Range Resources (RRC) and Gastar

[dan_s]

I have updated my forecast model for RRC and it will be posted to the EPG website late today.

RRC had a good quarter, but I have lowered my valuation to $53.00 (compare to First Call's Price Target of $53.37). My valuation came down because their 2016 capex program is expected to be trimmed back (lowering estimated production growth in 2016 to 15% YOY). The good news is that cash flow from operations in 2016 will more than cover their reduced capital program.

RRC is a "gasser". Several large midstream projects will soon be completed in the Northeast that will allow them to get much higher realized gas prices in SW PA. If the price of natural gas at Henry Hub moves back to $3.50/mcf, RRC will move quickly up to my valuation. This is a super high quality company with over a million acres in the world's most important natural gas reserves (Marcellus / Utica). RRC now estimates that they hold over 80 TCFE of recoverable reserves (~75% natural gas).

For those of you that own Gastar Exploration (GST): Go to the current RRC PowerPoint presentation (now on their website) and take a hard look at slide 51. Then go look at were the Gastar leasehold is that is now for sale. You can find a map showing Gastar's Marcellus/Utica acreage on the GST website. TPH is now showing the Gastar package and there will be many bidders.