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Rex Energy Reports Second Quarter Operational and Financial Results

  • Production of 206.8 MMcfe/d, a 61% increase year-over-year
  • Reduced well cost in Legacy Butler Operated Area to $5.5 million
  • Cash G&A per Mcfe reduced by 44% year over year to $0.35 / Mcfe
  • Completed sale of Keystone Clearwater Solutions in July 2015 for net proceeds of $67 million

STATE COLLEGE, Pa., Aug. 04, 2015 (GLOBE NEWSWIRE) -- Rex Energy Corporation (Nasdaq:REXX) announced its second quarter 2015 operational and financial results.

“We remain steadfast in our strategy to navigate through the current commodity price cycle,” said Tom Stabley, President and Chief Executive Officer of Rex Energy. “We have increased production, controlled costs and are divesting non-core assets. The team at Rex is implementing measures that are resulting in improved well performance while maintaining liquidity and financial discipline.”

Second Quarter Financial Results

Operating revenue from continuing operations for the three and six months ended June 30, 2015 was $45.8 million and $99.9 million, respectively, which represents a decrease of 37% and 35% over the same periods in 2014, respectively. Commodity revenues, including settlements from derivatives, were $59.3 million and $124.0 million for the three and six months ended June 30, 2015, respectively, a decrease of 16% for each of the comparable periods of 2014. Commodity revenues from oil and natural gas liquids (NGLs), including settlements from derivatives, represented 49% of total commodity revenues for the three months ended June 30, 2015.

Including the effects of cash settled basis differential derivatives, the company’s basis differential for its Appalachian Basin assets averaged approximately ($0.77) off the Henry Hub price of $2.64 for the three months ended June 30, 2015.

LOE from continuing operations was $30.6 million, or $1.63 Mcfe for the quarter. For the six months ended June 30, 2015, LOE was approximately $59.7 million, or $1.64 per Mcfe. Cash general and administrative expenses from continuing operations, a non-GAAP measure, were $6.5 million for the second quarter of 2015, a 44% decrease on a per unit basis as compared to the same period in 2014. For the six months ended June 30, 2015, cash G&A expenses from continuing operations were $13.2 million, a 46% decrease on per unit basis as compared to the same period in 2014.

The company incurred a non-cash impairment charge of approximately $117.8 million during the second quarter of 2015. The reduction in carrying value, which was primarily focused on the company’s non-operated dry gas Marcellus assets in Westmoreland and Clearfield Counties, Pennsylvania, is attributable to market conditions related to these properties indicating a decrease in market prices for similar assets.

Net loss attributable to common shareholders for the three months ended June 30, 2015 was $155.2 million, or $2.87 per basic share. Net loss attributable to common shareholders for the six months ended June 30, 2015 was $175.4 million, or $3.25 per basic share. Adjusted net loss, a non-GAAP measure, for the three months ended June 30, 2015 was $12.1 million, or $0.22 per share. Adjusted net loss for the six months ended June 30, 2015 was $17.8 million, or $0.33 per share.

EBITDAX from continuing operations, a non-GAAP measure, was $22.4 million for the second quarter of 2015 and $51.8 million for the six months ended June 30, 2015.

Reconciliations of adjusted net income (loss) to GAAP net income (loss) from continuing operations before income taxes, EBITDAX to GAAP net income (loss) and cash G&A to GAAP G&A for the three months and six months ended June 30, 2015, as well as a discussion of the uses of each measure, are presented in the appendix of this release.

Production Results and Price Realizations

Second quarter 2015 production volumes were 206.8 MMCfe/d, an increase of 61% over the second quarter of 2014, consisting of 131.1 MMcf/d of natural gas and 12.6 Mboe/d of oil, condensate and NGLs (including 3.2 Mboe/d of ethane). Oil, condensate and NGLs (including ethane) accounted for 37% of net production for the second quarter of 2015.

Including the effects of cash-settled derivatives, realized prices for the three months ended June 30, 2015 were $56.99 per barrel for oil and condensate, $2.53 per Mcf for natural gas, $17.61 per barrel for NGLs (C3+) and $6.62 per barrel for ethane. Before the effects of hedging, realized prices for the three months ended June 30, 2015 were $49.28 per barrel for oil and condensate, $1.77 per Mcf for natural gas, $13.92 per barrel for NGLs (C3+) and $6.39 per barrel for ethane.

