1st Feb 2012 08:44
31 January 2012
QUARTERLY REPORT FOR PERIOD ENDING 31 DECEMBER 2011
Issued Capital 1,903m* ASX Code RRS Closing price $0.13*
Market Capital A$247m* AIM Code RRL Closing Price £0.082*
* as at 31 December 2011
Gross Production for the Quarter
Gas 381k mcf Range Interest - 85k mcf
Oil 72,229 bbls Range Interest - 51,486 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 (Quarterly Cash Flow Report) which is attached.
Reserves and Valuation Upgrades - Trinidad and Texas
During the quarter, the Company announced a significant upgrade of its Proved (P1) Reserves along with completing a consolidated, independent reserves, resource and valuation report on the Company's project interests in Trinidad and Texas.
490% Upgrade of Proved (P1) Reserves
Under the Beach Marcelle Incremental Production Service Contract ("IPSC"), itswholly owned subsidiary Los Bajos Oil Limited has with Petrotrin establishedP1 reserves of 12.8 million barrels of oil based on extensive independentengineering studies of its mature oil fields in Trinidad. It should be notedthat under the IPSC, in ground reserves belong to Petrotrin. The reserves arethen able to be economically developed and exploited by the Contract partnerpursuant to an agreed work program.This increase in reserves follows the recently completed engineering studiesof secondary recovery potential in the Company's Beach Marcelle Block. Range,through its wholly owned subsidiary Los Bajos Oil Limited will seek allnecessary approvals to commence development in early 2012 and commit to a $12mdevelopment program over the next 12-18 months.The engineering review, performed by the Company's Dallas-based reserveauditor Forrest A. Garb & Associates ("Forrest Garb"), confirmed thatsignificant volumes of crude remain in the Beach Marcelle field that areexpected to be recoverable using standard secondary recovery techniques suchas water flooding. The proposed water flood program has been engineered toproduce approximately 1m to 1.5m barrels per year for the first 8 yearsfollowing initial production and has an attributable valuation ofapproximately US$290MM (at a 10% discount rate) as determined by Forest Garbtaking into account all relevant project economics (capital and operatingexpenditure, production taxes and royalties, and a US$85 per barrel WTI crudeoil price).
Independent Reserves, Resources and Valuation Report
Shortly before quarter-end, the Company announced the results ofForest Garb's Independent Reserves, Resources and Valuation Report, which wasan analysis of the estimated reserves, prospective resources and future netrevenue attributable to the Company's portfolio of producing and developmentassets onshore Trinidad and Texas. Forest Garb has previously completed asimilar report on the Trinidad licenses in June 2010.
The report included the 490% Proved (1P) Reserve increase in Trinidad following the completion of engineering work on the secondary recovery potential of the Company's Beach Marcelle block mentioned above, however did not include the positive results from the Company's development drilling program at North Chapman Ranch in Texas, recent extensions to the Morne Diablo field in Trinidad where Range has drilled five successful development wells to date, nor the significant exploration potential associated with the Herrera formation, which underlies the existing Trinidad production.
Set out below is Range's attributable interest in the reserves andresources combined across the Texas and Trinidad assets which is net ofgovernment and overriding royalties and represents Range's economic interestsin its development and production assets as classified in the report fromForest Garb.Category Oil Natural Gas Natural Gas(Attributable volumes) (MMbbls) (Bcf) Liquids (MMBbls)Proved (P1) 16.1 10.8 0.7Probable (P2) 2.8 5.5 0.5Possible (P3) 3.7 14.6 1.3Total 3P Reserves 22.6 30.9 2.5Prospective ResourceBest 1.7 - -High 18.2 - -Total Reserves / Resources 42.5 30.9 2.5
Set out below is the total estimated Gross Reserves and Resources split between Trinidad and Texas.
