Range Resources Corp. (RRC), Phillips 66 (PSX), ConocoPhillips (COP): 3 Oil and Gas Companies with Plans For Growing Returns

According to MarketLine, the global oil and gas market is expected to reach $3.7 trillion in 2015 with a compound annual growth rate of 7% from 2010. The rising prices have resulted in an increase in oil and gas production. Companies in the industry are adopting various measures to increase their revenues from oil and gas extraction. Three such companies are looking for growth opportunities to enhance their production level by drilling new wells, taking on pipeline projects, and selling assets to keep up with industry growth.

Drilling success in Marcellus Shale will drive production

Range Resources Corp. (NYSE:RRC) reported production of 910 million cubic feet equivalent per day (mcfepd) in the second quarter of 2013, up 27% year-over-year. The production was 79% natural gas, 15% liquefied natural gas (LNG), and 6% crude oil. The increase in production was due to success in its drilling program in the Marcellus region. It has around 835,000 acres in the Marcellus shale region.

Range Resources Corp. (NYSE:RRC) is working to optimize its well results through pad drilling and increasing lateral length. the company drills four to six wells per pad under its current drilling program, but it is now building pads capable of supporting 18 to 26 wells. The lateral length of wells is currently 3,500 feet, but this will increase to 5,000 feet in the next few years. Due to the drilling program’s success in the first half of the year, Range Resources Corp. (NYSE:RRC) expects production will reach 957 mcfepd this year. Its total revenue is expected to rise to $1.7 billion this year, as compared to $1.3 billion last year.

Under its transportation agreement, Range Resources Corp. (NYSE:RRC) made first deliveries of ethane into Mariner West to Sarnia, Canada on July 21, 2013. Mariner West is a pipeline project for delivering Marcellus ethane to the Canadian market. The company expects to deliver around 5,000 barrels per day to Sarnia in second half of 2013. It will increase ethane deliveries through Mariner West to 15,000 barrels per day at the beginning of 2014. It also has an additional ethane transportation project known as ATEX that will be operational by next year and will increase ethane deliveries to around 35,000 barrels per day.

Focus on midstream with new pipeline project

Phillips 66 (NYSE:PSX) is focusing on its midstream segment growth with pipeline projects. It is investing in this segment to take advantage of the rise in oil and gas production in North America. On June 17, 2013, the company announced that its two new pipelines, the Sand Hills and Southern Hills natural gas liquid pipelines, are now in operation. These pipelines are jointly owned by Phillips 66 (NYSE:PSX), DCP Midstream and Spectra.

The Sand Hills pipeline will provide LNG from Eagle Ford and Permian Basin to Mount Belvieu, Texas. This pipeline has an initial capacity of more than 200,000 barrels per day. With the installation of additional pump stations, its capacity will increase to 350,000 barrels per day.

The Southern Hills pipeline will provide takeaway capacity from Rockies and mid-continent regions to the Gulf Coast market. It will have a capacity of 175,000 barrels per day after the planned pump station’s completion. With these growth plans, the company expects midstream segment operating earnings to rise to $370 million this year and $454 million in 2014, as compared to $362 million last year.

Oil discoveries providing visibility for future growth

In March 2013, ConocoPhillips (NYSE:COP) announced two oil discoveries at the Coronado and Shenandoah wells in deep water in the Gulf of Mexico. The Coronado wells encountered more than 400 feet of net pay and the Shenandoah well encountered 1,000 feet of net pay; this refers to the thickness of a reservoir capable of producing oil and gas.