Including the effects of cash-settled derivatives, realized prices for the six months ended June 30, 2015 were $54.17 per barrel for oil and condensate, $2.72 per Mcf for natural gas, $21.75 per barrel for NGLs (C3+) and $6.72 per barrel for ethane. Before the effects of hedging, realized prices for the six months ended June 30, 2015 were $44.35 per barrel for oil and condensate, $2.11 per Mcf for natural gas, $18.45 per barrel for NGLs (C3+) and $6.46 per barrel for ethane.

Second Quarter 2015 Capital Investments

For the second quarter of 2015, the company made operational capital investments of approximately $30.7 million, of which $26.8 million was used to fund Marcellus and Ohio Utica operations and $3.9 million was used to fund conventional drilling, water flood enhancement and facility upgrades in the Illinois Basin. The Marcellus and Ohio Utica capital investment funded the drilling of five gross (3.5 net) wells, fracture stimulation of eight gross (4.0 net) wells, placing four gross (2.1 net) wells into sales and other projects related to drilling and completing wells in the Appalachian Basin.

Investments for leasing and property acquisition were $2.6 million and capitalized interest was $1.7 million for the second quarter of 2015.

Operational Update

Appalachian Basin – Legacy Butler Operated Area

In the Legacy Butler Operated Area, the company drilled four gross (2.5 net) wells in the second quarter of 2015, with four gross (1.4 net) wells fracture stimulated and four gross (2.1 net) wells placed into sales. The company had 11.0 gross (5.6 net) wells drilled and awaiting completion as of June 30, 2015.

The company has placed into sales the Bloom 6H well which was drilled to a lateral length of approximately 4,600 feet and completed in 31 stages with average sand concentrations of 2,800 pounds per foot. The well produced at a 5-day sales rate, assuming full ethane recovery, of 8.3 MMcfe/d, consisting of 4.0 MMcf/d of natural gas and 717 bbls/d of NGLs and condensate.

In addition, the company has reduced its cost to drill and complete wells by approximately 4% to $5.5 million per well, assuming a 5,000 foot lateral, as compared to the previously reported $5.7 million per well at year-end 2014. The decrease in well cost is attributable to operational efficiencies and improved pricing from service providers. The company continues to focus intensely on cost control measures and expects to achieve further cost reductions and efficiencies by year-end.

Appalachian Basin – Moraine East Area

In the Moraine East Area, the company is currently drilling the fourth well on the four-well Fleeger pad. The four wells will be drilled to an average lateral length of approximately 6,000 and completed with an average sand concentration of approximately 2,300 pounds per foot. The company expects to complete the four wells in the fourth quarter of 2015 and place the pad into sales in late 2015 or early 2016, as the necessary infrastructure comes into service.

Appalachian Basin – Western Lawrence Utica

In the Western Lawrence Utica, drilling operations have been completed on the Patterson 2H, the company’s first dry gas Utica well in the region. The well was drilled to a lateral length of approximately 6,800 feet and is currently being completed. The Patterson 2H is expected to be placed into sales in late third quarter 2015.

Appalachian Basin – Moraine East Gathering and Bluestone III

In the Moraine East Area, the company anticipates the Moraine East gathering and processing system to be commissioned by the end of 2015. In addition, the company continues to anticipate the commissioning of Bluestone III in the fourth quarter of 2015. Bluestone III will add approximately 105 MMcf/d of processing capacity in the Butler Operated Area.

Liquidity Update

As of June 30, 2015, the company had approximately $6.1 million of cash and $93.0 million of its $350.0 million borrowing base outstanding under its senior secured credit facility. During July 2015, Rex Energy completed the sale of Keystone Clearwater Solutions and received reimbursement for previous pipeline expenditures for net proceeds of $72.4 million. Pro forma for the sale of Keystone Clearwater Solutions, reimbursements from previous pipeline expenditures and additional reimbursements from the company’s drilling joint venture in Moraine East, the company has approximately $8.8 million outstanding under its $350 million borrowing base.

Third Quarter and Full Year 2015 Guidance

Rex Energy is providing its guidance for the third quarter and maintaining its full year 2015 guidance ($ in millions). Third quarter production is expected to be relatively flat to second quarter production due to processing constraints at the Bluestone II facility. The company currently has an inventory of wells in the Butler Operated Area waiting to be placed into sales following the expected commissioning of Bluestone III in the fourth quarter of 2015.

