Range Resources (RRC) Q1 Results - April 23

[dan_s]

Range Resources is one of the four large-cap "Gassers" in our Sweet 16 Growth Portfolio.

First Quarter 2025 Highlights –

Cash flow from operating activities of $330 million

Cash flow from operations, before working capital changes, of $397 million < Beat my forecast of $328.7 million Adjusted Operating Cash Flow by a wide margin, which means the free cash flow from operations also beat my forecast.

Repurchased $68 million of shares, paid $22 million in dividends, and reduced net debt by $42 million < All of this is good news for shareholders.

Capital spending was $147 million, approximately 22% of the annual 2025 budget

Realized price, including hedges, was $4.02 per mcfe

Natural gas differential, including basis hedging, of ($0.15) per mcf to NYMEX

Pre-hedge NGL realizations of $27.79 per barrel – a premium of $1.05 over Mont Belvieu equivalent < Higher than my forecast of $26.50/bbl and the primary reason that Range beat my forecast.

Production averaged 2.20 Bcfe per day, approximately 69% natural gas < Slightly better than my forecast of 2.16 Bcfe per day.

Strategic collaboration to supply natural gas to potential data center and industrial development in Pennsylvania

Commenting on the results, Dennis Degner, the Company’s CEO said, “Range is off to a great start in 2025 with efficient operations, consistent well performance and strong free cash flow. Our solid financial results supported increased returns of capital to shareholders alongside further bolstering of the balance sheet. As demand for natural gas and NGLs increases and in-basin demand opportunities continue to materialize, we believe Range is well positioned given our growing in-process inventory, consistent well results, and high-return, long-life assets measured in decades.”

Bottomline: RRC should be trading at a much higher price

[dan_s]

Per RRC Press Release:

Average NYMEX prices
Natural Gas: $3.66/MMBtu < All of my Q1 forecasts are based on $3.50/MMBtu.
WTI oil: $71.40/bbl < All of my Q1 forecasts are based on $70.00/bbl.
NGLs: $26.74 < Beat my forecast of $26.50/bbl.

What this means is that all of the Sweet 16 should beat my Q1 financial forecasts due to higher realized commodity prices.

Trading Economic this morning: "Propane increased 0.07 USD/GAL or 8.45% since the beginning of 2025, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Propane reached an all time high of 1.67 in February of 2014." < The colder than normal winter and the ten day cold spell in the middle third of the U.S. during April has pushed propane inventories below the 5-year average and based on Days of Demand, propane inventories are very low. This should keep U.S. NGL prices 8% to 10% higher year-over-year in 2025.

[dan_s]

Other good news in the press release:

"During the quarter, Range drilled ~250,000 lateral feet across 18 wells, while turning to sales ~132,000 lateral feet across 10 wells. The added inventory of drilled but not completed laterals is in line with Range’s plans to exit 2025 with ~400,000 lateral feet of surplus inventory to support future development."

"Range is collaborating with Liberty Energy Inc. and Imperial Land Corporation to supply natural gas to a proposed state-of-the-art power generation facility in Washington County, PA. The proposed power facility is expected to serve as a catalyst for attracting data centers and industrial operations seeking long-term, reliable, efficient energy solutions. The project plans to utilize modular, scalable power generation systems and Marcellus natural gas, which has an advantaged emissions profile versus other basins in the U.S." < More demand for natural gas within PA is good news for AR, EQT, CTRA, and RRC.

[ChuckGeb]

They indicate 20% growth thru 2027 with 50% reinvestment rate. Pretty impressive. I am interested in where the takeaway out of basin or increased in-basin demand is coming from.

[ChuckGeb]

Three-Year Outlook ▪ $650 - $700 million annual capex 2025-2027 ▪ <50% reinvestment rate at $3.75 while growing production ▪ Adds ~400 Mmcfe to daily production ▪ Cumulative 2025-2027 FCF of ~$2.5 billion(a) Growth Wedge into Increasing Demand ▪ 300 Mmcf/d incremental processing secured (2026) ▪ 250 Mmcf/d incremental natural gas takeaway accesses growing demand in Midwest and Gulf Coast markets (2026) ▪ 20 MBD NGL takeaway and export capacity utilizing new East Coast terminal (2026) Beyond 2027 ▪ Free cash flow breakeven of ~$2.00 NG / $75 WTI / $25 NGLs ▪ Ability to maintain 2.6 Bcfe per day production with only $570 million D&C per year ▪ 30+ years of Marcellus inventory can support additional growth to meet in-basin demand

[dan_s]

Slides 8 - 11 are very bullish.

Range's aggressive stock buybacks are key to my valuation. Combined with their hedging program, lowers the risk.

Range has a solid balance sheet and decades of high-quality running room.

I would like to see them raise the dividends, which I believe will happen if U.S. natural gas prices do firm up over $4.00.

[Petroleum economist]

I agree with Dan that Range Resources is undervalued.

Production
• Q1 production (2.200 MM scfe/d) was flat versus Q4 (2,203 MM scfe/d). Range Resources did not supply a Q1 outlook. I had expected a slightly lower 2,150 MM scfe/d.
• Range Resources did not supply a Q2 outlook. I expect for Q2 a production of 2,150 MM scfe/d.
• The 2025 outlook was maintained at 2,200 MM scfe/d. As I expect a buildup in H2 to 2,300 MM scfe/d, my 2025 expectation is a bit higher (2,250 MM scfe/d).
• Range has indicated earlier that production in 2026 can grow to 2.400 MM scf/d at to 2,600 MM scfe/d in 2027.
• Range Resources has ample proven reserves (18.1 tcf = equivalent to 22 years of 2025 production).
• Based on the reserves and an increasing market demand, I expect production after 2027 to reachto a level of 2,700-2.800 MM scfe/d in 2029.

Balance sheet
• Range resources has a sound balance sheet.
• The equity ratio (=equity/balance sheet total) at 53.4% was similar to late 2024 (53.6%).
• Long-term debt ($ 1.090 M) was unchanged versus late 2024.
• As the EBITDA increased due to higher gas prices the debt-EBITDA ratio fell from 0.99 (2024) to a good 0.71 (Q1).
• The balance sheet allows shareholder returns.

Profitability
• Range Resources is a profitable company.
• Q1 eps $ 0.97 was slightly below my expectation as realized gas and NGL did not meet my expectations.
• With higher gas process in H2 I expect the 2025 eps (excluding non-cash hedging) to reach $ 4.50 (PE=7.4).
• After 2025 with a gas price of $ 4.00/MM Btu the eps can increase to $ 5.00 (PE=6.6) in 2029.

Shareholder returns
• Range Resources provides decent shareholder returns.
• Range Resources pays in 2025 a quarterly dividend of $ 0.09 ($ 0.36 on an annual basis) and in Q1 bought back shares in Q1 for $ 68 M.
• Assuming that the dividend is maintained and that the quarterly buybacks increase to $ 100 M per quarter towards the end of the year, shareholder returns in 2025 can reach 5.1-5.2%.
• After 2025, with more production and higher gas prices shareholder returns can increase to 8-9% in 2029.

Conclusions
Range resource has ample reserves. Q1 production was slightly higher than expected. Although production will be flat in 2025, it will start to grow in 2026. The balance sheet is sound. Profitability is good. Shareholder returns are decent and can increase over time.

In my 85 oil and gas companies ranking, Range Resources ranks in the top 25 at a good 18th position.