Range Resources look to have good prospects but not for the faint hearted

Oil exploration company, Range Resources is listed is both on UK AIM (RRL) and the ASX-listed (RRS). Its main assets are focused on Puntland, Somalia; the Republic of Georgia, onshore Texas, USA and Trinidad. 

Assets

Puntland, Somalia

Range’s key asset is is in Puntland, Somalia where it holds a 20% working interest in two Production Sharing Agreements (PSAs) for the Nugaal and Dharoor Blocks (the remainder is owned by Africa Oil 45%, Red Emperor 20% and Lion Energy 15%).

Somalia is in North East Africa and has been identifed as a country with the requirements for abundant oil and gas – hydrocarbons in the Jurassic, Cretaceous and Tertiary rocks, plus good quality sandstone and carbonate reservoirs. Also the sandstones and carbonates are above organic rich shales and marls which may be a source for the hydrocarbon system. There are a number of areas in Puntland where oil is seeping to the surface. During 1989 and 1990 Conoco drilled the Nogal and Kalis-1 wells in the Nogal basin and revealed signficant evidence of oil shows which lead to an estimate of 500mm barrels of recoverable reserves. Amoco, Shell and others also drilled in Puntland during the 1980’s and early 1990’s but this was stopped by the start of the civil war in 1991. There is a possibility that the Nogal and Darin basins are extensions of the petroleum producing Marib Shawba and Sayun-Masila basins in the Gulf of Aden, Yemen. In October 2005 Range acquired a 50% interest in the rights for mineral (now relinquished) and hydrocarbon exploration in Puntland and later increased this to 100% in July 2006. In October 2006, the company signed a Memorandum of Understanding (MOU) with Africa Oil for a 80% farm in in the Nogal and Darin basin blocks. 

In 2009, Gaffney Cline & Associates estimated that the un-risked oil in place (OIP) may be between 12.4 billion barrels in the Nugaal block and 5.8 billion barrels in the Dhahoor block.  Net recoverable gross reserves to Range could be 620 mm barrels for Nugaal and 300 million for Dhahoor. 

Drilling was due to commence on the Dharoor block at the end of 2010 but this was postponed in September 2010 to around Q3 2011 due to security issues and the high cost of the drill which were over $25 million. Range’s share of this would be $5 million. 

Republic of Georgia

In July 2009, the Company entered into a Heads of Agreement with the private U.K. company Strait Oil and Gas Ltd. to acquire a 50% interest in two oil and gas blocks in the Republic of Georgia.  The licences cover 7000 square kilometres in the centre of Georgia, 150km west of Tbilisi, in the Rioni/Black sea basin.

In Q1 2010, seismic data was processed and interpreted by RPS Energy, with the aim of identifying drilling targets. A total of 68 structural culminations across the two blocks each of which potentially contains stacked reservoirs and therefore are viable targets for drilling. Six of these are priority drill targets, with an estimated 728 million barrels of oil-in-place. Four of them have more than 100 million barrels of oil in place. The oil in place best estimate on un-risked basis is 2.05 billion barrels gross across the 68 targets, though recoverable oil is still uncertain.

Red Emperor Resources (ASX:RMP)  has signed an agreement with Range and Strait Oil & Gas to earn a 20 percent interest in two prospective blocks in Georgia. Range  shareholders are to be offered up to 5 million shares in Red Emperor at A$0.20 per share. The A$1 million raised will contribute towards Red Emperor's exploration drilling programs in both the Republic of Georgia and Puntland, Somalia.

Range has recently completed a geochemical helium survey to identify the best drilling locations. Drilling in Georgia is likely to commence in early Q2 2011. 

Texas, U.S.A

Range have two areas of interest in Texas, North Chapman Ranch and East Cotton Valley. North Chapman covers 1,680 acres in Nueces county, west of Corpus Christi. East Cotton covering 1,570 acres is located in Red River County, NE of Dallas.

In September 2009, the Company acquired a 25% interest in the Smith #1 well and a 20% interest in subsequent wells in the North Chapman Ranch Project in Nueces County, Texas over an area of 1,680 acres in one of the most prolific oil and gas producing trends in Texas. Range also holds a 21.75% interest in the East Texas Cotton Valley Prospect in Red River County, Texas. The prospect's project area encompasses approximately 1,570 acres encompassing a recent oil discovery. Independently assessed gross recoverable reserves in place of 5.4 mmbbls of oil. 

Following the commercial discovery on the Smith #1 well in December 2009, a multi well program was initiated that is seeing numerous wells planning to be drilled on the project. Independently assessed gross recoverable reserves in place of 240 Bcf Natural Gas and 36 Mmbls of Oil / NGL’s. 

