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Range Resources Sets Sights on Sustaining 20-25% Annual Growth After Strong 2Q

Range Resources Corp. turned in another solid quarter of production and efficiency gains, with its focus at mid-year appearing to shift more toward sustaining growth by continuing to diversify its core areas in Pennsylvania and strengthening its programs in other fields across the country.

Production in the second quarter increased 21% to 1.1 Bcfe/d, up from 910 MMcfe/d during the year-ago period. The gain came despite a five-week disruption in its southwest Pennsylvania processing capacity after a lightning strike knocked offline a 200 MMcf/d plant at MarkWest Energy Partners LP's Houston complex (see Shale Daily, May 29; July 23) and service disruptions on Sunoco's Mariner West pipeline that hurt ethane sales.

Range was able to accommodate the midstream setbacks thanks to the flexibility of its one million net acre Marcellus Shale portfolio, which stretches from northeast to southwest Pennsylvania. It switched to alternate processing facilities and brought on new dry gas wells earlier than planned.

Range has a leading position in the Marcellus, which continued last quarter to drive consistent production gains. Its southern Marcellus division produced 848 MMcfe/d and brought online 36 wells, while its northern division produced 200 MMcfe/d and turned in-line five wells.

After 10 years in the play, though, the company has settled into a methodical pace of building that position. During a conference call to discuss earnings with financial analysts on Tuesday, company officials said they're focused on achieving similar diversity in other fields, such as the Nora in Virginia and the Mississippian Chat in Oklahoma, as prices in the Northeast remain low relative to Henry Hub and natural gas demand is expected to increase in other parts of the country in coming years.

"We expect to see capital and operating efficiencies build in the future from other areas," said CEO Jeff Ventura. "In the next three years, our land budget in the Marcellus is expected to decline significantly. This year, land is about 14% of our total capital budget. By 2017, it's projected to be about 5% of our capital budget."

The company said, "the wells have been identified; the compression and plants have been scheduled, and the takeaway capacity to multiple markets has been secured" to grow annual production rates between 20-25% for years to come. On a compound basis, Ventura said, Range should double net production every three to four years, with a potential to exceed 3 Bcfe/d in the near future.

Ventura called marketing a major key to such success. He said the company continues to expand by selling and securing future firm transport to eastern, southern and Midwestern markets, while also signing liquified natural gas (LNG) agreements with overseas customers (see Daily GPI,June 26). The company currently sells its gas on 11 different interstate pipelines into 21 different indices, with some of its capacity currently unused ahead of the ramp-up in future demand that it expects.

In May, Range transferred its assets in the Conger Field of West Texas to EQT Corp. in exchange for 138,000 net acres in the Nora Field of western Virginia, where it already had a sizeable position (see Shale Daily,May 1). Ventura said the company believes it can grow its production there to 500 MMcf/d in the coming years, with plans calling for about 100 tight gas, coalbed methane and Huron Shale wells in the next two years.

In the Mississippian Chat, Range continued to drill and evaluate its acreage. Last quarter, the company drilled its highest rate oil well there, which tested at a 24-hour initial production (IP) rate of 1,263 boe/d with a 92% liquids cut. It has plans to bring on an additional five wells in the Mississippian by year's end and said that going forward, it would test other targets in an emerging area with multiple stacked pay opportunities in Oklahoma and Texas.

The focus elsewhere hasn't detracted from a diverse program in the Appalachian Basin. The company said in the first quarter that it drilled its best-ever Marcellus well with a 24-hour test rate of 6,357 boe/d, or 38.1 MMcfe/d in southwest Pennsylvania (seeShale Daily,April 29). Its northern division had similar news to report Tuesday with the addition of a four-well pad that came online last quarter at a combined 24-hour test of 90 MMcf/d. The best well on that pad produced 25 MMcf/d over 30 days.

"It could have IP'd at a higher rate, but was constrained by our surface facilities," Ventura said of the new pad and its top performer. "This well will have been online for 40 days now and is still producing 22 MMcf/d."

As Marcellus dry gas volumes rise, the company continues to sound bullish about its Utica Shale prospects in southwest Pennsylvania (see Shale Daily, June 5). Range said it spud it first Utica well there in April and has recently moved in a horizontal rig to begin drilling the 6,500 foot lateral. That well will be completed with 32 horizontal hydraulic fracturing (fracking) stages and company officials said Tuesday that early results look good. A production test is planned in the fourth quarter.

Like its peers that have already reported earnings, Range saw a drop last quarter in its commodity price realizations. The company said it averaged $4.49/Mcfe for its natural gas, natural gas liquids and oil, an 11% decrease from the prior-year quarter. Financial analysts wondered if the gains the company has continued to make with reduced drilling costs and more production are being eaten by negative basis differentials in the Northeast.

"The other thing that has sort of happened in the background is that we've made some really great dry gas wells, and those wells are producing well," said COO Ray Walker. "The super rich and wet gas wells -- as we go on longer and longer laterals -- they make an awful lot of gas also. We're certainly going to focus on the wet gas, but the thing I'd turn you back to is that we have a great portfolio. We can choose to go dry, we can choose to go wet or super rich. We have that optionality going forward, and these are big areas, core hydrocarbon in-place kind of areas that give us really attractive economics going forward."

Senior Vice President for Corporate Development Chad Stephens elaborated in responding to investor concerns and said the company's exposure will improve with time.

"Weakness in the northeast is somewhat temporary. Ray talked about the bidirectional flow projects that are going to bring about 13 Bcf/d into service by 2018, and once those projects are in service, we think basis in the Northeast will firm-up or settle out a little bit," Stephens said. "We don't know exactly where that will be, but when you look at our firm transportation portfolio we want to give to where we believe the stronger markets are, like the Gulf Coast for LNG exports."

Range reported a profit of $171 million, or $1.04/share for the second quarter, compared to net income of $144 million, or 88 cents/share in 2Q2013.

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