Range Resources Corporation — Q1 2023 Form 10-Q Summary
Business context and reporting period
Range Resources is an independent producer of natural gas, natural gas liquids (NGLs), crude oil and condensate, focused on exploration and development in the Appalachian region. The filing covers the three months ended March 31, 2023, with comparisons to the three months ended March 31, 2022. Range operates as one reportable segment.
Financial and operating metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue and other income | $1.186 billion | $180.7 million | Increased, primarily due to derivative fair value income |
| Natural gas, NGL and oil sales | $736.3 million | $1.032 billion | Down 29% |
| Derivative fair value income (loss) | $368.0 million | $(939.1) million | Improved by $1.307 billion |
| Net income (loss) | $481.4 million | $(456.8) million | Turned profitable |
| Diluted EPS | $1.95 | $(1.86) | Improved |
| Cash flow from operations | $475.0 million | $406.4 million | Up $68.5 million |
| Capital expenditures and acreage purchases | $138.3 million | $102.7 million | Increased |
| Average daily production | 2.142 Bcfe | 2.071 Bcfe | Up 3% |
| Average realized price including derivatives and transportation | $2.52/Mcfe | $3.23/Mcfe | Down 22% |
Operating costs included $285.5 million of transportation, gathering, processing and compression expense, $27.0 million of direct operating expense, $43.1 million of general and administrative expense, and $86.6 million of depletion, depreciation and amortization. The filing does not present a single conventional operating margin; reported profitability was heavily affected by non-cash derivative fair value changes.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $227.6 million at March 31, 2023, compared with $0.2 million at December 31, 2022.
- Net debt on the balance sheet consisted primarily of $1.833 billion of senior notes, net of issuance costs. Bank debt was zero at quarter-end.
- The revolving credit facility had a $3.0 billion borrowing base, $1.5 billion of lender commitments and $1.2 billion of available committed capacity after $292.3 million of letters of credit.
- Range reported approximately $1.4 billion of total liquidity, consisting of cash and available credit capacity.
- The next significant debt maturity is $750 million of senior notes due in 2025. The company was in compliance with applicable debt covenants.
- Range paid $19.3 million of dividends, or $0.08 per share, and repurchased 400,000 shares for approximately $9.7 million. Approximately $1.1 billion remained under the repurchase authorization at quarter-end.
Material changes versus the prior comparable period
- Production increased 3%, but lower commodity prices reduced reported natural gas, NGL and oil sales by 29%.
- Average realized prices excluding derivative settlements declined 31%, reflecting lower benchmark prices. Q1 2023 average NYMEX prices were $3.46/Mcf for natural gas, $76.07/barrel for oil and $0.62/gallon for NGLs.
- Derivative fair value results changed from a $939.1 million loss to a $368.0 million gain, driving the substantial year-over-year improvement in net income. These mark-to-market results are volatile and include significant non-cash amounts.
- Interest expense declined to $32.2 million from $47.2 million, primarily because average debt outstanding declined 32%.
- The prior-year period included a $69.2 million loss on early extinguishment of debt; no comparable loss was recorded in Q1 2023.
- Direct operating expense increased 33% to $27.0 million, driven by higher workover, water handling, contract labor and service costs.
- Deferred compensation plan expense improved to a $9.4 million loss from a $73.3 million loss, reflecting less unfavorable stock-price-related mark-to-market activity.
Outlook, commentary, risks and unusual items
- Management expects commodity prices to remain volatile. Near-term natural gas prices were pressured by a mild winter and downtime at an LNG export facility, while longer-term demand is supported by LNG exports, industrial demand and power generation.
- Management expects the 2023 capital program to be funded by operating cash flow and states that current liquidity is sufficient to execute the business plan for the foreseeable future. No specific production, revenue or earnings guidance is provided in the filing.
- More than 40% of projected production for the remainder of 2023, including more than 50% of projected natural gas production, was hedged as of March 31, 2023. Derivative contracts create price protection but can limit upside and expose the company to counterparty, basis and settlement risks.
- The net fair value of commodity derivatives was approximately a $249.6 million gain at quarter-end, while natural gas basis swaps had a $50.3 million loss. Derivatives settle through 2026 in some cases.
- Range retained discounted divestiture-related contract obligations of approximately $375.1 million, primarily for gathering, transportation and processing commitments extending through 2030. Total exit-cost liabilities were $379.5 million at quarter-end.
- Key business risks include commodity-price volatility, regional basis differentials, infrastructure and ethane-market constraints, inflation and supply-chain pressures, environmental and regulatory requirements, counterparty performance, litigation and asset-retirement obligations.
- Range targets net-zero Scope 1 and Scope 2 greenhouse-gas emissions by year-end 2025.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Separate recurring operating performance from the $368.0 million derivative fair value gain and assess the cash-settlement component.
- Review the company’s hedge volumes, strike prices, basis-swap exposure and counterparty concentration through 2024 and beyond.
- Evaluate whether operating cash flow remains sufficient to fund capital expenditures, dividends, repurchases and retained divestiture obligations under lower commodity-price scenarios.
- Confirm the timing and refinancing strategy for the $750 million senior notes due in 2025.
- Monitor borrowing-base redeterminations, available revolver capacity and compliance with the 3.75x maximum debt-to-EBITDAX covenant and 1.0x minimum current-ratio covenant.
- Assess the sustainability of production growth and the effect of higher workover, water-handling, transportation and other operating costs.
- Review environmental, litigation, regulatory and asset-retirement exposures, including the retained transportation and gathering commitments through 2030.