Range Resources Corporation this week announced a 2020 capital budget of $520 million, which is expected to maintain daily production at approximately 2.3 Bcfe.  Additionally, Range announced that year-end 2019 reserves increased to 18.2 Tcfe.

Highlights  

• All-in 2020 capital budget of $520 million maintains production at ~2.3 Bcfe per day
• Similar inventory of drilled uncompleted lateral footage expected at year-end 2020 as year-end 2019, supporting the option of a similar capital program in 2021 and beyond
• Well costs expected to average less than $625 per lateral foot in 2020
• 2019 capital spending is currently estimated to be $728 million, approximately $28 million less than the original budget
• Fourth quarter 2019 production expected to be near the high end of prior 2.33 to 2.35 Bcfe per day guidance
• Year-end proved reserves increase to 18.2 Tcfe, greater than 95% from Marcellus Shale
• Year-end SEC PV10 valuation of $7.6 billion equates to over $17 per share, net of debt

Capital Spending

Range plans to reduce capital spending to approximately $520 million for 2020, which is expected to maintain production at approximately 2.3 Bcfe per day while spending within cash flow based on recent strip pricing.  The 2020 capital spending will be directed towards Range’s Marcellus assets. 

The Company has increased its hedge position to support the 2020 budget with over 1 Bcf per day hedged, or more than 60% of expected 2020 natural gas production, at an average price of $2.64.  Detailed hedging information can be found in the updated Company presentation.  In addition, access to international natural gas liquids (NGL) markets has become increasingly beneficial, as pricing premiums compared to Mont Belvieu continue to remain at multi-year highs.  Range expects to direct additional propane and butane volumes through the Mariner East system to international markets in 2020. 

Capital spending for 2019 is currently estimated to be $728 million, approximately $28 million less than the original budget.  The capital underspend was driven primarily by continued improvement in Range’s drilling and completion efficiencies, water recycling program, and service cost reductions. Fourth quarter 2019 production is expected to be near the high end of the Company’s prior 2.33 to 2.35 Bcfe per day guidance.

Commenting, Jeff Ventura, the Company’s CEO said, 
“Range finished 2019 with continued solid execution on our Marcellus program, delivering on our operational plans for less than our original budget.  This is the second consecutive year the team has delivered our operational plans for less than originally budgeted, reflecting the organization’s continued focus on capital discipline and efficient operations.  Similarly, our expectation to maintain production for $520 million will make Range one of the most capital efficient natural gas producers in North America.  This efficiency is driven by peer-leading well costs of less than $625 per foot, low base decline of approximately 20%, and the high productivity of our core Marcellus assets in southwest Pennsylvania.  As the industry exhausts its core inventory, we believe Range is well-positioned with a lengthy runway of high-quality drilling locations from which we can drive long-term value.”

Repurchase Programs

The Company initiated a share repurchase program in October 2019.  During fourth quarter 2019, Range repurchased 1.8 million shares for approximately $7 million, reducing shares outstanding by approximately 1%.  The Company has $93 million remaining on the $100 million repurchase program.  

The Company has also decided to suspend its dividend, which was approximately $20 million annually, to prioritize debt reduction.  Range repurchased and retired approximately $108 million in principal amount of its senior notes during the fourth quarter.  Total senior note repurchases during 2019 were approximately $202 million in principal amount at an average weighted discount to par of 3%.

Commenting, Mark Scucchi, CFO said, 
“Over the last 18 months, Range has executed approximately $1.1 billion in asset sales.  Maintaining and further enhancing financial strength is core to Range’s strategy and debt reduction remains a priority, guiding the Company’s capital investment and continuing divestiture initiatives.  At the same time, we believe the repurchase program initiated last quarter to buy shares at a substantial discount to intrinsic value with a small portion of asset sale proceeds reflects our responsible commitment to create long-term value.”

Reserves

Year-end 2019 proved reserves by volume were 67% natural gas, 31% natural gas liquids and 2% crude oil and condensate.  Proved developed reserves represent 54% of the Company’s reserves. 

During 2019, Range added 1.2 Tcfe of proved reserves through the drill-bit, driven by the Company’s Marcellus development.  Field level performance increased reserves by 924 Bcfe due to continued improvement in the well performance of existing Marcellus producing wells and 577 Bcfe of reserves associated with proved undeveloped locations which have re-entered the Company’s five-year drilling program.  As future development plans are continually optimized, some previously planned wells have been rescheduled beyond five years.  Accordingly, Range removed 601 Bcfe of proved undeveloped reserves that now fall outside the SEC mandated five-year development window.  The Company expects the majority of these proved undeveloped reserves to be added back in future years.  The lower SEC price for 2019 as compared to 2018 resulted in a nominal pricing revision in proved reserve volumes of 18 Bcfe, or 0.1% of total proved reserves.  The Company sold approximately 512 Bcfe of reserves during the year, predominantly associated with the ORRI sales announced in 2019 as well as the sales of non-core properties.  Range’s corporate proved undeveloped development cost is expected to improve to approximately $0.35 per mcfe.

Commenting on 2019 proved reserves, Jeff Ventura, CEO, said, 
“This year’s reserve report reflects both the quality and scale of Range’s reserve base with another consecutive year of positive performance revisions, which were a result of extending laterals and continued optimization of targeting and completions. Range’s stable reserve report was accomplished with only 442 Marcellus proven undeveloped locations currently recorded, which compares to over 1,400 horizontal producing wells. We believe this ratio reflects the quality of reserves that can be expected from Range for years to come as capital is allocated to future offset locations. Our resilience is further demonstrated in the year-end PV10 reserve value of approximately $7.6 billion, which equates to over $17 per share, net of debt.  As mentioned before, we believe Range is well positioned on the low-end of the industry’s cost curve with inventory depth to drive long-term value for shareholders.”

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