Current RRC Stock Info

Approximately 80% of 2018 capital is projected to be spent in the Marcellus, generating greater than 25% growth

Range Resources Corporation (ticker: RRC) announced a 2018 capital budget of $941 million, which is below anticipated 2018 cash flow at current strip prices and generates annual production growth of approximately 11%.

Additionally, Range announced a five-year outlook from 2018 through 2022 that generates cumulative free cash flow of approximately $1 billion and reduces leverage to below 2x net debt to EBITDAX by year-end 2022, assuming no asset sales.

Range Resources Releases 2018 CapEx, Proved Reserves Update

Range Resources Overview, Jan. 2018

Capital spending

Cash flow generated from asset sales or an increase in commodity prices would be expected to be used to pay down debt in 2018, Range said in a press release.  Approximately 80% of 2018 capital is projected to be spent in the Marcellus, generating greater than 25% growth from Range’s southwest Marcellus assets and full utilization of transportation capacity out of Appalachia by the end of the year.

To support the 2018 capital program, the company has also increased its hedge position, with approximately 70% of expected 2018 natural gas production currently hedged at an average price of $3.09.

Range Resources Releases 2018 CapEx, Proved Reserves Update

Range Resources Marcellus Inventory Map, Jan. 2018

Capital spending for 2017 was approximately $1.27 billion, approximately 10% above the planned $1.15 billion budget.  In North Louisiana, the increase was primarily driven by higher capital spending in the expansion area, higher than expected costs on wells completed in the second half of 2017 and on wells drilled but not completed in 2017, Range said.

The increase was also driven by higher spending in the Marcellus, where well results have been strong and new transportation capacity agreements are on-line or expected to be on-line in early 2018

Five-year outlook

Range’s current five-year outlook would deliver an annual production CAGR of approximately 13% on a debt-adjusted per share basis while generating approximately $1 billion of cumulative free cash flow, at strip pricing.

Any proceeds from assets sales are expected to be used for debt reduction.  According to the company, margin improvement is expected due to improved access to better markets and a continued improvement in the company’s cost structure through utilization of existing infrastructure and lower interest expense.

The five-year outlook assumes all production growth is from Range’s Marcellus inventory, while North Louisiana production is held roughly flat from year-end 2018 through the remainder of the plan.  At the end of the five-year outlook, Range would still have over 3,200 locations in the core of the Marcellus alone.

Range Resources CEO Jeff Ventura said, “We have entered a new era of shale development where companies that captured the most prolific resources have the ability to generate better returns for shareholders.

“For Range, the flagship asset and growth driver of the company will continue to be our large, high-quality, de-risked inventory in southwest Pennsylvania.  As demonstrated in our five-year outlook, the quality of our assets allows Range to improve corporate returns and our leverage profile in the near-term, while generating competitive growth of production and reserves on a debt-adjusted per share basis.

“Looking beyond the five-year outlook, as the industry exhausts its core inventory, we believe Range will be well-positioned with a long runway of high-quality drilling locations from which we can drive long-term value.”

Proved reserves update

Commenting on Range’s 2017 proved reserves, Ventura said, “Range had another solid year of reserve growth, with impressive drill-bit finding costs of only $0.31 per Mcfe.  Performance revisions are included, but revisions from increased prices are excluded.  Positive performance revisions continued in 2017 as we extended laterals, improved targeting and drove efficiencies throughout our developed leasehold and infrastructure.

“Future development costs for proven undeveloped locations are estimated to be $0.38 per Mcfe, which should improve our top-tier unhedged recycle ratio to over 3x.  Range added a record 3.5 Tcfe to proved reserves from extensions, discoveries and additions, driven primarily by our large inventory of low-risk, high-return projects in the Marcellus Shale.

“Looking forward, we see capital efficiency gains continuing as we drive down normalized well costs with longer laterals and drilling on existing pads, while enhancing recoveries with improved targeting and completions.  Similar to previous years, this strong reserve growth reflects high quality acreage, as less than one-third of our offset proven undeveloped locations are currently recorded for each horizontal producing well.

“We believe this will provide consistent SEC reserve growth over time as additional acreage is classified as proven and capital is allocated to offset locations.  Our economic resilience is further demonstrated in the year-end PV10 reserve value of $9.5 billion using futures strip pricing from year-end and current sales contracts.  With 55% of SEC reserves being proved developed (PD), our PD reserve life and debt per PD reserve ratios remain exceptionally strong,” Ventura said.

