RANGE RESOURCES LIMITED - ASX · RRS’ main risks are above ground, not below ground. Most of...

Research Note

RESEARCH NOTE – PATERSONS SECURITIES LIMITED 1

All information and advice is confidential and for the private information of the person to whom it is provided and is provided without any responsibility

or liability on any account whatsoever on the part of this firm or any member or employee thereof.

RANGE RESOURCES LIMITED

A NEW AND NARROWER RANGE, SHRINK TO GROW

The following note provides an overview of Range Resources, a dual listed (ASX:RRS; AIM:RRL) exploration and production company which we rate as a HOLD. The past year has been a difficult year for RRS with changes at the Board level and a new management team, accompanied by a massive financial loss of US$102m of which 60 percent was a non-cash loss from discontinued operations and asset write-downs.

The Company’s main focus is on growing production in Trinidad where RRS has a unique position, being the largest private onshore acreage holder with extensive operating experience, and wholly

owning a drilling subsidiary. RRS seeks to divest its interests in Texas and Georgia (FSU), and exit from high commitment blocks whilst retaining its non-operated positions onshore Puntland and carried positions in highly prospective basins in Colombia. RRS also decided not to pursue offshore Puntland acreage that would have required significant investment from RRS.

RRS has Proved Reserves of 19 mmbbl and Proved & Probable Reserves of 22.1 mmbbl in Trinidad, independently certified by Forrest A. Garb & Associates. RRS exited the September 2014 quarter with production of c.560 barrels of oil per day (bbls/d). The Company is targeting production of c.1,000bbls/d during H1 2015, having missed this target earlier in the year.

On the exploration front, RRS plans to drill one well in 2015 which will target two deep formations that have gross combined prospective P50 resources of 22 mmbbl in the Guayaguayare license in Trinidad, which RRS farmed-in with Niko Resources in late 2013.

Cash reserves are tight and RRS is currently reliant on debt financing and share placements to fund its capital intensive growth program. In late September 2014, RRS secured a US$15m debt financing agreement with Lind Asset Management. In early November 2014, RRS signed a binding Memorandum of Understanding with Core Capital Management (CCM) for a US$50m funding arrangement in which CCM subscribes US$20m in cash for shares of RRS at £0.01

per share and approximately US$30m in convertible bonds which convert at a price of £0.01 per share.

RRS has plenty of opportunities in Trinidad to boost shareholder value and certainly the next 12 months look to be interesting given a fully funded production and exploration drilling program. RRS’ 2P reserves are low risk, in shallow, easy-to-access reservoirs located in major onshore fields previously operated by Texaco and state owned Petrotrin. Through in-fill, step-out development drilling combined with waterflood as an enhanced oil recovery (EOR) technique, RRS could potentially lift production to more than 4,000bbls/d over the next few years, a target that the old management team was aiming for when they acquired these assets.

Although we have a positive view about the new management, turn-around progress to date and the upside potential of RRS’ production assets in Trinidad, we wait to see evidence of sustained production growth which has eluded RRS, past and present.

As RRS’ departing Chairman put it succinctly in the 2014 Annual Report’s Letter to Shareholders that “turning the business around is neither an easy or swift task”.

11 November 2014

12mth Rating HOLD

Price A$ 0.014

Target Price A$ 0.033

12m Total Return % 240

RIC: RRS.AX BBG: RRS AU

Shares o/s m 5,034

Free Float %

Market Cap. A$m 70.5

Net Debt (Cash) A$m 0.1

Net Debt/Equity %

3m Av. D. T’over A$m 0.02

52wk High/Low A$ 0.05/0.01

2yr adj. beta 0.25

Valuation:

Methodology DCF

Value per share A$ 0.033

Analyst: Anh Dang

Phone: (+61 3) 9242 4059

Email: [email protected]

An investment in this company should be considered speculative and note assumptions employed are contingent on broader market conditions remaining buoyant. These can change at short notice. Recommendations are current at the time of publication.

12 Month Share Price Performance

Performance % 1mth 3mth 12mth

Absolute -17.7

-54.3

-53.3 Rel. S&P/ASX 300 -14.1 -51.7

-50.8

7 November 2014




RANGE RESOURCES LIMITED (RRS)

Range Resources Limited is a dual listed (ASX:RRS; AIM:RRL) exploration and production (E&P) company, with a diverse portfolio of oil and gas assets and a core operation in Trinidad, where the Company holds 100% interest in three onshore production licenses. Range has further interests in Guatemala; Puntland, Somalia; Colombia; Georgia (FSU); and Texas, USA.

The past year has been a turbulent period for RRS. After many years of expanding its portfolio stretching from Puntland, Trinidad, Colombia, Guatemala, Texas to Georgia, and a failed merger in late 2013, the Company’s financial position had become unsustainable. It had no money to refinance its expensive debt nor to fund development and exploration drilling.

In an attempt to turn the Company around and instil market confidence, RRS commenced the process of restructuring the Board and senior management with the appointment of the new CEO Rory Scott Russell, and two Non-Executive Directors in February 2014. COO and VP of Engineering were hired in March. A new Chief Financial Officer was appointed in May 2014. The Chairman also announced that

he will be stepping down post the Company’s AGM in November 2014 after overseeing the transition.

