Range Resources Corp. is continuing to take hits from its acquisition more than two years ago of Memorial Resource Development Corp. (MRD) and the underperforming assets in North Louisiana that were part of the deal, which accounted for the bulk of a nearly $2 billion loss in 2018.
The company has largely neglected its properties in the Cotton Valley Sands Terryville Complex since early last year, when management acknowledged that wells were continuing to show poor results. Since then, Range has scaled back in the Terryville in favor of its prolific position in the Appalachian Basin, which is again set to receive the majority of its budget this year.
The fourth quarter included an impairment of unproved properties related to the value originally allocated to an extension area outside the core Terryville assets in North Louisiana, where the company had been testing its acreage.
“As part of our stringent capital allocation process, we determined we no longer had the intent to develop these properties,” CFO Mark Scucchi said of the extension area. “The competition for capital within Range is substantial, and these potential drilling locations were dropped as a result of strong returns elsewhere in the portfolio.”
Falling in line with its peers in response to weak natural gas prices and static demand, Range said it would budget $756 million this year, sharply below $910 million in 2018. Ninety percent of the capital budget is being directed to the Appalachian Basin, with the remainder earmarked for North Louisiana.
Range said most of its budget in the Northeast would be spent on liquids-rich drilling in southwest Pennsylvania. Overall, the budget includes $685 million for drilling and completion. Management added during an earnings call Tuesday that the capital being deployed in North Louisiana would mainly help optimize and preserve the value of the assets and the cash flow they generate.
The company is guiding for 2.325-2.345 Bcfe/d of production this year, or about a 6% growth rate at the midpoint from 2018. Range averaged about 2 Bcfe/d in 2017. As the company tempers spending and activity in response to the market this year, the forecast comes in under the 13% compound annual production growth rate in a five-year outlook issued a year ago.
The 2019 budget includes plans for 88 Marcellus wells to be turned to sales in 2019 — half from existing pads as they were developed last year. Eight wells are planned to come online in North Louisiana. The company said it would run three rigs in Appalachia this year.
In mid-2018, the company said it would not rule out a sale of the North Louisiana assets, and reiterated in the latest results that it would continue to pursue asset sales to strengthen the balance sheet, which was still carrying $3.8 billion of total debt at the end of 2018.
Production for the period was 2.149 Bcfe/d, down slightly from the 2.170 Bcfe/d it produced in 4Q2017. Operational issues at two MarkWest Energy Partners LP facilities in Appalachia during the quarter resulted in the loss of 10 Bcfe.
Year/year volumes from the Appalachia division, however, increased 5% to average 1.893 Bcfe/d in 4Q2018. Production from the North Louisiana division again declined over the same time, from 348 MMcfe/d to 256 MMcfe/d.
The fourth quarter, marked the first full period in which Range said it had access to all of its contracted natural gas transportation, as Energy Transfer LP’s Rover Pipeline finally provided additional outlets to the Midwest and Gulf Coast. The takeaway helped lift average realized prices for 2018, including hedges, to $3.39/Mcfe, compared with $2.99/Mcfe in 2017.
The company also announced that the outage on the Mariner East (ME) 1 natural gas liquids pipeline in Pennsylvania, which has been offline since Jan. 20 when a sinkhole formed near it, has partially reduced its production volumes along with the delayed restart at the MarkWest plants. The company, which is ME 1’s anchor shipper with a combined 40,000 b/d of ethane and propane on the system, is utilizing available capacity on ME 2, which entered partial service late last year.
Range reported a net loss of $1.75 billion (minus $7.10/share) for 2018, compared with net income of $333 million ($1.34) in the prior year. The company said the steep loss included a one-time $1.6 billion goodwill impairment for the MRD acquisition and a $515 million impairment of unproved properties. Full-year revenue increased 26% over 2017 to $3.3 billion.
Range incurred its full year loss in the fourth quarter, when it recorded a roughly $1.8 billion (minus $7.15/share) net loss. Net income in 4Q2017 was $221.2 million (89 cents/share).
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