FORT WORTH, TEXAS, FEBRUARY 21, 2012
RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its 2012 capital expenditure budget has been set at $1.6 billion. The capital budget includes $1.3 billion for drilling and recompletions, $215 million for leasehold, $47 million for seismic and $73 million for pipelines and facilities. Approximately 75% of the budget will be targeted toward liquids-rich and oil projects predominately in the Marcellus Shale and horizontal Mississippian plays. As a result of its capital program, Range has increased its 2012 production growth target to 30 - 35%. For 2012, all-in finding and development costs are projected to average $1.00 per mcfe or less.
In setting its 2012 capital expenditure budget, Range estimated projected drilling returns in each of its core areas, which demonstrated that at current strip prices that the 2012 capital program is expected to generate projected drilling returns ranging between 27% to 99%. Given the current natural gas price environment, capital spending for dry gas projects has been reduced to only 25% of the budget, almost all of which is associated with Marcellus Shale drilling in northeastern Pennsylvania. At current strip prices, the Marcellus Shale wells in northeastern Pennsylvania generate a projected return of 27% to 32%.
The 2012 capital budget will exceed our expected 2012 operating cash flow. In 2011, Range sold its Barnett Shale and other miscellaneous properties for approximately $950 million which significantly strengthened its balance sheet. As a result, at year-end 2011 Range had $1.3 billion of liquidity under its bank credit facility. The difference between the capital budget and cash flow will be funded by accessing a portion of the Company's increased liquidity. Despite using debt to fund a portion of its capital budget, total debt to EBITDAX ratio ("ratio") for 2012 is projected to not exceed 2.7x thereby preserving Range's financial strength and debt rating. Our ratio at year-end 2010 was 2.8x and, just prior to the Barnett sale at the end of the first quarter 2011, the ratio was 3.0x.
Looking to 2013, Range has the flexibility to adjust its capital program to match projected cash flow while still retaining all of its assigned resource potential and all of the necessary acreage to achieve that resource potential. Based on current 2013 strip prices coupled with its current 2013 hedges, Range anticipates it can grow production by 15% - 20% in 2013 with a capital program equal to projected cash flow. Under this scenario, Range's total debt to EBITDAX ratio would strengthen to 2.2x in 2013. This flexibility is driven by having developed a high-return inventory of drilling projects, a low-cost structure and a strong balance sheet.
Commenting on its 2012 capital budget, Jeff Ventura, the Company's President and CEO, said, "Range's strategy of consistent low-cost growth on a per share basis coupled with building and high grading our inventory is now culminating in accelerating growth at lower cost, while maintaining financial discipline. Due to the property sales completed last year, we have the financial flexibility to maintain essentially the same level of capital spending in 2012 as expended in 2011. For 2013, we will adjust our capital budget depending on commodity prices, cash flow, rates of return and other factors. Given our large inventory of high return, low-cost projects, we are in an excellent position to generate double-digit per share production and reserve growth for years to come, even during this period of low natural gas prices."
Range has updated its investor presentation with acreage maps, updated economic sensitivity analysis and other operational information discussed below. Please see www.rangeresources.com under the Investor Relations tab, "Presentations and Webcasts" area, for the presentation entitled, "Company Presentation - February 21, 2011." In this release, Range refers to "super-rich" wet gas and "wet" gas. These terms are used to designate natural gas streams with associated condensate and NGLs. "Super-rich" is used for those areas where the natural gas stream as measured at the separator is expected to be 1350 Btu or greater. "Wet" is used for those areas where the natural gas stream as measured at the separator is expected to be 1050 Btu but less than 1350 Btu.
Fourth quarter drilling expenditures of $336 million funded the drilling of 78 (66 net) wells. A 98% success rate was achieved. Total drilling expenditures for 2011 were $1.2 billion, and Range drilled 301 (266 net) wells and 20 (19 net) recompletions during the year. Total capital spending for 2011 was $1.6 billion which included $221 million for leasehold, $77 million in exploration expense and $54 million on pipelines and facilities. All-in finding and development cost for 2011 averaged $0.89 per mcfe, with all-in reserve replacement of 850%. Drill bit only finding cost averaged $0.76 per mcfe.
