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In Familiar Refrain, Marcellus Drives Range to Record Production

Range Resources Corp. announced another record high for quarterly production -- this time achieving 960 MMcfe/d for 3Q2013-- thanks in large part to the continuing success of its drilling program in the Marcellus Shale.

The new record was a 21% increase over 3Q2012, when production averaged 790 MMcfe/d (see Shale Daily, Oct. 26, 2012; Oct. 12, 2012). It also eclipsed the previous record of 910 MMcfe/d, which Range hit during the preceding quarter, 2Q2013 (see Shale Daily, July 12).

Production for the third quarter was 77% natural gas, 16% natural gas liquids (NGL) and 7% crude oil and condensate. According to Range, oil and condensate production increased 43% compared with 2Q2013, while NGL production rose 28% and natural gas production increased 19%.

Adjusting for the second quarter sale of 7,000 net acres in the Permian Basin in New Mexico and West Texas (see Shale Daily, Feb. 28; July 16, 2012), Range said its third quarter production would have increased 24% over 3Q2012. The company said oil and condensate, NGL and gas production would have all increased as well -- by 58%, 29% and 21%, respectively.

The Fort Worth, TX-based company attributed the new production record to its successful drilling program in the Marcellus. It cited "continued positive performance of wells" and "the timing of turning wells to production" in the shale play.

"Third quarter production results were outstanding and reflect the continuing efforts of our operating and marketing teams," said CEO Jeff Ventura. "The success of our drilling program keeps us on track to achieve the high-end of our production growth target of 20% to 25% for 2013.

"More importantly, our sizable position in the Marcellus Shale gives us confidence that we can deliver similar growth of 20% to 25% for many years. We believe this strong growth, coupled with high returns, low cost and low reinvestment risk will allow Range to drive substantial growth per share for our shareholders for years to come."

Range's production guidance for 3Q2013 was between 945 and 950 MMcfe/d.

Range said its third quarter production averaged 739 MMcf/d of gas, 25,678 b/d of NGL and 11,065 b/d of crude oil and condensate. Preliminary realized prices were $3.88/Mcf for gas, $31.08/bbl for NGL and $85.46/bbl for crude oil and condensate. The third quarter average gas price improved 65 cents/Mcf before hedging settlements, as compared to 3Q2012.

Despite the production record, analysts lowered their earnings per share (EPS) estimates for Range.

In a note Thursday, Wells Fargo Securities LLC analysts said the firm was lowering its 3Q2013 EPS from 35 cents/share to 26 cents/share. For the full-year 2013, Wells Fargo lowered its EPS from $1.42/share to $1.22/share. The firm said both figures reflect changes subsequent to Range's results during 2Q2013.

"While Range had hedges on 77% of its 2Q2013 production, and therefore wasn't as subject to weaker hub pricing, [Wall] Street will still be relieved," Wells Fargo analysts David Tameron, Gordon Douthat, Brad Carpenter and Jamil Bhatti said. "If we compare Henry Hub bidweek prices [for] 3Q2013 versus 3Q2012, there was an $0.87/Mcfe difference year over year [y/y].

"Net-net, Range's realized prices moved down $0.22/Mcfe ($0.87 less $0.65) 3Q2013 versus 3Q2012, reflecting the Marcellus pricing weakness. So while crude math, it at least gives a sense of direction y/y."

Wells Fargo had estimated Range's 3Q2013 production would be 950 MMcfe/d.

At Tudor, Pickering, Holt & Co. (TPH), analysts gave Range's stock a neutral rating. While conceding that the company beat its expectations (959 MMcfe/d) and those of Wall Street (953 MMcfe/d) for the quarter, TPH cited "weakness across the board" with Range's price realization average of $4.80/Mcfe, a 2% composite decrease from 3Q2012. The analysts were expecting $5.01/Mcfe.

Consequently, TPH lowered its EPS estimate for the quarter from 33 cents/share to 28 cents/share. The firm said Wall Street's EPS estimate was 32 cents/share.

TPH added that its analysts "will be listening for incremental updates to well performance helping to tie in wet gas type curves," during Range's 3Q2013 conference call, which is scheduled for 9 a.m. ET on Oct. 30.

Range estimates that it spent about $3.7 million during the third quarter for purchasing and blending third party dry gas, and using it to create rich residue gas in the southwest portion of the Marcellus.

"The purchase and sale will be reported separately in 'brokered natural gas and marketing revenues and expenses' for the quarter," Range said. "The Mariner West project, expected to be fully operational during November, will eliminate Range's need for gas blending in the future," (see Shale Daily, Sept. 28, 2012).

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