Range Resources announced second quarter results today. Production volumes for all classes (natgas, NGLs and oil) are up an eye-popping 42% over the same quarter last year, and up 10% from the first quarter of this year. And if they remove the Barnett Shale numbers from the equation for last year, production would have been up 51%. Range sold off their Barnett assets last year, which included 390 active wells on 52,000 net acres. Range’s main focus continues to be the Marcellus and Utica Shale region.
Production, by volume, was 80% natural gas, 14% natural gas liquids, and 6% crude oil. From the press release:
RANGE RESOURCES CORPORATION today announced its second quarter 2012 production results, preliminary realized prices and an update on its hedging status. On an equivalent basis, production volumes exceeded guidance with second quarter production averaging 719.3 Mmcfe net per day, a 42% increase over the prior-year quarter and 10% greater than the first quarter 2012. Adjusting production for the sale of the Barnett properties in the prior year, production would have increased 51% year-over-year. The record production was driven by the continued success of the Company’s drilling program. Production was 80% natural gas, 14% natural gas liquids (NGLs) and 6% crude oil. Year-over-year oil production increased 23%, NGL production rose 20%, while natural gas production increased 48%. Natural gas volumes exceeded guidance by 6.7 Mmcf per day (1%), oil volumes were 846 barrels per day (14%) over guidance while NGL volumes were 1,241 barrels per day (7%) less than guidance. Oil and NGLs volumes varied from the amounts anticipated for the quarter due to the timing of when certain wells were brought on production. In the second half of 2012, oil and NGL production is anticipated to rise at an increasing rate due to a heavy emphasis on planned drilling in the liquids-rich portion of the Marcellus and the horizontal Mississippian oil play.
The Company also announced that its preliminary second quarter 2012 commodity price realizations (including the impact of cash-settled hedges and derivative settlements which would correspond to analysts’ estimates) averaged $4.74 per mcfe before deduction of third-party transportation, gathering and compression fees. This compares to $6.43 per mcfe for the prior year quarter and $5.19 for the first quarter of 2012. Preliminary second quarter average production and realized prices for each commodity were: natural gas – 574.7 Mmcf per day ($3.66 per mcf), natural gas liquids – 17,259 barrels per day ($42.30 per barrel) and crude oil – 6,846 barrels per day ($84.31).
Commenting on the announcement, Jeff Ventura, Range’s President and CEO, said, “The 42% increase in production reflects excellent performance by our operating, midstream and marketing teams. As a result, we are well on track to achieve our 2012 production growth target of 30% to 35%. Importantly, our oil and NGL production is ramping up as we continue to shift capital to liquids-rich projects. Our focus on reducing unit costs continues to bear fruit and capital expenditures are within our original budget. Given the positive results in the first half of the year, coupled with our outstanding hedge position, we are well-positioned for the second half of the year.”
Range hedges portions of its expected future production volumes to increase the predictability of its cash flow and to help maintain a strong financial position. At June 30, 2012, Range had approximately 80% of its expected 2012 natural gas production hedged at a weighted average floor of $4.18 per mcf. Similarly, Range has hedged or committed approximately 80% of its projected crude oil production at a floor of $91.19 and approximately 60% of its composite NGL production for 2012 at above current market prices. During the second quarter, Range realized approximately $90 million in hedging gains. As of June 30, 2012, Range had future hedging gains of approximately $340 million with roughly half to be recognized in the second half of 2012, roughly 45% in 2013 and 5% in 2014. Please see Range’s detailed hedging schedule posted on its website.
Over the past several months the light end of the NGL barrel, propane (C3) and ethane (C2), have experienced a weakness in prices. Propane prices are soft due to mild winter demand for a product which is primarily used as a consumer heating fuel. Ethane demand and prices have been weak due in part to crackers being down for maintenance and expansion projected to handle an additional 150,000 barrels per day of future ethane capacity at the same time that supplies have increased. Weakness in these two products has caused a weakening in the correlation of NGL prices to WTI. As a result, our hedges using natural gasoline (C5) as a proxy, which largely tracks the movement in WTI, while still strongly in-the-money, have become less effective in our view as a hedge for the entire NGL barrel. In order to more effectively hedge its NGL production, Range is currently using natural gasoline (C5) and propane (C3) as proxy hedges for the heavy and light portions of the NGL composite barrel to better correlate the market relationship between our hedges and our production. We believe this approach has allowed us to help stabilize our NGL prices without the additional cost of hedging each NGL barrel component.*
*Range Resources (Jul 12, 2012) – Range Announces Second Quarter Production Results