Range Resources Corporation (ticker: 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. Range Resources announced its net production is exceeding 1 Bcfe/d, a company record, in an operations update on December 17, 2013. Gross production in the Marcellus has surpassed 1 Bcfe/d as its wells outperform the type curve. As a result, Range is in line to reach the high-end of its growth production target of 20% to 25% for 2013. Management believes the new infrastructure in place for its ethane projects will allow growth to continue its 20% to 25% trend for the foreseeable future.
Range has averaged a 20% compounded yearly growth rate since it entered the Marcellus in 2004, when it was producing roughly 200 Mcfe/d. The compounded yearly growth rate has averaged 98% since addition of its cryogenic plant in 2008, when production was 350 Mcfe/d. Range has sustained the upward trend despite selling off roughly $2.3 billion in assets over the last decade.
Recent wells have targeted the super-rich region of the play. Seventeen wells were turned to sales in early 2013 and are producing 40% above the 2012 type curve of 1.32 MBOE. The wells have been online for more than 250 days and were drilled to an average lateral length of 3,532 feet.
An additional 22 wells were turned to sales in mid-2013 and are producing 74% above the type curve. The newer wells have been online for roughly 114 days and feature an average lateral length of 4,120 feet. Initial 24-hour production rates averaged 2,487 BOEPD (65% liquids assuming 80% ethane extraction). Due to the recent outperformance in regards to the curve, RRC expects its 2014 wells to hold a 1.82 MBOE type curve at an average drilling depth of 4,500 feet.
In its Q3’13 earnings release, RRC said another 196 wells will turn to sales just prior to year-end. Its exploitation of the Marcellus play has contributed to Pennsylvania becoming the fastest-growing natural gas-producing state, according to the EIA. Production from the state in 2012 grew 72% compared to 2011.
Mariner West Ethane Project
Range also announced its ethane transportation project to Sarnia, Canada, has become fully operational. The project’s starting point is in Houston, Pennsylvania; home to a MarkWest Partners (ticker: MWE) processing plant with de-ethanization capabilities. A similar plant was recently installed in Majorsville, West Virginia. RRC will flow all of its high BTU gas, which is expected to be 15,000 barrels of ethane per day (12,525 net), through the two facilities. Range is also scheduled to flow an additional 10,000 barrels of ethane per day (8,350 net) to the Gulf Coast through the Houston facility as part of the ATEX pipeline project. The number is expected to increase to 20,000 barrels of ethane per day (16,700 net) by 2015, and a 15-year contract is in place. Exports to the Northeast markets are also expected to commence mid-2014.
Once the three ethane projects are fully operational, Range can increase its gross Marcellus capacity to 1.8 Bcf/d.
Source: Range Resources
New fracturing stimulations in the Mississippian Chat have resulted in a total of six wells (93% WI) turned to sales, up from the four wells noted in Q3’13. Average 30-day production rate for the wells is 578 BOEPD (443 BOEPD net) with 74% liquids.
The Cline well in the Permian Basin was also recently turned to sales and had an initial production rate of 989 BOEPD (742 net BOEPD) with 60% oil. Range tested an Upper Wolfcamp well from the same property, which produced an initial rate of 1,096 BOEPD (822 net BOEPD) with 61% oil. In a company presentation on December 12, 2013, RRC said its Permian assets are for sale and the marketing process is underway. RRC holds roughly 100,000 net acres (91% held by production) in the region
Oil & Gas 360® compiled a few paragraphs from research analysts who wrote on Range Resources following the announcement. OAG360 suggests that you contact the analyst and/or salesperson to receive a complete copy of the report. Please read the important disclosures at the end of this note.
Wells Fargo Securities Note – (12.17.13)
RRC — Positive Ops Update
RRC provided an update on operations, which in addition to confirming it has reached the 1 Bcf/d production milestone, also included updates on well performance (Marcellus Super-Rich; Mississippian; Cline/Wolfcamp) and Mariner West / ATEX timeline. Although the headline of RRC’s release was effectively reiterating its prior Q4 production number, we think several other items were important.
