In addition to announcing a significant shift in its shale strategy, Fort Worth-based Range Resources said this week that it has trimmed its quarterly losses from $29.8 million, or 19 cents/share during 3Q2009 to $8.2 million, or 5 cents/share for 3Q2010.

During a 3Q2010 earnings call, the company said it has put its Barnett Shale properties in Texas up for sale and announced that it plans to focus on its "liquids-rich plays" in the Marcellus Shale.

In 3Q2010, Range said financial results were impacted by a 22% drop in realized prices, which more than offset a 16% decrease in unit costs. Adjusted net income for 3Q2009 was $18.9 million, or 12 cents per diluted share, down from $41 million, or 26 cents per diluted share during 3Q2009.

Production averaged 503 MMcfe/d for the quarter, a record high for the company and a 15% increase over the prior-year quarter. Range said this represents the 31st consecutive quarter of sequential production growth. Production was 77% natural gas and 23% natural gas liquids (NGL) and crude oil. Drilling in the liquids-rich portion of the Marcellus Shale play as well as in the Midcontinent and Permian Basin regions drove the production growth. On a year-over-year basis, NGL and crude oil production rose 62%, while natural gas production rose 6%, the company said.

"While our financial results were impacted by a 22% decline in realized prices, much progress was made in the third quarter as our operating results were terrific, and we continue to execute on reducing our cost structure," said CEO John Pinkerton. "Production rose 15%, surpassing the 500 MMcfe/d milestone and marking our 31st consecutive quarter of sequential production growth. Unit costs continued to decline, with depreciation, depletion and amortization expense leading the way with an 18% decrease versus the prior-year quarter."

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. (TPH) said Range missed consensus estimates they had for the company for the third quarter due to higher expenses. TPH analysts David Heikkinen and Brad Pattarozzi said "realized gas prices were significantly lower than we expected," adding that due to Range's relationship with MarkWest Energy Partners LP, the midstream provider "gets their rate of return on the midstream upfront so first production is burdened with higher costs."

In June 2008 Range and MarkWest agreed to develop infrastructure in the Marcellus, and Range secured firm transportation capacity for 15 MMcf/d, with plans to expand capacity as the play developed (see Daily GPI, July 15, 2008).

The Barnett properties include approximately 360 producing wells and 1,000 drilling locations, Range said, noting that net production from the properties is expected to average approximately 120-130 MMcfe/d in 4Q2010. The holdings include 53,000 net acres, of which approximately 80% is located in the core of the play and nearly 80% of the acreage is currently held by production.

"Importantly, our portfolio of high-quality, high-return projects is leading the way as shown by the results of liquids-rich plays in the Marcellus Shale play as well as in the Midcontinent and Permian areas," said Pinkerton. "Our confidence in the quality and size of these plays was one of the key reasons we have decided to market our Barnett Shale properties. Divesting of our Barnett Shale properties reflects Range's strategy of focusing on per-share growth.

"While a sale of our Barnett Shale properties will provide substantial capital, it will not inhibit our per-share production and reserve growth outlook. We currently anticipate that we can grow production and reserves in 2011 on both an absolute and per-share basis, despite losing the production and reserves associated with the planned sale."

The Barnett divestiture move would appear to be a departure from the company's plans just one quarter ago. During the 2Q2010 earnings call, Range said it planned on continuing to build on its "core areas" in the Barnett, Marcellus and Nora plays.

Heikkinen and Pattarozzi said the asset sale is smart as long as the price is right. "Monetizing Barnett would reduce capital/equity need through 2012 plus divest gassy assets to focus on core, more liquid rich Marcellus. Price, however, is going to matter, with $11K+/MMcfe/d necessary for the deal to be neutral to multiples or NAV [net asset value]."

The analysts added that as Range's Marcellus position/focus has continued to grow, the company has "slowed down Barnett activity to the point where the company is only running one rig in the Barnett and has moved its core Barnett team to focus on the Northeast Marcellus. From a capital allocation standpoint, economics are simply better in [Range's] southwest PA acreage versus dry gas out of the Barnett..."

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