Form 8-K REX ENERGY CORP For: Feb 07
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 7, 2018
Rex Energy Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 001-33610 | 20-8814402 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
366 Walker Drive
State College, Pennsylvania 16801
(Address of Principal Executive Office and Zip Code)
(814) 278-7267
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 7.01 | Regulation FD Disclosure. |
Disclosures pursuant to Non-Disclosure Agreements
As noted in previous periodic filings by Rex Energy Corporation (“Rex Energy” or the “Company”), from time to time, the Company engages with its lenders or other holders of its securities, including its 1.0%/8.0% senior secured notes due 2020 (“senior notes”), its preferred stock, and its common stock, regarding potential transactions, or otherwise opportunistically considers strategic financing proposals that management believes may be beneficial to the Company and its stakeholders. These transactions may include proposals for financing or recapitalization, refinancing of existing debt, debt-for-debt or debt-for-equity exchanges, or other restructuring transactions with current investors, affiliates of the Company, and/or other financing or strategic counterparties.
In September 2017, the Company entered into confidentiality agreements and commenced discussions with legal and financial advisors (the “Noteholder Advisors”) for a committee of holders of the senior notes (the “Noteholders”), who have represented to the Company that they hold a substantial portion of the senior notes, to explore one or more possible restructuring, financing, refinancing, reorganization, recapitalization, amendment, waiver, forbearance, asset sale and/or similar transactions involving the Company (a “Possible Transaction”). Subsequent to the date of the execution of these confidentiality agreements, the Noteholder Advisors (a) conducted due diligence on the Company and (b) engaged in discussions with the Company and its advisors.
In early January 2018, the Company entered into confidentiality agreements with the Noteholders to discuss a Possible Transaction (the “NDAs”). During the course of those discussions, and subject to the applicable NDAs, the Company shared certain confidential information with the Noteholders (collectively, the “Cleansing Materials”). The Company is obligated to disclose such information in this Form 8-K pursuant to the terms of the applicable NDAs. Copies of the Cleansing Materials are attached hereto as Exhibit 99.1.
Also following entry into the NDAs, the Company and the Noteholders engaged in negotiations with respect to a Possible Transaction. Attached hereto as Exhibits 99.2 and 99.3 are the most recent term sheet proposals sent by each of the Company and the Noteholders, respectively. In addition, attached hereto as Exhibit 99.4 are the most recent proposals for the material terms of an amendment to the Company’s existing term loan facility. The Company has not yet reached agreement on mutually acceptable terms and conditions with the Noteholders regarding a Possible Transaction. Negotiations between the Company and the Noteholders are ongoing. There are no assurances that the Company and such Noteholders will come to an agreement on the terms of a Possible Transaction.
Rex Energy expects that it will continue to periodically assess its financing alternatives and opportunistically engage with current or potential investors, lenders, or financing providers regarding such alternatives in the future. Any financing, refinancing, or restructuring arrangement may be on terms similar or dissimilar to the proposal described herein, could be subject to additional terms or conditions, could require specific approvals from existing lenders, noteholders and/or shareholders, among others, and would otherwise be subject to the negotiation and execution of definitive documentation. There can be no assurance that any such transaction would result in additional liquidity or that any such transactions can or will be consummated.
In accordance with General Instruction B.2 of Form 8-K, the information under this heading shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth in such a filing.
Cautionary Note Regarding Forward-Looking Statements
Certain Statements in this Form 8-K and the exhibits hereto that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company believes these statements and the assumptions and estimates contained therein are reasonable based on information that is currently available to it. However, management’s assumptions and the Company’s future performance are subject to a wide range of business risks and uncertainties, both known and unknown, and the Company cannot assure that the Company can or will meet the goals, expectations and projections. Any number of factors could cause our actual results to be materially different from those expressed or implied in the Company’s forward looking statements. Further information on the risks and uncertainties that may affect our business is available in the Company’s filings with the SEC, and the Company strongly encourages readers to review and understand those risks. The Company does not assume or undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Exhibits.
| Exhibit | ||
| No. | Description | |
| 99.1 | Rex Energy Corporate Presentation, January 2018 | |
| 99.2 | Company Term Sheet Proposal | |
| 99.3 | Noteholder Term Sheet Proposal | |
| 99.4 | Term Loan Amendment Proposals | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| REX ENERGY CORPORATION | ||||||
| Date: February 8, 2018 | By: | /s/ Curtis J. Walker | ||||
| Name: | Curtis J. Walker | |||||
| Title: | Chief Financial Officer | |||||
 CORPORATE PRESENTATION January 2018 Exhibit 99.1 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Disclosures 2 Forward Looking Statements Statements in this presentation that are not historical facts are “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We believe these statements and the assumptions and estimates contained in this presentation are reasonable based
on information that is currently available to us. However, management’s assumptions and the company’s future performance are subject to a wide range of business risks and uncertainties, both known and unknown, and we cannot assure
that the company can or will meet the goals, expectations and projections included in this presentation. Any number of factors could cause our actual results to be materially different from those expressed or implied in our forward
looking statements, including (without limitation): economic conditions in the United States and globally; domestic and global supply and demand for oil, natural gas liquids (“NGLs”) and natural gas; realized prices for oil,
natural gas and NGLs and volatility of those prices; the adequacy and availability of capital resources, credit and liquidity, including, but not limited to, access to additional borrowing capacity and our inability to generate sufficient cash flow from
operations to fund our capital expenditures and meet working capital needs; our ability to comply with restrictions imposed by our term loan credit agreement, secured and unsecured indentures, and other existing and future financing arrangements;
our ability to service our outstanding indebtedness; impairments of our natural gas, NGL and condensate asset values due to declines in commodity prices; conditions in the domestic and global capital and credit markets and their
effects on us; new or changing government regulations, including those relating to environmental matters, permitting or other aspects of our operations; the willingness and ability of the Organization of Petroleum Exporting Countries
to set and maintain oil price and production controls; the geologic quality of our properties with regard to, among other things, the existence of hydrocarbons in economic quantities; uncertainties inherent in the estimates of our natural
gas, NGL and condensate reserves; our ability to increase natural gas, NGL and condensate production and income through exploration and development; drilling and operating risks; counterparty credit risks; the success of our drilling
techniques in both conventional and unconventional reservoirs; the success of the secondary and tertiary recovery methods we utilize or plan to employ in the future; the number of potential well locations to be drilled, the cost to
drill, and the time frame within which they will be drilled; the ability of contractors to timely and adequately perform their drilling, construction, well stimulation, completion and production services; the availability of equipment, such as
drilling rigs, and infrastructure, such as transportation pipelines, processing and midstream services; the effects of adverse weather or other natural disasters on our operations; competition in the oil and gas industry in general, and specifically
in our areas of operation; changes in our drilling plans and related budgets; the success of prospect development and property acquisition; the success of our business and financial strategies and hedging strategies; uncertainties related to
the legal and regulatory environment for our industry, and our own legal proceeding and their outcome; and our ability to maintain the listing of our securities on the NASDAQ Capital Market or any other exchange on which our securities trade.
Further information on the risks and uncertainties that may affect our business is available in the company’s filings with the SEC, and we strongly encourage readers to review and understand those risks. We do not assume or undertake
any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Presentation of Information The estimates of reserves in this presentation are based on a reserve report of our independent external reserve engineers
as of December 31, 2017. We believe the data we prepared and supplied to our external reservoir engineers in connection with their preparation of the December 31, 2017 reserve report, and the assumptions, forecasts, and estimates
contained therein, are reasonable; however we cannot assure that they will prove to have been correct. Estimates of reserves can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. In this presentation,
references to Rex Energy, Rex, REXX, the Company, we, our and us refer to Rex Energy Corporation and its subsidiaries. Unless otherwise noted, all references to acreage holdings are as of December 01, 2017 and are rounded to the
nearest hundred. All financial information excludes discontinued operations unless otherwise noted. All estimates of internal rate of return (IRR) are before tax. Hydrocarbon Volumes The SEC permits publicly-reporting oil and gas companies to disclose “proved reserves” in their filings with
the SEC. “Proved reserves” are estimates that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. SEC rules also permit
the disclosure of “probable” and “possible” reserves. Rex Energy discloses proved reserves but does not disclose probable or possible reserves. We may use certain broader terms such as “resource potential,” “EUR”
(estimated ultimate recovery of resources, defined below) and other descriptions of volumes of potentially recoverable hydrocarbons throughout this presentation. These broader classifications do not constitute “reserves” as defined by the SEC
and we do not attempt to distinguish these classifications from probable or possible reserves as defined by SEC guidelines. In addition, we are prohibited from disclosing hydrocarbon quantities that do not constitute reserves in documents filed with
the SEC. The company defines EUR as the cumulative oil and gas production expected to be economically recovered from a reservoir or individual well from initial production until the end of its useful life. Our estimates of
EURs and resource potential have been prepared internally by our engineers and management without review by independent engineers. These estimates are by their nature more speculative than estimates of proved, probable and possible
reserves and accordingly are subject to substantially greater uncertainty of being actually realized. We include these estimates to demonstrate what we believe to be the potential for future drilling and production by the company.
Ultimate recoveries will be dependent upon numerous factors including actual encountered geological conditions, the impact of future oil and gas pricing, exploration and development costs, and our future drilling decisions and budgets
based upon our future evaluation of risk, returns and the availability of capital and, in many areas, the outcome of negotiation of drilling arrangements with holders of adjacent or fractional interest leases. Estimates of resource
potential and other figures may change significantly as development of our resource plays provide additional data and therefore quantities that may ultimately be recovered will likely differ materially from these estimates.
Potential Drilling Locations
Our estimates of potential drilling locations are prepared
internally by our engineers and management and are based upon a number of assumptions inherent in the estimating process. Management, with the assistance of engineers and other professionals, as necessary, conducts a topographical analysts of our unproved prospective acreage to identify
potential well pad locations using operationally approved designs and considering several factors, which may include but are not limited to access roads, terrain, well azimuths, and well pad sizes. For our operations in Pennsylvania, we then
calculate the number of horizontal well bores for which the company appears to control sufficient acreage to drill the lateral wells from each potential well pad location to arrive at an estimated number of net potential drilling locations.
For our operations in Ohio, we calculate the number of horizontal well bores that may be drilled from the potential well pad and multiply this by the company’s net working interest percentage of the proposed unit and arrive at an estimate
number of net potential drilling locations. In both cases, we then divide the unproved prospective acreage by the number of net potential drilling locations to arrive at an average well spacing. Management uses these estimates to, among
other things, evaluate our acreage holdings and formulate plans for drilling. Any number of factors could cause the number of wells we actually drill to vary significantly form these estimates, including, without limitation, the
availability of capital, drilling and production costs, commodity prices, availability of drilling services and equipment, lease expirations and regulatory approvals. DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Executive Summary DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Company Overview
4
Appalachian Basin
Net
Acreage
~98,000
Warrior North
Net
Acreage
~11,800
Butler Operated
Net
Acreage
~76,000
Non-Operated
Net
Acreage
~10,200
Production
(1)
3Q17A
182.0 Mmcfe/d
4Q17E
~205.1
Mmcfe/d
4Q17E Exit Rate
~215.2 Mmcfe/d
2017E
~184.1 Mmcfe/d
2018E
250.0 –
260.0 Mmcfe/d
2019E
285.0 –
295.0 Mmcfe/d
Capital
Expenditures
(1)
2017 Net Operational
Capex
~$133.5 million
2018 Net Operational Capex
$105.0 -
$125.0 million
Estimated Production Growth Rate
35% -
45%
2019 Net Operational Capex
$60.0
-
$75.0
million
Estimated Production Growth Rate
10% -
20%
Total
Proved Reserves
2017 Base Proved Reserves/$PV10
3,848 Bcfe/$892.4 MM
2017 PDP Reserves/$PV10
969 Bcfe/$504.6
MM
Rex Energy is a pure-play Appalachian Basin focused company
targeting wet- gas windows in the Pennsylvania
Marcellus and Ohio Utica Shales (1)
Estimates based on Growth Plan
|
 Investment Highlights 5 Best in Class Human Capital Safety is Rex Energy’s #1 priority Core team has been together for six years Rex’s success is directly correlated to its employees’ success
Focused on developing and retaining our existing
talent Ability to run 2-3 rig program with
current team High Quality Acreage
Position Highly contiguous acreage position in the
Appalachian Basin Large multi-year inventory of
~900+ gross/690 net liquids-rich drilling locations Average Working Interest: 74%; Average NRI: 63% 99% of acreage held by production Ready for multi-well pad development Multiple horizons: Upper Devonian, Marcellus and Utica formations
Current HBP holds all depths –
Marcellus, Upper Devonian Burkett, Dry Gas Utica and
Rhinestreet formations
Prolific
Resource
Proven formations: Marcellus, Upper Devonian and
Utica Derisked
existing acreage with over 200 gross wells placed into sales as
of 12/31/2017 Year-End 2017 PDP Reserves: 969
Bcfe; PV10: $504.6 million Year-End 2017 Base
Proved Reserves: 3,848 Bcfe; PV10: $892.4 million
Cost and Capital Efficiency Improvements
HBP acreage allows for flexibility in choosing future locations
to drill and complete Capital spend is focused on
best areas of the assets to maximize returns
Enhanced completion design and longer laterals results in
maximized financial returns Established supply
chain program that ensures Rex is getting the best value possible from its service providers Drilling and Completion Enhancements Average drilling days reduced to 11.1 days in 2017 vs. 16.6 days in 2014 while increasing lateral length by ~2,600’
during same period
Increased completion stages per day: 5.5 stages/day in 2017 vs.
