山脈資源 (RRC) 2005 Q1 法說會逐字稿

Welcome to the Range Resources first quarter earnings conference call. [OPERATOR INSTRUCTIONS] At this time I would like to turn the call over to Mr. Rodney Waller, Senior Vice President of Range Resources. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome. Range has achieved record results for the first quarter of '05 in production, revenues, cash flow, and net income. We're pleased to discuss our results with you today. On the call today with me are: Charles Blackburn, Chairman of the Board; John Pinkerton, President and Chief Executive Officer; Jeff Ventura, Executive Vice President and Chief Operating Officer; and Roger Manny, Senior Vice President and Chief Financial Officer. Before turning the call over to to John, I would like to cover a few administrative items.

First, we did file our 10-Q with the SEC this morning. It is available on our home page of the website or you can access it using the SEC's Edgar system. In addition we have posted on our website supplemental tables which will guide you in the calculation of nonGAAP measures of cash flow and EBITDA that are discussed today on the call. Tables are also posted on the website that will give you detailed information of our current hedge position by quarter.

Secondly Range will be presenting at several conferences in the next few weeks. We will present at the Petrie Parkman's Dallas, Fort Worth energy conference on may the 25th and in June we will be speaking at the Morgan Stanley, New York small cap executive conference, the Wachovia Securities, Nantucket equity conference and the Friedman Billings, London equity conference. Materials being presented at each of these conferences will be available on our website just prior to the conference. Please remember to review our upcoming events calendar which is posted on the website. Now let me turn the call over to John.

Thanks, Rodney. Before Roger reviews our first quarter financial results, I'll review some of the key accomplishments for the quarter. Overall we're very pleased with the first quarter 2005 results. On a year over year basis, production rose 29% beating the mid-point of the guidance by 4.3 million a day. This also marks the ninth consecutive quarter of sequential production growth.

Our drilling program was on schedule throughout the quarter and generated very attractive rates of return. We continue to be pleased with the drilling results. On the acquisition front, the integration of the Pine Mountain purchase has been completed with no negative surprises and in fact we are extremely pleased with what we have seen so far, production exceeding the acquisition economics. Drilling is ahead of schedule and we now see substantial potential on two larger acreage blocks that we assign little value to. On the cost side of our business, we're experiencing upward pressure like the rest of the industry. Offsetting this is the fact that our unit cost structure is one of the lowest in our peer group and Jeff and our operating teams are being very proactive in terms of trying to moderate the impact of these cost increases.

So looking at the quarter, production was over guidance by approximately $2 million. Realized prices were a dime better than guidance for another 2 million. So we had 4 million of higher revenues versus guidance offset by about $1.2 million of higher costs versus guidance. That being $0.05 on operating costs and about a penny on G&A costs. Very simply we believe our objective is to grow production reserves at reasonable costs. In the first quarter we were successful in achieving this objective. Like the last three years we believe our growth will be in the top quartile of our peer group while our finding development costs for mcfe for 2005 will be one of the lowest of the peer group.

Lastly we believe the key to long-term consistent growth and profitability is a large multi year inventory of drilling projects, balanced between lower, medium and high risk. Through the combination of the projects internally generated by our technical teams and those included in the acquisitions we have expanded our inventory to nearly 5300 drilling locations. For 2005 we anticipate drilling over 800 at these locations. With that I'll turn the call over to Roger to review our financial results.

Thank you, John. Our first quarter financial results were by far the best in our company's history. The key drivers were the continued drilling success, the impact of our carefully integrated acquisitions completed last year, the rolling off of a sizable portion of our lower priced hedges and the Company's competitive cost structure. To illustrate our first quarter 2005 earnings were roughly two-thirds of the earnings for all of 2004.

Looking closer at the specific figures, production volumes during the quarter were 29% higher than the first quarter of last year. Realize prices on an mcfe basis were $1.17 or 29% higher in the first quarter versus last year. Quarterly revenues were a record 108 million, 70% higher than last year which incidentally was also a record quarter for oil and gas revenues. The last time we spoke, or this time last year, when we were talking about our considerable success and lowering our unit cost structure our attention to the cost structure has remained intense and we have continued to improve our relative unit cost position vis-a-vis other independent producers. The higher oil field services supply costs are clearly visible in our first quarter figures. Despite these cost increases total revenue still increased by nearly twice that of total expenses. Direct operating costs for the quarter increased on a unit cost basis by $0.10 per mcpfe to $0.62 in '04 to $0.72 in '05. And increased $0.05 per mcfe over fourth quarter of last year.

This increase is due to higher work over expenses which amounted to $0.05 per mcfe during the quarter and higher field operating expenses. Production taxes increased $0.02 per mcfe based on higher prices. G&A expense increased $0.05 per mcfe due to higher personnel costs primarily associated with the Great Lakes and Pine Mountain acquisitions. Interest experience increased significantly as a result of the debt incurred to finance these 2004 acquisitions. Range's interest expense was also impacted by our recently completed debt maturity realignment which shifted 250 million in short-term floating rate bank debt to long-term fixed rate notes. As you are aware short-term interest rates have increased steadily since the first quarter of '04 due to rate hikes by the Federal Reserve and these increases are reflected in higher interest expense to Range.

