We maintained our recommendation on Range Resources Corporation ( RRC) at Neutral on Jan 15, 2014. The company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
Range Resources continues to focus on five liquid-rich plays that include the super-rich Marcellus, the super-rich Upper Devonian, the wet Utica, the horizontal Mississippian and the Cline Oil shale play to drive its liquids production. Its primary activity is centered on the super-rich area of southwestern Pennsylvania.
For 2013, Range Resources expects to deliver 20–25% annualized production growth with its focus on liquid-rich opportunities mostly in the Marcellus Shale and Horizontal Mississippian plays that have a combined acreage of about 500,000.
Range Resources has a track record of growing production at a double-digit rate while reducing its finding and development costs and sustaining an industry leading low-cost structure. This can be attributed to increased production from the low-cost Marcellus region. Additionally, the sale of more expensive assets, like Ohio properties in 2010 and Barnett in the first half of 2011, further reduced the company’s overall costs. The company recently disclosed that it aims to sell its acreage in the Permian Basin properties in southeast New Mexico and West Texas. The properties currently produce 18 million cubic feet equivalent per day of oil and gas.
We have seen no earnings momentum for the stock over the last 7 days for the fourth quarter of 2013. The Zacks Consensus Estimate for the quarter is currently pegged at $0.31 per share, reflecting a year-over-year decrease of 32.6%.
The company also inked two additional ethane transportation agreements – ATEX and Mariner East – which are likely to be beneficial in the long run. Given its dominant position in the Marcellus Shale play and its continuous endeavor to control costs, we believe that Range Resources will be capable of long-term shareholder value creation.
On the flip side, as a company operating in the oil and gas industry, Range Resources, remains susceptible to volatile natural gas prices, an imbalance between supply and demand for products, and rising interest rates. The company’s 2012 total reserve comprises 77% natural gas. Such factors could hurt the company’s volumes and margins.
The company’s prospects are closely linked to the successful completion of its growth projects, which in turn, might be adversely affected by operational hindrances, cost inflation, and overruns and delays in completion.
Moreover, failure on part of management to form beneficial partnerships or dispose low-profit generating assets will likely impair the company’s growth rate and capital expenditure programs.
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