Range Resources Corp. Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Range Resources Corporation is an independent natural gas and oil company focused on exploration, development, and acquisition in the Appalachia and Southwest regions. A significant strategic shift occurred in February 2011 with the agreement to sell its Barnett Shale assets for $900 million; these assets are now classified as discontinued operations.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue (Continuing Ops) | $187.6 million | $298.4 million |
| Net Income (Loss) | $(25.0) million | $77.6 million |
| Operating Cash Flow | $140.6 million | $152.9 million |
| Capital Expenditures | $275.1 million | $180.2 million |
| Total Debt | $2.17 billion | $1.96 billion |
| Cash and Equivalents | $1.7 million | $286.5 million |
| Production (Total mcfe) | 39.2 million | 31.1 million |
Note: Revenue and Net Income figures reflect continuing operations. Discontinued operations contributed $8.4 million to net income in Q1 2011.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues from continuing operations decreased 37% to $187.6 million. This was driven by a $83.2 million swing in derivative fair value income (from a $42.3M gain in 2010 to a $40.8M loss in 2011) and a $67.8 million reduction in gains from asset sales.
- Production Growth: Despite lower revenues, total production increased 26% year-over-year, with NGL production surging 81% due to liquids-rich drilling in Appalachia.
- Net Loss: The company reported a net loss of $25.0 million compared to net income of $77.6 million in the prior year. This was primarily due to the derivative losses and a $30.6 million non-cash expense related to the deferred compensation plan (compared to $5.7 million income in 2010).
- Debt Increase: Total debt increased by $206 million to $2.17 billion, largely due to increased borrowings on the credit facility to fund capital expenditures.
Guidance, Outlook, and Risks
- Asset Sale: The sale of Barnett Shale assets is expected to close by the end of April 2011 for $900 million, subject to adjustments.
- Capital Budget: The 2011 capital budget (excluding acquisitions) is set at $1.38 billion, focused on Marcellus Shale development.
- Liquidity: The company renewed its bank credit facility with a $2.0 billion borrowing base and $1.5 billion facility amount. Available borrowing capacity was approximately $1.0 billion as of March 31, 2011.
- Hedging: The company maintains significant hedging positions through 2013. However, mark-to-market accounting on non-hedge derivatives created significant volatility in Q1 earnings.
- Risks: Primary risks include commodity price volatility, the ability to secure financing, and the timing of the Barnett Shale asset sale. The company noted that sustained lower prices could reduce the ability to fund capital expenditures.
Investor Verification Checklist
- Derivative Accounting: Verify the impact of mark-to-market losses on non-hedge derivatives ($40.0 million loss) versus realized hedging gains included in revenue ($29.6 million).
- Deferred Compensation Expense: Confirm the $30.6 million non-cash expense related to the deferred compensation plan, driven by the increase in stock price from $44.98 to $58.46.
- Barnett Shale Sale: Monitor the closing of the $900 million asset sale and the final net proceeds after adjustments.
- Debt Covenants: Review compliance with the debt-to-EBITDAX ratio (max 4.25:1) and current ratio (min 1.0:1) under the new credit facility.
- Capital Expenditure Funding: Assess the reliance on the credit facility ($480 million drawn) to fund the $1.38 billion capital budget given the low cash balance ($1.7 million).