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Range Resources Poised at Neutral

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We maintained our Neutral recommendation on Range Resources Corporation (RRC - Free Report) on Jan 15, 2014. The company’s record production growth profile, along with its sale of non-core properties, will prove beneficial over time. But for now, we remain on the sidelines as the company is governed by several stringent regulations, especially in the Marcellus Shale, the Appalachian Basin and the southwestern U.S., where it has a significant asset base. Range Resources carries a Zacks Rank #3 (Hold).

Why Maintained?

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. The company also inked two additional ethane transportation agreements – ATEX and Mariner East – which are likely to be beneficial in the long run. Given its dominant position in the Marcellus Shale play and its continuous endeavor to control costs, we believe that Range Resources will be capable of long-term shareholder value creation.  

Range Resources has a track record of growing production at a double-digit rate while reducing its finding and development costs and sustaining an industry leading low-cost structure. This is attributable to increased production from the low-cost Marcellus region. The company recently disclosed that it aims to sell its acreage in the Permian Basin properties in southeast New Mexico and West Texas. The properties currently produce 18 million cubic feet equivalent per day of oil and gas.

Range Resources’ 2013 capex budget is $1.3 billion, $300 million less than the 2012 level. Of this, 85% is apportioned for liquids-rich and oil projects in the Marcellus and Mississippian plays with the remaining 15% allocated to dry gas projects in Northeast Pennsylvania. The company has been expanding its drilling activity to Northeast Pennsylvania, which has seen a pickup in industry activity. It remains encouraged by the Mississippian results and intends to ramp up activity going forward.

However, as a company operating in the oil and gas industry, it remains susceptible to volatile natural gas prices, an imbalance between supply and demand for products, and rising interest rates. The company’s 2012 total reserve comprised 77% natural gas. Such factors could hurt the company’s volumes and margins.

Stocks That Warrant a Look

While we expect Range Resources to perform in line with its peers, one can consider Zacks Ranked #1 (Strong Buy) stocks NGL Energy Partners LP (NGL - Free Report) , Cheniere Energy Partners L.P. (CQP - Free Report) and Pembina Pipeline Corporation (PBA - Free Report) as good buying opportunities for the short term.

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