(in Bcfe)
Balance at December 31, 2016  12,072
  Extensions, discoveries and additions   3,488
  Purchases    10
  Performance revisions:
  PUD improved recovery   597
  Field performance 531
  Total performance revisions    1,128
  Reclassification of PUD to unproved under SEC 5-year rule (668 )
  Price revisions  46
  Sales of proved reserves  (81 )
  Estimated production  (733 )
Balance at December 31, 2017  15,262

During 2017, Range added 3.5 Tcfe of proved reserves through the drill-bit, driven by 3.2 Tcfe from the company’s Marcellus development.  The extensions, discoveries and additions amount excludes 597 Bcfe of Marcellus reserves associated with undrilled locations that now have increased recovery estimates as a result of longer laterals, better lateral targeting and increased frac stages, the company said.

This improved recovery estimate is included in the revision category.  The average lateral length for existing proved undeveloped locations increased to approximately 9,000 feet in the 2017 report from 7,162 feet in the 2016 report, while newly added proved undeveloped locations in the Marcellus incorporate an average lateral length of approximately 9,500 feet.

Field level performance increased reserves by 531 Bcfe due primarily to the continued improvement in the well performance of existing Marcellus producing wells.  As a result of Range’s success in drilling longer laterals, the future development plan has been re-optimized resulting in some previously planned wells not being drilled within five years from their original booking date, the company said.

To reflect this, Range removed 668 Bcfe of proved undeveloped reserves that now fall outside the SEC mandated five-year development window.  The company expects these proved undeveloped reserves to be added back in future years as field development continues.

According to Range Resources, the wells that remain have longer laterals, greater estimated ultimate recoveries (EURs) and lower per foot drilling and completion costs resulting in improved economics.  The resulting corporate proved undeveloped development cost of $0.38 per Mcfe is a conservative estimate, based on 2017 well costs, EURs and lateral lengths, assuming no future efficiencies, Range Resources said.  The higher SEC price for 2017 as compared to 2016 resulted in an upward pricing revision in proved reserve volumes of 46 Bcfe.

Year-end 2017 proved reserves by volume were 67% natural gas, 30% natural gas liquids and 3% crude oil and condensate.  Proved developed reserves represent 55% of the company’s reserves.  The company’s Appalachia reserves were audited by Wright & Company, Inc. and North Louisiana reserves were audited by Netherland, Sewell & Associates, Inc.  The audited reserve value estimates for each area were within 3% of aggregate estimates prepared by Range’s petroleum engineering staff.

Summary of Changes in Proved Reserves by Category for 2017
Total Proved
(Bcfe) (Bcfe) (Bcfe)
Proved Reserves 12/31/16 6,770 5,302 12,072
Extensions, discoveries and additions 314 3,174 3,488
Purchases 5 5 10
PUDs drilled 1,862 (1,862 )
Performance revisions 156 972 1,128
5-year rule PUDs reclassified (668 ) (668 )
Pricing revisions 46 46
Sales of reserves (72 ) (9 ) (81 )
Estimated production (733 ) (733 )
Proved Reserves 12/31/17 8,348 6,914 15,262

Percent by Category

55 % 45 % 100 %
Increase in Reserves by Category 23 % 30 % ` 26 %

Q4 production

Company production in fourth quarter 2017 is expected to be 2.17 Bcfe per day, level with previous guidance, Range Resources said in a recent press release.  Marcellus production is expected to be 1.80 Bcfe per day, approximately 27% higher than a year ago, driven by results in the Marcellus, particularly in the company’s super-rich area.

North Louisiana volume is expected to be 350 Mmcfe per day for fourth quarter 2017.  The North Louisiana division saw productivity improvements in the fourth quarter well results compared to the first half of 2017 as a result of larger, higher cost completions.

Core drilling inventory

Range has an extensive stacked-pay acreage position in both Appalachia and North Louisiana and the company also has a network of over 200 existing well pads.  According to the company, these pads are designed to accommodate an average of 20 wells from any combination of the Marcellus, Utica or Upper Devonian horizons.

Range Resources Releases 2018 CapEx, Proved Reserves Update

Range Resources Appalachia Assets, Jan. 2018

Range Resources said that most pads currently contain only 4-6 producing wells, giving the company the opportunity to drill thousands of future wells utilizing existing roads, pads and infrastructure.

The table below reflects Range’s estimate of the remaining core drilling inventory for the Marcellus and Lower Cotton Valley.  The total inventory count is based on thousands of historical producing wells and a vast collection of geological information that support the company’s estimates.

Estimated Future Core Drilling Locations – December 31, 2017
(Excludes Deep Utica and Upper Devonian Locations)


Net Acres

Average Lateral
Marcellus- SW- Liquids areas 335,000 10,000 ft. 2,700
Marcellus- SW-Dry area 170,000 10,000 ft. 800
Marcellus- NE 90,000 10,000 ft. 300
Lower Cotton Valley 205,000 7,500 ft. 600
  Total 800,000   4,400


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