Range Resources Is Making It All Happen in the Marcellus Shale

cost of renewables - Tom ShepstoneTom Shepstone
Natural Gas NOW


Range Resources turned it on in 2017 with an outstanding performance in the Marcellus Shale; longer laterals, big production gains and huge financial gains.

The Range Resources 2017 Annual Report includes a letter from CEO Jeffrey Ventura that indicates just how far the Marcellus Shale has taken the company in a year. It’s a story of recovery from low prices via technological progress and concentration on a shale play that continues to astound.


Photo from Range Resources 2017 Annual Report

Ventura’s letter is self-explanatory but we excerpt the most interesting parts here, parts that illustrate just what a marvelous resource the Marcellus Shale is and why oil and gas industry technology just keeps blowing away the opposition (emphasis added):

As we look back over the past year, we saw much improved financial results in 2017 with increases in earnings, cash flow, revenues and production as compared to 2016. We saw revenues up by 137% with a net income of $333 million… production increased by 30% as well. Operationally, the Marcellus continues to drive growth and profitability, with increasing capital efficiency. Outstanding drilling results during the year expanded the core inventory in all directions…

Range expects annual production growth of approximately 11%

Range Resources

Our five-year outlook assumes all production growth is from Range’s Marcellus inventory… Importantly, at the end of the five-year outlook, Range would still have over 3,200 locations in the core of the Marcellus alone. As our peers in the industry exhaust their core inventories over the next few years, we believe Range will be well-positioned with a long runway of high-quality drilling locations from which we can derive long-term value.

In our view, we have entered a new era of shale development where companies that have captured the most prolific resources have the ability to generate better returns for their shareholders. For Range, the flagship asset and growth driver of the Company will continue to be our large, high-quality, de-risked inventory in southwestern Pennsylvania. The quality of our assets allows Range to improve corporate returns and our leverage profile, while generating competitive growth of production and reserves on a debt-adjusted per share basis. And, of course, this will all be accomplished whilemaintaining our commitment to good stewardship of the environmentand operating safely.

We also see several positives in the immediate term. In late 2017 and early 2018, two of three natural gas pipeline projects came on line, moving Marcellus gas from southwestern Pennsylvania to more favorable Gulf Coast markets… Once these projects are fully in service, approximately 90% of Range’s 2018 gas price exposure is expected to be in favorable markets. Importantly, these upgrades to Range’s transportation portfolio reduce basis volatility, especially during seasonally weak months, and should increase the predictability of Range’s corporate natural gas basis differential going forward…

In 2017, our proved reserves increased 26% from the prior year to 15.3 Tcfe, with drill bit finding costs at an all-time company low of $0.31 per mcfe. Positive performance revisions also continued in 2017 as we extended lateral lengths, improved targeting and drove efficiencies throughout our developed leasehold and infrastructure. Future development costs for proven undeveloped locations are estimated to be $0.38 per mcfe, which should improve our top tier unhedged recycle ratio to approximately 3x. Importantly, Range added a record 3.5 Tcfe to proved reserves from extensions, discoveries and additions, driven primarily by our large inventory of low-risk, high-return projects in the Marcellus Shale.

Range Resources

Going forward, we expect to see continued capital efficiency gains. Our team hit a new milestone in 2017, drilling the longest Marcellus lateral in Pennsylvania and three of the top four longest laterals in the Marcellus. We anticipate driving down normalized well costs with longer laterals (estimated to average nearly 10,000 feet in the Marcellus in 2018), with approximately half of our 2018 wells on existing pads — and enhanced recoveries as a result of improved targeting and completions.

We are achieving a significant increase in daily lateral footage drilled versus two years ago, and we’ve accomplished all of this while narrowing our lateral target window and drilling faster — enabling us to lower costs from 2016 on a per-foot basis by over 30%. As a result, we now have the most productive wells per thousand feet of lateral in the southwest portionof the Marcellus…

Also, with 3,200 core Marcellus wells remaining post-2022, we would anticipate over 30 years of inventory holding productionat 3.5 Bcfe per day. Finally, the size and quality of Range’s remaining inventory, combined with improved access out of Southwest Appalachia, can provide Range with a growth option. Range could potentially generate annual growth of greater than 20% from 2023-2025 and generate over $1 billion of free cash flow over that time frame; all while the Lower Cotton Valley, Deep Utica, and Upper Devonian extend the runway for free cash flow generation and growth.

The importance of the Marcellus Shale in the big picture is clear and notice how Range is shipping gas to the Gulf. Who’d have thought it a decade ago? That a Pennsylvania oil and gas company would be staking its future on shipping product to Louisiana and Texas, two states identified as the home of the industry? Pennsylvania, of course, is where it all began. But, did anyone expect we’d be back in the game so strongly? No, and that’s the beauty of the story; that and the way technology keeps lowering costs and increasing production, not to mention reserves.

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