The new management team has made significant progress to date in cleaning up the Balance Sheet, rationalising the portfolio and seeking to realise value from non-core assets. RRS exited the June 2014 financial year with a cleaner but smaller Balance Sheet, carrying no debt. The Company reported an overall loss of US$102m of which 60 percent was a non-cash loss from discontinued operations and asset write-downs.

In the medium term, to fund working capital and to accelerate its work programs in Trinidad, RRS entered into a financing agreement of up to US$15m with Lind Asset Management LLC in September 2014. On 3 November 2014, RRS signed a binding Memorandum of Understanding (MOU) with Core Capital Management, a Chinese-based institutional investor, for a US$50m funding arrangement in which CCM subscribes US$20m in cash for shares of RRS at £0.01 per share (representing a premium

of approximately 26% to the mid-market share price at the close of business on the day before the announcement of the MOU) and approximately US$30m in convertible bonds which convert at a price of £0.01 per share.

It’s encouraging to see real tangible commitment from the Board and management. In a recent interview on Tip TV, the CEO reviewed that the Directors have forgone their salaries in efforts to cut out-of-control G&A costs that they inherited. These actions also reflect the enormity of the task at hand. In the September 2014 quarter, RRS reported administration costs had decreased by 50% from previous quarter.

Investment Perspective

RRS’ new management still faces massive challenges in turning the Company around, but has a better chance of addressing them having brought in experienced senior managers from big E&P

companies. The new CEO, COO and VP of Engineering came from Shell, Suncor Energy and Tullow, respectively. The new CFO was the former Managing Director of BNP Paribas’ Upstream Oil and Gas team.

RRS’ main risks are above ground, not below ground. Most of RRS’ 22mmbbls of 2P reserves are in shallow, easy-to-access reservoirs located in major onshore oilfields previously operated by the likes of Texaco and state owned Petrotrin. These fields have largely been left alone for the past 40 years but rising oil prices and technological advances have made them attractive again. Additionally, the Government of Trinidad and Tobago has been introducing a number of incentives over the last years to encourage further activity in the oil and gas sector on the island. The newly approved budget incentives announced in June 2014, especially reward companies with accelerated development and exploration programmes including Range, and are expected to have a significant positive impact on the Company’s cash flows and returns from its ongoing production growth.

Through in-fill and step-out development drilling, as well as applying waterflood as a secondary recovery technique, RRS’ oilfields represent a large inventory of low risk recoverable reserves. And it can be done. A prime example is Leni Oil & Gas (AIM:LGO), an AIM peer and neighbour. LGO has 7.2 mmbbl of 2P reserves in the Goudron field, next to RRS’ Beach Marcelle block. LGO entered Trinidad around the same time as RRS and has been able to increase production from 40bbls/d to more than 1,000bbls/d, ahead of schedule. This has seen the LGO share price rising six-fold this year.

Having secured funding for its work program, the real test for the new management is in execution. The key question for existing and potential investors will be how successful RRS will carry out

5 November 2014




waterflood projects. Although the EOR waterflood technique is not new and has been used around the world, it does require in-depth knowledge of field geology/reservoir characteristics coupled with careful detailed execution planning for successful implementation.

Strategy

The new management team’s strategic objective is to maximise shareholder value by focusing on growing production and reserves in Trinidad where the Company has a unique position, being the largest private onshore acreage holder with extensive onshore operating experience, and its wholly owned drilling subsidiary. In contrast to the previous management team, the new management has narrowed the Company’s focus to onshore oil plays. Offshore and gas are currently out of scope.

The Company plans to exit Texas and Georgia which are now classified as held-for-sale assets. For both assets the disposal processes are underway. For Guatemala, RRS has reduced its stake through a partial sale of its shareholding in Citation Resources. In Colombia, RRS exited from high commitment blocks whilst retaining a carried position on three exploration assets in the highly prospective Magdalena and Putumayo basins. RRS also decided not to pursue offshore Puntland

acreage that would have required significant investment from the Company.

The revised portfolio provides investors with exposure to near term production growth and cashflow whilst maintains exposure to high impact exploration successes in the medium to long term.

The Company’s goals for 2015 are:

Complete divestment program;

Reduce overhead costs across the Company;

Complete rig maintenance program;

Achieve production growth and cash flow;

Drill two exploration wells on the Guayaguayare license in Trinidad;

Start-up waterflood projects.

Source: Range Resources Ltd

Figure 1: RRS current portfolio and status

7 November 2014




Historical Production

Ambition has not been realised - RRS entered Trinidad in 2011 through the acquisition of three producing onshore licenses from SOCA Petroleum, gaining 100% working interest in Morne Diablo,

South Quarry and Beach Marcelle licenses.

Originally, the previous management team planned an ambitious 3-year drilling and waterflood program designed to achieve 4,000bbls/d by the end of 2014 and increasing this to 9,000bbls/d by the end of 2015, from an average of 500bbls/d at the time of acquisition. Following an early successful drilling and completion campaign, production hit 1,000bbls/d in late July 2012, RRS has not been able to lift production above 800bbls/d. The disappointing performance was attributed to the lack of investment in Trinidad assets and drilling rigs.

In the near term, the Company targets production of 1,000bbls/d during H1 2015.