Category Natural Gas(Gross volumes) Oil Natural Gas Liquids (MMbbls) (Bcf) (MMBbls) Trinidad Texas Trinidad Texas Trinidad TexasProved (P1) 16.2 6.0 3.2 64.3 - 5.0Probable (P2) 3.0 4.4 - 48.6 - 3.8Possible (P3) 2.9 11.6 - 129.6 - 10.1Total 3P Reserves 22.1 22.0 3.2 242.5 - 18.9Prospective ResourceBest 2.4 - - - - -High 25.0 - - - - -Total Reserves /Resources 27.4 22.0 3.2 242.5 - 18.9Set out below is Range's attributable interest in the reserves andresources split between the Company's Texas and Trinidad assets which is netof government and overriding royalties and represents Range's economicinterests in its development and production assets as classified in the reportfrom Forest Garb.Category Oil Natural Gas Natural Gas(Attributable (MMbbls) (Bcf) Liquidsvolumes) (MMBbls) Trinidad Texas Trinidad Texas Trinidad TexasProved (P1) 15.4 0.7 3.2 7.6 - 0.7Probable (P2) 2.2 0.6 - 5.5 - 0.5Possible (P3) 2.0 1.7 - 14.6 - 1.3Total 3P Reserves 19.6 3.0 3.2 27.7 - 2.5Prospective Resource Best 1.7 - - - - -High 18.2 - - - - -Total Reserves /Resources 39.5 3.0 3.2 27.7 - 2.5
Based on the reserve numbers cited above, Forrest Garb's estimated net undiscounted cash flow value to Range for Proved (P1), Probable (P2) and Possible (P3), along with discounted cash flow (at a 10% discount rate) valuation based on two pricing scenarios:
- Flat US$85 / bbl oil and US$4.69 / Mcf gas
- Nymex forward strip prices reported on 1 October 2011
following reductions for royalties, opex, capex, production taxesetc are as follows: Flat Nymex Forward Strip $85/bbl & $4.69/Mcf Price at 1 October 2011Category Undiscounted PV10 US$'m Undiscounted PV10 US$'m US$'m US$'mProved (P1) 787 452 885 495Probable (P2) 211 115 243 129Possible (P3) 335 134 420 162Total Reserves 1,334 701 1,549 786 Trinidad
During the quarter the Company continued its initial 21 development well work program on the Company's Morne Diablo license with the successful completion of the QUN 116ST, QUN 117 and QUN 118ST shortly after quarter-end.
The QUN 116ST well encountered approximately 66 ft of net pay zone in the LoweForest Sands and achieved initial natural pressure flow rates of 50 bopd andsubsequently stabilised to 30 bopd under natural pressure with an aim to putthe well on pump, after further decline, to increase the production rate to anestimated 50 bopd.The QUN 117 well encountered both the Lower Forest and Upper Cruseobjectives which suggests the extension eastward of the existing wells andconfirmed the Company's predictions that the current well program would extendexisting fields. The Upper Cruse section was placed on production with initialproduction rates of 81 bopd under natural pressure. Like the QUN 116ST well,this well will look to be optimized and be placed on pump and is forecast toproduce upwards of 50 bopd, whilst still maintaining the Lower Forest zonepotential which will be looked to be exploited at a later date.Following the successful logging and completion of the QUN118ST well, initialproduction testing saw the well producing at a rate of up to 102 bopd on a5/32" choke under natural pressure from the shallow Forrest formation and hasstabilized at approximately 84 bopd.Subsequent to quarter-end Rig 2 moved to the QUN 119 location anddrilled to its TD of 2,400 ft, targeting the Upper Cruse and Lower ForestSands. Well logs were taken over the Lower Forest interval and have indicatedapproximately 280 ft of good oil sands with 100 ft of these sands displayinghigher quality potential for better than expected flow rates. Subsequent toreaching TD, the well has flowed under natural pressure averaging circa 130bopd as it comes online. These results are extremely encouraging asindications are that the multi zone producing trends previously encountered inthe QUN 117 well appears to continue with the results of the QUN 119 well.
