2 Aug 2010 07:56
ABN 88 002 522 009 Level 3, 1 Havelock Street West Perth, 6005 Western Australia Ph: +61 8 9488 5220 Fx: +61 8 9324 2400 admin@rangeresources.com.au30 July 2010 QUARTERLY REPORT FOR PERIOD ENDING 30 JUNE 2010 Issued Capital 1,027 M* ASX Code RRS Closing price $0.085* AIM Code RRL Closing Price £0.053 *Market Cap A$87m ** as at 30 June 2010
Gross Production for the Quarter
Gas 100k mcf - Range 25%
Oil 7,608 bbls - Range 25%
The Board is pleased to provide the following commentary to be read in conjunction with the Appendix 5B which is summarised below - a full version of the Appendix 5B is available on the Company's website.
Puntland
During the quarter, the joint venture partner to Range Resources Limited's (" Range" or "the Company") in Puntland, Africa Oil Corp ("Africa Oil"):
a. continued its efforts to finalise terms with international drilling related
contractors willing to participate in the proposed drilling program in
Puntland (Somalia); and
b. announced the farm-out of a 10% interest in the joint venture to ASX listed
entity, Red Emperor Resources ). Under the terms of the Letter of Intent, Red Emperor will earn a 10% interest in both the Dharoor and Nugaal Valley Blocks. Red Emperor may, at its own discretion, exercise a right to increase its participating interest by an additional 10% in each of the Dharoor and Nugaal Blocks. Red Emperor must advise Africa Oil on or before 31 August 2010 if they wish to exercise this option.
Texas - North Chapman Ranch
Smith #1
Following the commencement of production on sales from the Smith #1 discovery well in the prior quarter, gross production from the Smith Well for the June 2010 quarter was 100k mcf of gas and 7,608 bbls of oil prior to the Smith well being shut in for Fracture Stimulation.
Also during the quarter, independent certification by Independent Petroleum Engineers, Lonquist & Co LLC ("Lonquist") confirmed the North Chapman Ranch field contains significant oil and gas reserves.
Range, through its technical consultants Texas Energy Advisors LLC, engaged Lonquist to compile geological, geophysical and engineering data and provide an Independent Reserves Report and Valuation for the project.
Lonquist's independent reserves report has estimated the following gross commercially recoverable reserves from the North Chapman Ranch Field:
Category Natural Gas Oil (mmbbls) Natural Gas (Bcf) Liquids (mmbbls) Proved (P1) 33.3 2.5 2.4 Probable (P2) 31.8 2.4 2.3 Possible (P3) 150.4 11.1 10.8 Total Reserves 215.5 16.0 15.5
Set out below is Range's attributable interest in the gross recoverable reserves on 25% of the Smith #1 well and on 20% of the remaining wells assuming the exercise of certain clawback provisions by joint venture partners occurs following the success of the Smith #1 well:
Category Natural Gas Oil (mmbbls) Natural Gas (Bcf) Liquids (mmbbls) Proved (P1) 8.3 0.6 0.6 Probable (P2) 6.4 0.5 0.5 Possible (P3) 30.1 2.2 2.1 Total Reserves 44.8 3.3 3.2
The planned multi-well program is anticipated to move Possible (P3) Reserves into the Probable (P2) and Proved (P1) Reserve categories.
Based on the reserve numbers cited above, Lonquist's estimated net undiscountedcash flow value to Range, along with PW10 discounted cash flow (at a 10%discount rate) based on Nymex forward strip prices reported on 31 December2009, following reductions for royalties, opex, capex, production taxes etc areas follows:Reserve Undiscounted PW10 US$ US$ Category Proved (P1) 52m 36m Probable (P2) 53m 37m Possible (P3) 258m 153m
Estimated Future Cashflow (Range's net interest) 363m 226m
Smith Fracture Stimulation
The artificial fracture stimulation of the Smith #1 well has been completed with the operator now slowly opening the choke diameter to ensure the performance of the well is optimised following the successful stimulation of the well. During this process and following on from experience on previous wells drilled in the area, it has become evident to the Operator that higher flow rates may jeopardise the integrity of the well thus the Operator has taken the prudent approach (at this stage) of limiting the production flow rates to max 4Mmcf per day and 320 bbls per day. This will not result in any reduction in forecast revenue being received by the Company, rather a longer payback period and an extended individual well life, however, given the short term decline rates of these wells and the multi-well development of the field, it is not considered to be a significant hindrance to the Company.
Russell Bevly
As part of the North Chapman Ranch Joint Venture's multi-well program in Texas, the Russell Bevly #1 appraisal well was spudded as announced on 11 May 2010.
