What happened
Shares of Range Resources (RRC +1.85%) tumbled on Thursday and were down around 10% at 3:00 p.m. EST after the natural gas driller unveiled its outlook for the next five years.
So what
Range Resources announced that it expected to spend $941 million on drilling more natural gas wells this year, which would increase its output 11%. Further, the company noted that it could finance this plan within cash flow at around current prices. That budget is down from the $1.27 billion the company spent last year, which came in about 10% above its initial estimate. Meanwhile, the production growth forecast is at the bottom end of its most recent outlook that output would increase 10% to 20% this year.
Image source: Getty Images.
In addition to providing its guidance for 2018, Range gave a glimpse at what to expect over the next five years. The company stated that it could increase production at a 13% compound annual rate through 2022 on a debt-adjusted share basis, which takes into account its plan to reduce leverage in the coming years. Driving that debt-reduction plan is the expectation that the company will produce $1 billion in free cash flow through 2022, which will help drive leverage down to 2.7 times debt-to-EBITDA in 2020 and less than 2.0 times by 2022.
That forecast, however, is a bit underwhelming compared to rivals. For example, Antero Resources (AR +1.69%) recently put out its five-year forecast, planning for 20% annual production growth through 2020, with 15% growth anticipated in 2021 and 2022. What's impressive about that prediction is that Antero already produces at a higher rate than Range.
Further, Antero said it could achieve its faster-paced growth while also generating significant excess cash, with its plan putting it on track to produce $1.6 billion through 2020. Because of that, Antero's leverage should drop below 2.0 times by next year.
Now what
Range Resources can't grow as quickly as rivals in the current environment because it has higher costs, due, in part, to a larger leverage ratio. That makes it a less attractive option compared to the top natural gas stocks, which have the potential to create more value than Range for investors in the coming years.
