Participation And Exploration Agreement

Exhibit 10.1

PARTICIPATION AND

EXPLORATION AGREEMENT THIS PARTICIPATION AND EXPLORATION AGREEMENT, (hereinafter referred to as the " Agreement" ), is made and entered into effective as of May 5, 2009 (" Effective Date" ), by and between Williams Production Company, LLC (" Williams Production" ) and Williams Production Appalachia, LLC (" Williams Appalachia" ), both of One Williams Center, Suite 2600, Tulsa, Oklahoma 74172 (Williams Production and Williams Appalachia herein sometimes collectively and jointly and severally called " Williams" ), and Rex Energy I, LLC and R. E. Gas Development, LLC, both located at 476 Rolling Ridge Drive, Suite 300, State College, Pennsylvania 16801 (together " Rex" ), joined herein for the limited purposes stated in Section 13.01 by Rex Energy Corporation (" Rex Energy" ) and Rex Energy Operating Corp. (" Rex Operating" ), both of 476 Rolling Ridge Drive, Suite 300, State College, Pennsylvania 16801 (each of Rex and Rex Energy and Rex Operating herein sometimes called a " Rex Signatory" or collectively called " Rex Signatories" ), and with Williams and Rex sometimes referred to as the " Parties ," or separately sometimes referred to as a " Party" .

WHEREAS, Rex is the owner of certain oil and gas leases and other interests set forth on Exhibit " A" (" Rex Leases" ) and certain rights of way and easements set forth on Exhibit " A-1" (" Rex ROWs" ) covering or related to the lands described on Exhibit " A" and Exhibit " A-1" (the lands covered by Rex Leases being referred to herein as " Rex Lands" ). The Rex Lands include approximately 43,762 net acres in Centre, Clearfield and Westmoreland Counties, Pennsylvania; WHEREAS, Rex agrees that Williams Appalachia may acquire an interest in the Rex Leases under the terms and conditions set forth herein; and

WHEREAS, Williams and Rex have expressed a desire and willingness to participate in the exploration and development of the Rex Leases and certain other lands that may be owned or leased by either Party in the future, for the purposes of exploring for, and producing, oil, gas and other hydrocarbons.

NOW THEREFORE, in consideration of the premises and mutual benefits contained herein, the Parties, intending to be legally bound, agree as follows:

ARTICLE I

EXHIBITS 1.01 The following exhibits, attached hereto, are incorporated herein and made a part hereof for all purposes: (a) Exhibit " A" is a list of all of the Rex Leases covering the Rex Lands including Rex' s working interest and net revenue interests therein.

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(b) Exhibit " A-1" is a list of all of the Rex ROWs contained within the Rex Lands.

(c) Exhibit " B" and " B-1" consist of a plat and description outlining the AMI Area, which is more fully described in Section 10.01 below.

(d) Exhibit " C" is the Joint Operating Agreement (" JOA" ) which is incorporated herein by reference as provided in Section 3.05 below and which is to be used by the Parties as more fully set forth in this Agreement. (e) Exhibit " D" is the form of Assignment of the Rex Leases to be executed by Rex and delivered to Williams Appalachia as provided for herein.

(f) Exhibit " D-1" is the form of Assignment of the Rex ROWs to be executed by Rex and delivered to Gathering Company as provided for herein.

(g) Exhibit " E" is the form of Assignment and Assumption Agreement for all Material Contracts to be assigned by Rex Signatories to Williams Appalachia or Gathering Company as provided for herein.

(h) Exhibit " F" is the Tax Partnership Agreement which is incorporated herein by reference as provided in Section 14.03 below and which is to be used by the Parties as more fully set forth in this Agreement.

(i) Exhibit " G" is the list of all Material Contracts which Rex Signatories shall assign to Williams Appalachia or Gathering Company as provided for herein.

(j) Exhibit " H" is the list of the Rex wells located in Westmoreland County, Pennsylvania.

(k) Exhibit " I" is a list of the Rex expenses to be reimbursed by Williams pursuant to Section 8.01.

(l) Exhibit " J" is a list of Rex litigation disclosed pursuant to Section 11.05.

(m) Exhibit " K" is a list of Williams litigation disclosed pursuant to Section 11.05.

