Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1998, for Lomak Petroleum, Inc. (Note: The filing metadata references "Range Resources Corp," but the document text identifies the registrant as Lomak Petroleum, Inc., which subsequently agreed to merge with Domain Energy Corporation to form Range Resources). Lomak is an independent oil and gas company focused on development, exploration, and acquisition in the Permian, Midcontinent, Gulf Coast, and Appalachia regions.
Key Financial Metrics
| Metric (in thousands) | Q1 1998 | Q1 1997 |
|---|---|---|
| Total Revenues | $37,072 | $37,750 |
| Net Income | $2,769 | $6,562 |
| Earnings Per Share (Basic) | $0.10 | $0.35 |
| Net Cash Provided by Operations | $11,723 | $19,245 |
| Net Cash Used in Investing | ($61,142) | ($353,800) |
| Total Debt (Senior + Subordinated) | $414,905 | $367,125 |
| Cash and Equivalents | $7,257 | $9,725 |
| Working Capital | $1,630 | $1,213 |
Liquidity: As of March 31, 1998, the company had $105 million available under its $325 million borrowing base credit facility. Long-term debt to book capitalization stood at 56.5%.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased slightly to $37.1 million from $37.8 million. While production volumes increased 12% to 13.1 Bcfe, average realized prices dropped significantly (oil down 35% to $13.50/bbl; gas down 9% to $2.62/Mcf).
- Profitability Drop: Net income fell 58% to $2.8 million. This was driven by lower product prices and a 121% increase in interest expense ($8.7 million vs. $4.0 million) due to higher debt balances financing acquisitions.
- Expense Management: Exploration expenses decreased 59% to $0.4 million due to timing. However, General and Administrative expenses rose 70% to $1.8 million due to added technical personnel.
- Capital Expenditures: Net cash used in investing dropped significantly to $61.1 million from $353.8 million, reflecting a slowdown in major acquisition activity compared to the prior year's Cometra acquisition.
Outlook, Risks, and Unusual Items
- Mergers and Acquisitions: On May 12, 1998 (subsequent to the period end), Lomak entered a definitive agreement to merge with Domain Energy Corporation. The combined entity will be renamed Range Resources Corporation. Domain shareholders will receive Lomak stock valued at $14.50 per share.
- Capital Requirements: Management projects approximately $300 million in development, exploitation, and exploration spending over the next three years, expected to consume a large portion of internally generated cash flow.
- Legal Contingency: A gas utility filed a breach of contract lawsuit seeking approximately $2 million plus fees regarding a gas purchase contract. In April 1998, the court indicated a partial summary judgment on liability in favor of the utility. The case is set for trial on June 1, 1998, to determine damages.
- Hedging: The company holds gas price swaps for 3.1 Bcf with average prices ranging from $2.20 to $2.57/Mcf. At March 31, 1998, these contracts had a fair value net loss of $380,000.
Investor Verification Checklist
- Verify the final exchange ratio and closing conditions for the merger with Domain Energy Corporation.
- Monitor the outcome of the gas utility litigation scheduled for June 1, 1998, and potential impact on future cash flows.
- Assess the company's ability to service $415 million in debt given the decline in oil and gas prices and the projected $300 million capital expenditure plan.
- Review the integration of the Powell Ranch Properties acquisition (completed March 1998) and its contribution to future production volumes.