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Range to Fund 2013 With Permian Sale

Range Resources Corp. will fund its $1.3 billion 2013 capital expenditures (capex) budget from operating cash flow, available liquidity under its bank credit facility and proceeds from asset sales, including a planned sale of Permian Basin properties in southeastern New Mexico and West Texas, the Fort Worth, TX-based company said last week.

Bank of America Merrill Lynch has been engaged to market the Permian properties and the data room is scheduled to open in early January. The properties to be marketed are currently producing about 18 MMcfe/d and are 30% weighted to oil and natural gas liquids (NGL), Range said.

Chesapeake Energy Corp. recently sold most of its Permian Basin properties to Royal Dutch Shell plc and Chevron Corp. for a net $3.3 billion, which was considerably less than the $4-6 billion that some analysts had predicted (see NGI, Sept. 17). Those assets produced about 21,000 b/d of liquids and 90 MMcf/d of natural gas in 2Q2012.

Range expects to spend about 85% of its 2013 capex budget on liquids-rich and oil projects, predominately in wet areas of the Marcellus Shale and through horizontal drilling in the Mississippian Lime. The 2013 capex budget, which includes about $1.1 billion for drilling and recompletions, $100 million for leasehold and renewals, $75 million for pipelines and facilities and $25 million for seismic, is about $300 million less than the expected 2012 capex, reflecting a $200 million decrease in dry gas drilling and a $100 million reduction in expected leasehold expenditures.

Range projects that the 2013 capex and its focus on the Marcellus and Mississippian will generate 20-25% year/year (y/y) production growth.

"We have the flexibility to shift capital from dry gas drilling to our liquids-rich plays, which generate exceptional returns for our shareholders," said CEO Jeff Ventura. "In addition, we expect to achieve double-digit per share growth in production and reserves while continuing to focus on reducing expenses in our already low cost structure." Projected growth for 2013 is expected to be accomplished at an average all-in finding and development cost of $1.00/Mcfe or less.

The Marcellus liquids-rich area and the horizontal Mississippian play, where Range has a combined acreage position of about 500,000 acres, have the highest estimated rates of return in the company's portfolio.

Range recently said its planned five-rig drilling program for 2013 in the Mississippian Lime, which was scheduled to start up early next year, already is under way based on encouraging results from a crop of wells in the Nemaha Ridge area. Based on its current plans, Range expects to run 10 rigs in 2014 and 15 rigs in 2015. The multi-year rig program is projected to hold "substantially all" of the company's current acreage position. Next year's five-rig program is scheduled to drill 68 wells, consisting of 51 producing wells and 17 water disposal wells.

Range is planning to reduce dry gas drilling primarily in the Marcellus Shale's northeastern Pennsylvania area, where it expects to drop to just one rig in 2013 from up to five this year.

Activity in the Marcellus and Mississippian helped Range beat its 3Q2012 forecast for natural gas and NGL production, with output up 47% y/y and 10% sequentially. Range sold most of its Barnett Shale leasehold two years ago to concentrate its exploration efforts in the Marcellus (see NGI, Nov. 1, 2010).

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