(n) Exhibit " L" is the Assignment of Seismic Data. (o) Exhibit " M" is a list of required consents of third parties for Rex to enter into or perform this Agreement.

(p) Exhibit " N" is the Limited Liability Company Agreement to be executed by Rex and Williams Appalachia to form Gathering Company as provided in Section 7.01 below.

ARTICLE II DEFINITIONS

2.01 AAA shall have the meaning set forth in Section 14.09.

2.02 AAA Rules shall have the meaning set forth in Section 14.09.

2.03 Acquiring Party shall have the meaning set forth in Section 10.02. Participation and Exploration Agreement Page 2

2.04 Affiliate shall mean with respect to any entity, any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such entity; " control" and, with correlative meanings the terms " controlled by" and " under common control with," shall mean (a) the possession, directly or indirectly, of the power to direct the management or policies of an entity, whether through the ownership of voting securities, by contract or otherwise, or (b) the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities or other voting interest of an entity.

2.05 AMI Area shall have the meaning set forth in Section 10.01.

2.06 AMI Period shall have the meaning set forth in Section 10.01.

2.07 Commitment Wells shall have the meaning given in Section 3.05. 2.08 Complete, Completing, Completed or Completion shall mean to implement, to have implemented, or the implementation of all processes that allow for the flow of natural gas from the Marcellus Shale (" target zone" ) so that it can be connected with the gathering system on the surface (except as provided below regarding abandonment of a well after testing). These processes include, but are not limited, to the setting of casing across the target (or adjacent) zone, perforation of the casing into the target zone, execution of a multi-stage (minimum of 3 stages) hydraulic fracture sand treatment of the target zone, and installation of tubing, wellhead, surface production unit (including liquid separator and storage tanks), artificial lift equipment (if needed), gas measurement equipment, and connections to the gathering system; provided, however, if a well is abandoned as a dry hole or non-commercial well after fracing and treatment of the target zone and testing, then in lieu of the installation of surface equipment, such processes shall include plugging and abandoning the well and restoring the surface location as required by applicable leases or laws and regulations.

2.09 Completion Date shall mean the first continuous 24-hour period in which natural gas from the Marcellus Shale is produced and measured at the surface following the well Completion or, if applicable, finalization of Completion of a Commitment Well that is abandoned as a dry hole or non-commercial well.

2.10 Contract Area shall have the meaning set forth in 5.03. 2.11 Dispute Notice shall have the meaning set forth in Section 14.09. 2.12 Drilling Carry Obligation shall have the meaning set forth in Section 3.01. 2.13 Drilling Carry Period shall have the meaning set forth in Section 3.03. 2.14 Environmental Laws shall mean any and all laws, relating to public health, or to pollution or protection of the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) including, without limitation, the Clean Air Act, the Comprehensive Environmental Response Compensation and Liability Act (" CERCLA" ), the Resource Conservation and

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Recovery Act of 1976 (" RCRA" ), the Toxic Substances Control Act (" TSCA" ), the Clean Water Act, the Safe Drinking Water Act, the Hazardous Materials Transportation Act (" HMTA" ), the Oil Pollution Act of 1990, all as amended, and any state laws implementing or analogous to the foregoing federal laws, and all other laws relating to or regulating emissions, discharges, releases, or cleanup of pollutants, contaminants, chemicals, polychlorinated biphenyls (" PCBs" ), oil and gas exploration and production wastes, brine, solid wastes, or toxic or hazardous substances or wastes.

2.15 Excluded Properties means any of the Rex Leases removed from Exhibit " A" pursuant to Section 3.12, Section 11.03, or Section 12.04 hereof, plus the wells listed on Exhibit " H."

2.16 Existing Wellbores shall have the meaning set forth in Section 3.09.

2.17 Gas Gathering Expenses shall have the meaning set forth in Section 8.01.

2.18 Gathering Company shall have the meaning set forth in Section 7.01.

2.19 JOA shall have the meaning set forth in Section 3.05. 2.20 Knowledge of Rex means the knowledge of the following employees of Rex: Benjamin W. Hulburt, David Pratt, Chris Hulburt, Bernard Ulincy, Bill Ottaviani, Tom Stabley, Tim Beattie and Jim Watson.

