Range Resources Corporation (NYSE:RRC) could be heading into a troubling earnings announcement. Second Quarter financial results are scheduled to be announced after the near on Tuesday, July28th. While analysts maintain positive opinions of the firm, perspectives and estimates can be adjusted after the important data point.
During the three months that ended March 31st, 2015, the company rang up $228.7 million in natural gas revenues. Its next biggest source was natural gas liquids - importantly propane, butane, and natural gasoline - which brought in a complete of $59.8 million. Range also sells some oil, though only a comparatively little $36.9 million worth (Source: First Quarter Form 10-Q).
All of these commodities have been under extreme pressure. Ongoing oversupply is a chief reason. There are concurrent global growth worries.
While natural gas is a clean source of energy that is likely to play an more and more important global role, it currently sells for only $2.78/MMBtu.
Fortunately for the firm, it does hedge, else there would currently be a drastic crimp to revenues. Though derivatives transactions cost the company some money last year, they have been important in 2015. However, sequential pricing pressure is still probable (Source: 1Q 10-Q).
Range Resources remains a leader in the Marcellus Shale; and identifies itself as "The largest producer of natural gas liquids in Appalachia." There are long-term strategic initiatives to have vessels transport ethane to Europe via the Mariner East project / Marcus Hook Industrial Center in Pennsylvania, under a 15-year contract.
In 2012, Ineos contracted with Range Resources, for ethane, and with Sunoco Logistics (NYSE:SXL) for the associated transportation capacity on the Mariner East project that would move the ethane east from the Appalachian Basin for transatlantic shipment. As an anchor shipper, Range Resources has firm transportation of 40,000b/d (20,000 b/d ethane, 20,000 b/d propane), and will have storage capability for both ethane and propane...(Source: US EIA, hyperlinked above).
Since 2014, the firm's steepest drop off has occurred in liquids pricing. Management's 1Q guidance has specified 30% liquids on slightly higher production of 1.345 Bcf. The arithmetic puts liquids production at 76,500 bbl.
Propane is most important to Range and Second Quarter results are probable to be adversely affected by it. Range's 1Q earnings announcement says that 14,000 bbl/day of propane are hedged at $0.65 this quarter and at $0.61 in the Third Quarter. Propane's spot price has been between the low $0.30s and high $0.50s, down roughly 20% from the mid $0.40s to low $0.60s in Q1. Range's smaller amount of butane and natural gasoline swaps should also help, but with 62,500 propane bbls not hedged, its realized liquids price should be under 1Q results and closer to $11!
Like peer firms, there are strengths that Range can exhibit in terms of production efficiencies and there should be ongoing benefits from service cost savings. It also should have about 10 tcfe proved, plus a relatively big 66 - 87 tcfe in probable or possible reserves: 3P resources stand out among ecocnomic Appalachian exploration and production businesses. The company could be an acquisition target; although a lower enterprise value would increase the likelihood of any buyout.
Even with estimates steadily dropping, the Appalachian producers remain expensive per consensus earnings. Range's figures have been dropping. Cabot Oil & Gas (NYSE:COG) projections, input below, will probably come down further pursuant to its Q2 disappointment on Friday.
While the Tuesday event and information disclosed are unpredictable, I suspect investors will find that Range's prospects for 2015-6 are not improving. What can actions can management take with commodities struggling, especially provided its industry-leading liquids production results in roughly $11/bbl? If it opts to plod ahead, underwhelming results are an issue; or it can select to save money on drilling, which would moderate its output.
Range has attributes that must be attractive to investors; though their patience may be tested on Tuesday. It is difficult to foresee a positive surprise. While hedging arrangements partially shield it from ongoing difficulties, the corporation is a purveyor of depressed commodities.
Disclosure: I am/we are long AR. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose inventory is mentioned in this article.
Additional disclosure: I may initiative a short position in COG, and/or RRC, over the next 72 hours.
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