Range Resources Corporation: FY2019 Form 10-K Summary
Business context and reporting period
Range Resources Corporation is a U.S. independent natural gas, NGL and oil producer operating primarily in the Marcellus Shale in Pennsylvania and the Lower Cotton Valley in North Louisiana. The filing covers the year ended December 31, 2019; fourth-quarter 2019 results include significant North Louisiana impairment charges. Range reports one operating segment.
- 2019 production averaged 2,283.2 Mmcfe per day, up 4% from 2018; 90% came from the Marcellus.
- Production mix was 69% natural gas, with 578.1 Bcf of natural gas, 38.9 Mmbbls of NGLs and 3.7 Mmbbls of crude oil and condensate.
- Year-end proved reserves were 18.2 Tcfe, up 1% from 18.1 Tcfe; 95% were in the Marcellus and 67% were natural gas.
Financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Natural gas, NGL and oil sales | $2.255 billion | $2.851 billion |
| Total revenues and other income | $2.828 billion | $3.283 billion |
| Net loss | $1.716 billion | $1.746 billion |
| Net loss per diluted share | $6.92 | $7.10 |
| Cash flow from operating activities | $681.8 million | $990.7 million |
| Capital additions to natural gas and oil properties | $687.3 million | $960.9 million |
| Total debt, net of issuance costs | $3.173 billion | $3.837 billion |
| Stockholders’ equity | $2.347 billion | $4.059 billion |
- Average realized price, including derivatives and third-party transportation costs, declined to $1.49 per mcfe from $1.99 per mcfe. Excluding those transportation costs and including derivative settlements, the average realized price was $2.93 per mcfe versus $3.39.
- Natural gas, NGL and oil sales declined 21%, as a 24% decrease in realized prices more than offset 4% volume growth.
- Transportation, gathering, processing and compression expense increased to $1.199 billion from $1.118 billion, reflecting higher Marcellus volumes and infrastructure commitments.
- Direct operating expense declined to $136.3 million from $139.5 million; general and administrative expense declined 14% to $181.1 million; interest expense declined to $194.3 million from $210.2 million.
- Derivative fair-value income was $226.7 million, compared with a $51.2 million loss in 2018. Cash receipts from derivative settlements were $188.4 million.
- Fourth-quarter 2019 included approximately $1.1 billion of proved-property impairment and $1.2 billion of abandonment and impairment expense on unproved properties, primarily related to North Louisiana. These charges were largely non-cash.
- Reserve PV-10 declined to $7.6 billion from $13.2 billion, and the after-tax standardized measure declined to $6.6 billion from $11.1 billion, primarily because of lower commodity prices.
Material changes versus the prior comparable period
- Range shifted toward cash preservation, cost reduction, debt management and returns-focused development rather than production growth.
- Asset-sale proceeds were $784.9 million, including $750.0 million from the sale of a proportionately reduced 2.5% overriding royalty in Pennsylvania.
- Range reduced total debt by $667.6 million, including $466.0 million of lower borrowings under its bank credit facility, and repurchased $201.6 million face value of senior notes at a discount.
- Capital spending was approximately 4% below the initial $756.0 million 2019 budget.
- Proved reserves were replaced at 139% of annual production, supported by 1.2 Tcfe of additions and 303.1 Bcfe of positive net revisions, partially offset by property sales and production.
- North Louisiana production fell to 76.5 Bcfe from 110.6 Bcfe, and year-end North Louisiana proved reserves declined 22% to 866.1 Bcfe.
- Range’s debt-to-capitalization ratio increased to 57.5% from 48.6% because equity declined substantially after the 2019 net loss and impairment charges.
Guidance, outlook, commentary and risks
- Range established a $520.0 million 2020 capital budget, 98% allocated to Appalachia, including $490.0 million for drilling. Management expects 2020 production to be similar to 2019 and intends to fund capital spending at or below operating cash flow, using credit capacity or asset sales if necessary.
- Management expects approximately 2.5 Appalachian drilling rigs in 2020 and no North Louisiana drilling activity in 2020 or 2021.
- At December 31, 2019, the bank facility had a $3.0 billion borrowing base, $2.4 billion of lender commitments, $477.0 million drawn debt and $250.2 million of letters of credit, leaving approximately $1.7 billion of committed borrowing capacity.
- In January 2020, Range issued $550.0 million of 9.25% senior notes due 2026 and used the proceeds primarily to redeem or repurchase near-term senior notes and reduce bank borrowings.
- The board suspended the common dividend in January 2020. The 2019 dividend was $0.02 per share per quarter, or $0.08 for the year.
- Commodity prices remained the primary risk: 2019 average NYMEX prices were $2.62 per mcf for natural gas, $57.21 per barrel for oil and $0.45 per gallon for the Mont Belvieu NGL composite. Management reported further natural gas price pressure into February 2020.
- Key risks include natural gas and NGL price volatility, leverage and debt maturities, borrowing-base redeterminations, transportation and processing minimum-volume commitments, derivative counterparty exposure, reserve-estimation uncertainty, environmental and hydraulic-fracturing regulation, infrastructure constraints and geographic concentration in Pennsylvania.
- Contractual obligations totaled approximately $13.2 billion, including $9.7 billion of transportation, gathering and processing commitments. North Louisiana processing deficiency charges were approximately $14.0 million in fourth-quarter 2019.
- Range disclosed ordinary-course litigation and a Pennsylvania environmental matter involving an alleged methane release from a Lycoming County well; potential monetary sanctions may exceed $100,000, although management believes the matter is not expected to be materially adverse.
Most important facts for an investor to verify
- Whether the $520.0 million 2020 capital program remains financeable under actual commodity prices and operating cash flow.
- The timing and refinancing requirements for 2021–2023 debt maturities, including the impact of the January 2020 9.25% notes.
- Borrowing-base redeterminations and compliance with the credit facility’s financial covenants.
- The sustainability of Marcellus production and reserve replacement after the overriding-royalty sale.
- Exposure to fixed transportation, gathering, processing and delivery commitments if production or commodity prices decline.
- The potential for additional proved or unproved property impairments, particularly in North Louisiana, and the impact on reported equity and leverage.
- The effect of the dividend suspension, debt repurchases and any remaining stock-repurchase authorization on capital allocation.
- Derivative volumes, hedge prices, settlement cash flows and counterparty credit quality through 2020 and 2021.