RRC

Business Context and Reporting Period

Company: Range Resources Corporation (Range)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 1999
Business Overview: Range is an independent oil and gas company focused on development, exploration, and acquisition in the Southwest, Gulf Coast, and Appalachia. It also operates an Independent Producer Finance (IPF) subsidiary that purchases term overriding royalty interests. In August 1998, Range completed the acquisition of Domain Energy Corporation.

Key Financial Metrics

Note: Working capital calculated as Current Assets ($104,593) minus Current Liabilities ($103,085) for Q1 1999.

Material Changes vs. Prior Period

• Profitability: The Company reported a net loss of $9.0 million in Q1 1999, a reversal from a $2.8 million profit in Q1 1998. This decline was driven by a 26% decrease in average production prices (oil down 21%, gas down 28%) and a 39% increase in interest expense.
• Production: Oil and gas production volumes increased 41% to 18.4 Bcfe, averaging 204,200 Mcfe per day.
• Expenses:
  • Interest Expense: Rose to $12.1 million from $8.7 million due to higher average debt balances ($370 million vs. $181 million) and higher borrowing costs.
  • Depletion, Depreciation, and Amortization (DD&A): Increased 57% to $19.1 million due to higher production volumes and the amortization of $0.95 million in unproved acreage.
  • Operating Costs: Direct operating expenses increased 34% to $11.3 million, though the cost per Mcfe decreased 5% to $0.61.
• Cash Flow: Operating cash flow dropped significantly to $0.4 million from $11.7 million, primarily due to lower commodity prices. Investing cash outflows decreased substantially as capital expenditures were reduced.

Guidance, Outlook, and Risks

• Capital Budget: Management reduced the 1999 exploration and development capital budget to $36 million, intending to fund these activities entirely through internally generated cash flow.
• Debt Reduction Strategy: The Company plans to reduce outstanding debt under its $400 million Credit Facility (currently $372.6 million drawn) through operating cash flow and the sale of non-core assets. Approximately $55.2 million of debt is classified as current.
• Hedging: As of March 31, 1999, the Company held open contracts for 18.7 Bcf of gas (priced $1.90–$2.21/Mcf) and 200,000 barrels of oil (priced at $16.55/bbl). The mark-to-market value of these contracts was a net loss of $0.8 million.
• Year 2000 Compliance: The Company is implementing a remediation plan for IT and non-IT systems, expecting completion by June 30, 1999. Estimated total costs are capped at $180,000.
• Risks:
  • Commodity Prices: Cash flow and borrowing capacity are highly sensitive to oil and gas price fluctuations.
  • Liquidity: The Credit Facility borrowing base is subject to semi-annual redetermination based on reserve values; a decline in prices could reduce available borrowing capacity.
  • Legal: Pending appeals regarding a gas utility contract dispute and a shareholder lawsuit regarding the Domain merger settlement.

Investor Verification Checklist

• Debt Covenants: Verify compliance with net worth and working capital covenants given the tight working capital position ($1.5 million).
• Borrowing Base Redetermination: Monitor the impact of current low oil/gas prices on the $385 million borrowing base and the resulting availability under the Credit Facility.
• Asset Sales: Track the progress of the sale of "Assets Held for Sale" ($50.5 million) to confirm proceeds will be used for debt reduction as planned.
• IPF Receivables: Review the $15.5 million allowance for uncollectible receivables within the IPF subsidiary, which represents a significant portion of the $74.6 million net receivables.
• Year 2000 Costs: Confirm that remediation costs remain within the $180,000 estimate and that no operational disruptions occur post-remediation.