(Idea) Range Resources
Range Resources (RRC) is a premier U.S. natural gas and NGL producer with operations in the Marcellus and Utica shale basins. Its acreage is located in Central and Western Pennsylvania in two contiguous blocks that allow for efficient development.
Source: Range Resources April 2024 Investor Presentation.
The company’s acreage footprint is massive, spanning some 1.5 million net acres. Management estimates it has 30+ years of drilling inventory.
Range produces 2.14 Bcfe/d, equivalent to 358,000 boe/d. Production in 2024 is split 69% natural gas, 30% NGLs, and 1% crude oil and condensate. The company is allocating approximately $95 million to growth capex—in addition to $575 million of maintenance capex—and is likely to grow total production in the mid-single-digit percent range in 2024.
Like most natural gas producers, RRC doesn’t have to worry about significant changes in its production mix. Over the past five years, its natural gas proved reserve product mix has consistently been in the mid-60% range.
RRC is active on the marketing front. The company sells 20% of its gas locally in the Northeast, 30% in the Midwest, 25% in the U.S. Gulf Coast, and 25% to LNG export facilities. Despite its efforts, its price realizations generally fall short of the Henry Hub natural gas benchmark. Offsetting this negative is the fact that RRC’s production is very low cost on a per-mcf basis, with free cash flow breaking even at around $2.50 per mcf.
The company bolsters its price realizations through an active hedging program. In 2024, approximately 55% of its natural gas production is hedged in the mid-$3.00 per mcf range. The hedges have allowed RRC to generate positive free cash flow during the ongoing stretch of low natural gas prices.
Management expects natural gas prices to improve in 2025, so it signaled in its first-quarter conference call that it would only remain 25% hedged for that year.
RRC’s hedges protect its cash flow during stretches of low natural gas prices such as today’s. However, if low prices persist for a longer period, the company could become free cash flow negative unless Henry Hub natural gas prices increase above its breakeven cost per mcf, which we estimate to be $2.50. Sustained low prices could force it to slash capex to maintenance levels only.