Why midstream names are bullish on the Marcellus Shale gas play (Part 2 of 6)
Range Resources: Overview
Range Resources Corporation (RRC) is an oil and natural gas producer, primarily engaged in the exploration and development of natural gas. RRC is considered to be the pioneering company to initiate development at the Marcellus Shale in 2005. The company has been operating a lucrative position since then, growing its resources in the shale, and it currently possesses nearly 1 million net acres, of which approximately 530,000 net acres are in the southern portion of the play.
Due to higher volumes of natural gas liquids that generate higher revenues, given current prices, the southern part is more profitable than the northern part of the shale. This further enhances Range’s production. The company has been able to generate an internal rate of return of almost 105% from the wells in the southern part.
Production in 2013
Despite the fluctuating price of natural gas, RRC has increased its production capacity in the Marcellus Shale by 20% annually since 2006 and surpassed the 1 Bcf/d (billion cubic feet per day) gross milestone in December 2013. Plus, Range has started marketing the ethane extracted while processing natural gas. Contracts are already in place to move a total of 75,000 barrels of ethane per day to three LNG hubs across North America. RRC believes this will enable the company to produce 3 Bcf/d in 2014.
The Marcellus Shale formation accounted for the bulk of Range’s fourth-quarter production of 760 mmcf/d (million cubic feet per day) of gas. Going forward, given the technical improvements, Range Resources expects that the resource potential in the Marcellus Shale could be as much as eight to ten times its proven reserves.
Capital spending in 2014
Range has set its 2014 capital spending budget at $1.52 billion, 87% of which will be spent in the Marcellus alone, as the company plans to further increase its production in 2014. The capital budget includes approximately $1.19 billion for drilling and re-completions, $210 million for leasehold and renewals, $85 million for pipelines and facilities, and $35 million for seismic. Range projects that the 2014 capital budget will generate 20% to 25% year-over-year production growth.
By focusing on a single area, Range Resources has made several improvements to its business, such as a large pipeline project and acquisitions. This has enabled the company to remain one of the region’s major players. So, as long as the Marcellus Shale continues to perform well, Range Resources will be well positioned to capitalize on the available growth opportunities there.
Other major oil and gas producers that could capitalize on growth opportunities in the Marcellus Shale are Chesapeake Energy (CHK), Cabot Oil and Gas Production Co. (COG), Chevron Corporation (CVX), and Anadarko E&P (APC). All these companies are a part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
To learn about major midstream names benefitting from the Marcellus Shale, continue to the following part of this series.
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