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Despite Quarterly Loss, Range Buoyed by Ethane Exports, Reaffirmed Credit Line

Despite reporting a more than $91 million loss in the first quarter, executives with Range Resources Corp. waxed optimistic after the company became the first from North America to export ethane to Europe, and all of its lenders reaffirmed its existing $3 billion credit facility.

Fort Worth, TX-based Range reported a net loss of $91.7 million (55 cents/share) for 1Q2016, compared to net income of about $27.7 million (16 cents/share) in the year-ago quarter. During an earnings call to discuss 1Q2016 last Friday, CFO Roger Manny attributed much of the loss to a $43 million pre-tax impairment on certain Oklahoma properties.

The company said it remained on target with its $495 million budget for capital expenditures (capex) for 2016, a 45% reduction from its capex budget for 2015 and 69% lower than 2014 (see Shale DailyMarch 29). Range spent $130 million to drill 24 gross (22 net) wells in the first quarter, followed by $5 million for acreage purchases, $4 million for exploration expenses and $1 million on gathering systems. The company said it expects to average three rigs throughout 2016.

Range reported production of 125.78 Bcfe (1.38 Bcfe/d) in 1Q2016, a 5% increase from the 1Q2015 (119.49 Bcf/e, 1.33 Bcfe/d). The company said its two Marcellus Shale divisions accounted for about 1.33 Bcfe/d of net 1Q2016 production, a 17% increase from the year-ago quarter. Most of the increase came from its Southern Marcellus Shale Division. The company issued production guidance of 1.41 Bcfe/d for 2Q2016.

"We believe this year we'll look very similar to previous years -- with sequential quarterly growth -- and our exit rate will be higher than it was at the end of 2015, setting us up well for 2017," said COO Ray Walker. "From the first quarter, we continue to drive down our overall unit cost, resulting in a reduction of 10% from the prior year quarter. Basically, all of the categories beat guidance."

Walker added that Range's lease operating expenses (LOE) had declined 37%, from 30 cents/Mcfe in 1Q2015 to 19 cents in 1Q2016. Total unit costs also declined 10% between the two aforementioned quarters, from $3.00/Mcfe to $2.71.

Last Thursday, Range reported that its $3 billion borrowing base and $2 billion commitment amount under its $4 billion bank credit facility were reaffirmed with no changes. As of the end of 1Q2016, the balance drawn under the credit facility totaled $31 million.

Manny emphasized that all 29 banks that serve as Range's corporate lenders approved the reaffirmation, "despite a difficult energy banking marketplace.

"The reaffirmation provided a favorable independent market test of the quality of our assets, the competitiveness of our cost structure, the strength of our banking relationships and the unique portfolio of value-added marketing arrangements we have for our natural gas, NGLs [natural gas liquids] and condensate, which will improve future pricing."

 At the end of March, Range closed on the sale of nearly 11,000 non-operated acres in Bradford County, PA, for $110 million to an undisclosed buyer (see Shale DailyMarch 29). The assets, operated by Spain's Repsol SA, had an average working interest of 23%, with net production of approximately 22 MMcf/d.

Last month, Range signed an agreement to sell approximately 9,200 net acres in the STACK (Sooner Trend, Anadarko, Canadian and Kingfisher) play in Oklahoma to an undisclosed buyer for about $77 million. The assets include approximately 5 MMcfe/d of net production from about 200 wells in Blaine, Canadian and Kingfisher counties. Ventura said the deal is expected to close by the end of May, after which Range will still own approximately 19,000 net acres, most of which is in Major County, OK, and is prospective to the northern STACK and the emerging Osage Formation.

"Given that this play and other plays are moving in a direction of our position, we believe this acreage will increase in value with time in additional drilling results," said CEO Jeff Ventura. "Our plans will be to keep it for now, since it's primarily HBP [held by production], and we'll look at the possibility of selling it at a more opportune time in the future."

Last March, Range became the first company based in North America to export ethane to Europe (see Shale DailyMarch 10). The shipment, bound for Norway, left port from the Marcus Hook Industrial Complex in Pennsylvania.

"The ability to ship ethane and propane out of Marcus Hook is a significant competitive advantage for Range," Ventura said. "We're now able to connect a large percentage of our NGL production to end markets, the buyers and consumers.

"As represented in our guidance for 2016, it has a meaningful impact on both NGL production and pricing. Given of our transportation contracts for 2017, approximately 70% of our natural gas is projected to be sold in markets outside of the Appalachian Basin, further improving [our] expected natural gas differentials going forward. By the end of 2017, we expect to increase the amount of natural gas to be sold outside of the Appalachian Basin to about 82% of production."

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