Range Resources, Cabot Dismiss Impact Of Pennsylvania Shale Case

Date : 09/26/2011 @ 7:20PM
Source : Dow Jones News
Stock : Range Resources Corp. (RRC)
Quote : 21.01  -0.63 (-2.91%) @ 4:00PM

Range Resources, Cabot Dismiss Impact Of Pennsylvania Shale Case

Range Res (NYSE:RRC)
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In a move aimed at calming anxious investors, Range Resources Corp. (RRC) and Cabot Oil & Gas Corp. (COG) said Monday that ongoing litigation over shale gas rights in Pennsylvania is unlikely to have a significant impact on their operations.

Both oil-and-gas companies issued statements playing down the effect of a legal dispute being reviewed by a Pennsylvania appeals court.

However, the case, Butler vs. Powers, could have broad consequences for the ownership of thousands of leases in the state's portion of the Marcellus Shale, a rock formation underlying several states in the Northeast that has become one of the most prolific sources of natural gas in the U.S.

Range Resources, Cabot, ExxonMobil Corp. (XOM), Chevron Corp. (CVX) and other oil companies have spent billions of dollars for the rights to drill for shale gas, which is natural gas that is trapped within rocks.

Pennsylvania landowners can sell mineral rights and gas-and-oil rights separately. In this case, the defendants contend that shale gas should be considered part of mineral rights because the gas is contained in the rock.

On Friday, shares of Range Resources and Cabot declined 11% and 6%, respectively, following news that a Pennsylvania Superior Court, the second-highest court in the state, had issued a ruling in the case earlier this month. The opinion said current law doesn't sufficiently address whether Marcellus Shale should be considered a type of mineral. The appeals court asked a lower court to sort that issue out, among others.

It isn't known to what degree oil companies own mineral rights, gas-and-oil rights or both.

Fort Worth, Texas-based, Range Resources said Monday that the court's opinion didn't mean that the commonly held historic case law--that shale gas is covered by oil-and-gas leases--has changed and there has been no indication that the Pennsylvania Superior Court or Supreme Court will seek to change that. "Range does not expect the ultimate ruling to result in a change in law," the company said in a press release.

Range Resources said about 15% of its leases may be affected by the case, but only if higher courts reversed the existing interpretation of the law, which "no one expects at this time." But despite this, the company said it's considering excluding acreage that it is uncertain about from drilling plans until a ruling is made.

Houston-based Cabot also said it doesn't foresee the case having a significant effect on its leases, because its contracts contain "express language" that includes oil-and-gas rights.

Range Resources's shares closed up 2.51% at $60.00, while Cabot's shares were 6.20% higher at $64.90.

The largest leaseholder in the Marcellus Shale, Chesapeake Energy Corp. (CHK), didn't respond to a request for comment. Exxon and Chevron declined to comment. The Marcellus Shale Coalition, a group that represents several energy companies with operations in the region, said it was "confident that the courts will arrive at the appropriate conclusion."

Oppenheimer & Co. equity analyst Daniel Katzenberg said the litigation will likely take years to resolve, and that it's unlikely that the state will support a change that threatens the economic boon that shale-gas exploration is bringing to the state.

"The state of Pennsylvania has been supportive of the industry during the ramp-up of the Marcellus, and with any adverse ruling likely ending up in the state Legislature, it seems doubtful that the law will be changed," he said.

Fadel Gheit, also analyst with Oppenheimer, said the court ruling concerning the Marcellus Shale was only one factor that weighted into Range Resources's share price drop Friday. Its stock was also hit when investors gave up on the idea that the company was going to be acquired by oil giant Royal Dutch Shell (RDSA). The stock had risen 25% before Friday on rumors that Shell was pursuing a deal.

-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207; isabel.ordonez@dowjones.com

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