3Q2015Full Year 2015
Production197.0 - 202.0 MMcfe/d193.0 - 203.0 MMcfe/d
Lease Operating Expense$31.0 - $34.0 million--
Cash G&A$6.5 - $7.5 million--
Operational Capital Expenditures(1)(2) --$135.0 - $145.0 million
(1) Land acquisition expense and capitalized interest are not included in the operational capital expenditures budget
(2) Continuing operations only

Conference Call Information

Management will host a live conference call and webcast on Wednesday, August 5, 2015 at 10:00 a.m. Eastern to review second quarter 2015 financial results and operational highlights. All financial results included in this release or discussed on the conference call are preliminary pending the completion by our independent auditors of the second quarter 2015 review. The telephone number to access the conference call is (866) 437-1772. Presentation slides containing reference materials will be available on the company’s website, www.rexenergy.com, under the Investor Relations tab.

About Rex Energy Corporation

Rex Energy, headquartered in State College, Pennsylvania, is an independent oil and gas exploration and production company operating in the Appalachian and Illinois Basins within the United States. The company’s strategy is to pursue its higher potential exploration drilling prospects while acquiring oil and natural gas properties complementary to its portfolio.

Forward-Looking Statements

Except for historical information, statements made in this release, including those relating to the timing and nature of development plans; drilling and completion schedules; anticipated fracture stimulation activities; expected dates for availability and infrastructure and placement of wells into sales; and our financial guidance for third quarter and full year 2015 are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may contain words such as "expected", "expects", "scheduled", "planned", "plans", "anticipates" or similar words. These statements are based on management's experience and perception of historical trends, current conditions, and anticipated future developments, as well as other factors believed to be appropriate. We believe these statements and the assumptions and estimates contained in this release are reasonable based on information that is currently available to us. However, management's assumptions and the company's future performance are subject to a wide range of business risks and uncertainties, both known and unknown, and we cannot assure that the company can or will meet the goals, expectations, and projections included in this release. Any number of factors could cause our actual results to be materially different from those expressed or implied in our forward looking statements, including (without limitation):

  • economic conditions in the United States and globally;
  • domestic and global demand for oil, NGLs and natural gas;
  • volatility in oil, NGL, and natural gas pricing;
  • new or changing government regulations, including those relating to environmental matters, permitting, or other aspects of our operations;
  • the geologic quality of the company's properties with regard to, among other things, the existence of hydrocarbons in economic quantities;
  • uncertainties inherent in the estimates of our oil and natural gas reserves;
  • our ability to increase oil and natural gas production and income through exploration and development;
  • drilling and operating risks;
  • the success of our drilling techniques in both conventional and unconventional reservoirs;
  • the success of the secondary and tertiary recovery methods we utilize or plan to employ in the future;
  • the number of potential well locations to be drilled, the cost to drill them, and the time frame within which they will be drilled;
  • the ability of contractors to timely and adequately perform their drilling, construction, well stimulation, completion and production services;
  • the availability of equipment, such as drilling rigs, and infrastructure, such as transportation, pipelines, processing and midstream services;
  • the effects of adverse weather or other natural disasters on our operations;
  • competition in the oil and gas industry in general, and specifically in our areas of operations;
  • changes in our drilling plans and related budgets;
  • the success of prospect development and property acquisition;
  • the success of our business and financial strategies, and hedging strategies;
  • conditions in the domestic and global capital and credit markets and their effect on us;
  • the adequacy and availability of capital resources, credit, and liquidity including, but not limited to, access to additional borrowing capacity; and
  • uncertainties related to the legal and regulatory environment for our industry, and our own legal proceedings and their outcome.

The company undertakes no obligation to publicly update or revise any forward-looking statements. Further information on the company's risks and uncertainties is available in the company's filings with the Securities and Exchange Commission.


