Range Resources Corporation — Form 10-Q Summary
Business context and reporting period
Range Resources Corporation is an independent oil and gas company focused primarily on exploration, development and acquisition of natural gas, NGL and oil properties in the Appalachian region. The unaudited filing covers the quarter and six months ended June 30, 2016. Range operates as one reporting segment.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Natural gas, NGL and oil sales | $224.6 million | $434.1 million |
| Total revenues and other income | $101.8 million | $433.2 million |
| Net loss | $224.9 million | $316.6 million |
| Net loss per diluted share | $1.35 | $1.90 |
| Cash flow from operating activities | $82.2 million | $169.6 million |
| Total production | 1,420.8 MMcfe per day | 1,401.5 MMcfe per day |
- Production increased 4% year over year in both the quarter and six-month period. Marcellus production increased 16% in the quarter and 17% for the six months.
- Average realized price including derivative settlements and third-party transportation costs declined to $1.44 per mcfe in the quarter and $1.49 per mcfe for the six months, compared with $2.31 and $2.54, respectively, in the prior-year periods.
- Total revenues and other income declined 58% in the quarter and 39% for the six months, primarily because of lower commodity prices and derivative fair-value losses.
- Derivative fair-value loss was $162.8 million in the quarter and $75.9 million for the six months, compared with losses of $34.8 million and income of $88.0 million, respectively, in the prior-year periods. These amounts include substantial non-cash mark-to-market effects.
- Transportation, gathering and compression expense increased 44% in the quarter to $136.8 million and 42% for the six months to $262.1 million, driven by Appalachian production growth and new NGL transportation commitments.
- Direct operating expense per mcfe declined 43% in the quarter and 38% for the six months. G&A expense per mcfe declined 20% and 21%, respectively, while DD&A per mcfe declined 22% in both periods.
- Deferred compensation plan expense included non-cash mark-to-market losses of $25.7 million in the quarter and $41.8 million for the six months, compared with gains in the prior-year periods.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $382,000 at June 30, 2016, compared with $471,000 at December 31, 2015.
- Total assets were $6.38 billion and stockholders’ equity was $2.46 billion at quarter-end.
- Total debt was $2.57 billion, consisting primarily of $750.0 million of 4.875% senior notes due 2025 and $1.9 billion of senior subordinated notes due 2021–2023. Bank debt was $3.0 million before debt issuance costs.
- The revolving credit facility had a $3.0 billion borrowing base, $2.0 billion of lender commitments and $232.1 million of undrawn letters of credit, leaving approximately $1.8 billion of committed borrowing capacity.
- Range was in compliance with its bank facility and senior subordinated note covenants at June 30, 2016.
- Six-month investing cash outflows included $241.1 million for natural gas and oil properties and $23.6 million for acreage purchases. Asset sale proceeds were $190.8 million.
- The quarterly dividend was reduced from $0.04 to $0.02 per share in February 2016. The company paid $3.4 million in dividends during the second quarter.
Material changes versus the prior comparable periods
- Commodity prices remained depressed: average NYMEX natural gas prices fell to $1.95 per mcf in the quarter and $2.02 for the six months, compared with $2.64 and $2.81, respectively, in 2015.
- Natural gas, NGL and oil sales declined 13% in the quarter and 26% for the six months despite 4% production growth.
- Six-month operating cash flow fell 54% to $169.6 million from $370.1 million.
- Debt declined by approximately $84.3 million from December 31, 2015, and bank facility borrowings were substantially reduced.
- Range recorded a $43.0 million non-cash impairment charge on Western Oklahoma oil and gas properties during the first six months.
- Range sold Western Oklahoma properties for $77.7 million and certain non-operated Northeast Pennsylvania interests for $111.5 million, recording aggregate six-month asset-sale losses of $4.9 million.
- Firm transportation and gathering commitments increased by approximately $1.5 billion over the next 16 years, primarily related to ethane and propane transportation associated with the Mariner East pipeline.
Guidance, outlook, commentary and risks
- Management’s 2016 capital budget is $495.0 million. Approximately $266.0 million of capital expenditures, including acreage purchases, had been funded during the first six months.
- Management expects an effective tax rate of approximately 39% for the remainder of 2016 before discrete tax items.
- Management believes operating cash flow, available credit capacity, asset sale proceeds and existing commodity derivatives should satisfy near-term obligations and liquidity needs. A further material decline in commodity prices or production and reserves could impair profitability, liquidity and the ability to fund capital expenditures.
- At June 30, 2016, Range had hedged more than 69% of projected production for the remainder of 2016 and more than 80% of projected natural gas production. Derivatives reduce downside price exposure but also limit benefits from higher prices and create counterparty and basis risk.
- Range and Memorial Resource Development Corp. entered into a proposed merger agreement on May 15, 2016. The transaction contemplated issuing approximately 77.3 million Range shares, with existing Range stockholders expected to own approximately 69% and former Memorial stockholders approximately 31% of the combined company. Stockholder votes were expected in September 2016, and completion remained subject to conditions and approvals.
- Potential merger risks include dilution, integration difficulties, additional debt, termination fees, litigation, employee retention issues, freely tradable shares distributed to Memorial investors and possible limitations on the use of tax net operating losses.
- A Pennsylvania Department of Environmental Protection matter concerning alleged methane and other substances from a Lycoming County well could result in monetary sanctions exceeding $100,000, although Range disputes the allegations.
- The filing states that no material changes occurred in previously disclosed risk factors other than risks relating to the proposed merger.
Investor verification checklist
- Verify the proposed Memorial merger’s stockholder approvals, closing status, financing structure and final share issuance.
- Reconcile reported revenues with derivative mark-to-market losses and cash derivative settlements.
- Monitor commodity prices, realized prices after transportation costs, hedge coverage and derivative counterparty exposure.
- Assess the sustainability of operating cash flow relative to the $495.0 million capital budget and long-term transportation commitments.
- Review credit facility borrowing-base redeterminations, covenant compliance and the $1.8 billion stated committed availability.
- Evaluate potential additional impairments to oil and gas properties if commodity prices remain depressed.
- Track the Pennsylvania environmental matter and any related penalties or remediation obligations.