An initial examination of the operational numbers for this Q shows how the only thing holding up RRC is a prospective takeover or hope for MUCH higher NG prices...take a look for yourselves as numbers don't lie. Look at the statement of operations for the quarter:
70m$ in revenue from hedging...
take that out and RRC LOST 15m$ this quarter. It was a quarter in which RRC saw average NG prices in the 4.25 to 4.5 range. NG pricing is now averaging in the 3.8 range so far this quarter. Without their hedges they are toast. Forward strip peaks in the high 4s out to 2014.
Add up costs for the report:
During the third quarter of 2011, Range continued to lower its cost structure. On a unit of production basis the Company’s five largest cost categories fell by 9% in aggregate compared to the prior-year period with each of the five components showing meaningful improvements. Direct operating expenses dropped 20% to $0.58 per mcfe, production tax expense decreased 23% to $0.15 per mcfe, general and administrative expense fell 12% to $0.53 per mcfe, interest expense declined 5% to $0.69 per mcfe and depreciation, depletion and amortization expense decreased 4% to $1.89 per mcfe.
This means their cash break even is around 2$ and they need $3.84 to actually "make a profit". Current NG pricing is 3.74...good thing they have hedges.
If you are a bull and an investor you better hope there's a buyout soon. My guess is heging opportunities continue to fall off in the out years as the market has realized the US NG supply available for cheap production. The CHK report will be interesting as I view CHK as having far superior long-term assets to RRC with perhaps an inferior balance sheet.
Any aquiring company realizes these facts and understands they are buying North American NG exposure if they buy RRC. Note the last aquisition was BEXP which was US crude exposure. I posted earlier that if you valued RRC's assets (all of them) at BEXP pricing RRC is trading at acquisition value or perhaps above right now (based on BEXP aquisition). BEXP's assets are FAR superior to RRC's. IMHO the only thing saving RRC is they have prehaps the best pure NG assets in North America...the problem is I don't thing NG assets are worth a fraction of what they are being priced at.
Excellent analysis, but does it go far enough? Isn't RRC really a bet on the future? They sit on what is called the second-largest gas play in a world in which energy costs are rising (no, I don't buy the "peak oil" theory) while this country imports energy and fritters away money on green energy that won't be economic for decades.
I see RRC as a bet that we'll learn to use our own best energy supplies before long. Demand for, and prices for, nat gas will then go up. Profitability in the short term is certainly a plus, better than many early-stage businesses, but the long-term prospects are more important.
velocity-ca: You make some good cautionary points on the RRC numbers, given the stocks's current extremely high selling price. But where you go off base in my view is to call RRC a pure NG play, and to call CHK's acreage far superior. This underestimates the quantity and quality of the wet hydrocarbons in Range's SW PA Marcellus acreage, not to mention their extensive wet Upper Devonian acreage which overlaps their Marcellus holdings.
Not surprisingly, Range, as the discoverer of the MArcellus in SW PA in 2004, got there first and got in cheap for much of the best acreage. RRC dominates all other companies in the quality and quality of their holdings in Washington County. And in the superior quality of RRC's local drilling and geological knowledge and experience.
I would agree that CHK has superior dry gas acreage in NE and NC PA, but this goes against your point that RRC is more of a pure NG player than CHK. CHK's Ohio wet Utica holdings are still largely unproven in my eyes.
As a local SW PA landowner who has followed the leasing and production activity in our area very closely for the last 5 years, those are my 2 cents.
Very cogent argument. There is a merger premium in the stock. However people are willing to pay it not only because it might be bought out, but also because of the long term value of their assets and good execution. I have been surprised by the sustainability of the premium given the fading merger noise, but its continued existence is based on rational analysis by longer term investors. Let the short term trades argue all they want. I have no patience for the noise.
I would refute everything you say by pointing out that they are THE low cost producer of gas. Low prices cure low prices always have and always will. Conventional gas drilling is almost 0. Haynesville drilling to hold acreage by production is almost 0. Gas demand is increasing. Gas prices will be north of $5 by the middle of 2012.
I also do believe the stock is pricey here, barring an aquisition but to insinuate that the company is secularly challenged is nothing more than an admittance on your part that you really don't get the size and scale of their opportunity in the Marcellus.
Equities research analysts at Stifel Nicolaus raised their price target on shares of Range Resources (NYSE: RRC) from $75.00 to $90.00 in a research issued note to investors on Wednesday. They currently have a “buy” rating on the company’s shares.
Separately, analysts at Ladenburg Thalmann raised their price target on shares of Range Resources to $84.00 in a research note to investors on Tuesday. Analysts at FBR Capital (NASDAQ: FBCM) raised their price target on shares of Range Resources from $70.00 to $75.00 in a research note to investors on Friday, October 14th. They now have a “market perform” rating on the stock.