Range Resources Corporation (RRC) has set its capital budget for the next year at $1.3 billion, which is nearly 19% less year over year. The independent oil and natural gas producer also announced an asset sale program that will facilitate the spending budget.
Fort Worth, Texas-based Range Resources’ 2013 budget comprises about $1.1 billion for drilling and recompletions, $100 million for leasehold and renewals, $75 million for pipelines and facilities, and $25 million for seismic. The company’s 2012 capital spending plan is $1.6 billion.
The company aims to spend approximately 85% of the budget toward oil and liquids-rich projects mostly in the Marcellus Shale and Horizontal Mississippian plays that have a combined acreage of about 500,000. Range Resources indicated that these ventures are relatively more profitable as they have the highest estimated rates of return.
During the third quarter, total production experienced a 47% improvement from the year-earlier period, mainly on the back of sustained accomplishments from the company’s drilling programs in the Marcellus and horizontal Mississippian oil plays. For 2013, Range Resources expects to deliver 20–25% annualized production growth with its focus on liquid-rich opportunities.
Range Resources plans to fund next year’s capital spending budget from operating cash flow, proceeds from asset sales and existing liquidity under its credit facility. The properties to be sold involve some of its Permian Basin properties in southeast New Mexico and West Texas. The properties currently produce 18 million cubic feet equivalent million cubic feet equivalent per day of oil and gas.
The timid gas price environment enforced the company to reduce its exposure to natural gas drilling. Range Resources highlighted that it will trim dry gas drilling activity, mostly in northeastern Pennsylvania, where it intends to lessen its activity from four to five rigs in 2012 to one rig in 2013.
With a leading acreage position in the Appalachian Basin, Range Resources’ operations remain largely geared toward accelerating production while maintaining a low-cost structure. Its increasing focus on liquids (like Marcellus, Upper Devonian, wet Utica, Mississippian, and Cline oil shale) and divestitures of higher cost assets will also aid the company to further streamline its overall cost structure.
We appreciate the company’s initiative of deploying more funds toward liquids, a trend common even among its peers, ConocoPhillips (COP) and Chesapeake Energy Corp. (CHK).
However, with 79% of Range Resources’ reserves tilted toward natural gas, its results are still vulnerable to fluctuations in natural gas markets. Hence, we maintain our long-term Neutral recommendation for the company, which retains a Zacks #3 Rank (short-term Hold rating).
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