RRC

Range Resources Corp. 10-Q Summary

Business Context and Reporting Period

Company: Range Resources Corporation (Delaware)

Reporting Period: Quarter and six months ended June 30, 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 provides financing to smaller producers via term overriding royalty interests. The company completed the acquisition of Domain Energy Corporation in August 1998.

Key Financial Metrics (Six Months Ended June 30, 1999)

Material Changes vs. Prior Period

• Revenue: Total revenues increased 17% to $80.1 million from $68.3 million in the prior year period, driven by a 12% increase in oil and gas sales and the addition of IPF income ($3.5 million).
• Profitability: The company reported a net loss of $11.1 million compared to a net income of $1.8 million in the prior year. This deterioration was primarily due to lower average product prices (down 10% per Mcfe), higher interest expense (up 35%), and increased depletion, depreciation, and amortization (up 57%).
• Production: Oil and gas production volumes increased 35% to 18.0 Bcfe. Average oil prices rose 25% to $15.21/bbl, while average gas prices fell 19% to $2.00/Mcf.
• Debt: Total debt decreased by approximately $4.3 million. The company retired $3.6 million of convertible debentures and $2.3 million of preferred securities in exchange for common stock, recording a $2.4 million extraordinary gain.
• Capital Expenditures: Net cash used in investing dropped significantly from $92.0 million to $8.9 million, reflecting a reduced capital budget and asset sales.

Guidance, Outlook, and Risks

• Capital Budget: Management reduced the 1999 exploration and development capital budget to $38 million, intending to fund it entirely through internally generated cash flow.
• Liquidity Strategy: The company plans to reduce outstanding debt under its $400 million Credit Facility (currently $369.1 million utilized) through operating cash flow and the sale of non-core assets. As of August 10, 1999, $41.9 million remained available under the facility.
• Hedging: The company has open commodity hedges for 25 Bcf of gas and 1 million barrels of oil. At June 30, 1999, these contracts had a fair value representing a net loss of approximately $6.8 million.
• Joint Venture: In June 1999, Range signed a letter of intent to form a 50/50 joint venture with First Energy Corporation involving Appalachian properties (approx. $300 million in assets and $200 million in debt).
• Legal Proceedings: A gas utility contract dispute was affirmed by the court of appeals in August 1999; management believes the financial impact is fully reflected. A shareholder lawsuit regarding the Domain merger remains pending settlement approval.
• Year 2000 Compliance: The company has completed remediation of known Year 2000 issues for non-IT systems and expects total project costs not to exceed $180,000.

Investor Verification Checklist

• Debt Covenants: Verify compliance with Credit Facility covenants, specifically the borrowing base redetermination scheduled for August 31, 1999, which could impact liquidity if debt exceeds the base.
• Asset Sales: Monitor the execution of asset sales packages intended to reduce debt, noting that asset sales may reduce the borrowing base.
• Hedging Exposure: Assess the impact of the $6.8 million mark-to-market loss on commodity hedges on future earnings as contracts settle.
• IPF Allowance: Review the $16.2 million allowance for uncollectible IPF receivables and the credit quality of the underlying producer portfolio.
• Joint Venture Closing: Track the progress of the First Energy joint venture, including regulatory approvals and financing arrangements.