In an effort to find more savings and better manage its underperforming assets in the Midcontinent, Range Resources Corp. has closed its Oklahoma City division office and cut 8% of its workforce.
The office was shut last week and plans to pay employees severance cost the company about $8 million in the fourth quarter. CFO Roger Manny said the closure would likely cost another $8 million by the end of this quarter before the company begins to realize an estimated $15-18 million reduction in general and administrative expenses. The Midcontinent field offices are to remain open in Oklahoma and Texas, but the corporate office in Fort Worth, TX, now would manage the program.
Range cut its spending in the Midcontinent this year to $26 million. Its wells there produced 82 MMcfe/d in 4Q2014 down 8% from the year-ago period. This year, it plans to bring eight wells into sales across its 360,000 net acre position, down from 16 in 2014.
"In the Midcontinent, the decision to slow down there was given the returns that we have in [our] other areas,” said CEO Jeff Ventura during the quarterly conference call with financial analysts Wednesday. “You know, we're putting plus or minus 97% of our capital in Appalachia this year. So, we thought that the most efficient thing to do was operate those [Midcontinent] properties out of Fort Worth. There's significant savings -- several million dollars a year in savings.
"We still think the properties have potential," Ventura added. "When we look at asset sales, clearly over the last several years we've sold almost $3 billion worth of properties. So, if we ever get to the point where we think those assets are worth more to somebody else than us, then clearly we've done that multiple times," he said when asked about the possibility for a future sale of the company's Midcontinent assets.
Range is planning a similar downshift in the Marcellus Shale, where it expects to focus more heavily on its dry gas properties in southwestern Pennsylvania.
Super-rich liquids wells have been profitable for the company in recent years, but its natural gas liquids (NGL) price realizations declined with the fall in oil prices last year, going from 31% of U.S. crude benchmark prices in 1Q2014 to 24% in the fourth quarter. Full-year natural gas, NGL and oil price realizations, including hedges, were down 10% from 2013 to $4.41/Mcfe.
The company plans to drill 111 wells this year, nearly all of them in the Marcellus. Range plans to drill 66 wells in its super-rich and wet gas windows there, down from 97 last year. It plans to increase the number of dry gas wells it spuds to 35 from 13 in 2014.
Range was able to offset lower commodities prices, however, with an increase in production volumes and service cost reductions late in the year. It produced 1.27 Bcfe in the fourth quarter, up 26% from 1 Bcfe in the year-ago period and 6% from 3Q2014. Full year production increased to 1.16 Bcfe, up from 940 MMcfe in 2013. Most of last year's production, or 968 MMcfe, came from the Marcellus.
Although the company cut this year's budget by 46%, it's still aiming for 20% production growth, mostly in the second half of the year (see Shale Daily, Jan. 16).
The company is drilling longer laterals, completing wells with more fracture (frack) stages and improving its lateral targeting and reservoir modeling. COO Ray Walker said since 2011 Range has seen a 115% increase in lateral length with a 57% reduction in total well costs per lateral foot. He said the company's laterals would be on average 20% longer this year and well costs would come down 37% from last year, mainly as a result of declining service costs.
"Even though our 2015 plan turns to sales a few less wells compared to last year, we're actually planning to pump about the same number of frack stages," Walker said. "This illustrates continued efficiency improvements resulting in lower costs, but also results in consistent activity levels allowing us to continue capturing improving service and supply pricing.
"We've seen reductions in pricing across all service and supplies, and we believe we'll see more improvements if activity continues to decrease across the industry," Walker said, adding that service costs have come down by more than 20% since last year.
Management said its Marcellus laterals would average about 6,000 feet this year on wells completed with 30 stages. The company would also reduce its activity in the Nora Field of Virginia, where it either owns mineral rights or has acreage held by production. Management said the company would complete about 25 previously drilled Huron Shale and coalbed methane wells there this year.
Range also plans to drill two more Utica Shale wells this year in southwestern Pennsylvania. The company brought its first Utica well online last year with an initial production rate of 59 MMcf/d (see Shale Daily, Dec. 15, 2014). That well is now flowing at a restricted rate of 20 MMcf/d while additional gathering infrastructure is constructed.
Range reported fourth quarter net income of $284 million ($1.68/share), compared with $28 million (17 cents) in 4Q2013. Full-year net income increased to $634 million ($3.79/share) from $116 million (70 cents) in 2013. Revenue increased to $872 million from $428 million in the year-ago period. Full year revenue rose to $2.7 billion from $1.9 billion in 2013.