Zacks_Analysts' Blog : Range Q3 Volume Surges 7% - Analyst Blog

Range Resources Corporation’s (RRC) third quarter 2011 production volume experienced a 7% improvement from the year-earlier period, mainly on the back of a surge in Pennsylvania's Marcellus Shale output.

The company’s third quarter production averaged 537.2 million cubic feet equivalent per day (MMcfe/d), comprising 76% natural gas, 17% natural gas liquids (NGLs) and 7% oil. Output also surpassed the guidance range of 515−520 MMcfe/d. Oil production boosted 13%, NGL rose 11% and natural-gas production increased 5% on a year-over-year basis. Range’s high liquid-rich spending level was responsible for the relative increase in oil and natural-gas liquids production.

Moreover, on April 29, Range sold its 52,000 acres Barnett Shale properties for $900 million in order to focus on its Marcellus Shale assets. Excluding the impact of the sale, production would have risen 27%.

For the third quarter, Range’s total price realization, on a preliminary basis (including the effects of hedges and derivative settlements) averaged $5.73 per Mcfe, up 15% year over year. This was mainly attributable to a higher liquids proportion in the total production mix and increased NGL and crude oil prices. The overall price comprised NGL at $49.52 per barrel, crude oil at $81.70 a barrel and natural gas at $4.51 per Mcf.

Range Resources displays a diversified high-quality asset base across the low-risk/long-reserve Appalachian assets and large-volume/rapid-payout Gulf Coast properties. Given a dominant presence in the Marcellus Shale play, we believe that the large acreage holdings will support several years of oil and gas drilling in the fast-growing fields. The company’s Marcellus Shale acreage is currently producing 350 MMcfe/d and remains on track to meet this year’s net volume target of 400 MMcfe/d.

The company is seeking to ramp up the output of NGLs (such as ethane, propane and butane) and oil, which are better price takers than natural gas. In a low natural gas price environment, the company’s record production, declining unit costs and the sale of non-core properties will be beneficial over time.

However, considering the company’s exposure to volatile natural gas fundamentals, interest rate risks and the uncertain macro backdrop, we maintain our long-term Neutral recommendation. Headquartered in Fort Worth, Texas, Range Resources competes with EQT Corporation (EQT), SM Energy Company (SM) and Ultra Petroleum Corp. (UPL).