Range sells Barnett Shale assets to help fund 2011 capital spending

Proceeds dip slightly from expectations, short-term funding resolved and Marcellus production on par

By Oil & Gas Financial Journal staff

On Feb. 28, Range Resources Corp. (NYSE: RRC) announced its plan to sell its Barnett Shale properties in the Fort Worth Basin to a private company for $900 million.

The sale includes 390 producing wells covering nearly 52,000 net acres with current production of nearly 113 MMcfe per day. Range will retain certain non-producing acreage in the Barnett Shale, which it values at approximately $50 million.

A March 1 report by Jefferies & Co. Inc. noted the Barnett sales proceeds were slightly below recent market expectations of roughly $1.1 to $1.2 billion.

Jefferies noted the implied transaction price of roughly $8,000 per flowing mcfe compares unfavorably when compared to Talon Oil & Gas LLC’s sale of its Barnett assets at $11,100 per flowing mcfe to EnerVest late in 2010, but noted Dallas-based Talon’s assets contained a higher proportion of liquids (29% NGLs) compared to Range’s assets (17% NGLs). 

Talon Oil & Gas, backed by private equity firm EnCap Investments LP, came in at No. 30 in the January 2011 installment of the OGFJ100P ranking of private companies based on production within the US.

2011 and beyond
The company plans to fund its 2011 capital expenditure budget (also announced Feb. 28) of $1.38 million with a portion of the proceeds from the Barnett Shale properties and the sale of additional non-core assets (mostly non-producing properties) in which it hopes to raise another $250 million by late 2011.

The 2011 capital budget includes $1.13 billion for drilling and recompletions, $160 million for land, $55 million for seismic and $35 million for pipelines and facilities. Approximately 86% of the budget will be directed toward the Marcellus Shale play. The remaining budget is currently divided as follows: 6% for the Midcontinent division, 4% for the Appalachian division and 4% for the Southwest division.

After combining 2011 estimated cash flow and the expected proceeds from the property sales, less the 2011 capital expenditures, Range anticipates carrying over approximately $400 million into 2012. The company currently plans to fund its 2012 capital budget with the $400 million carryover proceeds, operating cash flow and drawing approximately $150 million under its bank credit facility.

For 2011, Range is targeting year-over-year production growth of 10% (25% adjusted for Barnett assets) and 25% to 30% in 2012.

Commenting on the announcement, John Pinkerton, Range's chairman and CEO, said, "The sale of our Barnett Shale properties will be the catalyst for Range becoming cash flow positive in 2013. Under our plan, we will retain 100% of the resource potential of our Marcellus Shale play as well as from the Upper Devonian and Utica Shale plays. It will also allow us to pursue our other opportunities in the Nora area, the Midcontinent and Permian Basin.” 

The company's Marcellus shale production is averaging 260 MMcfe/d and Jefferies believes the company is on track to meet or exceed its 2011 year-end Marcellus exit rate of 400 MMcfe/d. 

Jefferies questions the ability of the company to be cash flow positive by 2013 using its long-term gas/oil price deck of $5/85, but believes the company “should now be in position to fund the majority of its future funding gap with debt.”

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