Range Resources (RRC) Q4 Results - Feb 25

[dan_s]

Cash flow from operations came in very close to my forecast. Slight lower natural gas price, but much higher NGL prices in Q4. I will update my forecast/valuation model tomorrow after our luncheon, but it will end up near their Net Asset Value of $24.00/share. - Dan
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Range Announces Fourth Quarter and Year-End 2018 Results
FORT WORTH, Texas, Feb. 25, 2019 (GLOBE NEWSWIRE) -- RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its fourth quarter and year-end 2018 financial results.

Commenting on the results and 2019 plans, Jeff Ventura, the Company’s CEO said, “Range made solid progress on key strategic objectives in 2018. Our capital spending was disciplined, coming in $31 million under budget due to efficient operations, longer laterals and innovative water recycling. For the year, Range generated free cash flow, reduced absolute debt, and also made good progress on our leverage targets with contribution of the royalty sale announced in late 2018.

“I believe the Company is positioned well, with a high-quality resource base capable of generating sustainable free cash at current strip prices. Our economic resilience is further demonstrated in the year-end PV10 reserve value of $9.9 billion using futures strip pricing from year-end, which equates to approximately $24 per share, net of debt. Going forward, Range is committed to translating well-level returns from our high-quality asset base into corporate-level returns, including a free cash flow yield that is competitive not only within energy, but across the broader market.”

[cmm3rd]

Dan,

Judging from positive pps movement AH following yesterday's Q4 report continuing into this morning's initial minutes (pps up substantially), then down sharply beginning at 9:39 am, something must have been said on this morning's conference call that the market really didn't like. Despite the good YE reserve report and yesterday's strong top and bottom line beats and projection of excess operational cash flow, the market must have heard something this morning that reversed what had been a very positive reaction.

Any idea what it was?

Also, do you have access to any analyst reports published after the call?

Thanks.

[dan_s]

After the CC Rehan Rashid at B.Riley FBR published a new report on RRC. He rates it a BUY with a price target of $21.00/share.

Range's production guidance for 2019 (just 6% YOY growth) may have been a bit disappointing to some investors, but their lower capex program (fully funded by cash flow from operations) is the right move for RRC. Look for excess cash flow from operations and non-core asset sales to continue to pay down debt.

I have updated my forecast/valuation model for RRC and it will be posted to the EPG website this evening. My valuation increases by $0.50 to $21.50/share.
Here are a few things to remember about RRC:
1. They hold over a million acres of leasehold (most of which is now HBP) in the Marcellus/Utica. This is an EXTREMELY VALUABLE piece of real estate.
2. Since most of their leasehold is Held By Production ("HBP") they have very flexible capex requirements.
3. In addition to 18,072 Bcfe of Proven Reserves (P1), Range has an estimated 60,000 to 80,000 Bcfe of Probable (P2) + Possible (P3) reserves; most of which is P2.
4. ~75% of their 2019 natural gas (70% of production) is hedged with floors at $2.86/MMBtu, so they have relatively low commodity price risk to my forecast.
5. The NGL market has significantly improve since 2017 and should continue to remain strong.
6. Cash flow from operations was $3.52/share in 2017 and $4.07/share in 2018. It should be near that range in 2019 and 2020.
7. In 2019 they will generate FREE CASH FLOW from operation, continue paying down debt, increase production by 6% to 7% and continue to increase their proven reserves.

[cmm3rd]

12:55 PM EST, 02/27/2019 (MT Newswires) -- RBC Capital said it has raised Range Resources(RRC) price target to $13 from $12, while reiterating its outperform rating.

According to the broker, the company appears set to generate mid-single-digit growth with $1+ billion in free cash flow over the next five years, equating to an average FCF yield of ~10%. "While this cash will go to repay debt in the near term, management noted that returns to shareholders could start when debt reaches 2.5x," said RBC.

[dan_s]

We will be sending out an updated profile on RRC late today.

I cannot stress enough how valuable their HBP leasehold is in the Marcellus/Utica play is. It is worth much more than their Net Asset Value of $23/share. It contains close to 80 TCFE of recoverable reserves.