2.21 Lateral Length means the length from the point at which a wellbore enters the target zone to the terminus point of the wellbore.

2.22 LLC Agreement shall have the meaning set forth in Section 7.01.

2.23 Non-Acquiring Party shall have the meaning set forth in Section 10.02.

2.24 Non-Consent Lease shall have the meaning set forth in Section 5.01. 2.25 NRI means Rex' s net revenue interest in and to a Rex Lease as set forth on Exhibit " A" . 2.26 Pending Well shall have the meaning set forth in Sections 9.01(a) and 9.01(b). 2.27 Permitted Encumbrances means any of the following: (a) All rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of oil and gas leases or interests therein if they are routinely obtained subsequent to the sale or conveyance;

(b) Required third party consents to assignment, preferential purchase rights and similar agreements where such waivers or consents are obtained from the appropriate parties, or the appropriate time period for asserting any such right has expired without an exercise of the right, and such right has terminated;

(c) Materialman' s, mechanic' s, repairman' s, employee' s, contractor' s, operator' s, tax, and other similar liens or charges arising in the ordinary course of business for obligations that are not yet due and payable or that will be paid and discharged in the ordinary course of business or if delinquent, that are being contested in good faith by appropriate action of which Williams is notified in writing upon execution of this Agreement; (d) Easements, rights-of-way, servitudes, permits, surface leases and other rights in respect of surface operations or any restrictions on access thereto that do not materially interfere with the oil and gas operations to be conducted on any well or Rex Lease;

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(e) Conventional rights of reassignment prior to release or surrender requiring notice to the holders of the rights;

(f) All rights reserved to or vested in any governmental, statutory or public authority to control or regulate any of the Rex Leases, Rex ROWs or Rex Lands in any manner, and all applicable laws, rules and orders of governmental authority;

(g) Liens arising under operating agreements, unitization and pooling agreements and production sales contracts securing amounts not yet due, or, if due, being contested in good faith in the ordinary course of business;

(h) All other inchoate liens, charges, encumbrances, contracts, agreements, instruments, obligations, defects and irregularities affecting any of the Rex Leases or Rex ROWs that individually or in the aggregate do not interfere materially with the operation, value or use of any of the Rex Leases or Rex ROWs; (i) All applicable laws, rules and orders of any governmental authority having jurisdiction over the Rex Leases or Rex ROWs;

(j) Inchoate liens for taxes not yet due;

(k) Existing overriding royalty interests burdening Rex Leases which do not reduce Rex' s NRI in such Rex Leases below the NRI shown in Exhibit " A" ; (l) The disputed overriding royalty interests referenced in Section 12.07; and (m) Any other condition Williams may have expressly waived in writing.

2.28 Project Area shall have the meaning set forth in Section 3.02.

2.29 Required Depth shall have the meaning set forth in Section 3.05.

2.30 Retained Tract shall have the meaning set forth in Section 9.01(d).

2.31 Retained Unit Interest shall have the meaning set forth in Section 9.01(d)(ii).

2.32 Rex Lands shall have the meaning in the Recitals. 2.33 Rex Leases shall have the meaning in the Recitals and as set forth on Exhibit " A" as reduced by any Excluded Properties.

2.34 Rex Operations Period shall have the meaning set forth in Section 5.01. 2.35 Rex ROWs shall have the meaning in the Recitals and as set forth on Exhibit " A-1" . 2.36 Rex Signatories shall have the meaning set forth in Recitals.

2.37 Tax Partnership Agreement shall have the meaning set forth in Section 14.03.

2.38 Third Party JOA shall have the meaning set forth in Section 5.03.

2.39 Unit Area shall mean a voluntary unit including Rex Leases (with or without other leases or lands) which is formed by Rex and/or Williams Appalachia in order to drill wells under this Agreement. 2.40 Williams Interests shall have the meaning set forth in Section 3.01. 2.41 Williams Operation Period shall have the meaning set forth in Section 5.02. Participation and Exploration Agreement Page 5

