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US Exploration & Production

Evaluate the following independent US Exploration & Production company using their latest FY15 Q3 data and based upon the criteria listed below:

  • Range Resources (“RRC”)

Criteria:

  • Hedge Program (100 pts)
    1. Delineate their current hedging strategy and give specifics as to the financial derivatives used and, define them per the lectures or textbook; the percentage of production hedged and, average hedged price for both crude oil and natural gas. Then, compare these prices to the forward prices for 2016 (include a table comparing the two). In addition to the futures pricing, research price forecasts from sources other than NYMEX futures and include those in your evaluation. Provide your opinion on whether or not this is a sound hedging position based upon their percentage hedged and price obtained.
    2. Are they using Hedge Accounting? If so, are they using fair value or cash flow hedge treatment?
  • Business Plan (50 pts)
    1. Based upon the current global & domestic economic conditions as well as, world geopolitical situations, how is the company positioned for both crude oil and natural gas? Include their percentages of crude oil and natural gas as well as, their average daily production for both.
    2. List the major North American producing basins where they are focused and, based upon your knowledge of pricing, whether or not these are good “plays” to be involved in going forward. State why.
    3. Do you foresee problems for them given current and future market conditions? If so, list some reasons why this is so.
    4. Would you recommend investing in this company?
  • Hedge Recommendations (75 pts)
    1. What percentage of natural gas and crude oil to be hedged would you recommend? Re-state their current percentage for natural gas and crude oil and your recommendation.
    2. What hedge strategies would you recommend?
    3. For each hedge strategy (type of hedge), provide a justification which includes pros & cons of each as well as, how your strategies will compare with the current prices being received by the producer. (This will require a table.)
  • Report Presentation (25 pts)
    1. Appearance & Style (professional report)
    2. Format – Cover Sheet, Table of Contents, clearly-defined categories for required elements.
    3. Correct citation & reference usage and formatting
    4. Spelling & Grammar
    5. Use of tables, charts, etc.

This is a real-world exercise performed by stock analysts who focus on energy companies. Therefore, you must provide a thorough analysis. Do not just “cut-and-paste” sections of their quarterly reports. Instead, paraphrase what is reported. If you do use any quotes, make sure to provide citations and references. Obviously, the more detail you include in this paper, the higher the grade will be. Do not simply answer “Yes or No” for any of the questions. In addition to referencing Errera, find other sources of information to support your findings and recommendations. Use actual data and your knowledge of the marketplace to support your answers. You have access to MarketView for all of your pricing needs. I do not expect any technical analysis for the price forecasts.

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Category: Sample Questions