4.1 stages/day in 2016; more recent jobs 7-10 stages / day Conducted a comprehensive performance analysis with third party engineering firm on over 160 wells to produce a more
optimal completion design
Comprehensive water management plans
Marketing and Processing Strategy
Recent NGL marketing agreement with BP allows for consistent
liquids cash flow and eliminates seasonality
Diversified marketing strategy and active hedging minimizes
exposure to large fluctuations in commodity prices and gas basis differentials Anchor/shipper with MarkWest facilities in Butler County Extensive Geology and Reservoir Insight Drilled over 220 wells in the Appalachian Basin Large inventory of logs and cores performed over the past six years
Developed best practices for optimal drilling performance and
completion techniques Minimal science required to
unlock optimal value DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Rex has secured ~928 gross/ ~690 net “wet gas” locations
Leasing additional infill acres in Moraine East potentially adds
~160 locations In addition to the “wet gas”
locations identified above, Rex has secured
approximately 400 dry gas Utica locations in the Butler Legacy and
Moraine East areas
Current HBP holds all depths –
Marcellus, Upper Devonian, Utica & Rhinestreet
“Wet Gas” Acreage and Well Counts
Area
Formation
Acres
Well Count
Gross
Net
Gross
Net
Legacy
Marcellus
63,000
44,300
251
177
Burkett
63,000
44,300
318
222
Moraine
East
Marcellus
36,000
31,700
175
141
Burkett
36,000
31,700
154
125
Warrior North
Utica
13,000
11,800
30
25
Total
211,000
163,800
928
690
“Stacked Pay” Effect
6
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Management Profiles
Tom Stabley –
President & Chief Executive Officer
Co-founder of Rex Energy in 2003 –
managed various partnerships
that eventually were consolidated into Rex Energy
Guided the company through reorganization and consolidation that
resulted in Rex Energy’s IPO in 2007 Over 20
years of expertise in capital markets, financial reporting, corporate finance and strategic planning Robert Ovitz – Chief Operating Officer Joined Rex Energy in 2014 Over 30 years of extensive technical experience in drilling, completions and HSE as well as leading and managing business
organizations within the E&P
space Prior to joining Rex, he was a Senior
Operations Manager for Noble Energy in the Appalachian Basin where he built Noble Energy’s operational team and presence in the basin
Curt Walker –
Chief Financial Officer
Joined Rex Energy in 2007
Over 15 years experience in accounting, financial reporting,
corporate finance and strategic planning Previous
experience with YRC Worldwide, a Fortune 500 company
Dave
Pratt –
Senior Vice President & Exploration Manager
Joined Rex Energy in 2008
Over 30 years experience as a senior geologist working on
projects located throughout the United States
Previous experience in geology with Cabot Oil & Gas, Texaco,
Sohio Petroleum and Ensource & Enstar Mike Eck
– Senior Vice President, Risk
Management Joined Rex Energy in 2010
Over 18 years experience in risk management, process
re-engineering and audit Responsible for the
oversight of Rex Energy’s HSE function, Procurement department and Internal Audit group F. Scott Hodges – Senior Vice President, Land & Business Development Joined Rex Energy in 2010 Over 20 years experience in acquisition and management of mineral and surface rights and business development
Previous experience as Regional Land Manager for Consol Energy
from 1997 - 2010
Mike
Endler –
Vice President, Basin Manager
Joined Rex Energy in 2011
Over 15 years experience in engineering and
operations Previous experience in consulting for
the oil and gas industry, specializing in surface facilities and water management Registered Professional Engineer Darren Springinatic – Senior Director, Marketing Joined Rex Energy in 2012 Over 15 years experience in oil and gas marketing in the U.S. and Canada
Previous experience in oil and gas marketing with Bonavista
Petroleum and Hunt Oil Abhinav Sharma
–
Director, Reservoir Engineering
Joined Rex Energy in 2010
Over 10 years experience in reservoir engineering
Masters in Petroleum Engineering from University of Texas,
Austin 7 |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
8
Production (Mmcfe/d)
(1)
LOE ($/Mcfe)
Key Metrics: 2014 –
2020E
Cash G&A ($/Mcfe)
154.4
183.8
195.3
180.0 –
190.0
250.0 –
260.0
280.0 –
300.0
290.0 –
310.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
2014
2015
2016
2017E
2018E
2019E
2020E
$1.94
$1.84
$1.78
$1.77 -
$1.82
$1.55 -
$1.60
$1.52 -
$1.57
$1.51 -
$1.56
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
2014
2015
2016
2017E
2018E
2019E
2020E
$0.82
$0.75
$0.54
$0.23 -
$0.28
$0.15 -
$0.20
$0.14 -
$0.19
$0.14 -
$0.19
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
2014
2015
2016
2017E
2018E
2019E
2020E
(1)
Estimates based on Growth Plan
|
 Joint Ventures DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Joint Venture Summary 10 Benefit Street Partners (BSP) $175.0 million in initial consideration with $134.0 million committed and funded to date BSP’s initial capital and well commitment has ended BSP has elected into an additional seven JV AMI wells to date at a working interest of 15% - 20% ArcLight All 32 wells have been drilled and placed into service $67.6 million contributed 17.5% reverts to Rex upon ArcLight achieving hurdle rate Sumitomo Through JV, Sumitomo has 30% interest in Legacy Butler AMI Other interests in non-operated areas Joint Venture Summary ($ in millions) Benefit Street Partners ArcLight Sumitomo Date March 2016 March 2015 August 2010 Type Joint Exp./Dev. Agreement Drilling Participation & Exploration Area Moraine East/Warrior North Legacy Butler/Moraine East Legacy Butler AMI Yes Wellbore Only Yes # of wells participated 47 32 139 Acres (Gross/Net) Warrior North: 6,679/1,336 ME: 36,668/5,985 -- Butler Legacy: 63,000/18,700 Partners WI% Initial Wells – 65% 35.0% 30.0% Consideration $175.0 -- -- Commitment $134.0 -- -- Contributed to Date $134.0 $67.6 -- Int. Reversion N/A IRR/ROI hurdle rates N/A Other BSP earned assigned of 15%-20% in acreage located within each unit -- -- DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Appalachia Benchmarking DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Marcellus Performance Benchmarking 12 EUR (Bcfe) / 1,000 ft. 3.18 3.25 2.15 2.40 2.71 2.46 2.16 2.00 2.95 2.40 2.52 4.40 2.66 1.60 Butler Central Butler South Moraine East Core Highly Rich Gas/Cond. Highly Rich Gas Rich Gas Dry Gas SW PA Wet SW PA Rich SW PA Dry Lower SW PA Condensate Source: Company presentations and filings, TPH Research, Wall Street consensus estimates as compiled by
FaceSet as of 12/14/2017
Note: Rex calculations based on November 2017 IR presentation.
Peers based on most recently disclosed Marcellus estimates Peers include AR, CNX, COG, ECR, EQT, and RRC REXX Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 D&C ($MM) / 1,000 ft. $0.89 $0.87 $0.92 $0.93 $0.93 $0.93 $0.93 $0.82 $0.86 $0.69 $0.94 $0.84 $0.86 Butler Legacy Moraine East Core Highly Rich Gas/Cond. Highly Rich Gas Rich Gas Dry Gas SW PA Wet SW PA Rich SW PA Dry Lower SW PA Condensate Median: $0.92 Median: 2.49 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Operational & Financial Benchmarking
(1)
13
2017E-2018E Production Growth
39%
17%
21%
14%
18%
28%
31%
18%
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Median:
18%
% Liquids (Reserve Based)
43%
7%
39%
35%
3%
7%
15%
18%
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Median:
15%
Production Investment Rate ($/Mcfed)
(2)
Inventory Life –
Years
(3)
$647
$2,203
$1,314
$1,586
$1,530
$1,366
$1,765
$2,475
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Median:
$1,586
37
23
18
19
29
6
15
12
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Median:
18
Source: TPH Research, Wall Street consensus estimates as compiled
by FactSet of 12/14/2017
Note: Rex forecasts and inventory calculations based on November
2017 IR Presentation Peers include AR, CNX, COG,
ECR, EQT, GPOR and RRC (1)
Based on Growth Plan projections
(2)
2018E
Capex spend/(2018E production less 2017E declined production).
Assumes 20% base decline for 2017E (3)
For Rex, based on 25 wells per year.
|
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Operational & Financial Benchmarking
(1)
14
Hedge Profile (% of 2018E Production)
(2)
56%
38%
73%
39%
1%
63%
74%
47%
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
2018E PDP
Hedge Profile:
64%
Median:
47%
In-Basin Sales Exposure (% of 2018E NG Production)
54%
48%
26%
54%
77%
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Median:
51%
G&A Burden (2018E G&A/Mcfe)
$0.17
$0.14
$0.13
$0.19
$0.07
$0.12
$0.12
$0.29
REXX
Peer 1
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
Peer 7
Median:
$0.13
Source: Company presentations and filings, TPH Research, Wall
Street consensus estimates as compiled by FactSet
as of 12/14/2017
Peers include AR, CNX, COG, ECR, EQT, GPOR and RRC
(1)
Based on Growth Plan projections
(2)
Includes volumes from all derivatives
|
 Butler Operated Area DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Legacy Area Moraine East Rex 70%/Sumitomo 30% Rex ~85%/BSP ~15% Area Lease Status Acres Well Count Gross Net Gross Net Legacy HBP/HBO 62,500 43,950 564 395 Pending 500 350 5 4 Moraine East HBP/HBO 35,000 30,700 329 266 Pending 1,000 1,000 -- -- Total: 99,000 76,000 898 665 Butler Operated Area Currently control 898 potential “wet gas” locations in the Butler Operated Area ~99% of these locations are held by production/operations HBP/HBO Pending 16 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Gas pipeline from Moraine East Field Rex Energy Regional Office MarkWest Gas Processing Facilities Fresh Water Impoundment
Legacy Butler Operated Area
17
Contiguous acreage position of ~63,000 gross/44,300
net acres
Average working interest: 70%
Sumitomo JV: 30% WI in all wells
ArcLight: 35% WI in 16 wells (will revert to 17.5%)
Gross/Net Potential Locations: 569/399 based on 800’
spacing
Currently have 139 wells placed into sales:
127 Marcellus
10 Upper Devonian Burkett
2 Utica
Recent 5-day average wellhead inlet of 180
MMcf/d MarkWest
provides gas gathering and processing services
Total capacity: 410 MMcf/d
Capacity dedicated to Rex: 285 MMcf/d (inclusive
of JV partners); currently at 267 MMcf/d
Gas from Moraine East field flows into MarkWest
processing facility via Stonehenge pipeline
Four-Well Wilson Pad
Three extended laterals produced
at an average 5-day sales rate of
11.3 Mmcfe/d and 30-day sales
rate of 11.0 Mmcfe/d
Wells are still exhibiting strong
pressures
Legend:
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Enhanced Performance – Butler Legacy (1) Central 9.7 Bcfe EUR (80% ethane) 11.7 Bcfe EUR (80% ethane) 15.6 Bcfe EUR (80% ethane) 15.7 Bcfe EUR (80% ethane) 17.0 Bcfe EUR (80% ethane) 8.9 Bcfe EUR (55% ethane) 10.7 Bcfe EUR (55% ethane) 14.4 Bcfe EUR (55% ethane) 14.5 Bcfe EUR (55% ethane) 15.9 Bcfe EUR (55% ethane) 2013 2014 2015 2016 2017 Completion Reduced Cluster Spacing Reduced Cluster Spacing Reduced Cluster Spacing Reduced Cluster Spacing Reduced Cluster Spacing Gross Avg. 30- Day Wellhead Gas IP (Mcf/d) 3,175 3,683 4,736 4,458 4,234 1 Yr. Decline 50% 48% 44% 40% 33% Lateral Length 4,000’ 4,000’ 5,000’ 5,000’ 5,000 Stages / Spacing 27 / 150’ 33 / 150’ 33 / 150’ 33 / 150’ 33 / 150’ Frac Sand (#/ft) 1,800 2,000-2,200 2,200-2,500 2,200-2,500 2,200-2,500 All-In Cost $5.9 million $5.7 million $4.8 million $4.8 million $5.2 million WH EUR (bcf)/1,000’ 1.43 1.44 1.86 1.88 2.71 (1) See note on Hydrocarbon Volumes and disclaimers at beginning of presentation
18
17.3 Bcfe
EUR
(80% ethane)
16.2 Bcfe
EUR
(55% ethane)
2017
Reduced
Cluster
Spacing
5,535
36%
5,000
33 / 150’
2,200-2,500
$5.2 million
3.01
South
st
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Legacy Butler Marcellus Economics (1) Marcellus Economics (55% Ethane Recovery) (2) (1) See note on Hydrocarbon Volumes and disclaimers at beginning of presentation.