ARTICLE III

EARNING WELL DRILLING PROGRAM

3.01 Drilling Carry Obligation . In order to earn fifty percent (50%) of Rex' s interests in the Rex Leases as contemplated by this Agreement, Williams agrees that during the Drilling Carry Period (as defined below), Williams will carry and bear and pay all costs and expenses attributable to eighty percent (80%) of Rex' s fifty percent (50%) working interest (in addition to Williams Appalachia' s fifty percent (50%) working interest) which are incurred in drilling and Completing of all wells jointly drilled by Williams Appalachia and Rex in the Project Area up to the Drilling Carry Obligation (as defined herein); provided that in the event the Parties own less than the entire one hundred percent (100%) interest in a well drilled pursuant to this Agreement, the Drilling Carry Obligation share of the costs of drilling and Completing such well shall be 80% of one-half ( 1 / 2 ) of the Parties' total percentage interest in such well. The " Drilling Carry Obligation" which Williams shall pay towards the development of the Project Area shall be the amount of thirty-two million, eight hundred twenty-one thousand, two hundred twenty dollars ($32,821,220.00) subject to downward adjustment if one or more Rex Leases become Excluded Properties pursuant to this Agreement. Such amount has been calculated based on the following formula: $750 multiplied by the total number of acres of Rex Lands covered by Rex Leases within the Project Area; provided that if the Rex Leases (whether one or more) cover only an undivided interest in the oil and gas estate in a particular parcel of land, the number of acres in such parcel of land has been correspondingly reduced in proportion to the undivided interest not covered by the Rex Leases for purposes of calculating the Drilling Carry Obligation. " Williams Interests" means the undivided fifty percent (50%) interest in Rex' s interest in the Rex Leases (subject to Section 12.07) as to which Williams Appalachia may earn an assignment pursuant to this Agreement.

3.02 Project Area . The " Project Area" is the area of land covered by the Rex Leases, except any area of land or interest therein covered by a Rex Lease that is or becomes an Excluded Property. The amount of acres contained within the Project Area shall be used by the Parties to calculate the Drilling Carry Obligation. 3.03 Drilling Carry Period . Williams shall have from the Effective Date until December 31, 2011 (" Drilling Carry Period" ) to fulfill the Drilling Carry Obligation. The Drilling Carry Period shall be extended by an additional forty-five (45) days per well to be drilled if less than seven (7) of the ten (10) Commitment Wells are drilled and Completed by December 31, 2009. By way of example only, if, as of December 31, 2009, only five (5) of the ten (10) Commitment Wells have been drilled and Completed, the Drilling Carry Period would be extended an additional ninety (90) days or until March 31, 2012.

3.04 Drilling Carry Obligation Payoff . In the event Williams has failed to fulfill all of the Drilling Carry Obligation as of the expiration of the Drilling Carry Period, then unless Williams has terminated

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this Agreement pursuant to Section 9.01 below, Williams shall make a cash payment to Rex for the remaining Drilling Carry Obligation and, in such event, Williams Appalachia shall earn an assignment of the Williams Interests in the Rex Leases as to all remaining acreage within the Project Area as to which assignments have not been made to Williams Appalachia pursuant to Section 3.09 below, except Excluded Properties. In such event, Rex shall assign the applicable interests pursuant to the provisions of Section 3.10 below.