Within the Super-Rich Marcellus section of the release, RRC stated that its 2012 vintage wells are demonstrating that outperformance (40% above 1.32 MMBoe type curve) is being driven by higher EURs rather than just an acceleration of production. As it has been mostly smaller operators willing to put forward this view, it is positive to hear a larger E&P point to rather than hint towards future EUR increases. RRC also disclosed it should be able to avoid future dry gas purchases due to blending requirements as a result of the successful commissioning of Mariner West. Starting January 1, the company expects to feed roughly 12.5 MBbl/d (net) of ethane production into the project. Additionally, the company confirmed the ATEX pipeline, which will provide RRC an additional 8.4 MBbl/d (net) of firm ethane takeaway capacity, started operations in December.
Finally, RRC also provided peak rates for its two Permian horizontals (Cline: 949 gross Boe/d, 85% liquids; Wolfcamp: 1,096 gross Boe/d, 80% liquids) and reiterated improved performance form larger fracs in the Mississippian. We think the solid Permian results could help pique interest as RRC markets their 90,000 acres (70,000 net). The Cline well was drilled further to the east of RRC’s prior activity and supports the company’s belief that all 90k gross acres are prospective for the Cline.
KLR Group Morning Brief – (12.17.13)
RRC ($80.17, H, $73) – Business Execution Tracking Expectations
Range announced today a production and ops update. The company has achieved total net production of ~1 Bcfepd, and Marcellus gross production of ~1 Bcfepd, in-line with our expectations. 22 super-rich wells (~4,100’ laterals, ~21 frac stages) turned to sales in 2H/13, at a minimum continue to track the company’s 1.8 Mmboe type curve (~60% liquids). Range expects to transport ~15,000 bpd (~12,525 bpd) of ethane through the Mariner West pipeline on Jan. 1, 2014, in-line with our expectation. The ATEX pipeline began operations this month. The company has secured rights to transport ~10,000 bpd (~8,350 bpd net) of ethane through the ATEX pipeline, increasing to ~20,000 bpd (~16,700 bpd net) after two years. Given weaker net-backs (~$0.145 per gallon tariff), ethane evacuation on the ATEX should be used as a secondary option. Recent Mississippian Chat wells have averaged ~580 Boepd (~74% liquids) over 30 days and should recover ~550 Mboe for a cost of $3+ million. A Cline and Upper Wolfcamp well commenced production at ± 1,000 Boepd (~60% oil) and should recover ~500 Mboe for a cost of ~$8 million. Range intends to market its ~70,000 net acres in the Permian Basin, with current production of ~5,000 Boepd (~62% liquids). Assuming a reasonable $60k per flowing boe production rate multiple and an anticipated sale price of ~$500 million, the transaction would equate to ~$3,000 per acre net of production. This announcement should have a neutral value impact.
Raymond James Equity Research Note – (12.17.13)
Range (RRC/$80.17/Market Perform) announces operations update. This morning, Range announced it reached 1 Bcfe/d of net production, a significant milestone, which is in line with our model and the company’s 20-25% growth target. Additionally, the 17 Super-rich Marcellus wells brought on-line in early 2013 are performing 40% above the 1.32 Mboe type curve, and 22 wells put on-line mid-year have performed 74% above the 1.32 Mboe type curve. Mariner West was also announced to be operational and will be flowing 15 Mb/d of ethane starting January 1, 2014 (expected), as well as ATEX, which will allow Range to transport 10 Mb/d of ethane to the Gulf Coast. Finally, Range announced positive results in its Permian operations (up for sale), with a Cline and Upper Wolfcamp well averaged ~1,000 boe/d peak rate (60% oil).
Johnson Rice & Co. Morning Energy Call – (12.18.13)
Range Resources Corp. (RRC – $80.17,OW rated): Sales Note: Long laterals drive improved results; Production reaches 1 Bcfe/d
With the Marcellus being the primary driver along the way, Range recently achieved a couple significant production milestones…1 Bcfe/d net corporate production and 1 Bcfe/d gross Marcellus production. In the super-rich Marcellus, production history from recent wells and the drilling of longer laterals point to another likely increase in its 1.82 mmboe type curve and represent the drivers behind its expected 20%-25% growth for the foreseeable future. With both Mariner West and ATEX now operational and increased de-ethanization capacity, Range is accessing ethane markets while eliminating the need to purchase market gas to meet pipeline spec. With strong operational results, improving costs and higher natural gas prices, Range remains a preferred investment opportunity.
