Range Resources said it has added about 80 Bcfe of West Texas gas (88%) and oil reserves near its Conger Field in Sterling County for $85 million. About 14 MMcf/d of gas currently is being produced and Range said it expects a shallow production decline and long life with a reserve-to-production ratio of more than 15 years.
“It is large enough to immediately make a meaningful contribution to earnings and cash flow while fitting perfectly into our existing asset base,” Range President John H. Pinkerton said regarding the purchase. “The purchase will make Range the largest operator by far in the Conger Field and should permit us to achieve substantial economies of scale on the existing properties as well as on any future purchases in the vicinity.
“Given our technical and operating staff in the area, we can manage the properties without any material increase in overhead,” Pinkerton added. “We expect to methodically exploit the properties, increasing production and proved reserves over time. Given the recent success of our drilling program and the benefits of this acquisition, we now anticipate production will increase by 10% to 15% next year. At current commodity prices, that should position us to report outstanding financial performance throughout 2004.”
The properties include more than 500 wells which produce primarily from the Cisco and Canyon formations at an average depth of 7,500 feet. An associated 400-mile gathering system that collects and transports production also is being acquired. More than 40 proven drilling locations will be acquired along with all deep drilling rights on 38,000 gross (32,000 net) acres of leases.
Range plans to initiate a drilling program on the properties next year to increase production over the course of the next three years. Given a modest allocation of the purchase price to the gathering system, the proved reserves are being acquired for $1/Mcfe.
The purchase, which is expected to close by year’s end, will be financed with bank borrowings. Range said its debt-to-capitalization ratio will be approximately 54% at year’s end but with debt reductions from free cash flow and the anticipated sale of certain non-strategic assets, the debt ratio is expected to fall below 50% within six to nine months.
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