1 Natural Gas Company With a Leg Up On Competition

Range Resources’ diverse and growing array of gas marketing options in the Marcellus shale is a major competitive advantage.

Jul 24, 2014 at 2:46PM

One of the biggest issues facing producers operating in Pennsylvania's Marcellus Shale have been infrastructure limitations, which have resulted in wide differentials between regional prices and the NYMEX benchmark price. This means that Marcellus producers end up receiving a significantly lower price for their production, which eats into their margins and profits.

Cabot Oil & Gas (NYSE:COG), a leading Marcellus producer, said it received a price of about $0.60-$0.65  per Mcf lower than the NYMEX benchmark during the first quarter. While differentials are expected to compress significantly over the next few years as a wave of new infrastructure projects go into service, one company in particular has been extremely proactive in limiting their impact -- Range Resources (NYSE:RRC).

M Shale Rig Nicholasatonelli

Photo credit: Flickr/Nicholas A. Tonelli.

Range's big advantage
One of the main factors that sets Range apart from other Marcellus operators is the diversity of its gas marketing options. When the company first began  amassing its position in Marcellus back in 2006, it sought not only high-quality acreage with strong economics, but also acreage located close to existing infrastructure.

Taking these two factors into consideration, Range ended up accumulating a concentrated position in southwestern Pennsylvania, where major nearby pipelines provide access to multiple markets and pricing points. As of the first quarter, the company had 9 different pricing indices on which its Marcellus gas production was priced, higher than any Marcellus producer I'm aware of.

This diversity of options reduces the risk associated with Marcellus basis volatility and helps ensure that Range's output can get to market at low cost. Going forward, Range expects to continue diversifying its marketing options. By 2017, it expects to sell its gas to approximately 20 different indexes, 15  of which are located outside the Appalachian Basin.

Other infrastructure options
In addition to a diverse and growing array of outlets for its dry gas production, Range will also have three major options to ship its natural gas liquids, or NGLs, production to both domestic and international markets once the Mariner East Project comes online later this year.

Mariner East, operated by Sunoco Logistics Partners (NYSE:SXL), is a pipeline project that will ship propane and ethane from MarkWest Energy Partners' (NYSE:MWE) processing facilities near the Marcellus shale to Sunoco's Marcus Hook facility near Philadelphia, where it will be processed, stored, and distributed to various domestic and foreign markets.

As the anchor shipper on the project with a firm transportation commitment of 40,000 barrels of ethane and propane per day, representing about two-thirds of total subscribed capacity, Range has a big advantage. Combined with its other two NGL outlets -- Mariner West and the ATEX pipeline -- Mariner East will boost Range's ethane sales revenue by 25% net of all transportation costs and processing fees.

The company also announced last month that it has signed five new transportation and marketing agreements to support future growth of its Marcellus operations. The contracts, which call for Range to supply both dry gas and NGLs for various projects, are firm, long-term commitments that give the company access to several premium markets at relatively low cost.

All these options will not only improve the economics of Range's core wet gas production in Marcellus, but will also provide the requisite marketing flexibility to allow it to comfortably grow its production at a rapid clip over the next several years.

Investor takeaway
Range's gas marketing team has done a phenomenal job in diversifying and growing its customer base to reduce Marcellus basis volatility and ensure that production gets to market at low cost. As new projects come online, basis differentials should compress further, boosting the company's margins and cash flow. And with such a diverse and growing array of marketing options, Range should be able to comfortably grow its Marcellus production at an annual rate of 20%-25% for many years to come.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information