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Range Resources promises positive cash flows, pullback from La. gas field

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Range Resources promises positive cash flows, pullback from La. gas field

Range Resources Corp. plans to cut its capital spending 20% and generate positive cash flows for the year, company executives said on a conference call, mainly by slowing activity in a "disappointing" Louisiana field and investing 85% of 2018 capital spending in the liquids-rich southwestern Marcellus Shale in Pennsylvania.

Executives also said on their earnings call Feb. 28 that they are actively marketing assets outside southwestern Pennsylvania and will use any proceeds to pay down debt. At the same time, Range's already announced five-year plan calls for spending to be controlled to generate $1 billion in free cash, also to be used to pay down debt, while growing production 11% per year.

"Growth will come from ~$6b of capex, with [most] of the spending heading to the Marcellus, a higher amount than we had previously anticipated, a testament to the increasing returns in the basin," SunTrust Robinson Humphrey analyst Welles Fitzpatrick said after results were released Feb. 27.

Shares in the Marcellus Shale pioneer were 4% higher, to $13.71, at midday ET on Feb. 28, after Range beat analysts' expectations by posting 22 cents per share in adjusted profits for the fourth quarter of 2017. S&P Global Market Intelligence's consensus analyst estimate called for 16 cents per share in normalized profits for the quarter. For the full year, Range had 58 cents per share in adjusted profits, compared to the 52 cents analysts expected.

The move up after an earnings release is welcome news to Range, whose stock lost 52% of its value in the past year, making the company a target of takeover speculation.

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The 2017 fourth quarter's 2.2 Bcfe/d of natural gas, NGL and oil production was a 17% increase over the same period in 2016, while full-year production for 2017 grew 30% to average 2 Bcfe/d. The proportion, or cut, of revenues from higher-priced gas liquids and oil, mostly condensate, improved about 7% in the fourth quarter compared to the same period in 2016, Range said. "Impressive high liquids cut results were the highlight of the operational release," SunTrust's Fitzpatrick said in another note before the call Feb. 28.

Range bought the Terryville Field in Louisiana, a Lower Cotton Valley gas field stacked on top of the Haynesville Shale, in 2016 for $4.4 billion in stock and debt. Range hoped to diversify away from the Marcellus Shale and move more production closer to the Texas Gulf Coast's LNG export terminals and petrochemical facilities, but the Terryville continued to disappoint in the fourth quarter. Range will drop three of four rigs in the field during 2018, using the lone rig and frack crew to get a better grasp of the geology of the play, executives said.

"We did not hit our targets in north Louisiana, and we all agree yearly results have been disappointing," Range CEO Jeff Ventura told analysts. "Put simply, the asset has been more geologically complex than anticipated and portions of the core area have been less productive than expected. And while we have a very talented, hard-working team overseeing the assets, we are slowing on north Louisiana activity significantly in 2018 and allocating approximately 85% of our capital to the Marcellus."

Despite his disappointment over the Terryville performance, Ventura was reluctant to put the field on the list of assets Range is actively trying to sell, saying that just a few years ago, Range was being pressured to get out of Marcellus wet gas leases when liquids prices cratered. Now that liquids prices are up, Range is profiting, Ventura said. "Fortunately, we kept putting some money into it, and we understood it better. When you look at where we are today, the type curves are significantly better."

Range's $54.6 million in adjusted fourth-quarter 2017 profits were 2% lower than the same period a year ago. For the full year, Range's $143 million in adjusted profits handily beat 2016's $4.9 million.