Range Resources (RRC) Price Target - Feb 9

[dan_s]

From Tudor Pickering Holt 2-9-2023

RRC Q4’22 Pre-Release
Total production in line, NGL volumes ahead of consensus
Sector: Upstream | Ticker: RRC | Recommendation: Hold | Target: $30 | Close: $23.60 | Market Cap: $5.7B | Analyst: Jake Roberts
Range out yesterday evening with a brief update on Q4’22 production and pricing. Total production ~in line with consensus estimates at 2.20bcfe/d vs 2.19bcfe/d. Gas production of 1,517mmcf/d coming in a hair behind TPHe 1,528 / Street 1,537mmcf/d; similar outcome on oil volumes at 6.7mbpd vs. TPHe 7.3 / Street 7.6mbpd. Difference there made up via NGL volumes of 107.8mbpd vs. TPHe / Street ~103mbpd as overall liquids percent of production printing at ~31.2%, ahead of consensus / company guidepost ~30%.

On pricing, RRC coming in ahead of our model (pre hedge) at $5.71/mcf on gas vs. TPHe $5.51/mcf, but lagging on NGL pricing at $27.17/bbl vs. TPHe $29.11/bbl. Sensitizing our model for disclosed production and pricing implying ~2% upside to our Q4’22 cash flow estimate. No mention of capex in the release (provided last year alongside Q4’21 pre-release) with our model sitting at $98MM vs. Street ~$100MM.

Elsewhere, Range disclosing positive contingency payment related to North Lousiana transaction of ~$24.5MM (realized Q4, cash in hand H1’23), with a similar payment occurring earlier this year ($29.5MM) and the final payment expected H1’24 (remainder of total potential payments of $90MM). Lastly, reserves updated +2% y/y with no major revisions apart from timing.
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MY TAKE: All of Range's Tier One leasehold is held by production, which is extremely valuable since they have no drilling obligations. They can adjust their drilling program each year to live within cash flow. They also have a very good marketing team that will sell some of their production at high spot market prices.

[dan_s]

My Q4 forecast was based on a realized natural gas price of $4.35 (net of cash settlements on hedges) and an NGL price of $35/bbl.

I now think that all of my Q4 forecasts are using NGL prices that are too high. This will have the most impact on AR.