Range Resources (NYSE:RRC) Best Upside Leverage in Marcellus

M&A activity in Marcellus Shale properties has drawn the interest of investors, and Range Resources (NYSE:RRC) is considered as having the best upside leverage of the companies in Marcellus.

Ticonderoga said, "Exco Resources (NYSE:XCO)(Not-rated) announced the $459MM purchase of Marcellus Shale properties from Chief Oil & Gas, which once again highlights the willingness of companies to continue to invest in Marcellus acreage, something we haven’t seen in other gas plays."

"Range has the most upside leverage to the Marcellus in our coverage universe, and trades at a steep discount to peers with a P/NAV of 75%, which compares with 85% for the group. As with previous Marcellus transactions, the Exco-Chief deal once again implies a higher valuation for RRC.

"RRC has an estimated 24 Tcf of unbooked potential resources in the Marcellus. The northeastern region accounts for 6.0 Tcf and one-third (300,000) of the company’s total Marcellus leases. As part of our $58.70 NAV for RRC, we valued the 6.0 Tcf at $0.14/Mcf, or $852MM. Applying the 6,000 per acre from the Exco-Chief deal (Chief had drilled several wells in Lycoming county adjacent to wells drilled by RRC) would imply a value of $1,800MM, a 10% increase to our NAV, or $948MM, which equates to $5.90/share.

"Talisman Energy (NYSE:TLM)(Buy), Anadarko Petroleum (NYSE:APC)(Neutral) and Chesapeake Energy (NYSE:CHK)(Neutral) are companies under our coverage with exposure to the Marcellus."

Ticonderoga maintains a "Buy" rating on Range Resources, which closed Wednesday at $44.70, up $0.50, or 1.13 percent. Ticonderoga has a price target of $45 on them.