Capital One Securities Morning Energy Summary – (12.17.13)
Positive. Update includes several recent operational accomplishments. First, RRC has reached the 1.0 Bcfe/d milestone for both net company-wide production as well as gross Marcellus production, which keeps RRC on track to achieve the high end of the 20% – 25% range for 2013 production growth. Marcellus production growth has been a whopping 96% CAGR in the last 5 years. Second, YTD Marcellus super-rich wells continue to significantly outperform the original type curve, and leading-edge wells look to be in line w/ mgmt’s recently-increased type curve. The 17 wells that were drilled in ‘12 and turned to sales in early ’13 are consistently producing ~40% above the original 1.32 MMboe type curve at YE12, and RRC brought another 22 wells (with longer laterals of 4,120 ft and 21 frac stages vs original 18-stage design) online during mid 2013. These are producing ~74% above the original type curve, with avg 24-hr IP rates of 2,487 boe/d (65% liquids). These leading-edge wells look to be in line with RRC’s recently increased 1.82 MMboe type curve, which we are currently assuming in our model. Third, RRC brought the Mariner West ethane pipeline to fully operational status, and operations began this month at the ATEX ethane pipeline. Fourth, RRC is seeing encouraging results in the Mississippian Chat when utilizing a larger frac design. In addition to the four wells previously disclosed, two more wells were brought online and the results from the six wells continue to significantly exceed earlier wells, with avg 30-day rates of 578 boe/d w/ a 74% liquids cut. Finally, RRC reported two solid wells on its Conger properties, which are in the process of being sold. An upper Wolfcamp well had a 24-hr IP rate of 1,096 boe/d (61% oil and 80% total liquids) and a Cline well had a 24-hr rate of 989 boe/d (60% oil and 85% total liquids). No change to our $99 NAV or our 2013 estimates, as we are already assuming 25% production growth, which is at the high end of mgmt’s targeted range.
Baird Energy Daily Dirt – (12.17.13)
RRC provides operations update, surpasses 1Bcfe/d in net production – Positive. Range Resources announced today that the company has surpassed 1Bcfe/d in both net corporate and gross Marcellus production. RRC reiterated 2013 production guidance at the high end of its stated 20-25% growth target range. In the Marcellus, RRC announced that the 17 super-rich wells turned to sales in early-2013 and 22 super-rich wells turned to sales in mid-2013 continue to exceed expectations. The 17 wells from early-2013 are performing 40% above the company’s previous 1.32 MMboe type curve, while the 22 wells from mid-2013 are performing 74% above the 1.32 MMboe type curve. Recall super-rich wells drilled in 2014 are expected to have an average 4,500’ lateral and 22 frac stages with projected EURs of 1.82 MMboe. RRC also announced the Mariner West ethane project is fully operational, and Range expects to be flowing 15,000 (12,525 net) bbls/d of ethane to Sarnia on January 1, 2014. The ATEX pipeline project commenced operations in December, and Range has the right to transport 10,000 (8,350 net) bbls/d to Mont Belvieu via the pipeline for the next two years, rising to 20,000 (16,700 net) bbls/d for the following thirteen years. In the Mississippian, RRC announced that two additional wells came online utilizing the larger frac stimulations that RRC has been testing. The six wells drilled using the new technique had an average 30-day IP rate of 578 boe/d and 74% liquids. In the Permian, RRC turned to sales a Cline well located on the company’s Conger leasehold. The well had a 24-hour IP rate of 989 boe/d with 60% oil and 85% liquids. The well was drilled with a 6,582’ lateral and 27 frac stages. RRC also tested an Upper Wolfcamp well with an IP rate of 1,096 boe/d with 61% oil and 80% liquids from a 6,406’ lateral with 26 frac stages. Recall RRC is currently marketing its Permian asset. We view this ops update as a positive given solid production growth profile and positive well results from both the Miss and the Permian, the super-rich wells also likely have positive implications for YE2013 reserves with their outperformance. Maintain Outperform.
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