Source: Range Resources Ltd and Patersons estimate

Potential Catalysts

Besides achieving or exceeding its production target of 1,000bbls/d by year-end 2014, RRS’ first deep onshore exploration well which is expected to spud in 2015 as a part of the farm-in commitment in

the Guayaguyuare license, could be the good news that the Company is looking for to shore up the market’s confidence.

The well’s objectives are the Lower Gros Morne Sandstones at 7,500ft depth and the Upper Gros Morn Sandstones at 5,050ft depth. The former is the primary target with a pre-drilled prospective recoverable resource (P50) of 15.6mmbbl with a 25% chance of success. The Upper Gros Morn is the secondary target with a pre-drill prospective coverage resource (P50) of 6.5mmbbl with a 45% chance of success.

Reserves Position

Reserves data showed in Figure 3 below were compiled by Forrest A Garb & Associates Inc. and represent the position as at 1 January 2014. Compared to the previous reserves report in October 2012, RRS’ total 2P reserves increased by more than 9%, attributed to the ongoing development drilling program.

Figure 2: Trinidad quarterly average daily production

5 November 2014




Trinidad

License 1P 2P 3P

Morne Diablo 4.5 7.1 12.5

South Quarry 0.6 1.0 1.3

Beach Marcelle 13.9 14.0 14.4

Total 19.0 22.1 28.2


RSS Valuation

Figure 4 below shows our risked sum-of-the-parts valuation of RRS. This underpins our A$0.033 price target. The valuation consists of 4 parts:

1. Risked valuation for Tridinad’s proved and probable reserves;

2. Risked valuation of the next exploration prospect in the Guayaguayare license;

3. Exploration assets including assets held-for-sale in Texas and Georgia.

4. Net cash position.

Valuation Assumptions

2P Reserves - We have valued 2P reserves based on NPV analysis of a full field development to target the recovery of 2P reserves. We have assumed that a targeted drilling program achieves an increase in production from current rates of c.600bbls/d to around 5,500bbls/d over a period of 48-months. We assume a total expenditure of US$176m, spread evenly over four years, to target reserves of 22mmbbls, based on a Finding and Development (F&D) cost of US$8/bbl.

Figure 3: RRS reserves position

Figure 4: Sum of Parts Valuation

Asset Gross NPV Unrisked

(A$m)

Net NPV Unrisked

(A$m)

Risk Factor NPV Risked

(A$m)

NPV sh Risked

Trinidad 2P Reserves 130.1 130.1 100% 130.1 0.026

Guayaguayare Deep 86.4 34.5 25% 8.6 0.002

Guayaguayare Shallow 36.0 14.4 45% 6.5 0.001

Guatemala 3.2 3.2 100% 3.2 0.001

Texas and Georgia 12.6 12.6 100% 12.3 0.002

Puntland 4.1 4.1 100% 4.1 0.001

Total Asset Valuation 199 165.2 0.033

Cash 1.7 100% 1.7 0.000

Debt 0 100% 0 0.000

Total Enterprise Value 200.7 166.9 0.033

Source: Patersons Estimates

7 November 2014




We have assumed average production costs of US$17/bbl. Trinidad Government and over-riding royalties total 27.5% and a Special Petroleum Tax is levied at 18% of net revenue, after deductions for 100% of exploration costs and 50% of development costs in the first year (30% second year and 20% third year). Tax is then levied at 55%.

Guayaguayare first drilling prospect – Similar to 2P reserves, we applied discounted cash flow (DFC) analysis to value the exploration potential of Upper and Lower Guayaguayare formations based

on Company’s provided data.

Guatemala, Texas and Georgia - End of 2014 fiscal year book value were used as these assets have gone through a comprehensive review and impairments.

Puntland, Somalia – We valued RRS’s 20% working interest based on Horn Petroleum’s current market value. Horn Petroleum holds 60% working interest in the same permits as RRS.

We have not included St Mary’s in our valuation as there is limrited information available to date.

5 November 2014




LOCATION

TRINIDAD

Trinidad has a long history in producing oil, with around 3 billion barrels produced in the area. The energy sector represents approximately 40% of national GDP and 70% of all exports.

The first drilling took place in 1866, with the first commercial oil development in 1907/8 at Guapo (Point Fortin) with the offshore well in 1955 being the Soldardo Field discovery. The first refinery opened in 1911 at Point Fortin. There have been over 10,500 onshore wells drilled to date and peak oil drilling activity was in 1982 with 830,000 feet (on and offshore).

In 2012/2013 new fiscal incentives were introduced by the Trinidad and Tobago government including a 20% investment tax credit (against the Special Petroleum Tax) for mature fields and enhanced oil recovery projects, introduction of a 40% tax uplift for deep drilling costs, removal of VAT from large items of oilfield equipment, an exploration allowance of 100% capital in first year (to 2017), one year roll-over of unused EOR tax credits, full allowances against SPT for work-overs and side-tracks in year incurred.

RRS holds a 100% interest in three onshore production licenses (South Quarry, Morne Diablo and Beach Marcelle) and a fully operational drilling subsidiary. Independently assessed Proved (P1) Reserves in place of 19.0 mmbbl with 28.2 mmbbl of Proved, Probable and Possible (3P) Reserves and an additional 81 mmbbl of unrisked prospective resources. RRS also has a farm in with Niko Resources giving it exposure to circa 280,000 acres of prospective onshore and offshore acreage and

St Mary’s Block which was won in February 2014 through a competitive state tender.


