Range Resources – Not Very Good Statement: Still a Sell

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AIM and ASX listed oil producer and explorer Range Resources (LSE:RRL) has served up a statement which is, in summary, not very good. There are elements of hope but also delays and disappointments. And these delays cannot help its cash position. Not surprisingly the share price has been marked lower, to 3.75p, but that does not present a buying opportunity. The stance remains sell. The target price remains 1.5p. And here is why.

First up are the US assets which the company is selling. It had said that due diligence would be completed by the end of November with funds received this month and that “the conditional offer provides for a $20m payment up front and $20m in royalty payments from current and future production.”

It now says something rather different. Viz:

In Texas, negotiations are entering their final phase with regard to the sale of Range’s North Chapman Ranch and East Texas Cotton Valley assets. The Company is currently negotiating an agreement for a cash / royalty combination transaction in line with the previously announced price range of between US$20m and US$40m expected to be completed in January 2013.”

In other words it is still negotiating. And if the deal completes in January funds will arrive, er…when?  As to the price the previous guidance was $40 million. Now we are told it is $20-40 million. I am sorry to be a total pedant but this is not in line it is different. Now it could end up the same but with negotiations not complete it is not a banker.

For twitter alerts on all articles by Tom Winnifrith follow him on twitter @tomwinnifrith

Then we come to Trinidad. The news here is not all bad. You see, I do show balance. MD248 is the deep well we were all waiting for since it spudded in the quarter ended 30th September.  It is now at 6,500 feet where it will test the Lower Cruse formation. Range says  that “based on historical production rates seen in the Middle Cruse formation, it is expected that a Lower Cruse well could have similar initial production rates of 200-300 Bopd.”  That would be jolly helpful but expected is not the same as is. So it is still fingers crossed there. We await actual results.

In January this rig – which can drill to 11,000 feet will move to test the deeper Herrera formation. That sort of implies that by early new year we will know whether “expected “ is the same as “is” from the Lower Cruse.

Elsewhere Range continues to develop the Lower Forest formation on its Morne Diablo license with shallower capacity rigs and has drilled and completed five new wells during the quarter, with another three drilling ahead. This is the good news, actual results from the current Lower Forest development program, are “exceeding the Company’s initial expectations in terms of average well performance and initial production rates (currently averaging approximately 60 bopd).”  This is good news although with all wells initial rates do tend to tail off fairly quickly.

So where does this leave Range? What I would like to have seen in the statement was a comment about the current bopd run rate. My guess is that it is still in excess of 1000 bopd but not by that much – certainly well under 1500 bopd. If the company is making, say, $30 per barrel net of all costs that means that it is making ( shall we say ) $40,000 per day or $1.3 million a month. But this is a company with a corporate overhead of $1.5 million a month and then there are the drilling costs, capex etc on top.

We know that it has already drawn down on a $15 million loan facility. So what next? Let us hope that production in Trinidad ramps up quickly and that the US assets are sold soon. I remind you that as recently as August this company was talking about share buybacks. I think we can safely say that such a move is firmly off the agenda for now. It would have been helpful if Range had included a cash update in today’s statement.

The immediate issue is clearly cash and then we turn to how quickly production can be increased in Trinidad. My pressing point is that the valuation – even now the shares are at 3.75p – does not reflect long projected future output levels let alone the current position. As I have been warning since the shares were 5p to howls of anguish from the Bulletin Board morons (see yesterday’s spat with them here) my target price remains 1.5p.

Tom Winnifrith is a speaker at the premier UK Investor Show, UKInvestor where he is joined on stage by folks who really can be called a Master Investor such as Nigel Wray, Nick Leslau, Clem Chambers,Zak Mir, Alpesh Patel, Evil Knievil, Lucian Miers and also by UKIP leader Nigel Farage. For more details on the show and to book your free seat on April 13th go HERE

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Comments

  1. brgmg69 says:

    Tominos nothing but pizza. You heard it here folks, Tominos he only knows pizza.

    You are proving yourself a fool Tominos, why are there two blocking orders on the book?

    This is a holding RNS nothing as has changed with Texas, they are drilling and casing 248 the reason it’s not flowing is that it’s still being drilled so cannot be let to flow.

    May I suggest Tominos that you look at the previous estimates for 248 as this RNS has improved upon the original estimates.

    Anyway Tom wasting my breath here cos you are Tominos nothing but Pizza.

  2. Jason Obrian says:

    Mr T(iny) Wiener inbred the 5th,

    Some call me strange, I say me from russia talk vodka, you excuse is very wiener in your pants.

    My point is your foto is a norwiengen offshore rig – what does that have to do with TT?

    Is Viz your grandmama … Why not shoe foto of Viz next time!!

    watch this space – me cosmonaughty say price of gas going up!!

  3. brgmg69 says:

    As the photo shows

    Tominos nothing but pizza

  4. Siraj says:

    I agree with you Tom, its short term bearish today was a new 52 week low.

    If your holding out for 1.50p and you strongly don’t believe that the management are going to fly thru with the sale of US assets and if they did the price as at today could be fair may be?

    Finally with regards to the price fall its been steadily falling since March 12 and I feel it will continue to fall from now til end of January unless the management are much clearer with timescales and quietly so with the current cash balance as operating cashflow is far more important than just sales forecasting!

  5. Christopher Robin says:

    “I am sorry to be a total pedant but this is not in line it is different”

    Since the previous statement said $20m plus $20m royalties, obviously it’s $20-$40m. Don’t you understand royalties? They depend on production.

    get a grip laddy

  6. Surf1 says:

    Tom, sorry….A worthless statement.

  7. Surf1

    The sort of comment my bearish posts on RRL have attracted for 6 months as the shares have tracked lower & lower.

    t

  8. Luke666 says:

    Looks like you have called this wrong Tom , 5 days gain so far with the Texas sale and deeper wells still to come.

  9. Sell at 5p and the shares are er….

    Things do not alwatys drop in a straight line.

    And that would be the Texas sale promised for by Christmas would it be?

    Personally it is the discounted fund raising that I am waiting for

  10. Luke666 says:

    So are you still saying that they will drop to 1.5p then in your opinion ?

  11. yes – in due course. that is all that the shares are worth. I cannot say when but it will happen.

    First stip will be when it announced its next fund raise. All the RNS statements right now are about getting the sp up ahead of a placing

    T

  12. Investor says:

    Tom the longer you take to admit that you have lost the plot where Range Resources is concerned the lower your credibility will sink, if it is possible for it to go any lower.

  13. Luke666 says:

    Another 15% up today !

  14. Luke666 says:

    And another 10% today

  15. Luke666 says:

    Sorry to hear that you are being sued by Sefton Tom !

  16. The Super K says:

    LOL Sued and no professional respect. Reputation in Tatters… TW .. your missing an AT after your initials!!! TW*T

  17. The Super K

    Sued & I will win

    RRL er breaking story, getting shares suspended,

    Thanks for balanced comment, you are a literary genius

    Tom

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