Small Cap Success Stories: Range Resources Corporation

Michael Teague  |

Range Resources Corporation (RRC) is presently counted among the largest companies operating in the North American independent oil & gas industry, with a market cap of $12.5 billion.

While the company has mostly been outperformed by its independent peers this year, however, Range has arrived at its current position by way of considerable adversity, as well as considerable scandal involving the environmental consequences of the hydraulic fracturing process. And even though it cannot count itself among the most successful among independents such as EOG Resources or Occidental Petroleum, the company was present at the earliest stages of, and may even have been one of the catalysts of the current bullishness around independent drillers and producers who for the time being look to be best-positioned to take advantage of the shale oil and gas bonanza that is just getting underway in the US.

Range Resources traces its history back to an Ohio-based driller by the name of Lomak Petroleum, established 1976, and whose fledgling explorations were focused on the state’s share of the Appalachian Basin.

By 1980, Lomak was trading on the NASDAQ, which allowed it to raise the funds necessary to establish subsidiary operations outside of Eastern Ohio in other prospects in Michigan and Texas. But by 1987, adverse industry conditions sent the company’s stock down to the pink sheets, and the next Lomak was acquired by a Ft. Worth, Texas company by the name of Snyder Oil Company.

The merger with Snyder put the company on more solid financial footing, and paved the way for its steady success throughout the decade. After Snyder had sold-off its stake in Lomak in 1995, the company moved its headquarters to Ft. Worth, and by the next year was once again trading publicly, this time on the New York Stock Exchange.

The $300 million in assets with which the company set out on the NYSE would be doubled with the company’s 1997 acquisition of American Cometra for $381 million, and was further bolstered by the following year’s merger with Domain Energy, then the 15th largest publicly traded oil & gas independent in the US.

Industry conditions would once again prove difficult by the end of the millennium, forcing Range Resources into cost-cutting measures, including the laying off of employees. All said and done, the period of contraction would last about three years, between 1998 and 2001.

But this period would prove to be a major turning point for the company, as it was one of the motivating factors behind the decision to merge its operations in the Appalachian Basin into a joint venture with FirstEnergy Corporation. This was also the beginning of the company’s shift from a focus on acquiring and holding valuable licenses to the more technical upstream side of the business.

In 2004, Range acquired coal bed methane properties in Virginia and West Virginia for $219 million, marking its first foray into the development of unconventional natural gas resources. These acquisitions would turn out to be fateful indeed, as they resulted in the company’s discovery of the Marcellus Shale, currently the highest producing shale-based reserve of natural gas in the US.

The fact that Range got to the Marcellus Shale two years before most competitors appeared on the scene allowed it to grab 1.3 million acres of some of the best leases in the area. This was no small feat, as the Marcellus shale is estimated to sit on at least 500 trillion cubic feet of natural gas, an enormous reserve with the capability to meet US demand on its own for the next 20 years.

The find in Marcellus would propel to company into other shale plays throughout the course of the decade, starting in 2006 with its entry into Texas’s Barnett Shale. In the two years to follow, the company would enter into 4 additional shale plays, while consistently developing its game in the Marcellus, and continuing to make strategic acquisitions. While Range has branched out, however, the Marcellus has been its golden goose, in a manner of speaking, as it extracts over 400 million cubic feet of gas from its many wells in the formation.

The company as it is currently known was bumped around on two stock exchanges, as well as stints on the pink sheets for a couple decades before the Marcellus Shale made it the large-cap independent oil & gas driller that it is. But while the company's success continues apace, with the shares up 21 percent on the year to the current price of $76 and trading at 185 times earnings, it has found itself not only at the heart of the US shale boom, but also the side effects associated with that boom. The hydraulic fracturing technology that allows drillers to bust open the layers of rock underneath with so much gas an oil are locked has led to a numerous complaints from residents in areas surrounding such operations (and not only those of Range Resources') that "fracking" has caused severely contaminated water supplies that have resulted in serious diseases such as cancer. In a 2011 settlement, for instance, Range paid out $750,000 to a Pennsylvania family who claimed that the company's operations had effectively despoiled their property to such an extent that it was unliveable.

For the time being however, the urge for energy independence in the US has taken priority over environmental concerns. Meanwhile, the oil and gas industry is adjusting to shale gas and oil in the same way that tech companies are having to adjust to the ascendance of mobile computing, and this bodes well for Range Resources as it does a good deal of independent oil & gas outfits.

[Image Courtesy of Wikimedia Commons]

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