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Range looks to sell Texas drilling assets

December 5, 2013 - Ben Klein
(AP) - Pennsylvania most likely would be the biggest beneficiary from Range Resources Corp.’s attempt to sell West Texas drilling land, according to analysts who follow the company.

The Texas company told federal regulators this week it has hired Bank of America Merrill Lynch to market 90,000 acres it leases in the oil-rich Permian basin. That fits in with a long-standing trend at Range to sell assets around the country as it concentrates on drilling in the Marcellus and other gas-rich Appalachian formations.

“Their returns in the Marcellus are higher than anything else they’ve got out there,” said Raymond Deacon, Brean Capital LLC’s lead analyst for oil and gas production companies.

A spokesman at Range’s Cecil office could not be reached for comment. The company’s filing with the Securities and Exchange Commission did not say how much it is seeking or why it is selling its property in the Permian, one of the country’s hottest oil and gas areas. It effectively takes the company out of the Permian, investment firm Tudor, Pickering, Holt & Co. said in a note to energy investors.

The company has sold holdings several times before. In 2011, it sold out of the Barnett shale in the Forth Worth basin near its headquarters to raise $900 million for Marcellus shale drilling. It put a smaller chunk of land on the market in Oklahoma last summer and in February sold another small piece of Permian land in southeast New Mexico and West Texas for $275 million, all to fund Appalachian development.

The new transaction could bring in about $400 million to $600 million, Deacon said. Tudor, Pickering, Holt & Co. estimated the value of wells that Range is selling at about $200 million, with the undeveloped land adding another $300 million to $350 million to the package.

Range is growing in Pennsylvania, and its debt is too high for proceeds from a sale to lead to an even bigger surge for now, Deacon said. The company plans to spend about $1.3 billion in capital expenditures this year but brought in only about $690 million in cash through September, according to its most recent quarterly earnings statement. At that rate, it will outspend its cash flow by more than $300 million, according to Deacon and data gathered by Bloomberg.

The Permian sale will help close some of that gap and keep the company growing without taking on more debt, Deacon said. Range executives recently announced plans to drill their first Utica shale well — deeper than the Marcellus — in Washington County, and the Permian sale could help down the line if that experiment works out, Deacon said.

“If that works, I think they’d like to have their balance sheet be in as good a shape as possible to be able to ramp up there,” he said.

 
 

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