(2)
Economics reflect
55% ethane recovery.
(3)
Average 5-year C3+ differential approx. 52% of Oil, C2
differential approx. is 19% of Oil. (4)
Historical price differentials applied to Condensate. Gas price
differential dependent on future development plans and futures price differentials to Rex markets. (5) Strip Pricing as of 11.13.2017 – Oil: 2018: $56.63, 2019: $54.04, 2020: $52.47, 2021: $51.81 , 2022: $51.75 // Gas: 2018: $3.02, 2019: $2.92, 2020: $2.86, 2021: $2.87, 2022: $2.88 (6) 2016 EUR adjusted for net reserves 19 Butler Central 3rd Party YE16 Butler Central 3rd Party YE17 Butler South 3rd Party YE16 Butler South 3rd Party YE17 All-in Well Cost $6.0 million $6.0 million $6.0 million $6.0 million Lateral Length 6,700 ft 6,700 ft 6,700 ft 6,700 ft BCFE/1000ft (6) (55% C2) 2.21 3.18 2.12 3.25 % Liquids (55% C2) 35% 35% 28% 28% EUR (Bcfe) (6) 80% / 55% C2 15.8 14.8 22.8 21.3 15.1 14.2 23.1 21.7 IRR (3,4,5) $3.00 NYMEX Oil Price: 2017+: $60 34% 38% 25% 34% $3.00 NYMEX Oil Price: 2017+: $55 30% 33% 23% 30% $3.25 NYMEX Oil Price: 2017+: $55 36% 39% 29% 38% Strip Pricing 28% 31% 20% 28% Avg. 30-day sales rate (MMcfe/d) 8.0 – 11.0 8.0 – 11.0 8.0 – 11.0 8.0 – 11.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 0 2,000 4,000 6,000 8,000 10,000 12,000 0 10 20 30 40 50 60 Production Month Butler South -3rd Party YE16 Butler South -3rd Party YE17 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Butler Central -3rd Party YE16
Butler Central -3rd Party YE17
|
 Production linearly adjusted to 5,000ft equivalent lateral
Plotted above are 28 representative wells in Butler
Central with RCS completions Butler Central Type Curve
Evolution- Adjusted
20
100
1,000
10,000
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
Months
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Production linearly adjusted to 5,000ft equivalent lateral
Plotted above are 17 representative wells in Butler
South with RCS completions Butler
South
Type
Curve
Evolution-
Adjusted
21
100
1,000
10,000
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
Months
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Moraine East DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Legend: Gas Pipeline (Stonehenge) Perm. In-Ground Waterline Stonehenge - high pressure discharge line to MarkWest processing facility Renick Impoundment Fleeger-2 Impoundment Oakland Twp. Impoundment Stonehenge – Renick Compressor Station Lake Oneida – primary water source Estimated current total to MarkWest: Legacy Butler - 180 MMcfd Moraine East - 87 MMcfd 267 MMcfd Moraine East Area 23 Contiguous acreage position of ~36,000 gross/31,700 net acres Average working interest: 85% Gross/Net Potential Locations: 329/266 based on 800’
spacing
Leasing additional acreage adds ~160 potential gross
locations
Currently have 37 wells placed into sales:
30 Marcellus
7 Upper Devonian Burkett
Recent 5-day average wellhead inlet of 87
MMcf/d Gas gathering and field compression by
provided by Stonehenge
Gas from Moraine East field flows into MarkWest
processing facility via Stonehenge pipeline
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Moraine East Area – Recent Developments 24 Three-well Manuel pad Drilled to an average lateral length of ~6,750 feet Placed into sales in 4Q17 Two-well Frye pad Drilled to an average lateral length of ~6,300 feet 24-hour sales rate per well of 9.4 Mmcfe/d On a per lateral foot basis, highest rates achieved in Moraine
East
30-day sales rate per well of 8.5 Mmcfe/d
Six-well Shields pad
24-hour sales rate per well of 9.2 Mmcfe/d
30-day sales rate per well of 7.9 Mmcfe/d
In-line with economic projections for 2017 Moraine East
program
Four-well Mackrell
pad
Drilled to an average lateral length of ~7,630
24-hour sales rate per well of 8.4 Mmcfe/d
Four-well Baird pad
24-hour sales rate of 10.1 Mmcfe/d
Two Marcellus wells produced at an average 24-hour sales
rate per well of 12.1 Mmcfe/d
Baird 4H produced 213 bbls/d of condensate, representing the
highest condensate rate achieved in the Butler
Operated Area 30-day sales rate of 7.3
Mmcfe/d Upcoming
developments
Fourth compressor station expected to be in service in early
January 2018
Four-well Kern pad expected to be placed into sales in March
2018 Average lateral length of
8,500’ 100% working interest
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Moraine East Sample Unit Development 25 Initial Development 2 nd Wave of Development 3 rd Wave of Development Future Development 3 wave of development will require new pad site Focus on one of the units (ie: southwest unit) Drill 8-12 wells with avg lateral length 6,000 - 7,000 feet Repeat process for next unit (ie: southeast unit) Initial development of 4 PDP Wells ~4,000 acres are held by production (HBP) within the units Initial wells hold all depths and formation Infrastructure designed to support future development Future development of the remaining ~20-40 wells will follow a similar process Using existing pads and infrastructure will provide strong capital efficiencies Anticipate developing 8 – 12 wells at a time 2 wave of development will focus on one of the units (ie: northeast unit) Use existing pad sites Drill 8-12 wells with avg lateral length 6,000 - 7,000 feet Repeat process for next unit (ie: southeast unit) nd rd DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Achievable Performance Improvements in ME 26 After analyzing the production data from existing
Moraine East wells the latest 2017 wells have been
completed with optimized completion
techniques. Proppant loading, stage size,
water ratio, treatment rates, and other
variables have been optimized to improve
performance of latest wells. These latest
wells have been placed at optimized lateral
spacing of ~800 ft. In the past, the Moraine East
adjacent wells were spaced between 600 to
750 ft. Performance of longer
laterals is being tested in the Shields
and Mackrell pads. One of the wells is
greater than 10,000 ft.
Frye wells, which were the last set of wells to be
completed in Moraine East, suggest that
the casing pressure is holding steady for
longer and the productivity of these
wells is superior to wells completed with
previous generation techniques.
Peak monthly production rates on per foot basis for
2017 ME wells are higher than earlier
generation completion wells at lower
choke size. With these optimized
techniques, Rex hopes to unlock more
reserves in the future wells in ME. 8 Gray
wells in the planning phase to be D&C in 2018.
Optimized Completions
Earlier Gen. Completions
0.48
0.45
0.49
0.55
0.46
0.46
0.70
0
10
20
30
40
50
60
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Fleeger
Gray
Renick
Fleeger-2
Shields
Mackrell
Frye
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Moraine East Economics (1) Marcellus Economics (55% Ethane Recovery) (2) (1) See note on Hydrocarbon Volumes and disclaimers at beginning of presentation.
(2)
Economics reflect
55% ethane recovery.
(3)
Average 5-year C3+ differential approx. 52% of Oil, C2
differential approx. is 19% of Oil. (4)
Historical price differentials applied to Condensate. Gas price
differential dependent on future development plans and futures price differentials to Rex markets. (5) Strip Pricing as of 11.13.2017 – Oil: 2018: $56.63, 2019: $54.04, 2020: $52.47, 2021: $51.81 , 2022: $51.75 // Gas: 2018: $3.02, 2019: $2.92, 2020: $2.86, 2021: $2.87 , 2022: $2.88 (6) 2016 EUR adjusted for net reserves 27 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 0 10 20 30 40 50 60 Production Month ME 3rd Party YE16 ME 3rd Party YE17 REX ME 2017 Program ME 3rd Party YE16 ME 3rd Party YE17 Rex ME 2017 Program All-in Well Cost $6.5 million $6.5 million $6.5 million Lateral Length 7,500 ft 7,500 ft. 7,500 ft. BCFE/1000ft (6) (55% C2) 1.34 1.74 2.15 % Liquids (55% C2) 39% 40% 39% EUR (Bcfe) (6) 80% / 55% C2 10.7 10.0 13.9 13.0 17.3 16.1 IRR (3,4,5) $3.00 NYMEX Oil Price: 2017+: $60 20% 21% 26% $3.00 NYMEX Oil Price: 2017+: $55 17% 18% 23% $3.25 NYMEX Oil Price: 2017+: $55 20% 21% 26% Strip Pricing 15% 16% 21% Avg. 30-day sales rate (MMcfe/d ) 6.5 - 9.5 5.0 – 8.0 5.0 – 8.0 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Production linearly adjusted to a 6,000ft equivalent lateral and adjusted for downtime
Average lateral length of existing wells is 6,600 ft.
Average lateral length for 2017 wells is 7,500 ft Wells production flattening since the onset of compression. New production behavior since
compression. PDP
Wells
(North
ME)
are
currently
tracking
1.94
bcfe/1000ft
type
curve.
More
data
needed
to
define
EUR
with
certainty.
Moraine East vs. Type Curve
Compression commencement
month for first 12 wells
28
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Month DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Warrior North DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Warrior North Area 30 Contiguous acreage position of ~13,000 gross/11,800 net acres Average working interest: 95% Gross/Net Potential Locations: 30/25 based on 800’ spacing Currently have 25 wells placed into sales Gas gathering and field compression by provided by BlueRacer; gas processed at Natrium facility NGLs marketed by BlueRacer Wells average ~70% liquids production Strong optionality to condensate production TPL-7 BlueRacer gathering pipeline Three-well Jenkins pad placed into sales on 12/26/2017; 100% WI Seven-well Goebeler pad expected to be placed into sales in April 2018; 71% WI DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 (1) See note on Hydrocarbon Volumes and disclaimers at beginning of presentation.
(2)
Economics reflect
55% ethane recovery.
(3)
Historical price differentials applied to Condensate. Futures
differentials applied for gas production for all scenarios. (4) Average 5-year C3+ differential approx. 56% of Oil, C2 differential approx. is 15% of Oil.
(5)
Strip
Pricing
as
of
11.13.2017
–
Oil:
2018:
$56.63,
2019:
$54.04,
2020:
$52.47,
2021:
$51.81
,
2022:
$51.75
//
Gas:
2018:
$3.02,
2019:
$2.92,
2020:
$2.86,
2021:
$2.87
,
2022:
$2.88.
