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Range's Goal: Triple Marcellus Shale Output

Range Resources Corp. spent most of 2008 picking up prospective acreage in the Marcellus Shale, and by year's end it had doubled its leasehold to 900,000 net acres. Now the production phase is kicking in, and Range plans to build its natural gas output from a current net rate of 30 MMcf/d to up to 100 MMcf/d by the end of 2009, the CEO said Wednesday.

Some midstream operations are expected to be in place by April, and at that time production is expected to double to 60 MMcf/d. "Then we'll max out pretty quickly," CEO John Pinkerton said during a quarterly earnings conference call. "We have discovered a giant natural gas seam...We captured a lot of resource potential by increasing the acreage in the fairway of the play...We have about 14 wells already drilled that are...in some cases finished that are just waiting on the next phase of infrastructure..."

Range's most recent well in the Appalachian Basin play ramped up at a maximum 24-hour rate of 10.3 MMcfe/d. Of its last 11 Marcellus wells, four had initial production (IP) rates of 9.9 MMcfe/d or higher. Its best performing well to date in the play had an IP rate of 24.5 MMcfe/d.

The Marcellus play "differs from a lot of shale plays," said Pinkerton. "All of the infrastructure is related to the midstream. In the Appalachian Basin there's a bulk of goodies in the Marcellus...four of the top six or seven pipelines in the U.S. run right through the play. It's not a question to build huge 42-inch [diameter] lines like in Carthage [TX]. Instead it's building eight- or 10-inch lines to go up to great places like New York City and Philadelphia." Range is building some of the needed infrastructure, and it also has partnered with midstream operator MarkWest Energy Partners.

This year poses challenges, both from a macroeconomic perspective and because of forecasted low commodity prices, said the CEO. Range's 2009 capital spending plans already have been revised downward three times since late 2008. For now, the company is planning to spend $700 million, with most of the money budgeted for its leaseholds in not only the Marcellus, but the Barnett Shale of Texas. Around three-quarter of the capital expenditures will be used to drill 315 net wells.

"Our drilling plans for 2009 have been scaled back to focus on the Barnett Shale, the Nora Field [in southwestern Virginia] and the Marcellus Shale," said Pinkerton. "Each of these areas provides attractive rates of return at current price levels...We look at 2009 as being a year where we may be able to capture unique opportunities in our core operating areas."

Range's gas and oil output rose 20% in 2008 from 2007; this year the CEO said it's going to be more focused on quality than quantity.

"We're targeting 10% production growth for the year, depending on how [commodity] pricing holds up, the next phase of the Marcellus infrastructure and how low drilling costs fall," said Pinkerton. "It is our view that 2009 is not a year to push production growth to the high end of the range but to achieve cost-effective growth."

In the first three months Range is targeting production output of 408-412 MMcf/d, which would be 11% higher than in the same period a year ago. A total of 15 rigs are in operation across its leaseholds, down from 34 rigs a year ago. In the Marcellus three rigs are running, down from six in 2008.

Reported revenues for 4Q2008 were $345 million, up 54%, and operating net cash rose 20% to $224 million from 4Q2007. Net income in the final period of 2008 totaled $94 million (60 cents/share), which was 173% higher than in the year-ago quarter. Oil and gas revenues, including all cash-settled derivatives, declined 3% to $255 million in the final period. Production for the year totaled 141 Bcfe, comprised of 114 Bcf of gas and 4.5 million bbl of oil and natural gas liquids; output averaged 386 MMcfe/d.

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