3.05 Commitment Wells Depth and Location . During the Drilling Carry Period, subject to Section 9.01, the Parties shall drill and Complete ten (10) horizontal wells within the Project Area, each with a minimal Lateral Length of fifteen hundred (1500) feet and to a depth sufficient to test the Marcellus Shale Formation (" Required Depth" ). Such wells (including the Eaglehouse 4H Well and Eaglehouse 7H Well referenced on Exhibit " I," if such wells are Completed) shall be hereinafter referred to as the " Commitment Wells." The location for the Commitment Wells, other than the Eaglehouse 4H Well and Eaglehouse 7H Well, and for any other wells drilled during the Drilling Carry Period shall be mutually agreed upon in writing by the Parties. All operations on the Commitment Wells and any other wells drilled during the Drilling Carry Period shall be governed by Section 5.01 relating to the Rex Operations Period and Section 5.02 relating to the Williams Operations Period and by a joint operating agreement between the Parties which is attached to this Agreement as Exhibit " C" (such operating agreement, including all exhibits attached thereto, are referred to collectively in this Agreement as the " JOA" ), which JOA is being executed simultaneously herewith and is incorporated herein by reference, effective on the Effective Date; provided, however, that, notwithstanding anything to the contrary in the JOA, neither Party may make a non-consent election to a well proposed by the other Party to be drilled pursuant to this Agreement until the earlier of (i) the date the Drilling Carry Obligation has been satisfied (whether by payment of costs pursuant to Section 3.01 or payment of cash pursuant to Section 3.04) or (ii) the date the Drilling Carry Period expires. Until a total of ten (10) Commitment Wells have been drilled and Completed, wells drilled and Completed by the Parties during the Drilling Carry Period that are determined to be non-commercial and/or dry holes shall nevertheless be counted and treated as Commitment Wells under the terms of this Agreement so long as such wells were drilled and Completed with the required Lateral Length to the Required Depth under this Agreement. During the Drilling Carry Period, the Parties agree to collaborate with respect to drilling locations for the Commitment Wells and other wells drilled by the Parties and the establishment of Unit Areas to meet the requirements for commencement and continuation of drilling or for drilling of offset wells under the Rex Leases so as to avoid any forfeiture or loss of leases and to minimize required payments of delay rentals or the need to exercise extension options.

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3.06 Partial Commitment Well . During the Drilling Carry Period, if the Parties agree to drill and Complete a well in which Rex' s working interest is less than one hundred percent (100%) whether by reason of Rex owning less than one hundred percent (100%) of the working interest in the Rex Lease on which such well is drilled, by reason of the Rex Lease on which such well is drilled not covering the entire oil and gas estate in the land, or by reason of the Parties decision to pool a Rex Lease into a Unit Area in which Rex owns less than a one hundred percent (100%) working interest, then such well shall not be treated as a full Commitment Well for the purpose of satisfying the obligation to drill and Complete ten (10) Commitment Wells, but such well shall be treated as a partial Commitment Well. Williams will be obligated pay the Drilling Carry Obligation pursuant to Section 3.01 with respect to such partial Commitment Well and will be credited as having drilled and Completed that portion of a Commitment Well equal to Rex' s proportion of the working interest owned in such partial Commitment Well. For example, if the Parties agree to drill and Complete a well on acreage or in a Unit Area in which Rex owns a seventy-five percent (75%) working interest, then such well shall be treated as a partial Commitment Well. Williams will be obligated to pay the Drilling Carry Obligation pursuant to Section 3.01 with respect to such partial Commitment Well and will be credited as having drilled and Completed seventy-five percent (75%) of one Commitment Well.

3.07 Substitute Wells . If any well does not reach the Required Depth or is not drilled to the objective Lateral Length due to Williams Appalachia or Rex (depending upon which Party is operating such well) encountering a formation which could not be penetrated by a reasonably prudent operator without unreasonable cost as determined in the good faith judgment of the operator at the time such formation is encountered, or due to adverse conditions which could not be overcome by a reasonably prudent operator without unreasonable cost as determined in the good faith judgment of the operator at the time such adverse conditions are discovered, and the well is abandoned, Rex and/or Williams Appalachia shall have the right, for a period of sixty (60) days from and after the date of the release of the drilling rig from the abandoned location in which to commence a substitute well, which may then be counted as a Commitment Well, for purposes of Section 3.05, if it is successfully drilled to the Required Depth and Completed. In addition, nothing in this Agreement shall be construed as obligating Williams to continue to pay the costs of drilling, Completion or other operations on any well that Williams Appalachia, during its operations, decides, in its sole discretion, to abandon and cease pursuing as a Commitment Well. Any Drilling Carry Obligation payments made by Williams with respect to an abandoned well shall be applied toward the satisfaction of Williams' obligation to pay the entire Drilling Carry Obligation, but such abandoned well shall not be considered a Commitment Well for the purpose of satisfying the obligation to drill and Complete the Commitment Wells pursuant to this Agreement.

