Range Resources Corporation: FY2020 Form 10-K Summary
Business context and reporting period
Range Resources Corporation is an independent U.S. exploration and production company focused primarily on natural gas, NGLs and oil in Pennsylvania’s Appalachian Basin, especially the Marcellus Shale. The filing covers the fiscal year ended December 31, 2020, with comparisons primarily to 2019. Range reports one operating segment and substantially all proved reserves are located in Pennsylvania following the sale of its North Louisiana assets.
Key financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenues and other income | $1.969 billion | $2.828 billion |
| Natural gas, NGL and oil sales | $1.608 billion | $2.255 billion |
| Net loss | $711.8 million | $1.716 billion |
| Diluted loss per share | $2.95 | $6.92 |
| Cash flow from operations | $268.7 million | $681.8 million |
| Production | 816.5 Bcfe | 833.4 Bcfe |
| Average realized price including derivatives and transportation | $1.03/Mcfe | $1.49/Mcfe |
| Total debt, principal amount | $3.116 billion | $3.202 billion |
| Stockholders’ equity | $1.638 billion | $2.347 billion |
- Net loss margin was approximately 36% of total revenues in 2020. The filing does not present a separate GAAP operating margin.
- Production averaged 2.23 Bcfe per day, down 2% overall; Appalachian production increased 3% excluding divested North Louisiana volumes.
- Natural gas, NGL and oil sales declined 29%, driven by a 27% decline in realized prices excluding derivative settlements and a 2% production decline.
- Direct operating expense declined to $92.2 million, or $0.11/Mcfe, from $136.3 million, or $0.16/Mcfe. G&A declined to $159.4 million from $181.1 million, and DD&A declined to $394.3 million, or $0.48/Mcfe, from $548.8 million, or $0.66/Mcfe.
- Year-end proved reserves were 17.2 Tcfe, consisting of approximately 65% natural gas, 33% NGLs and 2% oil and condensate. Pretax PV-10 was $3.0 billion and the after-tax standardized measure was $2.8 billion.
- Capital expenditures were approximately $435.3 million on a cash-flow basis, below the initial $520.0 million budget.
- Cash and cash equivalents were only $458,000 at year-end. The company had $1.4 billion of available committed borrowing capacity, a $3.0 billion borrowing base, $2.4 billion of lender commitments and $334.6 million of undrawn letters of credit.
Material changes versus the prior comparable period
- Range sold its North Louisiana assets in August 2020 for $245.0 million of cash proceeds before closing adjustments and recognized a pretax loss of $9.5 million. It also sold shallow legacy assets in Northwest Pennsylvania for $1.0 million and recognized a $122.5 million pretax gain, largely from eliminating associated asset retirement obligations.
- Following the North Louisiana divestiture, Range recorded approximately $547.4 million of exit and termination costs, including a $479.8 million divestiture contract obligation and a $28.5 million payment related to minimum-volume commitments.
- The company issued $850.0 million of 9.25% senior notes due 2026 and repurchased or redeemed approximately $1.2 billion of debt due 2021 through 2023. Aggregate debt principal declined by $86.0 million, but debt-to-capitalization increased to 65.3% from 57.5% because equity declined substantially.
- Proved reserves declined 5% to 17.2 Tcfe from 18.2 Tcfe. Excluding the North Louisiana sale, reserves declined less than 1%; however, 961.1 Bcfe of reserves were reclassified to unproved because planned wells were no longer expected to be drilled within the original five-year development period.
- Derivative fair value income was $187.7 million versus $226.7 million in 2019, while cash derivative settlements increased to $322.6 million from $188.4 million.
- The common-stock dividend was suspended in January 2020. Range repurchased 8.2 million shares during 2020 under its existing repurchase program.
Guidance, outlook, commentary and risks
- Management established a 2021 capital budget of $425.0 million, including $401.1 million for drilling, $20.0 million for acreage and $3.9 million for other expenditures. The company expects production to be similar to 2020 and intends to fund capital spending within operating cash flow.
- Management expects to operate approximately two rigs in the Appalachian region and will adjust capital spending based on commodity prices, drilling results and cash flow. Derivative contracts cover a portion of 2021 production and are intended to reduce price volatility.
- In January 2021, Range issued $600.0 million of 8.25% senior notes due 2029 and used the proceeds to reduce borrowings under its bank credit facility. This transaction occurred after the reporting date and is not reflected in year-end debt balances.
- Principal risks include volatile natural gas and NGL prices, high leverage, borrowing-base reductions, variable-rate debt, debt maturities, counterparty performance, pipeline and processing constraints, long-term minimum-volume commitments, and concentration in one Pennsylvania operating region.
- Range has extensive transportation, gathering and processing commitments. Future minimum transportation and gathering commitments totaled approximately $8.0 billion, excluding certain additional contingent arrangements. The company expects production to satisfy these commitments but may need to purchase third-party volumes or pay deficiency fees.
- Environmental and regulatory risks include hydraulic-fracturing restrictions, methane and emissions rules, water management, permitting delays and potential environmental liabilities. The filing notes that the Pennsylvania Attorney General filed misdemeanor charges in 2020 relating to certain reported releases and spills; the charges were resolved, while additional industry-related investigations were publicly announced.
- Range disclosed a material weakness in internal control over financial reporting related to accounting for changes in tax law and deferred tax asset realizability. Previously reported 2020 interim financial statements were restated for deferred tax errors. Ernst & Young issued an adverse opinion on internal control, although it issued an unqualified opinion on the consolidated financial statements.
- Management has set a goal of net-zero direct emissions by 2025, but acknowledges that operational, capital, regulatory and carbon-offset uncertainties could prevent achievement.
Most important facts for investors to verify
- Whether the $425.0 million 2021 capital program can be funded from operating cash flow at prevailing natural gas and NGL prices.
- The timing and refinancing plan for approximately $1.24 billion of debt maturing in 2023 and the April 2023 maturity of the bank credit facility.
- Future borrowing-base redeterminations, credit-facility renewal terms and the effect of commodity prices on liquidity.
- The ultimate cash cost of the retained North Louisiana transportation, gathering and processing obligations, currently recorded at approximately $484.1 million on a discounted basis.
- Whether reclassified unproved reserves can be returned to proved status and whether Range can replace production through drilling.
- Progress in remediating the material weakness and the impact of deferred tax asset valuation allowances and the company’s substantial net operating loss carryforwards.
- Exposure to pipeline capacity, minimum-volume commitments, NGL transportation and processing availability in Pennsylvania.