Range Resources Corp. CEO John Pinkerton said he believes 2012 will be "a breakout year" for the company as it ramps up production in the Marcellus Shale and develops assets in other plays to replace those in the Barnett Shale that were sold in April.
During a conference call with industry analysts and shareholders on Wednesday to discuss the company's 3Q2011 results, Pinkerton said the Fort Worth-based company anticipated capital expenditures (capex) spending would total $1.47 billion in 2012, an increase of $90 million or 6.5% over its budget from its initial 2011 budget.
"Selling our Barnett Shale properties was somewhat of a bold move, as the Barnett properties comprised 20% of our production at the time," Pinkerton said. During his closing remarks he predicted that shareholders "were going to be really excited when we display what we're going to do in 2012 and what's it's going to do in the accelerated production growth coupled with a decrease in costs. I'm excited about getting [4Q2011] over so we can show you all that."
Range COO Jeffrey Ventura, who will take over as CEO when Pinkerton steps down at the end of the year, said the 2012 capex plan was still being put together and would be presented to the board of directors in December, but predicted that the lion's share of the funding -- 86%, or approximately $1.26 billion -- would be devoted to the company's Marcellus division, while the rest would be divided among the Midcontinent (6%), Southern Appalachia (4%) and Southwest (4%) divisions.
"The other divisions are doing a good job, and it shows," Ventura said. "Even though we're focused on the Marcellus, we have 40-56 Tcfe of upside. Just in the Marcellus, it's 22-32 [Tcfe]. But that means we have good growth in the other areas [and] so we've got a high quality portfolio."
Pinkerton said Range expects total company production will reach 650 MMcf/d in 4Q2011, with Marcellus production accounting for 400 MMcf/d. When pressed on where the remaining 250 MMcf/d would come from, Ventura gave specific praise to the Midcontinent and Southern Appalachia divisions, the former of which is home to promising horizontal wells in the St. Louis and Mississippian plays.
"Those guys have done a great job," Ventura said. "Even though they weren't allocated a lot of capital this year, they're being very efficient with it. They're showing the quality of some of those plays."
Pinkerton added that 4Q2011 production revenue should increase approximately $70 million per day over 3Q2011 while unit costs continue to decline. He said that after factoring in the sale of the Barnett assets, 4Q2011 production could be as much as 43% higher than 3Q2011.
"The fourth quarter results should give our shareholders a good view of what 2012 should look like," Pinkerton said.
Range sold its assets in the Barnett Shale to Legend Production Holdings LLC and Riverstone Holdings LLS for $900 million in April so that it could focus more on the Marcellus (see Shale Daily, May 4; March 7; March 2).
Asked if the company planned to sell more assets in 2012 -- or even to concede that it was a priority -- Pinkerton said additional sales would be considered, but stressed that Range's focus would continue to be to increase net asset value (NAV) per share.
"My gut feeling is that between now and the end of next year, if you want you to pin me down to a number, we would be somewhere in the $50 million to $100 million, maybe $150 million, range of additional asset sales," Pinkerton said. "If somebody comes in and offers us a great price for a particular asset, we're going to take a hard look at it. And if we can then take those dollars and then reallocate it [toward] other projects and accelerate that NAV, we're going to jump on those opportunities and try to do that.
"We're in good shape. We don't have to do the asset sales, but to the extent that we do them, we've got a place to put the capital and really continue to ramp up our NAV."
Range announced on Oct. 18 that natural gas net output during 3Q2011 totaled 537.2 MMcf/d, a 7% increase from the same quarter one year earlier (see Shale Daily, Oct. 19). During Wednesday's earnings call the company said net income for 3Q2011 totaled $34.8 million (21 cents/share), up from a loss of $8.2 million (5 cents/share) from 3Q2010. Adjusted net income for 3Q2011 to $44.7 million (28 cents/share), up from $18.9 million (12 cents/share) for the same quarter one year earlier. Cash flow operations before changes in working capital also increased 35% between the two quarters to $190 million.
Despite those figures, net cash from operating activities including changes in working capital fell in 3Q2011 to $100.2 million, down from $140.1 million for the prior year quarter.
"From a financial perspective, the first half of 2011 was a transformative period, with the Barnett sale providing significant future funding and substantive improvements in our liquidity and balance sheet," CFO Roger Manny said. "The first half also brought about declining unit costs and increasing production revenue and cash flow. For the third quarter, we built upon the favorable trends of the first half with continued top line growth, lower costs and higher production."