Range remains focused upon cost. And as Jeff Ventura will profile in a moment we are having some success in moderating the increase in unit costs throughout the Company. An example of cost containment on the financial side may be found in the two negotiated interest rate margin reductions to the bank credit facilities since this time last year. The most recent rate reduction was 0.25% and that was effective just two weeks ago based on current 30 day LIBOR rates, our borrowing cost is 4.06% right now. Also please note that Range no longer pays preferred stock dividends having converted the last of its preferred stock to common at year-end last year.

Our DD&A rate for the first quarter was $1.45 per mcfe, up a modest $0.07 versus last year. Expiration expense for mcfe was down $0.06 for the quarter due to lower seismic and dry hole cost. The noncash deferred compensation plan, mark to market expense was a significant component of both the first quarter of '04 and '05 results due to continuing increases in Range stock price during each of these periods. Now listeners will recall that this noncash expense item is included as an expense per accounting requirements even though it does not represent a current period cash contribution to the plan or a payout of plan benefits. The expense relates to Range stock that's been issued over a 10-year period into the deferred compensation plan. And the stock on the plan was fully expensed at the time of issuance, but GAAP requires that the appreciation, the value of the stock be reflected as an expense each quarter. Even though the Company has no further funding obligations.

If the Range price stock -- stock price goes up, an increases to noncash expense is recorded and therefore earnings are reduced. If the Range stock price goes down a reduction to expense is recorded and our earnings increase. You will note that we continue to benefit from the Company's 237 million net operating loss carry forward at year-end last year as we pay no cash federal income taxes in the first quarter. We anticipate paying only minimal cash income taxes in '05 which will be primarily state income taxes.

Net income for the first quarter of '05 totaled 22 million or $0.26 per diluted share this. This is more than triple the first quarter '04 figure of 6.6 million. EBIDAX for the first quarter of '05 totaled 80.9 million, a record high representing a 72% increase over the first quarter of '04. Cash flow also increased 72% from 42.2 million in the first quarter of '04 to $72.6 million this year. Cash flow per share for the quarter was $0.87 cents. As with EBIDAX, the 72.6 million of cash flow represents a record high and as Rodney mentioned, reconciliations of these nonGAAP financial measures are available on the Range Resources website.

Before leaving the income statement, I wish to comment on our cost outlook for the rest of 2005. While it is difficult to predict future cost increases and future cost improvements, we believe that our overall unit costs can be contained roughly at their present level for the remainder of 2005. This would place DD&A at $1.45 to $1.46 and mcfe, LOE between $0.70 and $0.74 depending on the level of work-overs and G&A roughly flat at 6.6 million per quarter and interest expense also roughly flat at 9.4 million per quarter.

Turning to the balance sheet there are several improvements to discuss. One, we continue to chip away at our debt level with total debt down 11 million from year-end through the application of excess cash flow.Two, we issued 150 million of new 10-year senior subordinated notes during the first quarter this year at a very attractive rate of six and three-eighths percent. 200 basis points spread to treasuries on this transaction set a new record low for a a single B issuer. Proceeds in the note issuance were used to pay down bank debt while based on today's short-term rates we will be paying approximately a 2% higher interest rate on the 10-year notes than on our short-term bank debt. Short-term rates have increased significantly over the past year while the 10-year rate has actually declined slightly. So the first quarter of '05 proved to be an opportune time to extend the maturities of Ranges dead which lessens the interest volatility and better matches the maturities of our debt to the long reserve life of our properties.

We remain committed to steadily reducing leverage over time, but will also allocate free cash flow to value creating drilling and acquisition opportunities that might arise. Earlier this month we extended the maturity on our bank credit facility for a year to 2009 and we increased the barn bash from 575 million to 600 million. Range now has over 330 million in available barring capacity under its bank facility.

Touching on hedging and IPF for a moment, the IPF investment portfolio continues to monetize down with a current net receivable balance of $4 million, that's down from 4.5 million at year-end '04 and down from 11 million at the end of the first quarter last year. Our hedging activity was modest during the first quarter with our low price gas swaps continuing to roll off and several new 2006 collars added. At present we have roughly two-thirds of our remaining '05 production hedged, 42% with collars and 23% with swaps. For 2006 we have just over one-third of our anticipated production hedged and almost all of the 2006 hedges are collars. A detailed summary of our hedge positions appear on the Range Resources website.

In summary, our first quarter results provide a clear indication of our higher level of financial performance. This is the first quarter that includes a full quarter performance from both the Great Lakes and Pine Mountain acquisitions combined with the higher levels of production from our drilling program and higher price realizations from our low price hedges rolling off. As Jeff will discuss in detail, the acquisitions are performing at or ahead of our expectations and the drilling inventory continues to build with some exciting new emerging players on the horizon. So I look forward to a very strong financial performance for Range in the second quarter of '05 and for the remainder of the year. John, with that I'll turn it back over to you.

Thanks, Roger. I'll now turn the call over to Jeff Ventura our Chief Operating Officer to review the expiration, development activities as well as the status of our capital program. Jeff?

Thanks, John. I'll begin by reviewing production. For the first quarter production averaged 228.8 million cubic feet equivalent per day, a 29% increase over the fourth quarter -- over the first quarter of 2004 and a 6% increase over the fourth quarter of 2004. This represents the highest quarterly production rate in the Company's history. The 228.8 million per day is comprised of 106.1 million per day or 46% from the Southwest division, 89.1 million per day or 39% from the Appalachia division, and 36 -- 33.6 million per day or 15% from the Gulf Coast division. This increase was due to the impact of the Great Lakes and Pine Mountain acquisitions and the success of our drilling program. Approximately 72% of the Company's production was natural gas.

