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Range Resources On Target For Production Growth

Posted: Jan 14, 2009 09:34 AM by Eric Fox

Tickers in this Article: EQT, CXG, DVN, RRC

The sell off in the shares of Range Resources (NYSE:RRC) may represent an opportunity to invest in a rapidly developing shale play in the Northeast with major future potential once the economy recovers.

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Range Resources is an oil and gas exploration and production company with operations in Texas, Oklahoma, the Gulf Coast and Appalachia. The company had 2.2 trillion cubic feet equivalent (Tcfe) of proved reserves at the end of 2007, 82% of which were natural gas, and an 18-year reserve life. The company also had 2.7 million acres under lease with more than 11,000 possible drilling locations. Range is targeting 15-20% production growth in 2009. (For more insight into evaluating this industry, check out The Industry Handbook: The Oil Services Industry.)

Range hit a high of $76.61 in July 2008 and, like other companies in the sector, has seen its share price cut in half due to investor concern about commodity prices and access to credit. However, the company has enough drilling inventory that it can still drill economically when commodity prices are lower, so investors need not fear a credit crisis at this company.

Marcellus Shale
The company is focused on three growth areas: the Marcellus Shale, the Nora Field and the Barnett Shale.

Range has 900,000 acres under net lease in what is known as the fairway area of the Marcellus Shale. The company estimates its net unrisked resource potential to be to 15 to 22 Tcfe, and has drilled 27 horizontal wells so far in an effort to develop its acreage. Range is currently developing its southwest acreage, because this is where the company first started in the field in 2004. The southwest also has a less rugged terrain, and more infrastructure to take away and process the natural gas in the field.

The industry is excited about the Marcellus Shale as a future growth area. The total size of the shale is 63 million acres compared to only 2 million acres in the Barnett area, although the development potential of most of the 63 million acres in the Marcellus is unknown. CNX Gas Corp (NYSE:CXG) recently completed a well in this area, and reported that the well was producing at a rate of 6.5 million cubic feet per day (mmcf).

Nora Field
The Nora Field is located in Southwestern Virginia, and Range has 300,000 acres under lease. It is developing this field with Equitable Resources (NYSE:EQT), another large acreage holder in the area. The Nora field currently produces coal bed methane (a form of natural gas) at fairly shallow depths of between 1,000 and 2,500 feet. Range is planning to develop the coal bed methane production further, and is also targeting deeper depths, where it believes there are significant amounts of shale gas. Range estimates the number of potential drilling sites here to be about 6,000.

Barnett Shale
Range has 103,000 acres under net lease in the Barnett Shale with 42,000 acres in the "core" areas of Tarrant and Denton county. Range has five rigs running in this area., and 700 locations in the core area. The location of the acreage is important because the field covers 15 counties in Texas, and shale gas is not uniformly present or economical in all areas. The Shale gas is located at depths of between 6,500 and 8,500 feet. The Barnett Shale was first developed by Devon Energy (NYSE:DVN) after it purchased Mitchell Energy back in 2001.

Low-Cost Producer
Range is one of the lowest cost producers in the industry. A study done by Bank of America said that in 2007, the company would break even at NYMEX natural gas price of $4.50 per Mcfe. This is especially important in an environment of falling commodity prices because many of Range's peers won't be able to drill economically and will suffer from lack of production growth during the downturn.

The Bottom Line
Investors who want to invest in the Marcellus Shale play should take a look at Range Resources, a large acreage holder in this rapidly developing area that dwarfs the size of the Barnett Shale and may yet prove even more prolific. Range has plenty of economically viable inventory to drill, even at lower commodity prices. The company is not a one-trick pony; it also has other core areas that investors can bank on to produce profits. (Analyzing oil and gas exploration and production (E&P) stocks can be overwhelming for those without an oil and gas industry background. To learn more, see Unearth Profits In Oil Exploration And Production.)

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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