Range Resources (NYSE:RRC) is targeting 25% production growth in 2011, as the company plans further development of its extensive holdings in the Appalachian Basin that are prospective for the Marcellus Shale. The company is also developing liquids areas in the Permian Basin and Granite Wash.
Marcellus Shale
Range Resources has 1.3 million acres that are prospective for the Marcellus Shale, including 850,000 net acres in the fairway or core area of the play. Range Resources projects that its production from the Marcellus Shale will reach between 400 million and 420 million cubic feet equivalent per day by the end of 2011. This would represent production growth of 25% over 2010.
Range Resources favors the Marcellus Shale because much of its acreage in the play is in the wet gas area in Pennsylvania. Wells here produce significant amount of natural gas liquids, including propane, butane and ethane, which yield higher revenues compared to a dry gas well.
Divestitures
Range Resources has traditionally sold non-core assets to help fund its development program. The company will continue this in 2011, and plans to sell the company's Barnett Shale properties in 2011.
Other companies that are active in the Barnett Shale include Quicksilver Resources (NYSE:KWK), which has 163,000 net acres in the Fort Worth basin. The company estimates that its production grew between 12% and 15% from this basin in 2010 over last year.
Permian Basin
Range Resources is also moving into basins in the United States that are exposed to oil and liquids. The company has 105,000 acres in the Permian Basin in Texas and New Mexico, and is looking at the Wolfberry and Bone Spring formations. The company plans its first well in 2011.
Granite Wash
Range Resources also has approximately 42,000 net acres in the panhandle area of Texas that is prospective for the Granite Wash. The company plans four test wells in 2011 on its properties.
Unit Corp (NYSE:UNT) is active in the Granite Wash, and has 38,000 net acres in the play. The company plans to drill 22 operated wells in the Granite Wash in 2011. SM Energy (NYSE:SM) has properties in Oklahoma that are prospective for the Granite Wash, and has allocated $60 million in capital in 2011 to develop these properties.
Hedges
Range Resources is also protected from continued weak natural gas prices in 2011, as the company has hedged 84% of its natural gas production at a floor price of $5.56.
The Bottom Line
Range Resources is planning to grow production by 25% in 2011, as the company will continue to harvest the large bet it made on the Marcellus Shale. The company is also expanding into the Permian Basin and Granite Wash to boost oil and liquids production.
Southwestern Energy (NYSE:SWN) will continue the company's above average organic production growth in 2011 as it continues to put the majority of its capital into the Fayetteville Shale area in Arkansas. The company will also move forward on its New Ventures program to find future areas to develop.
2011 Capital Plan
Southwestern Energy announced a $1.9 billion capital budget for 2011, down from $2.1 billion in 2010. The company plans to spend $1.6 billion of the 2011 budget in its exploration and production segment. Southwestern Energy expects this amount of capital to grow production by 18% over 2010 levels.
Fayetteville Shale
Southwestern Energy has allocated $1.15 billion of this capital towards development of the Fayetteville Shale in Arkansas. This level of spending will allow the company to drill and complete as many as 350 net wells in 2011.
Southwestern Energy has almost 900,000 net acres under lease here and while it might seem that after nine years of development that there might be little left to drill, Southwestern Energy has thousands of drilling locations left to develop.
Not all exploration and production companies are as committed to the Fayetteville Shale. Petrohawk Energy (NYSE:HK) just sold its properties here to Exxon Mobil (NYSE:XOM) for $575 million.
Drilling Efficiencies
Southwestern Energy will also continue to be more efficient in drilling in the Fayetteville Shale in 2011. The company expects lateral lengths on wells in the Fayetteville Shale to average 4,800 feet in 2011, and take an average of 9.5 days to drill.
Gathering System
Southwestern Energy has built a large natural gas gathering systems in the Fayetteville Shale area over the last few years and has allocated $225 million in capital here in 2011. This system consists of more than 1500 miles of gathering lines and processed 1.7 million cubic feet per day of natural gas as of October 2010. Southwestern Energy might look to monetize this asset in 2011 if needed.
Other companies involved in the mid stream include Regency Energy Partners LP (Nasdaq:RGNC), which owns pipelines, and natural gas gathering and processing assets in the United States.
Marcellus Shale
Southwestern Energy has 151,000 net acres in under lease in the Marcellus Shale, and started development in 2010. In 2011, the company expects to operate two rigs and put $265 million in capital into the Marcellus Shale. The company will participate in between 40 and 45 gross wells during the year.
New Ventures
Southwestern Energy has a New Ventures group which is working on finding new plays in North America for the company to develop. In 2011, Southwestern Energy has allocated $170 million in capital for its New Ventures area which includes drilling two wells. The one area in the New Ventures group that Southwestern Energy has discussed is the Maritimes Basin in New Brunswick, Canada.
The Bottom Line
Southwestern Energy will continue to put the majority of its capital in 2011 towards developing the Fayetteville Shale, as this exploration and production company sticks with the basin the company was built on.
