RRC

Business Context and Reporting Period

Company: Range Resources Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2003
Business Overview: Range Resources is engaged in the development, exploration, and acquisition of oil and gas properties primarily in the Southwestern, Gulf Coast, and Appalachian regions of the United States. The company holds a 50% interest in Great Lakes Energy Partners L.L.C., a joint venture for Appalachian assets.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased significantly compared to the prior year periods, driven by a 5% increase in production volumes and higher average realized prices (up 10% to $3.81 per mcfe in Q3). Oil prices averaged $27.42/bbl and gas $4.75/mcf (excluding hedging) in Q3 2003.
• Profitability: Net income for the nine months ended September 30, 2003, rose to $30.8 million from $20.9 million in the prior year. This was bolstered by an $18.7 million gain on the retirement of securities and a $4.5 million cumulative effect gain from the adoption of SFAS 143 (Asset Retirement Obligations).
• Debt Reduction: Total debt and Trust Preferred Securities decreased by $88.2 million during the nine-month period. The company redeemed its 8-3/4% Senior Subordinated Notes and exchanged a significant portion of Trust Preferred Securities for new Convertible Preferred stock.
• Operating Expenses: Direct operating expenses increased 24% year-over-year for the nine-month period due to higher production taxes and workover costs. General and administrative expenses rose 27% due to higher compensation-related expenses and mark-to-market adjustments on deferred compensation.

Guidance, Outlook, and Risks

• Capital Budget: The 2003 capital budget is approximately $105.0 million (excluding acquisitions). Management expects to fund this with internal cash flow.
• Liquidity: As of September 30, 2003, available borrowing capacity was $75.7 million on the Senior Credit Facility and $82.0 million on the Great Lakes Credit Facility. Management believes capital resources are adequate for the next twelve months.
• Hedging Activities: The company maintains a hedging program covering 60.0 Bcf of gas and 1.5 million barrels of oil. As of September 30, 2003, these contracts resulted in a net unrealized pre-tax loss of $46.3 million. Realized hedging losses reduced revenues by $53.5 million for the nine months ended September 30, 2003.
• Accounting Changes: The adoption of SFAS 143 resulted in a cumulative effect gain of $4.5 million and increased the carrying value of proved properties by $37.3 million. The company is also evaluating the impact of FASB Interpretation No. 46 regarding Variable Interest Entities.
• Risks: Primary risks include volatility in oil and gas prices, the inherent risks of exploration and production, and the ability to secure capital. A material drop in prices could reduce the ability to fund capital expenditures.

Investor Verification Checklist

• Debt Restructuring: Verify the terms and dilution impact of the new 5.9% Convertible Preferred stock issued in exchange for Trust Preferred Securities.
• Hedging Exposure: Assess the impact of the $46.3 million unrealized hedging loss on future earnings as contracts settle, particularly if commodity prices remain below hedged levels.
• Asset Retirement Obligations: Review the $55.8 million liability recorded for plugging and abandonment costs under SFAS 143 and its effect on future cash flows and depreciation.
• Production Volumes: Confirm the sustainability of the 5% production increase driven by the drilling program in the Appalachian and Southwest divisions.
• IPF Portfolio: Monitor the Independent Producer Finance (IPF) segment, which has seen declining revenues and increased valuation allowances due to a shrinking portfolio of non-recourse receivables.