DENVER—Three leader/dealmakers of E&Ps in the Delaware Basin, Eagle Ford and Marcellus Shale talked future A&D tribulations Aug. 14, with CEOs of three companies facing hurdles as they look to further their companies’ ambitions.
The CEOs of Range Resources Corp. (NYSE: RRC), Sanchez Energy Corp. (NYSE: SN) and Jagged Peak Energy Inc. (NYSE: JAG) want, by turns, to increase, delever or disentangle acreage in their plays. But their work appears cut out for them.
Range Resources CEO Jeff Ventura faced tough questions after he delivered a presentation at EnerCom’s The Oil & Gas Conference following a lackluster second-quarter earnings report.
In part, that’s due to the company’s $4.4 billion acquisition of Memorial Resource Development Corp.’s Louisiana assets in September 2016.
Range’s second-quarter earnings were viewed negatively by analysts—particularly, under-producing legacy wells acquired in the Terryville Complex in Louisiana. Terryville hasn’t produced as expected, though Range officials said the results were due to new completion techniques on drilled but uncompleted wells.
Since the acquisition, Range’s market value has nosedived by roughly the same amount that it spent buying Memorial’s assets.
At the end of September, Range’s market cap had fallen to $4.9 billion—nearly half of its $9.2 billion value at the end of September 2016.
Ventura said two main factors have caused Range’s stock price slide. The first is leverage.
Though Range’s balance sheet is bogged down by far less debt than in the early 2000s, the company’s debt balance is still in the 40% range.
“We have a higher leverage ratio that some of our peers, even pre-Terryville,” Ventura said. Post-Terryville, “I think there’s just uncertainty over the acquisition. We got off, clearly, to a slow start.”
An analyst asked Ventura whether by year-end Range’s Louisiana assets will provide evidence that the Memorial acquisition wasn’t a “bad deal.”
Ventura said third-quarter results should show Terryville wells back on track. The company will also look at “carving off and selling assets over time.”
Range has three areas it will consider divesting. In the Midcontinent, Range owns some assets that “even if prices were higher, they’re noncore to us right now,” he said.
In the Marcellus, Ventura said “Northeast Pennsylvania, you could argue, is not core to us given the big position we hold down in the southwest. It’s high-quality acreage, but it’s not core.”
Additionally, Range has 9,000 surface acres in Pennsylvania in which it owns all depth rights.
“We’ll continue to look at, are there pieces … that would be worth more to somebody else than are to us,” Ventura said.
Like Fish Bones
Jagged Peak Energy faces its own dilemmas.
Since the beginning of 2017, the company has acquired about $48.5 million in assets. It is now looking to acquire more and has the enviable and unusual position of having no debt due.
CEO Joe Jaggers said the company wants to add acreage at attractive prices.
As Jagged Peak prepared its first securities filing prior to its IPO, the company has 61,000 net acres. Since then, it has added about 9,000 acres.
Jaggers bluntly described the process as “hand-to-hand combat in courthouses.”
“We haven’t done anything of any size out there,” he said. “I think probably the biggest piece we’ve picked up is a two-section piece out there.”
The Permian problem is its long history of being drilled, albeit at different horizons.
“This has obviously been a producing area at different horizons for the last 50 years,” he said. “And it’s been divided and subdivided and leased and re-leased.”
On a recent well, the company conductive a division order to pay royalty owners and had to write 600 different checks for a single well.
Acquisitions continue to be, Jaggers said, “combat, acre by acre.”
While individual owners are easier to deal with—one simply wanted a grove of pecan trees undisturbed — the harder ones to deal with are professional land acquirers who have picked up acreage over time. In some respects, picking up acreage is akin to removing bones from a fish.
In one case, acreage Jagged Peak looked at was set to be a retirement community and was sold to people via the Internet.
“We have to deal with people in Asia, Europe. This was their piece of the dream,” Jaggers said, adding, “They had never seen it, obviously.”
Tony Sanchez, CEO of Sanchez Energy, hears rumblings of potential sales in the Eagle Ford shale and he said he believes transactions will happen despite the maturity of the basin.
The trick is picking the good from the bad.
“Anadarko did a great job,” Sanchez said, referencing Sanchez’s part in a $2.3 billion deal to acquire Anadarko Petroleum Corp.’s (NYSE: APC) assets. “They built out facilities in a really good manner and they did a good job developing out the asset. That was clear to us. What we found interesting was the vast amount of running room.”
Sanchez is focusing on its nearly acquired Comanche position, though it hasn’t been idle. The company has quietly leased about 110,000 net acres in its Maverick and Javelina areas, with its Eagle Ford Shale acreage now at 356,000 net acres.
Sanchez also made it clear nothing keeps the company confined to the Eagle Ford. The company also owns about 40,000 net acres in the Tuscaloosa Marine Shale.
“We’ve looked at and bid on assets outside of this basin,” Sanchez said. “We’ll continue to do so. I think they’ll have a certain type of profile for us. We like big blocky positions that have a lot of proved reserves and cash flow to fund the development.”
Comanche fit that profile.
For now, moving to another basin is something Sanchez still sees as a longer-term move. But in the Eagle Ford, the hunt hasn’t stopped.
Right now the name of the game for the company is integrating its Comanche asset. Picking through assets that may have been drill improperly or otherwise spoiled would be an undertaking.
“I think it’s going to be difficult if not virtually impossible to find another Anadarko. Maybe there’s a couple out there,” Sanchez said. “We’ll look.”
Darren Barbee can be reached at email@example.com.