Range Resources sells rig fleet and looks ahead to waterflood projects

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Range Resources sells rig fleet and looks ahead to waterflood projects
Range sells it drilling business

By Amy McLellan

The saga of Range Resources has entered a new chapter. The Trinidad-focused E&P, still suspended from trading, is readying plans to begin extended waterflooding to drain additional barrels from its fields. These plans, underpinned by a US$50 million credit facility with China’s Sinosure, could lift production from the Beach Marcelle field to more than 3,000 bpd, putting the company on track to finally start hitting production targets from its extensive portfolio.

The company has now agreed to sell its drilling services company, which former CEO Rory Scott Russell, appointed in February to effect the turnaround in Range’s fortunes but ousted in December before he was able to fully unpick the legacy of debt, serial under-performance and missed targets, had seen as key to delivering on the company’s drilling plans. The new Board, however, now believe the drilling business is a distraction and it would be better to focus on the upstream assets.

The drilling services company, which has a fleet of 12 rigs and has been the subject of shareholder ire because of ongoing maintenance issues, has been sold for US$7.2 million plus debt pay-offs to strategic partner LandOcean Petroleum, a Hong Kong-based company with which Range has a technical services agreement to develop its fields. LandOcean will use the rig company to continue providing services to Range, and may inject additional capital to upgrade the existing rigs and add new capacity.

This sale is part of the ongoing restructuring of the Range asset base, started under Scott Russell, with the company also agreeing terms to sell its East Clarksville and North Chapman Ranch projects in Texas to ASX-listed Citation Resources, Range’s partner in Guatemala.

The sale price is A$1.7 million (US$1.4 million), of which A$500,000 will be a cash payment, along with a US$830,000 carry on the Guatemalan assets, forgiveness on monies owed by Range to Citation of A$189,000 and 200 million new ordinary shares in Citation Resources (worth about A$200,000 and representing a 13 per cent stake in Citation). It releases Range from further spending commitments in Texas, ensures a carry in Guatemala and allows the company to focus resources on Trinidad.

The focus on Trinidad makes sense: as fellow AIM companies have demonstrated, there’s the potential to deliver material increases in production and reserves for relatively little capital from the Caribbean island’s long-neglected onshore and near-shore oilfields. Yet this requires funding and Range’s legacy of debt has long hamstrung attempts to realise value from its portfolio.

Now the funding is in place – but it is unclear how existing shareholders will benefit. In December the company secured US$60 million equity based financing from Core Capital, a Chinese private equity company, to strengthen Range’s balance sheet. On conversion, Core will have a 47.4 per cent stake in Range. An EGM to approve this transaction will be held in April.

It has also agreed a US$50 million financing facility with China-based Sinosure, a state-funded insurance company, to allow Range to pay for LandOcean’s technical services. The financing is subject to interest at 10 per cent per annum.

The company is currently without a functioning Board – hence its ongoing suspension – although a new CEO, Yan Liu has been appointed. Liu is an Australian national and the former CFO of AIM-listed China Rerun Chemical Group Limited. This is a non-Board position. David Chen has been appointed non-executive chairman and former CNPC executive Professor Tong Xiaoguang has been named as special advisor to the Board.

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