Rex Energy ®
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REX ENERGY ® 2007 REX ENERGY CORPORATION 2007 ANNUAL REPORT AND FORM 10-K WWW.REXENERGY.COM NASDAQ: REXX REX ENERGY CORPORATION 2007 ANNUAL REPORT CEO’S LETTER TO STOCKHOLDERS REX ENERGY CORPORATION (NASDAQ: REXX) I am pleased to report that 2007 was an extraordinary year for our company. During 2007, we completed our initial public offering and significantly reduced our outstanding indebtedness, which has positioned us to better accomplish our growth objectives. During the year, some of our significant accomplishments included: Financial Strength. We improved our balance sheet, reducing debt by more than $75 million. Additionally, we established a new senior credit facility, which has provided us with an available line of credit of up to $75 million. Production Growth. We increased annual production by 30% from 772 thousand barrels of Debt Reduced 75% oil equivalent (“MBOE”) in 2006 to just over 1.0 million barrels of oil equivalent (“MMBOE”) Revenue Up 46% in 2007. Financial Performance. Our revenue Production Up 31% increased by 46% in 2007 over the previous year, and our EBITDAX grew by 39% over the EBITDAX Up 39% previous year to $25.3 million. Proven Reserves Growth. During 2007, Proven Reserves Up 10% we achieved a reserve replacement rate of 139%. Our proven reserves grew by 10% to Reserve Replacement 15.9 million barrels of oil equivalent over the previous year, and our present value of future of 139% cash flows before taxes, or PV-10, grew by 96% to $392.1 million. As we look forward into 2008, we are excited about our growth prospects, including our enhanced oil recovery project in the Illinois Basin; our two shale exploration projects in the Marcellus Shale of Pennsylvania and the New Albany Shale of Indiana and Illinois; our developmental drilling prospects in Pennsylvania, Illinois, and Indiana; and our exploration and developmental projects in the Southwestern Region of the United States. I would like to thank both our individual and institutional stockholders for your continued interest and support of Rex Energy Corporation. We remain determined to create value for you in 2008 and beyond. Benjamin W. Hulburt President and CEO March 31, 2008 $58 REX ENERGY CORPORATION 2007 ANNUAL REPORT $40 Rex Energy Corporation (NASDAQ: REXX) is an independent oil $22 and gas company engaged in the acquisition, production, exploration and development of oil and gas, with $14 properties concentrated in the Appalachian Basin, Illinois Basin and Southwestern Region of the United States. We pursue a balanced growth strategy of exploiting our 04 05 06 07 PROFILE sizeable inventory of lower risk developmental drilling Total Revenue locations, pursuing our higher potential exploration (in millions) drilling prospects and actively seeking to acquire $25 complementary oil and natural gas properties. Our success can be attributed to our seasoned and diversified management team comprised of expert personnel, using the $18 latest technologies and sound business practices. 2007 HIGHLIGHTS $8 • Proven reserves for year-end 2007 increased 10% to 15.9 MMBOE from $6 14.5 MMBOE for year-end 2006; • 2007 total net production volumes reached a record high of 1.0 MMBOE, 04 05 06 07 up 31% from the same period in 2006; EBITDAX • 2007 operating revenues grew 46% over 2006 to $57.8 million; (in millions) 1,008 • 2007 EBITDAX grew 39% over 2006 to $25.3 million; • 4th quarter 2007 average net daily production reached a record high of 772 2,831 barrels of oil equivalent (“BOE”) per day; • 4th quarter 2007 operating revenues reached a record high of 566 $16.1 million; and • Drilled 85 gross (68.3 net) wells in 2007 with a 99% success rate. 375 SIGNIFICANT GROWTH OPPORTUNITIES 04 05 06 07 Total Production • Alkali-Surfactant-Polymer (“ASP”) enhanced oil recovery project in the (in MBOE) largest field in the Illinois Basin; 15.9 • Marcellus Shale exploration on approximately 36,000 net acres in 14.5 Pennsylvania as of April 7, 2008; • New Albany Shale exploration on approximately 92,000 net acres as of April 7, 2008; and 9.1 • Developmental drilling in Illinois, Appalachian and Permian Basins on approximately 500 drilling and recompletion locations. 