REX ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands, Except Share and Per Share Data)
ASSETS June 30, 2015 (Unaudited) December 31, 2014
Current Assets
Cash and Cash Equivalents $6,113 $17,978
Accounts Receivable 29,863 43,936
Taxes Receivable 19 504
Short-Term Derivative Instruments 20,810 29,265
Inventory, Prepaid Expenses and Other 2,102 3,403
Assets Held for Sale 45,334 34,257
Total Current Assets 104,241 129,343
Property and Equipment (Successful Efforts Method)
Evaluated Oil and Gas Properties 1,167,161 1,079,039
Unevaluated Oil and Gas Properties 306,811 322,413
Other Property and Equipment 47,091 46,361
Wells and Facilities in Progress 122,398 127,655
Pipelines 12,789 15,657
Total Property and Equipment 1,656,250 1,591,125
Less: Accumulated Depreciation, Depletion and Amortization (489,041) (366,917)
Net Property and Equipment 1,167,209 1,224,208
Deferred Financing Costs and Other Assets - Net 16,705 17,070
Equity Method Investments -- 17,895
Long-Term Derivative Instruments 8,372 4,904
Long-Term Deferred Tax Asset 5,995 8,301
Total Assets $1,302,522 $1,401,721
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable $34,701 $53,340
Current Maturities of Long-Term Debt 725 1,176
Accrued Liabilities 46,436 59,478
Short-Term Derivative Instruments 2,202 421
Current Deferred Tax Liability 5,995 8,301
Liabilities Related to Assets Held for Sale 32,002 25,115
Total Current Liabilities 122,061 147,831
Long-Term Derivative Instruments 3,793 2,377
Senior Secured Line of Credit and Long-Term Debt 93,260 251
8.875% Senior Notes Due 2020 350,000 350,000
6.25% Senior Notes Due 2022 325,000 325,000
Premium on Senior Notes, Net 2,538 2,725
Other Deposits and Liabilities 3,634 4,018
Future Abandonment Cost 39,931 38,146
Total Liabilities $940,217 $870,348
Stockholders’ Equity
Preferred Stock, $.001 par value per share, 100,000 shares authorized and 16,100 issued and outstanding on June 30, 2015 and December 31, 2014 $ 1 $ 1
Common Stock, $.001 par value per share, 100,000,000 shares authorized and 55,280,071 shares issued and outstanding on June 30, 2015 and 54,174,763 shares issued and outstanding on December 31, 2014 54 54
Additional Paid-In Capital 622,738 617,826
Accumulated Deficit (266,145) (90,749)
Rex Energy Stockholders’ Equity 356,648 527,132
Noncontrolling Interests 5,657 4,241
Total Stockholders’ Equity 362,305 531,373
Total Liabilities and Owners’ Equity $1,302,522 $1,401,721



REX ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in Thousands, Except per Share Data)
For the Three Months Ended
June 30,
For the Six Months Ended
June 30
2015 2014 2015 2014
OPERATING REVENUE
Oil, Natural Gas and NGL Sales$ 45,761 $ 72,903 $ 99,872 $154,202
Other Revenue 11 30 22 74
TOTAL OPERATING REVENUE 45,772 72,933 99,894 154,276
OPERATING EXPENSES
Production and Lease Operating Expense 30,642 21,633 59,694 41,666
General and Administrative Expense 8,480 8,329 18,131 17,891
(Gain) Loss on Disposal of Assets (300) 222 (235) 294
Impairment Expense 117,844 16 124,867 41
Exploration Expense 917 1,367 1,435 3,427
Depreciation, Depletion, Amortization and Accretion 29,538 20,356 55,664 40,079
Other Operating Expense (Income) (70) (56) 5,121 27
TOTAL OPERATING EXPENSES 187,051 51,867 264,677 103,425
INCOME (LOSS) FROM OPERATIONS (141,279) 21,066 (164,783) 50,851
OTHER EXPENSE
Interest Expense (12,194) (7,357) (24,211) (14,290)
Gain (Loss) on Derivatives, Net (281) (251) 16,838 (10,001)
Other Income 65 54 99 17
Loss on Equity Method Investments (208) (208) (411) (408)
TOTAL OTHER EXPENSE (12,618) (7,762) (7,685) (24,682)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX (153,897) 13,304 (172,468) 26,169
Income Tax (Expense) Benefit 524 (5,660) 616 (9,770)
INCOME (LOSS) FROM CONTINUING OPERATIONS (153,373) 7,644 (171,852) 16,399
Income From Discontinued Operations, Net of Income Taxes 1,570 1,311 3,532 2,993
NET INCOME (LOSS) (151,803) 8,955 (168,320) 19,392
Net Income Attributable to Noncontrolling Interests 949 877 2,246 2,446
NET INCOME (LOSS) ATTRIBUTABLE TO REX ENERGY (152,752) 8,078 (170,566) 16,946
Preferred Stock Dividends 2,415 -- 4,830 --
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS$ (155,167) $ 8,078 $ (175,396) $16,946
Earnings per common share:
Basic – Net Income (Loss) From Continuing Operations Attributable to Rex Energy Common Shareholders$ (2.88) $ 0.14 $ (3.27) $0.31
Basic – Net Income From Discontinued Operations Attributable to Rex Energy Common Shareholders 0.01 0.01 0.02 0.01
Basic – Net Income (Loss) Attributable to Rex Energy Common Shareholders$ (2.87) $ 0.15 $ (3.25) $0.32
Basic – Weighted Average Shares of Common Stock Outstanding 54,118 53,164 54,090 53,075
Diluted – Net Income (Loss) From Continuing Operations Attributable to Rex Energy Common Shareholders$ (2.88) $ 0.14 $ (3.27) $0.31
Diluted – Net Income From Discontinued Operations Attributable to Rex Energy Common Shareholders 0.01 0.01 0.02 0.01
Diluted – Net Income (Loss) Attributable to Rex Energy Common Shareholders$ (2.87) $ 0.15 $ (3.25) $0.32
Diluted – Weighted Average Shares of Common Stock Outstanding 54,118 53,509 54,090 53,511



