Range Resources Corporation, Company Intelligence Report

Thursday 19 July 2012, Amsterdam

Strongly Positioned in Marcellus to Map Long-term Production Growth
The Marcellus shale is one of the most progressive unconventional gas shales in the US. The shale is located in some of the most prosperous states of the US, close to the major natural gas consuming markets in the US, which provides it with an edge over other developing gas plays in the country. Furthermore, it is estimated that there is around 4,359tcf of natural gas under the Marcellus shale play, and from this, around 262tcf of natural gas is recoverable. As a result, several oil and gas companies are undertaking investments on a large scale in this shale in order to drive their future production growth. The table details the key characteristics of the Marcellus shale.

Range Resources is one of the major companies operating in this shale. The company has been continuously developing and capturing Marcellus Shale potential since 2004. The company reported large investments in last three years to accelerate its Marcellus shale operations. In 2011, the company drilled 142.6 net development wells and 24.1 net exploratory wells in the Marcellus Shale. Furthermore, the company reported around 626 proven drilling locations in the shale in 2011. The company’s production from the shale increased by 88.6% in 2011 compared to 2010 primarily due to aggressive development activities. The company’s production from this shale in 2009, 2010 and 2011 was 20,969 MMcfe, 55,802 MMcfe and 105,264 MMcfe, respectively. The contribution of this shale in the Range Resources’ total production increased from around 3.7% in 2008 to 55.7% in 2011, demonstrating the increasing importance of the shale in the company’s production growth. Additionally, the company planned to drill 177 wells in the shale in 2012 and allocated 86% of its 2012 capex for the development of this shale. The company estimates a resource potential of 24-32tcfe. Range Resources expects the operations in the Marcellus Shale to become cash-flow positive and self-funding by 2013. According to this report estimates, the company’s production from the shale are expected to increase from 17.5 MMboe in 2011 to 94.4 MMboe in 2016, increasing at a CAGR of 40.0% during 2011–2016. It is also estimated that the contribution of the shale in the company’s total production is expected to increase from around 55.7% in 2011 to around 81.0% in 2016. The figure below shows the production forecast in the Marcellus shale and its contribution to the company’s total production during 2012–2016.

Apart from Range Resources, there are several other oil and gas companies operating in this shale. The figure below shows the comparative position of Range Resources against other companies operating in this area. The several parameters considered in this comparative analysis are net acreage, proved oil and gas reserves, total production, number of operated rigs, cost per well, and Estimated Ultimate Recovery (EUR) per well. The various companies along with Range Resources included in this analysis are Chesapeake Energy Corporation, CONSOL Energy Inc., National Fuel Gas Company, Exxon Mobil Corporation, Chevron Corporation, Statoil ASA, Talisman Energy Inc. and others. According to the analysis, Range Resources outperforms its peers in most parameters. In 2011, the company owned a net acreage of around 790,000 acres in the shale, which is the third highest after Chesapeake Energy and Royal Dutch Shell Plc. Other major players in the Marcellus shale in terms of net acreage were National Fuel Gas Company, Chevron Corporation and Statoil ASA. In 2010, Range Resources had a net production of 350.0 MMcfe per day (/d), which was higher than other companies such as Ultra Petroleum, Antero and EQT. In terms of operated rigs, the company lagged behind Chesapeake and Statoil ASA. The total number of operated rigs of Statoil ASA, Chesapeake and Range Resources according to the latest reported figures was 36, 29 and 12 respectively. Range Resources has one of the lowest costs in the peer group. The total costs per well in Shale were around $4.4m/well which was lower than most of its peers such as Chesapeake, Penn Virginia, the Williams Companies and Rex Energy. Range Resources, however, lagged behind its peers in terms EUR per well. Range Resources’ EUR per well in 2011 was 4.7bcfe/well which was lower than other companies including Enerplus Resources Fund (6.8bcfe/well), National Fuel Gas Company (7.0bcfe/well), Equitable Resources (7.3bcfe/well) and Petro Resources Inc (8.4bcfe/well). This implies that the company’s per well economics are less favorable than its peers. However, the company outperforms the peer group in most of the parameters, establishing itself as one of the strongest players in the Marcellus shale gas play. Furthermore, the company has the highest planned capex for the development of this shale in 2012 compared to its peer group.

The company’s strong position in the Marcellus shale and the huge potential of the area indicate that the production from Marcellus can help the company to support its long-term production growth. However, the shale is still in its development phase and it requires sufficient funding in order to capture its complete potential. The company is planning to generate this funding through the sale of its non-core-assets. In 2010, the company sold its tight gas sand properties in Ohio for a total consideration of $323m. Furthermore, in 2011, the company sold its Barnett properties for a consideration of $900m in order to fund the operations in the Marcellus shale. The company expects its Marcellus acreage to be selfsufficient by 2013. This shows that Range is aggressively developing its Marcellus acreage in order to support its production growth in the coming years.