Range Resources said Tuesday it paid $219 million for an unnamed company with 205 Bcfe of Appalachian oil and gas reserves, 99% of which are natural gas and only 40% of which are developed. Range said the acquisition involves the legacy oil and gas assets of an eastern coal company that date back almost a century. More than 80% of the reserves are coalbed methane.
“This is a unique acquisition opportunity,” said Range President John H. Pinkerton. “A significant portion of the value involves royalty interests which command a substantial premium. Just as important, the properties are comprised of high-margin, long-life gas reserves that have predictable multi-year growth potential driven by large concentrated acreage positions.” At year-end, the reserve-to-production ratio on the properties will exceed 20 years.
“The properties fit well with our existing Appalachian operations and greatly expand our exposure to coalbed methane,” he added. “Finally, we believe the acquisition’s cost metrics are outstanding. Without any allocation of purchase price to acreage, the proved reserves are being acquired for $1.07/Mcfe ($1.52/Mcfe fully developed). This is particularly significant as we can manage the properties with only a modest increase in overhead given our technical and operating staff in the basin. We now anticipate that companywide production will increase by more than 20% in 2005 assuming the acquisition closes.”
Range said current production from the properties is about 14.8 MMcfe/d, of which 40% is royalty gas. About 70% of the production is coalbed methane, with the remainder coming from tight sand reservoirs. Operating costs on the working interests currently average $0.58/Mcfe.
The properties include 417,000 acres located primarily in Virginia and West Virginia. On 373,000 mineral acres, the interests include a royalty and a working interest. About 30% of the current proved reserves are derived from royalty interests, which bear no operating costs. Of the 1,872 producing wells being acquired, Range will own a royalty interest in 1,317 wells, a royalty and working interest in 516 wells and a working interest in 39 wells. A total of 1,550 drilling locations have been identified to date, of which 790 have been classified as proven. In 90% of these locations, Range will own a 12.5% royalty as well as a 50% working interest.
Range anticipates that between 100 and 150 new wells will be drilled on the acquired properties in 2005. Through ongoing development, production from the properties is projected to increase 10% to 15% a year for at least the next eight years.
As a result of the company’s Great Lakes acquisition earlier this year, Range’s Appalachian production and reserves will have more than tripled during 2004. The company’s acreage position in Appalachia will exceed 1.9 million (1.7 million net) acres.
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