REX ENERGY CORPORATION
CONSOLIDATED OPERATIONAL HIGHLIGHTS
UNAUDITED
Three Months Ending Six Months Ending
June 30, June 30,
2015 2014 2015 2014
Oil, Natural Gas, NGL and Ethane sales (in thousands):
Oil and condensate sales $15,135 $ 24,555 $27,596 $ 47,861
Natural gas sales 21,087 32,398 49,373 72,498
Natural gas liquid sales (C3+) 7,684 15,866 19,803 33,759
Ethane sales 1,855 84 3,099 84
Cash-settled derivatives:
Crude oil 2,368 (1,006) 6,113 (1,427)
Natural gas 9,067 (1,003) 14,339 (4,342)
Natural gas liquids (C3+) 2,036 43 3,539 (1,443)
Ethane 67 -- 126 --
Total oil, gas, NGL and Ethane sales including cash settled derivatives $59,299 $ 70,937 $123,988 $ 146,990
Production during the period:
Oil and condensate (Bbls) 307,105 251,861 622,279 502,269
Natural gas (Mcf) 11,926,165 8,171,627 23,429,082 15,834,994
Natural gas liquids (C3+) (Bbls) 551,899 325,580 1,073,102 630,724
Ethane (Bbls) 290,453 13,948 479,608 13,948
Total (Mcfe)1 18,822,907 11,719,961 36,479,016 22,716,640
Production – average per day:
Oil and condensate (Bbls) 3,375 2,768 3,438 2,775
Natural gas (Mcf) 131,057 89,798 129,442 87,486
Natural gas liquids (C3+) (Bbls) 6,065 3,578 5,929 3,485
Ethane (Bbls) 3,192 153 2,650 77
Total (Mcfe)a 206,845 128,791 201,542 125,506
Average price per unit:
Realized crude oil price per Bbl – as reported $49.28 $ 97.50 $44.35 $ 95.29
Realized impact from cash settled derivatives per Bbl 7.71 (3.99) 9.82 (2.84)
Net realized price per Bbl $56.99 $ 93.51 $54.17 $ 92.45
Realized natural gas price per Mcf – as reported $1.77 $ 3.96 $2.11 $ 4.58
Realized impact from cash settled derivatives per Mcf 0.76 (0.12) 0.61 (0.27)
Net realized price per Mcf $2.53 $ 3.84 $2.72 $ 4.31
Realized natural gas liquids (C3+) price per Bbl – as reported $13.92 $ 48.73 $18.45 $ 53.52
Realized impact from cash settled derivatives per Bbl 3.69 0.13 3.30 (2.29)
Net realized price per Bbl $17.61 $ 48.86 $21.75 $ 51.23
Realized ethane price per Bbl – as reported $6.39 $ 6.00 $6.46 $ 6.00
Realized impact from cash settled derivatives per Bbl 0.23 -- 0.26 --
Net realized price per Bbl $6.62 $ 6.00 $6.72 $ 6.00
LOE/Mcfe $1.63 $ 1.85 $1.64 $ 1.83
Cash G&A/Mcfe $0.35 $ 0.62 $0.36 $ 0.67
1 Oil and natural gas liquids are converted at the rate of one barrel of oil equivalent to six Mcfe.


