Fort Worth, Texas-based oil and gas company, Range Resources Corporation (RRC), pre-announced record-setting, second-quarter production volume of 472 million cubic equivalent per day (MMcfe/d), up 9% from the comparable quarter last year and surpassing the previous guidance of 450–455 MMcfe/d attributable to better-than-expected operational performance in all divisions, particularly in its core Marcellus Shale properties.
 
The company’s significant Marcellus Shale production volume growth was mainly attributable to the solid drilling results. Range Resources deployed $240 million in drilling 66 net wells with a 97% success rate. In the first six months of the year, the company drilled 124 net wells and, in the Marcellus region, a total of 146 horizontal wells have been drilled to date. Among those, 29 are awaiting completion and four are pending pipeline connection. For the full year, Marcellus production is striving for a 180–200 MMcfe/d exit rate.
 
During the second quarter, natural gas was sold at an average of $5.07 per thousand cubic feet equivalent (Mcfe), which dropped 18% from year-earlier quarter. The company experienced the thirtieth consecutive quarter of sequential production growth, even with the Ohio asset sale at the end of March 2010. At the end of 1Q10, Ohio had contributed 25 MMcfe/d to the company’s total production.
 
For the second half of 2010, 77% of the company’s natural gas production is hedged at an average floor price of $5.54 per Mcf, while in 2011, 51% is hedged at $5.73.
 
The company’s better-than-expected production (which overshadows lower price realizations), its low-cost structure, as well as a decline in its unit costs in the second quarter will further facilitate the pay out of its dividends.
 
Since Range Resources’ natural gas-weighted asset base accounts for 80% of its reserves and production, we believe the company remains vulnerable to fluctuations in natural gas markets. Moreover, with the bulk of its projected 2010 production hedged, Range Resources may limit its leverage to commodity prices. Overall, we remain on the sidelines owing to macro factors, particularly regulatory and natural gas as well as natural gas liquids prices. We continue to maintain our Underperform recommendation on the stock for the short term.
 
However, we also remain optimistic on the company’s low-cost structure, attractive hedge position, and solid financial position. Hence, in view of a mixed outlook, we remain Neutral for Range Resources for the long term.
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