Marcellus Shale Division
Significant progress was made on multiple fronts in the Marcellus Shale during 2011. As discussed on several of its conference calls last year, Range's development in the Marcellus Shale has stepped out into an area in southwest Pennsylvania which it now calls the super-rich area. To date, Range has drilled and completed eight wells in and on the edge of this super-rich area. The average estimated ultimate recovery ("EUR") of these eight wells is estimated to be 400 thousand barrels of liquids (95 thousand barrels of condensate and 305 thousand barrels of NGLs) and 3.9 Bcf of natural gas per well. The eight wells now have production histories ranging from 7 to 24 months. Below is information on three of our best recently drilled wells including one well drilled in the super-rich area and two drilled in the wet area that had either longer laterals or increased frac stages. We have a 100% working interest in all three wells.
The peak 24-hour test rate of the well in the super-rich area was 1,266 barrels of liquids per day (50% condensate, 50% NGLs) and 6.4 Mmcf per day of natural gas. This well had a lateral length of 4,137 feet and was completed with 19 frac stages. Assuming 85% ethane extraction, the test results would have been 1,714 barrels of liquids per day (35% condensate, 65% NGLs) and 5.6 Mmcf of natural gas per day.
The peak 24-hour test rate of the first wet well was 1,046 barrels of liquids per day (34% condensate, 66% NGLs) and 9.7 Mmcf per day of natural gas. This well had a lateral length of 2,375 feet and was completed with 14 frac stages. Assuming 85% ethane extraction, the test results would have been 1,783 barrels of liquids (20% condensate, 80% NGLs) and 8.4 Mmcf of natural gas.
The peak 24-hour test rate of the second wet well was 1,032 barrels of liquids per day (39% condensate, 61% NGLs) and 8.8 Mmcf per day of natural gas. This well had a lateral length of 3,425 feet and 22 frac stages. Assuming 85% ethane extraction, the test rate would have 1,700 barrels of liquids (24% condensate, 76% NGLs) and 7.7 Mmcf of natural gas per day.
Range believes that in a development mode the super-rich area wells will cost $4.7 million to drill and complete with a lateral length of 3,742 feet and 14 frac stages. This would develop an estimated EUR of 400 thousand barrels of liquids (95 thousand barrels of condensate and 305 thousand barrels of NGLs) and 3.9 Bcf of natural gas on approximately 80 acre spacing. The projected economics would reflect a 95% rate of return based on NYMEX "strip pricing" (as of January 31, 2012) with a NPV10 value (net present value discounted at 10% using strip pricing) of $10.7 million per well.
Range increased its EUR estimates to 5.9 Bcfe from the previous 5.7 Bcfe for wells drilled in the traditional wet area where Range has historically drilled. Estimating the EUR from this traditional wet area, drilling would develop 5.9 Bcfe per well on approximately 80 acre spacing (24 thousand barrels of condensate, 257 thousand barrels of NGLs and 4.2 Bcf of natural gas). The projected economics for this area would reflect a 73% rate of return based on strip pricing with a NPV10 value of $7.9 million per well.
Range has included a map of where its current 570,000 net acre position is located in the southwestern Pennsylvania area in the Company's current presentation on its website. The number of acres associated with each of the prospective areas in the southwest are: 125,000 acres in the super-rich area, 210,000 acres in the wet area and 235,000 acres in the dry gas area. From both industry and Range's drilling activity since 2004, Range believes that all the acreage in the southwest is prospective for Marcellus Shale development. Most of the acreage in the southwest associated with the dry gas portion of the play is already held by production allowing Range to focus its drilling in the super-rich and wet areas which are expected to generate substantially higher rates of return.
Range also announced the results in Lycoming County in the northeast portion of the play from its first well with a longer lateral. This well was drilled with a lateral of 5,000 feet and was completed with 17 frac stages. The initial 30-day average production rate was in excess of 8 Mmcf per day gross (7 net). The estimated EUR for this well is 10 Bcf. In a development mode, Range expects the wells with a 4,900 foot lateral length to cost $6.2 million and generate a projected rate of return of 32% and a NPV10 value of $6.6 million based on strip pricing. Just over the weekend, a new well was brought on line to sales with a 2,400 foot lateral and completed with eight frac stages at a 24-hour rate of 23 Mmcf per day gross (20 net). Acreage in the northeastern portion of the play is composed of 180,000 net acres. A map showing where the acreage is located can be found in the Company's current presentation on its website. Currently Range is running four rigs in the northeast area but has the option in late 2012 to reduce the number of rigs to 1 - 2 rigs per year without reducing its expected resource potential.