REX ENERGY CORPORATION
COMMODITY DERIVATIVES – HEDGE POSITION AS OF 8/1/2015
2015 2016
Oil Derivatives (Bbls)
Collar Contracts
Volume 125,000 60,000
Ceiling$ 63.15 $ 63.81
Floor$ 52.90 $ 53.75
Collar Contracts with Short Puts
Volume 250,000 45,000
Ceiling$ 72.50 $ 70.00
Floor$ 65.00 $ 65.00
Short Put$ 50.00 $ 50.00
Put Spread Contracts
Volume -- 120,000
Floor$ -- $ 65.00
Short Put$ -- $ 50.00
Natural Gas Derivatives (Mcf)
Swap Contracts
Volume 11,975,000(1) 13,200,000(2)
Price$ 3.61 $ 3.63
Swaption Contracts
Volume 1,250,000 --
Price$ 3.54 $ --
Put Spread
Volume 1,950,000 2,100,000
Floor$ 3.32 $ 3.00
Short Put$ 2.56 $ 2.25
Collar Contracts
Volume -- 900,000
Ceiling$ -- $ 4.04
Floor$ -- $ 3.20
Collar Contracts with Short Puts
Volume 2,600,000 11,850,000
Ceiling$ 4.09 $ 4.08
Floor$ 3.44 $ 3.35
Short Put$ 2.75 $ 2.58
Call Contracts
Volume 1,450,000 7,320,000
Ceiling$ 4.01 $ 4.35
Natural Gas Liquids (Bbls)
Swap Contracts
Propane (C3)
Volume 415,000 639,000
Price$ 26.04 $ 23.10
Butane (C4)
Volume 60,000 108,000
Price$ 28.90 30.62
Isobutane (IC4)
Volume 27,500 60,000
Price$ 29.57 $ 30.70
Natural Gasoline (C5+)
Volume 142,500 324,000
Price$ 50.78 $ 52.79
Ethane
Volume 170,900 240,000
Price$ 8.40 $ 8.82
Natural Gas Basis (Mcf)
Swap Contracts
Dominion Appalachia(3)
Volume 4,230,000 12,500,000
Price$ (0.81)$ (0.90)
(1) Includes 3.3 Bcf of enhanced swaps
(2) Includes 3.6 Bcf of enhanced swaps
(3) Financial derivatives only


APPENDIX

REX ENERGY CORPORATION
NON-GAAP MEASURES

EBITDAX

“EBITDAX” means, for any period, the sum of net income for such period plus the following expenses, charges or income to the extent deducted from or added to net income in such period: interest, income taxes, DD&A, unrealized losses from financial derivatives, non-recurring gains and losses, exploration expenses and other similar non-cash charges, minus all non-cash income, including but not limited to, income from unrealized financial derivatives and gains on asset dispositions, added to net income. EBITDAX, as defined above, is used as a financial measure by our management team and by other users of its financial statements, such as our commercial bank lenders to analyze such things as:

  • Our operating performance and return on capital in comparison to those of other companies in our industry, without regard to financial or capital structure;
  • The financial performance of our assets and valuation of the entity without regard to financing methods, capital structure or historical cost basis;
  • Our ability to generate cash sufficient to pay interest costs, support our indebtedness and make cash distributions to our stockholders; and
  • The viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDAX is not a calculation based on GAAP financial measures and should not be considered as an alternative to net income (loss) (the most directly comparable GAAP financial measure) in measuring our performance, nor should it be used as an exclusive measure of cash flows, because it does not consider the impact of working capital growth, capital expenditures, debt principal reductions, and other sources and uses of cash, which are disclosed in our consolidated statements of cash flows.

