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Range Resources' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Bottomline, everything we're drilling is well in excess of our investment hurdle rates, which are well above our cost of capital and therefore, will add value to the company. Additional advantages of our 2012 program are: that will increase our cash flow and convert more of our Marcellus and horizontal Mississippian acreage to held by production.

Given the rates of return, the spending question is not whether this is a prudent economic investment. It's more of a balance sheet question. Our best estimate at this point in time is that our debt-to-EBITDAX at year end 2012 will be approximately 2.7x compared to 3x in the first quarter of 2011 before the Barnett sale. Therefore, we feel that our current 2012 capital plan is very consistent with the prudent management of the resources of the company. Roger will discuss this in more detail shortly.

In addition, we're evaluating 5 enhancements to our portfolio. They are as follows:

The first is the super-rich Marcellus. We currently have an acreage position of 125,000 net acres west of most of our drilling in Washington County, Pennsylvania, which we've defined as 1,350 Btu in higher gas or super-rich gas area. We now have drilled 8 wells on the edge of this super-rich area. So far these wells average 400,000 barrels of liquids and 3.9 Bcf of gas per well. One of these wells is estimated to produce 520,000 barrels of liquid and 4.8 Bcf. This compares to our current average wet Marcellus well of 281,000 barrels of liquids and 4.2 Bcf of gas. Given the high price of oil versus the current low price of gas, this super-rich play enhances the value of our Marcellus economics.

The higher volumes are not only the result of drilling in the higher Btu area, but are also the result of drilling longer laterals and completing them with more frac stages. We've also experimented with reduced cluster spacing, decreasing the frac interval from 300 feet to 150 to 200 feet, all of this looks very promising. Once we extract ethane beginning late next year, this will further enhance the economics.

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