Range Resources: Natural Gas Liquids and Higher Commodity Gas Prices Equal a Very Good Quarter
Range Resources, one of the largest drillers in the Marcellus Shale, had a very good second quarter (revenue-wise) because of increased production of natural gas liquids and because of an uptick in the price of natural gas in the commodity markets:
Range Resources Corp. , one of the most active Marcellus Shale drillers in southwestern Pennsylvania, posted a net income of $51.3 million, or 32 cents per share, for the quarter ended June 30. That’s up from $9 million, or 6 cents per share, during the same period last year.
The Texas-based company, whose regional headquarters is in Canonsburg, reported revenue of $306.6 million for the past quarter, up fom $191.2 million a year ago.
Its results were boosted in part by company’s effort to increase production of natural gas liquids. The price the company was able to get for its natural gas liquids — $50 a barrel on average — was 35 percent higher during the past three months than during the second quarter 2010. Its realized gas price was $4.54 per thousand cubic feet, a slight improvement over the prior year. Natural gas production accounts for 76 percent of Range’s output.
Since it began extracting gas from the Marcellus, Range has drilled 292 horizontal wells. Of those, 191 are in production, 71 have yet to be completed — 51 of those are in southwestern Pennsylvania — and 30 are awaiting a connection to a pipeline, 21 in this region [Pittsburgh].(1)
The operational discussion for the Marcellus Shale region from the Range press release:
We are currently producing just over 300 Mmcfe per day net from the Marcellus Shale, up from approximately 200 Mmcfe per day at year-end 2010. Previously announced in the operations update, Range disclosed that based on the production performance of the 103 horizontal wells placed on production during 2009 and 2010, that the estimated ultimate recovery (EUR) of reserves for these wells averages 5.7 Bcfe per well. Using these EUR estimates with the cost to drill and complete these wells of $4 million in a development mode, Range’s well economics pressure tested at NYMEX indexed prices of $4.00 for natural gas price and $85.00 for crude oil achieves a 79% rate of return but at a NYMEX natural gas price of $5.00 is 105% rate of return. Drill bit finding and development cost decline to $0.82 per mcfe. The 5.7 Bcfe type curve reflects that 40% of the EUR is produced within the first five years of production.
Range believes that comparisons of relative EUR estimates should take into consideration lateral length and number of frac stages in determining relative performance between areas in the Marcellus. Relative estimates of rate of returns between areas should consider the completed well costs in each area, the natural gas and liquid components of the production due to the differences in commodity prices along with the relative basis and transportation differentials.
In southwest Pennsylvania, 200 Mmcf per day of additional processing capacity was brought on line in May increasing Range’s total committed processing capacity to 350 Mmcf per day. By the end of the year, Range’s processing capacity is scheduled to increase to 390 Mmcf per day. These processing capacities do not include the significant amount of available interruptible capacity not being utilized by third parties. As a result, Range is well positioned to steadily grow its liquid-rich production in southwest Pennsylvania.
As of the end of the second quarter, there were 21 wells completed in southwest Pennsylvania that are awaiting connection to the gathering system and 51 wells waiting to be completed.
In northeast Pennsylvania, the second expansion of 150 Mmcf per day of the Lycoming County trunkline system is scheduled to be completed in stages during the third and fourth quarters which will tie in an expected additional 33 wells by the end of November. The first five of those additional wells just commenced production last week. Range still anticipates exiting 2011 at 400 Mmcfe per day net in the Marcellus increasing to 600 Mmcfe per day net by the end of 2012.(2)
(1) Pittsburgh Business Times (Jul 25, 2011) – Range Resources boosts income in 2Q
(2) Range Resources Press Release (Jul 25, 2011) – Range Announces Second Quarter 2011 Results