2010-08-31-2010-08-31-2010-09-30

Acquired 12,900 net acres in JV, certain producing Marcellus shale wells and associated midstream assets in Butler and Westmoreland counties, PA.

Summit Discovery Resources II LLC, a subsidiary of Sumitomo Corp., Tokyo, (Tokyo: 8053) has closed its joint venture concerning Pennsylvania Marcellus acreage with Rex Energy Corp., State College, Pa., (Nasdaq: REXX) for an adjusted price of $150.7 million.

Sumitomo paid $99.5 million at closing and will pay an additional $51.2 million in a drilling-carry balance that will be used to cover 80% of Rex Energy's costs to drill and complete additional Marcellus wells within the areas of mutual interest.

The deal was originally for $88.4 million at closing and an additional $52 million in drilling carry for a total $140.4 million.

The assets include 12,900 net acres, certain producing Marcellus shale wells and associated midstream assets. Rex remains operator.

In Butler County, Rex Energy sold a 15% non-operated interest in 42,200 gross (41,100 net) acres to Sumitomo for approximately $61.6 million, or $10,000 per net acre. The companies plan to form an area of mutual interest in Butler County. Rex Energy now owns approximately 34,900 net acres within the Butler County AMI.

Sumitomo has agreed to pay all of the costs to lease approximately 9,000 net acres in the Butler County AMI and will pay Rex Energy a leasing management fee of $1,000 per net acre during the Phase I leasing. At closing of the Phase I leasing, Rex Energy and Sumitomo will cross assign interests in the leases to provide a uniformity of interest in each lease in the Butler County AMI. Assuming full leasing, Rex Energy will hold 70% and its net acreage would remain at approximately 34,900 net acres in the AMI.

Rex Energy also sold 30% of its interests in twenty Marcellus shale wells within the Butler County area, including 11 wells in progress, for approximately $19.1 million, and 30% of its interest in Keystone Midstream Services LLC, a midstream joint venture with Stonehenge Energy Resources LP, and its existing refrigeration plant for approximately $3.9 million.

Sumitomo will also gain 20% interest in Rex's portion of a joint venture with Williams Production Appalachia LLC in Westmoreland County and central Pennsylvania. Rex holds 44,200 gross (22,100 net) acres in the joint venture, and Sumitomo will pay $35.9 million, or $8,115 per net acre, for the assets. Sumitomo will hold 4,420 net acres in the venture and Rex will own approximately 6,700 net acres within the Westmoreland County AMI, and 11,000 net acres within the Central Pennsylvania AMI.

Rex Energy sold 20% of its interests in 19 Marcellus wells in the Williams joint venture areas, including five wells in progress, for $5.7 million, and 20% of its interests in the Williams joint venture midstream assets for approximately $822,000.

Rex Energy also sold 50% of its interests in approximately 4,600 net acres in Fayette and Centre counties for $18.5 million, or $8,115 per net acre. The drilling carry for these areas may be applied, at Rex Energy's discretion, to drilling and completion costs attributable to either the Butler County or the Williams joint venture areas. Rex Energy now owns approximately 2,300 net acres in these areas.

Rex Energy president and chief executive Benjamin W. Hulburt says, "We are very excited to have closed on this important transaction for Rex Energy. At closing, we had $75 million in debt drawn on our senior credit facility. With the cash proceeds of $99.5 million, we are now in a positive net cash position. As we previously announced, even after the sale of a portion of our proved reserves, our borrowing base was increased to $125 million due to our continued success in growing our proven reserve base. In addition to being in a positive net cash position, the next $51.2 million of our Marcellus shale drilling and completion expenses are covered by our Sumitomo drilling carry balance."

KeyBanc Capital Markets analyst Jack Aydin believes Rex received a strong valuation of approximately $9,000 per acre on average, and $1.80 per producing Mcfe sold, which was better than its initial expectation of $6,000 to $7,000 per acre.