Range Resources (RRC) to Divest Reduced Overriding Royalty

Range Resources Corporation RRC has inked an agreement to divest a proportionately reduced 1% overriding royalty in Washington County, Pennsylvania leases. The transaction is expected to raise gross proceeds of $300 million.

The company’s Washington County assets include about 300,000 net surface acres that produced 1.7 billion cubic feet equivalent (Bcfe) net per day in the second quarter of 2018. The overriding royalty pertains to existing and future Marcellus, Utica and Upper Devonian development on the subject leases. This excludes shallower and deeper formations.

On closure of the transaction, Range Resources will retain a net revenue interest of about 82% on the subject Washington County acreage.  For 2019, cash flow related to the 1% overriding royalty is anticipated to be about $25 million.  The net proceeds will be used to lower total debt by an expected 7%, which reduces annualized interest expense by about $15 million. Consequently, estimated cash flow will decline about $10 million in 2019.

Range Resources’ diverse asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties. The company has an impressive inventory in the Marcellus Shale, one of the prominent emerging shale plays in the U.S. lower 48. The company is expected to benefit in the long run from these projects. Considering its dominant position in the Marcellus Shale play and endeavors to control costs, Range Resources is expected to raise shareholders’ value in the long term.

The above transaction further emphasizes the superior value of Range Resources’ assets and realization of a part of the embedded value.  

Price Performance

In the past year, Range Resources’ shares have declined 9.6%, against the industry’s 10.9% rally.

 

Zacks Rank & Other Stocks to Consider

Range Resources currently carries a Zacks Rank #2 (Buy).

A few other top-ranked players in the same sector are Petroleo Brasileiro S.A. PBR or Petrobras SA, Shell Midstream Partners, L.P SHLX and Phillips 66 Partners LP PSXP. All these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Petrobras is the largest integrated energy firm in Brazil and one of the major players in Latin America. It pulled off an average positive earnings surprise of 10.4% in the last four quarters.

Shell Midstream Partners is involved in owning, operating, developing and acquiring pipelines and other midstream assets. The partnership delivered an average positive earnings surprise of 7.9% in the trailing four quarters.

Phillips 66 Partners is mainly involved in downstream energy operations. The partnership delivered a negative earnings surprise of 1.9% in the last four quarters.

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