(6)
2016 EUR adjusted for net reserves
Warrior North Economics
(1)
3rd Party
YE16
3rd Party
YE17
Life Yield=54
3rd Party
YE17
Life Yield=60
Rex Upside
Case 2017
All-in Well Cost
$6.8 million
$6.8 million
$6.8 million
$6.8 million
Lateral Length
6,500 ft
6,500 ft
6,500 ft
6,500 ft
BCFE/1000ft
(6)
1.03
1.05
1.07
1.42
%
Liquids
51%
49%
50%
51%
EUR (MMBOE)
(6)
1.11
1.14
1.16
1.53
IRR
(3,4,5)
$60
52%
35%
43%
55%
40%
27%
33%
44%
43%
29%
35%
46%
40%
26%
32%
43%
Avg. 30-day sales rate (MBOE/d)
1.3 –
1.7
1.2 –
1.6
1.2 –
1.6
1.2 –
1.6
Warrior North Economics (55% Ethane Recovery)
(2)
31
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 0 10 20 30 40 50 60 Production Month 3rd Party YE16 Rex Upside Case 2017 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
3rd Party YE17 LY=54 |
 Transportation & Marketing DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Appalachian Basin Takeaway 33 Natural Gas Currently selling natural gas in the Gulf Coast and Northeast local
markets (DOMSP & TETCO)
Natural Gas Liquids (NGLs)
NGL’s are currently being sold in domestic markets
Upon Mariner East 2 commencement, a portion of Rex
NGL’s will be sold into international
markets Ethane
Rex sells ethane into international and domestic ethane
markets Canada (Mariner West), Europe (Mariner East)
and Mt. Belview (ATEX)
Marcus
Hook
Mont Belvieu
Perryville, LA
Freeport LNG
DOMSP
LNG Exports
& Mont Belvieu
Ethane Sales
Ethane &
NGL
Exports
Sarnia, Canada
Ethane Exports
Ethane Markets
NGL Markets
Gas Markets
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Marketing Summary 34 Warrior North Acreage dedication to BlueRacer for gathering and processing Gas is currently being sold into Dominion South (Dominion) and to M2 (TETCO) Rex will have access to Rockies Express, Rover, Leech Express and NEXUS on an interruptible basis Condensate purchased by Marathon Butler (Legacy) Acreage dedication to MarkWest for gathering/processing/compression 285mcf/d of priority capacity rights Gas sold into Dominion South (Dominion) and to the Gulf Coast (Dominion/Texas Gas) 3 ethane markets – Canada (Mariner West), Europe (Mariner East), Gulf Coast (ATEX) Condensate purchased by Marathon Moraine East Acreage dedication to Stonehenge for gathering & compression Gathering, compression can be expanded to over 400mcf/d Tiered volume pricing structure & Tiered minimum volume commitment (MVC) Ability to bank vols to use towards MVC Acreage dedication to MarkWest for processing Gas sold into Dominion South (Dominion) and to the Gulf Coast (Dominion/Texas Gas) 3 ethane markets – Canada (Mariner West), Europe (Mariner East), Gulf Coast (ATEX) Condensate purchased by Marathon DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Butler/Moraine East Map 35 8” MarkWest Ethane Pipeline connecting to Mariner West Mariner West Ethane Pipeline ATEX Ethane Pipeline Mariner East Ethane Pipeline Dominion Transmission Residue Pipeline DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Warrior North Map 36 Berne Plant Rex Energy Acreage Natrium Plant TPL-7 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Natural Gas LOE vs. Revenue Deduct 37 Dom South vs. Gulf Coast ($0.65) ($0.14) ($0.05) ($0.67) Basis (Variable) Transport (LOE) Basis (Fixed) Transport (LOE) NYMEX $3.00 NYMEX $3.00 $2.21 Net Realized Price $2.28 Net Realized Price Rex residue gas is split 50/50 between two primary markets:
Gulf Coast
130,000 Firm Transportation
$0.67 Average Rate
100,000 Gulf Coast transportation began 11/1/2016, remaining
30,000 came online 4/1/2017. Increase in
LOE’s/decrease in basis began at the end of 2016, incremental increase in LOE/decrease in basis in 04/2017 Full year of Gulf Coast transport LOE/reduced basis will be realized in 2018
2016 Differential ($0.92)/LOE ($1.58). 2017 Differential
(~$0.30)/LOE (~$1.79). Dom South
158,000 Firm Transportation
$0.14 Rate
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Rex/BP NGL Deal Summary Bluestone C3+ NGL Sale • Rex Energy to sell all C3+ NGL products (less ME2 INEOS commitments) out of the Mark
West Bluestone Facility to BP at improved net back pricing. Term
of the deal is January 2018 – March
2021. •
Based on historic NGL price fluctuations, the new improved NGL
fixed differentials should result in increased
revenue over the term of the deal. •
Fixed NGL differentials, eliminate the seasonality out of
pricing, while mitigating the timing of wells being
placed into sales. •
Opportunity to enhance net back pricing with a barrel exchange
agreement. Other Enhancements
• BP assumed credit requirements to Texas Gas Transmission on behalf of Rex Energy.
38
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Reserve Summary DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Projected Reserves YE17 –
Aries Strip Runs
(1,2)
40
(1)
Strip Pricing as of 11.27.2017 –
Oil: 2018: $57.11, 2019: $53.93, 2020: $51.94, 2021: $50.72,
2022: $50.21// Gas: 2018: $2.95, 2019: $2.91, 2020: $2.87, 2021: $2.87, 2022: $2.88 (2) PV10 estimates do not include hedges NPV10 (MM$) Net Reserves (Bcfe) YE17 YE17 PDP $504,584 969 PNP $19,482 32 PUD $365,709 2,765 PROB $2,657 82 Total $892,432 3,848 YE17 Aries Strip Run contains Growth Plan development program along with ~$100MM net capital spend per year
program
until
2029.
Well
count
from
2021
–
2029
varies
from
18-26.
Most
wells
in
the
development
program
from
2021
–
2029
are
infills
that
are
already
proven
from
a
performance
standpoint. |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
$307
$9
$98
$71
$-
$20
$0
Butler
West Lawr
Moraine East
Warrior North
Westmoreland
$503
$9
$229
$131
[CELLRANGE]
$20
[CELLRANGE]
Butler
West Lawr
Moraine East
Warrior North
Westmoreland
(1)
Strip Pricing as of 11.27.2017 –
Oil: 2018: $57.11, 2019: $53.93, 2020: $51.94, 2021: $50.72,
2022: $50.21// Gas: 2018: $2.95, 2019: $2.91, 2020: $2.87, 2021: $2.87, 2022: $2.88 Growth Plan NPV10 Strip (1) by Area ($MM) YE17 PDP Only Growth Plan Run (1) YE17 Total Growth Plan Run (1) 41 892 $MM 505 $MM |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
(1)
Strip Pricing as of 11.27.2017 –
Oil: 2018: $57.11, 2019: $53.93, 2020: $51.94, 2021: $50.72,
2022: $50.21// Gas: 2018: $2.95, 2019: $2.91, 2020: $2.87, 2021: $2.87, 2022: $2.88 YE17 PDP Only Growth Plan Run (1) YE17 Total Growth Plan Run (1) 42 3,848 Bcfe Growth Plan Net Strip (1) Reserves by Area (Bcfe) 969 Bcfe 2,508 Bcfe 11 Bcfe 1,099 Bcfe 196 Bcfe 34 Bcfe Butler West Lawr Moraine East Warrior North Westmoreland 677 Bcfe 11 Bcfe 164 Bcfe 83 Bcfe 34 Bcfe [CELLRANGE] Butler West Lawr Moraine East Warrior North Westmoreland |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Growth Plan Reserves Data Sheet
43
Butler Legacy
Central
Butler Legacy
South
Moraine East
Warrior North
EUR (Bcfe)
21.3
21.7
13.0
6.8
EUR
(Mmboe)
3.6
3.6
2.2
1.1
%
Liquids
35%
28%
40%
49%
Lateral Length (ft.)
6,700
6,700
7,500
6,500
Well Cost ($MM)
$6.0
$6.0
$6.5
$6.8
Bcfe/1,000’
3.18
3.25
1.74
1.05
IRR @ Strip Pricing
31%
28%
21%
26%
IRR @ $3.00
gas / $60 oil
38%
34%
26%
35% |
 Reserves – Key Takeaways 44 Rex continues to unlock more potential in Legacy Butler, Moraine East and Warrior North
Performed completion study with third party engineering firm to
optimize frac designs for
improvement in IPs and EURs
Currently completing wells with next generation frac
designs in Moraine East and Legacy
Butler
Frye wells, which were completed using optimized design, present
a possibility of upside to current type curves;
Frye’s are currently producing at a higher gas rate on a per foot basis at lower chokes in comparison to other wells Warrior North completion study is currently ongoing As presented in production performance slides, there is possible upside to 2017 type curves in
the near future; many wells in Legacy Butler are above 2017 type
curves Longer laterals in the 2018 drilling program
present the opportunity to improve economics
Currently, Rex’s core assets are nearly fully delineated and
HBP’d, providing the opportunity to
concentrate drilling on the best performing locations to maximize
NPV. DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Financial Strategy & Development Plan DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Financial Strategy 46 Increase cash flow in 2018 to achieve cash flow neutrality in 2019 and 2020 while still
achieving moderate growth (5% -
15%)
Utilize existing rig and completion contracts through current
terms while maintaining efficiencies and minimizing
termination fees Select highest return locations
while continuing to prove and exploit Moraine East
value
Optimize pad density, completion design and lateral length to
achieve strongest return Continue to optimize
existing production Continue strategy to improve key
operational matrix for the company Ability to access
capital markets DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Growth Plan –
Well Activity
47
Well Count Breakdown by Asset Area
Drilling & Completion Capex Breakdown
Capex Breakdown by Asset Area
0 2 4 6 8 10 12 14 16 18 20 2018 2019 2020 Butler Legacy South Butler Legacy Central Moraine East Warrior North $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 2018 2019 2020 Butler Legacy South Butler Legacy Central Moraine East Warrior North $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 2018 2019 2020 Drilling Completions |
 DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
Growth Plan Key Metrics: 2017 –
2020
48
EBITDAX Growth ($MM)
LOE/Mcfe
184.1
255.2
288.5
297.3
2017
2018
2019
2020
$1.79
$1.58
$1.54
$1.53
2017
2018
2019
2020
$0.26
$0.18
$0.17
$0.17
2017
2018
2019
2020
$59.2
$123.0
$119.4
$123.0
2017
2018
2019
2020
Production Growth (Mmcfe/d)
Cash G&A/Mcfe |
 Financial Projections – Growth Plan 49 2017A 2018E 2019E 2020E Average Daily Production (Mmcfe/d) 184.1 255.2 288.5 297.3 % Liquids Production 38% 45% 46% 46% Key Metrics EBITDAX (000s) $59,176 $122,994 $119,350 $122,968 LOE/Mcfe $1.79 $1.58 $1.54 $1.53 G&A/Mcfe $0.26 $0.18 $0.17 $0.17 Development Plan CAPEX (000s) $133,484 $114,741 $68,469 $95,383 Commodity Price Assumptions Oil $49.97 $56.25 $54.25 $54.00 Natural Gas $3.11 $2.88 $2.80 $2.80 Dominion South Basis Differential ($0.88) ($0.58) ($0.53) ($0.55) C3+ NGLs (% of NYMEX) 62% 58% 52% 52% Cash balance as of December 31, 2017 is $15.2 million. Assumes sale of Westmoreland Non-Op Assets in 2018; estimated annual EBITDAX contribution of $3.5 million.
Term Loan balance as of December 31, 2017 totaled approximately
$189.5 million. Assumes deleveraging
transaction. DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Financial Projections – Reduced Plan 2017A 2018E 2019E 2020E Average Daily Production (Mmcfe/d) 184.1 259.6 255.1 264.8 % Liquids Production 38% 44% 44% 44% Key Metrics EBITDAX (000s) $59,176 $124,841 $96,719 $107,087 LOE/Mcfe $1.79 $1.56 $1.60 $1.56 G&A/Mcfe $0.26 $0.18 $0.19 $0.19 Development Plan CAPEX (000s) $133,484 $69,590 $67,250 $69,953 Commodity Price Assumptions Oil $49.97 $56.25 $54.25 $54.00 Natural Gas $3.11 $2.88 $2.80 $2.80 Dominion South Basis Differential ($0.88) ($0.58) ($0.53) ($0.55) 50 Cash balance as of December 31, 2017 is $15.2 million. Term Loan balance as of December 31, 2017 totaled approximately $189.5 million.
Assumes deleveraging transaction.
