Range Resources Corporation — Form 10-Q Summary
Business context and reporting period
Range Resources is an independent oil and gas company focused on exploring, developing and acquiring natural gas, NGL and oil properties in the Appalachian region. The filing covers the three and six months ended June 30, 2021. Results reflect the third-quarter 2020 sale of North Louisiana properties, which reduced production and operating costs.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Natural gas, NGL and oil sales | $621.9 million | $349.3 million | $1.225 billion | $781.4 million |
| Total revenues and other income | $434.7 million | $376.5 million | $1.061 billion | $1.070 billion |
| Derivative fair value loss | $(249.7) million | $(6.3) million | $(307.6) million | $226.9 million income |
| Net loss | $(156.5) million | $(167.6) million | $(129.3) million | $(1.4) million |
| Loss per diluted share | $(0.65) | $(0.70) | $(0.53) | $(0.01) |
| Operating cash flow | $174.2 million | $78.8 million | $283.4 million | $203.3 million |
| Production | 2.104 Bcfe per day | 2.349 Bcfe per day | 2.093 Bcfe per day | 2.322 Bcfe per day |
Q2 revenue from natural gas, NGLs and oil increased 78%, while production declined 10%. Average realized prices including derivative settlements and transportation costs rose to $1.56 per mcfe from $0.89 per mcfe. Six-month realized prices increased to $1.55 per mcfe from $1.03 per mcfe.
Operating expenses included $282.8 million of transportation, gathering, processing and compression costs in Q2 and $557.2 million for the first six months. DD&A was $90.6 million in Q2 and $179.0 million year to date. Interest expense was $57.3 million in Q2 and $114.2 million year to date.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $0.5 million at June 30, 2021.
- Total assets were $6.23 billion and stockholders’ equity was $1.52 billion.
- Total debt was $3.07 billion before issuance costs, consisting of $121.0 million of bank debt and approximately $2.95 billion of senior notes.
- Net long-term debt was $3.04 billion, compared with $3.04 billion at December 31, 2020.
- Range issued $600.0 million of 8.25% senior notes due 2029 in January 2021 and used the net proceeds to repay bank-facility borrowings.
- The secured revolving credit facility had a $3.0 billion borrowing base, $2.4 billion of lender commitments, $121.0 million drawn and $334.6 million of undrawn letters of credit, leaving approximately $1.9 billion of committed availability.
- Range was in compliance with applicable debt covenants at June 30, 2021. The facility matures April 13, 2023.
- No common dividend was paid; the dividend remains suspended. No shares were repurchased during Q2 2021.
Material changes versus the prior comparable period
- Higher commodity prices materially increased product sales despite the 2020 asset divestiture and lower production.
- Derivative results reversed from $226.9 million of income in the first six months of 2020 to a $307.6 million loss in 2021, primarily because higher commodity prices reduced the fair value of hedges. These changes are largely non-cash.
- Operating cash flow increased $80.2 million year over year to $283.4 million.
- Direct operating expense declined 23% per mcfe for the first six months, and DD&A expense declined 14% in absolute terms.
- Deferred compensation plan expense increased to a $55.3 million loss from $4.1 million, primarily reflecting the increase in Range’s share price.
- Q2 included a $28.2 million favorable adjustment to the retained divestiture contract obligation, resulting in a $15.9 million net gain in exit and termination costs.
- Debt declined $44.3 million during the first six months based on management’s cash-flow presentation, although the capital structure shifted toward senior notes after the 2029 notes issuance.
Guidance, outlook, risks and unusual items
- Management’s 2021 capital budget is $425.0 million. Capital expenditures and acreage purchases totaled approximately $222.5 million through June 30.
- Management targets funding capital spending at or below operating cash flow, reducing debt, preserving liquidity and improving financial strength. It also targets net-zero direct emissions by 2025.
- More than 65% of projected production for the remainder of 2021, including more than 75% of projected natural gas production, was hedged at June 30.
- Commodity prices remain the primary earnings and liquidity risk. COVID-19 effects, OPEC actions, demand recovery, infrastructure constraints and policies favoring lower-carbon energy may affect prices and volumes.
- Commodity derivatives had an estimated net unrealized pretax loss of approximately $287.7 million at June 30, 2021. The contracts expire monthly through December 2022; hedge gains and losses may create substantial reported earnings volatility.
- Range retained discounted divestiture-related transportation, gathering and processing obligations estimated at $436.1 million at June 30, 2021, with certain obligations extending through 2030.
- Range faces ordinary-course royalty, contract and environmental matters. A stockholder class action alleges misclassification of certain wells and related asset-retirement-obligation disclosures; management considers the claims baseless and intends to defend them.
- An environmental proceeding involving a Pennsylvania well could result in monetary sanctions exceeding $250,000, although the filing does not provide a probable loss estimate.
- Management states that near-term obligations are expected to be funded through operating cash flow, available credit capacity, asset-sale proceeds and existing derivatives, but warns that lower commodity prices or production could impair liquidity and profitability.
Important facts for investors to verify
- Reconcile reported revenue with cash realized prices and the effect of derivative settlements versus non-cash fair-value changes.
- Review the hedge portfolio, collateral and counterparty exposure, including the approximately $287.7 million net unrealized derivative loss.
- Assess debt maturities, fixed-rate interest burden, the April 2023 credit-facility maturity and covenant requirements.
- Compare the $425.0 million capital budget with actual spending, production trends and operating cash flow.
- Evaluate the sustainability of cash flow after transportation, gathering, processing and compression costs.
- Monitor the retained divestiture obligations, contingent consideration of up to $75.0 million, environmental matters and shareholder litigation.
- Confirm the impact of the North Louisiana divestiture on production, reserves, costs and future cash generation.