure it's about as much money as 10 years of leasing the hunting rights on our place - but an easement forever.

 

Permalink Reply by Mike h on May 29, 2012 at 8:42am

Utica Shale,

That's a great opportunity for Chesapeake but if they wanted people to be more ameniable to pipeline easements then they shouldn't have treated people as poorly as they did when they were first coming through (Kenyon fronting for them) trying to lease people. That was one of my reasons for signing with Rex instead of them.

As far as I'm concerned it's a business transaction and they need to make it attractive enough for there to be a meeting of minds. Nobody at CHK sat up at night worrying about my concerns/needs when they were trying to lease my property - why should I be overly concerned about their opportunities/needs? Rex was much easier and better to deal with and if Rex were asking I'd be more amenable to talking with them about it.

Call me old fashioned but it really is as simple as that. I figure people put their best foot forward when they are trying to get your business/agreement.

 

it really is that simple.

Permalink Reply by richard bender on May 30, 2012 at 12:07am

Rex did the same thing in westmoreland county a few years  ago

Permalink Reply by jnm on May 31, 2012 at 12:34pm

I found it strange that they were moving the rig back to PA rather than across the road to the other pad they have built (Graham). Sure doesn't make sense to go to PA now rather than moving 1/2 mile to other pad and drilling it befor taking rig back to PA

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