RANGE RESOURCES CORP annual report, FY2021

Range Resources Corporation — FY2021 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021; filed February 22, 2022. Range is an independent U.S. natural gas, NGL and oil producer focused primarily on the Marcellus Shale in Pennsylvania. The company reports one operating segment and is substantially concentrated in one geographic region.

Business Context and Operating Profile

Year-end proved reserves were 17.8 Tcfe, comprising approximately 64% natural gas, 34% NGLs and 2% crude oil and condensate.
Approximately 59% of proved reserves were developed, nearly 100% were operated, and the reserve life index was approximately 22 years based on fourth-quarter 2021 production.
Production averaged 2.13 Bcfe per day, down 5% from 2020 primarily because of the North Louisiana divestiture; production excluding those divested properties was approximately flat.
Range drilled 59 gross wells in 2021 with a 100% drilling success rate and maintained an inventory of more than 3,400 proven and unproven drilling locations.

Financial and Operating Metrics

Metric	2021	2020	Change
Natural gas, NGL and oil sales	$3.215 billion	$1.608 billion	100% increase
Total revenues and other income	$2.930 billion	$1.969 billion	49% increase
Net income (loss)	$411.8 million	$(711.8) million	Return to profitability
Diluted earnings (loss) per share	$1.61	$(2.95)	Improved
Cash provided by operating activities	$792.9 million	$268.7 million	195% increase
Capital expenditures and acreage purchases	Approximately $418.7 million	Approximately $432.4 million	Lower
Total debt, net of issuance costs	$2.926 billion	$3.086 billion	Reduced
Cash and cash equivalents	$214.4 million	$0.5 million	Increased
Stockholders’ equity	$2.086 billion	$1.638 billion	Increased

Total revenues included a $650.2 million derivative fair-value loss, compared with $187.7 million of derivative fair-value income in 2020. Consequently, reported total revenue and earnings were materially affected by non-cash mark-to-market derivative volatility.

Average realized price excluding derivative settlements and third-party transportation costs increased 110% to $4.13 per mcfe.
Average realized price including derivative settlements and transportation costs increased 86% to $1.92 per mcfe.
Direct operating expense declined 18% to $75.3 million, or $0.10 per mcfe, while DD&A declined to $364.6 million, or $0.47 per mcfe.
Transportation, gathering, processing and compression expense increased 8% to $1.174 billion, primarily due to higher NGL prices and processing costs.
Interest expense increased 18% to $227.3 million, despite lower average debt, due primarily to higher average interest rates and a greater proportion of senior notes.
Net income represented an approximate 14% margin on total revenues and other income; the filing does not present a comparable GAAP operating-margin measure in the provided text.

Material Changes Versus the Prior Comparable Period

Higher commodity prices drove a 100% increase in produced natural gas, NGL and oil sales despite a 5% production decline.
Range issued $600.0 million of 8.25% senior notes due 2029 and used the proceeds to repay bank borrowings. Total debt declined by $165.3 million, and year-end bank debt was zero.
Proved reserves increased 3% from 17.2 Tcfe to 17.8 Tcfe. Additions of 1.6 Tcfe and positive performance and pricing revisions exceeded production and the reclassification of 1.3 Tcfe of PUD reserves to unproved reserves.
No proved-property impairment was recorded in 2021, compared with $79.0 million in 2020.
Exit and termination costs declined to $21.7 million from $547.4 million in 2020, when substantial obligations related to the North Louisiana divestiture were recognized.
Cash flow from operations increased by $524.3 million, although working capital was a $241.7 million use of cash, principally reflecting higher accounts receivable and commodity prices.
The board suspended the common dividend in January 2020. Management expected reinstatement in the second half of 2022, subject to board approval and applicable restrictions.

