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Range Resources Increases Production Despite Lower Prices

Lower prices don't appear to be slowing drilling for Range Resources Corp., which reported a 13% production increase in the third quarter just ended compared to a year ago, with plans to double production in its prime Marcellus Shale property from 90-100 MMcf/d by the end of this year to close to 200 MMcf/d by the end of 2010. It expects company-wide production in the fourth quarter 2009 to be about 455-460 MMcf/d.

However, the drop in realized prices from $9.02/Mcfe in 3Q2008 to $6.35/Mcfe in 3Q2009 cut net income (non-GAAP) in half from $82.8 million in 3Q2008 to $41 million in the recent quarter.

Range, an early mover in the Marcellus, describes its progress as "taking a slow, disciplined approach...We expect cash flow and asset sales to fund our 2010 capital program," Range Resources Chairman John Pinkerton said during an earnings conference call Thursday. "We prefer to sell properties versus selling equity." Its management also thinks joint ventures usually aren't an attractive way to go. The company achieved its higher production totals despite the sale in the second quarter of some of its higher-cost, mature properties that were producing 15 MMcf/d to help fund this year's expenditures.

Cost-cutting measures are helping the economics, particularly a program to recycle 100% of the water used in hydraulic fracturing its Marcellus wells. The process starts with the pumping of 100% of the required water into the well being stimulated. Only a fraction of the water flows back and that water, along with additional pumped-in water, is used in the next well. It significantly reduces the amount of water required for fracturing and also eliminates the need to truck the water away for disposal. By recycling the water Range has cut its water use by 25% or a million gallons per well, resulting in a savings of "a couple hundred thousand dollars," company officials said.

To date Range has drilled and completed 60 horizontal Marcellus Shale wells, of which 54 are online and producing more than 80 MMcf/d. Range counts the current cost to drill and complete one of these wells in southwestern Pennsylvania from a multi-well pad at about $3.5 million with production expected to total between 3-4 Bcfe, although some are expected to go to 4.4 Bcfe.

Almost all of Range's Marcellus property is in Pennsylvania, with fractions in West Virginia and Ohio. Although it has long had conventional operations in New York State it has no Marcellus properties there. "We know first hand how difficult New York can be," a company official said during the conference call, referring to regulation and permitting. "New York is more challenging; it always has been and always will be," based on what he described as the "business risk."

In its main Marcellus operations in southwestern Pennsylvania Range has been able to get drilling permits in 30 days or less; one even was issued in eight days. There's some history to that. It was pointed out that the Marcellus area in that part of the state is not far from where the first oil well was drilled 150 years ago.

Range also is developing properties in northeastern Pennsylvania and has producing properties in the Barnett Shale.

Due to the drilling success and funds available from already completed asset sales, Range's board of directors has increased the 2009 capital budget from $700 million to $740 million. The increase will provide funds to acquire additional leases in areas where the company has had drilling success this year. While capital expenditures were increased 6%, the 2009 production growth target was increased from 10% to 13%, a 30% increase.

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