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Opportunities and Risks 51 Opportunities and Risks to Plan Achievement Opportunities Risks Most recent base production has exceeded production profile Recent well performance has exceeded current type- curves Continue to drive procurement efficiencies by bundling services and driving competition Maximize efforts to mitigate legacy production declines Continue to employ efficient and lean overhead operations Financial flexibility allows for acceleration while HBP status allows for maximum capital efficiency Commodity prices, ability to participate in improved price environment Ability to access capital markets Availability and consistency of service crews when not running a full 12-month development program Performance and efficiency of processing and midstream operations Commodity prices and ability to hedge at attractive levels
Access to capital markets/ability to refinance delayed
draw term loan
Retaining technical staff and continuity of internal
resources
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
 Appendix: Hedge Positioning DRAFT FRE 408 Settlement Communication; Not admissible for any purpose; For discussion purposes only
|
 Hedge Position (1) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Natural Gas Oil & Condensate C2 C3+ NGLs Consolidated 2018 2019 2020 Avg. Floor: $2.97 Avg. Floor: $2.73 Avg. Floor: $47.68 Avg. Floor: $47.15 Avg. Floor: $12.93 Avg. Floor: $12.90 Avg. Floor: $33.30 Avg. Floor: $26.15 Avg. Floor: $2.70 Avg. Floor: $52.88 Avg. Floor: $12.79 Avg. Floor: $31.16 (1) Hedging position as of 1/1/2018; percent hedged based on PDP
53
64%
60%
37%
DRAFT
FRE 408 Settlement Communication; Not admissible for any purpose;
For discussion purposes only |
Exhibit 99.2
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
REX ENERGY CORPORATION
RESTRUCTURING TERM SHEET
January [●], 2018
THIS NON-BINDING INDICATIVE TERM SHEET (THIS “TERM SHEET”) DESCRIBES THE MATERIAL TERMS OF PROPOSED RESTRUCTURING AND RECAPITALIZATION TRANSACTIONS (COLLECTIVELY, THE “RESTRUCTURING”) PURSUANT TO WHICH REX ENERGY CORPORATION (THE “COMPANY”) AND CERTAIN OF ITS DIRECT AND INDIRECT SUBSIDIARIES AND ITS AFFILIATES (TOGETHER WITH THE COMPANY, THE “REX ENTITIES”) WILL RESTRUCTURE THEIR CAPITAL STRUCTURE THROUGH A VOLUNTARY [PRE-PACKAGED] PLAN OF REORGANIZATION (THE “PRE-PACKAGED CHAPTER 11 PLAN”) FILED IN CONNECTION WITH VOLUNTARY CASES (THE “CHAPTER 11 CASES”) COMMENCED BY CERTAIN OF THE REX ENTITIES (SUCH REX ENTITIES THAT FILE CHAPTER 11 CASES, THE “DEBTORS”) UNDER CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”) IN THE UNITED STATES BANKRUPTCY COURT FOR THE [VENUE]] (THE “BANKRUPTCY COURT”).1
THIS TERM SHEET DOES NOT INCLUDE A DESCRIPTION OF ALL OF THE TERMS, CONDITIONS, AND OTHER PROVISIONS THAT ARE TO BE CONTAINED IN THE PRE-PACKAGED CHAPTER 11 PLAN AND OTHER DEFINITIVE DOCUMENTATION GOVERNING THE RESTRUCTURING. SUCH DEFINITIVE DOCUMENTS SHALL SATISFY THE REQUIREMENTS OF ALL APPLICABLE SECURITIES LAWS, THE BANKRUPTCY CODE, AND THIS TERM SHEET.
THIS TERM SHEET DOES NOT CONSTITUTE (NOR SHALL IT BE CONSTRUED AS) AN OFFER WITH RESPECT TO ANY SECURITIES OR A SOLICITATION OF ACCEPTANCES OR REJECTIONS AS TO ANY PLAN, IT BEING UNDERSTOOD THAT SUCH SOLICITATION, IF ANY, ONLY WILL BE MADE IN COMPLIANCE WITH APPLICABLE PROVISIONS OF SECURITIES, BANKRUPTCY AND/OR OTHER APPLICABLE LAWS.
THE COMPANY IS ALSO EXPLORING OUT OF COURT TRANSACTIONS WITH ITS LENDERS AND NOTHING HEREIN SHALL BE AN INDICATION THAT THE COMPANY HAS DETERMINED OR WILL DETERMINE TO SEEK RELIEF UNDER CHAPTER 11 OF THE BANKRUPTCY CODE.
| 1 | NTD: In-court process subject to resolution of the First Lien Term Loan (as defined below) acceptable to the Company and the Ad Hoc Committee (as defined below). |
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| Overview | ||
| Restructuring Summary | The Rex Entities and certain Second Lien Noteholders (as defined below) (such holders, the “Consenting Noteholders”) have agreed to support the Restructuring. As described in greater detail herein, the Consenting Noteholders agree to exchange their Second Lien Notes (as defined below) through the Pre-Packaged Chapter 11 Plan (which each Consenting Noteholder shall support and with respect to which each Consenting Noteholder shall vote its Claims (as defined in section 101(5) of the Bankruptcy Code) to accept the Pre-Packaged Chapter 11 Plan), for certain debt and equity securities. | |
| Implementation of the Restructuring | The Restructuring shall be implemented through the Chapter 11 Cases and pursuant to the Pre-Packaged Chapter 11 Plan with the support of the ad hoc committee of Second Lien Noteholders represented by Akin Gump Strauss Hauer & Feld LLP (the “Ad Hoc Committee”).
To effectuate the Restructuring, certain parties, including the Company and the Consenting Noteholders, shall execute a Restructuring Support Agreement (the “RSA”) consistent with the material terms set forth herein.2 This Term Sheet shall be attached to, and incorporated into, the RSA.
The Chapter 11 Cases shall be funded by existing cash on hand in accordance with the terms of a cash collateral order acceptable to the Ad Hoc Committee.3
The effective date of the Restructuring (the “Effective Date”) will be the date on which all conditions to the effectiveness of the Pre-Packaged Chapter 11 Plan have been satisfied or waived in accordance with its terms and the Pre-Packaged Chapter 11 Plan has been substantially consummated. | |
| Current Capital Structure | The current capital structure of the Company is as follows: | |
| • Indebtedness under that certain term loan agreement, dated as of April 28, 2017 (as may be amended, supplemented, amended and restated, or otherwise modified from time to time, the “Term Loan Agreement”), among the Company, as borrower, Angelo, Gordon Energy Servicer, LLC (“AGES”), as administrative agent (in such capacity, the “Administrative Agent”), AGES, as collateral agent, Macquarie Bank Limited, as issuing bank, and the lenders from time to time party thereto, comprised of a term loan (the “First Lien Term Loan”) in an aggregate principal amount outstanding of $143,500,000 as of June 30, 2017. | ||
| 2 | The RSA shall include, among other things: (i) certain milestones to be provided by the Ad Hoc Committee and (ii) a condition that resolution of the treatment of the First Lien Term Loan (as defined below) and any asserted “make-whole” claims shall be subject to the consent of the Ad Hoc Committee. |
| 3 | NTD: Any in-court process without the support of the First Lien Term Loan will be premised upon nonconsensual use of cash collateral or DIP financing to be provided by the Ad Hoc Committee. |
2
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| • Indebtedness under that certain indenture, dated as of March 31, 2016 (as may be amended, supplemented, amended and restated, or otherwise modified from time to time, the “Second Lien Notes Indenture”), by and among the Company, the guarantors named therein, and Wilmington Trust, National Association as trustee (the “Indenture Trustee”), comprised of the Company’s 1.00%/8.00% Senior Secured Second Lien Notes due 2020 (collectively, such notes, the “Second Lien Notes,” and, the holders thereof, the “Second Lien Noteholders”) in an aggregate principal amount outstanding of $587,606,000 as of June 30, 2017. | ||
| • Indebtedness under that certain indenture dated as of July 14, 2014 (as amended in the First Supplemental Indenture, dated as of March 31, 2016, and as may be further amended, supplemented, amended and restated, or otherwise modified from time to time, the “2022 Notes Indenture”), by and among the Company, the guarantors named therein, and Wilmington Trust, National Association as trustee, comprised of 6.250% Senior Notes due 2022 (the “2022 Notes”) in an aggregate principal amount outstanding of $5,363,000 as of June 30, 2017. | ||
| • Indebtedness under that certain indenture dated as of December 12, 2012 (as amended in the First Supplemental Indenture, dated as of March 31, 2016, and as may be further amended, supplemented, amended and restated, or otherwise modified from time to time, the “2020 Notes Indenture”), by and among the Company, the guarantors named therein, and Wilmington Trust, National Association as trustee, comprised of 8.875% Senior Notes due 2020 (the “2020 Notes” and, together with the 2022 Notes, the “Unsecured Notes”) in an aggregate principal amount outstanding of $7,333,000 as of June 30, 2017. | ||
| • Equity interests in the Company, including shares of common stock (“Common Stock”) and shares of 6.0% Convertible Perpetual Preferred Stock, Series A (“Preferred Stock” and, together with Common Stock, the “Existing Equity Interests”, and the holders of the Existing Equity Interests, the “Existing Equityholders”). | ||
| • Direct and indirect interests in the Company and certain of its direct and indirect subsidiaries and affiliates, other than the Existing Equity Interests (such interests, the “Intercompany Interests”). | ||
| • “First Lien Term Loan Claims” shall mean any and all Claims arising under or related to the Term Loan Agreement in respect of the First Lien Term Loans. | ||
3
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| • “Second Lien Notes Claims” shall mean any and all Claims arising under or related to the Second Lien Notes Indenture in respect of the Second Lien Notes. | ||
| • “Unsecured Notes Claims” shall mean any and all Claims arising under or related to: (i) the 2022 Notes Indenture in respect of the 2022 Notes and (ii) the 2020 Notes Indenture in respect of the 2020 Notes. | ||
| Treatment of Claims and Interests | ||
| Administrative, Tax, Other Priority and Other Secured Claims4 | All such claims shall be paid in full in cash on the Effective Date, or in the ordinary course of business as and when due, or otherwise receive treatment consistent with the provisions of section 1129(a) of the Bankruptcy Code, in each case, as determined by the Debtors with the consent of the Ad Hoc Committee (which consent shall not be unreasonably withheld, conditioned or delayed). Administrative expense claims shall include Restructuring Expenses (as defined below). | |
| First Lien Term Loan Claims | The Term Loan Agreement shall be reinstated and rendered unimpaired in accordance with section 1124 of the Bankruptcy Code, provided, however, that any claim for “make-whole” payments (if any) asserted under the Term Loan Agreement shall be resolved in a manner and pursuant to terms acceptable to the Ad Hoc Committee. | |
| Second Lien Notes Claims | The Second Lien Notes Claims shall be classified as: (i) allowed secured claims in an aggregate principal amount of $[ ] (the “Second Lien Secured Claims”) and (ii) allowed unsecured deficiency claims in an aggregate principal amount of $[ ] (the “Second Lien Deficiency Claims”). | |
| • On account of the Second Lien Secured Claims, each Second Lien Noteholder shall receive (a) its pro rata share of $[ ]5 million aggregate principal amount of new [8]% senior secured second lien notes due [2022] (the “New Notes”), [with interest payable in cash], such New Notes to be issued by the Reorganized Company (as defined below) as debt securities pursuant to a new indenture, and (b) its pro rata share of [x]% of newly issued common stock (the “New Common Stock”) of the reorganized Company (the “Reorganized Company”), subject to dilution on account of the MIP Equity (as defined below) and the New Common Stock issuable in respect of the Warrants (as defined below). | ||
| 4 | NTD: Claims subject to ongoing review and diligence by Akin and Blackhill. |
| 5 | NTD: Amount of New Notes to be issued TBD and subject to (i) ongoing review and diligence by Akin and Blackhill and (ii) negotiations between the Ad Hoc Committee and AGES on behalf of the lenders party to the Term Loan Agreement. |
4
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| • The Second Lien Deficiency Claims shall be classified and shall vote together with the Unsecured Notes Claims, and shall share ratably with the Unsecured Notes Claims in [y]%6 of the New Common Stock, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants. | ||
| Unsecured Notes Claims | Holders of the Unsecured Notes Claims shall share ratably with the holders of the Second Lien Deficiency Claims in [y]% of the New Common Stock, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants.7 | |
| General Unsecured Claims | On the Effective Date, the holders of allowed general unsecured claims shall be unimpaired.8 | |
| Existing Equity Interests in the Company | The Existing Equityholders will receive the following consideration in the aggregate, to be allocated in a manner acceptable to the Company: (a) an aggregate amount equal to 3% of the New Common Stock, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants; and (b) 5-year warrants for 10%9 of the New Common Stock, subject to dilution on account of the MIP Equity, with a strike price to be set at an equity value at which the Second Lien Noteholders would receive a recovery equal to par plus accrued and unpaid interest as of the date of the commencement of the Chapter 11 Cases in respect of the Second Lien Notes (the “Warrants”). The terms of the Warrants are further described in Exhibit A hereto. | |
| Intercompany Claims | All allowed Intercompany Claims shall be adjusted, continued, or discharged to the extent determined appropriate by the Debtors, with the consent of the Ad Hoc Committee (which consent shall not be unreasonably withheld, conditioned or delayed). | |
| Intercompany Interests | All Intercompany Interests shall be reinstated for administrative convenience, or cancelled as determined by the Debtors, with the consent of the Ad Hoc Committee (which consent shall not be unreasonably withheld, conditioned or delayed). | |
| 6 | NTD: The aggregate amount of [x]% and [y]% shall be equal to 97% of the New Common Stock of the Reorganized Company, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants. |
| 7 | NTD: Subject to further diligence regarding whether feasible in a prepackaged plan. |
| 8 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
| 9 | NTD: Subject to agreement on all terms of the Warrants. |
5
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| Other Terms | ||