Rig 5 has been prepared to join the current operations and will be targeting its first well, QUN 120 for the Lower Forest Sands in the coming weeks.
Rig 8 currently awaits regulatory inspection which is expected shortly and will be targeting the deeper Middle and Lower Cruse formations, whilst Rig 1 has been awaiting replacement drill string, expected to be received shortly, at which point in time the Company will have four fully operational drilling rigs rapidly advancing the Company's current drilling program on Morne Diablo.
Subsequent to quarter-end the Company announced the formation of a partnership with Leni Gas & Oil plc ("LGO") to jointly develop their interests in the Eastern Fields Area onshore southern Trinidad, including the Goudron and Beach Marcelle fields.
In a binding Heads of Agreement ("HOA") Range and LGO have agreed that, subject inter alia to full legal and technical due diligence:
- Range will acquire a 30% interest in Goudron E&P Limited ("GEPL")
(a wholly owned subsidiary of LGO) in return for contributing US$4 million at
completion;
- For a further contribution of US$4 million during the first 12
months following completion Range will increase their holding in GEPL to 50%;
- LGO will operate the Goudron field during the initial work-over
phase, but subject to Range exercising its option to acquire a total of 50% in
GEPL, Range will become operator during the infill drilling and water flood
phases;
- Range will obtain an accelerated return through 75% of the
revenue interest until their initial investment is recovered;
- LGO will have the option to acquire a 15% interest in the Beach
Marcelle waterflood project by contributing 22.5% towards the development
costs (i.e. paying a 50% promote), up to US$7 million, towards the development
costs;
- Range and LGO will work collaboratively to optimise and extend
their joint interests in the Eastern Fields Area in Trinidad.
GEPL, holds the exclusive rights to purchase the existingIncremental Production Service Contract ("IPSC") for the Goudron Field. Range,through its subsidiary Trincan Oil Limited, holds a 100% interest in the BeachMarcelle IPSC where it has approved the redevelopment of the existing fieldproduction by means of a water-flood.LGO's Goudron Field was originally developed by Texaco with 150wells and holds an estimated 21.8 mmbbls of reserves in proven, probable andpossible categories. The block covers an area of 2,875 acres and produces fromthe Goudron and Gros Morne (Cruse equivalent) sandstone formations at depthsbetween 300 and 3,500 feet. Current production averages below 100 bopd.An initial work programme involving well work-overs and selectedinfill wells is planned to bring Goudron production up to 450-500 bopd fundedby the consideration in this agreement. Additional infill drilling andhydraulic fracturing of wells is expected to raise production to up to 4,000bopd. Further potential exists in deeper reservoirs and through theimplementation of secondary recovery techniques, such as a water-flood.Production from Goudron will commence on assignment of the IPSC and isexpected to rise steeply over the first 6 months of operations.
Georgia
During the quarter, the Mukhiani Well reached a total depth of circa 1,550m, and following the analysis of the re-interpretation of the seismic supported by the Mukhiani-1 Vertical Seismic Profiling ("VSP"), results indicated that the well encountered previously unrecognised faults that led to possible basement being encountered far earlier than predicted.
New fault trap and stratigraphic trapping potential has beenidentified in the vicinity of the well and based on these findings, Range andits partners have the option to side-track and test these targets. However,the Company and its partners decided that, based on its exploration scheduleand the availability of the drilling rig that it would continue onto the nextproposed Kursebi well.The joint venture suspended the Mukhiani well and preparationsbegan on the next proposed well site in the Kursebi Area. The Kursebi well istargeting separate geological structures from the Vani area, with the Kursebitarget having been identified using different seismic lines for interpretationpurposes.
Subsequent to quarter-end, site construction commenced in readiness for the spudding of the Company's second exploration well in Georgia - the Namakhvani well (TD circa 3,500m) which is the Kursebi 6 Prospect.
