Range Resources (RRC) is the only Sweet 16 stock that is down year-to-date, but I still consider it a Core Holding quality company because of the company's HUGE long-term potential. It is a "Gasser", which explains the weakness. Near term outlook for natural gas prices is weak, but beyond 2015 I think gas prices will move over $4.00/mcf and maybe a lot higher as the U.S. ramps up LNG exports in 2016.
Below are comments from a Morgan Stanley report I got this morning from one of our members. Gastar Exploration (GST) also has exposure to this play.
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Our analysis of the emerging portion of the Dry Gas Utica in SW PA and WV indicates that RRC, SWN, and EQT have the most upside potential from the play.
Range Resources, Southwestern, and EQT have the most potential upside from exposure to the eastern portion of the dry gas Utica play. Using our base case well economics assumptions we estimate unrisked NAV upside of 27% for RRC, 16% for SWN, and 13% for EQT only attributable to this part of the Utica.
Early results have extended the play to SW PA and N. WV. Several well results on the eastern flank of the Dry Gas Utica play have generated excitement due to very strong initial rates, some exceeding 40 MMcf/d. These tests have extended the play further south and east into southwest Pennsylvania (SW PA) and northern West Virginia (N WV) from the more delineated portion in eastern Ohio. We focus our analysis on this eastern portion of the play.
Success in the play could meaningfully improve the upstream portfolio of several E&Ps focused in Appalachia. It has the potential to add inventory that generates returns greater than existing Marcellus drilling in many cases.
Dry Utica potential one reason for optimism on the Marcellus-Utica names. Dry Gas Utica potential is one reason why we are more optimistic than many on the (natural gas exposed) Marcellus-Utica names. This offers potential upside not baked into the stocks.
RRC and SWN have the most Dry Utica upside potential; EQT has greatest financial means to exploit it. We estimate that RRC holds 330,000 net acres with 17.3 Tcf of reserve potential exposed to this portion of the play, the most in our coverage. SWN has 156,000 net acres that are prospective for Dry Gas Utica or 7.2 Tcf of potential, but due to focus on Marcellus development, we expect its activity in the play to be limited in the next year or two. EQT has 144,000 net acres prospective or 7.9 Tcf of reserve potential and the dry powder to ramp up development activity if results warrant.