REXX - Rex Energy Corporation - Page 13
The Marcellus Moves Up the Value Chain by Going Downstream
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Last month it was announced that Royal Dutch Shell (NYSE: RDS-A) was signing an option on a site to potentially build a petrochemical cracker plant in Southwestern PA. This plant would take the wet gas found in the Marcellus and Utica Shale of western PA and eastern Ohio and turn it into usable chemicals. The plant will also be the first of its kind in the region to take advantage of the supplies being produced from these two shales. For investors it’s important to look into the future that might be in order to be best positioned to take advantage of future profit potentials.
What is it?
The plant will be an ethane cracker and could also eventually include both polyethylene and mono-ethylene glycol units. The cracker would process the ethane which is a component found in the wet gas to produce ethylene, one of the primary building blocks for most petrochemicals. The polyethylene unit option for the cracker has the potential to produce an important raw material used in countless items from packaging to pipes. This is also part of a growing trend here in the US to take advantage of inexpensive feed stocks now available thanks to shale gas. Just recently Dow Chemical (NYSE: DOW) announced they were building a large cracker in Texas which will join the proposed Shell plant and become just the second plant built in the US in the last twenty years.
Why is it important?
The plant is just the first step in developing the infrastructure and offshoot industries needed to really turn the Marcellus into the game changing energy play that many think it can become. With the resource base and its related production in place, it now becomes about developing the value chain both upstream and downstream. The more value that is developed on the downstream side of things, the more valuable the gas under the ground becomes. While companies like Chesapeake (NYSE: CHK) have been working funding projects that will increase the demand for gas, those projects could be decades away from becoming mainstream. A plant such as the one proposed by Shell isn’t a new technology, instead it would be taking the feedstock produced and turning it the chemicals needed to build products here in the US. Those chemicals could then be used in to lower the cost basis in US manufacturing and create more jobs.
What will it mean?
While building this plant in southwestern PA will eventually be very profitable for Shell, it won’t be a game changer to move the needle on this quarter of a trillion dollar company. Where it could move the needle for example is in a smaller driller like Rexx Energy (NASDAQ: REXX) which has a very large position in the wet gas area just north of the proposed Shell cracker. Where it will really matter though is in bringing American manufacturing back online. One possibility that I will be watching is in a company like PPG Industries (NYSE: PPG) to see if they or a similar company announces plans to add on manufacturing capabilities here in the states. With the lower input costs from both natural gas and its related feed stocks as well as the chemicals produced from the proposed Shell cracker, there will be many growth opportunities in the years ahead for investors across all industries.
I’m becoming more interested in the chemical industry and the returns available thanks to the gas boom. This is a very long term story that will take years to play out. Investors need to keep a watchful eye to see which companies are in the best position for this long term opportunity as input costs go from a negative to a potential competitive advantage.
Yeah it flew from 11.10 to 11.25 that was short lived though, hopefully it will close above 11, then see what happens after hours..Profit is Profit good play Rando!
First Quarter Operational and Financial Results
Operating revenue from continuing operations was $33.8 million for the first quarter of 2012, which is a 46% increase over the same period of 2011. Commodity revenues, including cash settled derivatives, were $35.3 million, of which 57% was attributable to oil and natural gas liquids and 43% was attributable to natural gas. Realized prices for oil, including cash-settled derivatives, were $98.08 per barrel. Realized prices for natural gas, including cash-settled derivatives, were $3.72 per Mcf and realized prices for NGLs were $48.98 per barrel, which was 48% of the average quoted NYMEX price for the first quarter.
As adjusted, lease operating expenses (LOE) from continuing operations for the first quarter of 2012 were $9.5 million, or $1.72 per Mcfe. This amount excludes $2.8 million for the one-time retroactive portion of the new Pennsylvania impact fee, which became effective within the first quarter of 2012. The $1.72 per Mcfe is a 40% reduction in LOE on a per unit basis as compared to the first quarter of 2011. The first quarter reduction is attributable to economies of scale and operational efficiencies realized within the company’s Marcellus shale operations. In addition, the Illinois Basin experienced mild winter weather conditions and minimal spring flooding activity during the first quarter, which resulted in lower lease operating expenses. Going forward, the company will account for the Pennsylvania impact fee under lease operating expenses and will continue to exclude the one-time retroactive portion from further analysis.
As a result of the first quarter reductions in lease operating expense and continued efficiencies in the Marcellus operations, Rex Energy is lowering full-year 2012 LOE guidance to a range of $48.0 million to $53.0 million from the previously announced range of $50.0 million to $55.0 million. This revised guidance includes the current year estimated impact fee of $2.8 million and excludes the retroactive portion of $2.8 million.
Cash general and administrative expenses from continuing operations were $4.9 million, a 6% decrease over the first quarter of 2011, and fell within the company’s previously announced guidance range.
Net income from continuing operations for the first quarter 2012 was $3.8 million, or $0.08 per share. Loss from discontinued operations for the first quarter of 2012 was $5.4 million, or $0.11 per share. EBITDAX from continuing operations, a non-GAAP measure, was $21.5 million for the first quarter.
Been away busy with work watching markets from a distance holding long . Got the dreaded margin call last week in the low 9's which was satisfied. Hard to believe this hit the eights. Finally in the green and last night I changed my limit sell GTC order from 12.5 down to 12 in case this gapped up on earnings. A small portion did sell a little after 8 am in pre-market. If the rest of my shares hit 12 sometime this week and they sell,great. I will look to buy back lower as the run from 8.80 seems steep to sustain for long. I am really liking this right now as MACD on a weekly time frame is just about ready to cross. My plan from this point on is to trade this as my core position on the way up to 16 and then reevaluate from there.
Great going and good luck to those who bought in the eights and mid nines!!
wouldnt wanna hold thru close tho...too risky for me with recent run and too easy for a sell off aftr report today
Yeah, I got out early, what you said, plus the market perception of CHK saying they might go broke next year due to low NG prices was the capper. As you know I have watched OMTK for a while and it is just too thin to get involved, but with CHK having previously said they will sink $150MM investment into CNG fueling stations at truck stops on interstates, seeing them in dire straits with cash makes me think it would be an easy sell to their shareholders to nix that investment to stem the red cash tide, which in turn will hurt all NG based interests to some degree. Being that CHK and REXX are in the same general region of the US, I see them as somewhat sensitive to each other, particularly REXX to CHK. So... always better safe than sorry. Out in 11.30s, missed the top by a hair but no matter, feeling good.
Congrats guys on making the green. I never did have the chance to get back in because I missed my entry, but damn from high 8 to 11 is definitely nice.