The Company aims to grow production in Trinidad through a combination of in-fill and step-out development drilling, implementation of modern oil field practices, secondary oil recovery (waterflood) projects and by exploiting its extensive exploration acreage.

RRS entered Trinidad in 2011 through the acquisition of three producing onshore licenses from SOCA Petroleum, gaining 100% working interest in Morne Diablo, South Quarry and Beach Marcelle licenses. The acquisition also included a fully operational drilling subsidiary comprised of six drilling rigs plus six workover/swabbing rigs and operational personnel. SOCA drilled two hundred shallow wells with a high success rate, producing a 26-30°API crude, mainly in the Morne Diablo concession. Crude was extracted mostly from shallow reservoirs (200-300 ft) by cavitation pumps. Small pumping jacks are used for deeper reservoirs (1,000 ft).

Figure 5: Trinidad assets locations

7 November 2014




The Company has 250+ employees in Trinidad with 125+ having been added by RRS since acquisition in 2011, and opened a technical and administration office in San Fernando in mid-2012.

The Company is a leader amongst its peers with respect to its in-house technical capabilities, with the current primary technical capabilities including:

1. Full work station capability;

2. Seismic interpretation software;

3. Reservoir simulation and modelling;

4. 3D visualization room;

5. Geologic mapping and interpretation software.

In December 2013, RRS farmed-into two contracts on the Niko Resources (TSX:NKO) Guayaguayare block (onshore and offshore). Spread over 280,000 acres, the Block surrounds RRS’ Beach Marcelle Field and extends south to the limits of Trinidad’s territorial waters. Under the terms of the farm-in agreement, RRS obtained operatorship, and an interest of 40% on the deep rights (>5,000 ft.) and 32.5% on the shallow rights (<5,000 ft.) in return for drilling two onshore exploration wells. Range will also drill one offshore well and one onshore appraisal well contingent on exploration success, sharing costs with NKO on a 50/50 basis. The Company and NKO are finalising proposed plans for the first onshore well, subject to final approval by the Ministry of Energy and Energy Affairs.

Additionally, RRS was awarded St Mary’s Block in February 2014 under an onshore bid round (first

dedicated onshore round in Trinidad in 15 years).

Morne Diablo (WI 100%)

The Morne Diablo onshore license comprises 9,300 acres along the southern coast of Trinidad. The field has been producing since 1937 and produced over 10.5 mmbbls to date.

The license has full 3D seismic coverage which was shot in 1999. There are currently over 300 wells on the license of which 142 are currently producing. To date, development and production has only occurred on less than 10% of the license area with the majority of the license area having the potential for further development of up to 140 wells.

There are multi-productive horizons underlying Morne Diablo with the majority of current production coming from the shallow Lower Forest and Upper Cruse reservoirs (depth 1,000-2,000 feet). The current program is targeting all horizons, including a number of wells to be drilled to the semi-exploratory Lower Cruse and exploratory Herrera horizon.

South Quarry (WI 100%)

The South Quarry onshore license comprises 3,700 acres along the southern coast of Trinidad, immediately west of the Morne Diablo license.

Like Morne Diablo, South Quarry is underlined by numerous productive horizons with the majority of

current production coming from the Middle Cruse equivalent “Quarry 19 Sands” horizons.

Over 95 wells have been drilled to between 900 ft. and 6000 ft. on the structure over its life, however, there had been no development drilling on South Quarry for a number of years - development drilling on the South Quarry license has only commenced in early 2014.

Beach Marcelle (WI 100%)

The Beach Marcelle onshore license comprises 3,500 acres and is located within the Guayaguayare sub-basin that has a number of oilfields around its rim, including the Navette and Goudron fields and the offshore Galeota and Samaan fields.

Texaco completed the first of a planned multi-well waterflood project in mid-60’s before the field was transferred to Petrotrin. RRS acquired the larger license area in 2010 with the view to utilise its experience with waterflood EOR from the shallow Morne Diablo program and transfer this experience to the Beach Marcelle license targeting four of the six individual fault blocks.

5 November 2014




During 2014, one of Range’s production rigs was mobilised to the Beach Marcelle field and commenced a multi-well program to reactivate and work-over wells in the field. It is the first rig to be used for production work in the Beach Marcelle field since November 2011. The rig will also be used to evaluate fluid levels to aid dynamic reservoir modelling and the condition of existing wells with a view of incorporating them into the planned waterflood either as water injectors or reactivated producers. The Company plans to mobilise a second rig to Beach Marcelle at the end of 2014 to

initiate an infill drilling program and the testing of undrilled fault blocks.

St Mary’s (WI 80%)

The St Mary’s Block is on trend with highly prospective acreage with multiple plays, and several significant recent onshore discoveries, including the 150 mmbbl Penal / Barrackpore field, the 20 mmbbl of oil / 0.5 TCF gas condensate Carapal Ridge field and other fields ranging in size between 10 and 25 mmbbl of oil. The main reservoir targets identified in St Mary’s Block are Pliocene Deltaic sands, Miocene Herrera sands, Cretaceous sands and the source rock itself.

The western part of the Block is adjacent to RRS’ extensive production infrastructure which could be

utilised in the development of any discoveries on this new block.

