Range Sells Interest In Prized Marcellus Leases For $300 Million

[Editor’s note: This story was updated at 10:21 a.m. CST Oct. 16.]

Range Resources Corp. (NYSE: RRC) said Oct. 15 agreed to sell overriding royalty interest in Washington County, Pa., leases where the Fort Worth, Texas-based company discovered the Marcellus Shale.

According to a news release, Range signed and closed the agreement to sell a proportionately reduced 1% overriding royalty in its Washington County leases for gross proceeds of $300 million. The buyer wasn’t disclosed.

In 2004, Range pioneered the Marcellus Shale in Washington County with the successful drilling of the Renz #1 well, according to the company’s website.

The company’s Washington County properties encompass roughly 300,000 net surface acres. Net production was about 1.7 billion cubic feet equivalent per day in second-quarter 2018.

The overriding royalty sold to the undisclosed buyer applies to existing and future Marcellus, Utica and Upper Devonian development, while excluding shallower and deeper formations. Cash flow associated with the 1% overriding royalty is expected to be roughly $25 million in 2019, according to the company’s release.

Proceeds from the sale will be used by Range to lower its debt by 7%. As a result, the company estimates a net reduction in 2019 cash flow of about $10 million.

“This transaction highlights the quality and value of Range’s inventory and represents a realization of a portion of that embedded value,” Jeff Ventura, Range’s CEO and president, said in a statement.

Analysts with Capital One Securities Inc. viewed the transaction as favorable for Range.

“Not exactly apples to apples but nearly double the 6.4 times enterprise value/EBITDA multiple that we were estimating for Range next year, which compresses slightly to 6.2 times pro-forma the sale,” Capital One analysts said in an Oct. 16 research note.

The Capital One analysts also noted the firm had been anticipating a divestiture of some kind from Range by year-end. Though, the analysts previously expected an outright sale of Range’s Northeast Marcellus asset or Southwest Marcellus well locations that were not planned for development until “many years down the line.”

“Each had potential pitfalls that we think the sale of the 1% royalty avoids... In any case, it sounds as though those assets remain on the auction block,” the Capital One analysts said.

Range has been actively pursuing assets sales to “fast-forward leverage improvements,” Ventura said during the company’s second-quarter earnings call in late July.

At the time, he noted Range was targeting potential asset sales in Northeast and Southwest Pennsylvania, according to a Seeking Alpha transcript.

In his statement on Oct. 15, Ventura said he expects the company’s recent divestiture and resulting debt reduction to bring Range’s projected year-end leverage below the targeted three times debt to EBITDAX.

“Range will continue to pursue asset sales to bring forward inventory value, high-grade the portfolio and strengthen our financial position, with the focus of maximizing long-term shareholder returns,” he said.

Post-close, Range will maintain a net revenue interest of about 82% on its Washington County acreage.

J.P. Morgan Securities LLC was financial adviser to Range on the transaction and Vinson & Elkins LLP was the company’s legal adviser.

Emily Patsy can be reached at epatsy@hartenergy.com.