Range Resources Trades Permian Acres For Marcellus Pipeline

Range Resources Corp. (NYSE: RRC) and EQT Corp. (NYSE: EQT) said April 30 they have swapped assets, with EQT getting Permian Basin acreage in exchange for its land and 1,200 miles of pipeline in the Nora Field of Virginia.

In the trade, Range gets EQT’s interest in 138,000 net acres in the Nora Field, which produced about 41 million cubic feet equivalent per day (MMcfe/d). Range also receives gathering infrastructure along with $145 million in cash.

The transaction is estimated to be worth a total of $500-600 million.

Range already owned 50% interest in the pipeline. The deal gives it full ownership, adding 68,000 horsepower (hp) of compression. The line’s capacity is about 230 MMcf/d, and is roughly 50% utilized, said Subash Chandra, equity analyst and managing director with Jefferies LLC.

EQT receives Range’s 73,000 net acres of Conger-Permian acreage, which produces about 28 MMcfe/d, as well as associated gathering infrastructure.

The Permian asset was valued at $500-600 million, translating to $350-450 million for the Nora Field, said David Tameron, senior analyst with Wells Fargo Securities.

Range said Nora is strategically positioned to provide natural gas to growing markets in Virginia and elsewhere while allowing the company to sell Marcellus natural gas through additional market contacts, exchange gas agreements and having access to two additional direct market pipelines.

Tameron said Wall Street’s reaction may be, “why Nora?” due to Range’s inactivity in the region. Some may also ask why Range received $145 million cash for Permian assets valued as high as $700 million. However, Range management says debt measures will improve as a result of the deal.

At closing, Range's net Virginia production will rise to 111 MMcf/d from 70 MMcf/d on a combined 385,000 gross and net acres.

“We think the transaction makes sense, as Range grabs what has the potential to become a meaningful strategic asset,” he said. “The company now has full operational control which should allow for more exploration and concepts to be tested.”

Range said the properties have multiple vertical and horizontal stacked pay drilling opportunities in the coalbed methane, conventional tight gas intervals and Devonian shale horizons.

Range also increases its midstream presence in a region of the country expected to see growing demand for gas. The company will have full ownership and operation of about 1,530 miles of gathering and 83,000 hp of compression in the Nora/Haysi combined fields.

The southeast United States is expected to have 3 Bcf/d of new natural gas demand in the next four to five years. The Commonwealth of Virginia alone is expected to add 1 Bcf/d of demand from new natural gas generated power plants in the near future, Range said.

Range has been spending roughly $25 million in Conger and will spend an incremental $55 million ($80 million total or $30 million annually adjusted for working interest increase) per year on the acquired Nora asset. This should allow for some growth as the previous budget was keeping volumes flat, Chandra said.

Range's 2014 capital expenditure budget will remain unchanged at $1.52 billion.

“We don’t think Nora will compete with the Marcellus for capital dollars, but we wouldn’t be surprised to see RRC start to gradually increase activity either later this year or into 2015,” Tameron said.

For EQT, the strategic motivations for the deal are less clear, Tameron said.

“On the surface, company essentially traded marginal gas and some cash for marginal Permian,” he said. “Production and reserve metrics essentially unchanged and balance sheet remains strong in our view with more than ample cash.”

EQT Corp. also announced April 30 a drop-down acquisition of its Jupiter natural gas gathering system to EQT Midstream Partners LP (NYSE: EQM) for $1.18 billion.

EQT will receive $1.12 billion of cash and $59 million of common and general partner units.

The Jupiter system gathers EQT’s Marcellus production in portions of Greene and Washington counties, Pa., and consists of 35 miles of natural gas gathering pipeline and 21,300 hp of compression. Jupiter has 970 MMcf/d of pipeline capacity and six interconnects with transmission and storage systems.

Management said the company is still focused on the Marcellus Shale and is not changing strategy.