Range Resources Corp.
) third-quarter 2012 earnings were driven by a record production
level and lower unit costs. The company posted adjusted earnings
of 20 cents a share versus the Zacks Consensus Estimate of
However, results decreased by about 28.6% from the year-earlier
profit of 28 cents a share on the heels of lower realized prices.
Third quarter total revenue of $294.9 million failed to meet our
$352.0 million projection and decreased 20.4% year over year as
The company's third quarter production averaged 790.1 million
cubic feet equivalent per day (MMcfe/d), comprising 79% natural
gas, 15% natural gas liquids (NGLs) and 6% oil. Total production
volume 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.
Oil production expanded 36.4%, NGL rose 29.9% and natural gas
production increased 51.8% on a year-over-year basis.
For the third quarter, Range's total price realization (including
the effects of hedges and derivative settlements) averaged $4.17
per Mcfe, down 27.5% year over year. The overall price comprised
NGL at $37.23 per barrel (down 24.5% year over year) and natural
gas at $3.03 per Mcf (down approximately 33.0%), however crude
oil was sold at $84.86 a barrel (up 3.8%).
At the end of the quarter, long-term debt was $2,849.9 million,
representing a debt-to-capitalization ratio of 55.5% (versus
52.1% in the preceding quarter).
For the fourth quarter 2012, Range has hedged 279,641 million
British thermal units per day (MMbtu/d) of natural gas production
at an average floor price of $4.76.
The company has also hedged 280,000 MMbtu/d of natural gas at an
average price of $4.59 for 2013 and 385,000 MMbtu/d at an average
floor price of $3.80 for 2014.
The company now expects its 2012 production growth to be 35%. It
also expects its liquid production growth in the range of 33% to
36% year over year for the fourth quarter. Earlier, the company
had expected its liquid growth at 40%. This tempered outlook
mainly reflects the asset sale as well as lower production in
areas of the wet and super-rich Marcellus due to bottlenecks and
equipment limitations in the gathering systems.
Range Resources reaffirmed its capital budget guidance at $1.6
billion for the year. Approximately 75% of the budget is intended
to be apportioned toward liquids-rich and oil projects mainly in
the Marcellus Shale and horizontal Mississippian plays.
We maintain our long-term Neutral recommendation for Range
The company's record production combined with a 12% decrease in
total cash costs per unit is reflected in its third quarter
performance. Additionally, the asset sale, which took place in
April last year, when Range sold all of its 52,000 acre Barnett
Shale properties for $900 million in order to focus on its
Marcellus Shale assets, also benefited the quarter.
Although low natural gas prices have adversely affected its
financial results, the company's solid hedge position has guarded
its performance extensively. Looking ahead, the company has
approximately 85% of the expected production hedged for the
fourth quarter. We believe that Range Resources' large acreage
holdings will support several years of oil and gas drilling in
the fast-growing fields.
We also believe that with a robust asset base, Range Resources
remains on track to reach its projected production level for this
year. The company made significant operational progress in the
quarter in all of its liquids-rich and oil ventures, particularly
in two wells - one in the super-rich Marcellus and the other in
the Horizontal Mississippian oil play - producing over 1,000
barrels of liquids per day each.
Meanwhile, the company plans to act as the anchor shipper for the
next 15 years on the Mariner East Project − which aims to ship
NGL resources to a Philadelphia-area terminal for U.S. and
Mariner East is a pipeline venture between
Sunoco Logistics Partners L.P.
) − which is the owner of the line − and
MarkWest Energy Partners, L.P.
). Range Resources 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.
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 organizational sustainability and
long-term shareholder value creation.
However, we remain on the sidelines as the company is still
exposed to volatile natural gas fundamentals, interest rate risks
and an uncertain macro backdrop. Additionally, Range Resources is
governed by several stringent regulations, especially in the
Marcellus Shale, the Appalachian Basin and the southwestern U.S.,
where it has robust asset bases.
Hence, we maintain our long-term Neutral recommendation for the
company, which retains a Zacks #3 Rank (short-term Hold
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