Range Resources (RRC, Financial) is continuously delivering solid capital and operating efficiencies. During 2014, Range enhanced its operating efficiency by lowering its unit cost by nearly $0.35, or 10% compared to the previous year and estimates ongoing enhancement for this year. Range improved its capital efficiency by increasingly drilling longer laterals, and greater frac stages per lateral coupled with significantly leveraging enhanced focus towards the lateral. Further, this robust trend is estimated to continue in 2015 as well.
Smart moves
At present, Range has hedged nearly 65% of its forecasted 2015 natural gas production with about 77% of its forecasted oil production having a $90 and $0.57 floor along with a $4 floor.
The improvement in the overall oil and gas production efficiency is estimated to improve the company’s profitability and in line with its efforts to hedge the natural gas production with the key oil production from the targeted wells.
Range’s key Mariner East project of the natural gas liquid is forecasted to begin as per the schedule during the third quarter of this year. This significant project, once completely operational, is expected to deliver superior profitability for the company even in the current falling pricing scenario.Â
During 2014, Range expanded the production by 24%, improved the reserves count by 26% and concluded 2014 by testing its unique Utica well in Washington County at approximately 59 million cubic feet per day rate, which is believed to be a new record for every operating well in all the horizons in the Appalachian Basin.
The superior natural gas liquids production from the major wells of Range and the accelerated expansion of the reserves count across the U.S. highlight the effective growth strategy of the company.
Range has reduced its capital spending budget to about $870 million from $1.3 billion calculated previously, to partially balance the persistent decline in oil prices.
In addition, Range now expects to achieve 2015 production growth of approximately 20% on year-over-year basis as against the previous growth projection in 20% to 25% range.
The lowering of the production targets by Range signifies the planned cost-cutting initiatives executed by the company to move steadily and achieve long-term profitability.
For the complete fiscal year 2014, Range estimates overall production growth of approximately 24% with forecasted production of about 1.16 billion cubic feet equivalent (Bcfe) per day. The production volumes during the fourth quarter are forecasted at nearly 1.27 Bcfe per day and having 31% liquids.
Range has also declared a multi-year agreement to sell ethane at about 5,000 barrels per day, which represents half of its present devoted transportation volume by leveraging the ATEX pipeline.
The healthy mix of organic and inorganic growth for Range highlights the robustness of the company’s balance sheet, significantly supporting its solid growth initiatives.
Range is currently following an organic expansion strategy by focusing on superior return, smaller-cost projects existing in its huge inventory of smaller-risk, growth-drilling prospects.
The drilling major is believed to have a robust track record of delivering double-digit production expansion while lowering its discovery and exploration costs and maintaining an industry leading smaller-cost structure, partially owing to the enhanced production from the smaller-cost Marcellus region.
The continued focus of Range on exploring low-cost drilling verticals while, significantly growing its total production is forecasted to robustly position Range against its key competitors and open up a new horizon for long-term company growth.
Conclusion
Overall, the investors are advised to “Hold” their position into the Range Resources Corporation looking at the stock overvaluation with the trailing P/E and forward P/E ratios of 14.73 and 83.39 respectively and comparable to the industry’s average P/E of 13.10. The PEG ratio of 14.29 depicts slow and extremely costly company growth. However, the profit margin of 31.06% seems satisfactory. Still, Range is hugely debt burdened with a total debt of $3.07 billion as against weak total cash of $448 thousand only, restricting the company to plan for future growth investments.
