Range Resources reports loss, signals shift in focus to Louisiana

The Marcellus Shale in the northeastern U.S., long considered the cheapest and most profitable place to drill for natural gas, has a rival.

Fort Worth-based Range Resources, a pioneer in the Marcellus, told investors Wednesday that it can capture better returns on gas in a northern Louisiana field that it acquired with its purchase of Memorial Resource Development. The explorer’s rate of return in the so-called Terryville play is about 71 percent, compared with 59 percent at most in the Marcellus, according to company estimates based on forward prices as of June 30.

The comments came in a conference call to discuss the company’s third-quarter earnings report. Range reported a loss of $42 million, or 23 cents a share, as revenue declined by 14 percent to $413.2 million.

The potentially bigger profits in Louisiana underscore how much the glut of gas in the Marcellus and a lack of pipelines to deliver the power-plant fuel to market has depressed prices and squeezed drillers’ profits. By contrast, the Louisiana play is close to both demand centers in the Gulf Coast and a U.S. benchmark hub, allowing it to capture high prices with minimal shipping costs, according to Range.

“Like I’ve said many times over the years in the Marcellus, I don’t believe we’ve drilled our best well yet in the Terryville,” Ray Walker, Range’s Chief Operating Officer, said on the call with investors. The company is “already achieving some significant wins,” he said.

Range closed on its purchase of Houston-based Memorial last month. The deal, valued at $3.3 billion, marked Range’s biggest acquisition to date and signaled its diversification outside the Marcellus.

Range didn’t say Wednesday exactly how much money it expects to spend on wells in Terryville next year. It said it expects to average nine rigs in the fourth quarter — five in the Marcellus and four in Louisiana.

“It deserves more capital,” Bloomberg Intelligence energy analyst Vincent Piazza said in a phone interview. “You could see more capital allocated to the southern assets than previously thought.” Gas prices in the Marcellus are going to drive Range’s decisions, he said.

Shares of Range (ticker: RRC) dropped 94 cents, or 2.6 percent, on Wednesday to close at $34.95.

This story was originally published October 26, 2016 at 3:30 PM with the headline "Range Resources reports loss, signals shift in focus to Louisiana."