Interesting discussion, if RRC doesn't get some attention this year then I don't think it would happen going forward which is fine. Not as dire on pricing as you are-see second half demand increase and $4 mcf in Q4. The exec sales you mentioned were small and deferred comp related. The only potential merger that would interest me would be Cabot. NBL and APA would be good acquirers, note that the largest NBL shareholder at one time was the former Lomak/RRC CEO. Was surprised by the dip in nat gas yesterday with the large draw.
Hey Value, I recall reading some transcripts where RRC executives stated they will sell for the right price, the company does not have any anti takeover provisions and two institutions own 26% of the shares. I agree these institutional owners must be frustrated, as well as their investors, So are individual holders and RRC execs-makes potential take over more likely. I prefer it as a stand alone company, but now thinking take over potential real with this ridiculous share price. I thought it was cheap before the slide. Also have some of those $1 shares, and now our Chief Executive would like to tax those given to heirs. Seems we just got caught in an ugly cycle, not sure why it trades like oil. but today's foreign decision on QE policy made it more difficult for the sector. The RRC assets, especially acreage values are multiples of the share price, and some cash heavy company, can pull that value forward big time, when prices increase. Be an interesting year.
Yogue, We'll see a demand increase in the future. However, with the current stock price i.e. $8 billion market cap and $11 billion enterprise significantly below the value of RRC assets. I would be surprised if RRC does not get acquired before the demand situation changes. The best pure play in the Marcellus with stacked pays now significantly undervalued on an asset basis - imo its just a matter of time before it happens. A 50% slide in the stock price on RRC, its just too cheap and really a no brainer for a smart acquirer. You've been a shareholder as long as I have-have you ever seen the share price so low with proved reserves that do not include 400,000 plus Utica shale acres worth significantly more than the share price, the economies of scale from drilling its stacked pay locations, and the future cash flows from propane and ethane, all at a time when there is less drilling risk than at any time in the company history. I just don't see RRC being a stand alone company much longer, someone is going to take advantage of their 10 year Marcellus development-it is just what happens when the market over reacts to a commodity price decline.
Noted that Tudor Pickering made a significant change to natural gas forecast today forecasting sustained $4 gas by late 2015 rather than prior view of 2019. Meanwhile we should get some big storage withdrawals the next few weeks, but have to work through a weak first half 2015 for pricing.
Hang in there Cody, overall market down big even with nat gas up more than 8% today, we should see some good draws from storage. A lot of short positions in the E&P's will reverse as prices rebound, RRC is not as impacted by the oil decline and don't forget 77% of oil hedged over $90. Last time I looked crude was only 4% of proved reserves for RRC. Sell off for RRC way overdone.
Added shares today, had not done so for a long time, just too much value here if you can get past the energy selloff, negativity and talking heads on cnbc. Recent deals for unproven acreage is at least $7,000/acre-thus giving no value for proved acreage equates to $80 share for the 1.9 million equivalent Marcellus acreage. Doubling this acreage value would still be conservative and you still have to add in the other RRC plays. Still growing at 20-25% with unit costs continuing to decline, and you can now add in the Utica opportunity, the significant increase expected for proved reserves, the cash flow from ethane and propane where they have good contracts, solid hedge position- 55% of gas hedged at $4.13 and 75% of oil at $90, the capital savings where they drill in existing infrastructure areas and expected demand increases going forward- RRC also being one of the lowest cost producers. Was not surprised to see a significant sell off with the commodity declines-but there should not be such a disparity for this nat gas producer.
Not a fan of bust or immelt either, just too close to anti energy administration. Still don't understand lack of m&a activity in marcellus and utica with this decline, although some recent land deals. Most of RRC shares held by large institutions and they would sell for the right price. Tough environment now but RRC well hedged, low cost producer and will get a decent cash flow uplift from the propane and ethane sales. Should have some good draws the next few weeks.
Agreed and it doesn't have to be an oil giant acquirer, for the large oil companies, outside the gulf, there have not been signicant discovery of new large reserves. Then when you add in the international issues, the ability to discover new reserves and the costs it just seems like a no brainer to try and pick up huge domestic reserves with decades of growth. Exxon may have been early and paid a lot for xto, and they have their own timetable, but what better use for cash then companies like RRC and COG growing at 25% with the best acreage in the best gas field. Like I said I would like to see some companies with a lot of cash like Berkshire unload those stale companies like coke and ibm and move into this growth area. Also think it would be a good fit for GE. As we get through this weather demand period and get pipeline expansion these guys will have missed their opportunity. Always preferred RRC as a stand alone but surprised that we have not seen big deals in domestic nat gas area.
Agreed. These suits are ridiculous and why we need loser pays legislation. The DOJ needs to get this FCPA resolved they've been leaving Cobalt hanging for too long and I 'm with the CEO that it is without merit. Seems to me that Cobalt has been one of the most successful exploration companies, huge discoveries in the GOM and off W Africa-huge potential here with excellent mgt.
If I was Exxon or GE or Buffet I would write a 25B check and acquire Range and COG at these prices locking up the best stacked pay liquids rich acreage in southern pa and the best dry gas acreage in northern pa with decades of 20 to 25 % growth and rors at 100% with 4.00 gas with huge future demand and significant free cash flows coming. Something has to happen at these levels.