Our first quarter performance was higher than our planning guidance and our operating teams did a terrific job achieving these results. For 2005 we are forecasting a further 20% increase over 2004. Our capital spending for the first quarter 2005 was approximately 54 million. The 54 million is comprised of 25 million or 46% from the Southwest division. 23 million or 43% from the Appalachia division, and 6 million or 11% from the Gulf Coast division. For all of 2005 we're currently projecting capital spending to be 254 million. This reflects the additional 50% ownership that we have in the Appalachia division as a result of the Great Lakes acquisition and the Pine Mountain acquisition as well as capital to facilitate additional development drilling.

Turning to drilling results in the first quarter Range drilled 135 gross for 95 net wells and achieved a 98% success ratio. Currently 104 of the successful wells have been placed on production with the remaining 28 wells waiting on pipeline and are anticipated to go into production shortly. When these wells are put in production and we drill new wells I expect to see continued production growth in the second quarter and the rest of 2005 from our drilling program. For 2005 we anticipate drilling 806 gross and 597 net wells and 73 gross or 53 net recompletions. This represents a 19-well increase from the original budget. Currently we have 20 rigs running.

I will now review some of the highlights of each of our divisions. I will start with the Appalachia division where our recent acquisition of Pine Mountain is working out extremely well. The acquisition currently appears to be much better than what we projected in our economics. Production is currently running about 12% higher than our original projection. Current plans for drilling in Nora field include150 coal bed methane wells, and 20 tight gas sand wells for a total of 170 wells, versus the 110 wells that we assumed in our acquisition economics. So far in 2005, 45 of the 170 wells have already been drilled.

We're also studying infill drilling in the tight gas portion of the field. These tight gas sand wells are currently spaced on 120 acres per well and we're reviewing infilling on 60 acre spacing. No value was assigned to this upside potential which looks very promising. We're also pursuing refracts in this field and are looking at the potential of horizontal drilling. The Haysi field which is contiguous to the Nora field also looks encouraging. We gave the Haysi coal bed methane potential little blue on the acquisition economics because it was essentially untested. We have finished drilling and completing our first five coal bed methane wells on this property. All five wells are on production. The gas content and thickness of the coals at Haysi is very similar to what we see at Nora field and the production to date is also very typical of the Nora wells. We operate Haysi field and own a 70% working interest and 12.5% royalty and 30,000 acres there.

We believe it is possible that the Haysi field and Nora field will ultimately grow together into one very large field. Our acreage position in this area consists of 287,000 gross acres. Currently we are developing on 60 acre spacing so if all of the acreage was developed the maximum upside case would be that 4,780 wells would ultimately be drilled. To date about 800 coal bed methane wells have been drilled so there could be as many as 3,980 additional wells to drill of which we've only booked 640 as proved undeveloped. There is also the possibility of down spacing to 40 acres which provides additional potential.

Another possible upside to the Pine Mountain acquisition is the Widen acreage in West Virginia. This area contains 79,000 acres in which Range has 100% working interest and a 100% revenue interest in 74,000 of the acres. The reason we own 100% revenue interest is that we own 100% of the minerals. Since we acquired the property we have been approached by two knowledgeable coal bed methane company's who want the farm and the acreage. We have assigned little value to this property, but it may have significant upside. We are currently studying the coal bed methane potential of this property and we should have the study completed within three months.

Our coal bed methane project in Pennsylvania is also moving forward. After drilling a 5-well program on our Unity acreage last fall, we were sufficiently encouraged to commence an additional 7-well program this year. We've just recently finished drilling this new program and are currently completing the wells. Our drilling program for the Deep Trenton Black River includes 5 wells for 2005. We plan on spudding our first well around July 1,and we'll drill three deep wells in Bradford county in northern Pennsylvania and two wells in Washington county in southwest Pennsylvania. Both areas contain numerous grobbins (ph) that look very similar to the grobbins that are being successfully developed by Talisman.

During our last conference call, I mentioned that we wanted to increase our working interest in the northern Pennsylvania acreage. I'm happy to say that we have accomplished this objective. In November our working interest averaged 30% and approximately 90,000 acres. And now it currently averages 58% and 117,000 acres. We're also now the operator of this acreage.

In the shallow portion of the play in western New York, we drilled two exploratory well in the first quarter which specifically targeted the Trenton Black River formation at about 3,000 feet. One well float tested 1.5 million per day at 1800 pounds flowing tubing pressure. The other well encountered promising shoals and will be sidetracked. Both wells are in the vicinity of our previously announced Harper discovery. These wells should be on-line by September 1. We're also on target to drill 380 shallow wells in our tight gas sand plays in Ohio and Pennsylvania. This compares to 270 wells that we drilled in 2004. Ramping up the drilling, increases in that present value as well as speeds the conversion of nonproducing reserves to producing and unproven reserves to proven. Steve Groves and his team in Appalachia have been planning for this ramp-up since last summer and are on target for achieving this goal. The Appalachian team includes over 28 geologists geophysicists, engineers, and land professionals.

Finally our highest risk opportunity in the basin is our shell test in Pennsylvania. We have 100% working interest and a 38,000 acre position in a shell play. We pumped a large slickwater fract on our first well in this play in October and have just recently finished long-term testing of the well. Our results are sufficiently encouraging that we will test three more wells in the second and third quarters of this year. We are also leasing more acreage in this play. Assuming continued positive results we would then anticipate going to full scale development in 2006. In the southwest division, Range is continuing its infill drilling and refract program in the West Furman Moscow unit in Andrews county, Texas. As a result of this work, the field is now producing 17.7 million per day versus 4.5 this time last year. This actually is an all-time high production rate for this field which was discovered in the late 1930's. The technical team and field personnel have done a superb job. Given the success we have had refracting in the area, we are looking at refracting -- the refract potential of our other properties in the area which cover an additional 10,000 acres and 68 producing wells.

