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Range Focused on Capital Discipline in 2018

Range Resources Corp. plans to cut its budget and spend within projected cash flow this year to continue sending a message of capital discipline that is trending among other exploration and production companies across the country. 

The Appalachian-focused producer has budgeted $941 million for 2018, down from $1.27 billion in 2017, and it is guiding for 11% year/year production growth. Range said 80% of the budget would be spent in the Marcellus Shale.

“We have entered a new era of shale development where companies that captured the most prolific resources have the ability to generate better returns for shareholders,” CEO Jeff Ventura said. “For Range, the flagship asset and growth driver of the company will continue to be our large, high-quality, de-risked inventory in southwest Pennsylvania.”

The company did not offer a budget breakdown or indicate where the remainder of capital would be allocated. To be sure, the balance sheet is stretched. Range had $4 billion of outstanding debt at the end of 3Q2017, and questions linger for its other core asset in North Louisiana, where the company acquired properties in the Cotton Valley Sands Terryville Complex in 2016, when it took over Memorial Resource Development Corp. (MRD).

While management sounded a more optimistic tone at the end of last year about wells that it had designed in North Louisiana, Range struggled with poor results from MRD-designed wells during 2017.

Range said this week, as it did late last year, that any additional cash flow generated by asset sales or an increase in commodity prices would be used to pay down debt. Higher spending on a production ramp to fill new Appalachian takeaway capacity and delineation efforts in North Louisiana helped push 2017 spending 10% above the budgeted target of $1.15 billion.

In all, Range has another 900 MMcf/d of pipeline capacity coming online this year, which is expected to help lift realizations going forward. In a five-year outlook released late Wednesday, Range is guiding for compound annual production growth of 13% and $1 billion of cumulative free cash flow at strip pricing.

Margin improvement, the company said, is expected because of improved access to better markets and continuing improvement in its cost structure through using existing infrastructure and lower interest expense. Range said the five-year outlook assumes all production growth from the Marcellus inventory, which should be stocked with 3,200 locations at the end of the outlook period.

In addition to the Lower Cotton Valley, Range also has assets that are prospective for the Deep Utica Shale and the Upper Devonian Shale in Appalachia to aid long-term growth.

Tudor, Pickering, Holt & Co. predicted early Thursday that Range’s stock might come under pressure on word of last year’s overspend, even if its plans for 2018 more closely align with investor sentiments on capital discipline. The market responded coldly to the news, with shares of Range dropping nearly 10% on Thursday to finish at $15.32.

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