Chrxind, SWN leveraging spending $5.4B to acquire 443K acres on the Marcellus and Utica just confirms the staggering value of RRC acreage. SWN paying on average $7K acre, and substantially more when you back off non core acres. You can bet they were anxious to get that acreage close to the recently announced RRC 59 mmcd well. Importantly, the success in this area further derisks RRC acreage and the economics tells you why SWN acquiring outside the Fayetteville. These guys understand that demand will increase for nat gas with new power generation, exports and industrial growth taking advantage of nat gas availability. So SWN just paid $5.4B for 443K acres, while RRC already has more than 400K Utica acres already existing on their legacy acreage which, as we now know, is the core acreage-that's a lot of value for RRC shareholders. Sooner or later investors will figure it out.
I thought we would see much more upside after the Utica well announcement, has almost gone unnoticed, disappointing when all the potential is factored in. Now we wait for the reserve release in January. Clearly going to be a weather based 2015 as we wait for nat gas demand to pick up and pipeline expansion to other markets.
I'm sure for the right price but I would have to pay full price. Today TLM got bought for about the value of 3P reserves, a price that seemed high with 4.7 B in debt, weak energy prices and a portfolio that is too diverse. They don't have the growth rate or asset base of RRC. I prefer RRC as a stand alone company-they are just starting to reap the benefit from 10 years of capital spending in the Marcellus, and I'd like to see what what happens when they start generating a lot of free cash. Have to figure a company with such potential is a candidate for purchase. If I was Berkshire I'd unload IBM and Coke and take a look here.
Thought you were being conservative. The more I look at RRC I think a take out is more likely. Like you said, how many drillers can cut capex 29% and grow at 20-25% and now you have to factor in the Utica . RBC noted "the highest rate yet announced in the Utica play" in southwestern Pennsylvania. As such, the investment bank is increasing its net-asset value on RRC to $100/share from $88 and stock- price target a buck to $78. Imperial Capital notes the Utica well "could lead to making RRC the largest dry gas Utica acreage holder in the US in this potentially very-large play."
Your guess was a bit light-Utica came in at 59mmcf/d, a monster well with 400K acres. Hope investors are doing the math, huge impact on future reserves.
I think the post by fastball 98 is a better metric. Most analysts use EV/EBITDA rather than PE as it removes the effect of non cash transactions i.e depreciation, and allows more focus on cash flow, and allows for a better comparison of companies. I calculate a PE of about 24 if you use Sept 14 earnings of $2.27 per share. Today RRC EV/EBITDA is about 9.25 so its share price is about 5.5x, for comparison in June 2013 it was 13.6 x when the share price was about 78. Morningstar projects a16.4 ratio for 2015 using their model which gets you over $90 per share. They are growing production at 20-25% a year, a rate that results in doubling every 3-4 years, with unproved resources 8-10 x proved reserves, and they have only drilled abut 8% of locations. These reserve numbers are about to get substantially greater with the Utica play, 400,000 acres not factored into RRC value. So I disagree that RRC is overvalued. This is an opportunity to acquire a company down 40% off its high price. RRC has spent 10 years and billions of dollars after discovering and developing to the Marcellus. Why would you sell shares now when they have reached the point where essentially all of their acreage is now prospective, they will start generating significant amounts of free cash flow in 2016, and have less risk and more opportunity than at any time in the past. Don't allow yourself to get manipulated by funds that had big positions in over levered oil drillers, now forced to liquidate due to high yield financing. I agree with Fastball, $95 is a reasonable 2015 share price but I think it would take more than that to get a deal done. After 2015 it grows even faster with the free cash, the increased demand for nat gas and RRC ability to obtain pricing in numerous markets. BTW-RRC is on its way to becoming investment grade.
RRC is 90% natural gas. They have 55% of 2015 production hedged at$4,13, and 77% of oil at $90,57, and 50% of liquids hedged. Also starting next month will be receiving an additional .20 per gallon of propane as it will started shipping by pipeline. RRC has been trashed with all energy, but should be looked at based on its metrics. They also have achieved substantial cost reductions which, is in effect, another hedge on pricing. The Utica well could also provide significant upside. I agree with you about the oil price.
Yogue, no. Rrc has received two credit upgrades, has good hedges in place and a recently approved credit line. Looks to me- with the oil decline hedge funds, financial institutions and others sold everything energy related. When things settle investors will revisit energy and realize RRC was oversold for the reasons mentioned in several,posts.
Interesting-I wonder if one successful Utica well would be sufficient to increase proved reserves, RRC did say today there would be significant reserve growth. The RRC share price decline is really perplexing with nat gas prices up today and relatively strong. RRC says 55% of 2015 nat gas hedged at $4.13 and 77% of oil at $90.57 -hardly prices that would justify such a decline, especially with the upcoming Utica well and the upgrades they will receive from the propane pipeline next month which will increase the price by .20 gallon and the ethane exports starting mid year. Expected a decline with the oil price but never anything like this. I agree that the Utica well could be big with the geology and pressure they have talked about and, that flare video was encouraging. Something is causing this liquidation, but I don't think its company specific, seems like a lot of investors, perhaps financials with heavy energy exposure, need to raise cash or a combination of shorts. But ugly