RRC sells assets to shore up balance sheet
Posted: Thu Nov 05, 2015 9:38 am
Range Resources Corp.: Nora Sale Reduces Leverage Concerns
Drew Venker, CFA – Morgan Stanley
November 4, 2015 4:01 AM GMT
Range announced the sale of its Nora assets for $876 million, significantly reducing leverage and de-risking the 2016 growth outlook. Raising PT to $37 from $34.
Nora asset sale proceeds of $876 million in line with comps, but likely above expectations. Range announced the sale of its Nora Field in West Virginia to an undisclosed buyer for $876 million. The asset includes 109 MMcf/d of production (100% gas), 460,000 net acres, and a gathering system valued at $270 million based on most recent fair value estimates. Excluding the value of the gathering asset, the transaction implies $5,560 per Mcf/d of production, which is slightly above recent comps in the $4,000-5,000 per Mcf/d range, but justified given the asset's low decline rate and high net reveneue interest.
Pro forma leverage significantly improves. Pro forma for the sale, net debt to EBITDA at YE-16 improves to 4.6x from 5.9x, which compares to the Appalachia peers at 3.0x. We have adjusted our estimates for the cost structure impacts expected with the sale, which includes lower LOE and lower G&A. Additionally, given that Nora gas receives a premium to NYMEX, we have widened our corporate gas differential estimate by $0.05/MMBtu.
Potential remaining asset sales. While Nora is likely the largest portion of potential divestitures for Range, the company has previously discussed potential sales of 40,000 net acres in the STACK play of Oklahoma, 14 MMcf/d of production in Bradford county PA, and Miss Lime production.
De-risked 2016 outlook. The main concern of investors has been Range's leverage, and particularly how leverage looks on the gas strip in 2016. While leverage still sits above peers in 2016, we believe the improvement will significantly increase investor confidence in the guidance range of 10-20% growth for 2016. Our 2016 estimates are unchanged at 10% YoY pro forma production growth on capex of $550 million vs. the Street's 15% on $830 million.
Drew Venker, CFA – Morgan Stanley
November 4, 2015 4:01 AM GMT
Range announced the sale of its Nora assets for $876 million, significantly reducing leverage and de-risking the 2016 growth outlook. Raising PT to $37 from $34.
Nora asset sale proceeds of $876 million in line with comps, but likely above expectations. Range announced the sale of its Nora Field in West Virginia to an undisclosed buyer for $876 million. The asset includes 109 MMcf/d of production (100% gas), 460,000 net acres, and a gathering system valued at $270 million based on most recent fair value estimates. Excluding the value of the gathering asset, the transaction implies $5,560 per Mcf/d of production, which is slightly above recent comps in the $4,000-5,000 per Mcf/d range, but justified given the asset's low decline rate and high net reveneue interest.
Pro forma leverage significantly improves. Pro forma for the sale, net debt to EBITDA at YE-16 improves to 4.6x from 5.9x, which compares to the Appalachia peers at 3.0x. We have adjusted our estimates for the cost structure impacts expected with the sale, which includes lower LOE and lower G&A. Additionally, given that Nora gas receives a premium to NYMEX, we have widened our corporate gas differential estimate by $0.05/MMBtu.
Potential remaining asset sales. While Nora is likely the largest portion of potential divestitures for Range, the company has previously discussed potential sales of 40,000 net acres in the STACK play of Oklahoma, 14 MMcf/d of production in Bradford county PA, and Miss Lime production.
De-risked 2016 outlook. The main concern of investors has been Range's leverage, and particularly how leverage looks on the gas strip in 2016. While leverage still sits above peers in 2016, we believe the improvement will significantly increase investor confidence in the guidance range of 10-20% growth for 2016. Our 2016 estimates are unchanged at 10% YoY pro forma production growth on capex of $550 million vs. the Street's 15% on $830 million.