Range Resources Corporation — Q2 2022 Form 10-Q Summary
Business context and reporting period
Range Resources is an independent natural gas, NGL and oil exploration and production company focused primarily on the Appalachian region. The filing covers the quarter and six months ended June 30, 2022; results are unaudited and reflect one operating segment.
Financial performance and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Natural gas, NGL and oil sales | $1.357 billion | $621.9 million | $2.389 billion | $1.225 billion |
| Total revenues and other income | $1.225 billion | $434.7 million | $1.406 billion | $1.061 billion |
| Derivative fair value loss | $239.9 million | $249.7 million | $1.179 billion | $307.6 million |
| Net income (loss) | $452.9 million | $(156.5) million | $(4.0) million | $(129.3) million |
| Diluted EPS | $1.77 | $(0.65) | $(0.02) | $(0.53) |
| Operating cash flow | $324.7 million | $174.2 million | $731.1 million | $283.4 million |
| Total production | 188.7 Bcfe | 191.5 Bcfe | 375.1 Bcfe | 378.8 Bcfe |
- Q2 net income margin was approximately 37% based on total reported revenues and other income; the six-month net margin was approximately negative 0.3%. The filing does not present a comparable GAAP operating margin or EBITDA figure.
- Average realized price including derivative settlements and transportation costs increased to $3.29 per mcfe in Q2 and $3.26 per mcfe for the six months, compared with $1.56 and $1.55, respectively, in the prior-year periods.
- Production was broadly stable in natural gas but total production declined 1%; Q2 NGL and crude oil volumes declined 4% and 8%, respectively.
- Transportation, gathering, processing and compression expense increased 16% to $327.9 million in Q2 and 12% to $625.7 million for the six months. Direct operating expense was $0.11 per mcfe, while G&A expense was $0.23 per mcfe.
- Cash and cash equivalents were only $356,000 at June 30, 2022, compared with $214.4 million at December 31, 2021. Accounts receivable increased to $608.6 million from $471.8 million.
- Gross debt outstanding was approximately $2.383 billion, including $2.382 billion of senior notes and $1.0 million of bank debt. Current maturities were $531.6 million, and long-term debt was $1.830 billion.
- The company reported approximately $1.2 billion of available borrowing capacity, $1.5 billion of lender commitments, a $3.0 billion borrowing base and $330.5 million of undrawn letters of credit.
Material changes versus the prior comparable periods
- Higher commodity prices drove an 118% increase in Q2 natural gas, NGL and oil sales and a 95% increase for the first six months, despite slightly lower production.
- Q2 results shifted from a $156.5 million loss to $452.9 million of net income. The six-month loss narrowed substantially but remained a loss because of derivative fair value losses, debt extinguishment costs and exit costs.
- Operating cash flow increased $150.5 million in Q2 and $447.7 million for the first six months.
- Debt declined by $217.1 million in Q2 and $567.1 million in the first six months, according to management. The company issued $500 million of 4.75% senior notes due 2030 and used the proceeds, cash and credit-facility borrowings to redeem $850 million of 9.25% notes due 2026. It also retired notes due 2022.
- The refinancing and debt reduction reduced interest expense to $42.0 million in Q2 and $89.2 million for the six months, compared with $57.3 million and $114.2 million, respectively, in the prior-year periods.
- A $69.2 million loss on early extinguishment of debt was recognized in the first quarter of 2022.
- The company repurchased 5.1 million shares for approximately $146.0 million during the first six months, including 4.5 million shares in Q2. Approximately $354.1 million remained available under the authorization at June 30.
Outlook, management commentary, risks and unusual items
- Management expects 2022 capital spending to approach the high end of its previously announced $460 million to $480 million range because of steel, diesel, labor and other cost inflation. Six-month capital expenditures were $231.1 million.
- Management expects the 2022 capital program to be funded by operating cash flow and believes liquidity is sufficient for the foreseeable future, although cash on hand was minimal and liquidity depends materially on commodity prices and derivative settlements.
- The company expected to reinstate its quarterly dividend in the second half of 2022 at $0.08 per share, subject to Board approval and applicable conditions. The filing does not confirm that reinstatement occurred.
- More than 55% of projected production for the remainder of 2022 was hedged as of June 30, including more than 60% of projected natural gas production. Derivative contracts expire monthly through December 2024 and had a net unrealized liability of approximately $802.1 million.
- Derivative fair value losses are primarily non-cash but can create substantial earnings volatility and cash settlement requirements. Cash payments on derivative settlements were $540.8 million in the first six months, compared with $79.7 million in the prior-year period.
- The next significant long-term debt maturity was approximately $532.2 million due in 2023, callable in December 2022. The company was in compliance with its credit-facility covenants, including a maximum consolidated debt-to-EBITDAX ratio of 3.75x and minimum current ratio of 1.0x.
- A gathering agreement extension could increase commitments by approximately $800 million if specified construction is completed, currently expected in 2024.
- Retained divestiture-related transportation, gathering and processing obligations totaled approximately $414.2 million on a discounted basis at June 30, and exit and termination costs included a $24.8 million unfavorable estimate adjustment in Q2.
- Commodity prices remain exposed to volatility from global inventories, the Russia-Ukraine conflict, LNG demand, infrastructure constraints, monetary policy, regulatory changes and energy-transition policies. The company also faces inflation, supply-chain disruption, basis risk, counterparty credit risk and potential constraints on Appalachian NGL infrastructure.
- A Pennsylvania environmental proceeding was settled in April 2022 for a $1.0 million payment, $850,000 of water-treatment funding and an obligation to plug a non-producing well. Management stated that existing litigation and environmental liabilities were not expected to be material, but regulatory notices could result in fines exceeding $250,000 individually or in aggregate.
Important facts for investors to verify
- Whether the anticipated $0.08-per-share quarterly dividend was formally reinstated and the timing of payments.
- The company’s ability to fund the 2023 debt maturity while maintaining capital spending, share repurchases and potential dividend payments.
- Actual 2022 capital spending versus the $460 million to $480 million target range and the effect of inflation on returns.
- Future cash settlements and mark-to-market changes on the approximately $802.1 million net derivative liability.
- Any changes in the $3.0 billion borrowing base, $1.2 billion available capacity and compliance with credit-facility covenants.
- Completion and financial impact of the gathering-system construction that could add approximately $800 million of commitments.
- Commodity prices, production volumes and regional infrastructure constraints, particularly for natural gas and ethane.