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Range Resources (RRC) to Grow in Marcellus Shale, Debts High

On Jun 28, we issued an updated research report on upstream energy player Range Resources Corporation RRC. The company has extensive oil and gas resources in key regions like Marcellus where it plans to spend significant capital for drilling and completion activities in 2017. However, we are concerned about the company’s escalating debt levels.

The firm currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Range Resources’ diversified 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 advantageously positioned to benefit in the long run from these projects. Given its dominant position in the Marcellus Shale play and its continuous endeavors to control costs, we believe that Range Resources is positioned to create value for shareholders over the long term.

The company’s 2017 capital budget is set at $1.15 billion. It is to be noted that almost 67% of the budget will be allocated for the Marcellus region, while the remaining will be spent in North Louisiana. Out of the total budget, almost $1.07 billion will be allocated for well drilling and completion activities. In the Marcellus play, the company will likely bring 118 wells online this year, while 56 wells are expected to produce first gas and oil in North Louisiana.

These developments are likely to help Range Resources reach its 33–35% year-over-year natural gas and oil production growth target.

However, since the beginning of 2012, total debt load at Range Resources has increased considerably. In fact, through all the four quarters of 2016, total debt load increased exponentially with no signs of decline. This reflects the weakness in the company’s balance sheet.

Also, year to date, Range Resources lost over 31%, as compared with the 27.8% decline of the Zacks categorized Oil & Gas-U.S Exploration & Production industry. Moreover, owing to an oversupplied commodity market, the prices of natural gas and crude oil have been significantly low as compared to the mid-2014 level. This has been affecting the company’s upstream business.

Stocks to Consider

A few better-ranked players in the energy sector are Canadian Natural Resources Limited CNQ, Enbridge Energy Partners LP EEP and W&T Offshore Inc. WTI. Canadian Natural and Enbridge Energy sport a Zacks Rank #1 (Strong Buy), while W&T Offshore carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.       

We expect year-over-year earnings growth of almost 725% at Canadian Natural in 2017.  

Enbridge Energy beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 38.22%. 

W&T Offshore had an average positive earnings surprise of 69.21% for the last four quarters.

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Enbridge Energy, L.P. (EEP): Free Stock Analysis Report
Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report
Range Resources Corporation (RRC): Free Stock Analysis Report
W&T Offshore, Inc. (WTI): Free Stock Analysis Report
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