Ranger Oil Stock: 2022 Outlook Review (NASDAQ:ROCC)

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Ranger Oil (ROCC) appears capable of generating just over $300 million of positive cash flow in 2022 at current strip prices, which would allow it to conduct share buybacks and repay its credit facility debt. credit in 2022.

Ranger looks pretty much valued at the moment based on my expectations for longer-term oil prices. Ranger may be able to increase its value through the efficient development of its drilling inventory, which it claims is approximately 20 years old (including 14 years of inventory with a breakeven point of $50 WTI or less).

Potential outlook for 2022

Ranger currently expects approximately 39,750 BOEPD average production in 2022, including 28,500 barrels per day of oil production. This is a slight decline in total production from Q4 2021 levels, but a 4% increase in average oil production from Q4 2021.

At the current band of approximately $100 WTI oil and $4.85 NYMEX gas, Ranger is expected to generate $1.156 billion in oil and gas revenue before hedges. Ranger’s 2022 covers are worth negative $184 million at these prices.

Ranger has about 62% of its 2022 oil production hedged by collars or swaps. He also bought put options giving him some downside protection with oil prices in the first quarter of 2021, without restricting his upside there.

Barrels/Mcf $ per barrel/Mcf (realized) millions of dollars
Oil 10,402,500 $99.00 $1,030
NGL 2,135,250 $33.00 $70
Natural gas 11,826,000 $4.70 $56
Coverage value -$184
Total revenue $972

Ranger intends to spend approximately $400 million in D&C capex ($408 million in total capex) in 2022, which will fund two continuous drilling rigs as well as an occasional spot rig. Ranger’s 2022 capital budget is higher than I previously expected due to cost inflation and plans for this point-in-time platform.

millions of dollars
Rental operating expenses $75
Collection, processing and transport $35
Production and ad valorem taxes $72
G&A in cash $33
Cash interest $44
Capital expenditure

$408

Total expenses

$667

This would translate to an estimate of $305 million cash flow positive for Ranger Oil in 2022 at $100 WTI oil.

Debt status

Ranger’s net debt at the end of 2021 was $586 million. Ranger also plans to launch a modest annualized dividend of $0.25 per share ($11 million per year) beginning in the third quarter of 2022.

Positive cash flow in 2022 (less dividends) would reduce its net debt to $287 million by the end of 2022 (or a relatively low EBITDAX of 0.4x). This does not include the effect of any potential share buybacks, as Ranger plans to authorize a $100 million share buyback program.

Ranger Oil Net Debt

Ranger Net Debt (rangeroil.com)

It looks like Ranger has the option to increase its dividend going forward, although it might want to redeem some of its 9.25% high interest notes due 2026 first. These notes are redeemable from August 2023 at 106.938% of par.

Evaluation

I have now updated the estimated value of Ranger (for early 2023) to $35 per share long term (after 2022) $70 WTI oil and $3.50 NYMEX gas.

With long-term WTI oil at $75 and NYMEX gas at $3.75, Ranger’s estimated value (also for early 2023) rises to around $38.50 per share.

Thus, I would consider Ranger to be pretty much valued at the moment. WTI futures currently dip below $75 in 2024. Ranger could increase in value through efficient inventory development. It claims to have about 14 years of inventory with a breakeven point of $50 WTI or less, and about 20 years of total drilling inventory.

Ranger Oil Inventory

Ranger Inventory (rangeroil.com)

I also consider Ranger’s 9.25% notes maturing in 2026 to be relatively good risk/reward, as it should be able to eliminate its credit facility debt in 2022.

Conclusion

Ranger (at $37.56 per share) looks about fairly priced for a longer-term $70 WTI oil environment. As I tend to lean more to the conservative side when it comes to longer term oil prices, I am therefore neutral on Ranger at its current price.

Ranger’s balance sheet is expected to be in fairly good shape with its ability to generate over $300 million in positive cash flow in 2022. This would potentially allow it to reduce its leverage to 0.4x by the end of the year. (without redemption of shares). If it proceeds with share buybacks, it should still be able to eliminate its credit facility debt in 2022.

Julio V. Miller