Rex Energy is expanding in Pennsylvania and Ohio with the acquisition of about 208,000 acres from Royal Dutch Shell for $120 million in cash in a deal that stands to increase the company’s footprint in the Appalachian Basin by 200 percent, the State College-based driller said Tuesday.
Rex Energy said it struck a deal with affiliate of Shell called SWEPI to acquire a 100 percent interest in 208,000 acres in the Marcellus, Upper Devonian/Burkett and Utica shales in Pennsylvania and Ohio.
The acreage is in Armstrong, Beaver, Butler, Lawrence, Mercer and Venango counties in Pennsylvania and Columbiana and Mahoning counties in Ohio, which the company calls its “Butler operated area.”
The deal ups Rex’s position in those counties by 230 percent to 298,000 gross acres.
“We are proud to announce this acquisition, which is a milestone for Rex Energy," said CEO Tom Stabley in a prepared statement. "The proximity of the Shell acreage to our Butler operated area, combined with our solid operating history, strong recent production results, and the attractive economics of our projects in the area made this transaction a natural fit for Rex Energy.
The divestment is not entirely a surprise for Shell, whose CEO Ben van Beurden said in March that the company would be cutting spending and staff in its dry gas operations in the U.S. by about 30 percent.
As of earlier this year, Shell controlled 900,000 acres in Pennsylvania. It had acquired more than 1 million acres in 2010 when it bought Warrendale-based East Resources for $4.7 billion.
Tuesday’s sale to Rex represents about 22 percent of its Marcellus portfolio.
Shell has slowed its pace of permitting new wells this year, but still received about 75 permits to drill in counties where it has a joint venture agreement with Ultra Petroleum Corp. The two energy companies are jointly developing acreage in central and northeastern Pennsylvania.
Butler County accounted for only a handful of new permits.
Outside of the joint venture, Shell is currently running only one rig in the Marcellus, according to Morningstar analyst Stephen Simko.
"Despite so many people having so much success in the Marcellus, it doesn't seem Shell, despite buying so much acreage, caught on to too much of it," he said.
The company's push to restrict capital spending and reign in unprofitable projects is in line with the sale to Rex, he said.
"Shell does not talk optimistically very often about Appalachia," Mr. Simko said. "Where they're really focused is in the Permian and in Canada."
Mr. Stabley said the deal will allow Rex to “strategically expand” its development program in that area.
Rex said this latest purchase and future leasing plans will position the company for a multi-year development plan that includes 400 potential liquids-rich drilling locations, a 24 percent increase over its inventory prior to the deal with Shell.
The new assets include about 16 million cubic feet per day (MMcf/d) of current or potential production and estimated proved reserves of about 21 billion cubic feet equivalent of natural gas from those wells.
Rex said it has infrastructure and pipeline takeaway capacity — about 80 MMcf/d — in place to handle production. The company plans to add one or two drilling rigs in 2015 on the newly acquired acreage.