Range Resources Corporation’s (RRC) first quarter 2012 production volume experienced a 20% improvement from the year-earlier period, mainly on the back of sustained accomplishment from the company’s drilling program.
The company’s first quarter production averaged 655.5 million cubic feet equivalent per day (MMcfe/d), comprising 78% natural gas, 16% natural gas liquids (NGLs) and 6% oil. Oil production expanded 36%, NGL rose 20% and natural-gas production increased 19% on a year-over-year basis. Range’s high liquid-rich spending level was responsible for the relative increase in oil and natural-gas liquids production.
In April last year, Range sold all of its 52,000 acre Barnett Shale properties for $900 million in order to focus on its Marcellus Shale assets. Excluding the impact of the sale, production would have risen 50%.
For the first quarter, Range’s total price realization, on a preliminary basis (including the effects of hedges and derivative settlements) averaged $5.19 per Mcfe, down 14% year over year. The overall price comprised NGL at $46.20 per barrel, crude oil at $83.54 a barrel and natural gas at $4.01 per Mcf.
In February, Pennsylvania imposed stringent regulations and charges for natural gas drilling after drillers were blamed for the contamination of local water supplies. The new law entails a flat annual impact fee on shale gas producers. Hence, in the first quarter of 2012, Range Resources expects company-wide production taxes of $13.6 million in total. Additionally, the company will also witness a one-time expense of about $24 million in the upcoming quarter, based on the required payment for wells drilled last year and in the previous years.
Range Resources displays a diversified high-quality asset base across the low-risk/long-reserve Appalachian assets and large-volume/rapid-payout Gulf Coast properties. Given a dominant presence in the Marcellus Shale play, we believe that the large acreage holdings will support several years of oil and gas drilling in the fast-growing fields. The company remains well on track to reach its 2012 production growth target of 30% to 35%.
The company is seeking to ramp up the output of NGLs (such as ethane, propane and butane) and oil, which are better price takers than natural gas. In a low natural gas price environment, Range Resources’ record production, declining unit costs and the sale of non-core properties will be beneficial over time.
However, considering the company’s exposure to volatile natural gas fundamentals, interest rate risks and the uncertain macro backdrop, we maintain our long-term Neutral recommendation. Headquartered in Fort Worth, Texas, Range Resources competes with EQT Corporation (EQT), SM Energy Company (SM) and Ultra Petroleum Corp. (UPL).Read the Full Research Report on RRC
More From Zacks.com