Ranger Oil Delivers Strong Q3 2022 Production Results While Avoiding Supply Chain Issues (NASDAQ: ROCC)


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Ranger Oil (NASDAQ: ROCC) recently announced strong preliminary results for the third quarter of 2022. It reported total production about 2% above the midpoint of its guidance range and oil production about 1% above the midpoint of its guidance. forecasts. interval. Ranger’s capital expenditures were close to expectations for the quarter, and it appears to be successfully managing supply chain and service cost inflation issues that have led some producers to report production significantly below forecast without no benefit for capital expenditure.

Ranger’s net debt at the end of 2022 may be a bit higher than I previously expected due to the operation of a third rig in Q4 2022 (contrary to previous plans for two rigs). -forms during the trimester). However, the 2023 production Ranger will benefit from this additional investment. I have now increased the estimated value of Ranger to around $42-$43 in a long term (post 2023) $70 WTI oil environment.

Solid production performance

Ranger reported approximately 42,600 BOEPDs in production in Q3 2022, above its Q3 2022 guidance range for 40,900 BOEPDs to 42,500 BOEPDs in total production. Oil volumes (around 30,700 barrels per day) were within its guidance range of 29,900 barrels per day to 31,100 barrels per day, but slightly above the guidance midpoint of 30,500 barrels per day. per day.

Cost management

Producers have been plagued with supply chain issues (resulting in completion delays) and service cost inflation, but Ranger Oil seems to be doing quite well. Ranger’s D&C capital expenditures for the third quarter of 2022 were $151.9 million, within its guidance range of $135 million to $160 million of total investments. He mentioned that $3.4 million of his Q3 2022 investments were due to D&C operations that were completed ahead of schedule. Excluding that $3.4 million, its Q3 2022 capital spending would be very near the middle of its guidance range for the quarter. Ranger also noted that he had found “innovative ways” to offset service cost inflation and get wells completed on time and within budget.

Ranger is probably also benefiting a bit from his focus on Eagle Ford. While the Eagle Ford also faces service cost inflation and supply chain bottlenecks, the situation is not as bad as in the Permian Basin. Callon Petroleum mentioned accelerating part of its Eagle Ford development program due to the Permian bottlenecks it was encountering.

Future prospects

With the current tape (and with its strong production performance), Ranger is expected to generate approximately $170 million in cash flow positive in the second half of 2022 based on its development plans (as of August) for the remainder of the year .

Ranger has since changed his plans, however. It previously planned to move to two platforms for Q4 2022, after using a third platform for part of Q2 2022 and Q3 2023. However, it now plans to follow a three-platform development pace. platforms for the remainder of 2022. This may result in its Q4 2022 D&C investments approaching $150 million, compared to the roughly $100-110 million I expected earlier.

This additional expense would have a minimal impact on 2022 results, but would benefit Ranger’s 2023 results. Ranger also noted that it could continue with three platforms in 2023, which would lead to significant production growth if there was a three-platform development plan throughout the year. A two-platform development program in 2023 would likely maintain production at low single digit growth from 2H 2022 levels, while a three-platform development program could result in growth of around 10 % compared to 2H 2022 levels.

Notes on assessment

I increased Ranger’s estimated value slightly due to its better than expected production performance combined with its ability to keep costs relatively under control in an inflationary environment.

In a scenario where oil and gas remain at the current band until the end of 2023, then average $70 WTI oil and $4.00 NYMEX gas (my base case) after 2023, I assess now Ranger at around $42 to $43 per share. It may be able to further increase its value through the efficient and continuous development of its assets.

Conclusion

Ranger Oil managed to avoid supply chain issues that have hampered some other producers, allowing it to exceed production expectations for Q3 2022. It also added a third rig in Q4 2022 and could see production growth of around 10% in 2023 compared to 2H. 2022 levels if it goes with a three rig development program for the full year. Ranger’s strong production results (while meeting investment expectations) help boost its value to around $42-43 per share in a $70 long-term WTI oil scenario.

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