Range Resources Corp.’s (RRC - Analyst Report) first-quarter 2013 adjusted earnings came in at 11 cents a share, falling behind the Zacks Consensus Estimate of 18 cents. Results also decreased from the year-earlier profit of 15 cents a share.
First quarter total revenue of $319.2 million failed to reach our $390 million projection but grew 27% year over year. The annualized growth is attributable to the 32% production increment.
The company’s first quarter production averaged almost 876.0 million cubic feet equivalent per day (MMcfe/d), comprising 34% natural gas, 22% natural gas liquids (NGLs) and 52% oil. Total production volume experienced a 32% improvement from the year-earlier quarter, mainly on the back of sustained accomplishment from the company’s drilling program.
Oil production expanded 50%, NGL rose 21% and natural-gas production increased 33% 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 $4.26 per Mcfe, down 5% year over year. The overall price comprised NGL at $33.61 per barrel (down 25.0% year over year), crude oil at $85.46 a barrel (up 2.0%) and natural gas at $3.14 per Mcf (down 1.0%).
At the end of the quarter, long-term debt was $2,936.5 million, representing a debt-to-capitalization ratio of 56.5%.
For the second quarter, the company expects production between 880 Mmcfe and 890 Mmcfe per day.
For 2013, the company has 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 and declining unit costs along with the 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 the quarter 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. 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 organizational sustainability 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 #3 (Hold). However, there are other stocks in the oil and gas industry, like Harvest Natural Resources Inc. , EPL Oil & Gas, Inc and Kosmos Energy Ltd. (KOS - Snapshot Report) , which appear more promising and carry a Zacks Rank #1 (Strong Buy).