|RANGE RESOURCES CORP filed this Form 8-K on 02/23/2017|
Since acquiring the assets, significant progress has been made operationally, including integration of personnel, information systems, communications systems and facilities. As mentioned on our third quarter conference call, Range has a new drilling team with extensive experience in high-pressure, high-temperature drilling conditions, including experience in the Vernon field. The team has been able to implement significant improvements to date. As a result, total well costs for a typical 7,500 foot lateral well drilled in Terryville have declined from $8.7 million to $7.7 million in just the past five months thereby improving returns and potentially increasing location count. In addition, these cost reductions have occurred while staying within the targeted zone, which has the potential to increase recoveries. The new targeting interval also has been reduced to approximately 30 feet, compared to 90 to 100 feet previously. Updated economics for Upper and Lower Red areas can be found in the Company presentation on slides 40, and 42, showing attractive returns at current strip pricing.
As reported in late January, three wells were drilled and completed in the extension area prior to year-end. The wells were drilled on the north, east and west sides of the Vernon field. Based on logs and cores, the wells to the east and west of Vernon field appear to be structurally similar to Vernon, with multiple, stacked pay zones, and as expected, the over pressured Lower Cotton Valley section thickens when moving south from Terryville. The eastern and western wells each encountered six pay zones with total gas in place of approximately 400 Bcf per square mile, approximately 2.5 times Terryville. Initial production results indicate that each well is expected to have a normalized gas EUR that is in line with Terryville Upper and Lower Red wells. With these encouraging results, Range will continue to analyze well data, observe production characteristics with plans to drill additional extension wells in 2017.
Marketing and Transportation
Range’s overall marketing strategy for many years has been to assemble a diversified low-cost transportation portfolio. Recent developments are proving this to be a good strategy, with net pricing expected to improve on all products in 2017.
Natural gas pricing improved in the fourth quarter, with a full quarter of North Louisiana production and the addition of Spectra’s Gulf Markets project going in-service in early October 2016. The project allows Range to transport 150,000 Mmbtu per day from southwest Pennsylvania to the Gulf Coast, providing a significant improvement to differentials.
Additionally, we have received favorable news regarding FERC authorizations on all remaining Appalachian takeaway projects on which Range holds capacity. Spectra’s Adair Southwest project received its final FERC Certificate in the fourth quarter providing incremental transportation out of the Appalachian basin starting in late 2017. TransCanada’s Leach and Rayne Express projects received their final FERC Certificates in January, with a projected in-service date in late 2017 as well. The combined capacity from these projects for Range is an additional 400,000 Mmbtu per day from the Appalachian Basin to the Gulf Coast, further improving our expected basis differentials. In addition, in early February, FERC approved Energy Transfer’s Rover project. Range has 400,000 Mmbtu/day capacity on the project, with half delivered to Midwest/Canadian markets and half to the Gulf Coast. When combining this capacity with Range’s North Louisiana production, which receives near NYMEX pricing, Range expects its corporate gas differential to improve to approximately $0.30 below NYMEX in 2017. In calculating the differentials, Range assumed only 400,000 Mmbtu per day of capacity would be in-service late 2017.
Range’s gathering and processing costs per mcfe are expected to improve in coming years. In North Louisiana, Range acquired approximately double the processing capacity currently being utilized when the assets were acquired. Range will continue to focus the majority of its activities in the core of the Terryville area which will permit better utilization of our processing commitments in 2017, thereby reducing our minimum volume commitment expenses on a per mcfe basis. In the Marcellus, Range has largely captured the resource and is now going back to existing pads and areas of existing infrastructure, resulting in a downward trend in the Company’s gathering rates per mcfe.
NGL pricing has also improved recently on better domestic market fundamentals and the Company’s strong portfolio of domestic and international sales. As a result, Range’s calculated NGL prices (including ethane and