Range Resources (RRC) long-term production prospects are gaining momentum, but while the company’s second quarter production increased on the back of solid contribution from its core Marcellus Shale properties, this area is primarily over-pressured and, in some areas, contains rich gas that must be processed further. As such, Range Resources needs more capital as well as new high-pressured lines to gather Marcellus gas.
Although Range Resources is increasing its drilling activity in Northeast Pennsylvania, there is a high risk associated with this acreage due to faultlines and other geologic anomalies. Also, with the bulk of its projected 2010 production hedged, Range Resources may limit its leverage to commodity prices.
We are concerned about the macro factors, particularly regulatory and natural gas as well as natural gas liquids prices. We believe that the company’s natural gas-weighted reserves and production profile will further weigh on the stock.