Range Resources Corporation: Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Range Resources Corporation is an independent producer of natural gas, natural gas liquids (NGLs) and oil, focused primarily on the Appalachian region. The company reports one operating segment. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Natural gas, NGL and oil sales | $1,032.4 million | $603.3 million | +71% |
| Total revenues and other income | $180.7 million | $626.0 million | Declined due primarily to derivative fair value losses |
| Derivative fair value loss | $939.1 million | $57.9 million | Increase of $881.2 million |
| Net loss | $456.8 million | Net income of $27.2 million | Turned to loss |
| Diluted loss per share | $1.86 | Diluted EPS of $0.11 | Unfavorable change |
| Cash flow from operating activities | $406.4 million | $109.3 million | +$297.2 million |
| Capital expenditures and acreage purchases | $102.7 million | Approximately $111.1 million | Lower year over year |
| Cash and cash equivalents at period end | $112.9 million | $0.4 million | Higher than prior-year period end |
| Total debt, net of issuance costs | $2.58 billion | $2.93 billion at December 31, 2021 | Reduced by approximately $346.6 million |
Production averaged approximately 2.1 Bcfe per day, down 1% on a total Mcfe basis. Average realized prices, including derivative settlements and transportation costs, increased to $3.23 per Mcfe from $1.55 per Mcfe. Before derivative settlements, total realized prices increased 72% to $5.54 per Mcfe.
Natural gas, NGL and oil sales benefited from higher commodity prices: natural gas sales increased 88% to $629.9 million, NGL sales increased 47% to $338.4 million, and oil sales increased 72% to $64.1 million. Transportation, gathering, processing and compression expense increased 9% to $297.8 million, driven primarily by higher NGL-related processing costs.
Operating costs included $20.3 million of direct operating expense, $43.0 million of general and administrative expense, $85.6 million of depletion, depreciation and amortization, and $47.2 million of interest expense. The filing does not present a meaningful conventional operating margin because reported revenue was significantly affected by non-cash derivative fair value losses.
Material Changes Versus the Prior Comparable Period
- Commodity prices increased substantially. Average NYMEX natural gas, oil and NGL benchmark prices were $4.89 per Mcf, $94.93 per barrel and $0.97 per gallon, respectively, compared with $2.69, $58.06 and $0.61 in Q1 2021.
- Production was broadly stable, while higher realized prices drove a 71% increase in unhedged natural gas, NGL and oil sales.
- Derivative fair value losses increased sharply to $939.1 million. The majority of the loss was non-cash and reflected higher forward commodity prices reducing the fair value of outstanding hedges.
- Deferred compensation plan expense increased to $73.3 million from $19.8 million, primarily because Range’s share price increased from $17.83 at December 31, 2021 to $30.38 at March 31, 2022.
- Range issued $500.0 million of 4.75% senior notes due 2030 and used the proceeds, cash on hand and credit-facility borrowings to redeem $850.0 million of 9.25% senior notes due 2026. The refinancing generated a $69.2 million loss on early extinguishment of debt.
- Range repurchased 600,000 shares for $16.2 million during the quarter and had approximately $483.9 million remaining under its repurchase authorization at March 31, 2022.
- Interest expense declined 17% to $47.2 million as average debt outstanding and average interest rates decreased.
Liquidity, Debt and Capital Resources
At March 31, 2022, Range had no borrowings outstanding under its bank credit facility, a $3.0 billion borrowing base, $2.4 billion of lender commitments and $338.0 million of undrawn letters of credit, leaving approximately $2.1 billion of committed borrowing capacity. The company was in compliance with its applicable debt covenants.
On April 14, 2022, after the reporting date, Range amended and restated its revolving credit facility. The new facility has a $4.0 billion maximum facility amount, a $3.0 billion elected borrowing base, $1.5 billion of lender commitments, and a maturity date of April 14, 2027. The amended facility replaced LIBOR provisions with SOFR or another secured overnight financing benchmark.
Management expects the 2022 capital program to be funded primarily from operating cash flow and believes available liquidity is sufficient to execute the business plan for the foreseeable future. The company targets capital spending at or below operating cash flow and intends to continue improving debt metrics.
Guidance, Outlook, Commentary and Risks
- Management expects commodity prices to remain volatile, citing the Russia-Ukraine conflict, global inventories, LNG demand, OPEC actions, monetary policy, energy-transition policies and continuing uncertainty related to COVID-19.
- More than 55% of projected production for the remainder of 2022 was hedged as of March 31, 2022, including more than 65% of projected natural gas production.
- Outstanding commodity derivatives had an approximate net unrealized pretax loss of $989.8 million at March 31, 2022 and expire monthly through December 2024. Higher commodity prices can create accounting losses and restrict the benefit of future price increases, although they may support higher physical sales prices.
- Management expects to reinstate a quarterly cash dividend in the second half of 2022 at $0.08 per share, subject to Board approval and the company’s cash flow, capital expenditures, debt covenants and other factors.
- Range targets net-zero Scope 1 and Scope 2 greenhouse-gas emissions by year-end 2025.
- Material risks include commodity-price volatility, hedge and basis risk, counterparty performance, infrastructure and NGL marketing constraints, production and reserve risks, regulatory and environmental matters, litigation, interest rates, refinancing needs and potential credit-rating downgrades.
- Range retained approximately $398.9 million of discounted divestiture contract obligations at March 31, 2022, primarily related to transportation, gathering and processing commitments from the North Louisiana asset sale.
- A putative stockholder class action concerning well classification and asset-retirement obligations was dismissed with prejudice on March 31, 2022, although plaintiffs had until May 2, 2022 to appeal. A related derivative action remained pending.
- Range reported an environmental proceeding involving a Lycoming County well that could result in monetary sanctions exceeding $250,000, although the company disputes the allegations.
Most Important Facts for Investors to Verify
- Reconcile the substantial difference between $1.03 billion of commodity sales and $180.7 million of total reported revenue after derivative fair value losses.
- Assess the cash-flow implications and collateral or liquidity requirements associated with the approximately $989.8 million net derivative liability.
- Review the April 14, 2022 credit-facility amendment, including the reduction in lender commitments from $2.4 billion to $1.5 billion and the new covenant definitions.
- Confirm the timing and conditions for the proposed $0.08-per-share quarterly dividend reinstatement.
- Evaluate the maturity schedule for the $749.5 million of current debt maturities and the company’s refinancing plans.
- Monitor commodity prices, hedge settlements, production volumes, NGL transportation and marketing capacity, and counterparty credit exposure.
- Follow developments in the Lycoming County environmental matter and the remaining derivative litigation action.