RRC

Range Resources Corp. 10-Q Summary (Period Ended June 30, 2004)

Business Context and Reporting Period

This Form 10-Q covers the quarterly and six-month periods ended June 30, 2004, for Range Resources Corporation, an independent oil and gas company operating primarily in the Southwestern, Gulf Coast, and Appalachian regions. The reporting period is significantly impacted by the June 23, 2004, acquisition of the remaining 50% interest in Great Lakes Energy Partners L.L.C., consolidating 100% of its assets and liabilities. The company's strategy focuses on "drill bit" growth supplemented by complementary acquisitions.

Key Financial Metrics

Material Changes vs. Prior Period

• Acquisition Impact: The most significant change was the $298.6 million purchase of the remaining 50% of Great Lakes Energy Partners. This transaction increased total debt by $167.2 million and common equity by $143.4 million (via a public offering of 12.2 million shares).
• Production Growth: Average daily production increased 15% to 179.5 Mmcfe per day for the six-month period, driven by the December 2003 Conger Field acquisition and successful drilling programs.
• Revenue Drivers: Oil and gas sales revenue increased 21% year-over-year due to a 5% increase in average realized prices ($4.07 per mcfe vs. $3.88) and higher volumes.
• Expense Increases: General and administrative expenses rose $8.0 million, largely due to an $8.7 million non-cash mark-to-market adjustment on the deferred compensation plan. Exploration expenses increased $2.6 million due to higher dry hole costs.
• Hedging Impact: Realized hedging losses reduced oil and gas revenues by $40.1 million in the first six months of 2004 compared to $41.3 million in the prior year. An unrealized pre-tax hedging loss of $103.5 million was recorded on the balance sheet.

Guidance, Outlook, and Risks

• Capital Budget: The 2004 capital budget is set at $149.0 million (excluding acquisitions), expected to be funded by internal cash flow. Non-acquisition capital spending for the first half was $63.5 million.
• Liquidity: The company maintains a $600.0 million Senior Credit Facility with $180.0 million available at June 30, 2004. Management believes operating cash flow and borrowing capacity are sufficient for near-term obligations.
• Market Risks: The company is exposed to volatility in oil and gas prices. A 10% reduction in unhedged prices would have reduced revenue by $17.3 million in the first half of 2004. Interest rate risk is managed via swaps covering $65.0 million of debt.
• Contingencies: The company faces standard litigation and environmental claims, which management does not expect to have a material adverse effect. There is uncertainty regarding the full collection of an insurance claim receivable related to offshore properties.

Investor Verification Checklist

• Debt Covenants: Verify continued compliance with the Senior Credit Facility and 7-3/8% Notes covenants, specifically regarding the restricted payment baskets for dividends ($160.3 million and $158.4 million available, respectively).
• Hedging Exposure: Review the $103.5 million unrealized hedging loss and the schedule of reclassification to earnings over the next 12 months ($78.6 million) to assess future earnings volatility.
• Deferred Compensation: Monitor the mark-to-market adjustments on the deferred compensation plan, which caused an $8.7 million expense increase in the first half of 2004.
• Integration Costs: Track post-closing integration expenses related to the Great Lakes acquisition, which were not fully quantified at the time of filing.
• Reserve Estimates: Confirm that reserve revisions and depletion rates remain consistent with the successful efforts accounting method and current commodity prices.