29 Oct 2010 09:08
Range Resources Ltd ABN 88 002 522 009 Ground Floor, 1 Havelock Street West Perth, 6005 Western Australia Ph: +61 8 9488 5220 Fx: +61 8 9324 2400 admin@rangeresources.com.au29 October 2010 QUARTERLY REPORT FOR PERIOD ENDING 30 SEPTEMBER 2010 Issued Capital 1,165 M* ASX Code RRS Closing price $0.096* AIM Code RRL Closing Price £0.059 *Market Cap A$112m** as at 30 September 2010
Gross Production for the Quarter
Gas 177k mcf Range Interest - 42k mcfOil 12,849 bbls Range Interest - 3,037 bbls
The Board of Range Resources Limited ("Range" or "the Company") is pleased to provide the following commentary to be read in conjunction with the Appendix 5B which is attached.
Georgia
Following the successful acquisition of 410km of seismic at the end of March 2010, the seismic processing and interpretation of the data has been completed by industry leaders Spectrum (processing) and the RPS Group (interpretation).
During this process, 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 and satellite imaging by Fugro-NPA which were integrated with all available historical Soviet era data to produce a refined surface geology map of the two blocks. 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.
The results of the above have identified a total of 58 potential drilling targets across the two license areas, with a comprehensive map of the initial identified potential hydrocarbon bearing structures having been prepared.
These 58 targets have been refined down to the most prospective 6 specific targets with the Company awaiting the final report from RPS, which will provide an assessment of the potential recoverable volumes of these targets.
The Company is extremely excited about the identified prospects and is eagerly awaiting the final report from RPS, which is anticipated to be received in the coming weeks.
As previously reported, in support of the identification of drill targets, initial logistics planning has commenced. The six initial identified drilling target locations have been surveyed and a logistics review in relation to local infrastructure and local contractors for site services having been prepared.
Figure 1 - Identified Drilling Prospect Location (note access to railway / power)
Figure 2 - Central Geological Cross-section of One Identified Drilling Prospect
In conjunction with the site surveys on the prospective drilling target locations, a drilling plan has been developed which has included:
* Identification of materials and service suppliers for the drilling program; * Initial design of well / well heads with associated structures for storage, access and transport; and * Design of engineering items for the drilling programme
Tender documents have been circulated to identified contractors to supply / operate drilling rigs and associated engineering services with a shortlist of suitable candidates having been established and suitability audit performed on these potential contractors.
Following the receipt of the report from RPS and the assessment of the drillable targets, 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 finalise arrangements with potential farm-in partners to joint fund a drilling program - however the Company at this stage would look to maintain a minimum 40% interest in the two licenses
Should the Company elect to drill the targets on the current 50:50 equity basis, given the extent of the well logistics and planning that has been performed in parallel to the seismic processing and interpretation, following receipt of the RPS report and Budget approval, site preparation work can commence shortly thereafter in conjunction with the finalisation of the drilling contractor with mobilisation expected December 2010 / January 2011. The Company has sufficient funds to complete the first well as operator.
The minimum requirements of Phase III of the PSA involves the drilling of one well in each licence block by April 2012.
Texas - North Chapman Ranch
Less than seven weeks after production casing was set in the well and the drilling rig released, the Russell Bevly was turned to sales at approximately 1,000 Mcf of natural gas and 90 bbl of oil per day with approximately 8,000 psi flowing tubing pressure on a 6/64" choke from just one of four identified pay zones. The first zone placed in production represents just 11 ft. of perforated Howell Hight formation within total net pay thickness of approximately 130 feet.
This well has continued to perform above expectations under natural flowing pressure and has averaged circa 1.4mmcf and 100bbls per day from just the 11 ft thick first zone from first production to date of this report, which is extremely pleasing to the Company.
It is anticipated that, similar to the Company's first well (Smith #1), the Russell Bevly well will flow naturally for a number of months before it is shut in and a completion rig moved into place. Once the completion rig is in place, the well will be fracture stimulated and additional pay zones added to boost the flow rate. Hydraulically fracturing the reservoirs creates additional permeability paths from the reservoir to the well bore, increasing production rates from the various pay zones, which in turn accelerates payout while improving reserve recovery and overall economics.
Gross production from the Smith #1 Well for the September 2010 quarter was 132k mcf of gas and 9,345 bbls of oil. However, recent production logs acquired by the Operator indicate that only the upper of the two perforated zones is contributing to the current production, which implies that two of the three pay zones in the Smith #1 well are still virtually untapped and represent additional potential rate. It is anticipated that whilst the completion rig is moved into place on the Russell Bevly, it will also be moved to the Smith #1 well, where all remaining pay zones will be placed into production.
As stated previously, this will not result in any reduction in forecast total 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, especially given the better than forecast performance from the Russel Bevly well.