Given the unexpected geological sequences encountered with thefirst well, Range engaged new independent technical consultants, NTD Energy,to perform a fresh review of all of the seismic and geological data across thetop 3 Kursebi prospects previously identified. The Kursebi-6 prospect wasidentified as the most robust prospect with a more clearly defined structureand indications of a significantly thicker Jurassic section, increasingchances of encountering more reservoir and mature source rocks.
Below are the estimates of undiscovered Stock Tank Oil Initially In Place (STOIIP) for the prospect.
STOIIP (Mmbbls) P90 P50 P10 MeanK-6 Prospect - 100% 32.2 84.8 185.8 99.2Attributable to Range - 40% 12.9 33.9 74.3 39.7NTD Energy will assist in the management of the Company's drillingprogram for the Namakhavani well along with the supervision of the proposed 2Dseismic program on block VIb. NTD Energy will also assist the Company inlooking at ways of identifying; promoting and developing the unconventional(shale) plays that are said to exist across the two licence areas through theintroduction of farm-in partners.
Puntland
During the quarter Horn Petroleum Corp. ("Horn") completed sourcingall drilling related materials with the majority of materials arriving on thedrilling site. Site preparation, including the drill site, air strip, ingressroute construction and water wells were completed, with the first well(Shabeel-1) having spudded shortly after quarter-end. The Shabeel-1 well is todrill to a total planned maximum depth of 3,800 meters.The Sakson 501 rig will be used to drill both wells which areexpected to take approximately 90 days each for drilling and evaluation. Thesetwo wells satisfy the first exploration period minimum work obligations of theProduction Sharing Contracts for both the Dharoor and Nugaal Blocks. They arethe first oil exploration wells to be drilled in over 20 years in the country
Shabeel-1 Well Site
The Shabeel and Shabeel North prospects are located on a Jurassicaged rift system which is part of the same system that has proven to be highlyproductive in the Masila and Shabwa Basins in Yemen that contain an estimated6 billion barrels of oil*. Both prospects are very large fault block prospectswith internal estimates of Prospective Resources of over 300 million barrelsof oil (mean 100% basis), with Range's 20% attributable interest being over 60million barrels. Source rocks are expected to be rich Jurassic Kimmeridgianshales in the deep portion of the rift immediately down dip from the Shabeelprospects. Reservoirs are expected to be sandstones and carbonates of theLower Cretaceous and Jurassic systems analogous to Yemen.
*Sourced from country and industry websites
Texas
North Chapman Ranch
During the quarter, the spudding of the third well (Smith #2)commenced with the Smith #2 well being an offset to the existing Smith #1 welland has been categorised as a proved undeveloped location. Drilling wascompeted in December with the partners logging a significant show in theManley section (approx. 10,000 ft), possibly representing another productiveinterval in addition to the primary field pay zone. Following the successfuldrilling to target depth, a production liner was run and cemented, with thewell now awaiting final completion and fracture stimulation which is forecastduring the Q1 2012.Shortly before quarter-end, the Albrecht #1 appraisal well wasspudded with surface casing successfully set. The Albrecht #1 appraisal wellis the fourth well in the North Chapman Ranch ("NCR") Project and ifsuccessful , is anticipated to prove up reserves in the south-east portion ofthe NCR license area, and support re-classification of current Possible (P3)reserves into Probable (P2) and Proved (P1) categories.
Subsequent to quarter-end the joint venture has run 9 5/8" casing on the Albrecht #1 well and is drilling ahead at 11,800 ft, just above the Anderson Formation, with a proposed target depth of 14,500 ft. If productive, the Anderson could add significant reserves to those of the Howell Hight Formation, the primary field pay at NCR.
Following on from the Albrecht #1 well, the joint venture has the option to continue with the development of the field with a possible four-well program in 2012 under discussion among the joint venture partners.
