We have upped our recommendation for
Range Resources Corp.
(
RRC
) to Neutral from Underperform, following the impressive fourth
quarter 2011 results.
The company's better-than-expected fourth quarter 2011 results
were mainly aided by a higher production level and realized prices
along with lower unit costs. The fourth quarter production volume
of 625.1 million cubic feet equivalent per day (MMcfe/d) jumped
nearly 16% from the year-earlier level, with a surge in natural gas
and natural gas liquids (NGLs) output to 19.8% and 3.8%,
respectively. However, oil production dropped 2% year over
year.
With a leading acreage position in the Appalachian Basin, Range
Resources' operations remain largely geared towards accelerating
production while maintaining a low-cost structure. Its diversified
asset portfolio is spread between low-risk/long reserve-life
Appalachian assets and 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 region.
The company also disclosed its 2012 capital budget of $1.6
billion with focus on five liquid-rich plays that include
Marcellus, Upper Devonian, wet Utica, Mississippian, and Cline oil
shale to drive its liquids production by more than 40% year over
year in 2012. Of the total budget plan, 75% is assigned for
liquids-rich and oil projects in Marcellus and Mississippian plays
and the remaining 25% allocated for dry gas projects in Northeast
Pennsylvania.
Notably, Range Resources has boosted up its 2012 production
forecast at 30% to 35% from the previous expectation of 25% to 30%.
For 2013, production is estimated to grow 15% to 20%.
Range Resources has an industry-leading cost structure. The
company has a track record of growing production at a double-digit
rate while reducing its finding and development (F&D) costs and
sustaining a low-cost structure. This is attributable to increased
production from the low-cost Marcellus region.
Hence, Range Resources' increasing focus on liquids and
divestiture of higher cost assets, like Ohio properties in 2010 and
Barnett in the first half of 2011, will aid the company to further
streamline its overall cost structure.
In a weak natural gas price environment, we remain hopeful that
the company's record production and declining unit costs (down
37.5% year over year in the reported quarter on an aggregate),
along with its sale of non-core properties, will prove beneficial
over time. However, we remain on the sidelines as the company
is still exposed to volatile natural gas fundamentals, which
accounted for more than 78% of the total production in the fourth
quarter of 2011.
The company, which competes with
EQT Corporation
(
EQT
) and
SM Energy Company
(
SM
), holds a Zacks #3 Rank (short-term Hold rating).
EQT CORP (
EQT
): Free Stock Analysis Report
RANGE RESOURCES (
RRC
): Free Stock Analysis Report
SM ENERGY CO (
SM
): Free Stock Analysis Report
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