The industry is gushing about the Marcellus Shale, with some calling its reserve potential "beyond imagination" and ranking it as the third largest natural gas field in the world. The Department of Energy estimates its recoverable reserves at 262 Tcf of natural gas. Investors have several well-established publicly-traded exploration and production companies to choose from to gain exposure to the Marcellus. These include XTO Energy (NYSE:XTO), which has 280,000 acres under lease and as many as 220 drilling locations, and Range Resources (NYSE:RRC), which has 900,000 acres in the play.

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Micro Cap Marvel?
Investors who want to get into an early stage company should look at Rex Energy (Nasdaq:REXX), a nano cap company that is just starting to develop its assets in the Marcellus Shale. The company has 65,000 net acres under lease, and has drilled five vertical wells to date. Rex Energy is completing its first horizontal well and drilling a second one. Its plan is to drill up to eight horizontal wells in 2009. Rex Energy's rate of return on its Marcellus properties will vary based on reserve size and price received. The company estimates that at a price of $5.00 per Mcf, its rate of return would range from 20-45%. Rex Energy also has properties in the Illinois Basin, which spans Illinois and Indiana. The company is currently attempting to stimulate some wells using a tertiary recovery method known as alkali surfactant polymer (ASP) flooding. It is testing this method on the Lawrence Field in Illinois. This is a mature oil field that has been producing since 1906. Rex Energy has tested its ASP technique on two pilot wells in the field and, based on the data received, it believes that it can recover approximately 39 million barrels in the location. Rex Energy is also almost debt free, with only $5 million drawn on its credit line as of March 31, 2009. The company will no doubt lever up as it develops its Marcellus acreage, but will hopefully keep its leverage at a reasonable level. (For more on investing in the oil and gas industry, read Fueling Futures In The Energy Market.)

Rex Energy filed a shelf offering last week with the Securities and Exchange Commission (SEC) in the amount of $150 million, although the company did not specify whether it would offer debt or stock. This also raises the possibility of a dilutive stock offering for Rex Energy. Those who are wary about unproved exploration and production companies should remember that Southwestern Energy (NYSE:SWN) probably had a market capitalization similar to that of Rexx Energy when it started to develop the Fayetteville Shale back in the early part of the decade.

Bottom Line
The Marcellus Shale has excited the industry and investors due to its large resource potential. Rex Energy deserves a look by those looking for investment exposure to this promising North American shale play. (To learn more, read our Oil And Gas Industry Primer.)



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Tickers in this Article: REXX, SWN, XTO, RRC

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