Despite doing a great job of driving up production, the team is also doing a really good job in controlling costs. We're experiencing drilling rig increases like other companies are and in that particular part of the world drilling rig costs are up 40% over the last 12 months and tubular costs are up over 100% over the last 12 months. Yet to Range our actual drilling costs are up only 18% over the same period. The reason is with reduced drilling days, 15% and with decreased rotary hours 10% decreased flat times 17%. Really what we have done is optimize the drilling parameters which is optimize bit selection, weight on bit and we have done some creative things like eliminating short trips before logging and things like that. So we're driving up production and in a good oil and gas price environment, but we are also doing a good job at controlling costs.

At our Conger field in west Texas we started a 20-well drilling program there and right out of the box we've had good results. Our first well is making over a million a day from the canyon sand and it has strong pressures with it. We're also having -- continuing to test the recompletion potential to field which may have considerable upside. Technical teams are continuing to do a good job of increasing production in our Val Verde area and west Texas and our lower LaVelle field in east Texas through through drilling, work-overs, and recompletions.

Our wood bind discovery in east Texas came on-line at year end and is currently producing about 10 million per day gross or 2 million per day net. In the area of the discovery, Range has nearly 15,000 acres of lease holdings with working interests varying between 25 and 100%. Also in the area Range has an additional 25% and approximately 30,000 acres of lease hold options. In addition to the zone that was tested there is significant behind pipe potential in the Austin Chalk. The next well should spud in about 60 days and Range will operate and have a 50% working interest in that well.

In the Mid Continent area 15 gross or 11 net wells have been successfully drilled and currently 10 of them have been place on production at a combined rate of 11.9 million per day gross or 6 million net. The remaining wells should be on-line shortly. And again the technical teams are doing a great job not just of driving up production, but controlling costs. There the drilling team in the Watonga Chickasha area has basically taken our initial wells on our new acreage position from about 37 days on a well to about 23. So that's close to a 40% reduction and that's attributable to having strong drilling personnel there as well as using state of the art PDC bit technology and drilling parameters. So recosts are up, yet we're being more efficient with our drilling and significantly cutting down base.

Going to of offshore, both the East Cam number 10 and 11 wells were successful encountering 36 feet and 29 feet of pay respectively. Range has a 25% working interest in these new field operated wells. The number 11 well is on-line and is making 6 million per day gross or 1 million per day net and the number 10 just came on-line and is making 9.7 million per day gross or 1.9 net. Also new fields just recently completed an interest in Mustang Island, the 782a2 well and it is making 5 million per day gross or 1.2 million net.

Range also has a 15% working interest in the Spinnaker operated at West Cam 295 number 2 well which spud in March. Range will spud and operate a well with the 45% working interest in the Lalou area which is onshore Louisiana where we have had good drilling success and Range will have a 25% working interest in a high potential North Foot well onshore Mississippi. The Lalou area well will spud any day and the onshore Mississippi well will spud in the fourth quarter.

In summary, we're in great shape to achieve the 20% production growth target for 2005 that we established at the beginning of the year. 2005 is projected to be an excellent year for Range and I'm excited and focused on the future. Range now has a proven reserve base of 1.18 tcfe of solid long life properties. Our reserve life is now 14.9 years. In addition to that, we have discussed our drilling inventory which contains about 5,260 wells that equate to 1.38 tcfe of net unrisked reserve of which about 70% or 1 tcfe is unbooked. This is large multiyear inventory of projects that mostly consists of low risk, highly repeatable development projects complemented with several higher risk, higher potential expiration projects. In addition to that, Range has about 1 tcf of net unrisked reserve potential in emerging plays. These are primarily technically driven resource plays involving coal bed methane, shell gas, and refract. and recompletion opportunities within our existing core areas.

So in total we have slightly more than 1 tcf of prove reserves, 1 tcf of net unrisked unbooked reserves in our drilling inventory and 1 tcf of net unrisked reserves in emerging plays. Importantly we are not depending on one or two projects for our future growth. Having a large, high quality drilling inventory is a real key in my mind. One of the key strengths of Range is its portfolio. The other is its people. This is led by a technical team that now consists of a total of 84 geologists, geophysicists, engineers, and land men. This is a talented group who is responsible for all of the projects that I've just mentioned and is continuing to generate exciting new opportunities.

The Company today is significantly different than it was a year ago with over 72% reserve growth last year, we now have over tcf approved reserves. Importantly the reserves that we have added are long life, low decline rate, very predictable reserves. We now have a larger, more stable proved reserve base. We also have more upside with 2 tcf of net unrisked reserve potential.

To help put our portfolio in perspective I will list a few of the key projects. We have roughly 3,000 drilling locations in the shallow tight gas sand plays in the Appalachian basin of which a thousand are not yet booked. We have about 4,000 potential coal bet methane locations in Nora and Haysi field, of which over 3,300 are not yet booked. There are numerous identified Trenton Black River Grobbins on our acreage that are undrilled. There are 70 additional locations to drill on the West Furman Moscow unit as well as significant additional refract and water flood potential which will continue to add to production there.

