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Range Resources a Solid Bet On U.S. Shale Gas

By    |   Tuesday, 14 February 2012 08:14 AM

Range Resources Corp. (RRC) is a solid bet on growth in U.S. shale gas, an industry with large production potential but also its share of challenges.

The Fort Worth, Texas company is gaining attention for its low production costs and positions in what are considered the best shale plays in North America. The company’s output of gas and associated oil and liquids rose 12 percent on the year to an average of 554 million cubic feet per day in 2011, an eighth straight year of double-digit growth.

More expansion is ahead. Range at the end of 2011 ramped up its estimate for proved gas reserves, or supplies readily available for extraction, by 14 percent to 5.1 trillion cubic feet. It also boosted its estimate for potential gas assets to 44 to 60 Tcf from 35 to 52 Tcf over the same period.

Of the resources, 54 percent are in Marcellus, one of the world’s biggest gas fields, thought to have strong profit potential due to its proximity to big consumer markets on the East Coast.

Keeping down costs

Range executives have said that keeping down costs is the key to its profit potential. The company, for one thing, has helped develop walking rigs that can be moved between drilling locations. That averts crane rentals.

This is paying off in Marcellus, where executives claim a 50 percent to 70 percent rate of return.

Revenue rose 73 percent on the year to $338 million in the third quarter of 2011, a response to higher production and prices. A 9 percent drop in costs helped it rebound to a $34.8 million profit from a year-earlier loss.

Morningstar analysts are bullish on Range, citing low costs and multiyear leases on acreage with good potential in Marcellus.

The company’s acreage portfolio means it can expand proved reserves tenfold with the assets it already owns, limiting its spending on acquisitions for production growth.

This could help shield the company from a drop in gas prices or stricter environmental regulations, big challenges for the sector, analysts said. A surge in shale production could flood the market with gas and drive down already low prices, forcing producers to sell abroad, where competition is stiff.

Even so, analysts are upbeat. Of the 37 analysts followed by Thomson/First Call, eight have strong buy recommendations on Range and nine have buys, with 20 holds.

The company next reports on Feb. 28.

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