RRS’ evaluation of existing seismic and well data has enabled the Company to high-grade a number of areas and the exploration potential of St Mary’s will be assessed further through the acquisition and interpretation of new 2D and 3D seismic.

Guayaguayare Block (Deep formation WI 40%, Shallow formation WI 32.5%)

The Block surrounds RRS’ Beach Marcelle field, and extends south to the limits of Trinidad’s territorial waters. In addition to proven Tertiary-age exploration targets, the block is believed to hold significant potential in the Cretaceous section, which has been successfully developed in the Eastern Venezuelan

basin.

Four prospective onshore areas have been identified within the Guayaguayare Block, each considered to have significant potential for oil, whilst the offshore structural complex is believed to have significant potential for large gas discoveries with several large structures mapped. At present, RRS is only interest in the onshore potential of the Block.

The Guayaguayare Block is comprised of over 280,000 contiguous acres covering both onshore and offshore portions of known, productive trends along the southern coast of Trinidad. The Guayaguayare block is situated along trend with the most prolific oil and gas fields in Trinidad and lies in the transition area between the transpressional Southern basin and the extensional Columbus basin. A regional wrench fault, an extension of the Los Bajos fault, cuts through the onshore to offshore transition zone. Traps associated with this fault produce oil in Southwest Trinidad and off the East Coast from Upper Miocene / Pliocene Sands.

To date, the following work has been completed by NKO and previous operators on the block:

Onshore:

Acquired and processed 217km2 3D land seismic survey.

Offshore:

Acquired and processed 277km2 3D marine seismic survey (2011);

Two 3D marine seismic surveys were reprocessed (ELF 1997 and Mobil 1990);

All 3 offshore 3D surveys have been merged prestack (total 836 km2).

7 November 2014




GUATEMALA

RRS owns 20.0% of Latin American Resources (LAR) (Operator), a private Guatemalan oil and gas exploration company. Range also owns 1.2% of ASX-listed Citation Resources Limited (CTR), which holds 60.0% interest in LAR. In total, Range holds approx. 21% direct and indirect interest in the Guatemalan project.

The project is located in the South Peten Basin in Guatemala where the Atzam#4 well was successfully drilled in 2013 and is producing 38 API oil at a rate of c. 150bbls/d from the C17 carbonate reservoir. Gross 2P reserves - 2.3 mmbbls.


Figure 6: Location of Block 1 - 2005

5 November 2014




COLOMBIA

RRS holds a 10% fully carried interest in three blocks in Colombia, which are PUT-5, VMM-7 and VSM-1. These blocks are operated by Optima Oil Corp (80% interest), which is a private company. The initial exploration terms expire in December 2015 during which time 2D seismic and one exploration well will be required on each block.

Additionally, we note that RRS has announced that it will not proceed with the farm-in option for block PUT-6 and PUT-7 in the Putumayo basin, given the high cost of potential work commitments.

In 2012, RRS provided US$3.48m in cash to secure the issuance of a performance bond in support of the minimum work commitments in PUT-6. As a result of the decision to not pursue PUT-6, RRS wrote off this cash.


GEORGIA (FSU)

RRS holds a 45% equity interest in Strait Oil & Gas (Strait), which holds and operates the Production Sharing Agreement in two onshore blocks Vla and Vlb (c.7,000km2). Georgia is a non-core asset for the Company and RRS is intending to divest its interests in Strait.

Figure 7: Colombia Acreage

7 November 2014




PUNTLAND

RRS holds a 20% working interest in two licenses encompassing the highly prospective Dharoor and Nugaal valleys. The operator and 60% interest holder, Horn Petroleum Corp. (TSXV: HRN) has completed two exploration wells and will continue with a further seismic and well program over the next 12-18 months. RRS has decided to focus its effort in Puntland to onshore activities and has subsequently withdrawn from all offshore activities.


In January 2012, RRS, together with its joint venture partners, successfully spudded the historic Shabeel 1 well in the Dharoor Valley, the first in a two well exploration program and the first exploration well in Puntland in over 25 years, with the Shabeel North well having been spudded soon after the completion of the Shabeel 1 well. We note that both wells were non-commercial.

During the year, Horn Petroleum continued to assess the operating environment in the Dharoor and Nugaal exploration area to progress planned exploration activities. Horn Petroleum has identified a

suitable location to drill an exploration well in the Nugaal Valley block, however, given the continued operational and political issues, a decision to continue with drilling has not been reached.

TEXAS, USA

In September 2009, the Company acquired a 25% interest in the Smith #1 well and a 20% interest in subsequent wells in the North Chapman Ranch Project in Nueces County, Texas. The project area comprises 1,680 acres in one of the most prolific oil and gas producing trends in Texas.

RRS also holds a 21.75% interest in the East Texas Cotton Valley Prospect in Red River County, Texas. The prospect's project area encompasses approximately 1,570 acres encompassing a recent oil discovery.

During FY14, Western Gulf Oil and Gas drilled and completed the Albrecht-2 well to determine the south-eastern extent of the Howel High sandstone reservoirs. The well did encounter the Howel High

Figure 8: Puntland Acreage

5 November 2014




at the predicted depth but it did not flow at a commercial rate. The Company is currently in the process of selling its Texas asset.

