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Range Resources Bullish on Virginia's Nora Field

Range Resources Corp. turned in another solid quarter of record production.

But while it avoided some of the commodity price headwinds that have thus far been reflected in its peer's results, the company is still betting an uplift as its Marcellus Shale assets in southwest Pennsylvania will continue to be its main value driver going forward.

The company reported more than 1.2 Bcfe/d of production, driven mainly by its southern Marcellus division, which produced 778 MMcfe/d. Third quarter production was up 26% from the 960 MMcfe/d it produced at the same last year (see Shale Daily, Oct. 17, 2013). The company leaned heavily on those volumes, though, and with a longer history in the Appalachian Basin than many of its peers, Range has 1.1 Bcf of firm transportation capacity that helped it achieve a profit during an otherwise challenging quarter for Appalachian operators (see Shale Daily, Oct 24a; Oct. 24b; Oct. 28).

It was still not immune to those headwinds, however, with realized natural gas prices, including hedges, falling from $3.88/Mcf in 3Q2013 to $3.63/Mcf last quarter.

"We continue to believe [Range Resources] is as well positioned as any to maximize its Marcellus resource potential," said financial analysts at Wells Fargo Securities. "However, we just don't like the near-term natural gas fundamentals. As such, it seems unlikely that the usual conference call fare will be enough to get shares moving."

Analysts at Tudor, Pickering, Holt & Co. agreed, saying they expect that Range's gas differentials will likely widen further in the fourth quarter by 10 cents or so.

Range talked more about its future than anything else on Thursday's conference call, highlighting the 2.4 Bcf/d of firm transportation it expects to have access to by 2018 and the more than 20 different indices across the country it will expose its Appalachian volumes to (see Shale Daily, Oct. 15).

"Basin demand in the overall Northeast is approximately 12-13 Bcf/d, including summer injection, this seasonal oversupply has had a negative impact on Appalachian index prices during the current shoulder period," said Chad Stephens, senior vice president of corporate development. "Index prices in other parts of the country have remained relatively stable as the current shoulder period ends and winter season demand picks up Northeast regional index prices that are expected to improve. The good news is the midstream industry is bringing relief to an oversupplied Appalachian region."

Detracting from the northern part of the basin, management spent a considerable amount of time discussing its future prospects in the Nora Field of western Virginia. The company had its first full quarter of operations there after boosting its position with an asset exchange earlier this year with EQT Corp., which gave it an additional 138,000 net acres and increased its pipeline assets by 1,200 miles (see Shale Daily, May 1).

"It has scale, repeatability, very good economics and one of the best gas prices in the United States," said CEO Jeffrey Ventura of the coalbed methane (CBM) assets there.

Range brought online six new wells in the Nora last quarter, where it produced 110 MMcf/d. Ventura said while the Marcellus will continue to be the "value driver" for the company going forward, both the Nora and Midcontinent will likely get an increasing share of Range's capital budget moving forward as costs continue to come down in Pennsylvania.

"We're doing some low tech things that are fairly inexpensive to enhance the value of the tight gas sands in the CBM and having great success," Ventura said of the Nora. "There's deeper potential -- in the Devonian section at about 5,500 feet -- but there are deeper targets as you get below that. Even though the southern part of the Appalachian Basin is sub-normally pressurized, our explorationists think that as you drill deeper, which we really aren't sure where that is yet, it may ultimately be 11,000, 12,000, 13,000 feet, you actually break back into normal pressure in some of those horizons, which could also contain liquids or wet gas."

COO Ray Walker said Range had undertaken some "major well design changes" in the Nora last quarter by using higher-grade casing and higher-rate foam fracks at an additional cost of $10,000-20,000. He said one of the wells recently turned to sales produced at a 60-day rate of 340 Mcf/d, which he added was five times the average of a typical CBM well.

The company's first Utica Shale well in southwest Pennsylvania is also on track for a December test, Ventura said (see Shale Daily, June 5). Completions on that well, located in Washington County, are currently taking place. Ventura said "diagnostic information from the well is consistent with our expectations."

Range turned 46 wells to sales in the Marcellus, Midcontinent and Nora last quarter. Overall, its production consisted of 822.4 MMcf/d of natural gas, 53,460 bbl of natural gas liquids and 10,710 bbl of oil and condensate. Management said it expects fourth quarter production to be 1.35 Bcfe/d.

The company reported net income of $146 million (86 cents/share), up from the $19 million (12 cents/share) it reported in the year-ago period.

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