| Board Members/Governance | As of the Effective Date, the existing corporate governance documents will be amended and restated or terminated, as necessary, to, among other things, set forth the rights and obligations of the parties (consistent with this Term Sheet) (collectively, the “Corporate Governance Documents”). Subject to the terms of this Term Sheet, the RSA, and the Pre-Packaged Chapter 11 Plan, the Corporate Governance Documents shall be acceptable to the Ad Hoc Committee in their sole discretion. | |
| The board of directors of the Reorganized Company (the “New Board”) will be composed of seven (7) directors, one of whom shall be the chief executive officer of the Company (the “CEO”), and six (6) of whom shall be designated by the Ad Hoc Committee. The Ad Hoc Committee shall agree to meet and interview upon reasonable notice any existing members of the Board of Directors who wish to be interviewed. The members of the New Board (other than the CEO) shall initially be appointed seriatim by the members of the existing board of directors (or by members of the board of directors that have been appointed by members of the existing board of directors) and otherwise composed in a manner consistent with the provisions of the Term Loan Agreement.10 | ||
| Management Incentive Plan | A management incentive plan (the “MIP”) reserving up to [10]% of the New Common Stock on a fully diluted basis (the “MIP Equity”), subject to any terms and conditions established from time to time determined by the New Board, shall be adopted by the Reorganized Company as of the Effective Date; provided, that (a) 25% of the MIP Equity shall be granted on the Effective Date and consist of time-vested restricted stock units and (b) 25% of the MIP Equity shall be granted on the Effective Date and consist of time-vested options. | |
| SEC Reporting | The Reorganized Company shall continue as a public reporting company under applicable U.S. securities laws. The Reorganized Company shall continue to file annual, quarterly and current reports in accordance with the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. | |
| Stock Exchange | The Company shall use commercially reasonable efforts to list the New Common Stock for trading on The NASDAQ Capital Market, the NASDAQ Global Market, the New York Stock Exchange or any other national securities exchange reasonably acceptable to the Company and the Ad Hoc Committee with such listing to be effective on the Effective Date. | |
| 10 | The Restructuring transaction and recomposition of board to be structured to prevent the occurrence of a change of control under the Term Loan Agreement. |
6
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| Registration Rights | The Reorganized Company shall enter into a registration rights agreement with any party that on or after the Effective Date holds 5% or more of the New Common Stock. The registration rights agreement shall contain customary terms and conditions, including provisions with respect to demand rights, piggyback rights and blackout periods and shall be acceptable to the Ad Hoc Committee in their reasonable discretion. | |
| Restructuring Fees and Expenses | The Debtors shall pay all reasonable and documented fees and out of pocket expenses of one primary counsel to the Ad Hoc Committee, Akin Gump Strauss Hauer & Feld LLP (“Akin”), one local counsel to the Ad Hoc Committee (to the extent necessary), and one financial advisor to the Ad Hoc Committee, Blackhill Partners, LLC (“Blackhill”), in each case, that are due and owing after receipt of applicable invoices, without any requirement for the filing of fee or retention applications in the Chapter 11 Cases, and in accordance with the terms of the applicable engagement letters, with any balance(s) paid on the Effective Date (collectively, the “Restructuring Expenses”). | |
| Tax Matters | The parties will work together in good faith and will use reasonable best efforts to structure and implement the Restructuring and the transactions related thereto in a tax efficient and cost-effective manner for the Company and the Second Lien Noteholders to the extent practicable. The parties intend to structure the Restructuring to preserve favorable tax attributes to the extent practicable and not materially adverse to the Second Lien Noteholders or the Company. | |
| Employment Agreements11 | The employment agreements and severance policies, and all employment, compensation and benefit plans, policies, and programs of the Company and its direct and indirect subsidiaries and its affiliates applicable to any of its employees and retirees, that are approved by, and with such additions, deletions, and modifications as may be required by, the Ad Hoc Committee in its sole discretion (collectively, the “Specified Employee Plans”), shall be maintained, continued in full force and effect and assumed by the Company (and assigned to the Reorganized Company, if necessary) pursuant to section 365(a) of the Bankruptcy Code, either by a separate motion filed with the Bankruptcy Court or pursuant to the terms of the Pre-Packaged Chapter 11 Plan. All claims arising from the Specified Employee Plans shall be treated in accordance with the Bankruptcy Code. Any plans, programs or arrangements that are not Specified Employee Plans relating to employees, compensation, or employee benefits shall be terminated or rejected, as appropriate. | |
| The Ad Hoc Committee shall propp vide the Company with a listing of the Specified Employee Plans by no later than ten (10) business days prior to the filing of the Chapter 11 Cases. | ||
| 11 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
7
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| Indemnification Obligations | [The Rex Entities’ indemnification obligations in place as of the Effective Date, whether in the bylaws, certificates of incorporation or formation, limited liability company agreements, other organizational or formation documents, board resolutions, management or indemnification agreements, employment contracts, or otherwise, for the directors and the officers that are currently employed by, or serving on the board of directors of, any of the Rex Entities, as of the date of the filing of the Chapter 11 Cases, shall be assumed pursuant to the Pre-Packaged Chapter 11 Plan and the Debtors shall maintain their current D&O coverage in place as of the Effective Date for current and former directors and officers. | |
| On or about the Effective Date, the Rex Entities shall obtain tail D&O insurance coverage on market terms for their current and former directors and officers.]12 | ||
| Definitive Documents | This Term Sheet does not include a description of all of the terms, conditions, and other provisions that will be contained in the definitive documentation governing the Restructuring. The material documents implementing the Restructuring shall be materially consistent with this Term Sheet and the RSA, as applicable, and shall be in form and substance reasonably acceptable to each of the Company and the Ad Hoc Committee (collectively, the “Definitive Documents”); provided that, subject to the terms of this Term Sheet, the RSA, and the Pre-Packaged Chapter 11 Plan, the Corporate Governance Documents shall be determined by, and acceptable to, the Ad Hoc Committee in their sole discretion. | |
| Governing Law and Forum | New York governing law and consent to exclusive New York jurisdiction. Notwithstanding the preceding sentence, upon the commencement of the Chapter 11 Cases, the Bankruptcy Court shall have exclusive jurisdiction over all matters arising out of or in connection with the Restructuring. | |
| Conditions Precedent to Consummation of the Pre-Packaged Chapter 11 Plan | The Pre-Packaged Chapter 11 Plan shall contain customary conditions to effectiveness in form and substance to be agreed upon by the Rex Entities and the Ad Hoc Committee, including, without limitation: | |
| • The Pre-Packaged Chapter 11 Plan and all documentation with respect to the Pre-Packaged Chapter 11 Plan and all documents contained in any supplement thereto, including any exhibits, schedules, amendments, modifications or supplements thereto, which shall be in form and substance reasonably acceptable to the Debtors and the Ad Hoc Committee, and otherwise consistent with the terms and conditions described in this Term Sheet or the RSA; | ||
| 12 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
8
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| • Any Corporate Governance Documents, which shall be in form and substance acceptable to the Ad Hoc Committee in their sole discretion; | ||
| • The Bankruptcy Court shall have entered an order in form and substance acceptable to the Debtors and the Ad Hoc Committee approving the disclosure statement related to the Pre-Packaged Chapter 11 Plan; | ||
| • The order confirming the Pre-Packaged Chapter 11 Plan, in form and substance acceptable to the Debtors and the Ad Hoc Committee and otherwise consistent with the terms and conditions described in this Term Sheet or the RSA, as applicable, shall have been entered and shall have become a final order that is not stayed; | ||
| • As of the Effective Date, the aggregate amount of all allowed or projected administrative expense and priority claims shall not exceed $[ ];13 and | ||
| • The Debtors shall have paid the Restructuring Expenses in full, in cash.14 | ||
| Releases | The Pre-Packaged Chapter 11 Plan shall include customary releases (including third party releases) and exculpation provisions, in each case, to the fullest extent permitted by law, for the benefit of the Rex Entities, [the Administrative Agent], the Indenture Trustee, the Ad Hoc Committee, the Consenting Noteholders, and the Company’s current and former officers and directors and each of such preceding entities’ directors, officers, current and former shareholders (regardless of whether such interests are held directly or indirectly), partners, managers, officers, principals, members, employees, agents, affiliates, advisory board members, parents, subsidiaries, predecessors, successors, heirs, executors and assignees, attorneys, financial advisors, investment bankers, accountants, consultants, and other professionals or representatives, each solely in their capacities as such, subject to a carveout for any act or omission that constitutes fraud, gross negligence, or willful misconduct. | |
| 13 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
| 14 | NTD: Akin to explain rationale for assuming RSA in a prepack. |
9
JD Comments 1/24 to AGSH&F Draft (1/22/18)
Subject to FRE 408
For Settlement Purposes Only
| Fiduciary Out | Notwithstanding anything to the contrary herein, nothing in this Term Sheet shall require the Rex Entities, or any directors or officers of any of the Rex Entities (in such person’s capacity as a director or officer), shall not be required to take any action, or to refrain from taking any action, to the extent that taking such action or refraining from taking such action is reasonably likely to constitute a breach of such person’s or entity’s fiduciary obligations to maximize recovery for all of the Rex Entities’ stakeholders, which such entity or person owes to any other person or entity under applicable law. | |
| Rating Agency | The Company will seek and obtain a rating for the New Notes at a reasonable cost from one rating agency reasonably acceptable to the Company and the Ad Hoc Committee. | |
10
EXHIBIT A
Warrant Term Sheet15
| Amount | 10% of the New Common Stock calculated on a fully-diluted basis as of the Effective Date, subject to dilution on account of the MIP Equity. | |
| Strike Price | Strike price to be set at an equity value at which the Second Lien Noteholders would receive a recovery equal to par plus accrued and unpaid interest as of the date of the commencement of the Chapter 11 Cases in respect of the Second Lien Notes. | |
| Term | Warrants shall expire unless otherwise exercised on the date that is five (5) years from the Effective Date. | |
| Anti-Dilution | Simple arithmetic anti-dilution regarding the number of shares of New Common Stock to be issued upon exercise of the Warrants, e.g., for stock splits, new issuances of common stock and reclassifications (not economic anti-dilution with respect to the strike price for subsequent stock issuances below the strike price). | |
| Change of Control | [Unless exercised in advance, the Warrants shall terminate upon the consummation of a transaction constituting a change of control (a “Change of Control Transaction”) at a price below the strike price with no payment or recovery by the Warrant; provided, that if a Change of Control Transaction takes place during the first 36 months following the Effective Date, then the holders of Warrants shall be paid an amount equal to the fair market value of the Warrants using Black Scholes model and considering various relevant factors and determined by an independent nationally recognized expert.]16 | |
| Warrant Agent | The Warrant agent shall be the Company’s transfer agent unless otherwise agreed by the Ad Hoc Committee and the Company. | |
| Other | Warrants to be governed by a warrant agreement covering the foregoing terms and containing such other terms as agreed by the Ad Hoc Committee and the Company. | |
| 15 | Capitalized terms used herein but not defined shall have the meaning ascribed to such terms in the Term Sheet. |
| 16 | NTD: Compromise proposal TBD |
Exhibit 99.3
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
REX ENERGY CORPORATION
RESTRUCTURING TERM SHEET
January [●], 2018
THIS NON-BINDING INDICATIVE TERM SHEET (THIS “TERM SHEET”) DESCRIBES THE MATERIAL TERMS OF PROPOSED RESTRUCTURING AND RECAPITALIZATION TRANSACTIONS (COLLECTIVELY, THE “RESTRUCTURING”) PURSUANT TO WHICH REX ENERGY CORPORATION (THE “COMPANY”) AND CERTAIN OF ITS DIRECT AND INDIRECT SUBSIDIARIES AND ITS AFFILIATES (TOGETHER WITH THE COMPANY, THE “REX ENTITIES”) WILL RESTRUCTURE THEIR CAPITAL STRUCTURE THROUGH A VOLUNTARY [PRE-PACKAGED] PLAN OF REORGANIZATION (THE “PRE-PACKAGED CHAPTER 11 PLAN”) FILED IN CONNECTION WITH VOLUNTARY CASES (THE “CHAPTER 11 CASES”) COMMENCED BY CERTAIN OF THE REX ENTITIES (SUCH REX ENTITIES THAT FILE CHAPTER 11 CASES, THE “DEBTORS”) UNDER CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”) IN THE UNITED STATES BANKRUPTCY COURT FOR THE [VENUE]] (THE “BANKRUPTCY COURT”).1
THIS TERM SHEET DOES NOT INCLUDE A DESCRIPTION OF ALL OF THE TERMS, CONDITIONS, AND OTHER PROVISIONS THAT ARE TO BE CONTAINED IN THE PRE-PACKAGED CHAPTER 11 PLAN AND OTHER DEFINITIVE DOCUMENTATION GOVERNING THE RESTRUCTURING. SUCH DEFINITIVE DOCUMENTS SHALL SATISFY THE REQUIREMENTS OF ALL APPLICABLE SECURITIES LAWS, THE BANKRUPTCY CODE, AND THIS TERM SHEET.
