Range Resources Corporation
) has set its capital budget for the next year at $1.3 billion,
which is nearly 19% less year over year. The independent oil and
natural gas producer also announced an asset sale program that
will facilitate the spending budget.
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Fort Worth, Texas-based Range Resources' 2013 budget comprises
about $1.1 billion for drilling and recompletions, $100 million
for leasehold and renewals, $75 million for pipelines and
facilities, and $25 million for seismic. The company's 2012
capital spending plan is $1.6 billion.
The company aims to spend approximately 85% of the budget toward
oil and liquids-rich projects mostly in the Marcellus Shale and
Horizontal Mississippian plays that have a combined acreage of
about 500,000. Range Resources indicated that these ventures are
relatively more profitable as they have the highest estimated
rates of return.
During the third quarter, total production 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. For 2013,
Range Resources expects to deliver 20-25% annualized production
growth with its focus on liquid-rich opportunities.
Range Resources plans to fund next year's capital spending budget
from operating cash flow, proceeds from asset sales and existing
liquidity under its credit facility. The properties to be sold
involve some of its Permian Basin properties in southeast New
Mexico and West Texas. The properties currently produce 18
million cubic feet equivalent million cubic feet equivalent per
day of oil and gas.
The timid gas price environment enforced the company to reduce
its exposure to natural gas drilling. Range Resources highlighted
that it will trim dry gas drilling activity, mostly in
northeastern Pennsylvania, where it intends to lessen its
activity from four to five rigs in 2012 to one rig in 2013.
With a leading acreage position in the Appalachian Basin, Range
Resources' operations remain largely geared toward accelerating
production while maintaining a low-cost structure. Its increasing
focus on liquids (like Marcellus, Upper Devonian, wet Utica,
Mississippian, and Cline oil shale) and divestitures of higher
cost assets will also aid the company to further streamline its
overall cost structure.
We appreciate the company's initiative of deploying more funds
toward liquids, a trend common even among its peers,
Chesapeake Energy Corp.
However, with 79% of Range Resources' reserves tilted toward
natural gas, its results are still vulnerable to fluctuations in
natural gas markets. Hence, we maintain our long-term Neutral
recommendation for the company, which retains a Zacks #3 Rank
(short-term Hold rating).