After drilling to a revised Total Depth of 14,225' (4,337m), the operator concluded open hole logging operations that indicated the presence of approximately 130 ft. of net oil and gas pay in the Howell Hight formation. This exceeded the net pay thickness of the Smith #1 discovery well and identified a new, potentially productive interval. The well was equipped with 4 1/2" production casing and currently awaits completion and installation of surface infrastructure in readiness for first sales late August / early September.
The Russell Bevly #1 confirms the Company's structural and stratigraphic models across the north western flank of the field, which formed the basis of the recently released reserve report (see Lonquist above). Once completed for production, the well is expected to add significant Proven Reserves, production, and cash flow to Range's Texas operations.
Figure 1: Precision #37 rig drilling ahead on Russell Bevly #1 Well
It is anticipated that the multi-well program will continue on North Chapman Ranch with the third well anticipated to spud Q4 2010.
Texas - East Cotton Valley
Building on its success at North Chapman Ranch, during the quarter, Range acquired a 13.56% interest in approximately 1,570 gross acres encompassing a recent oil discovery located in Red River County, Texas, for total leasehold acquisition costs of $US254,000.
The East Texas Cotton Valley oil accumulation was discovered in March of 2008 with the drilling of a vertical well to approximately 5,500 ft. The initial well encountered more than 100 ft. of gross oil pay at approximately 5,300 ft and was immediately placed into production. A horizontal appraisal well spudded in December of 2008 encountered good quality reservoir in a lateral section approximately 1,500 ft. long, but was badly damaged during completion.
Figure 1: County Map of the State of Texas
In conjunction with the acquisition of the Company's interest in East Cotton Valley, Range, through its technical consultants Texas Energy Advisors LLC, engaged Lonquist to compile geological, geophysical and engineering data and provide an Independent Reserves Report and Valuation for the prospect.
Lonquist's independent reserves report has estimated the following gross commercially recoverable reserves from the East Texas Cotton Valley Prospect:
Category Oil (mmbbls) Proved (P1) 1.5 Probable (P2) 1.2 Possible (P3) 2.7 Total Reserves 5.4
Set out below is Range's attributable interest in the gross recoverable reserves on 13.56% of the East Texas Cotton Valley Prospect:
Category Oil (mmbbls) Proved (P1) 0.20 Probable (P2) 0.16 Possible (P3) 0.36 Total Reserves 0.72 Based on the reserve numbers cited above, Lonquist's estimated net undiscountedcash flow value to Range, along with PW10 discounted cash flow (at a 10%discount rate) based on Nymex forward strip prices reported on 31 December2009, following reductions for royalties, opex, capex, production taxes etc areas follows:Reserve Undiscounted PW10 US$ US$ Category Proved (P1) 8.5m 5.4m Probable (P2) 7.0m 4.4m Possible (P3) 14.7m 8.1m
Estimated Future Cashflow (Range's net interest) 30.2m 17.9m
Development of the shallow oil reservoir in the Cotton Valley formation is expected to begin during Q3 2010 with the drilling of a horizontal appraisal well, Morris 3H, expected to encounter good quality Cotton Valley sandstones along a horizontal well path approximately 2,500 ft. long. The well is projected to pass within 500 ft. of the Morris 2H well, the first horizontal well drilled in the project area. The Morris 2H encountered good quality Cotton Valley reservoir rock and oil saturation, but was badly damaged during completion. If successful, the Morris 3H could trigger a horizontal development drilling program of 20-25 wells, each of which could recover more than 225,000 barrels of oil at an expected completed well cost of approximately $US1.6 million (Range 13%).
Georgia
Following the successful acquisition of 410km of seismic at the end of March 2010, seismic processing and interpretation commenced during the quarter.
Regional field mapping was completed over the entire two block area on a 1: 100,000 scale which was followed up by state of the art remote sensing applications by Fugro-NPA which were integrated with all available historical Soviet era data to produce a refined surface geology map of the two blocks which will then be used to focus the mapping follow-up programme. Detailed geological and structural mapping along all seismic profiles have been completed with 75% of the terrain between the seismic profiles having been mapped in detail with the primary focus on the most prospective areas.
Ultra-high resolution, multi-spectra imagery is being used in areas of higher potential to refine the regional geology with several 3-D cross sections currently under construction which integrate all available surface and sub-surface data and historical drilling.
Exhaustive searches of all possible archives have successfully turned up critically important historical well data which has provided invaluable direct well ties with new seismic data.
It is forecast that final interpretations and identification of potential drilling targets will be completed during Q3 2010.
In support of the identification of drill targets during 3Q 2010, initial logistics planning has commenced with regards to the development of anticipated drilling programs. As previously announced, assuming the successful identification of drillable targets, already indicated in three areas of the Blocks, the Company will elect to either:
* progress the targets at the current 50:50 equity basis with its partner Strait Oil and Gas (UK) Limited; or * look to attract potential farm-in partners to joint fund a drilling program.
