Range Resources Corp. (RRC) reported third-quarter earnings of 26 cents per share, compared to the Zacks Consensus Estimate of 20 cents and year-earlier earnings of 53 cents. We have adjusted the reported loss of 19 cents for some one-time items. The year-over-year negative comparison was mainly due to poor realized gas prices.
Despite losing 15 million cubic feet equivalent per day (MMcfe/d) of production as a result of the sale of its Fuhrman Mascho Field in West Texas at the end of June, total production volumes for the quarter increased 13% year over year, driven by successful drilling results in the
Barnett and Marcellus shale plays. Total volumes averaged at 437 MMcfe/d (84% natural gas), reflecting the 27th consecutive quarter of sequential production growth.
While average oil production decreased 30% from the year-earlier level to 5.8 thousand barrels per day (Mbbl/d), natural gas liquid and natural gas volumes jumped by 57% and 16% year over year to 5.9 Mbbl/d and 367 MMcf/d, respectively.
Average price realization for natural gas during the quarter, including hedging effects, was $6.05 per Mcf (compared to $8.62 in the year-ago period). Average prices for crude oil and natural gas liquids were $63.88 (versus $67.40) and $31.10 ($58.33) per barrel.
Given the thumping drilling success and the proceeds available from the property sale, Range has increased its capital budget for 2009 to $740 million from $700 million. The company intends to deploy this fund to acquire additional leases in areas where it has had drilling success this year. It has also increased its production growth target to 13% from 10%.
We believe that Range is on track to drive down its operating costs by various measures including sale of higher cost properties and ramp-up of production in its core areas with low costs, particularly in the Marcellus Shale play. As a result, operating cost per Mcfe for the quarter came down by 25%.
Range maintains an internally funded capital program with a debt-to-capitalization ratio of 43%. Given its improved financial position, low-cost business model and significant exposure to the shale plays, we believe that the company might be able to add value for its shareholders.
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