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Range Claims Its Rocks Rock

Range Resources Corp. credited its second quarter results to a simple factor: better rocks.

The Fort Worth, TX-based company has estimated ultimate recovery (EUR) rates on par with its peers in the Marcellus Shale, despite drilling shorter laterals and pumping fewer hydraulic fracturing (frack) stages, according to figures from a May 2011 Goldman Sachs report that Range cited during an earnings conference call Tuesday.

"That implies that versus the average, the rock quality of what we're drilling is better," COO Jeff Ventura said. "It also suggests that if we complete with more stages, we can increase the ultimate recovery of our wells."

Range is reporting an EUR of 5.7 Bcfe for its Marcellus wells in southwestern Pennsylvania, nearly double the recovery rate it estimated after drilling its first well. The newest figure is based on 103 horizontal wells averaging 2,802-foot laterals and nine frack stages per well.

With around 200 horizontal Marcellus wells under its belt and as many as 5,000 possible drilling locations identified on its current acreage, Ventura said Range is still in the early days of Marcellus development and still "continuing to test alternative completions." Those include fracking a 3,950-foot lateral in southwestern Pennsylvania with 20 stages and a 4,500-foot lateral in Lycoming County with 15 stages. And Ventura said Range is also monitoring the results of other players in the region, some of whom have drilled laterals as long as 9,000 feet.

For its first five wells in northeastern Pennsylvania, Range is reporting 2,573-foot laterals with nine frack stages and an EUR of 6 Bcf. "As good as our rates of return are now, we may be able to improve that going forward," Ventura said.

Range expects some improvement from the Upper Devonian and Utica shales, the formations above and below the Marcellus, respectively.

The company plans to spud its third well into the Upper Devonian soon, and believes the formation is similar to the Marcellus. "Where the Marcellus is wet the Upper Devonian should be wet. Where the Marcellus is dry, the Upper Devonian should be dry," Ventura said.

As Range expands beyond the Marcellus it is moving faster on the Upper Devonian because, being a shallower formation, the Upper Devonian appears on logs for most Marcellus wells, but Range plans to spud its second Utica well in early 2012 (see Shale Daily, May 19). "A lot of our acreage is prospective for both the Upper Devonian and Utica shales, along with the Marcellus," Ventura said.

By drilling from existing Marcellus well pads, CEO John Pinkerton said Range can eliminate between a quarter to a third of its development costs for its Upper Devonian wells. "It kind of turbocharges your Upper Devonian returns," he said.

That economy of scale is why Range left the Barnett Shale earlier this year, selling around 6,000 wells totaling some 60% of its assets. That sale closed in the second quarter, causing a big bump in profits and a slight slowdown in production growth (see Shale Daily, March 7).

Range earned $51.3 million (32 cents/share) in the second quarter, up from $9.1 million in the second quarter of 2010, and reported an 8% increase in production, a 14% increase in realized commodity prices and a 9% reduction in costs year over year (see Shale Daily, July 20).

"The second quarter provides a good preview of what may be expected from Range as it enters its post-Barnett era. Namely, strong production growth, lower operating costs, plentiful liquidity and improved capital efficiency," CFO Roger Manny said.

Range is currently producing around 310 MMcfe/d net from the Marcellus, up from 200 MMcfe/d at the end of 2010, and said it is on track to close out the year producing around 400 MMcfe/d net from the play on its way to producing 600 MMcfe/d by the end of 2012.

Although no longer active in the Barnett of North Texas, Range still operates unconventional properties in Oklahoma and the Texas Panhandle, where the company reported a 30% increase in total production, and a 20% increase in liquids production, year over year.

Range is producing 5,069 gross boe/d from five wells in the Ardmore Basin Woodford play in southern Oklahoma and 3,200 gross boe/d from the Mississippi Lime play in north Oklahoma, where the company has drilled four well so far this year. Range is also currently drilling three wells in the St. Louis Lime play in the Texas Panhandle, where an existing horizontal well has already produced more than 3 Bcfe -- or 12.3 MMcf/d of gas and 760 b/d of liquids -- since coming online 28 weeks ago, making it one of the top performers for the company.

Range also increased production by 12% year over year at its tight gas sands projects on 350,000 gross acres in Virginia.

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