Rex Energy Corp Enters Joint Venture With Sumitomo Corp for Marcellus Assets

Rex Energy Corp. (REXX) will receive $88.4 million for its Marcellus Shale assets in Pennsylvania as they are tranferred into a joint venture with Sumitomo Corp.

Rex's shares climbed 7.2% to $11 on the midafternoon disclosure.

The deal is the Japanese trading house's second shale deal as a wide variety of international players are seeking exposure to the hot natural gas assets. A surge in output from the one-time unconventional drilling prospects have helped keep a lid on natural gas prices and inventories have surged the past several years.

Meanwhile, Rex gets to become debt free and have "substantial" cash on hand. The oil-and-gas company, which has most of its operations in the Illinois and Appalachian basins, returned to black ink in the most recent two quarters after posting a string of losses since commodity prices fell from record highs in 2008.

"We believe that this will enable us to continue to aggressively develop our assets, while maintaining one of the cleanest balance sheets in the industry," said Rex President and Chief Executive Benjamin Hulburt. Meanwhile, the company announced Tuesday that its lenders have agreed to boost Rex's credit line by 25% to $125 million while extending the maturity a year to September 2013. As of Tuesday, $65 million had been borrowed from it.

With the sale, Rex reduced its third-quarter guidance to average daily production by 5% while the year's target was reduced by up to 20%.

Beyond paying the $88.4 million for the joint venture stake, Sumitomo will also cover 80% of Rex's remaining Marcellus drilling and well-completion costs up to $52 million. The deal is set to close next month.

SOURCE:
The Wall Street Journal