Pulling one of its many financial levers, Range Resources Corp. (NYSE: RRC) said Nov. 3 it will sell its Nora Field assets in southwest Virginia, with proceeds anticipated to reduce company debt by 24%, according to analysts.
Range will received $876 million for about 3,500 operated wells and about 465,000 net acres in the Nora/Haysi combined fields. In the third quarter of 2015, the assets produced 109 million cubic feet per day (MMcf/d), or about 7.5% of Range's net production.
The assets’ selling price is about $8,040 per flowing thousand cubic feet equivalent per day (Mcfe/d) of production to EnerVest Ltd. Range valued the assets' production at 5,110Mcfe/d.
“The price looks very attractive compared to recent gas deals that have been executed at about $3,000 to $6,000 per flowing Mcf,” said Jonathan D. Wolff, analyst with Jefferies LLC. “The deal looks especially impressive in the current depressed gas price environment, but appears to have had a large number of interested parties.”
The deal is expected to close by the end of 2015.
Range had been using new completion techniques in coalbed methane (CBM) wells that produced some of the best results in the past 25 years, the company said. Ultimately, though, the assets were considered noncore to Range’s long-term plans in the Marcellus.
Range was also reaping economic benefit by owning the majority of the royalties and receiving a premium gas price because of its close proximity to the growing southeast markets.
While the assets were productive, the value from a sale was the best decision for shareholders, Jeff Ventura, Range's chairman, president and CEO, said. Production from the company’s Appalachian division fell 2% compared to the prior-year and was flat with the second quarter.
“Using our consistent, return-focused capital allocation process, we will continue to review our portfolio for opportunities to bring value forward where other assets cannot compete for capital in comparison to our 1.6 million stacked-pay acreage position in the Marcellus, Utica and Upper Devonian,” Ventura said.
Range is striving to further drive down costs, improve capital efficiencies and enhance netback pricing in the core Marcellus to strengthen 2016 results.
Spending on the Nora had been halted for the remainder of 2015 as the company works to live within its $870 million capex budget.
Ray N. Walker, COO, said that capex has also been cut off from the Midcontinent and in northeast Pennsylvania.
Ventura said in an Oct. 29 earnings call that the company has sold more than $3 billion worth of noncore assets in the past 10 years.
Charles Robertson II, analyst with Cowen and Co., said he expects no change the company’s 2016 capital guidance.
“We wouldn't be surprised to see additional asset sales. RRC remains top pick,” Robertson said.
Cowen said in July that Range might look first to sell its undeveloped Scoop/Stack or Panhandle acreage as well.
What remains virtually untouchable is the Marcellus. Range owns 1.6 million net acres of stack pay potential in the play.
“It’s what’s driving our company,” he said. “We’re looking at 17 Bcf wells for basically $6 million. That’s about as good as it gets.”
Ventura said that even though assets being marketed are noncore to Range they are good properties and “we’re seeing a lot of interest.”
Wolff said investors have been concerned about the company’s static debt metrics, which at $3 per million British thermal units (MMBtu) ofgas in 2016, could have increased to near about 5x net debt to EBITDA.
“We estimate once this asset sale is closed, RRC’s net debt to EBITDA should be closer to about 4x in 2016 at $3/MMBtu gas,” he said. “Full bank liquidity should now be restored enabling RRC greater flexibility to fund its deep Marcellus inventory.”
David Kistler, analyst with Simmons & Co. International, said the transaction recalled Range’s Barnett Shale divestiture in 2011 for $900 million.
“At the time, the Barnett was producing 113MMcfe/d or about 25% of RRC's total gas production,” he said in a Nov. 3 report. “RRC was able to relatively quickly replace the divested production from higher quality Marcellus assets.”
By happenstance, the Nora Field was part of one of Range’s more recent major deals, adding 138,000 net acres in April 2014. Range dealt Permian Basin acreage to EQT Corp. (NYSE: EQT) in exchange for the additional Nora acreage, 1,200 miles of pipeline and $145 million in cash.
Darren Barbee can be reached at dbarbee@hartenergy.com
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