Liquidity, Debt and Capital Resources

At December 31, 2021, Range had $214.4 million of cash, $2.1 billion of available committed borrowing capacity, a $3.0 billion borrowing base and $2.4 billion of lender commitments under its secured $4.0 billion credit facility.
The credit facility had no outstanding borrowings but had $338.0 million of letters of credit outstanding. It was scheduled to mature April 13, 2023, and management expected to extend and right-size it.
Debt-to-capitalization declined to 58.4% from 65.3% in 2020.
In January 2022, Range issued $500.0 million of 4.75% senior notes due 2030 and used the proceeds, cash and credit-facility borrowings to redeem its $850.0 million of 9.25% senior notes due 2026 on February 1, 2022.
The 2022 refinancing was expected to reduce the average fixed interest rate on outstanding debt from 6.9% to approximately 5.7%, but the company expected to record an approximately $70.0 million loss on early extinguishment of debt.

Guidance, Outlook and Management Commentary

2022 capital spending guidance was $460 million to $480 million, including $425 million to $445 million for drilling and completion and $35 million for acreage and other expenditures.
Management expected 2022 production to be similar to 2021 levels and intended to fund capital expenditures within operating cash flow.
If commodity prices weaken or capital requirements exceed internally generated cash flow, Range may reduce spending, draw on its credit facility or pursue debt or equity financing.
Management planned to operate approximately three drilling rigs on average during 2022 and continue using commodity derivatives to mitigate a portion of price risk through 2024.
Strategic priorities included free-cash-flow generation, cost efficiency, liquidity preservation, disciplined organic development and balance-sheet improvement.
Range expanded its target of net-zero Scope 1 and Scope 2 greenhouse-gas emissions by year-end 2025, continued recycling approximately 100% of produced water and committed to a responsibly sourced natural gas pilot program.

Key Risks, Contingencies and Unusual Items

Results are highly sensitive to volatile natural gas, NGL and oil prices. Approximately 64% of proved reserves were natural gas, creating significant exposure to natural gas pricing and basis differentials.
Commodity derivatives limit downside exposure but also limit potential gains from higher prices. The year-end net derivative liability was approximately $169.5 million, and 2021 included $520.0 million of net cash derivative payments.
Operations and reserves are concentrated in Pennsylvania, exposing Range to regional transportation, processing, infrastructure, permitting, water-management and regulatory risks.
Range had approximately $7.18 billion of gross future minimum transportation, gathering and processing commitments, in addition to a $416.4 million discounted liability retained from the North Louisiana divestiture.
Environmental and regulatory risks include hydraulic-fracturing restrictions, methane and greenhouse-gas regulation, water and waste requirements, pipeline constraints and potential penalties. The filing states that no material environmental liability was accrued, but certain proceedings could result in sanctions exceeding $250,000.
A putative stockholder class action and a related derivative action allege misclassification of certain inactive wells and related asset-retirement-obligation disclosures. Management considers the claims baseless and is defending them.
A Pennsylvania DEP matter concerning alleged methane migration from a Lycoming County well remained unresolved and could result in monetary sanctions exceeding $250,000.
The filing identifies significant judgment in reserve estimates, derivative valuations, asset-retirement obligations, deferred-tax valuation allowances and retained divestiture obligations.
Management and Ernst & Young reported effective internal control over financial reporting, and the financial statement audit opinion was unqualified.

Facts Investors Should Verify

Whether commodity prices and realized prices sustain the 2021 improvement and support funding the 2022 capital program from operating cash flow.
The outcome and terms of the credit-facility extension and any changes to the borrowing base or lender commitments.
Execution of the February 2022 refinancing, including the expected approximately $70.0 million debt-extinguishment loss and resulting interest savings.
Actual 2022 production, capital spending, drilling results and reserve additions compared with management’s guidance.
The timing and terms of any dividend reinstatement and the effect of the additional $500.0 million share-repurchase authorization.
Future cash payments under transportation commitments and the retained North Louisiana divestiture obligations.
Developments in the shareholder litigation, DEP proceedings and evolving Pennsylvania and federal environmental requirements.
The sensitivity of reported earnings and cash flow to derivative settlements, mark-to-market adjustments and counterparty performance.