THIS TERM SHEET DOES NOT CONSTITUTE (NOR SHALL IT BE CONSTRUED AS) AN OFFER WITH RESPECT TO ANY SECURITIES OR A SOLICITATION OF ACCEPTANCES OR REJECTIONS AS TO ANY PLAN, IT BEING UNDERSTOOD THAT SUCH SOLICITATION, IF ANY, ONLY WILL BE MADE IN COMPLIANCE WITH APPLICABLE PROVISIONS OF SECURITIES, BANKRUPTCY AND/OR OTHER APPLICABLE LAWS.
THE COMPANY IS ALSO EXPLORING OUT OF COURT TRANSACTIONS WITH ITS LENDERS AND NOTHING HEREIN SHALL BE AN INDICATION THAT THE COMPANY HAS DETERMINED OR WILL DETERMINE TO SEEK RELIEF UNDER CHAPTER 11 OF THE BANKRUPTCY CODE.
| 1 | NTD: In-court process subject to resolution of the First Lien Term Loan (as defined below) acceptable to the Company and the Ad Hoc Committee (as defined below). |
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| Overview
| ||
| Restructuring Summary | The Rex Entities and certain Second Lien Noteholders (as defined below) (such holders, the “Consenting Noteholders”) have agreed to support the Restructuring. As described in greater detail herein, the Consenting Noteholders agree to exchange their Second Lien Notes (as defined below) through the Pre-Packaged Chapter 11 Plan (which each Consenting Noteholder shall support and with respect to which each Consenting Noteholder shall vote its Claims (as defined in section 101(5) of the Bankruptcy Code) to accept the Pre-Packaged Chapter 11 Plan), for certain debt and equity securities. | |
| Implementation of the Restructuring | The Restructuring shall be implemented through the Chapter 11 Cases and pursuant to the Pre-Packaged Chapter 11 Plan with the support of the ad hoc committee of Second Lien Noteholders represented by Akin Gump Strauss Hauer & Feld LLP (the “Ad Hoc Committee”).
To effectuate the Restructuring, certain parties, including the Company and the Consenting Noteholders, shall execute a Restructuring Support Agreement (the “RSA”) consistent with the material terms set forth herein.2 This Term Sheet shall be attached to, and incorporated into, the RSA.
The Chapter 11 Cases shall be funded by existing cash on hand in accordance with the terms of a cash collateral order acceptable to the Ad Hoc Committee. 3
The effective date of the Restructuring (the “Effective Date”) will be the date on which all conditions to the effectiveness of the Pre-Packaged Chapter 11 Plan have been satisfied or waived in accordance with its terms and the Pre-Packaged Chapter 11 Plan has been substantially consummated. | |
| Current Capital Structure | The current capital structure of the Company is as follows:
• Indebtedness under that certain term loan agreement, dated as of April 28, 2017 (as may be amended, supplemented, amended and restated, or otherwise modified from time to time, the “Term Loan Agreement”), among the Company, as borrower, Angelo, Gordon Energy Servicer, LLC (“AGES”), as administrative agent (in such capacity, the “Administrative Agent”), AGES, as collateral agent, Macquarie Bank Limited, as issuing bank, and the lenders from time to time party thereto, comprised of a term loan (the “First Lien Term Loan”) in an aggregate principal amount outstanding of $143,500,000 as of June 30, 2017. | |
| 2 | The RSA shall include, among other things: (i) certain milestones to be provided by the Ad Hoc Committee and (ii) a condition that resolution of the treatment of the First Lien Term Loan (as defined below) and any asserted “make-whole” claims shall be subject to the consent of the Ad Hoc Committee. |
| 3 | NTD: Any in-court process without the support of the First Lien Term Loan will be premised upon nonconsensual use of cash collateral or DIP financing to be provided by the Ad Hoc Committee. |
2
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| • Indebtedness under that certain indenture, dated as of March 31, 2016 (as may be amended, supplemented, amended and restated, or otherwise modified from time to time, the “Second Lien Notes Indenture”), by and among the Company, the guarantors named therein, and Wilmington Trust, National Association as trustee (the “Indenture Trustee”), comprised of the Company’s 1.00%/8.00% Senior Secured Second Lien Notes due 2020 (collectively, such notes, the “Second Lien Notes,” and, the holders thereof, the “Second Lien Noteholders”) in an aggregate principal amount outstanding of $587,606,000 as of June 30, 2017.
• Indebtedness under that certain indenture dated as of July 14, 2014 (as amended in the First Supplemental Indenture, dated as of March 31, 2016, and as may be further amended, supplemented, amended and restated, or otherwise modified from time to time, the “2022 Notes Indenture”), by and among the Company, the guarantors named therein, and Wilmington Trust, National Association as trustee, comprised of 6.250% Senior Notes due 2022 (the “2022 Notes”) in an aggregate principal amount outstanding of $5,363,000 as of June 30, 2017.
• Indebtedness under that certain indenture dated as of December 12, 2012 (as amended in the First Supplemental Indenture, dated as of March 31, 2016, and as may be further amended, supplemented, amended and restated, or otherwise modified from time to time, the “2020 Notes Indenture”), by and among the Company, the guarantors named therein, and Wilmington Trust, National Association as trustee, comprised of 8.875% Senior Notes due 2020 (the “2020 Notes” and, together with the 2022 Notes, the “Unsecured Notes”) in an aggregate principal amount outstanding of $7,333,000 as of June 30, 2017.
• Equity interests in the Company, including shares of common stock (“Common Stock”) and shares of 6.0% Convertible Perpetual Preferred Stock, Series A (“Preferred Stock” and, together with Common Stock, the “Existing Equity Interests”, and the holders of the Existing Equity Interests, the “Existing Equityholders”).
• Direct and indirect interests in the Company and certain of its direct and indirect subsidiaries and affiliates, other than the Existing Equity Interests (such interests, the “Intercompany Interests”).
• “First Lien Term Loan Claims” shall mean any and all Claims arising under or related to the Term Loan Agreement in respect of the First Lien Term Loans. |
3
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| • “Second Lien Notes Claims” shall mean any and all Claims arising under or related to the Second Lien Notes Indenture in respect of the Second Lien Notes.
• “Unsecured Notes Claims” shall mean any and all Claims arising under or related to: (i) the 2022 Notes Indenture in respect of the 2022 Notes and (ii) the 2020 Notes Indenture in respect of the 2020 Notes. | ||
| Treatment of Claims and Interests | ||
| Administrative, Tax, Other Priority and Other Secured Claims4 |
All such claims shall be paid in full in cash on the Effective Date, or in the ordinary course of business as and when due, or otherwise receive treatment consistent with the provisions of section 1129(a) of the Bankruptcy Code, in each case, as determined by the Debtors with the consent of the Ad Hoc Committee. Administrative expense claims shall include Restructuring Expenses (as defined below). | |
| First Lien Term Loan Claims |
The Term Loan Agreement shall be reinstated and rendered unimpaired in accordance with section 1124 of the Bankruptcy Code, provided, however, that any claim for “make-whole” payments (if any) asserted under the Term Loan Agreement shall be resolved in a manner and pursuant to terms acceptable to the Ad Hoc Committee. | |
| Second Lien Notes Claims |
The Second Lien Notes Claims shall be classified as: (i) allowed secured claims in an aggregate principal amount of $[ ] (the “Second Lien Secured Claims”) and (ii) allowed unsecured deficiency claims in an aggregate principal amount of $[ ] (the “Second Lien Deficiency Claims”).
• On account of the Second Lien Secured Claims, each Second Lien Noteholder shall receive (a) its pro rata share of $[ ]5 million aggregate principal amount of new [8]% senior secured second lien notes due [2022] (the “New Notes”), [with interest payable in cash], such New Notes to be issued by the Reorganized Company (as defined below) as debt securities pursuant to a new indenture, and (b) its pro rata share of [x]% of newly issued common stock (the “New Common Stock”) of the reorganized Company (the “Reorganized Company”), subject to dilution on account of the MIP Equity (as defined below) and the New Common Stock issuable in respect of the Warrants (as defined below). | |
| 4 | NTD: Claims subject to ongoing review and diligence by Akin and Blackhill. |
| 5 | NTD: Amount of New Notes to be issued TBD and subject to (i) ongoing review and diligence by Akin and Blackhill and (ii) negotiations between the Ad Hoc Committee and AGES on behalf of the lenders party to the Term Loan Agreement. |
4
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| • The Second Lien Deficiency Claims shall be classified and shall vote together with the Unsecured Notes Claims, and shall share ratably with the Unsecured Notes Claims in [y]%6 of the New Common Stock, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants. | ||
| Unsecured Notes Claims |
Holders of the Unsecured Notes Claims shall share ratably with the holders of the Second Lien Deficiency Claims in [y]% of the New Common Stock, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants.7 | |
| General Unsecured Claims |
On the Effective Date, the holders of allowed general unsecured claims shall be unimpaired.8 | |
| Existing Equity Interests in the Company |
The Existing Equityholders will receive the following consideration in the aggregate, to be allocated in a manner acceptable to the Company: (a) an aggregate amount equal to 2% of the New Common Stock, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants (the “2% Equity”); and (b) 5-year warrants for [10]%9 of the New Common Stock, subject to dilution on account of the MIP Equity, with a strike price to be set at an equity value at which the Second Lien Noteholders would receive a recovery equal to par plus accrued and unpaid interest as of the date of the commencement of the Chapter 11 Cases in respect of the Second Lien Notes (the “Warrants” and, together with the 2% Equity, the Existing Equity Consideration”). The terms of the Warrants are further described in Exhibit A hereto. For the avoidance of doubt, the Existing Equity Consideration shall, in the aggregate, be (i) shared by both the holders of the Preferred Stock and the holders of the Common Stock and (ii) allocated among the holders of the Preferred Stock and the holders of the Common Stock in a manner acceptable to the Company. | |
| Intercompany Claims | All allowed Intercompany Claims shall be adjusted, continued, or discharged to the extent determined appropriate by the Debtors, with the consent of the Ad Hoc Committee. | |
| Intercompany Interests |
All Intercompany Interests shall be reinstated for administrative convenience, or cancelled as determined by the Debtors, with the consent of the Ad Hoc Committee. | |
| 6 | NTD: The aggregate amount of [x]% and [y]% shall be equal to 98% of the New Common Stock of the Reorganized Company, subject to dilution on account of the MIP Equity and the New Common Stock issuable in respect of the Warrants. |
| 7 | NTD: Subject to further diligence regarding whether feasible in a prepackaged plan. |
| 8 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
| 9 | NTD: Subject to agreement on all terms of the Warrants. |
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Subject to FRE 408
For Settlement Purposes Only
| Other Terms | ||
| Board Members/Governance |
As of the Effective Date, the existing corporate governance documents will be amended and restated or terminated, as necessary, to, among other things, set forth the rights and obligations of the parties (consistent with this Term Sheet) (collectively, the “Corporate Governance Documents”). Subject to the terms of this Term Sheet, the RSA, and the Pre-Packaged Chapter 11 Plan, the Corporate Governance Documents shall be acceptable to the Ad Hoc Committee in their sole discretion.
