Range Resources buying Memorial Resource in its biggest deal ever

Fort Worth-based Range Resources agreed to buy Memorial Resource Development of Houston in a $3.3 billion stock deal that will add significant natural gas resources in northern Louisiana. It marks Range’s single largest acquisition on record.

The combination — one of the few U.S. energy mergers during the market rout — will give Range broader access to an emerging gas export market, adding to big operations in the Marcellus Shale in Pennsylvania, as well as fields in Oklahoma and Texas. On a conference call with analysts, Range CEO Jeff Ventura said the deal will bring together “two of the highest-quality natural gas producers in North America, which creates a premiere natural gas company.”

But some investors showed concern about Range’s move to branch out from Appalachia, which was the biggest driver of gas supply growth in the past decade thanks to drilling technologies that drove down costs. Range (ticker: RRC) fell $4.32 a share, or 10 percent, to $37.69 in New York, making it the worst-performing energy stock in the Standard & Poor’s 500 index Monday.

With Marcellus production offering “by far the best returns and the lowest cost in all of the lower 48” states, “some of the investor base is likely disappointed,” said Vincent Piazza, an analyst with Bloomberg Intelligence. “It’s a question of strategic focus.”

Memorial Resource shareholders will get 0.375 shares of Range stock for each share held, implying a value of $15.75 a share, or a 17 percent premium to the closing price on May 13, the companies said in a statement Monday. The transaction is valued at $4.4 billion when $1.1 billion of debt is included.

Last month, Range reported a first-quarter loss of $91.7 million, which was smaller than forecast, and predicted better times ahead based on strong operational performance. It supplied the first U.S. exports of waterborne ethane earlier this year.

Export market

Memorial’s “sizeable position” in northern Louisiana will better allow Range to take advantage of rising gas exports to Mexico by pipeline and liquefied natural gas shipments by tanker, the company said in an investor presentation. Range will also be able to supply growing demand from Gulf Coast power producers and petrochemical plants.

With its Texas roots, Range became one of the biggest gas producers in Appalachia’s Marcellus shale. Range and other drillers have been so good at cutting costs and squeezing gains from Marcellus wells that supplies became stranded because of a lack of pipeline capacity in the region.

The boards of both companies have unanimously approved the terms. Both expect completion, which is subject to shareholder and regulatory approvals, in the second half of 2016.

This story was originally published May 16, 2016 at 10:19 AM with the headline "Range Resources buying Memorial Resource in its biggest deal ever."