rrs-update by spandy.org

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http://spandy.org/2011/06/09/rrl-update/

RRL Update
Posted: June 9, 2011 by Spandy in Range Resources
Tags: Georgia, Investing, Investments, NAV assessment, oil exploration, Puntland, Range Resources, RRL, Texas Oil, Trinidad 3
3 Votes

The first thing I?ll say is I?m back from Holiday, and it?s time to get down to business. It?s been a long time since I posted anything. I think my enthusiasm has waned somewhat thanks to the general investment and market sector negativity at the moment. The bright side is that the depression seen across the sector could offer some opportunities, potentially?!

So anyway, the first thing I?ve put together is a quick update for RRL, a fair bit of action has occurred since my first post on RRL. So let?s see?

Note to all:
The below figures are NAV valuations and NAV projections, not Share Price projections. NAV is not always reflected in the SP, for an endless list of reasons, and clearly any upside from any future assets carries associated risk. Please also read ?The Small Print? at the bottom of each post.

Summary:
Texas flow rate updates ? Fraccing success (RNS)
Trinidad acquisition (and share placing) (RNS)
June date confirmed for Georgia (RNS)
LOI signed for Puntland (RNS)
The Post:
Range have been hard at work on a variety of things as you can see in the above summary. These have had some impact on the charts I?d put together, so let?s get down to it?

Texas
There have been a number of news articles released on Texas progress over the last couple of months, the most significant being the most recent (in my opinion), which stated that the upper zone of Russell Bevley #1 well was producing stably at 350 bopd and 3.5MMcf gas a day, which is a significant improvement on the rates previously reported (RNS). This zone alone almost reaches the target for the entire well, so the combination of all zones should far exceed target, which is great for revenue.

Work is now being carried out on the Smith well, and fraccing is meant to be taking place on the Horizontal Ross 3H well in East Texas. News should be arriving in due course, based on these updates from RRL.

Trinidad
RRL had previously stated that the wells on these blocks are currently producing around 700bopd, but RRL hope to increase this to 4000bopd with a minimal work program over the next 36 months. Since then, they made a surprise (to me) move, and decided they would increase their 10% stake to 100% (RNS). Clearly Range needed funding for this acquisition and carried out a placing to secure funding, which was over-subscribed by 25%.

There are some gems in this acquisition. The obvious ones are:

Increased Revenue from these assets (10 fold)
Increased NAV
Ownership of a company which owns useful drilling equipment
Additional prospectivity beyond current P10, P50 and P90 estimations of 20MMb
Additional prospectivity in the Herrera formations on the licenses, estimates up to 100MMb
So Ragne hope to improve their production from these wells, and drill further exploration wells to try and prove up some of this promising prospective resource, using the equipment they have acquired. So drilling costs should be quite reduced.

Even at current production rates, 100% ownership gives Range some serious revenue. 600 bopd will bring in circa ?15m a year in revenue. Profit is anyone?s guess, but my charts assume $25 per barrel for production, so ?3.5m per year profit.

Georgia
As stated before, Georgia, I believe is where a lot of the excitement sits. RRL has a 40% interest in 2 block in Georgia (Vla & Vlb). RPS Energy has identified 68 potential accumulations totalling over 2 billion barrels of OIP (with a conservative 30% recovery factor). 6 ready-to-drill prospects have been identified.

Range have now confirmed that the first drill is due to spud in June 2011 (RNS).

This will target the Vani 3 prospect. My previous charts were assuming 145MMb STOIIP for Vani 3 (as per their quarterly report). However the latest RNS states Mean STOIIP of 115.2MMb, so I?ve updated charts accordingly. I haven?t split this out to P10, P50 and P90, simply out of laziness, sorry! But in the What-if scenario, I will use the P50 value of 92.7MMB STOIIP.

Puntland
As previously reported, there?s a lot of political history associated with this area. An exploration well hasn?t been drilled in 18 years. However various wells that have been drilled had significant oil shows. RRL now has a 20% interest in the Dharoor and Nogal prospects. The only data I could find w.r.t reserves is Conoco?s best estimate of more than 500mmb recoverable reserves in the Nogal Basin block. I could find no equivalent for Dharoor.

The first drill in Nogal must spud before the end of July 2011, and a LOI has been signed (RNS) for a drill to take place in Q3 2011.

Updated 10% Risked NAV charts:
OK, I?ve applied the same rules as before. There are now more shares in issue, so NAV per share values have all cahnged, and there are various updates as described above. The first chart is simply for the NAV with Georgia and Puntland risked at 10% on top of Trinidad and Texas assets. For Texas and Trinidad, I use a CoS factor of 10% for P3, 50% for P2 and 90% for P1 reserves. But as they are reserves, there is 100% recoverability applied to the numbers.

Georgia?s figures are STOIIP figures so a 30% recoverability factor is applied.

As before, I have risked Georgia and Puntland at 10% in this chart. It?s a stab in the dark figure, to see what NAV that returns. The answer is circa 21p. See the chart below:

RRL ? NAV Update 9-6-11 ? 10% Risked

Using a 10% risk factor for a lot of these assets is possibly quite optimistic, largely because many of them are a long way off and it?s unlikely the market is pricing these in yet, however instead of guessing the market, this is simply an approach. It enables me to be consistent.

What If ? No 1 Chart
The fionly What-if chart I?ve done this time is for Vani 3, as that will be drilled in the near future. So this chart is simply What If Vani 3 comes good, and the market prices in the P50 resource value of 92.7MMb?

The answer is circa 25p NAV per share. See the chart below:

RRL ? NAV Update 9-6-11 ? Vani 3 Success

Now 25 p a share may not seem a lot, but there are more shares about these days, and this is for just one of many Georgian prospects.

Note:
Clearly any failures on any of these drills will result in a drop in SP, and this is always worth remembering. The What-If projection is based on success at Vani 3, Georgia. Clearly there?s plenty else going on for Range, and now they have a significant revenue stream.

In my eyes, Range is growing, and it seems very determined about it.

If you?d like to see more exciting What-If?s, then have a look at my last RRL post, there?s some fun on there. But clearly the remaining prospects aren?t updated as per this post.

I hope you all find this update suitable and well-rounded, and hopefully realistic!