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Range Packing Up in Barnett, Heading for Marcellus

Fort Worth-based Range Resources Corp. is pulling up stakes in the Barnett Shale of North Texas and redeploying its efforts and capital in the Appalachian Basin's higher-return Marcellus Shale, the company said.

Range has struck a deal to sell its Barnett Shale properties for $900 million to a private company. The Marcellus Shale is to get the lion's share of the company's 2011 capital budget.

The Barnett properties being sold encompass 390 producing wells covering about 52,000 net acres. Current production is 113 MMcfe/d. The company said late Monday it is retaining certain nonproducing acreage in the Barnett, which it values at about $50 million.

The sale is expected to close in late April, subject to conditions and price adjustments. The deal accomplishes two things in Range's view. It allows the company to ramp up activities in the Marcellus, and it puts the company on track to be cash flow positive by 2013, CEO John Pinkerton told financial analysts during a conference call Tuesday.

"The sale of our Barnett Shale properties will be the catalyst for Range becoming cash flow positive in 2013," said Pinkerton. "Under our plan, we will retain 100% of the resource potential of our Marcellus Shale play as well as from the Upper Devonian and Utica Shale plays. It will also allow us to pursue our other opportunities in the Nora area, the Midcontinent and Permian Basin.

"We have assembled a very attractive inventory of high-return, low-cost drilling opportunities. This is evidenced by our plan to sell the Barnett properties, representing more than 20% of our current production, and fully replace its production and generate double-digit growth all within the same year. With the signing of the Barnett sale agreement coupled with the outstanding drilling results we have already achieved early in the year, we are well on our way to accomplishing our 2011 plan."

Range said in October that it planned to sell its Barnett assets (see Shale Daily, Oct. 29, 2010). Pinkerton said Tuesday that back then he thought the properties would fetch $1.1 billion. He attributed the $200 million discount from his original expectations to the drop in futures market natural gas prices. Still, the $900 million agreed to with the nondisclosed buyer is more than the minimum Range intended to get, Pinkerton said.

The CEO allowed that he would have preferred to be selling the assets in a higher price environment and if gas prices do indeed climb, Range might have left a bit of money on the table. However, Pinkerton said the company views the transaction as essentially a like-kind exchange of Barnett for Marcellus properties; however, the Marcellus properties will be acquired over the next 18 months to two years.

Current Range production in the Marcellus is about 260 MMcfe/d net from both the southwest and northeast areas. At the end of the year the Marcellus division had drilled 52 horizontal wells that were waiting on completion and 15 wells waiting on pipeline connection. Range said it is on schedule to achieve its Marcellus Shale year-end 2011 production exit rate target of 400 MMcfe/d net.

Range also said Monday its 2011 capital budget was set at $1.38 billion and includes $1.13 billion for drilling and recompletions, $160 million for land, $55 million for seismic and $35 million for pipelines and facilities. About 86% of the budget will be directed toward the Marcellus Shale play. The remainder is allocated as 6% for the Midcontinent, 4% for Appalachia and 4% for the Southwest.

The budget will be funded with cash flow and a portion of the proceeds from the sale of the Barnett properties, the company said. Range has also identified $200-250 million of miscellaneous properties that it plans to offer for sale over the next 12 months.

The company currently plans to fund its 2012 budget with the $400 million carryover proceeds, operating cash flow and drawing approximately $150 million under its bank credit facility. Range said it can fully fund its 2013 capital spending with expected cash flow.

For 2011 Range is targeting year-over-year production growth of 10%, including the impact of property sales. Adjusting for property sales, 2011 production growth would be 25%. Looking to 2012, the company currently anticipates year-over-year production growth in the 25-30% range. For 2011 and 2012, all-in finding and development costs are currently projected to be $1.00/Mcfe or less.

Production for 2010 totaled 181 Bcfe, comprised of 142 Bcf of natural gas (79%), 4.5 million bbl of natural gas liquids (NGL) (15%) and 2 million bbl of oil (6%). Production for 2009 totaled 159 Bcfe and was 82% natural gas, 8% NGLs and 10% crude oil. Range has increased its natural gas production by 9% but has increased its NGL and crude oil production by 36% when compared year-over-year.

Production rose in each quarter of the year and averaged 495 MMcfe/d for the year. Wellhead prices, after adjustment for all cash-settled hedges and derivatives, decreased 19% to $5.23/MMcfe. The average gas price declined 27% to $4.46/Mcf, as the average oil price increased 11% to $69.31/bbl and the average NGL price increased 35% to $39.03/bbl.

Range replaced 931% of production in 2010. Drilling alone replaced 840%. At year-end reserves were 80% natural gas by volume and 20% crude oil and liquids. The percentage of proved undeveloped reserves increased to 51% versus 45% in 2009.

Late last year Range became locked in a heated dispute with the U.S. Environmental Protection Agency (EPA) over well water contamination in the area of its drilling activities that was alleged by EPA to have been caused by the company. Range strenuously denied responsibility and produced evidence at a Railroad Commission of Texas (RRC) hearing to back up its case. In depositions of EPA officials, it became evident that the agency could not say for certain that the water contamination was caused by Range (see Shale Daily, Feb. 10; Feb. 1).

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