There are over 50 additional locations to drill at Conger field as well as a recompletion play that has the potential so significantly increase production and reserves. There is over 100 bcf of net unrisked reserve potential in our Texas Panhandle and Oklahoma acreage and stack pays in the Morrow, Springer and Hunton formations as well as some shallower plays. There are potentially 900 locations on our shell play in Pennsylvania. Importantly we will continue to add the acreage in this play which will increase the upside potential of the project.

In addition to this shell play, we have a 100% working interest in 16,000 acres on a shell play in Texas that has net unrisked reserve potential of about 200 bcf. We will continue to look to add acreage in this play. The unproven coal bed methane reserve potential of our Pennsylvania acreage could be greater than 100 bcf. In the North Foot play with the initial well to be drilled this year has the potential to be greater than 100 bcf net. The Woodbine Austin Chalk play has a similar kind of upside. There are numerous other projects as well, however, hopefully this gives you a feel for Range's portfolio and why I am excited about the future. At the end of the day it is a fairly simple business. The key is to grow production reserves with good finding and lift costs. The difficult part is to do this consistently over time. However, with our technical staff and large drilling inventory and 2.6 million acre leasehold position we're well positioned to do just that. Back to you, John.

Thanks, Jeff. Now let's take a look at the remainder of 2005. Obviously we see continued strong operating financial performance. We're looking for second quarter production to come in at approximately 131 to 132 million a day -- I'm sorry, 231 to 232 million a day representing a 27% increase year over year. Second quarter 2005 revenues are expected to continue to rise due to the higher production and stronger realized prices.

Assuming current futures prices and hedges in place we anticipate second quarter price realization to be $5.50 per mcfe or better. This is $0.28 higher than the $5.22 per m that we realized in the first quarter and is $1.41 or 34% high than second quarter of 2004. We again anticipate production revenues cash flow and earnings to set record highs exceeding first quarter 2005 results.

In our review, the second quarter 2005 year-over-year comparisons like those of the first quarter will be important in that they'll continue to demonstrate the solid quarter to quarter execution. It starts with production which as I mentioned previously is anticipated to rise of 27%. Second realized prices with a continued rolling off of the lower price swaps are estimated to increase 34%. As a result revenues are projected to reach $115 million in the second quarter. While revenues are estimated to increase 65 to 70% expenses are anticipated to rise only half the rate of revenues. Our per unit -- our production basis as Roger mentioned, expenses are anticipated to be roughly level in the second quarter with that of the first quarter of 2005 results.

Looking beyond the second quarter we anticipate production to continue to increase in the third and fourth quarters of the year as a result of our 800 well drilling program based on the solid first quarter results we confident in achieving the 20% production growth target that we set at the beginning of the year. Based on current futures prices we anticipate per share earnings and cash flow were increased sequentially in each quarter of 2005. For the year cash flow from operations is anticipated to increase by over 60% and earnings per share are projected to more than double. So as you can see 2005 shapes up to be a tremendous year for our company.

I view the key driver for 2005 to be the quarter to quarter execution of our business plan. While we are hopeful that exploration discoveries will occur and that attractive acquisitions will be completed, we don't need either of these elements to achieve our 2005 goals. Executing our plan and successfully drilling our 800 well program will add significant shareholder value in 2005. Any exploration successes or acquisitions will be in my view the icing on the cake.

While focused on gain on well drilling and hitting our quarterly production targets we also continue to expand our drilling inventory as Jeff mentioned and we've made some really solid progress in some of the emerging plays. Again as Jeff spoke we now have projects in the pipeline that have well over 2 tcf of unrisked reserve potential, or roughly twice our existing proved reserves. Over the long-term we believe shareholder value is determined by the degree of success in oil and gas company has generating attractive returns to the wise investment of capital, the efforts and quality of our technical teams are critical to this process. And as Jeff mentioned we have got a big team. We think they are high quality and they are generating some very attractive opportunities in our core areas.

Today we have the largest drilling inventory in our history, there's nearly 5300 projects comprised of a large number of lower risk development exportation projects and a diversified group of higher risk, higher potential exploration projects. We believe Range is unique in that for our size. We have a very large transparent drilling inventory and an even larger 2.6 million acre lease hold position. We have worked tenaciously at lowering our cost structure and bringing our drilling inventory to drive long-term growth and profitability.

As I mentioned and as Jeff and Roger have also mentioned, we fully understand that the key to continued execution of our strategy is continued vigilance and discipline. For example Jeff and I continue to prove all material capital expenditure requests, we will only spend capital if we project based on up-to-date cost estimates that attractive returns will be generated as shown in the methodical building of our drill inventory we will not sacrifice the long-term for non-repeatable short-term gain. In our view we are in a superb position to add materially to shareholder value over the next several years, are keenly focused on delivering just that to our shareholders. At this time why don't we turn the call over to Charlie Blackburn, our Chairman for a few of his comments. Charlie?

Yes, John, there's not a whole lot I can add to all that because the results have really been outstanding. My congratulations go to the management team and the technical team and everyone else at Range. For such an outstanding quarter. I think these results validate the efforts we have had over the last few years to assemble a management and technical team capable of achieving such results. And we're executing on the strategy of growing production and reserves at a low finding cost and it's gratifying to see those results now being reflected in the financial statements.

