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Memorial buy to boost Range in short term despite price tag, Bernstein says


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Memorial buy to boost Range in short term despite price tag, Bernstein says

After its acquisition of ,Range Resources Corp.may now be better positioned for short-term growth despite the deal's pricetag, SanfordC. Bernstein & Co. analysts said.

The deal, which closed Sept. 16, is to consolidate and betweenRange Resources' Marcellus position and Memorial's Gulf Coast focus. But whileBernstein acknowledged in a Sept. 28 report that the price is on the high end,the analysts said the newly purchased assets are of high quality.

Bernstein analysts estimated the deal to be worthabout $11,000 per acre, which is in line with recent Marcellus/Uticatransactions. This price is justified by an average estimated ultimate recoveryof 11 Bcf for a seven-well Terryville sample, the report said.

Low prices for additional volumes meant Range couldnot grow its production to its firm transportation capacity before the merger,which put the company at a disadvantage given Bernstein's bullish near-termoutlook on Henry Hub prices. With Memorial's assets, Range Resources canrespond to increases in price with additional volumes.

"What [Memorial] adds is the ability to reinvestsurplus cash flows generated by the Marcellus business — which, with the largertransportation footprint of 2018 and beyond, should be significant — into anasset that can generate strong returns regardless of volume," theBernstein analysts said in the report.

Bernstein increased Range's target price to $47 from$46, with an "outperform" rating. Range shares closed at $36.97 onSept. 27.

Range's all-stock deal with Memorial was valued at $4.2 billionat closing, including the assumption of Memorial's net debt. Each share ofMemorial's common stock was exchanged for 0.375 Range share.