Business Context and Reporting Period
Company: Range Resources Corporation (formerly Lomak Petroleum, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1998
Business Overview: Range is an independent oil and gas company engaged in development, exploration, and acquisition in the Permian, Midcontinent, Gulf Coast, and Appalachia regions. It also operates an Independent Producer Finance (IPF) subsidiary that purchases term overriding royalty interests.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 |
|---|---|---|
| Total Revenues | $35,431 | $103,713 |
| Net Income (Loss) | $(66,907) | $(65,084) |
| Earnings Per Share (Basic) | $(2.57) | $(2.92) |
| Net Cash Provided by Operations | N/A | $35,796 |
| Total Assets | $1,036,111 | $1,036,111 |
| Total Debt (Senior + Subordinated + IPF) | $601,971 | $601,971 |
| Cash and Equivalents | $9,693 | $9,693 |
Note: Debt figures include $368.2M Senior Debt, $180.0M Subordinated Debt, and $53.8M Non-recourse IPF Debt.
Material Changes vs. Prior Period
- Net Loss vs. Profit: The Company reported a net loss of $66.9 million for the quarter ended September 30, 1998, compared to a net income of $2.8 million in the same period in 1997. The nine-month loss was $65.1 million versus $11.7 million income in 1997.
- Impairment Charge: A significant non-cash provision for impairment of $97.9 million was recorded in the third quarter of 1998. This charge reduced the carrying value of oil and gas properties acquired in the Domain Energy Corporation merger and unproved properties, primarily due to declines in oil and gas prices.
- Revenue Growth: Despite lower energy prices, oil and gas sales revenue increased 5% to $32.5 million in the quarter, driven by a 22% increase in production volumes (165,800 Mcfe/d vs. 135,700 Mcfe/d).
- Price Decline: The average price received per Mcfe decreased 14% to $2.13 in 1998 from $2.47 in 1997. Average oil prices dropped 32% to $11.74 per barrel.
- Expense Increases: Direct operating expenses rose 25% to $10.0 million due to the larger production base. Interest expense increased 54% to $11.0 million due to higher debt balances financing acquisitions.
Guidance, Outlook, and Risks
- Merger Impact: The Company completed the merger with Domain Energy Corporation in August 1998. This transaction significantly increased the asset base but also led to the impairment charge and higher debt levels.
- Liquidity and Debt: The Company maintains a $400 million revolving credit facility with a borrowing base of $385 million (with $24 million available). Management expects the borrowing base to be reduced in the next redetermination (May 1999) and plans to use excess cash flow and asset sales to repay any shortfall.
- Hedging: As of September 30, 1998, the Company had open hedging contracts covering 25,000 Mmbtu of gas per day and 470 barrels of oil per day through December 1998 to mitigate price volatility.
- Legal Contingencies:
- Gas Utility Litigation: A gas utility filed a breach of contract claim regarding an above-market gas contract. A partial summary judgment was granted to the utility in May 1998, but the utility dropped its damages claim in October 1998. Range intends to appeal the final judgment.
- Merger Litigation: A Domain stockholder filed a suit alleging unfair merger terms. A settlement in principle was reached in September 1998, offering appraisal rights to stockholders and capping legal fees at $290,000.
- Year 2000 Compliance: The Company estimates 75% of its computer equipment is Year 2000 compliant. It expects to complete assessments by June 30, 1999, with remediation costs estimated not to exceed $350,000.
Investor Verification Checklist
- Impairment Validity: Verify the assumptions used for the $97.9 million impairment charge, specifically the discounted cash flow estimates and fair value calculations for the acquired Domain properties.
- Borrowing Base Redetermination: Monitor the outcome of the semi-annual borrowing base redetermination for the $400 million credit facility, as a reduction could force immediate debt repayment.
- Production vs. Price Sensitivity: Assess the Company's ability to maintain cash flow given the 32% drop in oil prices and the reliance on higher production volumes to offset lower margins.
- Debt Maturity Profile: Review the maturity dates of the $180 million subordinated debt (2007) and the $54 million IPF facility (June 1999) to understand near-term refinancing risks.
- Legal Outcomes: Track the appeal of the gas utility contract judgment and the final court approval of the merger litigation settlement.