Fort Worth-based Range Resources Corporation (RRC) intends to act as the anchor shipper for the next 15 years on the Mariner East Project − which aims to ship natural gas liquids (NGL) resources to a Philadelphia-area terminal for U.S. and international users.
Mariner East is a pipeline venture between Sunoco Logistics Partners L.P. (SXL) − which is the owner of the line − and MarkWest Energy Partners, L.P. (MWE). The venture is set to transport propane and ethane from the liquid-rich Marcellus Shale region in western Pennsylvania to Sunoco’s facilities at Marcus Hook, Pennsylvania for processing, storing and distribution.
This project aims to transport 65,000 barrels daily of ethane and propane to the terminal in Philadelphia region for carrying to U.S. and international users. Range is one of the major producers in the Marcellus Shale in Pennsylvania and West Virginia and it commits to provide 40,000 barrels a day to the pipeline comprising 20,000 barrels of ethane and 20,000 barrels of propane.
NGL resources like ethane and propane serve as the feedstocks for petrochemical plants that produce plastics and other associated products. In response to the growing supply of NGLs, U.S. chemical manufacturers are now busy adding capacity to take advantage of the situation.
This Mariner project expects to start deliveries of propane in the second half of 2014, with ethane deliveries slated to commence in the first half of 2015 to Sunoco's Marcus Hook terminal.
Meanwhile, Range has also inked a 15-year ethane sales agreement with a petrochemical manufacturer, INEOS Europe AG, subject to regulatory approval of Mariner East. Range will start delivering 10,000 barrels per day to INEOS in the first half of 2015 that will eventually increase to 20,000 barrels daily.
Earlier, the company signed two deals to ship its liquid. One is with NOVA Chemicals Corp. for its Corunna Cracker in Sarnia, Ontario, and the other with Enterprise Products Partners L.P. (EPD), whose ATEX pipeline will distribute ethane to the Gulf Coast.
For Range, all these ventures will aid the company to drill more of its southwestern Pennsylvania acreage in the wet gas portion of the Marcellus. The company believes that it will be able to add 35 cents to 45 cents per thousand cubic feet (Mcf) more when these liquids are sold separately. During the second quarter, Range received an average of $3.66 per Mcf for its natural gas. Currently, Range’s estimated recoverable resource is 1 million barrels of ethane in its 335,000 liquids-rich acres in southwest Pennsylvania and 30% of it is under contract.
With a leading acreage position in the Appalachian Basin, Range’s operations remain largely geared toward accelerating production while maintaining a low-cost structure. We believe the rich gas play in southwest Pennsylvania offers attractive project returns even in a low gas price environment. Again, its increasing focus on liquids (like Marcellus, Upper Devonian, wet Utica, Mississippian, and Cline oil shale) and divestitures of higher cost assets will also help the company to further streamline its overall cost structure.
However, we remain on the sidelines as the company is still exposed to a low natural gas price environment, interest rate risks and an uncertain macro backdrop. Additionally, Range is governed by several stringent regulations, especially in the Marcellus Shale, the Appalachian Basin and the southwestern U.S., where it has an extensive asset base.
The company retains a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain our Neutral recommendation.
ENTERPRISE PROD (EPD): Free Stock Analysis Report
MARKWEST EGY PT (MWE): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
SUNOCO LOGISTIC (SXL): Free Stock Analysis Report
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