Range Resources (RRC) Update - Mar 30

[dan_s]

From Stifel:

Range Resources Corporation (RRC, $2.17, Buy; Target $9.00)
RRC Announces Reaffirmation of Bank Credit Facility. Is There a Positive Read-Through to Other Appalachian Producers? - Jane Trotsenko

RRC announced reaffirmation of its $3.0B borrowing base and $2.4B in commitments, retaining its liquidity of $1.7B as of YE19. Recall that RRC's borrowing base is re-determined once a year in the spring. 2020 Henry Hub forward curve prices are down $0.70/MMbtu or 25% vs a year ago. Liquids pricing is down over 60%. What is more, while RRC's total proved reserves remained unchanged, its PV-10 value declined 40% y/y in 2019. Nevertheless, it was able to retain its borrowing base of $3.0B. RRC had substantial cushion above its borrowing base heading into the spring redetermination season. Its max conforming capacity is now reduced. We believe RRC is more of an exception than a rule as the majority of natural gas producers do not have a sizable cushion. We expect borrowing bases for Appalachian producers to be cut 10-15% on average this redetermination season.
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My valuation of RRC is $4.50 today, but if natural gas prices work there way back to $2.50/mcf by year-end, RRC has a lot more upside in 2021. The U.S. natural gas market is in much better shape than the current gas price indicates.