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Analyst Blog

On Jul 1, 2014, Zacks Investment Research issued an updated report on Range Resources Corporation (RRC - Analyst Report).

Range Resources’ revenues and earnings grew on an annual basis. However, revenues failed to meet the Zacks Consensus Estimate.

The company has a track record of increasing production at a double-digit rate while reducing its finding and development (F&D) costs and sustaining an industry leading low-cost structure. This can be attributed to increased production from the low-cost Marcellus region. Additionally, the sale of higher cost related assets, like Ohio properties in 2010, Barnett in the first half of 2011 and the New Mexico assets in 2013, further reduced the company’s overall costs. The Permian Basin properties in southeast New Mexico and West Texas produced 18 million cubic feet equivalent per day of oil and gas.

Range Resources remains focused on five liquid-rich plays that include the super-rich Marcellus, the super-rich Upper Devonian, the wet Utica, the horizontal Mississippian and the Cline Oil shale play to drive its liquids production. Its primary activity is centered on the super-rich area of southwestern Pennsylvania. For 2014, Range Resources expects to generate 20–25% annualized production growth with its focus on liquid-rich opportunities mostly in the Marcellus Shale and Horizontal Mississippian plays that have a combined acreage of about 500,000.

However, as a company operating in the oil and gas industry, Range Resources remains susceptible to volatile natural gas prices, an imbalance between supply and demand for products, and rising interest rates. The company’s 2013 total reserve comprises 69% natural gas. Such factors could hurt the company’s volumes and margins.

In our opinion, the Marcellus Shale properties are much pressured, with some areas containing rich gas that needs to be processed further. As such, Range Resources requires more capital and new high-pressured lines to gather Marcellus gas.

Key Picks in the Sector

Range Resources has a Zacks Rank #3 (Hold). Currently, we prefer to remain at the periphery regarding the stock. However, better-ranked players in the energy sector like Magellan Midstream Partners LP (MMP - Analyst Report), EQT Corp. (EQT - Analyst Report)  and Encana Corp. (ECA - Analyst Report), all sporting a Zacks Rank #1 (Strong Buy), are worth reckoning.

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