Range Resources Corp. (RRC - Analyst Report) trumped the second-quarter 2013 Zacks Consensus Estimate of a loss of 2 cents with its adjusted earnings of 34 cents a share. Results also increased from the year-earlier adjusted profit of 11 cents a share.
Second quarter total revenue of $673.4 million also outdid the Zacks Consensus Estimate of $420 million and grew 50% year over year from $448.9 million. The year-over-year improvement was attributable to 27% production growth.
The company’s quarterly production averaged almost 910.0 million cubic feet equivalent per day (MMcfe/d), comprising 24% natural gas, 35% natural gas liquids (NGLs) and 39% oil. Total production volume expanded 27% from the year-earlier quarter, mainly on the back of continued accomplishments from the company’s drilling program.
Oil production expanded 39%, NGL rose 35% and natural-gas production increased 24% on a year-over-year basis. Range’s high liquid-rich spending level led to the relative increase in oil and natural-gas liquids production.
Range’s total price realization (including the effects of hedges and derivative settlements) averaged $5.02 per Mcfe, up 6% year over year. The overall price comprised NGL at $32.91 per barrel (down 22% year over year), crude oil at $85.09 a barrel (up 1%) and natural gas at $4.20 per Mcf (up 15%).
At the end of the quarter, debt was $2.9 billion flat with the year-ago quarter. During the quarter, the company completed the redemption for all $250 million in outstanding principal of its 7.25% Senior Subordinated Notes due 2018. The principal along with the $9.1 million redemption premium was funded using borrowings under the bank credit facility. As a result, Range currently has no senior subordinated note maturities until 2019. At the end of the second quarter, the company had approximately $1.4 billion of unutilized liquidity available under its $1.8 billion bank commitment amount and $2.0 billion bank credit facility borrowing base.
For the third quarter, the company expects production between 945 Mmcfe and 950 Mmcfe per day.
For 2013, the company maintained its earlier production growth guidance of 20% to 25% and capital budget guidance at $1.3 billion with stress on liquids-rich and oil projects mainly in the Marcellus Shale and horizontal Mississippian plays.
We believe that Range Resources’ large acreage holdings will support several years of oil and gas drilling in the fast-growing fields. In a dynamic natural gas price environment, the company’s record production, declining unit costs as well as sale of non-core properties will prove beneficial over time. We believe that with a robust asset base, Range Resources remains on track to reach its projected production level for this year. The company made significant operational progress in recent times in all of its five liquids-rich and oil ventures, namely, Marcellus, Upper Devonian, wet Utica, horizontal Mississippian and Cline Shale.
Range Resources’ diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties. The company has an impressive inventory in the Marcellus Shale, one of the prominent emerging shale plays in the U.S. Lower 48. We see the company’s dominance in the Marcellus Shale play and continuous endeavors to control costs as favorable for its profitabilty and long-term shareholder value creation.
However, we remain on the sidelines as the company is still exposed to volatile natural gas fundamentals, interest rate risks and an uncertain macro backdrop. Additionally, Range Resources is governed by several stringent regulations, especially in the Marcellus Shale, the Appalachian Basin and the southwestern U.S., where it has a robust asset base.
Range Resources currently retains a Zacks Rank #4 (Sell). However, there are other stocks in the oil and gas industry, like VOC Energy Trust (VOC - Snapshot Report), Blueknight Energy Partners, L.P. (BKEP - Snapshot Report) and Memorial Production Partners LP (MEMP - Snapshot Report), which appear promising and carry a Zacks Rank #1 (Strong Buy).