Please ensure Javascript is enabled for purposes of website accessibility

Range Resources Goes on Sale

By Toby Shute - Updated Apr 6, 2017 at 12:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's time to give this shale player a close look.

Following the release of its second-quarter financial results, Range Resources (NYSE: RRC) shares got smacked down by Mr. Market. Maybe I've got shale goggles, but the company appears to be doing pretty great.

OK, the firm's cash flow dropped 17% as favorable derivatives dropped away. That's no fun for anyone, but this phenomenon is hitting most producers. We saw the same thing happen over at Encana (NYSE: ECA), for example. Range is well-hedged for the back half of the year, though, and this may well represent a trough quarter for pricing.

Stepping back from the quarterly fluctuations, the big picture for Range looks very good. While gas producers like SandRidge Energy (NYSE: SD) overpay for oil assets, Range has a gas play that actually works at low natural gas prices. That's particularly true in the "wet gas" area of the Marcellus shale, in which natural gas liquids bump up per-well rates of return to at least 50% in a $4 gas environment.

Then, of course, there's the size of the prize. Range is sitting on more than 20 trillion cubic feet equivalent of potential gas resources in the Marcellus. The firm's 3.1 Tcfe in proved reserves are just the tip of the iceberg. The organic growth potential here is hard to match.

Range is basically where Southwestern Energy (NYSE: SWN) was a few years ago, in terms of development of its main resource play. Southwestern has a market cap around double that of Range. It's hard for me to imagine Range not growing into such a valuation over the next five years. Some equity dilution along the way is inevitable, but relative to firms like Petrohawk Energy (NYSE: HK), Range has historically managed to keep share growth in check.

All of this fretting about one quarter's results makes little sense to me. Range's value is locked up in decades of future growth. That growth appears to be available today at an attractive price.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ovintiv Inc. Stock Quote
Ovintiv Inc.
OVV
$47.59 (-0.47%) $0.23
Range Resources Corporation Stock Quote
Range Resources Corporation
RRC
$30.32 (-1.35%) $0.41
Southwestern Energy Company Stock Quote
Southwestern Energy Company
SWN
$6.63 (-2.85%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.