East Texas Cotton Valley Prospect
During the quarter, testing continued on the Ross 3H horizontalwell, as individual zones are perforated and swabbed in to check fluid contentprior to any hydraulic fracturing. The Ross 3H was drilled to a total measureddepth of 8,500 ft. and showed good evidence of reservoir quality rock and oilsaturation while drilling.Subsequent to quarter-end the operator on East Texas Cotton Valleyprospect, Crest Resources has received approval from the partners for fracturestimulation of the Ross 3H Horizontal Well, and is in the process ofscheduling the frac work and subsequent testing during this quarter, which isexpected to confirm commerciality of this shallow oil field.
Corporate
Capital Raisings
During the quarter the Company raised circa $3.7m through the exercise of options, with the balance of cash physically received from the exercise of all outstanding options expiring 31 December 2011 occurring post period end.
Appendix 5B Summary - Consolidated Statement of Cashflow
Year to date Current Quarter (6 months) $A'000 A$'000Cashflows related to operating activitiesReceipts from product sales and relateddebtors 4,004 10,748Payments for:- exploration and evaluation (8,814) (14,011)development (2,544) (3,451)production (3,009) (7,224)administration (2,661) (5,981)Dividends received - -Interest and other items or a similar naturereceived 32 138Interest and other costs of finance paid - -Taxes paid (278) (1,031)Other - - Net operating cashflow (13,270) (20,812)Cashflows related to investing activitiesPayments for the purchase of:- prospects (1,841) (6,040)equity investments (100) (2,100)other fixed assets (219) (337)Proceeds from the sale of:- prospects - -other fixed assets - -Loans to other entities (2,395) (2,395)Other - net cash acquired on acquisition ofsubsidiary - 628 Net investing cashflows (4,555) (10,244)Cashflows related to financing activitiesProceeds from issue of shares, options etc. 3,668 19,431Proceeds from sale of forfeited shares - -Proceeds from borrowings - -Repayment of borrowings - -Dividends paid - -Costs associated with issue of shares (referto note) - (766) Net financing cashflows 3,668 18,665
Net increase / (decrease) in cash held (14,157) (12,391) Cash at the beginning of the quarter / year to date
19,126 17,360Exchange rate adjustments (155) (155) CASH AT THE END OF THE QUARTER 4,814* 4,814*
* balance of cash physically received from the exercise of all outstanding options expiring 31 December 2011 occurring post period end
Yours faithfullyPeter LandauExecutive DirectorContactsRange Resources LimitedPeter LandauTel : +61 (8) 8 9488 5220Em: [email protected] LondonPPR Tavistock CommunicationsDavid Tasker Ed Portman/Paul YouensTel: +61 (8) 9388 0944 Tel: + 44 (0) 20 7920 3150Em: [email protected] Em: [email protected] Corporate Finance (Nominated Advisor) Old Park Lane Capital (Joint Broker)Stuart Laing Michael ParnesTel: +61 (8) 9480 2500 Tel: +44 (0) 207 493 8188 Panmure Gordon (Joint Broker) Katherine Roe / Brett Jacobs Tel: +44 (0) 207 459 3600Range Background
Range Resources Limited is a dual listed oil & gas exploration company with oil & gas interests in the frontier state of Puntland, Somalia, the Republic of Georgia, Texas, USA and Trinidad.
