Rex Energy's High Growth, Faltering Stock Price Deserve a Look

Tickers in this article: REXX

NEW YORK (TheStreet) -- In the last four months, Rex Energy shares lost 30% from their April 24 peak at $21.50 to their Aug. 1 low at $13.39. The share price followed delays in several of Rex's Butler operated area wells. Investors pushed the stock price down fearing lower than expected production numbers. But after this recent sell-off, Rex Energy could deliver significant gains to shareholders as it continues to expand into the Appalachian and Illinois Basin.

Over the past five years Rex Energy has been expanding its number of wells in Illinois, Indiana, eastern Ohio and western Pennsylvania. The push reaped massive production gains. The growth translates into a 67% compound annual growth rate, or CAGR, in proven oil and gas reserves, increasing from 125.2 Bcfe in 2009 to 849.8 Bcfe in 2013.

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Rex's total proven reserves as of June 30 were 1,057.8 Bcfe, contributing to a PV-10 of approximately $1.0 billion. Likewise, production accelerated from 17.2 MMcfe per day to 92.74 MMcfe/d in the same time frame, a 52% CAGR. Rex's ability to carefully reinvest earnings in order to stimulate production is one of its competitive advantages and is an important aspect to consider when evaluating the company's stock as an investment.

Rex Energy beat first quarter analysts' expectations of 14 cents a share reporting earnings of 45 cents per share. Second quarter EPS, though lower at 16 cents, was slightly above analyst estimates of 15 a share. Investors remain eager to see whether the company will stay on track to meet its full-year production guidance, which Rex recently revised up approximately 2.0 MMcfe/d, despite the Butler Operated well delays.

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Since January, Rex has completed ten additional wells, added 100 MMcfe/d of processing capacity via the Bluestone II facility, and increased wells per pad from 2.9 in 2013 to 3.9 in 2014. The company was also able to capitalize on a surge in first quarter natural gas prices with realizations up 44% from the year-ago quarter, and significant positive price differentials vs. NYMEX spot prices. For the three months ended June 30, however, Rex's Appalachian Basin assets ran 62 cents off the Henry Hub price of $4.67.