Range Resources (NYS:RRC) turned in another year of double digit production growth in 2011, as this exploration and production company continued to exploit its properties in the Marcellus Shale and other areas in the onshore United States. (To know more about oil and gas, read Oil And Gas Industry Primer.)
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Range Resources reported average production of 554 million cubic feet of natural gas equivalents per day in 2011, up 12% from 2010. The company's production growth would have been much higher for the year if not for the divestiture of properties in the Barnett Shale during the year.
This was the eighth consecutive year of double digit production growth for Range Resources. This streak will probably continue in 2012 as the company reported average production of 625 million cubic feet of natural gas equivalents per day in the fourth quarter of 2011.
Other operators reported higher growth than Range Resources. Continental Resources (NYSE:CLR) reported average production of 75,219 barrels of oil equivalent per day in the fourth quarter of 2011. This represented growth of 57% over the same quarter of 2011.
Range Resources also grew proved reserves by 14% over 2010, reporting 5.1 Tcfe at the end of 2011. This figure was calculated using pricing mandated by the Securities and Exchange Commission (SEC) of $95.61 per barrel for crude oil and $4.12 per Mmbtu for natural gas. This growth in proved reserves would have been higher without the company's sale of 904 Bcfe of proved reserves in the Barnett Shale during the year.
The prices used can vary depending on the region where the company operates. Bill Barrett Corporation (NYSE:BBG), which operates mostly in the Rocky Mountain area uses a natural gas price of $3.93 per MMBtu. This is based on the Colorado Interstate Gas price in 2011.
Range Resources also added these proved reserves at a low price relative to its competitors. The company reported an all sources finding and development cost of 89 cents per mcfe, and 76 cents per Mcfe through the drill bit. The second calculation excludes the addition of proved reserves through price revisions and acquisitions.
Natural Gas Exposure
One issue for investors to explore when considering whether to purchase Range Resources is the company's exposure to natural gas, where prices are close to ten year lows. Seventy nine percent of Range Resources proved reserves were natural gas at the end of 2011, along with the same percent of production on a volume basis.
Range Resources has hedged its exposure to lower natural gas prices and recently disclosed an update on its hedge position. The company estimates that it has 75% of its 2012 natural gas production hedged at a weighted average floor price of $4.45 per Mmbtu.
The fundamentals in the natural gas markets may get better in 2012, as Chesapeake Energy (NYSE:CHK) recently cut the company's dry gas development by 50% from the levels in the previous drilling program.
The Bottom Line
Range Resources turned in its usual double-digit growth in production and proved reserves in 2011, and should do the same in 2012. Investors that are worried about natural gas exposure might take some comfort in the company's hedge position as well as flexibility in directing capital expenditures should prices for natural gas fall further. (For additional reading, check out A Guide To Investing In Oil Markets.)
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.