RRC

Business Context and Reporting Period

Company: Range Resources Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2001
Business Overview: Range Resources is engaged in the development, acquisition, and exploration of oil and gas properties in the Southwest, Gulf Coast, and Appalachian regions. It also operates Independent Producer Finance (IPF), a subsidiary providing financing to small producers. The company is in a post-retrenchment phase following disappointing acquisitions in the late 1990s, focusing on debt reduction and stabilizing its financial position.

Key Financial Metrics (Six Months Ended June 30, 2001)

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 47% year-over-year, driven by a 47% increase in average realized prices per mcfe ($4.11 in 2001 vs. $2.80 in 2000) and a 1% increase in production volumes.
• Profitability: Net income more than doubled to $33.3 million. This was significantly aided by an extraordinary gain of $1.3 million from the retirement of securities at a discount.
• Debt Reduction: Total debt and Trust Preferred decreased by $45.8 million (10%) to $412.3 million. Parent company bank debt was reduced to $88.8 million.
• Expense Increases: Direct operating expenses rose 33% to $24.3 million due to higher production taxes and workover costs. General and administrative expenses increased 49% due to duplicate administrative functions between Range and its Great Lakes joint venture.
• Hedging Impact: The adoption of SFAS No. 133 resulted in the recording of unrealized hedging gains. Net hedging losses for the six months were $28.7 million, compared to $11.2 million in the prior year period.

Guidance, Outlook, and Risks

• Outlook: Management expects to accelerate production growth by the end of 2001 and increase reserves in 2002. The company aims to fund capital expenditures entirely with internal cash flow and use remaining cash for debt reduction.
• Liquidity: The company believes it has sufficient liquidity to meet obligations for the next 12 months. Available borrowing capacity as of July 31, 2001, totaled approximately $75.7 million across parent, Great Lakes, and IPF facilities.
• Capital Restructuring: The company continues to exchange common stock for fixed-income securities (debentures and preferred stock) to reduce debt, which may result in material dilution to existing shareholders.
• Risks:
  • Commodity Prices: Cash flow is highly dependent on oil and gas prices. A material decline would reduce the ability to fund capital expenditures and meet obligations.
  • Debt Covenants: Borrowing bases are subject to semi-annual redetermination based on future cash flow projections.
  • Legal Proceedings: Ongoing litigation regarding royalty accounting and prior merger terms, though management does not expect a material adverse effect.

Investor Verification Checklist

• Debt Covenants: Verify the status of the borrowing base redeterminations for the Parent, Great Lakes, and IPF facilities scheduled for October 2001.
• Dilution Impact: Assess the extent of future stock issuances required to retire remaining convertible debentures and preferred securities.
• Reserve Replacement: Confirm if the company can achieve full reserve replacement in 2002 as projected, given the current depletion rate of $1.32 per mcfe.
• Hedging Exposure: Review the maturity schedule of hedging contracts (covering 70% of 2001 production) to understand exposure to price declines in late 2001 and 2002.
• Joint Venture Costs: Monitor the trend of general and administrative expenses related to the Great Lakes joint venture to ensure cost synergies are realized.