Rex Energy A Must Buy

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Jan 27, 2015

Internationally plummeting oil prices are giving jitters to investors. Drop that anxiety, still one can essentially have two ways to look at the energy markets: for stability and income, assuming the oil price stick to current charts or even dips further and for growth, assuming that a price rebound will come sooner rather than later. In these rolling times, some companies like Rex Energy (REXX, Financial), Exxon Mobil (XOM, Financial) and Chevron (CVX, Financial) still prove to be a good proposition for energy investors.

Before investing, you should know

Due to continuous advancement in hydraulic fracturing or commonly referred as fracking, oil production is likely to keep growing. Earlier this month, the International Energy Agency said that it expects nearly 1 million barrels a day of extra oil to be pumped around the world in 2015. Global economic growth, meanwhile, remains sluggish, curbing growth in demand.

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Production is increasing at Rex

Rex Energy Corporation is an independent energy company involved in the acquisition, production, exploration and development of oil and gas. It has its properties in the Appalachian, Illinois, and Permian regions of the USA. The company follows a balanced growth strategy of using its considerable list of lower risk developmental drilling locations. Apart from actively looking out for complementary oil and natural gas properties, it also pursues its higher potential exploration drilling prospects.

The company expects its 2015 operational capital expenditure to be between $180 million and $220 million. There has to be a decrease of approximately 44% from the midpoint of its 2014 capital expenditure guidance and a decrease of 43% from the midpoint of its previously announced preliminary 2015 capital expenditure plans. In spite of reduced level of capital expenditure, the company predicts that its average daily production for 2015 will be between 196 MMcfe/d and 205 MMcfe/d that means the company expects production growth of approximately 33% at the midpoint of 2015 average daily production. This growth is considerably larger in comparison to 2014. The above mentioned forecast about production growth in 2015 is based on the company’s focus on its quality assets and locations.

Rex Energy has been delivering competent output of its wells; it is dedicatedly focusing on processing capacity at the Bluestone and Sarsen facilities near the end of the first quarter of 2015. It forecasts that the Bluestone III processing facility to be functional by fourth quarter of 2015. The above mentioned explains that despite the lowering prices of oil, it is expanding, and not facing significant losses. It also registered significant earnings per share improvement in the most recent quarter, compared to the same quarter a year ago.

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Land acquisition expense and capitalized interest are not included in the operational capital expenditures budget

Analyst call

"Given the current commodity price environment, we feel that Rex Energy's 2015 capital budget allows the company to significantly grow production while also maintaining financial flexibility," said Tom Stabley, Rex Energy's chief executive officer. "Our 2015 capital budget is designed to target our highest quality assets and we believe the continued production growth we anticipate in 2015, even at a reduced capital budget, continues to illustrate the quality of our asset portfolio and operational efficiency,” he added.

The tie-up with RBC Capital Markets, LLC as a strategic advisor in order to pursue the monetization of its 60% ownership interest in Keystone Clearwater Solutions LLC; the company's water service subsidiary will boost the company’s strong liquidity position. If everything is executed as planned it expects to provide an update on the progress of the monetization in the first half of 2015.

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The company will also continue its pursuit of a joint venture partner for its Moraine East development area in 2015. Drilling of its first well in the Moraine East area has already begun and is reported to have initial production results early in the second quarter of 2015, thereby adding to more production and hence, chances of profits are higher going forward.

To conclude

Investors should keep in mind that as you pump your capital in one sector, you increase your probability of increasing your return and at the same time the probability of a loss can also be expected. That's what asset allocation and diversification is all about. In Rex’s case, the duration of investment will play an important role rather than global demand and other political factors that can influence the oil stocks temporarily. If you are confident that the oil prices will rise by the next few years and this decline is only a temporary phase, you could invest in Rex and wait without any flurry.