range presents a more balanced portfolio

3rd August
Range Resources Presents A More Balanced Portfolio As Acquisitions In Texas And Trinidad Offset Risks Of Somalia Exploration


A sign of how effectively Range Resources has repositioned itself over the past year comes in its quarterly report for the three months ending June 30. The activity report from the AIM- and ASX-quoted company, which until last year was a pure frontier exploration play (and it doesn�t come much more frontier than Somalia), is now dominated by the company�s recently acquired holdings in the Americas.

The first of these new investments was made in September 2009, when the A$87 million market cap company bought a 25 per cent interest in the North Chapman Ranch project in Texas. This year it acquired a 13.56 per cent interest in an East Texas Cotton Valley oil play in Red River County, also in Texas, plus last month�s US$4.25 million acquisition of interests in three oilfields in Trinidad.

First to the North Chapman Ranch project, where the field has now been independently certified to hold 2P reserves of almost 32 bcf of gas, 2.4 million barrels of oil and 2.3 million barrels of natural gas liquids, with Range�s share put at 6.4 bcf, 0.5 million barrels and 0.5 million barrels respectively. These numbers could move significantly higher if a planned multi-well programme, designed to move the large volumes of 3P reserves into the 1P and 2P category, is successful.

This project started producing from the Smith-1 discovery well in Q1, with initial production of 3.3 million cubic feet per day and 290 bpd. The well has since been fracced, with positive initial results, although the operator is taking a cautious approach, limiting maximum flow rates to 4 million cf/d and 320 bpd to preserve well integrity.

A second well, Russell Bevly-1, has now been drilled on the western flank of the field, finding 130 feet of net oil and gas pay in the Howell Hight formation, exceeding the net pay thickness of the Smith-1 discovery well and opening up a new, potentially productive interval. It is expected onstream either later this month or early next month, adding significant proven reserves and production to the books. A third well will spud in Q4.

On the shallow East Cotton Valley field, which is reckoned to hold 2P reserves of 1.2 million barrels, development drilling is expected to get underway shortly. This will involve a horizontal appraisal well, Morris-3H, with a 2,500 feet lateral into the Cotton Valley sandstones. The well is projected to pass within 500 feet of the Morris-2H well, the first horizontal well drilled in the project area, which encountered good quality Cotton Valley reservoir rock and oil saturation but was badly damaged during completion. If successful, the Morris-3H could trigger a horizontal development drilling programme of up to 25 wells, each of which could recover more than 225,000 barrels of oil at an expected completed well cost of US$1.6 million (Range has a 13 per cent interest).

The Trinidad deal came just recently, with Range entering a Heads of Agreement with SOCA Petroleum to acquire its rights to a 10 per cent interest in companies with interests in the producing Morne Diablo, Beach Marcelle and South Quarry oilfields along the southern coastline of the Caribbean island. Current production from these three shallow onshore oilfields runs at 700 bpd but Range reckons a minimal work programme could lift that tally to more than 3,500 bpd within three years. Importantly, Range would be carried through initial development expenditure, which should be reduced anyway because the deal also gives Range a 10 per cent interest in a Trinidad-based drilling company, which owns five onshore drill rigs, three production rigs and one swab rig. What�s more, there is thought to be additional upside here in the deeper Herrera Formation, which if successful could add another 800 to 1,000 bpd of net production.

The company also has interests in two blocks in Georgia, in the FSU. Seismic was acquired here in Q1 and detailed mapping has been underway with final interpretation set for completion in Q3. This should lead to the identification of drilling targets, at which point Range will either decide to progress to drilling on its current 50/50 basis with Strait Oil & Gas or seek to bring in farm-in partners. A well needs to be drilled on each block by April 2012.

Compared to all this, the news from Puntland, an autonomous state within Somalia, was brief. The company�s joint venture partner, Africa Oil Corp, continues to seek a rig for the planned exploration campaign in the troubled state, where a first well is expected to spud before year-end. Range has also signed a Letter of Intent with ASX-listed company Red Emperor Resources to farm out a 10 per cent interest in the Dharoor and Nugaal Valley Blocks, with an option, which must be exercised before the end of the month, of taking on an additional 10 per cent in each block. This is a high risk/high reward venture, with the potential to transform Range - the company is hoping this acreage will prove to be a replica of the multi-billion barrel basins across the Gulf of Aden in Yemen � and it�s the reason many shareholders got behind the company in the first place. But investors will note that it is the projects in the US and Trinidad that are making the running when it comes to activity and investment in the near-term.