Range eyes higher natgas prices amid expansions
Houston, 25 October (Argus) — Independent producer Range Resources expects its natural gas sales discount to the Henry Hub to narrow significantly next year amid increased pipeline takeaway capacity.
Based on current strip pricing, Range pegs its sales price for 2018 at a 15¢/mmBtu discount to the US benchmark compared to a 51¢/mmBtu discount realized in the third quarter 2017 as multiple pipeline expansion projects are scheduled to come on line, providing Range with a 900mn cf/d (25mn m³/d) boost.
Range has secured firm transportation on TransCanada's 1.5 Bcf/d Leach and Rayne Xpress projects, and Enbridge's 193mn cf/d Adair Southwest project, all of which are expected to come on line by the end of the year. Range also has capacity on Energy Transfer Partners' 3.25 Bcf/d Rover project, scheduled to begin service by the end of the first quarter of 2018.
But the producer might not fill all of its new capacity until the end of 2018. With between 13-14 Bcf/d of new capacity additions coming on line in the region between now and the end of 2018, the industry cannot support the increase in takeaway unless there is a significant uptick in rig additions, chief operations officer Ray Walker said during an earnings call. Range plans to immediately fill more than 450mn cf/d mainly by rerouting existing local production.
"When all of these are on line, Range will have the ability to transport greater than 90pc of its production out of southwest Pennsylvania to markets which we believe will continue to provide better pricing," Walker said. More than 70pc of Range's capacity on these lines will reach the Gulf coast.
The added takeaway should reduce Range's basis volatility, especially during the shoulder seasons, he added.
Range plans in the coming months to allocate more of its capital spending budget to the Marcellus shale in order to take advantage of the increased capacity. The producer's north Louisiana assets have also been successful, but for now the company plans to use cash flow from that acreage to fund additional Marcellus drilling. Range expects to bring four new wells in its Marcellus dry-gas acreage on line by the end of the year.
Range produced 1.99 Bcf/d of natural gas equivalent (Bcfe/d) during the third quarter, up by 32pc from a year earlier. The producer expects to grow its output to 2.17 Bcfe/d in the fourth quarter.