Range Resources Corp., which has had to find other outlets for its Appalachian ethane and butane over the last three months with Mariner East (ME) 1 offline in Pennsylvania, expects the outlook for natural gas liquids (NGL) to continue improving after the pipeline restarted service on Tuesday.
The company, ME 1’s anchor shipper with a combined 40,000 b/d of ethane and propane on the system, was forced to utilize rail and other Appalachian infrastructure for its volumes when Sunoco PIpeline LP shut down the pipeline on Jan. 20 after a sinkhole exposed part of it. Sunoco said Tuesday the pipeline was back in service after months of working with state regulators to ensure its safety. Range’s Dennis Degner, senior vice president of operations, added that the company expects full service to ramp-up in the coming days.
Range managed to get its product to market during the first quarter, when NGL prices, including hedges, increased 15% year/year to $23.17/bbl. In addition to the ME 1 outage, the company had to contend with abnormally foggy weather on the Houston Ship Channel that slowed operations and some continued delays for ethane crackers on the Gulf Coast that were expected to come online earlier.
Sunoco started partial service on ME 2 in December, and it’s now moving about 150,000-165,000 b/d, which softened the blow of the ME 1 outage and allowed the company to resume NGL exports from the Marcus Hook Industrial Complex near Philadelphia.
While the company beat its first quarter production guidance, management noted during a call on Tuesday to discuss results that one of its primary focuses this year remains generating free cash flow (FCF) and reducing debt.
Those efforts are expected to be aided by a forthcoming asset sale. “Divestiture processes continue on multiple fronts,” said CFO Mark Scucchi. “We are currently marketing several opportunities.” While Scucchi said the data rooms are open and “active negotiations” are ongoing, he declined to provide specifics. But the company has not ruled out a sale of its large position in North Louisiana, where the Cotton Valley Sands Terryville Complex continues to underperform. Other noncore assets, like those in northeast Pennsylvania, also are on the table in addition to royalty interests.
“We’re not going to pin down timing,” Scucchi said of when a sale could be announced.
Range produced 2.256 Bcfe/d during the first quarter, above the 2.225 Bcfe/d forecast for the period. Production also was up from 2.188 Bcfe/d in the year-ago quarter and 2.149 Bcfe/d in 4Q2018. Degner said 30% of the full-year capital budget was spent during the first quarter, or about $226 million, adding that spending would be front-end loaded this year.
The Appalachian assets continued to drive results, accounting for 2.027 Bcfe/d, with the bulk of that coming from southwest Pennsylvania, where Range produced 1.915 Bcfe/d. Production from the North Louisiana assets continued to fall, hitting 229 MMcfe/d in 1Q2019, compared with 366 MMcfe/d in the year-ago period and 256 MMcfe/d in 4Q2018.
Range used organic FCF to pay down $48 million in debt during the first quarter, and total debt stood at $3.8 billion at the end of the period. The company continues to drive efficiencies throughout its operations, including ongoing tests of longer laterals of about 18,000 feet to lower well costs.
Range’s realized prices, including hedges, declined slightly to $3.43/Mcfe in the first quarter, compared to $3.58/Mcfe in 1Q2018. CEO Jeff Ventura said a slowdown in southwest Appalachia in response to declining gas prices and weak demand should actually improve Range’s outlook going forward as local prices improve and provide more in-basin opportunities for the volumes that don’t come with higher transportation costs.
The company reported net income of $1.4 million (1 cent/share) for the first quarter, compared with $49.2 million in 1Q2018. First quarter results included a $61.7 million derivative loss because of increases in futures prices. Revenue was up 1% year/year to $748 million in the first quarter.
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