Range Resources Corp.’s management team is “convinced” that its best wells are still to come in the Marcellus Shale after some new wells punched into a previously drilled area with five years of production history were “substantially better than previous wells,” according to COO Ray Walker.
Walker and the rest of the management team talked about how the relatively “young” Marcellus already is being redefined during a conference call about 1Q2013 operations and financial performance. The Marcellus is expected to carry Range’s production and share growth by 20-25% for “many years.”
Between January and March, Range once again broke a production record on total company output of 876 MMcfe/d, which was more than one-third higher than in the year-ago period. Unit costs fell by 42 cents/Mcfe, 10% from a year ago. Oil and condensate production year/year climbed 52%, natural gas liquids (NGL) production rose 22%, and natural gas production was 34% higher.
The Marcellus division in 1Q2013 brought online 25 wells in Southwest Pennsylvania, with 20 in the liquids-rich area and five in the dry gas area. The initial production rates of the new wells averaged 11.5 MMcfe/d (9.2 net), weighted two-thirds to liquids.
Improvements in well performance resulted from longer laterals, reduced cluster spacing (RCS) completions, better hydraulic fracturing (fracking) designs and new targeting technology, said Walker.
Range in the first three months ramped up a six-well pad in the southwestern Marcellus at 14,040 boe/d, or 2,340 boe/d average per well, all 65% weighted to liquids. Another six-well pad also is about to be brought online “that also looks very good at 1,860 boe/day per well with 64% liquids,” he said.
“Now in and of itself, these are impressive wells with great production rates and outstanding economics,” said the COO. “The punchline is that these new wells are in an area that already had eight offset producing wells with up to five years of production history, and the new wells are substantially better than the previous wells.”
The 24-hour production rates for each of the 12 wells, he noted “are actual rates to sales, but yet they’re all constrained by limitations of the facilities and gathering system. In spite of being choked back, which is by design, by several metrics, these new wells are simply better than those nearby older wells.
“In our view, the improvements are because the new wells were targeted better, had 30% longer laterals and had optimized RCS frack designs when compared to the older wells.
In the new wells, the gas rate/frack stage is 28% higher for the first 20 days and the gas rate per equivalent lateral length is 125% more, he said. “Importantly, production per dollar spent is 140% higher than the older wells for those first 20 days…Clearly, this illustrates the potential upside that we could see going forward as we go back into previously drilled areas.” The 12 wells “also support our belief that we have not yet drilled our best well in the wet and super-rich Marcellus.”
The potential upside is not only in wet gas, but in the dry areas as well.
“We’ve been talking about these techniques for quite some time but now are seeing tangible and impressive results and again, recognizing real upside in well performance as we go back into previously drilled areas,” said the COO. “Today, we have over 430 horizontal Marcellus wells in Southwest Pennsylvania on our 540,000 net acre position, which are producing approximately 500 MMcfe/d net. If we were to develop the entire position on 80 acres, that’s 6,750 wells. Best to date, we’ve only drilled about 6% of our wells on 80-acre spacing.
“If you could drill all 6,750 wells today, when you do the math, we have the potential to grow our Southwest Pennsylvania production to almost 8 Bcfe/d. Of course, this is assuming we drill all our acreage on 80s [spacing] and all the wells are equal and, at the same time, and so on. Obviously, I’m not saying we will grow at 8 Bcfe/d, but it does give us confidence…that we can grow significantly for many years.”
For Range, “it really is the Marcellus and our large acreage position in Pennsylvania that will drive our share price for many years,” explained Walker. “We’ve only just begun to get a glimpse of the upside as our technical team continues to accelerate its understanding of the reservoir and delivers results.”
Over the longterm, Marcellus natural gas is particularly advantageous “from a marketing point of view,” said CEO Jeff Ventura. “Gas from the Marcellus will not only supply the northeast United States, but gas from the Marcellus will move into the Midwest and Southeast markets. It’s also strategically located relative to existing pipeline infrastructure, as well as the export facilities and harbor, in the Philadelphia area. It’s this position that gives us the confidence to project 20-25% growth for many years.”
Range has more than one play that it’s counting on for future growth, including in the Utica Shale in Ohio, northwestern Pennsylvania, the Permian Basin’s Cline Shale, as well as the emerging Mississippian Lime acreage along northern Oklahoma’s Nemaha Ridge. A total of 16.7 net wells were turned to sales in the Mississippian from January through March, with average lateral lengths of 3,616 feet and 19 frack stages. Average seven-day completion rates were 382 boe/d net, 78% weighted to liquids.
Range expects to turn to sales about 178 wells in the Marcellus and Mississippian this year. Production from April through June is forecast to be 880-890 MMcfe/d, with liquids comprising about one-fifth of total output.
Because of one-time derivative losses of $99.88 million, Range recorded a net loss in 1Q2013 of $75.6 million (minus 47 cents/share), which was 81% lower than in 1Q2012, when it lost $41.8 million (minus 26 cents), also on one-time items that totaled $60.83 million. Minus the one-time items, Range earned $52.9 million, or 33 cents/share in the latest period, which was higher than Wall Street’s consensus estimate of 28 cents.
Wellhead prices, after adjusting for hedges, averaged $5.06/Mcfe, down 3% from 1Q2012. Quarterly realized prices for 689 MMcf/d of natural gas were $4.09/Mcf; for 20,994 b/d of NGLs, $35.29/bbl, and for 10,141 b/d of crude oil and condensate, it was $85.46/bbl. At the end of March Range had more than 70% of its expected remaining 2013 natural gas production hedged at a weighted average floor price of $4.15/Mcf; more than 80% of projected remaining crude oil production at a floor price of $94.63/bbl, and more than half of its composite NGL output near current market prices.
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