Equally encouraging we have projects identified that lead to a multiyear plan to continue low cost growth in both production and reserves. Our focus, of course, going forward is to continue to remain disciplined as John mentioned and to continue to deliver the rates of return to build shareholder value. And finally, I am very excited about the emerging plays. The staff has done a great job of developing new opportunities. These plays which include the Deep Trenton, Black River, the shale plays in Texas and Pennsylvania and the coal bed methane plays in Virginia and Pennsylvania, among others, represent well over 1 tcf of unrisked reserves. I believe we will see more of these -- see one or more of these emerging plays begin to have a positive impact on our results either later this year or in 2006. John, back to you.

Thanks, Charlie. Operator, at this time why don't we turn the call over to some questions.

Thank you, Mr. Pinkerton. [OPERATOR INSTRUCTIONS] The first question is from Larry Busnardo of Petrie Parkman.

Good afternoon. Can you talk a little about the emerging play in Texas the 16,000 acres in terms of timing and when you think you may have some results on that?

Yes, we have assembled our acreage position. We are still trying to pick up a little acreage. There is a large independent, very large independent who is going to drill 5 wells in a row in and amongst our -- around our acreage. That well is already spudded and drilling and they are drilling sort of on one side of our position. We have had another small independent drill off to the other. So we're in a great position at this point to just watch industry. And the results of those next 6 wells that will be drilled which should happen by the end of the year will tell the tale I think on our acreage. In the meantime we will continue to look at accumulating position and watch and wait. But we have got a strong position and it will be exciting to watch the results.

You don't plan on drilling a well until sometime in 2006?

As of right now that we don't have a scheduled well. It is not to say that at year-end we may change our plans, but right now we don't have anything on our schedule for this year. But other people's wells will definitely impact either positively or negatively our position.

Sure. And then also can you just talk a little bit about both Nora and Haysi, what you're seeing and the reason why you think they are connected. Is it more along the lines of just seeing the same characteristics between the two? I know they are located fairly close to each other.

Yes, you know, of course we've got a number of producing wells in Nora field and when you look at the coal thicknesses and gas contents and rock properties and all, when we compare those to the 5 wells that we just did at Haysi they really look identical. And the wells at Nora are great. The average well so far to date in Nora is on the order of 370 to 390 million cubic feet of gas. So when you look at the first 5 wells we drilled in Haysi they look similar. But beyond that we have also tested them now and they are going through their dewatering phase and in that phase they look very similar to the wells at Nora. So that is very encouraging.

They are a ways away from Nora and yet with the core holes that we have out there in well control, those things ultimately could be linked up. To the extent they are linked up we have got 287,000 acres in the area. So we have a big footprint and a lot of running room. And more than that and we've talked about it at some of our presentations, the economics of those wells are strong. You are looking at really strong rates of return at current gas prices -- at $6 flat gas price they are on the order of 64% and strip pricing they are way higher than that. Even down to $3 flat gas price forever they are still over a 20% rate of return. That's why we're so excited about the project.

Can you just remind me what the depth is and the cost to drill the wells.

The depth of the wells is 2500 feet. The cost to drill and complete is about 250,000, even if you use an average well of 325 million cubic feet of gas per well. You are looking at finding costs to us at under $0.80 per mcf again with those strong rates of return.

Great. Thank you.

Your next question comes from the line of Ron Mills of Johnson Rice.

Good afternoon. A question really to see if you could expand the discussion a little bit on the farm out acreage you have, you've received in Oklahoma and what the plans are there as we move through that -- through the remainder of this year.

Yes, we have significantly increased our acreage position there through the farm out and really what it has done is added well over and I think it is in our release, well over 150 leads and locations for that acreage position. So it really expanded our inventory. We have been running 1 or 2 rigs historically in a division to grow to 10 to 30 million a day. Good finding lift costs. We are now running 6 rigs up there and importantly we are getting some strong results. Our last well, for instance tested -- actually it is not tested, it is on production for over 4 million a day at around -- or over 4,000 pounds flowing tubing pressure. So it is a stacked pay area. Our drilling success up there is on the order of probably 90% or better. And there's a lot of running room and upside. So we are excited about that opportunity and we want to be good storers of the assets and it may lead to other opportunities up there.

And as you talk about your inventory pyramid versus your emerging plays, where does this fall out, this project fall out in your potential reserves?

It would be within the pyramid, within our portfolio. It is not in the emerging plays, however, it is probably understated. I think the upside of it is beyond what is currently the numbers that we have listed in the pyramid. And is this -- is this like a more of a Springer play? Yes, well, you've got a number of horizons, but a lot of them are Morrow and Springer, you know, Boatwright, Hunton, there's a number of formations up there that are productive. It is a good stack pay area.

And then as we move to the North Foot play in terms of the timing you have a fourth quarter well planned in the meantime, are you just doing some more work on the seismic, or are you waiting on a rig? What's kind of the -- what are the critical events that have to take place to get that fourth quarter spud?

The seismic is done. And really that's on our pyramid as well. It is at the top of the pyramid. The higher risk, higher potential. Again the potential on our pyramid is -- potential to data set is well beyond what's in the pyramid. We've identified on that 3-D data set net unrisked reserve potential of really on the order of about 1.6 tcf of which we have a 25% working interest. so it has a big upside. What we're doing right now is just continuing to build our acreage position. We already have a number of the key prospects leased. But we're continuing to build our acreage position, and we are finalizing the final details of the partnership. And what kind of timing do we -- do you expect to be able to talk about that partnership? I'm hoping myself that all of that stuff will be done within a month and when we discuss it or talk about it, you know, sometime after that.

All right. Thank you, guys.

