Old Park Lane Capital sees plenty of potential at Range Resources
Old Park Lane Capital has initiated coverage of Range Resources (ASX: RRS, AIM: RRL), praising its highly attractive spread of exposure to frontier exploration and stating that the value of just one of its wells alone underpinned the current market value of the company, which could develop into a major player in the E&P (exploration and production) sector.
The broker said that the exposure to frontier exploration was balanced out by low risk assets that were already in production, while the transformation of the company could be delivered by its projects in the Puntland region of Somalia, where Range holds a 20% working interest in two PSAs (production sharing agreements) in the Dharoor and Nugaal onshore basins. The interest in Dharoor is contributing, while the interest in Nugaal is carried for about US$16 million.
Old Park Lane expects the first exploration well in Puntland to be spudded before the end of the current year and the second well in early 2011, providing Range Resources with exposure to multi-billion barrel prospects.
The companys 25% interest Smith #1 discovery well on the North Chapman Ranch Project in Texas has commenced production at what the broker said were impressive rates, stating that just this well underpinned Range Resources current market value with additional upside offered by the success of the currently drilled Russell Bevly #1 appraisal well at North Chapman, which has recently reached a depth of 6,425 feet. Russel Bevly is located just 570 metres north-northwest of the Smith #1 well.
Following on from the recently released Independent Reserves and Valuations Report, the company anticipates that the well will provide valuable information regarding the size and geometry of the reservoir and move additional reserves into the Proved Producing category.
Petroleum engineers Lonquist & Co LLC (Lonquist) have estimated the total gross commercially recoverable reserves (1P, 2P and 3P) of the North Chapman Ranch Field at 215 Bcf (billion cubic feet) of natural gas with 45 Bcf attributable to Range, 15.9 mmbbl (million barrels) of oil with 3.3 mmbbls attributable to Range and 15.9 mmbbl of natural gas liquids with 3.2 mmbbls attributable to Range, which holds a 20% interest in all subsequent wells to Smith #1.
The report has made an independent PW10 DCF valuation of Ranges net interest of US$226 million. Should the company achieve positive results in Puntland, Old Park said it could transform into a major player in the sector.
Range Resources also has operations in the Republic of Georgia, expecting to firm up several attractive drill targets by Q3 and look for farm-in partners to fund future drilling. Ranges activities in Georgia included the completion of the heads of agreement with Strait Oil & Gas to complete Phase II of the PSA and subsequent approval form the Georgian government for the Geophysical Institute of Israel to commence the 2D seismic operation on both block VI1 and block VIb.
The seismic operation that started in November has proceeded well with over 150 km (kilometres) of seismic acquisition having been completed despite recent severe weather conditions with the completion of this operation expected to occur in the end of February to early March 2010.
Old Park concluded that in the best case resource estimate and heavily discounted risk parameters Rages interest in Puntland could be valued at 9.5 pence per share and the recoverable reserves in Texas at 3.3 pence per share
RRS Price at posting:
6.8¢ Sentiment: ST Buy Disclosure: Held
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