CORPORATE AND FINANCE

As at 30 September 2014, RRS had cash in bank of US$1.44m and no interest bearing liabilities. Subsequently, the Group received US$5 million from Tranche 1 of the Lind Asset Management LLC loan facility.

Loan Settlement Agreement with International Petroleum Limited

During late 2013, RRS announced that the proposed merger with International Petroleum Limited (IOP) would not be proceeding. As part of the proposed merger, RRS advanced US$8m under a loan agreement which was expected to have been repaid with interest on 30 April 2014. However, due to IOP’s financial constraints, it was unable to repay the loan.

Subsequently, RRS has signed a settlement agreement and agreed to extend the loan repayment to 30 November 2014 to allow IOP time to conclude the sale of its Russian assets. In line with the

settlement agreement, IOP has made a cash payment of US$500,000 to Range and all other outstanding monies have converted into 147,803,270 ordinary shares of IOP. Following conversion, Range holds approximately 9% of the enlarged share capital of IOP. In addition, IOP has issued 5 million unlisted options to Range exercisable at AU$0.06 per option on or before 2 October 2016.

Equity Placement with Abraham Limited

In May 2013, RRS completed a US$12m equity placement with Abraham Limited (Abraham), a Hong Kong-based private institutional investor. Abraham subscribed US$12m in cash and was issued with c.712m Fully Paid Ordinary Shares of the Company at a price of £0.01 per Share representing a premium of c.49% of the mid-market share price on AIM at the close of business on 14 May 2014. RRS used the funds to repay outstanding debt.

Integrated Master Services Agreement with LandOcean Energy Services

In May 2014, RRS signed an Integrated Master Services Agreement (IMSA) with LandOcean Energy Services (LandOcean) whereby LandOcean is to act as the preferred services contractors (subject to all tendering and procurement rules) for Range for oilfield services including geoscience, engineering, procurement and construction. LandOcean have mobilised a top class team to deliver various technical studies to assist Range with engineering and design work for the waterflood and secondary recovery projects.

Lind Asset Management Loan Facility

At the end of September 2014, RRS announced that it had signed a loan agreement for up to US$15m in medium-term financing with Lind Asset Management, LLC, a New York-based institutional investor. Some amendments were released on 17 October 2014. The proceeds will be primarily used to invest in the Company’s rig fleet, accelerate development drilling of the Trinidad portfolio and for general working capital purposes.

The loan will be available for a maximum term of 24 months in 2 tranches with the first tranche totalling US$10m ($US5m immediately with the remaining US$5m to be drawn on a monthly basis over 10 months) and the second tranche of US$5m (available on a monthly drawdown basis), accessible at the Company’s option, 6 months after the execution of Tranche 1.

The total amount repayable will be US$18.375m (US$12.25m for Tranche 1 and US$6.125m for Tranche 2). Each tranche is repayable over an 18 month period from the date of drawdown however; each repayment can be made on a monthly basis at RRS’s option of cash, shares or a combination of both. If the Company elects to repay in cash, the repayment amount will attract a 2.5% monthly premium. Repayment shares will be priced at the lower of 92.5% of the average three daily volume weighted average price chosen by Lind during the 20 days prior to each share issuance or 130% of the average daily VWAP per share during the 20 trading days prior to 29 September 2014 (for Tranche 1) and the second closing date (for Tranche 2). However, during the lock-up period,

Repayment Shares on the initial advance would be priced at 92.5% of the average of 3 day VWAP, chosen by Lind during the 20 trading days prior to each issuance of shares. Post lock-up period, Lind retain the ability to select that price of the premium conversion.

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In addition to the above, after a period of 6 months from the initial drawdown, Lind has the option to convert any amounts outstanding under the agreement into ordinary shares at a premium conversion price equal to 130% of the average of the VWAP during the 11 trading days prior to the agreement being signed (either A$0.0243 or 1.203p per share). As part of the financing package, Lind will be granted up to 46.5m options exercisable for up to 36 months after the date of issue where by 31m options will be issued upon drawdown of Tranche 1 and 15.5m if Range draws down Tranche 2. The

exercise price for Tranche 1 will equal A$0.0335 (or 1.8938p per share) which represents 130% the average of the VWAP 20 trading days before the closing date of Tranche 1.The exercise price for options in relation to Tranche 2 will equal 130% of the 20 trading day VWAP prior to the second closing date. As security for the facility, Range will issue Lind 38m shares as collateral in 2 tranches, 32m upon drawdown of Tranche 1 and 6m upon drawdown of Tranche 2. RRS will also provide a share charge and a fixed and floating charge over Range Australia Resources Limited, which holds the Company’s Texas assets. In the event that RRS disposes of its interest in Texas, the process will be directed initially towards repayment of the loan.

Core Capital Management US$50m funding MOU

On 3 November 2014, RRS announced that it had signed a binding MOU with Core Capital Management Co., Ltd (Investor), a Chinese-based institutional investor.

Under the terms of the agreement, subject to completion of final due diligence, standard regulatory

stock exchange approvals, and any requisite shareholder approvals, the Investor will provide approximately US$20 million in cash to subscribe for Ordinary Fully Paid Shares of the Company at a price of £0.01 per Share (the “Subscription”), representing a premium of approximately 26% to the mid-market share price at the close of business on AIM on 31 October 2014 (being the business day immediately prior to this announcement). In addition, the Investor will provide convertible bonds with a total value of approximately US$30 million, which convert at a price of £0.01 per Share, to achieve the full US$50 million commitment.

