Range Resources Has Flat Production in 2023

We’ve raised our fair value estimate for Range Resources RRC to $20 per share from $18, after incorporating the firm’s fourth-quarter financial and operating results. The increase reflects slightly less growth than we were previously modeling (Range is aiming to keep volumes flat this upcoming year), but with better margins. We were extrapolating higher gathering, transport and processing fees from the middle of last year, but the firm reported lower unit costs in the fourth quarter and management expects the improvement to persist in 2023. We have also captured further deterioration in near term natural gas prices and raised our cost of capital estimate to the higher equity mix in the capital structure. Shares still look slightly overvalued after the increase in our valuation.

Shares advanced 4% on the first trading day after the results were announced, amid a broader selloff for upstream producers. As we previously highlighted, the firm’s fourth-quarter performance was ostensibly disappointing when compared with previous guidance, but the bad news was well telegraphed by management at the end of the prior quarter. Full-year production came in at the lower end of the guidance range, as management suggested. Capital spending slightly exceeded the top end of the guidance range, where it was expected to land, based on third-quarter commentary. But the good news was fresh. Transportation, gathering, processing, and compression fees were lower than expected, and lower than we were previously projecting. Therefore, the firm’s financial results were still slightly better than the market was expecting, with adjusted earnings per share in the fourth quarter coming in at $1.30 per share (the FactSet consensus estimate for the same was $1.18 per share). The capital budget was set at $570 million-$615 million (20% higher year on year, which is again consistent with prior signaling from the company and also about average for the upstream space).