On Aug 28, 2015, we issued an updated research report on Range Resources Corporation RRC. The independent oil and gas company is engaged in the exploration, development and acquisition of oil and gas properties primarily in the southwestern, Appalachian and Gulf Coast regions of the United States.
Though Range Resources is a leader in unlocking adequate Marcellus infrastructure, more effort is required by it to be on par with industry standards. Inability of the company to acquire or construct adequate additional capacity could hinder volume growth moving ahead.
In our opinion, the Marcellus Shale properties are primarily over-pressured with some areas containing rich gas that need to be processed further. As such, Range Resources requires more capital and new high-pressured lines to gather Marcellus gas.
Moreover, a failure on the 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.
Range Resources’ diversified asset portfolio is spread between the low-risk/long reserve-life Appalachian assets and the large-volume/rapid-payout Gulf Coast properties. The company has an impressive inventory in the Marcellus Shale, one of the prominent emerging shale plays in the U.S. lower 48. The company is advantageously positioned to benefit in the long run from these projects. 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.
Range Resources remains focused on five liquid-rich plays for its liquids production. These include the super-rich Marcellus, the super-rich Upper Devonian, the wet Utica, the horizontal Mississippian and the Cline Oil shale plays. Its primary activity is centered on the super-rich area of southwestern Pennsylvania. For 2015, Range Resources expects to deliver 20% annualized production growth with its focus on liquid-rich opportunities like the Marcellus Shale and Horizontal Mississippian plays, which have a combined acreage of about 500,000.
Range Resources’ 2015 capex budget is $870 million. Of this, approximately 95% is apportioned for liquid-rich and oil projects in the Marcellus play. The company has been expanding its drilling activity to Northeast Pennsylvania, which has seen a pickup in industry activity. Range Resources indicated that returns from the Northeast could be as good as in the Southwest. The company remains encouraged by the Mississippian results and intends to ramp up activity going forward.
Key Picks in the Sector
Range Resources carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the same space are Alon USA Partners, LP ALDW, Braskem S.A. BAK and Mitcham Industries Inc. MIND. All these stocks sport a Zacks Rank #1 (Strong Buy).
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