Range Resources's reserves skyrocket on Marcellus Shale developments

Source: Range Resources

Range Resources Corporation (NYSE: RRC) increased its proved reserves as of December 31, 2010 by 42% to 4.4 Tcfe. From all sources, Range replaced 931% of production in 2010 with 840% reserve replacement occurring through the drill bit and positive performance revisions. Finding and development costs from all sources, including acquisitions, acreage and all price and performance revisions, averaged $0.72 per mcfe. Excluding positive price revisions, finding and development costs from 2010 operations averaged $0.74 per mcfe. Drill bit development costs averaged $0.60 per mcfe. 

For 2010, Range added 1,410 Bcfe of proved reserves through the drill bit and 125 Bcfe were added through acquisitions. Positive performance revisions added 108 Bcfe, while price revisions increased proved reserves by 40 Bcfe. During 2010, Range sold properties containing 189 Bcfe of proved reserves, while the Company’s total production equated to 181 Bcfe. As a result, year-end 2010 proved reserves totaled 4.4 Tcfe; up 42% from the 3.1 Tcfe at year-end 2009, while proved developed producing reserves increased 25% to approximately 2.0 Tcfe. 

At year-end 2010, 80% of Range's proved reserves by volume were natural gas as compared to 84% as of year-end 2009. Year-end 2010 natural gas liquid reserves were 17% and crude oil reserves were 3% compared to 10% and 6%, respectively, in the prior year. The percentage of reserves in the proved undeveloped category was 51% at year-end 2010, versus 45% at year-end 2009. The increase in percentage of proved undeveloped reserves was due to the recording of additional proved undeveloped reserves in the Marcellus Shale play where Range had outstanding results in 2010. At year-end 2010, Range recorded, on average, a modest 1.9 offset Marcellus drilling locations to its proved undeveloped reserves for each of its proved developed wells in the play. As of year-end 2010, only 6% of Range’s Marcellus acreage was classified as proved reserves. As additional Marcellus wells are drilled in 2011 and beyond, it is expected that more of Range’s acreage will move into the proved developed and proved undeveloped categories. Given its results to date, as well as those of other operators, Range believes that a substantial portion of its Marcellus fairway acreage will be classified as proved over time. With regard to other shale formations above and below the Marcellus, Range has successfully drilled and tested one well in the Upper Devonian and one well in the Utica formation. While these formations appear to have attractive economics, Range elected not to record any proved undeveloped reserves associated with the Upper Devonian and Utica formation at year-end 2010. 

Given its increased focus on the Marcellus Shale play at year-end 2010, the Company removed 230 Bcfe of proved undeveloped reserves consisting primarily of its historical Pennsylvania tight gas sand and Nora field coal bed methane locations. Although these reserves are still economic, the Company no longer anticipates developing them within the next five years. At year-end 2010, the Company has 40% less proved undeveloped drilling locations than at year-end 2009. However, the average reserves per proved undeveloped drilling location increased as the mix of drilling locations shifted toward the Marcellus Shale, which carries much higher per-well reserves. Not only do the Marcellus Shale proved undeveloped drilling locations carry higher per-well reserves, but their rates of return are substantially higher. As a result of these changes, at year-end 2010, 59% of the proved undeveloped reserved are located in the Marcellus Shale. 

As noted above, from all sources, Range replaced 931% of production in 2010. Excluding the 40 Bcfe of positive price revisions and 125 Bcfe of proved reserves purchased in acquisitions, reserve replacement was 840% in 2010 drilling operations. The Company's estimate of cash drilling and development costs and property acquisitions incurred during 2010 including exploration expenses is approximately $1.2 billion which is subject to year-end audit. The Company estimates that it spent $165 million for acreage in 2010. Finding and development cost from all sources averaged $0.72 per mcfe including price and performance revisions, or $0.74 per mcfe excluding price revisions. Drill bit development cost (excluding price revisions and acreage cost) was $0.60 per mcfe. 

In 2010, Range sold properties containing 189 Bcfe of proved reserves. The sold properties were primarily associated with the Company’s legacy Ohio oil and gas properties. These properties included 3,300 producing and non-producing wells. 

The current Securities and Exchange Commission ("SEC") rules implemented at year-end 2009 require that the reserve calculations be based on the average prices throughout the calendar year. For the year-end 2010 reserve evaluation, the benchmark prices were $4.38 per Mmbtu for natural gas and $79.81 per barrel for crude oil, representing the simple average of the prices for the first day for each month of 2010. Comparative pricing for year-end 2009 were $3.87 per Mmbtu for natural gas and $60.85 per barrel for crude oil (Cushing). Based on these prices adjusted for energy content, quality and basis differentials ($3.70 per Mmbtu, $39.14 per barrel of natural gas liquids and $72.51 per barrel of crude oil, respectively), the pre-tax discounted (10%) present value of the Company’s proved reserves was $4.6 billion for 2010 compared to $2.6 billion at year-end 2009. Repricing the year-end 2010 reserves using the 10-year futures strip prices at December 31, 2010 (averaging $5.68 per Mmbtu and $93.69 per barrel with similar adjustments), would have resulted in a pre-tax discounted present value of $7.0 billion. 

Commenting, John H. Pinkerton, Range's Chairman and CEO, said, "Our 42% increase in proved reserves, 931% production replacement and $0.72 all-in finding cost is a direct reflection of Range owning a very large acreage position in the Marcellus Shale - a giant field that has industry-leading economics. The above results were achieved despite selling 189 Bcfe of reserves and removing 230 Bcfe of undeveloped reserves that we no longer expect to drill within the next five years. Additionally, we took a modest position by recording, on average, less than two offset drilling locations in the Marcellus for each existing well and no undeveloped reserves were included for the Upper Devonian and Utica formations. 

"With the 2010 results now in hand, we have achieved double-digit growth in production and reserves per-share, on a debt-adjusted basis for five consecutive years. Given our Marcellus Shale position, where much of our acreage has now been de-risked, coupled with our other projects in the Nora field in Virginia, Midcontinent and Permian Basin, we have more than 1.4 million acres that hold tremendous resource potential. As a result, we are extraordinarily well-positioned to continue to achieve double-digit, per-share growth at low cost for years to come.”

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