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Range will not chase higher gas prices with more drilling, executives say from SNL Daily Gas Report Range will not chase higher gas prices with more drilling, executives sayByline: Bill Holland Appalachian shale gas and NGL producer Range Resources Corp. will not immediately increase its drilling and production in response to anticipated higher natural gas prices in the fourth quarter and in 2021, executives assured analysts on the company's first-quarter earnings conference call May 1. With the drastic slowdown in oil drilling in the Permian Basin cutting into the amount of associated gas being delivered to the market, gas futures traders and analysts expect commodity prices near the end of the year to almost double to near $3/MMBtu. Analysts on the call wanted to know if Range was ready to chase that price with more drilling and spending. "We really don't see the need or benefit to return to high growth," CEO Jeffrey Ventura said. "So prices are significantly higher, and we're generating significant free cash flow; we'll first direct that to bolstering the balance sheet. And then from there, we'll look to position to expand cash returns to shareholders." Range expects to produce 2.3 Bcfe/d of gas and NGLs in 2020, with 70% of that being gas. That output would be roughly flat, compared to the 2.28 Bcfe the company saw in 2019, but it plans to spend only $430 million this year, more than 40% less than it spent in 2019. Rather than pour the greater cash flow from higher year-end prices on more drilling, executives repeatedly said the new money would be used to pay down debt or would be returned to shareholders. Range is reacting to the move to higher prices on the gas futures curve by shifting some of its new wells to drier more gassy locations, Stifle Nicolaus & Co. shale gas analysts Jane Trotsenko pointed out. "Similarly to other Appalachian producers, such as [Montage Resources Corp.] and [Southwestern Energy Co.], Range also slightly tweaked its well mix for this year," Stifel said in a note to clients before the call. "The company now plans to drill only three super-rich wells compared to nine wells planned previously. Wet gas wells will now make up 46% of the [turned in-line] program compared to 36% previously. The share of dry gas wells remained unchanged at about 50%." With most of Range's first-quarter results preannounced in April, there were few surprises in the earnings release, with one analyst praising a "boring" quarterly report. Nonetheless, investors added 7% to Range's share value, to $6.26, on light trading the morning of May 1. After the market closed April 30, Range reported first-quarter adjusted income of $9.7 million, or 4 cents per share, down from $91.5 million, or 37 cents per share, in the same quarter a year ago. The S&P Global Market Intelligence normalized consensus earnings estimate for the quarter was 1 cent per share. The drop in income easily correlated to drops in the average realized prices Range saw in the first quarter's warm winter with near record-low gas prices. Range said its average realized price for gas, the bulk of its production volumes, was $2.29/Mcf after hedging, a 26% drop for the year prior, while its blended price for gas, NGLs and light oil dropped 23% to $2.55/Mcfe. For the rest of this year, Range has 70% of its gas production hedged at $2.57/MMBtu with 80% of its crude production hedged at 58.22 per barrel. Range's production averaged 2,294 MMcfe/d in the first quarter, compared to 2,256 MMcfe/d in the first quarter of 2019. |
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