The board of directors of the Reorganized Company (the “New Board”) will be composed of seven (7) directors, one of whom shall be the chief executive officer of the Company (the “CEO”), and six (6) of whom shall be designated by the Ad Hoc Committee. The Ad Hoc Committee shall agree to meet and interview upon reasonable notice any existing members of the Board of Directors who wish to be interviewed. The members of the New Board (other than the CEO) shall initially be appointed seriatim by the members of the existing board of directors (or by members of the board of directors that have been appointed by members of the existing board of directors) and otherwise composed in a manner consistent with the provisions of the Term Loan Agreement.10 | |
| Management Incentive Plan |
A management incentive plan (the “MIP”) reserving up to [10]% of the New Common Stock on a fully diluted basis (the “MIP Equity”) shall be adopted by the Reorganized Company as of the Effective Date. Awards of MIP Equity, both in regard to the type (options, restricted stock awards, etc.) and the amount of such awards, pursuant to the MIP shall be determined by the New Board after the Effective Date. | |
| SEC Reporting | The Reorganized Company shall continue as a public reporting company under applicable U.S. securities laws. The Reorganized Company shall continue to file annual, quarterly and current reports in accordance with the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. | |
| Stock Exchange | The Company shall use commercially reasonable efforts to list the New Common Stock for trading on The NASDAQ Capital Market, the NASDAQ Global Market, the New York Stock Exchange or any other national securities exchange reasonably acceptable to the Company and the Ad Hoc Committee with such listing to be effective on the Effective Date. | |
| 10 | The Restructuring transaction and recomposition of board to be structured to prevent the occurrence of a change of control under the Term Loan Agreement. |
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AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| Registration Rights | The Reorganized Company shall enter into a registration rights agreement with any party that on or after the Effective Date holds 5% or more of the New Notes and/or the New Common Stock. The registration rights agreement shall contain customary terms and conditions, including provisions with respect to demand rights, piggyback rights and blackout periods and shall be acceptable to the Ad Hoc Committee in their sole discretion. | |
| Restructuring Fees and Expenses |
The Debtors shall pay all reasonable and documented fees and out of pocket expenses of one primary counsel to the Ad Hoc Committee, Akin Gump Strauss Hauer & Feld LLP (“Akin”), one local counsel to the Ad Hoc Committee (to the extent necessary), and one financial advisor to the Ad Hoc Committee, Blackhill Partners, LLC (“Blackhill”), in each case, that are due and owing after receipt of applicable invoices, without any requirement for the filing of fee or retention applications in the Chapter 11 Cases, and in accordance with the terms of the applicable engagement letters, with any balance(s) paid on the Effective Date (collectively, the “Restructuring Expenses”). | |
| Tax Matters | The parties will work together in good faith and will use reasonable best efforts to structure and implement the Restructuring and the transactions related thereto in a tax efficient and cost-effective manner for the Company and the Second Lien Noteholders to the extent practicable. The parties intend to structure the Restructuring to preserve favorable tax attributes to the extent practicable and not materially adverse to the Second Lien Noteholders or the Company. | |
| Employment Agreements11 |
The employment agreements and severance policies, and all employment, compensation and benefit plans, policies, and programs of the Company and its direct and indirect subsidiaries and its affiliates applicable to any of its employees and retirees, that are approved by, and with such additions, deletions, and modifications as may be required by, the Ad Hoc Committee in its sole discretion (collectively, the “Specified Employee Plans”), shall be maintained, continued in full force and effect and assumed by the Company (and assigned to the Reorganized Company, if necessary) pursuant to section 365(a) of the Bankruptcy Code, either by a separate motion filed with the Bankruptcy Court or pursuant to the terms of the Pre-Packaged Chapter 11 Plan. All claims arising from the Specified Employee Plans shall be treated in accordance with the Bankruptcy Code. Any plans, programs or arrangements that are not Specified Employee Plans relating to employees, compensation, or employee benefits shall be terminated or rejected, as appropriate. For the avoidance of doubt, |
| 11 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
7
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| the employment agreements and the change of control policy, executive severance policy, and any other employment, compensation or benefit plan, policy, and program of the Company that provides for enhanced payouts or entitlements or for the acceleration of vesting upon a change of control shall be modified such that the Restructuring shall not constitute a change of control thereunder.
Employment agreements, including such additions, deletions, and modifications thereto as may be required by the Ad Hoc Committee, shall be in form and substance acceptable to the Ad Hoc Committee in its sole discretion and shall be agreed to on or prior to the filing of the Chapter 11 Cases.
The Ad Hoc Committee, in its sole discretion, shall determine whether to modify, assume and/or reject employment, compensation and benefit plans, policies (including severance policies), and programs of the Company and its direct and indirect subsidiaries and its affiliates on or prior to the filing of the plan supplement to the Pre-Packaged Chapter 11 Plan. | ||
| Indemnification Obligations |
[The Rex Entities’ indemnification obligations in place as of the Effective Date, whether in the bylaws, certificates of incorporation or formation, limited liability company agreements, other organizational or formation documents, board resolutions, management or indemnification agreements, employment contracts, or otherwise, for the directors and the officers that are currently employed by, or serving on the board of directors of, any of the Rex Entities, as of the date of the filing of the Chapter 11 Cases shall be assumed pursuant to the Pre-Packaged Chapter 11 Plan and the Debtors shall maintain their current D&O coverage in place as of the Effective Date for current and former directors and officers.
On or about the Effective Date, the Rex Entities shall obtain tail D&O insurance coverage on market terms for their current and former directors and officers.]12 | |
| Definitive Documents | This Term Sheet does not include a description of all of the terms, conditions, and other provisions that will be contained in the definitive documentation governing the Restructuring. The material documents implementing the Restructuring shall be materially consistent with this Term Sheet and the RSA, as applicable, and shall be in form and substance reasonably acceptable to each of the Company and the Ad Hoc Committee (collectively, the “Definitive Documents”); provided that, subject to the terms of this Term Sheet, the RSA, and the Pre-Packaged Chapter 11 Plan, the Corporate Governance Documents shall be determined by, and acceptable to, the Ad Hoc Committee in their sole discretion. | |
| 12 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
8
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| Governing Law and Forum |
New York governing law and consent to exclusive New York jurisdiction. Notwithstanding the preceding sentence, upon the commencement of the Chapter 11 Cases, the Bankruptcy Court shall have exclusive jurisdiction over all matters arising out of or in connection with the Restructuring. | |
| Conditions Precedent to Consummation of the Pre-Packaged Chapter 11 Plan |
The Pre-Packaged Chapter 11 Plan shall contain customary conditions to effectiveness in form and substance to be agreed upon by the Rex Entities and the Ad Hoc Committee, including, without limitation:
• The Pre-Packaged Chapter 11 Plan and all documentation with respect to the Pre-Packaged Chapter 11 Plan and all documents contained in any supplement thereto, including any exhibits, schedules, amendments, modifications or supplements thereto, which shall be in form and substance acceptable to the Debtors and the Ad Hoc Committee, and otherwise consistent with the terms and conditions described in this Term Sheet or the RSA;
• Any Corporate Governance Documents, which shall be in form and substance acceptable to the Ad Hoc Committee in their sole discretion;
• The Bankruptcy Court shall have entered an order in form and substance acceptable to the Debtors and the Ad Hoc Committee approving the disclosure statement related to the Pre-Packaged Chapter 11 Plan;
• The order confirming the Pre-Packaged Chapter 11 Plan, in form and substance acceptable to the Debtors and the Ad Hoc Committee and otherwise consistent with the terms and conditions described in this Term Sheet or the RSA, as applicable, shall have been entered and shall have become a final order that is not stayed;
• As of the Effective Date, the aggregate amount of all allowed or projected administrative expense and priority claims shall not exceed $[ ];13 and
• The Debtors shall have paid the Restructuring Expenses in full, in cash. | |
| 13 | NTD: Subject to ongoing review and diligence by Akin and Blackhill. |
9
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| Releases | The Pre-Packaged Chapter 11 Plan shall include customary releases (including third party releases) and exculpation provisions, in each case, to the fullest extent permitted by law, for the benefit of the Rex Entities, [the Administrative Agent], the Indenture Trustee, the Ad Hoc Committee, the Consenting Noteholders, and the Company’s current and former officers and directors and each of such preceding entities’ directors, officers, current and former shareholders (regardless of whether such interests are held directly or indirectly), partners, managers, officers, principals, members, employees, agents, affiliates, advisory board members, parents, subsidiaries, predecessors, successors, heirs, executors and assignees, attorneys, financial advisors, investment bankers, accountants, consultants, and other professionals or representatives, each solely in their capacities as such, subject to a carveout for any act or omission that constitutes fraud, gross negligence, or willful misconduct. | |
| Fiduciary Out | Notwithstanding anything to the contrary herein, the Rex Entities shall be entitled, at any time prior to the entry by the Bankruptcy Court of an order confirming the Pre-Packaged Chapter 11 Plan, to accept or pursue (but not to solicit or initiate of their own accord): (i) a competing plan of reorganization or other financial and/or corporate restructuring of the Rex Entities; (ii) the issuance, sale or other disposition of any equity or debt interests, or any material assets, of the Rex Entities; or (iii) a merger, consolidation, business combination, liquidation, recapitalization, any debt or equity financing or refinancing, or similar transaction involving the Rex Entities (each, an “Alternative Transaction”), in each case to the extent the board of directors of the Company determines, based on the advice of outside legal counsel and outside financial advisors, in good faith, and consistent with their fiduciary duties, that (a) such Alternative Transaction best maximizes value for the Rex Entities and their stakeholders, and (b) proceeding with the Pre-Packaged Chapter 11 Plan and Restructuring would be inconsistent with the applicable fiduciary duties of the board of directors of the Company, and provided that the Rex Entities shall have first exercised any applicable termination right in the RSA prior to the date on which the Rex Entities enter into a definitive agreement in respect of such an Alternative Transaction or make a public announcement regarding their intention to do so. The Rex Entities shall give Akin not less than three (3) business days’ prior written notice before exercising such termination right in accordance with the RSA. At all times prior to the date on which the Rex Entities enter into a definitive agreement in respect of such an Alternative Transaction or make a public announcement regarding their intention to do so, the Rex Entities shall (x) provide to Akin and Blackhill a copy of any written offer or proposal (and notice and a description of any oral offer or proposal) for such Alternative Transaction within three (3) business days of the Rex Entities’ or their advisors’ receipt of such offer or proposal and (y) |
10
AGSH&F Draft (1/26/18)
Subject to FRE 408
For Settlement Purposes Only
| provide such information to Akin and Blackhill regarding such discussions (including copies of any materials provided to such parties hereunder) as necessary to keep Akin and Blackhill contemporaneously informed as to the status and substance of such discussions. | ||
| Rating Agency | The Company will seek and obtain a rating for the New Notes at a reasonable cost from one rating agency reasonably acceptable to the Company and the Ad Hoc Committee. | |
11
EXHIBIT A
Warrant Term Sheet14
| Amount | [10]% of the New Common Stock calculated on a fully-diluted basis as of the Effective Date, subject to dilution on account of the MIP Equity. | |
| Strike Price | Strike price to be set at an equity value at which the Second Lien Noteholders would receive a recovery equal to par plus accrued and unpaid interest as of the date of the commencement of the Chapter 11 Cases in respect of the Second Lien Notes. | |
| Term | Warrants shall expire unless otherwise exercised on the date that is five (5) years from the Effective Date. | |
| Anti-Dilution | Simple arithmetic anti-dilution regarding the number of shares of New Common Stock to be issued upon exercise of the Warrants, e.g., for stock splits, new issuances of common stock and reclassifications (not economic anti-dilution with respect to the strike price for subsequent stock issuances below the strike price). | |
| Change of Control | Unless exercised in advance, the Warrants shall terminate upon the consummation of a transaction constituting a change of control (a “Change of Control Transaction”) at a price below the strike price with no payment or recovery by the Warrant; provided, that if a Change of Control Transaction takes place during the first 3 months following the Effective Date, then the holders of Warrants shall be paid an amount equal to the value of the Warrants using the Black Scholes model with factors and parameters to be agreed upon by the Company and the Ad Hoc Committee. | |
| Warrant Agent | The Warrant agent shall be the Company’s transfer agent unless otherwise agreed by the Ad Hoc Committee and the Company. | |
| Other | Warrants to be governed by a warrant agreement covering the foregoing terms and containing such other terms as agreed by the Ad Hoc Committee and the Company. | |
| 14 | Capitalized terms used herein but not defined shall have the meaning ascribed to such terms in the Term Sheet. |
Exhibit 99.4
DRAFT
SUBJECT TO FRE 408
FOR SETTLEMENT PURPOSES ONLY
2L Noteholder Proposal Administrative Agent Prepared to Recommend to First Lien Group(1) Rex Choice of: Modified Option COption 1Option 2Option 3 FeeNoneNone None $4.5MM (1.5% on $300MM facility) Delayed Draw CommitmentNA – terminated see belowNA – terminated, see belowSameApril 28, 2019 Term. Date LC DelayedApril 23, 2019 (subject to Issuing Bank’s NA – cash funded, see belowNA – cash funded, see belowSame Draw Eventconsent) No change from existing facility. CovenantsTemporary waiver if necessary to No change from existing facility SameSame accommodate $75MM draw. Amendment No morethan $125MM at OpCo No morethan 8% cash interest rate Additional PIK rate TBD Take-BackMaturity extended to 1L maturity + 6 $200MM – 8% cash coupon at OpCo SameSame Papermonths TBD Restricted Payments tests governing ability to pay cash interest Acceptable documentation/intercreditor No change from existing facility except clean up, including incorporation of LCs into leverage ratios OtherSameSame Same Need year end update on financials and reserves Subject to committee approvals Deferral Fee$2.0MM$1.5MM (0.5% on $300MM facility)$8.5MM (2.83% on $300MM facility)$10.5MM (3.5% on $300MM facility) Make- WholeAdjustment to Yield Maint. One quarter extensionNon-call lifeThree quarter extensionFour quarter extension Period Additional draw of $75MM andAdditional draw of full facility amount termination of delayed drawand termination of delayed draw OtherSameNA commitment, 1-2Q18 covenants adjustedcommitment. 1-2Q18 covenants adjusted as necessaryas necessary. (1)Assumes achieved through majority consent under 1L credit agreement. If, however, greater than majority consent, or unanimity, is required for an in-court reorganization, then delayed draw availability and/or amounts drawn under Options B and C will likely be proportionately reduced by the percentage represented by non-consenting lenders. All subject to legal and business due diligence, approvals and documentation.
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