4.1 04 05 06 07 Total Proved Reserves (in MMBOE) REX ENERGY CORPORATION 2007 ANNUAL REPORT BUILT-IN FUTURE GROWTH WITH STABLE FOUNDATION Proven Reserve Base(1) • 15.9 MMBOE Proven Reserves • 81% Oil • 78% Proved Developed • $392.1 million PV-10 Developmental Drilling • ~ 200 additional non-proven shallow oil locations in the Illinois Basin • ~ 100 additional non-proven shallow natural gas locations in the Appalachian Basin • ~ 25 additional non-proven oil and gas locations in the Permian Basin Enhanced Oil Recovery (Lawrence Field ASP Project)(2) • 84 million Barrels (“MMBbls”) in net un-risked potential reserves • Expected Finding and Development (“F&D”) costs of ~$11.00 per Barrel (“Bbl”) • Project PV-10 of $1.5 billion at $80.00 oil with 97% Internal Rate of Return Marcellus Shale Potential • As of April 7, 2008, 36,000 net acres in areas of active exploration of Pennsylvania(3) • Actively leasing additional acreage • ~900 net potential vertical locations (40 acres spacing) / ~360 net potential horizontal locations (100 acre spacing) • ~735 Billion cubic feet (“Bcf”) in net un-risked potential reserves(2) Other • As of April 7, 2008, 306,000 (92,000 net) acres in southern Indiana in areas with active New Albany Shale exploration • ASP potential in additional fields and formations we own in the Illinois Basin AREAS OF OPERATION Our operations are concentrated in three producing basins, the Appalachian, Illinois and the Southwestern Region of the United States. Headquartered in State College, Pennsylvania, we REX also have offices in ENERGY ® Pittsburgh, Pennsylvania; Midland, Texas; and APPALACHIAN BASIN Bridgeport, Illinois. ILLINOIS BASIN PERMIAN BASIN (1) Prepared by Netherland, Sewell & Associates, Inc. as of December 31, 2007. (2) Internally prepared, does not represent proven reserves. (3) As of April 7, 2008. REX ENERGY CORPORATION 2007 ANNUAL REPORT ILLINOIS BASIN Since entering the Illinois Basin in 2004, we have pursued an aggressive growth plan that has made us the region’s largest oil producer. • 4th quarter 2007 average net production (BOE per day): 2,136 • Net undeveloped acreage: 85,000 • Year-end 2007 proven reserves (MMBOE): 12.0 • Significant potential from enhanced oil recovery (ASP) project with up to 84 million barrels of net un-risked reserve potential • New Albany Shale drilling potential on over 306,000 gross (92,000 net) acres as of April 7, 2008 • Active developmental drilling with 99% success in shallow oil zones in 2007 APPALACHIAN BASIN • 4th quarter 2007 average net production (MMcf per day): 2.5 CLEARFIELD BUTLER • Net undeveloped acreage: 18,000 • Proven reserves (MMBOE): 2.1 • Marcellus Shale potential on more than 64,000 gross (36,000 net) acres as of April 7, 2008 • Actively leasing additional acreage for Marcellus Shale potential • Active developmental drilling with 100% success in shallow gas zones in 2007 Southwestern Region • 4th quarter 2007 average net production (BOE per day): 281 • Net undeveloped acreage: 1,500 • Proven reserves (MMBOE): 1.8 • Queen Sand, Leonard, Connell, San Andres and Grayburg drilling projects • Waterflood installation and optimization projects UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 Commission file number: 001-33610 REX ENERGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 20-8814402 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 1975 Waddle Road State College, Pennsylvania 16803 (Address of principal executive offices) (Zip Code) (814) 278-7267 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of each exchange where registered Common Stock, $.001 par value per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated filer ‘ Accelerated filer ‘ Non-accelerated filer È Smaller reporting company ‘ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È The Registrant completed the initial public offering of its common stock in July 2007. Accordingly, there was no market for the Registrant’s common stock as of June 30, 2007, the last day of the Registrant’s most recently completed second fiscal quarter.