The next question comes from the line of Rehan Rashid of FBR.

Jeff, the Haysi field, 5 out this year. How many more to the rest of the year?

We've already got 8 more planned and we'll start the next 8 by the end of next month and we'll probably do at least another 10 beyond that.

8, 8 and 10. Okay. Going back to Harper the area in the Appalachian basin. I missed some of the details there could you talk about the recent discovery there and what's the plan?

Yes. Well, the recent discovery looked real good. Had a real high open flow. But probably more importantly on long-term tests, that well tested 1.5 million per day at 1800 pounds flowing tubing pressure. It is only 2700 feet deep. So it's a very shallow well. And we plan to have both the Harper well and that discovery on-line by September 1.

And then what is the future plan here? I remember you had what, 50,000 acres or something?

Yes, we will be doing additional drilling there probably more in the second half of the year once we get the pipeline in place.

And then how big is the pipeline that is getting in place?

There is a couple of different options we're working on but we'll have more than enough capacity for these plus some other wells. But we don't have the details of that yet.

Okay. Thanks.

The next question comes from the line of Barry Borak of Foresight Research.

Hi, guys, great quarter. First question, a lot of my questions have already been answered, but as you ramp up production around Nora and Haysi, are there future infrastructure costs lingering either because of old age or the existing infrastructure or need for more capacity?

Barry, this is John Pinkerton. There is, as you grow any of these fields you're going to have to lay more gathering systems and whatnot and additional compression and things like that. Based on drawing the 100 to 150 wells a year, we are pretty well set. There will have to be some more gathering lines built. But we're in pretty good shape on that. The interesting thing if you look -- so that is kind of specific. If you move up to let's say 20,000 feet, some of the largest pipeline systems in the United States that moved from the Gulf Coast up to the northeast run within 30 or 40 miles of this field.

So it is mainly would be concentrated in the gathering system.

Yes. SO push comes to shove, if everything got maxed out we -- we would love to have the problem of having to go lay another 10 inch line or so in those ditches and get the gas out. So it really -- in retrospect it would be a good problem to have given the fact that at least what we have seen so far we are in pretty good shape.

Right. And then in western New York with the Harper well and other -- the Talisman well et cetera, do you guys have any early indication of what drainage area and reserves per well are going to look like or at least a range?

Yes, let me just clarify this because I think this always seems to be a point of confusion. Where the Harper well is and in the Shoes well which is the well we just drilled that Jeff just spoke about that tested for a 1.5 million a day on the long-term test, that is in the northern part of New York state up against the lake. And that's relatively shallow. That's 2700 feet. And again we're just getting the pipeline built and getting that done. It will be on September 1. So that's not a big deal. We have two other principal Trenton Black River plays. One is what we call the northern portion. It is in the northern portion of Pennsylvania. It is in Bradford county. That is in the footprint. That is in the footprint of all of the Talisman wells that have been drilled. As Jeff mentioned that is 117,000 acres. We've over the last six months have increased our position in that acreage from about 10% to 58% and now we operate it. So now we're in the position to start drilling wells and that first well -- we anticipate that for our first well will be -- will spud sometime in and around July 1. So that's kind of the differentiation there.

And then the third area is down in western Pennsylvania, down in Washington county where we have another big acreage position of 80, 90,000 acres and that will be drilled -- that will be drilled after -- the three wells of Bradford will be drilled and then we'll move down to Washington county and try to get a couple wells drilled down there this year if we can -- if the rig schedule holds. That's kind of the timing of it all.

In terms of reserve potentials it is interesting that the 15 or so Talisman wells are currently producing depending on what day you see somewhere between 100 million, 150 million cubic feet a day. So there is obviously significant production capabilities. And if you look at some of the older wells, it's fairly startling. The one well I guess, the one that we at least have the most production data on is what they call their level well which has produced to date 10.5 bcf and is still producing 9.7 million a day. And that looks like it is one of the better wells. But that looks like it will be a well, again we don't have the daily production on it but that looks like a well at least we've talked about that should be well over 15 maybe at 20 bcf well.

So these are really nice wells. I mean anybody would like to have a 20 bcf well onshore U.S. Especially getting about $0.50 or $0.60 above NYMEX pricing on it as well. So again, that would -- that I would guess would be the high side. But we would be thrilled to death if we got 5 bcf wells. Because, again, these wells are relatively inexpensive and they are not that deep. They're about 11 or 12,000 feet deep. So they're not that deep Relatively inexpensive, really good finding and development costs. So, again, it is something that we have been working on. I think Jeff and his team have really figured out a lot of the technology and now we're raring to go and can't wait to get our first well spud sometime July 1, or so.

Yes, last question on the Black shale in Pennsylvania, the shale project, you mentioned early on in the past that you know this was a -- that the Barnett shale was an analogue and on today's call you are mentioning slick water. Is it still as much like the Barnett shale as you've thought all along, or are you seeing significant differences here?

We view -- we view it -- I think everybody kind of views it in a general sense. You are producing gas -- you are trying to produce gas from shale. That being said, at least in our view, all these shale plays are different. The shale characteristics are different and whatnot. And there is some pluses and some negatives in terms of how you view Barnett. I think our view of it is and I'll let Jeff speak more specifically, it is a bit different as we learn more about it. So Jeff, why don't you hit on some of those?

