uk-analyst.com buy range resources at 7.125p

The 12 Tips of Christmas - Part 2

From UK-Analyst.com

Over the Christmas period UK-Analyst brings together 12 of the UK's foremost investment experts to give their top t1ps for 2011. In part two we present...

Buy Range Resources at 7.125p says James Faulkner of WatsHot.com

Range Resources (RRL) - Take a punt on Puntland

Being the editor of WatsHot.com I am prone to taking a punt on some of the more exotic plays on the market. Although shares in Range Resources have risen by more than 100% since I first tipped them back in January 2010, I believe they still look great value and they might - just might - yield some big surprises for investors in 2011.

Underwriting the investment case is a strong and growing production business, which it has put together through some savvy deal-making. Range holds a 25% interest in the initial Smith #1 well and 20% interest in further wells on the North Chapman Ranch project, Texas. The project area encompasses approximately 1,680 acres in one of the most prolific oil and gas producing trends in the State of Texas. Drilling of the first well has resulted in a commercial discovery with independently assessed gross recoverable reserves in place of 240 billion cubic feet of natural gas, 18 million barrels of oil and 17 million barrels of natural gas liquids. Range added to its acreage in Texas in June through the purchase of a 13.56% leasehold interest in 1,570 acres encompassing a recent oil discovery in Red River County, for $0.254 million. An independent report later that month estimated total gross commercially recove rable Reserves (1P, 2P and 3P) at 5.4 million barrels of oil (attributable to Range - 0.7 million barrels), with Range's interest valued on a discounted cash flow basis (using a 10% discount rate) at $18 million. In July the company followed up with the acquisition of a 10% interest in producing fields in Trinidad, where it believes it can quickly ramp up production to 3,500 barrels of oil per day from the current rate of 700 barrels of oil per day. Upcoming newsflow for 2011 includes fracture stimulating of the Russell Bevly well and a 3-4 well drilling programme on North Chapman, as well as the commencement of production ramp-up in Trinidad.

Whilst the production business provides the backbone of the valuation, it is the exploration side that could really set things alight in 2011. The firm has a 20% stake in the Nogal Basin and Darin Basin Blocks in Puntland, Somalia. Just one of the two blocks is purported to contain between 2.2 billion and 10.4 billion boe (barrels of oil equivalent), and there is every reason to believe the other basin offers similar prospects. Range was recently given the go-ahead by the Puntland administration, with the drilling of the first exploration well by its farm-in partner Africa Oil scheduled before the end of Q2 2011. Notably, Range is free carried until Africa Oil has spent the $50 million earmarked for exploration. Even modest drilling success in Puntland could see Range shares rocket. Further upside potential rests with its acreage in the Republic of Georgia, where seismic results produced a prospective es timate of total oil-in-place of 2.05 billion barrels (1.025 billion barrels attributable to Range), across 68 individual structures. Rig mobilisation is due in February. With plenty to look forward to in the New Year, the shares rate a speculative buy, at 7.125p.

UK-Analyst: Tip of the Day 3.52PM