The minimum requirements of Phase III of the PSA involves the drilling of one well in each licence block by April 2012.
Figure 2 - Seismic VehicleSubsequent to quarter end
Subsequent to quarter end the Company announced it had entered into a binding Heads of Agreement ("HOA") through SOCA Petroleum ("SOCA") to acquire its rights to a 10 percent interest in companies whose wholly owned subsidiaries hold production licences for three blocks in producing onshore oilfields in Trinidad (see Figure 1) and a major local drilling company.
The production acreage and operating wells cover the Morne Diablo, Beach Marcelle and South Quarry oilfields, with the total acreage covering 16,253 gross acres on the southern coast onshore Trinidad. Current production from the fields is 700 bopd, however Range believes a minimal work program could lift production to more than 3,500 bopd within 36 months on the known reserves.
In addition to the two subsidiaries holding production licences for the onshore acreage, the proposed Range acquisition also includes a 10 percent interest in the parent of a wholly owned drilling company (located in Trinidad), which owns five onshore drill rigs, three production rigs, one swab rig and a full workshop and pipe yard, storage tanks and facilities.
Importantly, Range will be carried through initial development expenditure. The company is planning to use company-owned drilling rigs and equipment and, with cashflow from existing production, is expected to be self-sufficient (other than a significant initial working capital injection of which Range will be carried) in its forward program which aims to increase the production from 700 bopd to 3,500 bopd within 36 months from known reserves without taking into account any exploration upside.
In addition to the known reserves, significant potential exists in the deeper Herrera Formation (refer below). The Deeper Herrera Formation will be a primary target of future drilling using company-owned drilling rigs, which are capable of reaching the depth of these formations. Subject to the successful drill testing of this formation, the Company is ultimately targeting an increase in the production level to between 800 - 1,000 bopd attributable to Range.
Under the terms of the HOA, Range is required to pay two instalments:
* US$2m upon execution of definitive agreements; and
* US$2.25m upon formal completion of the acquisition.
Historical and current oil production is from the Forest and Cruse Formations which are shallow fluvio-deltaic reservoirs with Proved plus Probable plus Possible Reserves (3P) of 20 million barrels of oil (MMbo) (Forest A. Garb & Associates report1). Current production is approximately 700 bopd from the Morne Diablo, South Quarry and Beach Marcelle fields.
Figure 3. Location of License areas - onshore Trinidad
Significant potential exists in the deeper Herrera Formation. The Herrera Formation is a Miocene-aged deepwater turbidite. Production is typically found in the northeast to southwest thrusted structures to the east and north of the subject acreage, where the Penal field has produced more than 60 MMbo to date. 3D Seismic was used to identify prospective drilling locations in the license area that have a further undiscovered oil potential of 100 MMbo.
The Deeper Herrera Formation will be a target of future drilling using company-owned drilling rigs, which have the capability to reach these formations.
An independent recoverable reserves assessment by Forrest A. Garb & Associates has provided the following certified Reserves and Resources for the 3 blocks.
Oil and Attributable to Condensate (MMb Range (10%) bl)(100%) Proved Reserves 2.6 0.26 ProbableReserves 2.2 0.22 PossibleReserves 2.1 0.21 Total Reserves (3P) 6.9 0.69 Prospective Resources (Undeveloped) 20 2.0
Corporate
During the quarter, the Company successfully completed a placement to sophisticated and institutional investors from both Australia and the UK during the quarter that raised $10m with funds to be used to fund the Company's Puntland, Texan and Georgian interests along with the Trinidad acquisition announced subsequent to quarter end.
Appendix 5B Summary - Consolidated Statement of Cashflow
Current Quarter Year to date $A'000 (12 months) A$'000 Cashflows related to operating activities Receipts from product sales and related 89 89debtors * Payments for: * exploration and evaluation (4,487) (17,371) * development - - * production (36) (36) * administration (653) (3,721) Dividends received - - Interest and other items or a similar nature 9 19received Interest and other costs of finance paid (25) (100) Income taxes paid - - Other - - Net operating cashflow (5,103) (21,120) Cashflows related to investing activities Payments for the purchase of: * prospects - - * equity instruments - - * other fixed assets - (6) Proceeds from the sale of: * prospects - - * equity instruments - - * other fixed assets - - Loans to other entities - (293) Loans repaid by other entities 100 100 Other - - Net investing cashflows 100 (199) Cashflows related to financing activities Proceeds from issue of shares, options etc. 8,800 28,275 Proceeds from sale of forfeited shares - - Proceeds from borrowings - - Repayment of borrowings - - Dividends paid - - Costs associated with issue of shares (refer (618) (1,574)to note) Net financing cashflows 8,182 28,301 Net increase / (decrease) in cash held 3,179 6,982 Cash at the beginning of the quarter / year to 4,219 416date Exchange rate adjustments - - CASH AT THE END OF THE QUARTER 7,398 7,398
* Relates to cash receipts from February 2010 sales only - March to May 2010 cash receipts from sales received post quarter end
By order of the BoardPeter LandauExecutive DirectorContactsRange ResourcesPeter LandauTel: +61 8 9488 5220Em: plandau@rangeresources.com.auAustralia LondonPPR Conduit PRDavid Tasker Jonathan CharlesTel: +61 (8) 9388 0944 Tel: + 44 (0) 20 7429 6666Em: david.tasker@ppr.com.au Em: jonathan@conduitpr.comRFC Corporate Finance (Nominated Advisor) Old Park Lane Capital (Broker)Stuart Laing Michael ParnesTel: +61 (8) 9480 2500 Tel: +44 (0) 207 493 8188Range Background
Range Resources is a dual listed oil & gas exploration company with oil & gas interests in the frontier state of Puntland, Somalia, the Republic of Georgia and Texas, USA.