We have reported EBITDAX because it is a financial measure used by our existing commercial lenders, and because this measure is commonly reported and widely used by investors as an indicator of a company’s operating performance and ability to incur and service debt. You should carefully consider the specific items included in our computations of EBITDAX. While we have disclosed EBITDAX to permit a more complete comparative analysis of our operating performance and debt servicing ability relative to other companies, you are cautioned that EBITDAX as reported by us may not be comparable in all instances to EBITDAX as reported by other companies. EBITDAX amounts may not be fully available for management’s discretionary use, due to requirements to conserve funds for capital expenditures, debt service and other commitments.

We believe that EBITDAX assists our lenders and investors in comparing our performance on a consistent basis without regard to certain expenses, which can vary significantly depending upon accounting methods. Because we may borrow money to finance our operations, interest expense is a necessary element of our costs. In addition, because we use capital assets, DD&A are also necessary elements of our costs. Finally, we are required to pay federal and state taxes, which are necessary elements of our costs. Therefore, any measures that exclude these elements have material limitations.

To compensate for these limitations, we believe it is important to consider both net income determined under GAAP and EBITDAX to evaluate our performance.

For purposes of consistency with current calculations, we have revised certain amounts relating to prior period EBITDAX. The following table presents a reconciliation of our net income to EBITDAX for each of the periods presented.


Three Months Ended
June 30,
Six Months Ended
June 30,
2015 2014 2015 2014
Income (Loss) From Continuing Operations $ (153,373) $ 7,644 $ (171,852) $ 16,399
(Gain) Loss on Derivatives, Net 281 251 (16,838) 10,001
Cash Settlement of Derivatives 13,941 (1,457) 25,020 (6,333)
Add Back (Less) Unrealized (Gain) Loss from Financial Derivatives 14,222 (1,206) 8,182 3,668
Add Back Non-Recurring Costs1 (248) -- 4,774 --
Add Back Depletion, Depreciation, Amortization and Accretion 29,538 20,356 55,664 40,079
Add Back Non-Cash Compensation Expense 1,955 1,074 4,917 2,724
Add Back Interest Expense 12,194 7,357 24,211 14,290
Add Back Impairment Expense 117,844 16 124,867 41
Add Back Exploration Expenses 917 1,367 1,435 3,427
Add Back (Less) Loss (Gain) on Disposal of Assets (300) 222 (235) 294
Add Back (Less) Income Tax Expense (Benefit) (524) 5,660 (616) 9,770
Add Back Non-Cash Portion of Equity Method Investment 203 202 406 401
EBITDAX From Continuing Operations $ 22,428 $ 42,692 $51,753 $91,093
Income From Discontinued Operations, Net of Income Taxes 1,570 1,311 3,532 2,993
Net Income Attributable to Noncontrolling Interests (949) (877) (2,246) (2,446)
Income From Discontinued Operations Attributable to Rex Energy 621 434 1,286 547
Add Back Depletion, Depreciation, Amortization and Accretion 37 871 76 1,572
Add Back Interest Expense 240 145 431 347
Add Back (Less) Loss (Gain) on Disposal of Assets (10) 7 (42) 7
Less Non-Cash Portion of Noncontrolling Interests (107) (410) (186) (774)
Add Back Income Tax Expense 423 272 858 354
Add EBITDAX From Discontinued Operations $ 1,204 $ 1,319 $ 2,423 $ 2,053
EBITDAX (Non-GAAP) $ 23,632 $ 44,011 $ 54,176 $ 93,146
1Non-Recurring costs for the three and six months ended June 30, 2015 include fees incurred to terminate two drilling rig contracts earlier than their original term; the company has the option to recapture approximately 50% of the fees if the rig is utilized by the company or another party.


Adjusted Net Income

“Adjusted Net Income” means, for any period, the sum of net income (loss) from continuing operations before income taxes for the period plus the following expenses, charges or income, in each case, to the extent deducted from or added to net income in the period: unrealized losses from financial derivatives, non-cash compensation expense, dry hole expenses, disposals of assets, impairment and other one-time or non-recurring charges, minus all gains from unrealized financial derivatives, disposal of assets and deferred income tax benefits, added to net income. Adjusted Net Income is used as a financial measure by Rex Energy's management team and by other users of its financial statements, to analyze its financial performance without regard to non-cash deferred taxes and non-cash unrealized losses or gains from oil and gas derivatives. Adjusted Net Income is not a calculation based on GAAP financial measures and should not be considered as an alternative to net income (loss) in measuring the company's performance.

