Range Resources beat my 4th quarter cash flow per share forecast, primarily because of higher realized prices (net of their hedge settlements) and lower operating expenses. They have done a great job of lowering operating expenses and G&A.
Production in 2016 will be flat YOY just because of the assets they sold at the end of December. Production will be up ~8% on their retained assets.
Like most of the upstream companies, RRC has significantly reduced their capital budget for this year to live within cash flows.
I have updated my forecast model, which will be posted to the EPG website late today. Range has a very high percentage of their 2016 production hedged and they give outstanding guidance, so I have a high level of confidence in my forecast model.
My adjusted valuation is $35.50, compared to First Call's price target of $35.59.
RRC is one of three "gassers" in the Sweet 16 (the other two are AR and GPOR). If you read the Art Berman article (see link below) that I posted here a few days ago, you know that the U.S. natural gas market is rapidly tightening. The warm winter that is coming to an end will leave a lot of gas in storage, but rapidly falling gas production may have the utility companies scrambling for gas supply in the 4th quarter. Wall Street's long-term outlook is just a few weeks, so this will not become a hot topic until we get to October. I bring this to your attention now because NOW is the time to do your due diligence on the best gas companies. If natural gas prices return to the $4.00/mmbtu range (where they were 2014), my valuation for RRC will go to over $60/share.
Although the U.S. is a "closed market" for natural gas and to some extent NGLs, these commodity do not trade in lock step with oil. We are already seeing NGL prices moving higher (10% to 20% from Q3 to Q4).
Art Berman's take on the U.S. gas market: http://www.artberman.com/natural-gas-pr ... e-in-2016/
Range Resources (RRC)
Range Resources (RRC)
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group