In southwest Pennsylvania, Range drilled 39 wells during the fourth quarter, and a total of 32 wells were turned to sales bringing the total horizontal wells producing in southwest Marcellus to 246 wells. At the end of the fourth quarter, there were 16 wells waiting on pipeline and 77 wells waiting on completion in southwest Pennsylvania. In northeast Pennsylvania, Range drilled 21 (11.3 net) wells during the fourth quarter, five in Lycoming County, two in Clinton County, one in Centre County and 13 (3.3 net) in Bradford County. A total of 24 horizontal wells were turned to sales during the fourth quarter as considerable progress was made on the expansion of the gathering system and a new compression station was commissioned. Recently another phase of the northeast gathering system was commissioned and put into service along with one additional compressor station. Seven (1.4 net) horizontal wells were turned on line in Bradford County. At the end of the fourth quarter, there were 10 wells waiting on pipeline and 14 wells waiting on completion in northeast Lycoming area.
As previously announced, Range has made significant progress on marketing future ethane production by signing an agreement to ship up to 20,000 barrels of ethane per day on Enterprise's ATEX Express pipeline which is expected to commence deliveries in 2014. This is in addition to the 15,000 barrels of ethane that will be delivered to Sarnia, Canada via the Mariner West project which is expected to commence in late 2013. At year-end 2011, the Company was capable of producing 20,000 barrels of ethane per day (17,000 net). The Company expects to complete additional ethane sales contracts in the future to cover its growing ethane capabilities.
During the year, Range has helped to pioneer a number of best practices in the super-rich and wet gas producing areas in Appalachia working with stakeholders in the industry, academia, conservation and the regulatory community. This includes enhanced measures to reduce and eliminate potential impacts on health and safety, including air and water resources. Many of these efforts are aimed at reducing potential emissions and stray gas during all phases of development including drilling, completion, flow back and final production; including vapor recovery units, workplace and first responder training, increased set backs from hydrocarbons on location and enhanced equipment and facilities. Several steps have also been taken to protect water resources including advancements in spill containment and prevention plans, equipment and training.
Range's Midcontinent team continues to emphasize development of its core, liquids-rich properties located in the Texas Panhandle, Oklahoma and Kansas. During 2011, Range significantly expanded its horizontal Mississippian play in Oklahoma and Kansas. Range now has over 125,000 net acres in the play, having started 2011 with only 15,000 net acres. As development continues in 2012, new wells will test longer lateral lengths and varying stimulation procedures to determine the optimum and most cost effective means to move into full development of this project. A two-rig drilling program has commenced with anticipation of additional pipeline, processing, disposal infrastructure being in place for second quarter 2012 production. Additionally, a new 30 Mmcf per day cryogenic processing facility is expected to become operational late in 2012 to service Range's drilling program.
Range believes that in a development mode the horizontal Mississippian wells will cost $3.1 million to drill and complete with a lateral length of 2,200 feet and 12 frac stages. The cost includes $200,000 for an allocable share of the necessary salt water disposal facilities to produce the reserves. The average of our first eight wells is 485 Mboe proved reserves per well (120 thousand barrels of condensate, 204 thousand barrels of NGLs and 1.0 Bcf of natural gas). The economics, assuming 500 Mboe per well, is a 99% projected rate of return based on strip pricing with a NPV10 value of $5.5 million per well.
In the Texas Panhandle, four St. Louis horizontal wells are producing at combined rates of 29.6 Mmcf of natural gas and 2,283 barrels of liquids per day (776 barrels of condensate and 1,507 barrels of NGLs), or 43.3 (19.9 net) Mmcfe per day. Drilling activity continues in the play with one well waiting on a first quarter completion, while 7 (5.6 net) additional St. Louis horizontal wells are planned for drilling in 2012.
Range's Permian team is targeting the Cline Shale oil play in West Texas. Our first horizontal well is very encouraging and we have recently drilled a second test on our acreage that is awaiting completion. Range has 100% working interest in both wells. The first horizontal well had an initial production rate of 600 Boe per day. The Company estimates that the EUR of the first well is 340 Mboe consisting of 210 thousand barrels of crude oil, 71 thousand barrels of NGLs and 353 Mmcf of natural gas. In a development mode, Range expects the wells with a 3,000 foot lateral length will cost $4.3 million. Based on strip pricing, the wells are expected to have a 41% rate of return and a NPV of $3.4 million per well. Range currently has approximately 100,000 net acres in the play with 91,000 net acres held by production. Range believes that essentially all its acreage is prospective for Cline Shale production and has been able to determine through well control that the Cline Shale averages 270 - 330 feet of thickness across its acreage position.