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3.08 Lease Expiration During Drilling Carry Period/Lease Surrender . If during the Drilling Carry Period, Rex (a) elects not to pay a rental which is necessary in order to perpetuate any of the Rex Leases (other than the Excluded Properties); or (b) otherwise elects to release or surrender any of the Rex Leases (other than the Excluded Properties), Rex shall notify Williams in writing at least thirty (30) days prior to the earlier of (i) the date the next ensuing rental is payable; or (ii) the expiration or termination date of the affected Rex Leases, as applicable. Williams Appalachia, for a period of fifteen (15) days following delivery of such notice from Rex, shall have the option to elect, by means of written notice delivered to Rex, to receive from Rex, without any consideration, a recordable assignment of all of Rex' s interests as set forth on Exhibit " A" in and to any and all of the Rex Leases included within Rex' s written notice to Williams. Such assignment will be with a special warranty of title by Rex, and shall be free and clear of all liens, security interests, overriding royalty interests, and other similar encumbrances except Permitted Encumbrances, whether created by, through or under Rex, but not otherwise. If Williams Appalachia timely exercises its option, thereafter Rex shall deliver to Williams Appalachia a recordable assignment and Williams Appalachia will own and be responsible for such assigned leases, free and clear of this Agreement and the JOA. If Williams Appalachia fails to timely exercise its option, then Rex may allow the affected Rex Leases to expire or surrender or release the affected leases, as applicable.

3.09 Assignments Earned by Williams Appalachia Upon Drilling Each Well . Within ten (10) days after the Completion Date of each well drilled and Completed during the Drilling Carry Period, Rex shall deliver an assignment in substantially the same form as that attached to this Agreement as Exhibit " D" , assigning to Williams Appalachia, effective as of the Effective Date, the Williams Interests in the Rex Lease(s) insofar as they cover the Unit Area (as to wells that are Completed in a Unit Area) or insofar as the Rex Lease(s) cover the eighty (80) acre Retained Tract surrounding such well as described in Section 9.01(d)(i) (as to wells that are not completed in a Unit Area), as to all depths except in regard to Rex Leases which are located in the Derry Township in Westmoreland County, Pennsylvania. In the event a well or wells is drilled in the Derry Township in Westmoreland County, Pennsylvania, Williams Appalachia shall be entitled to earn fifty percent (50%) of Rex' s interests as set forth on Exhibit " A" in the Unit Area or eighty (80) acre Retained Tract surrounding the well, as applicable, except that (A) if such Unit Area or Retained Tract includes the location of any of the existing Rex wells in Westmoreland County, Pennsylvania, described on Exhibit " H," the assignment shall exclude and reserve unto Rex all existing wellbores in such Rex wells (" Existing Wellbores" ), including the rights to produce through such wellbores from the formation or formations in which such Existing Wellbores are presently completed regardless of said Existing Wellbores depths; and (B) Williams Appalachia shall be entitled to the Williams Interests in such Unit Area or 80 acre Retained Tract, as applicable, as to all depths except the assignment shall reserve unto Rex the rights from the surface to two hundred (200) feet above the top

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of the Tully Limestone or the stratigraphic equivalent thereof. Notwithstanding anything in the previous sentences, such assignment will not reserve unto Rex any rights to, and Rex will not be entitled to, plug back and recomplete any of such Existing Wellbores into the Marcellus Shale; provided however, Rex may plug back and recomplete any of such Existing Wellbores into any other formation that is more than two hundred (200) feet above the top of the Tully Limestone or the stratigraphic equivalent thereof. Williams shall be responsible for and shall pay the costs of recording each assignment in the real property records of the appropriate county or township as applicable. Each assignment shall be delivered by Rex to Williams Appalachia, properly executed and in recordable form providing for transfer to Williams Appalachia of the rights and interests provided for under this Agreement. Each assignment earned under this Section shall be made expressly subject to and refer to this Agreement and the JOA.

3.10 Assignments Earned by Williams Appalachia Upon Completion of Drilling Carry Obligation . Within thirty (30) days of either Williams' full payment of the Drilling Carry Obligation or Williams payoff of the Drilling Carry Obligation pursuant to Section 3.04, Rex shall assign to Williams Appalachia the Williams Interests in the Rex Leases other than Excluded Properties insofar as they cover all remaining acreage within the Project Area which has not previously been assigned to Williams Appalachia under Section 3.09 above (" Remaining Acreage" ). Such assignment shall (a) be i ...