Range Resources Continues to Focus on Maintenance Plan

Strategist

Stephen Ellis

Associate Equity Analyst

Adam Baker

Range Resources focuses on the Marcellus Shale play in southwest Pennsylvania. Natural gas accounts for over two thirds of its production, but a portion of its acreage also yields natural gas liquids, which gives it indirect exposure to crude prices (NGLs are substitutes for certain refined oil products). In 2024, Range Resources is focused on executing a maintenance plan designed to maintain production while keeping spending to a minimum.

Range Resources was a first mover in the Marcellus Shale, and it has assembled close to half a million net acres in the southwest Pennsylvania core of the play, giving it a huge advantage over other Appalachia producers. Data from Rystad Energy fully supports management's oft-repeated claim that it has a longer inventory life than its peers. Most will use up their best acreage in the next 5-10 years, forcing them to pivot to areas where well performance is typically weaker and supply costs are commensurately higher. Not so for Range Resources, which could maintain its current cadence for much longer without having to worry about exhausting its core resources. The recent oil and gas market recovery has allowed Range to strengthen its balance sheet.

Appalachia producers have had to contend with huge swings in commodity prices in the last few years. The shale revolution delivered a tidal wave of low cost supply that left the domestic natural gas market saturated for the better part of the last decade. This was exacerbated by periodic pipeline shortages in the region that pushed out basis differentials and further eroded revenue for upstream firms. But that regime is almost over. In 2024 and 2025, a further surge in liquefied natural gas and NGL export capacity, coupled with durable global demand growth for Range's dry gas and liquids products, is the backbone of our more favorable long-term outlook. Acreage and infrastructure constraints will chronically limit supply growth in the Haynesville and Marcellus gas plays, forcing producers to look higher on the cost curve to balance the market. Firms with ample drilling inventory and marketing agreements for flow assurance, like Range, will benefit from continued higher pricing.

Business Strategy & Outlook

The ability to generate durable excess returns on invested capital is a hallmark of companies with economic moats. Range Resources has historically struggled to do so, and though it is likely to earn its cost of capital in the near term, this is due to transient factors including above-midcycle crude prices and net operating loss carryforwards that temporarily shield Range Resources from federal taxes. We assign a no-moat rating.

The firm's Marcellus Shale acreage does generate solid field-level returns under midcycle conditions (with West Texas Intermediate averaging $55 a barrel and Henry Hub $3.30 per thousand cubic feet). And with over 3,000 potential drilling locations in its inventory, the firm has a genuinely long runway in the play, differentiating it from most of its gas-focused E&P peers. But after incorporating costs sunk on leasehold, acquisitions, exploration, and infrastructure, Range Resources' capital base inflates to a level that makes high returns on capital very difficult.

For Range Resources, the most significant environmental, social, and governance exposure is greenhouse gas emissions (both from extraction operations and downstream consumption). Greenhouse gas emissions are unavoidable for oil and natural gas producers. Firms can clean up their operations in the field as much as possible by avoiding unnecessary flaring and using technologies like electric fracking and carbon capture to reduce carbon dioxide volumes being released into the atmosphere during the extraction process. Range Resources has reported statistics showing a strong improvement in this area (as have peers). For example, it lowered its overall greenhouse gas intensity by 80% between 2011 and 2020 and is targeting a further 15% reduction by 2025. By combining this with carbon offsets (reforestation and forest management), it aims to reach net zero the same year.

But because downstream emissions are beyond producers' control, there's really no such thing as a "clean" E&P company. Natural gas is primarily used for electric power generation and for commercial and residential heating. As consumers get more averse to fossil fuels, the reputational risk grows for producers and the probability of widespread substitution away from fossil fuels increases. We believe renewable energy will continue to gain share over fossil fuels in the next few years but at the expense of coal rather than natural gas (which is less carbon-intense than coal but does not have the intermittency issues that plague wind and solar generators). Nevertheless, there is still the potential for value-destructive regulatory intervention (think fracking restrictions or carbon taxes). These threats are not likely enough to be included in our base forecasts, but the impact is potentially material.

None

Economic Moat

Range Resources

Range Resources Corp. engages in the exploration, development and acquisition of natural gas and oil properties in the Appalachian and Midcontinent regions. The company was founded in 1976 and is headquartered in Fort Worth, TX.

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Range Resources reports strong Q1 earnings, eyes growth opportunities

Range Resources had a strong start to the year, with a focus on financial discipline, debt reduction, and competitive returns. While facing challenges in ethane prices, the company remains optimistic about future opportunities and is committed to evaluating growth options.

Range Resources reports strong Q2 performance and eyes operational efficiencies and hedges for growth

Range Resources delivered strong Q2 results, emphasizing operational success, cost efficiency, and a focus on shareholder returns. The company faces challenges in managing cost inflation and maintaining efficiency as rig counts increase. However, they see opportunities in further operational efficiencies, potential additional hedges, and activity reversion in '24.

Range Resources delivers strong Q3 performance, eyes growth opportunities

Range Resources demonstrated strong operational and financial performance, maintaining a focus on efficiency and cost optimization. While facing challenges in the in-basin markets, the company is well-positioned to capitalize on growth opportunities and generate significant free cash flow. Overall, Range Resources is on track for long-term value creation and growth.

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Range Resources (RRC) reported a successful 2023, emphasizing efficiency, financial strength, and strategic investments. The company anticipates consistent production profiles, minimal federal taxes, and capital allocation towards generating free cash flow.

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Range Resources Corp. engages in the exploration, development, and acquisition of natural gas and oil properties in the Appalachian and Midcontinent regions. The company was founded in 1976 and is headquartered in Fort Worth, TX.

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Within the last quarter, Range Resources (NYSE:RRC) has observed the following analyst ratings: Last 30 Days 1 Month Ago 2 Months Ago 3 Months Ago Bullish 0 1 0 0 Somewhat Bullish 0 0 1 0 Indifferent 1 2 2 0 Somewhat Bearish 0 0 0 0 Bearish 0 0 0 0 In the last 3 months, 7 analysts have offered 12-month price targets for Range Resources. The company has an average price target of $16.86 with a high of $20.00 and a low of $12.00.

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