Commenting on its operational results, Ray Walker, the Company's Senior Vice President and COO, said, "We have been working very diligently to acquire and block up our acreage in the super-rich and wet areas of the Marcellus Shale over the last several years. We are very excited about our 2011 drilling results, particularly in the super-rich area. We believe the Upper Devonian, just above the Marcellus, is also super-rich and wet and could yield similar results. We will test the super-rich portion of the Upper Devonian this year. Our horizontal Mississippian and Cline Shale plays, where we have accumulated over 225,000 net acres in total provides us significant exposure in oil plays that we believe are low cost, highly economic and repeatable. With a diversified inventory of drilling projects covering well over a million net acres, we have developed the highest quality portfolio of projects in our Company's history."
Non-GAAP Financial Measures
Range has referred to a "total debt to EBITDAX ratio" in this release to measure relative leverage of the Company. This ratio is calculated by dividing last twelve months EBITDAX into the sum of the Company's bank debt and subordinated notes shown on the consolidated balance sheets. The ratio is expressed in the number of annual EBITDAX amounts required to equal the outstanding debt amount, where the "X" refers to coverage "times." EBITDAX is defined as earnings before interest, income taxes, depletion, depreciation and amortization and exploration expense. EBITDAX used by the Company for this calculation is found in "Supplemental Tables" posted for each respective quarter on its website under the tab "Investor Relations." We believe that the presentation of the total debt to EBITDAX ratio is relevant to our investors because it presents a relative leverage metric which is commonly used by investors and the debt rating agencies to evaluate a company's ability to service its current debt and/or take on more debt.
Range has disclosed for individual drilling projects discussed in this release the estimated projected net present value discounted at 10% using NYMEX strip pricing as of January 31, 2012 ("NPV"). As defined, NPV is the difference between the present value of project cash inflows and the present value of project cash outflows both discounted at 10%. NPV is used in capital budgeting to analyze the profitability of a project. Range has deducted the drilling and completion costs associated with each project shown in determining each project's NPV. We believe that the disclosure of the NPV of each project is relevant since it is one of the factors used by the Company in allocating its capital among projects. The NPV is useful to our investors in comparing projects within the Company and within the industry sector. The 10% discount factor used in the NPV was selected by the Company since that particular discount factor is widely used in various analysis used in the energy sector including for reserve valuations and project analysis. The Company has used assumptions and estimates that management believes are reasonable based on currently available information, however, the assumptions and actual future results are subject to a wide range of business risks and uncertainties. In addition for each project, the Company has presented additional rates of return using a range of commodity prices to assist the reader in determining a prospective range of results.
Range has disclosed two primary metrics in this release to measure our ability to establish a long-term trend of adding reserves at a reasonable cost - a reserve replacement ratio and finding and development cost per unit. The reserve replacement ratio is an indicator of our ability to replace annual production volumes and grow our reserves. It is important to economically find and develop new reserves that will offset produced volumes and provide for future production given the inherent decline of hydrocarbon reserves as they are produced. We believe the ability to develop a competitive advantage over other natural gas and oil companies is dependent on adding reserves in our core areas at lower costs than our competition. The reserve replacement ratio is calculated by dividing production for the year into the total of proved extensions, discoveries and additions, proved reserves added by performance and the reduction of reserves due to changes in prices as shown in the summary of changes in the proved reserves table.
Finding and development cost per unit is a non-GAAP metric used in the exploration and production industry by companies, investors and analysts. The calculations presented by the Company are based on costs incurred excluding asset retirement obligations and divided by proved reserve additions (extensions, discoveries and additions shown in the summary of changes in proved reserves table) adjusted for the changes in proved reserves for performance revisions and/or price revisions as stated in each instance in the release. This calculation does not include the future development costs required for the development of proved undeveloped reserves. The SEC method of computing finding costs contains additional cost components and results in a higher number. A reconciliation of the two methods is shown on our website at www.rangeresources.com.
The reserve replacement ratio and finding and development cost per unit are statistical indicators that have limitations, including their predictive and comparative value. As an annual measure, the reserve replacement ratio can be limited because it may vary widely based on the extent and timing of new discoveries and the varying effects of changes in prices and well performance. In addition, since the reserve replacement ratio and finding and development cost per unit do not consider the cost or timing of future production of new reserves, such measures may not be an adequate measure of value creation. These reserves metrics may not be comparable to similarly titled measurements used by other companies.
