Range Resources raised to BUY
Posted: Wed Aug 17, 2016 10:10 am
August 17: Stifel has raised RRC to a BUY with a $52.00 price target (may valuation is $48.00)
"Management comments at this week's Enercom Conference and recent MRD completions cause us to raise our YE16 production rate and 2017 growth estimates."
Raising Estimates
Yesterday, RRC management indicated that it expects 2017 production growth of
more than 30% y/y or ~2 Bcfe/d while cash flow exceeds capex. We are raising our
2017 production growth forecast to 37%, which assumes annual organic growth of
7% from the company’s legacy properties and 27% from the MRD assets. Our
2017 production estimate of 2.1 Bcfe/d is 5% above Street consensus. Before the
merger announcement, MRD management indicated that it planned to build a DUC
inventory. However, the company actually completed 10 wells in July. We look for
RRC to continue to complete wells and maintain a 4-rig program in Louisiana after
the acquisition closes in September.
RRC Encouraged by CV Pilots
Management is optimistic on the southern extension of Terryville where MRD has
drilled two vertical pilot holes at the Lamkin 4 and Weyerhaeuser CO 15 in Jackson
Parish, LA. These wells will be drilled horizontally and completed by RRC in 2H16.
A third well, the Davis Bros 27, located north of the other two, spudded 7/10/16
and is still drilling. All 3 are located between Terryville, Vernon, Choudrant, and
Driscoll fields. Well and mud log data indicate that the Lower Cotton
Valley is present and geopressured throughout the area between these fields.
Notably, the section is thicker and higher pressured in Vernon than Terryville.
Management is encouraged by log and core data from the first two pilot holes and
not troubled by the LA Methodist Orphanage 2-11 (LMO), an uneconomic southern
stepout at Terryville that MRD completed in early 2015. MRD believed the well
demonstrated consistent petrophysical properties across the southern portion of
Terryville although only 60% of the 6,150-ft lateral was drilled in-zone. The implied
30-day rate of only 7.5 MMcfe/d for a 7,500-ft in-zone equivalent was well below
the 21.7 MMcfe/d for MRD’s first 22 Upper Red wells. RRC indicated that it has
identified a tighter landing interval than the one used by MRD and believes much
less than 60% of the lateral was in the correct zone.
Management acknowledged the issues with Louisiana state data (lease
aggregation, incomplete data) and indicated its intention to release well
performance vs type curves, similar to its Marcellus disclosures, sometime early
next year.
IMO the merger of RRC + MRD creates the #1 natural gas company in North America. BUY NOW as this company is going to look VERY GOOD to Wall Street this by year-end. - Dan
"Management comments at this week's Enercom Conference and recent MRD completions cause us to raise our YE16 production rate and 2017 growth estimates."
Raising Estimates
Yesterday, RRC management indicated that it expects 2017 production growth of
more than 30% y/y or ~2 Bcfe/d while cash flow exceeds capex. We are raising our
2017 production growth forecast to 37%, which assumes annual organic growth of
7% from the company’s legacy properties and 27% from the MRD assets. Our
2017 production estimate of 2.1 Bcfe/d is 5% above Street consensus. Before the
merger announcement, MRD management indicated that it planned to build a DUC
inventory. However, the company actually completed 10 wells in July. We look for
RRC to continue to complete wells and maintain a 4-rig program in Louisiana after
the acquisition closes in September.
RRC Encouraged by CV Pilots
Management is optimistic on the southern extension of Terryville where MRD has
drilled two vertical pilot holes at the Lamkin 4 and Weyerhaeuser CO 15 in Jackson
Parish, LA. These wells will be drilled horizontally and completed by RRC in 2H16.
A third well, the Davis Bros 27, located north of the other two, spudded 7/10/16
and is still drilling. All 3 are located between Terryville, Vernon, Choudrant, and
Driscoll fields. Well and mud log data indicate that the Lower Cotton
Valley is present and geopressured throughout the area between these fields.
Notably, the section is thicker and higher pressured in Vernon than Terryville.
Management is encouraged by log and core data from the first two pilot holes and
not troubled by the LA Methodist Orphanage 2-11 (LMO), an uneconomic southern
stepout at Terryville that MRD completed in early 2015. MRD believed the well
demonstrated consistent petrophysical properties across the southern portion of
Terryville although only 60% of the 6,150-ft lateral was drilled in-zone. The implied
30-day rate of only 7.5 MMcfe/d for a 7,500-ft in-zone equivalent was well below
the 21.7 MMcfe/d for MRD’s first 22 Upper Red wells. RRC indicated that it has
identified a tighter landing interval than the one used by MRD and believes much
less than 60% of the lateral was in the correct zone.
Management acknowledged the issues with Louisiana state data (lease
aggregation, incomplete data) and indicated its intention to release well
performance vs type curves, similar to its Marcellus disclosures, sometime early
next year.
IMO the merger of RRC + MRD creates the #1 natural gas company in North America. BUY NOW as this company is going to look VERY GOOD to Wall Street this by year-end. - Dan