Rex Energy Corp. (NASDAQ: REXX) bought itself some time March 31, entering a joint venture (JV) with an affiliate of private equity firm ArcLight Capital Partners LLC in the Butler Operated Area of the Marcellus Shale.

Raising cash through asset sales and a much needed JV to address liquidity concerns has been a priority for the company. While REXX has liquidity to keep it afloat in 2015, beyond that its outspend was problematic, analysts said, adding the company will still need to sell assets to get on firmer ground.

The $67 million JV gives REXX, based in State College, Pa., the ability to weather 2015 and most of 2016 after its debt redetermination and relaxed debt covenants, said Gordon Douthat, senior analyst, Wells Fargo Securities.

“In the face of Wall Street doubts and commodity headwinds, execution on a JV is a positive first step in addressing leverage,” he said.

The deal includes $16.7 million received at closing and carries 35% of 16 wells in the legacy Butler position and another 16 in Moraine East, including the recent 4-well Renick pad, REXX said.

Once ROI has been achieved, ArcLight’s working interest (WI) will decline to 17.5%. The partner also has an option to extend the agreement to another 22 Moraine East wells for a 20% WI, REXX said.

“This joint venture is consistent with our 2015 strategy to further HBP our liquids-rich prospects in the Butler Operated Area, specifically in the Moraine East Area," said Rex Energy CEO Tom Stabley. “This new relationship provides greater flexibility for Rex to manage its capital program, while continuing to increase production and reserves. We continue to evaluate solutions that will further enhance our ability to develop the Butler Operated Area.”

Much of the JV will be exhausted in 2015. REXX’s 2015 production guidance will drop to 185-195 million cubic feet equivalent per day, a 5% reduction versus prior estimates. Capex will decrease 30% to between $135 million and $145 million.

“In the end, the deal results in $51 million in incremental liquidity in 2015,” the company said.

No acreage information was provided, but at 650-foot spacing and 4,900-foot laterals, the 32 wells would equate to 2,300 gross acres or 800 net assuming 35% working interest, which translates to $80,000/acre, Douthat said.

REXX’s revolver base was also redetermined at $350 million, down from $400 million. However, the company’s total debt to EBITDA covenant was removed and permanently replaced with 3.0x senior secured debt to EBITDA. Previously, the covenant was 1.75x senior secured debt that expired June 30, 2016, and reverted to 4.0x total debt.

“We model company breaching the new covenant in the fourth quarter of 2016,” Douthat said.

That gives REXX two more quarters of financing than Wells Fargo previously estimated.

The deal and debt restructuring buys time for REXX, but more sales are needed to alleviate near term leverage concerns with the Keystone water business currently on the market, Douthat said.

“We estimate the business is worth $70 million,” he said.

REXX operates and has a 70% WI in the Butler Operated Area, which is prospective for liquids-rich gas from the Marcellus Shale, and the overlying Upper Devonian Burkett Shale.

REXX added 100% WI in 207,000 recently acquired net acres, which are prospective for the Marcellus, Upper Devonianand Utica shales. The company paid $120 million for the acreage.

ArcLight, based in Boston, provides financing to the North American energy sector, with $13 billion in asset-based investments through 90 transactions since 2001.

Rex Energy's Appalachian position.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.