Range has referred to debt-adjusted per share metric in this release to measure per-share growth of production and reserves. This debt-adjusted metric keeps the debt-to-capitalization ratio unchanged during the calculation period. To achieve a constant debt-to-capitalization ratio, the share count is adjusted to increase/decrease equity from the actual end-of-year to the beginning of period level debt-to-cap. This adjustment is made by dividing the necessary increase/decrease in equity by the average common share price during the year for production (year-end price for reserves) to arrive at shares issued/repurchased. The production or reserves are then divided by this adjusted share count to reach the debt-adjusted per share results.
RANGE RESOURCES CORPORATION (NYSE: RRC) is a leading independent oil and natural gas producer with operations focused in Appalachia and the southwest region of the United States. The Company pursues an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk, development drilling opportunities. The Company is headquartered in Fort Worth, Texas. More information about Range can be found at http://www.rangeresources.com/ and http://www.myrangeresources.com/.
Except for historical information, statements made in this release such as estimated future capital spending projections, estimated future finding and development costs, projected production targets, projected debt ratios, estimated costs to drill and complete in a development mode, estimated ultimate recovery, projected rates of return, estimated strip pricing, estimated net present value, estimated future ethane reserves, highest quality portfolio, low cost and repeatable inventory of projects and accelerated future growth are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and Range's future performance are subject to a wide range of business risks and uncertainties and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the volatility of oil and gas prices, the results of our hedging transactions, the costs and results of drilling and operations, the timing of production, mechanical and other inherent risks associated with oil and gas production, weather, the availability of drilling equipment, changes in interest rates, litigation, uncertainties about reserve estimates and environmental risks. Range undertakes no obligation to publicly update or revise any forward-looking statements. Further information on risks and uncertainties is available in Range's filings with the Securities and Exchange Commission ("SEC"), which are incorporated by reference.
The SEC permits oil and gas companies, in filings made with the SEC, to disclose proved reserves, which 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 as well as the option to disclose probable and possible reserves. Range has elected not to disclose the Company's probable and possible reserves in its filings with the SEC. Range uses certain broader terms such as "resource potential," or "unproved resource potential,""upside" and "EURs per well" or other descriptions of volumes of resources potentially recoverable through additional drilling or recovery techniques that may include probable and possible reserves as defined by the SEC's guidelines. Range has not attempted to distinguish probable and possible reserves from these broader classifications. The SEC's rules prohibit us from including in filings with the SEC these broader classifications of reserves. These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized. Unproved resource potential refers to Range's internal estimates of hydrocarbon quantities that may be potentially discovered through exploratory drilling or recovered with additional drilling or recovery techniques and have not been reviewed by independent engineers. Unproved resource potential does not constitute reserves within the meaning of the Society of Petroleum Engineer's Petroleum Resource Management System and does not include proved reserves. Area wide unproven, unrisked resource potential has not been fully risked by Range's management. "EUR," or estimated ultimate recovery, refers to our management's internal estimates of per well hydrocarbon quantities that may be potentially recovered from a hypothetical future well completed as a producer in the area. These quantities do not necessarily constitute or represent reserves within the meaning of the Society of Petroleum Engineer's Petroleum Resource Management System or the SEC's oil and natural gas disclosure rules. Our management estimated these EURs based on our previous operating experience in the given area and publicly available information relating to the operations of producers who are conducting operating in these areas. Actual quantities that may be ultimately recovered from Range's interests will differ substantially. Factors affecting ultimate recovery include the scope of Range's drilling program, which will be directly affected by the availability of capital, drilling and production costs, commodity prices, availability of drilling services and equipment, drilling results, lease expirations, transportation constraints, regulatory approvals, field spacing rules, recoveries of gas in place, length of horizontal laterals, actual drilling results, including geological and mechanical factors affecting recovery rates and other factors. Estimates of resource potential may change significantly as development of our resource plays provides additional data. In addition, our production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases. Investors are urged to consider closely the disclosure in our most recent Annual Report on Form 10-K, available from our website at www.rangeresources.com or by written request to 100 Throckmorton Street, Suite 1200, Fort Worth, Texas 76102. You can also obtain this Form 10-K by calling the SEC at 1-800-SEC-0330.
SOURCE: Range Resources Corporation
Main number: 817-870-2601
Rodney Waller, Senior Vice President
David Amend, Investor Relations Manager
Laith Sando, Senior Financial Analyst
Matt Pitzarella, Director of Corporate Communications
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