Range Resources quiets leverage concerns with $876M Nora sale

UPDATE 11/5/15
EnerVest Ltd. confirmed through a company statement that it signed the agreement to acquire the Nora Field in Virginia from subsidiaries of Range Resources Corp. On the deal, EverVest Ltd. CEO John B. Walker commented: "This acquisition adds to EnerVest's significant position in Appalachia, and includes additional drilling opportunities at today's commodity prices. In addition, there are potential future exploration opportunities below the existing producing zones."

Sale reduces debt, frees capital for stacked-pay acreage position in Marcellus, Utica

With debt reduction as a driving force, Range Resources Corp. (NYSE: RRC) agreed to sell its Nora assets in Virginia for $876 million, improving balance sheet metrics and likely alleviating leverage concerns. The divested properties encompass nearly 3,500 operated wells and approximately 460,000 net acres in the Nora/Haysi combined fields, and include midstream assets. Resource potential is estimated at roughly 5-6 tcfe.

Third quarter production for the Nora assets was 109 MMcf/d representing 7.5% of Range's net production. Assuming $4,000 per flowing Mcf, Seaport Global Securities values the undeveloped assets at approximately $440 million, "a fair value," the analysts continued in a note to investors Wednesday morning. By monetizing the assets, the company can "meaningfully delever its balance sheet (we estimate 2015 net debt/EBITDA of 3.2x vs. 4.2x previously), the analysts said, noting that "although Nora receives premium pricing (we estimate Q3's differential of -$0.82 would have been -$0.93 ex-Nora, and Q4's calculated differential could drop to -$0.47 from -$0.38), we think this will be largely offset by lower operating costs and a healthier balance sheet."

In a September 2014 interview with OGFJ, Jeff Ventura, Range's chairman, president and CEO, spoke about the Nora assets the company had recently acquired from EQT, noting the upside potential given the proximity to Southeast US markets and the expectation of an increase in gas demand in the area. The unnamed buyer of this recent deal was likely lured by the long-term gas price in a large, long-life, low decay gas resource, noted Jefferies analysts Tuesday. For Range, the sale presented an opportunity to reduce total debt by approximately 24% and free up capital for use elsewhere. 

In a note to investors Wednesday, Raymond James Equity Research analysts said that Range has grown production in the coal bed methane and tight gas properties over the past decade from its initial 15 MMcf/d level, but "given Range's Marcellus acreage, the Nora Field was receiving minimal capital," and selling off the assets offers benefits to the company outside the obvious debt reduction, including expected operating margin improvements stemming from lower operating costs of Range's Marcellus production, and the likelihood that the transaction will free up capital to invest in developing the Utica shale.

The sale is scheduled to close by year-end and is subject to customary closing conditions and purchase price adjustments.

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