Range Resources: Security and Blue Sky - no longer mutually exclusive

Readers will remember our original Value Proposition for Range Resources (LON:RRL) was prepared in January, just six months ago.  It’s probably worth another scan (to view, click here) as you may be surprised at quite how much progress has been made in the interim. So much so, that we are now in the process of updating it and we hope to have the latest Value Proposition available very soon. The job has been rather fraught, since the Company is quite a fast moving target; just when we get to the point of capturing all the latest developments, they go and release another update - and its back again to the desk!! As Private Investors we understand the hunger in the market for ‘fast and furious’ progress. But oil and gas exploration is never expected to be this type of business. Careful analysis of data leads to well-planned drill programmes holding the best chance of finding oil and gas in the ground. This would certainly seem to apply for the Georgian and Puntland interests and thank goodness for that; with blue sky targets in the hundreds of millions and billions of barrels (respectively), one would expect diligent preparation at every level.

But on another front, Range Resources seems to cater for the Investor’s appetite for rapid progress.  The company’s interest in the Smith#1 well in North Chapman Ranch, Texas, came as some surprise in the 3rd quarter 2009.  But an even bigger surprise was how rapidly an investment of just over $1million turned into a significant commercial oil and gas discovery.  Moreover, the recent Independent Reserves Report for Smith#1 well estimated P1 (proved) ,P2 (probable) and P3 (possible) reserves attributable to Range of some $226 million (PW10 DCF valuation). This equates to about £147 million or roughly 15pence per share - around three times the current price.

Now the trick with Smith#1 was firstly to fracture stimulate the well so as to improve flow rates and enhance revenues.  Stimulation has now been undertaken successfully as confirmed in their recent news announcement. But we are still waiting for the flow rates to determine just how much revenue this well can now produce. The more the better obviously, as this income would certainly help towards funding the operational costs of pursuing the Georgian and Puntland major targets.  

Then, alongside fracture stimulation of Smith#1, the company also participated in the drilling of Russell Bevly #1 appraisal well, some 700 metres away.  Russell Bevly #1 has now also proved a success (click here to view Update) and even possibly a bigger ‘find’ than Smith#1.

 The importance of this is twofold;

 1.  providing additional revenue from well oil & gas sales;

 2.  providing extra reservoir data enabling, in due course, greater levels of reserves from the Independent report to be moved into the more reliable and valuable P1 category. 

We await further progress on completion of Russell Bevly #1, so by the looks of things, it seems like the news flow from Texas could continue apace for some time.

And then, just in case anybody started to worry that a major commercial oil and gas discovery with two successful wells was not enough, the company recently announced an additional acquisition in the form of a 13.65% stake in the East Texas Cotton Valley prospect, where a recent Independent Report highlighted Range’s interest to account for some 0.72mmbbls of P1 P2 and P3 reserves. Not that bad for an investment of just $256,000 plus a $220,000 commitment for the first well! 

The plan at East Texas Cotton Valley is to drill 20 additional wells, each targeted to produce 220,000 barrels of oil, which at $70 oil equates to just over $2million gross revenue attributable to Range from each successful well. 

We could go on, but you get the general idea. 

And since the news never seems to end, we also await further details of a new acquisition in the Americas which is soon expected to be announced.  Our experience with Range Resources thus far suggests this acquisition may also be something quite special and we, along with the rest of the market, eagerly await this news.

Watch this space.....