Okay. Yes. It's similar to the Barnett in terms of thicknesses and depths and organic contents and all those kind of things, based on our long-term tests and I'm not going to give you a lot of details, but I'll try to at least put it in perspective for you. There's 38,000 acres if we developed it I think you could do it on 40 acre spacing so it represents well over 900 wells, reserves per well. And it's very early on, but they might be in the half bcf range. But when you look at the kind of metrics and parameters and costs and you roll all that stuff together at a pretty reasonable gas price we still think those wells could generate in excess of a 20% rate of return and at strip pricing be well in excess of that. We are encouraged by our first well. It is going for more of the -- probably be a little lower rate but low decline rate, long-life kind of wells more in line with Appalachian basin. But we are excited about the project, excited about the running room and we think we can significantly expand our acreage position there. Again, net to us you're looking at, just with the acreage we have could be well over 400 b's. If we can double that acreage position that upside just doubles.

Okay. Thanks a lot.

We are nearing the end of today's conference. We will go to David Snow of Energy Equities for our final question.

If the coal bed methane acquisition that you've just been assimilating is going to give you a footprint for doing more, how much running room would you have in your acquisition area to add to that in the future?

That's a good question. The Pine Mountain acquisition which is what we completed in December came with just about 400,000 acres of which about 287,000 of that was in and around the Nora field which Jeff spoke about. And there is a whole lot of locations left to be drilled. I think Jeff's numbers were well over 4,000 locations. Some of those won't shake out and all, but we clearly got enormous running room there to continue drilling. We spoke about the Nora field which is right to the northeast of that where we drilled some initial wells and then we're going to be pretty active the rest of the year.

Moving farther up the north is the Widen acreage which Jeff spoke about which is another 70 or 80,000 acres which has got some potential and we are doing a study on and should have that done in about three months. And then going a little bit further north than that we have got over 30 or 40,000 acres up in Pennsylvania where we're doing -- we're actively drilling coal bed methane wells as we speak. All that being said we have got a number of other projects that that we're focused on. We've got negotiations going on in terms of with some of the other coal companies to acquire some additional lease hold and do some additional core testing and whatnot.

So we view the coal bed methane as something that we're really focused on. We feel like we know what we're doing. We have been working on it for several years now. We think Nora kind of jump starts that, Pine Mountain kind of jump starts that and really gets it significant. One of the things we really like about the coal bed methane is that once the wells dewater a bit and compared to the west, the Appalachian ones -- can dewater fairly quickly. Is that once they come to peak production they remain level for a number of years. And so instead of fighting the decline curve that you typically do on a tight gas well or even a conventional well in the Appalachia or Texas or any place else in the U.S., the good thing about coal bed methane is it is relatively flat for two, three, four, five years and then it goes on a 5% decline.

So as we continue to drill these wells and we're actively trying to drill as many as we can, what the benefit it will have, it will tend to lessen the intrinsic decline curve on our whole portfolio. So that is what we think over a -- now it will take a period of a year to get there. But we think that will have a dramatic impact in terms of as we look out in the Company and the potential we have in terms of increasing production and whatnot. So there is a real method to the madness here in terms of our strategy. Hopefully we'll correct. Hopefully we can execute.

Is the Widen area going to be similar to your Nora and Haysi?

Well, Nora field is clearly -- it was drilled in 1988 and it has the most production history. It is kind of the grand daddy of all the coal bed methane fields in Appalachia. We would love to find another Nora field, but we are not projecting that. Clearly in Pennsylvania it is less quality, less rates of return, but still, -- still at $5 gas you can make some serious dough up there. So, again, I think we look at each of these projects on their own merits and we try to -- we're obviously trying to find another Nora, but we're not expecting it.

What's the likelihood that you can extrapolate from what you've seen in the Trenton Black River to give us an idea as to the magnitude of these acres? Would it be these leads, would you have one every 1,000 acres or one every 10,000 acres? How replicatable are those mid depth or 10 to 12,000 foot leads that you are chasing?

We have got identified, on the order of 15 to 20 grobbins on that acreage position in Bradford county. And some of those are long enough that they could clearly contain multiple wells. So that will give you sort of a feel for it.

And then I guess the Texas shale play is separate from Barnett that you have been talking about?

We are not going to comment. The only thing we have said is it is not the Paladura.

We're still bearing acreage position there. It is very competitive so we have got to be careful.

Okay. Thank you very much.

Thank you.

Thank you. This concludes today's question and answer session. I'd like to turn the call back over to Mr. Pinkerton for his concluding remarks.

Well, thank you, operator. Well, it's been an interesting day in the stock market for all the energy companies. We're not sure why all that's happened. All we know is that we think our first quarter results are a solid benchmark to begin the year. We're very satisfied with them. We look forward to reporting our progress throughout the remainder of the year, and I think more importantly than anything, I think what we're focused on in '05 is execution, execution, execution and that if we just execute what we've got, we're gong to -- we're all going to be very happy. So, you know, I think again the key here is to execute, deliver the quarterly production volumes, do it as well as we can in terms of holding back the costs which I think Jeff and his team are doing a good job on and just delivering what we said, you know, what we seed we're going to do. I think if we do that we're in good shape.

Obviously I think the first quarter is a good -- as I mentioned is a good benchmark. In terms of where we started out it fully reflects as Roger said all the acquisitions, all the drilling and all the hedges rolling off. And I think it really gives you a good view point of the financial strength and performance of the Company going forward. So we're pretty excited about it, obviously as we get some of these wells drilled, continue to bear our equity position and we'll continue to make those announcements and keep you abreast of our activities. With that we'll call it a day. Thank you very much.

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