Rex Energy reports Adjusted Net Income because it believes that this measure is commonly reported and widely used by investors as an indicator of a company's operating performance. You should carefully consider the specific items included in the company's computation of this measure. You are cautioned that Adjusted Net Income as reported by Rex Energy may not be comparable in all instances to that reported by other companies.

To compensate for these limitations, the company believes it is important to consider both net income determined under GAAP and Adjusted Net Income.

The following table presents a reconciliation of Rex Energy’s net income from continuing operations to its adjusted net income for each of the periods presented ($ in thousands):

For the Three Months Ended For the Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Income (Loss) From Continuing Operations Before Income Taxes, as reported$ (153,897)$ 13,304 $ (172,468)$ 26,169
(Gain) Loss on Derivatives, Net 281 251 (16,838) 10,001
Cash Settlement of Derivatives 13,941 (1,457) 25,020 (6,333)
Add Back (Less) Unrealized (Gain) Loss from Financial Derivatives 14,222 (1,206) 8,182 3,668
Add Back Non-Recurring Costs(1) (248) -- 4,774 --
Add Back Impairment Expense 117,844 16 124,867 41
Add Back Dry Hole Expense 288 -- 289 86
Add Back Non-Cash Compensation Expense 1,955 1,074 4,917 2,724
Add Back (Less) (Gain) Loss on Disposal of Assets (300) 222 (235) 294
Income (Loss) Before Income Taxes, adjusted$ (20,136)$ 13,410 $ (29,674)$ 32,982
Less Income Tax (Expense) Benefit, adjusted(2) 8,054 (5,364) 11,870 (13,193)
Adjusted Net Income (Loss)$ (12,082)$ 8,046 $ (17,804)$ 19,789
Basic – Adjusted Net Income Per Share$ (0.22)$ 0.15 $ (0.33)$ 0.37
Basic – Weighted Average Shares of Common Stock Outstanding 54,118 53,164 54,090 53,075
1Non-Recurring costs for the three and six months ended June 30, 2015 include fees incurred to terminate two drilling rig contracts earlier than their original term; the company has the option to recapture approximately 50% of the fees if the rig is utilized by the company or another party.
2Assumes an effective tax rate of 40%.


Cash General and Administrative Expenses

Cash General and Administrative Expenses (Cash G&A) is the difference between GAAP G&A and non-Cash G&A, which is primarily comprised of non-cash compensation expense. Rex Energy has reported Cash G&A because it believes that this measure is commonly reported and widely used by management and investors as an indicator of overhead efficiency without regard to non-cash expenditures, such as stock compensation. Cash G&A is not a calculation based on GAAP financial measures and should not be considered as an alternative to GAAP G&A in measuring the company’s performance. You should carefully consider the specific items included in the company’s computation of this measure. You are cautioned that Cash G&A as reported by Rex Energy may not be comparable in all instances to that reported by other companies.

To compensate for these limitations, the company believes it is important to consider both Cash G&A and GAAP G&A. The following table presents a reconciliation of Rex Energy’s GAAP G&A to its Cash G&A for each of the periods presented (in thousands):


Three Months Ended
June 30,
Six Months Ended
June 30,
2015 2014 2015 2014
GAAP G&A$8,480 $8,329 $18,131 $17,891
Non-Cash Compensation Expense (1,955) (1,074) (4,917) (2,724)
Cash G&A$6,525 $7,255 $13,214 $15,167


Pro Forma Borrowing under Senior Credit Facility

Pro forma borrowing under the company’s senior secured credit facility presents information about availability of its borrowing base pro forma for certain events that occurred after the close of the second quarter. The company believes it is important to consider the pro forma borrowings under the senior credit facility. The following table presents a reconciliation of Rex Energy’s borrowings under its senior credit facility as of June 30, 2015 to its pro forma borrowings under its senior credit facility of the period presented (in thousands):


Three Month Ended
June 30, 2015
Senior Secured Credit Facility$93,000
Less Net Proceeds from KCS Sale67,444
Less Reimbursements from Previous Pipeline Expenditures4,948
Less Reimbursements from Moraine East Joint Venture11,760
Pro Forma Senior Secured Credit Facility$9,792


For more information contact: Investor Relations (814) 278-7130 InvestorRelations@rexenergycorp.com

Source:Rex Energy Corporation