Upon completion of the initial US$20 million equity investment, it is expected that the Investor will hold approximately 19.99% of the enlarged share capital of the Company. The final number of shares to be issued as part of this investment will be determined at completion to ensure that the Investor does not contravene s606 of the Corporations Act 2001.

Core Capital Management Co. Ltd is a Chinese private equity firm that makes investments and

provides other financial services through a variety of affiliated investment strategies. Core Capital’s headquarter offices are located in Beijing with the branch offices in Shanghai, Shenzhen, Qingdao, Hong Kong of China, and Atlanta, USA.

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BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Sir Sam Jonah, Non-Executive Chairman

Sir Samuel Jonah is non-executive Chairman of Range Resources Limited. He is Executive Chairman of Jonah Capital (Pty) Limited, an investment holding company in South Africa and serves on the boards of various public and private companies, including Vodafone plc. He is also Chairman of Metropolitan Insurance Company Limited. He is an adviser to the Presidents of Nigeria and Togo and previously served as advisor to the Presidents of South Africa and Ghana.

Sir Sam Jonah was a non-executive director of the Standard Bank of South Africa from 2006-2012. He previously worked for Ashanti Goldfields Company Limited, becoming Chief Executive Officer in 1986, and was formerly Executive President of AngloGold Ashanti Limited, a director of Lonmin Plc and a member of the Advisory Council of the President of the African Development Bank. An Honorary Knighthood was conferred on him by Her Majesty the Queen in 2003 and in 2006 he was awarded Ghana’s highest national award, the Companion of the Order of the Star.

Jonah will step down from the Board of the Company effective from the conclusion of the Company’s next AGM. Graham Lyon, who joined the Board in February 2014 as a non-executive Director, will assume the role of non-executive Chairman with effect from the conclusion of the AGM.

Mr Graham Lyon, Non-Executive Director

Mr Graham Lyon has over 30 years of experience in the oil and gas industry, working for a wide range of listed and private companies. Graham has a BSc Eng (Hons) in Petroleum Engineering from Imperial College London. He started his career with Chevron before moving to Shell as sub surface team leader and as project petroleum engineer. Graham then spent 14 years with Deminex in a series of technical leadership roles in the UK, Germany and Egypt, and its successor, Veba Oil and Gas, including Regional Manager for the Caspian and Middle East; thereafter he was heavily involved with the sale of the company to Petro-Canada. Graham remained with Petro-Canada for a further 7

years holding roles culminating in Vice President Strategy and Business Development, International and Offshore. Within the last 5 years Graham has held the position of President and Chief Executive Officer of Mena Hydrocarbons Inc, a TSX-V listed energy company, with assets in Egypt and Syria and is currently a Non-Executive Director at Hawkley Oil and Gas Ltd an ASX listed energy company, and a Director at Tarbagatay Munay LLP a private Kazakhstani oil and gas company and Soncer Ltd.

Mr Rory Scott Russell, Chief Executive Officer

Mr Rory Scott Russell has over ten years of international experience in upstream positions at Shell. Most recently he was Finance Manager for Exploration in Europe and Russia based in London. In this role he oversaw all financial aspects of the business, corporate governance and control, treasury management and sat on regional investment committees covering the North Sea, onshore Netherlands and Germany, Italy, Russia and Kazakhstan. He was involved in country entries and project start-ups in Greenland, Albania, Spain, Ukraine and Russia. Prior to this he was Finance and

Commercial Manager for exploration in Russia based in The Hague and Moscow and has also worked in the strategic planning unit for Shell's global upstream business, based in The Hague. Rory has a BSc (Hons) from the University of Edinburgh.

Mr Nick Beattie, Chief Financial Officer

Mr Nick Beattie has over twenty years of experience in finance working with a range of international banks. Most recently he was a Managing Director in the BNP Paribas Upstream Oil and Gas team in London where he was responsible for leading the bank relationships with UK focused independent E&P companies. Nick has approximately ten years’ experience specifically financing the E&P sector and whilst at BNP Paribas, he structured and led numerous reserve based loans, development financings and other debt facilities. Prior to working with BNP Paribas, Nick worked as a Director within the Oil and Gas finance team at Fortis Bank covering Europe, Middle East and Africa and in a variety of roles with National Australia Bank Group. Nick is an Associate Member of the Association of Corporate

Treasurers and a Fellow of the Chartered Institute of Bankers in Scotland.

Mr William Duncan, Chief Operating Officer

Mr William Duncan is a Geoscientist with over 30 years international exploration and production experience. Most recently he was VP of Exploration and Development for Suncor Energy in Calgary where he was responsible for leading all exploration and commercial activities in Canada, UK, Norway, Libya and Syria, as well as building technical capabilities in a team of 250 professionals. Prior to this

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Mr Duncan was General Manager for Suncor in Libya where he led their participation in the Harouge joint venture production company and started an operated onshore exploration program. From 2004- 2009 he was Petro-Canada's Regional Manager for Northern Latin America leading Petro-Canada's asset portfolio and growth in Venezuela and Trinidad, where he managed the negotiation of PSC's, the drilling of eight offshore wells in Trinidad and participation in LNG production. Mr Duncan also has exploration and business development experience in a wide variety of countries including Iran,

Kuwait, Qatar, the North Sea, and Kazakhstan. Mr Duncan has an MSc in Mineral Exploration.