- In Trinidad Range recently completed the acquisition of a 100% interest inholding companies with three onshore production licenses and fully operationaldrilling subsidiary. Independently assessed Proved (1P) reserves in place of15.4 MMbls with 19.6 MMbls of proved, probable and possible (3P) reserves andan additional 20 MMbls (mean) of prospective resources.- In the Republic of Georgia, Range holds a 40% farm-in interest in onshoreblocks VIa and VIb, covering approx. 7,000sq.km. Range completeda 410km 2D seismic program with independent consultants RPS Energy identifying68 potential structures containing an estimated 2 billion barrels ofundiscovered oil-in-place (on a mean 100% basis) with the first (Mukhiani-1)of two exploration wells having spudded in July in 2011. Re-interpretedseismic supported by the Mukhiani-1 vertical seismic profiling has identifiednew fault and stratigraphic trapping potential with the possibility of a sidetrack well to be drilled post additional seismic in 2H 2012.- In Puntland, Range holds a 20% working interest in two licences encompassingthe highly prospective Dharoor and Nugaal valleys. The operator and 60%interest holder, Horn Petroleum Corp. has spudded the first well in atwo well programme in early 2012 targeting 300mmbls and 375mmbbls of bestestimate Prospective Resources (100% basis). Site construction has commencedon the second well with the setting of the 30 inch surface casing and thedrilling of a 50 meter pilot hole in readiness for spudding following thecompletion of the first well.- Range holds a 25% interest in the initial Smith #1 well and a 20%interest in further wells on the North Chapman Ranch project, Texas. Theproject area encompasses approximately 1,680 acres in one of the most prolificoil and gas producing trends in the State of Texas. Drilling of the first wellhas resulted in a commercial discovery with independently assessed 3P reservesin place (on a 100% basis) of 242 Bcf of natural gas, 15 mmbbls of oil and 19mmbbls of natural gas liquids.
- Range holds a 21.75% interest in the East Texas Cotton Valley Prospect in Red River County, Texas, USA, where the prospect's project area encompasses approximately 1,570 acres encompassing a recent oil discovery. The prospect has independently assessed 3P reserves in place (on a 100% basis) of 3.3mmbbls of oil.
The reserves estimates for the 3 Trinidad blocks and updatereserves estimates for the North Chapman Ranch Project and East Texas CottonValley referred above have been formulated by Forrest A. Garb & Associates,Inc. (FGA). FGA is an international petroleum engineering and geologicconsulting firm staffed by experienced engineers and geologists. CollectivelyFGA staff has more than a century of worldwide experience. FGA haveconsented in writing to the reference to them in this announcement and to theestimates of oil and natural gas liquids provided. The definitions for oil andgas reserves are in accordance with SEC Regulation S¢â‚¬X an in accordance withthe guidelines of the Society of Petroleum Engineers ("SPE"). The SPE Reservedefinitions can be found on the SPE website at spe.org.The information contained in this announcement with respect to theGoudron Field in Trinidad has been reviewed and approved by Neil Ritson, ChiefExecutive Officer and Director for Leni Gas & Oil Plc who has 35 years ofrelevant experience in the oil industry. Mr. Ritson is a member of the Societyof Petroleum Engineers, an Active Member of the American Association ofPetroleum Geologists and is a Fellow of the Geological Society of London.RPS Group is an International Petroleum Consulting Firm withoffices worldwide, who specialise in the evaluation of resources, and haveconsented to the information with regards to the Company's Georgian interestsin the form and context that they appear. These estimates were formulated inaccordance with the guidelines of the Society of Petroleum Engineers ("SPE").
The prospective resource estimates for the two Dharoor Valley prospects are internal estimates reported by Africa Oil Corp, the operator of the joint venture, which are based on volumetric and related assessments by Gaffney, Cline & Associates.
In granting its consent to the public disclosure of this pressrelease with respect to the Company's Trinidad operations, Petrotrin makes norepresentation or warranty as to the adequacy or accuracy of its contents anddisclaims any liability that may arise because of reliance on it.
SPE Definitions for Proved, Probable, Possible Reserves and Prospective Resources
Proved Reserves are those quantities of petroleum, which byanalysis of geoscience and engineering data, can be estimated with reasonablecertainty to be commercially recoverable, from a given date forward, fromknown reservoirs and under defined economic conditions, operating methods, andgovernment regulations.
Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves.
Possible Reserves are those additional reserves which analysis of geoscienceand engineering data indicate are less likely to be recoverable than ProbableReserves.Prospective Resources are those quantities of petroleum estimated, as of agiven date, to be potentially recoverable from undiscovered accumulations byapplication of future development projects. Prospective Resources have both anassociated chance of discovery and a chance of development. ProspectiveResources are further subdivided in accordance with the level of certaintyassociated with recoverable estimates assuming their discovery and developmentand may be sub-classified based on project maturity.
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