Revised Reserve Report
Also during the quarter, Independent Petroleum Engineers, Lonquist & Co LLC (" Lonquist") prepared a revised reserve report on the North Chapman Ranch field in Nueces County, Texas, following the successful drilling and completion of the Russell-Bevly #1 appraisal well. As previously reported, the Russell-Bevly well confirmed the Company's structural and stratigraphic models and established additional Proved oil and gas reserves across the northwest flank of the closure.
After integration of data obtained from the Russell-Bevly #1, and as shown in the tables below, oil, natural gas, and natural gas liquids reserves net to the Company's interest, are detailed below.
Lonquist's independent reserves report has estimated the following grosscommercially recoverable reserves (100% basis) from the North Chapman RanchField:Category Natural Gas Oil (Mmbbls) Natural Gas (Bcf) Liquids (Mmbbls) Proved (P1) 62.4 4.8 4.5 Probable (P2) 34.6 2.7 2.5 Possible (P3) 142.5 10.9 10.3 Total Reserves 239.5 18.4 17.3
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 and Russell-Bevly wells:
Category Natural Gas Oil (Mmbbls) Natural Gas (Bcf) Liquids (Mmbbls) Proved (P1) 12.7 1.0 0.9 Probable (P2) 6.9 0.5 0.5 Possible (P3) 28.5 2.2 2.1 Total Reserves 48.1 3.7 3.5 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) using the same commodity price deck as used in the May 2010report, following reductions for royalties, opex, capex, production taxes etcare as follows:Reserve Undiscounted PW10 US$ US$ Category Proved (P1) 100m 69m Probable (P2) 60m 37m Possible (P3) 252m 142m
Estimated Future Cashflow (Range's net interest) $412m $248m
Changes to reserve estimates at North Chapman Ranch include a significant movement of Probable Reserves into the Proved category, as well as new reserves established by the Russell-Bevly #1.
Plans for the next well at North Chapman Ranch are currently being finalised with Range and its joint venture partners with spudding expected December 2010 / January 2011.
Texas - East Cotton Valley
Building on its success at North Chapman Ranch, during the previous 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.
Development of the shallow oil reservoir in the Cotton Valley formation is expected to begin during November 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%).
Figure 3 - County Map of the State of Texas
Puntland
Range's Joint Venture Partner and operator in Puntland, Africa Oil Corp has recently announced in a presentation that the spudding of the first well in Dharoor is now not likely until mid 2011. Whilst obviously disappointing to the Company, Africa Oil have met with the Puntland Government to secure an extension to the PSA (expected shortly) and are currently evaluating second tier drilling contractors with an aim to secure a more cost effective drilling for the first well. Updates on the awarding of the drilling contract and extension of the PSA's will be made when available.
Trinidad
During the quarter 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 (already paid); 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 4 - 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. The Trinidad transaction is scheduled to be completed during Q4 2010.
Oil and Attributable to Condensate Range (10%) (MMbbl)(100%) Proved Reserves 2.6 0.26 Probable Reserves 2.2 0.22 Possible Reserves 2.1 0.21 Total Reserves (3P) 6.9 0.69 Prospective Resources (Undeveloped)* 20 2.0
* Does not include any Herrera formation targets.
Corporate
During the quarter, the Company successfully completed a placement to sophisticated and institutional investors from both Australia and the UK that raised an additional $2.3m on the same terms as the $10m raised in the previous quarter.
The Company was pleased with raising circa $4.9m through the exercise of 98m $0.05 options. These funds were used to fund the Company's Puntland, Texan and Georgian interests along with the Trinidad acquisition announced during the quarter.
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 424 424debtors Payments for: * exploration and evaluation (5,306) (5,306) * development (345) (345) * production (225) (225) * administration (976) (976) Dividends received - -
Interest and other items or a similar nature 69 69received Interest and other costs of finance paid (88) (88)
Income taxes paid - - Other - - Net operating cashflow (6,447) (6,447)
Cashflows related to investing activities Payments for the purchase of:
* prospects - - * equity instruments - - * other fixed assets - - Proceeds from the sale of: * prospects - - * equity instruments - - * other fixed assets - - Loans to other entities - -
Loans repaid by other entities - -
Other - - Net investing cashflows - -
Cashflows related to financing activities Proceeds from issue of shares, options etc. 7,166 7,166 Proceeds from sale of forfeited shares - -
Proceeds from borrowings - - Repayment of borrowings - - Dividends paid - -
Costs associated with issue of shares (refer (319) (319)to note)
Net financing cashflows 6,847 6,847 Net increase / (decrease) in cash held 400 400
Cash at the beginning of the quarter / year to 7,398 7,398date Exchange rate adjustments - - CASH AT THE END OF THE QUARTER 7,798 7,798
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 6611Em: 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 240 Bcf of natural gas, 18 mmbbls of oil and 17 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 - 55% 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 HOA to acquire a 10% interest in holding companies with three onshore production licenses. Independently assessed gross recoverable P2 reserves in place of 4.8MMbls.
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.
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