Range Resources Corporation’s (RRC) second quarter 2012 production volume experienced an impressive 42% improvement from the year-earlier period, mainly on the back of sustained accomplishment from its drilling program.
The company’s second quarter production averaged 719.3 million cubic feet equivalent per day (MMcfe/d), comprising 80% natural gas, 14% natural gas liquids (NGLs) and 6% oil. NGL rose 20%, while its oil and natural gas production exceeded the guided range by 14% and 1% to increase 23% and 48%, respectively, on a year-over-year basis.
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 for the April-through-June quarter would have risen 51%.
For the second quarter, Range’s total price realization, on a preliminary basis (including the effects of hedges and derivative settlements) averaged $4.74 per Mcfe, down 26.3% year over year. The overall price comprised NGL at $42.30 per barrel, crude oil at $84.31 a barrel and natural gas at $3.66 per thousand cubic feet (Mcf).
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%. During the second half of 2012, Range Resources expects oil and NGLs production to grow owing to its shift to drilling in liquids-rich projects in the Marcellus and the horizontal Mississippian oil play.
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. At June 30, 2012, the company had approximately 80% of its expected 2012 natural gas production hedged at a weighted average floor of $4.18 per Mcf.
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).
The company retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
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