Range Resources Corp. expects capital spending to be flat from 2011 to 2012 as the company becomes more efficient in the Marcellus Shale and completes its sale of assets in the Barnett Shale, but to rise in 2013 as the company increases drilling.
"We expect to become more efficient in terms of some of our drilling. We'll be able to spend more on drilling as time goes by versus on things that are nondrilling expenditures," Range CEO John Pinkerton said during a conference call Wednesday.
The Fort Worth, TX-based company spent $267 million drilling 63 gross wells in the first quarter and completing wells drilled last year across its acreage. Range reported 100% success from its first quarter wells. Through the end of the quarter, Range said it had drilled 244 horizontal Marcellus wells, of which 49 still need to be completed and 24 still need to be hooked up to pipeline infrastructure.
That helped the company post record production of 545.5 MMcfe/d in the first quarter (see Shale Daily, April 20).
However, despite continued production growth, Range posted a $25 million net loss for the quarter, down from $77.5 million in profits during the first three months of 2010, because of losses related to hedging and deferred compensation. The company reported total revenues of $227 million for the quarter, up 21% from $188 million during the same period last year.
Range will likely break its streak of 33 consecutive quarters of production growth once the sale of its Barnett acreage is finalized this week and the company loses 110 MMcfe/d of production (see Shale Daily, March 2). Pinkerton said Range expects to produce around 505 MMcfe/d in the second quarter, still a 7% increase year-over-year (or a 22% increase adjusting for the lost Barnett production).
Pinkerton said Range expects to make up all of the lost Barnett production by the end of the third quarter, allowing the company to achieve 10% production growth for the year, or 600 MMcfe/d from all its properties and 400 MMcfe/d from the Marcellus.
Through its recent divestitures, including the Barnett sale, Range brought in $2 billion, but lost 6,000 wells, or 60% of its total well count, Pinkerton said. That meant trading "more mature properties" for "higher-return projects," such as the Appalachian Basin, where it is exploring three stacked plays: the Marcellus, the Upper Devonian and the Utica. "Range is now a much more efficient company," Pinkerton said. "We are doing more with less. By less, I mean less wells, lower finding and development costs, lower operating costs."
Pinkerton said Range expects that the Barnett sale will allow the company to be "internally funded" by 2013.
Until then, Pinkerton touted Range's cost structure, noting that its five largest cost categories fell 10% year-over-year and 5% quarter-over-quarter and projecting that capital budgets would increasingly trend toward drilling as Marcellus infrastructure expands.
Range's direct operating expenses for the quarter, though, rose 2 cents year-over-year and 3 cents quarter-over-quarter to 75 cents/Mcfe. Range blamed the increase on reduced production from cold weather and water handling costs in the Marcellus.
However, those operating costs fell each month during the quarter, according to CFO Roger Manny.
"So while the total was higher than expected, we remain encouraged by the trend toward lower costs," Manny said, adding that Range believes it can reduce its operating expenses to 60 cents/Mcfe by the end of the year.