RRC Tops Zacks Estimate – Analyst Blog

Range Resources Corp. (RRC) has reported better-than-expected fourth-quarter earnings on the back of increased production volumes and improved liquids prices.

 

Quarterly earnings per share came in at 32 cents, compared to the Zacks Consensus Estimate of 27 cents and year-earlier earnings of 33 cents. Before adjusting one-time items, quarterly loss was 11 cents per share.

 

 

There was an upside-weighted trend in estimate revisions. In the last 30 days, 9 of the 27 analysts covering the stock raised their estimates for the full fiscal 2010 while 5 analysts moved in the opposite direction. But no up or downside movements were noticed in the last 7 days.

 

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is 85 cents per share, which is well below the full fiscal 2009 earnings of $1.04.

 

The company’s earnings surprise for the preceding four quarters varies between negative 52.4% and positive 32.0%, with the average being negative 9.6%.

 

 

Total production volumes for the quarter increased 13% year over year, driven by solid contribution from the Barnett and Marcellus shale plays. Total volume averaged at 42 Bcfe (82% natural gas), reflecting the 28th consecutive quarter of sequential production growth.

 

While average oil production decreased 23% from the year-earlier level to 6.2 thousand barrels per day (Mbbl/d), natural gas liquid and natural gas volumes jumped 77% and 14% year over year to 7.6 Mbbl/d and 374 million cubic feet per day (MMcf/d), respectively.

 

Average price realization for natural gas during the quarter, including hedging effects, was $6.15 per Mcf (compared to $6.44 in the year-ago period). Average prices for crude oil and natural gas liquids were $67.28 (versus $62.30) and $38.79 ($33.77) per barrel, respectively.

 

At the end of the quarter, Range had a cash and cash equivalent balance of $153.7 million. Long-term debt stood at $1.7 billion, representing a debt-to-capitalization ratio of 41.8%.

 

 

As of December 31, 2009, Range’s proved reserves stood at 3.1 trillion cubic feet equivalent (Tcfe), an 18% increase from the end of 2008. In 2009, the company replaced 486% of its production. Of the total reserves, 84% was natural gas and 45% was in the proved developed category. Based on the reported quarter production rates, reserve life is 19 years.

 

 

Recently, Range has sold its tight sand properties in Ohio for $330 million. Given the proceeds available from the property sale and its thumping drilling success, Range stated that its capital budget for 2010 would be $950 million. The company expects a 12% production growth this year after adjusting the property sales. Overall production growth in 2011 is expected to be around 25%.

 

Range’s long-term upstream production prospect is gaining momentum with superb drilling results in the Marcellus play and its expansion plan towards Northeast Pennsylvania acreages. Its low-cost business model, significant exposure to the shale plays, uptrend in production and reserve base and above-average reserves life will add long-term value for its shareholders. We are currently Neutral on the stock.