For the second time this year Range Resources Inc. has bumped up its capital budget — this time by $200 million to $1.27 billion. The independent also increased its forecast of production growth by 4% to 19% to expand its leasehold position in the Marcellus Shale, where it holds an enviable position of more than 1.1 million net acres.

Range in February increased its capital spending by 18% to $1.065 billion (see Daily GPI, Feb. 7). At that time the Fort Worth, TX-based producer said it planned to use the increased funds to develop its Texas, Midcontinent and Appalachian properties. The latest bump exclusively targets its Marcellus Shale leasehold.

“Given that Range has drilled more wells in the play than all other companies combined, we believe we are well positioned to spend the additional capital prudently,” said CEO John Pinkerton. “Also, with the drilling success we have achieved so far in 2008 in our core properties, we have decided to increase our production growth target to 19%. Our multi-year portfolio of low-risk drilling projects is driving our production growth, which in turn puts us in the position to aggressively pursue our emerging plays.”

Range’s quarterly production averaged 371 MMcfe/d, which was 21% higher than in 1Q2007 and 8% higher sequentially from 4Q2007. The producer now operates in five shale-rich areas across the United States, led by two plays, the Appalachian Devonian Shale and the Barnett Shale, and followed by its leaseholds in the Permian Basin’s Barnett Shale extension, the Floyd Shale in the Black Warrior Basin and Woodford Shale in the Ardmore Basin.

The Marcellus Shale represents the opportunity to add 10-15 Tcf of net reserves to Range, COO Jeff Ventura said.

“The 10 Tcf to 15 Tcf is the net potential on Range’s 650,000 net acres that we had previously disclosed in the play,” Ventura told financial analysts during a conference call last week. “The 650,000 acres is a high-graded estimate of our Marcellus acreage based on the current knowledge in the play. Range previously announced that it owns approximately 1.1 million acres total in the play. We are actively acquiring acreage, and our high-graded acreage position now is approaching 700,000 acres.”

To date, Range has drilled and completed 63 vertical and 15 horizontal Marcellus Shale wells; an additional seven verticals and four horizontals are waiting on completion. The last three horizontal completions had initial production rates of 4.6, 2.6 and 5.8 MMcf/d, said Ventura. “The last well was particularly exciting in that it topped our previous highest rate completion, which was 4.7 MMcf/d and set a new high watermark for the company in this play.”

Range is “currently way ahead of the pack in terms of total number of wells drilled” in the Marcellus, he said. “We were the first company to achieve rates in excess of 1 MMcf/d on vertical wells and the first company to achieve success with horizontal drilling, with several wells now in the 3-5 MMcf/d range.”

The funding infusion will be used to step up development in its core Marcellus play, delineate new acreage and “aggressively add to our leasehold in select areas,” Ventura said. “We still see significant opportunities to grow our leasehold in multiple areas across [Pennsylvania]…Given the success Range has had in this play, coupled with the success of others, competition for acreage has increased considerably over the last six months and the cost to acquire acreage has gone up significantly.”

In recent weeks competition has indeed escalated. Southwestern Energy Corp. last week called the Marcellus Shale one of its “new ventures,” but management declined to discuss its plans (see Daily GPI, April 28). XTO Energy Inc. agreed to pay Linn Energy LLC $600 million for 152,00 net acres located across the shale (see Daily GPI, April 16). Anadarko Petroleum Corp. in March increased its capital budget, with an eye toward more spending in its Marcellus acreage (see Daily GPI, March 26).

Range now has three rigs running in the Marcellus Shale and plans to drill about 40 horizontal wells in the play this year.

“2008 will primarily be a year of delineation, acreage acquisition and building infrastructure,” said Ventura. “Significant volume growth will occur in 2009 and beyond.”

Last week the independent reported record quarterly production, oil and natural gas sales and cash flow. Production jumped 21% to 371 MMcfe/d in 1Q2008 compared with 1Q2007. Oil and gas sales, including cash-settled derivatives, jumped 41% to $322 million, and operational cash flow rose 49% to $241 million. Reported net income of $1.7 million included noncash charges of $138 million for the mark-to-market accounting on open commodity derivatives, $27 million of noncash stock expense and a $21 million gain on property sales. Adjusting for these items, net income was $95.5 million (62 cents/share), which was 35% higher than in 1Q2007. Wall Street analysts had forecast 1Q2008 earnings of 54 cents/share.

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