Range Resources Outperforms - Analyst Blog
February 22 2012 - 6:45AM
Zacks
Range Resources
Corp. (RRC) has reported robust fourth-quarter 2011
results, buoyed by a higher production level and realized prices
along with lower unit costs. The company posted adjusted earnings
of 33 cents a share, comprehensively beating the Zacks Consensus
Estimate of 18 cents. Results also experienced an almost 74% growth
from the year-earlier profit of 19 cents a share.
For full-year 2011, the company
posted adjusted earnings of $1.11 a share, surpassing the Zacks
Consensus Estimate of 54 cents. Results also saw an almost twofold
growth from the year-earlier profit of 56 cents a share.
Fourth quarter 2011 total revenue
of $348 million was ahead of our $313 million projection and up 21%
year over year. The full-year revenue improved 16% year over year
to $1,282.6 million, and exceeded the Zacks Consensus Estimate of
$1,143 million.
Operational
Performance
The fourth quarter production
volume of 625.1 million cubic feet equivalent per day (MMcfe/d)
jumped nearly 16% from the year-earlier level. Of the total
production volume, natural gas accounted for more than 78%.
Production for full-year 2011
climbed 12% compared to the 14% increase in 2010, and averaged 554
MMcfe/d. Despite the sale of Barnett assets in April 2011, Range
saw the eighth consecutive year of double-digit production growth
of 12%. Adjusting for the sale of the Barnett properties,
production growth would have been 36%.
Natural gas and NGLs output surged
19.8% and 3.8%, respectively. However, oil production dropped 2%
year over year.
The average realized gas price was
$4.09 per Mcf, down 6.6% from the prior-year quarter. NGLs were
sold at $54.31 a barrel (up 29% year over year) and oil at $83.71 a
barrel (up 15.6%). Range Resources’ total price realization for the
quarter averaged $5.41 per Mcfe, up 1.5% year over year.
Financials
At the end of the quarter,
long-term debt was $1,975 million, representing a
debt-to-capitalization ratio of 45.2%.
Hedging
For two consecutive quarters
starting first quarter 2012, Range has hedged 189,641 million
British thermal units per day (MMbtu/d) of natural gas production
at an average floor price of $5.43. For the third and fourth
quarters of 2012, the company has hedged 279,641 MMbtu/d of natural
gas production at an average floor price of $4.76.
The company has also hedged 240,000
MMbtu/d of natural gas at an average price of $4.73 for 2013 and
90,000 MMbtu/d at an average floor price of $4.25 for 2014.
Guidance
The company has set its 2012
production growth guidance in the range of 30% to 35% and capital
budget guidance at $1.6 billion, which comprises $1.3 billion for
drilling and recompletions, $215 million for leasehold, $47 million
for seismic and $73 million for pipelines and facilities.
Approximately 75% of the budget will be apportioned toward
liquids-rich and oil projects mainly in the Marcellus Shale and
horizontal Mississippian plays.
Outlook
We believe that Range Resources’
large acreage holdings will support several years of oil and gas
drilling in the fast-growing fields. In a low natural gas price
environment, the company’s record production and declining unit
costs (down 37.5% in the reported quarter on an aggregate) 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 raised projected level. As of
December 31, 2011, Range’s proved reserves stood at 5.1 trillion
cubic feet equivalent (Tcfe), up 14% from year-end 2010. Without
giving effect to the sale of the Barnett properties, which took
place in April 2011, the year-over-year proved reserve increase
would have been 43%.
Although we appreciate Range
Resources’ increasing focus on liquids, its natural gas weighted
production and reserve will weigh on the stock. Our long-term
Underperform recommendation for the company remains unchanged
considering the company’s highly gas-weighted reserves/production
profile.
Headquarted in Fort Worth, Texas
Range Resources is an onshore-focused exploration and production
company with operations primarily in Appalachia and the Barnett
Shale. The company competes with EQT
Corporation (EQT), SM Energy
Company (SM) and Ultra Petroleum
Corp. (UPL).
EQT CORP (EQT): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
SM ENERGY CO (SM): Free Stock Analysis Report
ULTRA PETRO CP (UPL): Free Stock Analysis Report
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