Range Resources Corporation — Q2 2023 Form 10-Q Summary
Business context and reporting period
Range Resources is an independent producer of natural gas, NGLs, crude oil and condensate, focused primarily on the Appalachian region. The filing covers the quarter and six months ended June 30, 2023. Results are reported under U.S. GAAP using the successful-efforts method and are unaudited.
Key financial and operating metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenues and other income | $637.0 million | $1.225 billion | $1.823 billion | $1.406 billion |
| Natural gas, NGLs and oil sales | $468.4 million | $1.357 billion | $1.205 billion | $2.389 billion |
| Derivative fair value income (loss) | $123.7 million | $(239.9) million | $491.7 million | $(1.179) billion |
| Income before taxes | $44.9 million | $556.2 million | $648.3 million | $(16.7) million |
| Net income (loss) | $30.2 million | $452.9 million | $511.7 million | $(4.0) million |
| Diluted EPS | $0.12 | $1.77 | $2.07 | $(0.02) |
| Cash flow from operating activities | $126.6 million | $324.7 million | $601.5 million | $731.1 million |
| Production | 2.081 Bcfe/day | 2.074 Bcfe/day | 2.111 Bcfe/day | 2.072 Bcfe/day |
The reported net margin was approximately 4.7% in Q2 and 28.1% for the first six months, based on total revenues and other income. These margins are significantly affected by non-cash derivative fair value changes and are not directly comparable to an operating margin.
- Q2 production was essentially flat year over year; six-month production increased 2%.
- Average realized price including derivative settlements and third-party transportation costs declined to $1.46 per mcfe in Q2 from $3.29 and to $1.99 per mcfe for the six months from $3.26.
- Q2 transportation, gathering, processing and compression expense was $268.2 million, down 18%; the six-month expense was $553.7 million, down 12%.
- Q2 direct operating expense increased to $23.9 million from $20.1 million, while general and administrative expense declined to $39.5 million from $42.9 million.
- Q2 interest expense declined to $31.1 million from $42.0 million; six-month interest expense declined to $63.3 million from $89.2 million.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $162.1 million at June 30, 2023, compared with $0.2 million at December 31, 2022.
- Total debt, net of debt issuance costs, was $1.773 billion, consisting primarily of senior notes. The company had no outstanding bank credit facility borrowings.
- Senior notes included $688.4 million of 4.875% notes due 2025, $600.0 million of 8.25% notes due 2029 and $500.0 million of 4.75% notes due 2030.
- The $4.0 billion revolving facility had a $3.0 billion borrowing base, $1.5 billion of lender commitments and $292.9 million of undrawn letters of credit. Available committed borrowing capacity was approximately $1.2 billion.
- Total liquidity, including cash and available credit capacity, was approximately $1.4 billion. The company was in compliance with its credit facility covenants.
- During the six months, Range repurchased $61.6 million principal amount of its 2025 notes at a discount, repurchased $9.7 million of common stock and paid $38.6 million of dividends.
Material changes versus prior comparable periods
- Q2 natural gas, NGL and oil sales fell 65%, primarily because average realized prices before derivative settlements declined 66%; production was approximately flat.
- Six-month commodity sales fell 50%, with a 51% decline in average realized prices partly offset by 2% higher production.
- Derivative fair value results swung from a $239.9 million loss in Q2 2022 to a $123.7 million gain in Q2 2023. For the six months, results changed from a $1.179 billion loss to a $491.7 million gain. These results include substantial non-cash mark-to-market effects.
- Operating cash flow decreased 18% for the six months despite a favorable working-capital impact, primarily because of lower realized prices.
- Abandonment and impairment expense for unproved properties increased to $25.8 million in Q2 and $33.3 million for the six months, primarily because of expected Pennsylvania lease expirations.
- Exit costs increased to $48.7 million in Q2 and $61.0 million for the six months. The company recorded a $37.8 million Q2 increase to its retained divestiture-related transportation, gathering and processing obligation, primarily reflecting higher forecasted rates due to inflation.
Outlook, management commentary, risks and unusual items
- Management expects the 2023 capital program to be funded by operating cash flow and believes existing cash and credit capacity are sufficient for the foreseeable future. The filing does not provide a clear total-dollar 2023 capital budget in the supplied text.
- Range expects commodity prices to remain volatile. Management cited high U.S. natural gas storage, lower 2023 commodity prices, infrastructure constraints, LNG export demand, geopolitical conditions, potential recessionary effects and monetary policy as relevant factors.
- As of June 30, more than 45% of projected production for the remainder of 2023 was hedged, including more than 50% of projected natural gas production. Derivative contracts extended through December 2026 and had an estimated net unrealized pretax gain of approximately $216.8 million.
- Hedging limits the benefit of higher commodity prices and exposes the company to basis risk, counterparty credit risk and potential liquidity requirements associated with derivative settlements.
- Management targets net-zero Scope 1 and Scope 2 greenhouse gas emissions by year-end 2025.
- Retained divestiture-related obligations were approximately $400.0 million at June 30, 2023; the broader accrued exit-cost liability was $403.8 million.
- Legal, royalty, contract and environmental matters arise in the ordinary course. Management does not believe these matters will have a material adverse effect, but additional losses beyond recorded reserves remain reasonably possible.
- The company reported effective disclosure controls as of June 30, 2023 and no material change in internal control over financial reporting during the quarter.
Investor verification checklist
- Reconcile reported earnings and revenue to cash operating performance, separating derivative fair value gains from cash derivative settlements.
- Review natural gas price assumptions, regional basis differentials and the effect of the hedge book on future realized prices.
- Verify the remaining 2025 debt maturity, planned debt repurchases and compliance with credit facility covenants.
- Assess whether operating cash flow remains sufficient to fund capital expenditures, dividends, share repurchases and retained divestiture obligations under lower commodity-price scenarios.
- Monitor Pennsylvania lease expirations, unproved-property impairments and the inflation-sensitive divestiture contract obligation.
- Evaluate exposure to NGL transportation and processing capacity, Appalachian infrastructure constraints and derivative-counterparty risk.