Dr Douglas Field, Vice President of Engineering

Dr Douglas Field is a petroleum and reservoir engineer with over 30 years international exploration and production experience. Since 2003, he has held a number of engineering and business development posts at Tullow Oil plc, and from 2003-2007 was Group Engineering Manager where he was responsible for Tullow's petroleum, reservoir, well services, production and facilities engineers, and from 2007-2012 Business Unit Manager for Tullow’s activities in North and North West Africa. Prior to this he worked in technical leadership positions for LASMO Grand Maghreb Ltd, Monument Oil and Gas plc, Centrica plc and BHP Petroleum Ltd. His experience includes running field and production operations in onshore Libya, Iran, Algeria, Angola and the North Sea. Dr Field holds a Ph.D. in Organic Chemistry from the University of Leeds.

Dr Christian Bukovics, Non-Executive Director

Dr Christian Bukovics has 33 years’ experience in exploration and has held executive positions at Shell. Until end of 2012, Christian was Vice President for exploration in Russia and the Former Soviet Union and a member of the global exploration leadership team. Prior to this he held the exploration manager position for the European Atlantic Margin, was General Manager for Shell businesses in Iran and Kazakhstan and Vice President for the Commercial division of Shell Global Exploration. Over his career Christian participated in and managed the discovery of over three billion barrel equivalents of oil and gas, pioneered the application of new technology (notably 3D seismic) in Shell and spearheaded entries into new territories with over fifty thousand square kilometres of acreage acquired. Christian has a PhD in experimental physics from the University of Vienna. He is a member of Petroleum Exploration Society of Great Britain (PESGB) and of the European Association of Geoscientists and Engineers (EAGE). In addition to his Board position, Christian is a partner in an exploration-focused venture fund.

Mr Marcus Edwards-Jones, Non-Executive Director

Mr Edwards-Jones is currently Managing Director (and co-founder) of Lloyd Edwards-Jones S.A.S, a financial boutique firm specialising in selling European equities to institutional clients and introducing resource companies to an extensive institutional client base in the UK, Europe and Asia/Middle East. Mr Edwards-Jones has previously held senior positions with Bank Julius Baer Paris (European equities), and UK/Continental European equity sales at Credit Lyonnais Securities. In addition, Mr Edwards-Jones has significant experience in worldwide institutional capital raisings for large resource projects in Africa.

Mr David Riekie, Non‐Executive Director

Mr Riekie has 20 years of corporate experience through a variety of executive and advisory roles in the Industrial and Resource sectors of Australia. He is a Member of the Australian Institute of Company Directors and with more than 14 years’ experience as an Executive Director of a corporate advisory and consulting enterprise, has specialised in capital raising initiatives and development

strategies for both ASX listed and unlisted entities. Mr Riekie is a former director of ASX listed entities including Hawkley Oil and Gas Limited and was a founding Director of Otto Energy. Mr Riekie holds Bachelor of Economics and Diploma of Accounting and as a Chartered Accountant with Price Waterhouse, operated in jurisdictions including Australia, New Zealand and UK over a period of 10 years.

Mr Ian Olson, Non-Executive Director

Mr Olson is a Chartered Accountant with over 25 years of experience whose areas of expertise include corporate finance, audit and assurance across a broad range of industries including energy. Mr Olson is a Non-Executive Chairman of two ASX listed companies and consults to KPMG’s M&A practice in Australia. Previously Managing Partner of PKF Chartered Accountants in Perth, Western Australia, Ian also spent numerous years working with global investment banks in London and New York. He is a

member of the Institute of Chartered Accountants in Australia and the Australian Institute of Company Directors.

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APPENDIX

Trinidad Geological Background

Trinidad’s Southern basin is the eastern extension of the prolific E. Venezuelan petroleum province, defined by a regionally extensive, Upper Cretaceous source rock. These rocks underlie deposits of Paleocene to Miocene age that account for large oilfields in Venezuela (El Furrial) and Trinidad (Penal-Barrackpore, Angostura). The producing reservoirs in Range’s three fields are within this delta sequence. The underlying Miocene turbidites (Herrera sands) are also prolific producers within the basin and form exploration targets. The Upper Cretaceous Source rock is in itself a potential target. Modern shale fracturing technology has upgraded the potential of this formation.


Figure 9: Trinidad Geological Background

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Trinidad Waterflood Program

Waterflooding is a low cost secondary production solution to increase the amount of oil that can be recovered from an oilfield. The process involves converting some oil production wells into water

injection wells by injecting (sea) water into the reservoir to encourage oil production from the remaining producers. The injected water helps to increase pressure within the reservoir; it also helps to move the oil in place increasing the amount of oil that can be recovered from the reservoir rocks. Although the effectiveness of water injection varies according to formation characteristics, a waterflood can recover anywhere from 5% to 50% of the oil that is remaining in the reservoir, greatly enhancing the productivity and economics of the development.


Figure 10: Illustration of Typical waterflood

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