While it leaned on the Appalachian Basin to drive production and benefited from an improved market to deliver solid financial results, Range Resources Corp. had a busy first quarter in North Louisiana, where it has been learning more about the Cotton Valley Sands Terryville Complex.
The company acquired the assets in a $4.4 billion merger with Memorial Resource Development Corp. (MRD) last September. Range brought online 27 wells in the play during the first quarter, including 19 in the Upper Red zone, five in the Lower Red zone and three in the Pink zone. All the locations were chosen by MRD, and the majority had been waiting on completion for nearly a year.
"In Terryville, we expect wells going forward will generate better growth than the group of wells turned to sales in the first quarter," said COO Ray Walker during a conference call with analysts on Tuesday to discuss the period’s results. "Eighteen of the Terryville wells brought to sales in the first quarter were drilled prior to the acquisition...As a result of completing such a large swath of wells at one time...and because of the location of these wells, approximately 40 MMcfe/d of offset production was shut-in to minimize the frack hits."
He added that going forward, Range is "planning a more balanced approach, both in terms of activity and planning the well locations to help minimize the impact on offset production." The company plans to turn-in-line another 29 wells in North Louisiana this year, but most of those will be sited, drilled and designed by Range. Walker said the company continued testing step-out Terryville wells at the edge of the field during the first quarter to further delineate and de-risk the drilling inventory there. He added that the early results are encouraging.
Range moved south of the Terryville in Lincoln Parish last year to test three different Lower Cotton Valley extension wells in Jackson Parish. The company said two of those wells are showing strong results, with each having produced 1 Bcfe to date. The company also continues to drive down well costs in the state, reporting that a 7,500-foot lateral Terryville well is now expected to cost $7.4 million compared to the $7.7 million at year-end 2016 and $8.7 million when the properties were acquired.
Range produced a record 1.93 Bcfe/d in the first quarter, up 40% from the year-ago period and 4.3% from 1.85 Bcfe/d in 4Q2016. The Appalachian Basin accounted for about 1.50 Bcfe/d of the quarter's production, while the company's new Louisiana assets produced 397 MMcfe/d. Appalachia should continue to drive results going forward, as the company plans to spend about two-thirds of its capital there this year.
Better commodity prices and an expanded firm transportation portfolio also helped the company turn a profit during the quarter. Management said stronger prices are expected to continue for the remainder of the year
"Improving price differentials for natural gas, natural gas liquids (NGL) and condensate are expected for 2017," said CEO Jeff Ventura. "A full year of transportation on our Gulf Markets Expansion phase one pipeline project and a full year of contribution from our near-to-market northern Louisiana assets are resulting in our natural gas differential this year improving" to New York Mercantile Exchange benchmark prices minus 30 cents.
He added that the company expects the Rayne and Leach XPress, Adair Southwest and Rover pipeline projects in the Northeast to begin operations later this year, which should help improve 2018 differentials even more.
Including hedges, the company reported an average natural gas price of $3.26/Mcf for the first quarter, compared to $2.69/Mcf in the year-ago period. Year/year NGL prices were also up 42%, while condensate prices increased 39%. That helped the company's revenues for the quarter, which were $777 million, compared to $331.4 million in 1Q2016.
Range reported net income of $170 million (69 cents/share) during the period, versus a net loss of $94 million (minus 56 cents) in 1Q2016.