* Range holds a 25% interest in the initial Smith #1 well and 20% interest in further wells on the North Chapman Ranch project, Texas. The project area encompasses approximately 1,680 acres in one of the most prolific oil and gas producing trends in the State of Texas. Drilling of the first well has resulted in a commercial discovery with independently assessed gross recoverable reserves in place of 215 Bcf of natural gas, 16 mmbbls of oil and 15 mmbbls of natural gas liquids. * Range holds a 13.56% interest in the East Texas Cotton Valley Prospect in Red River County, Texas, USA, with 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. * In Puntland, Range holds a 20% working interest in two licences encompassing the highly prospective Dharoor and Nugaal valleys with plans to drill two wells - 65% Operator, in 2010. * In the Republic of Georgia, Range holds a 50% farm-in interest in onshore blocks VIa and VIb, covering approx. 7,000sq.km. Currently, Range has recently completed a 410km 2D seismic program. * In Trinidad, Range has entered into a binding Heads of Agreement through SOCA Petroleum ("SOCA") to acquire its rights to a 10 percent interest in companies whose wholly owned subsidiaries hold production licences for three blocks in producing onshore oilfields in Trinidad and a major local drilling company. Current production from the fields is 700 bopd, however Range believes a minimal work program could lift production to more than 3,500 bopd within 36 months on the known reserves.
The reserves estimates for the 3 Trinidad blocks referred above have been formulated by Forrest A. Garb & Associates, Inc. (FGA). FGA is an international petroleum engineering and geologic consulting firm staffed by experienced engineers and geologists. Collectively FGA staff has more than a century of world-wide experience. FGA have consented in writing to the reference to them in this announcement and to the estimates of oil and natural gas liquids provided. The definitions for oil and gas reserves are in accordance with SEC Regulation S-X.
The reserves estimate for the North Chapman Ranch Project and East Texas Cotton has been formulated by Lonquist & Co LLC who are Petroleum Consultants based in the United States with offices in Houston and Austin. Lonquist provides specific engineering services to the oil and gas exploration and production industry, and consults on all aspects of petroleum geology and engineering for both domestic and international projects and companies. Lonquist & Co LLC have consented in writing to the reference to them in this announcement and to the estimates of oil, natural gas and natural gas liquids provided. These estimates were formulated in accordance with the guidelines of the Society of Petroleum Engineers ("SPE"). The SPE Reserve definitions can be found on the SPE website at spe.org as well as in the full Lonquist report on the Range website.
Forward Looking Statements
Certain statements contained in this announcement, including information as to the future financial or operating performance of Range Resources Limited and its projects, are forwardâ€"looking statements. Such forwardâ€"looking statements:
* are necessarily based upon a number of estimates and assumptions that, while consideredreasonable by Range Resources Limited, are inherently subject to significant technical, business, economic, competitive, political and social uncertainties and contingencies; * involve known and unknown risks and uncertainties that could cause actual events or results to differ materially from estimated or anticipated events or results reflected in such forwardâ€"looking statements; and * may include, among other things, statements regarding targets, estimates and assumptions in respect of production and prices operating costs production prices, and results, capital expenditures, reserves and resources and anticipated flow rates, and are or may be based on assumptions and estimates related to future technical, economic, market, political, social and other conditions.
Range Resources Limited disclaims any intent or obligation to update publicly any forwardâ€"looking statements, whether as a result of new information, future events or results or otherwise.
The words "believe", "expect", "anticipate", "indicate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule" and similar expressions identify forwardâ€"looking statements.
All forwardâ€"looking statements made in this presentation are qualified by the foregoing cautionary statements. Investors are cautioned that forwardâ€"looking statements are not guarantees of future performance and accordingly investors are cautioned not to put undue reliance on forwardâ€"looking statements due to the inherent uncertainty therein
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