Range Resources Now a Strong Buy - Analyst Blog

On Mar 27, 2014, Zacks Investment Research upgraded Range Resources Corporation RRC to a Zacks Rank #1 (Strong Buy). We believe that the companies' large acreage will support several years of oil and gas drilling in the fast-growing fields.

Why the Upgrade?

Range Resources' diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties. The company has an impressive inventory in the Marcellus Shale, one of the prominent emerging shale plays in the U.S. lower 48. In 2013, Marcellus Shale well results continued to show improvement from both production and cost perspective and output averaged 968 million cubic feet equivalent per day (MMcfe/d), up 37% from the prior year.

Two (Mariner West and ATEX) of the three ethane projects became operational during 2013. The company's third project Mariner East is scheduled for commissioning in 2015. The company is positioned to benefit from these projects in the long run. Given its dominant position in the Marcellus Shale play and continuous endeavor to control costs, we believe that Range Resources will be capable of long-term shareholder value creation.  

Range Resources has a track record of growing production at a double-digit rate while reducing its finding and development (F&D) costs and sustaining an industry leading low-cost structure. This can be attributed to increased production from the low-cost Marcellus region. Additionally, the sale of higher cost related assets, like the Ohio properties in 2010, Barnett in the first half of 2011 and the New Mexico assets in 2013, further reduced the company's overall costs. The Permian Basin properties in southeast New Mexico and West Texas produced 18 million cubic feet equivalent per day of oil and gas.

Range Resources' 2014 capex budget is $1.52 billion. Of this, 87% is apportioned for liquids-rich and oil projects in the southwestern part of the Marcellus play. The company has been expanding its drilling activity to Northeast Pennsylvania, which has seen a pickup in industry activity. Range Resources indicated that returns in the Northeast could be as good as in the Southwest. Encouraged by the Mississippian results, it intends to ramp up activity going forward.

Stocks That Warrant a Look

Other stocks in the oil and gas industry looking good with the same Zacks Rank include Valero Energy Corporation VLO, Unit Corporation UNT and Helmerich & Payne, Inc. HP.