Independent consultants, Lonquist has issued an independent reserves report which estimates the gross commercially recoverable reserves from the North Chapman Ranch Field as P2 probable of 62.4 mm barrels with 2.7 Bcf natural gas. Based on the reserve numbers, Lonquist's estimated net undiscounted cash flow value to Range betweem $248m and $412m.

At the East Texas Cotton Valley project, Range increased their interest in the field by 8.2% to 21.75%  percent for US$148,000. 

Trinidad

In July 2010, Range acquired a 10% working interest in a 16,253  acreage covering the Morne Diablo, Beach Marcelle, and South Quarry oilfields, which are close to the Southern shoreline of Trinidad. South Trinidad falls withinthe East Venezuelan Basin which is producing significant oil. The deal with SOCA Petroleum also included a drilling company. ASX listed Monitor Energy has acquired a 90% interest in SOCA. The consideration for Range’s 10% stake is $4.25 million. 

Production from the Trinidad fields is still very low at less than 1000 barrels per day. 

Management team

Directors

Sir Sam Jonah - Non-Executive Chairman 

Peter Landau - Executive Director 

Marcus Edwards-Jones - Non-Executive Director 

Anthony Eastman - Executive Director

Operational updates

Puntland

Range have entered into amending agreements with the Government of Puntland for their two production shareing agreements (PSAs) to allow the first exploration well to be spudded in the Dharoor Valley by 27 July 2011 and the second well in the Nugaal Valley by 27 September 2011. Under the terms of the amended PSA’s, the first exploration agreement has been extended for a further 12 months to 17 January 2012. Mobilisation is likely to occur in Q2 2011. 

Texas
Production for the last quarter of 2010 quarter was 2,588 barrels of oil net to Range. On February 15th 2011 it was announced fracturing of the Russell Bevly well had commenced to increase flow rates and recovery with the the Smith #1 Well due to be fractured in April. The rig scheduled to perform the horizontal Ross 3H was due to spud in January, but mobilisation of the rig to Cotton Valley will now commence in late February.

 
Georgia
During Q4 2010, the Company received the results from the report entitled Seismic Interpretation, Field Mapping and Evaluation of Prospective Hydrocarbon Volumes across the Company's two Georgian blocks (Block VIa and Block VIb) completed by Oil and Gas Seismic Consultancy firm RPS Energy.

RPS has identified a total of 68 structural culminations across the two blocks each of which potentially contains stacked reservoirs. Total combined best estimate of gross unrisked oil-in-place across these 68 indentified structural culminations amounts to 2,045 million barrels. Recovery factors for oil inplace can be conservatively estimated at 30%. Of the 68 identified prospective targets across the two blocks, 6 structures have been prioritised as being ready for drilling. Of these 6 structures, total gross unrisked oil-in-place has been estimated at 728 million barrels.

Spudding of a first well is likely in late Q1 or early Q2 2011 (Post post note: RNS 16th February - rig mobilisation March, spud April 2011)

Financial health
Estimated revenues for the 2010/11 year are expected to be around A$8 million , with a loss of A$2.3m.  For 2011/12 revenues are expected to exceed A$10.9 million, with a A$1.2m loss. At the end of Q4 2010, the company has A$7.5 million in cash and no debt. In 2011, Range confirmed a £20 millon equity drawdown agreement with Duchess capital. 
Range will have 1,327,461,176 ordinary shares as of Feb 22^nd when new shares will be listed.

SWOT

Strengths

Good portfolio of assets (mainly in appraisal) in Somalia, Georgia, U.S.A and Trinidad.

Significant oil discovery potential particularly in Puntland

Good partnerships e.g. Africa Oil – Puntland

Dual listed AIM and ASX (can be held in a UK ISA)

Weakessses

Puntland, Somalia has high security and drilling costs

Current revenue from operations low – exploration play

Risk of a discounted placing, but reduced by Duchess capital agreement.

Opportunities

High oil price likely to be sustained

Threats

Political issues hamper Puntland project e.g. no functioning central government (though better in semi-autonomous Puntland area) , high levels of violence

Share outlook

Range’s shares currently stand at 16p, up 85% in the last month and 400% in the last year.  There have risen over 8% today on the relatively minor news that the fragmentation stimulation programme has started in Texas, so this share is turbo charged in the private investor community. Every one seems to be tipping it. The current market capitalization is £220 million. Undoubtedly there is serious upside in Range if either Georgia, Puntland or Texas have exploration success (estimated to be 75p if everything went to plan). Range is therefore a high risk, high reward play and at 16p it is not one for “widows and orphans”.  One to keep an eye on and will be very volatile no doubt but Contrarian Investor UK hasn't quite got the guts to invest in this one at 16p. Good luck to holders though, it looks an exciting ride!