RANGE RESOURCES CORP quarterly report, Q3 FY2022

Range Resources Corporation: Q3 2022 Form 10-Q Summary

Business context and reporting period

Range Resources Corporation is an independent Appalachian natural gas, natural gas liquids (NGLs) and oil exploration and production company. The filing covers the quarter and nine months ended September 30, 2022, with comparisons to the corresponding 2021 periods. Production averaged approximately 2.1 Bcfe per day in both third-quarter periods and declined 1% for the first nine months.

Key financial metrics

Metric	Q3 2022	Q3 2021	9M 2022	9M 2021
Natural gas, NGLs and oil sales	$1.435 billion	$849.3 million	$3.824 billion	$2.075 billion
Total revenues and other income	$1.111 billion	$302.6 million	$2.516 billion	$1.363 billion
Derivative fair value loss	$457.7 million	$652.2 million	$1.637 billion	$959.8 million
Income before taxes	$432.7 million	$(380.0) million	$416.0 million	$(507.8) million
Net income	$373.1 million	$(350.3) million	$369.1 million	$(479.6) million
Diluted EPS	$1.49	$(1.44)	$1.45	$(1.98)
Operating cash flow	$521.0 million	$191.9 million	$1.252 billion	$475.3 million

Reported net margin was approximately 33.6% in the third quarter and 14.7% for the first nine months, based on total revenues and other income. These margins are significantly affected by non-cash derivative fair value changes and should not be viewed as recurring operating margins.

Average realized price including derivative settlements and third-party transportation costs increased to $3.30 per mcfe in Q3 and $3.27 per mcfe for nine months, compared with $2.00 and $1.71, respectively, in 2021.
Natural gas, NGLs and oil sales increased 69% in Q3 and 84% for nine months, primarily from higher commodity prices rather than volume growth.
Transportation, gathering, processing and compression expense increased 9% in Q3 to $323.0 million and 11% for nine months to $948.7 million.
Interest expense declined to $38.7 million in Q3 and $127.9 million for nine months, from $56.8 million and $171.0 million, respectively.
Cash and cash equivalents were $157.1 million at September 30, 2022, compared with $214.4 million at December 31, 2021.
Capital expenditures and acreage purchases used $375.8 million of investing cash during the first nine months; total costs incurred for property acquisition, exploration and development were $404.5 million.

Debt, liquidity and capital allocation

Total debt, net of issuance costs, was $2.360 billion at September 30, 2022, down from $2.926 billion at year-end 2021. Principal senior notes outstanding were $2.379 billion.
Range issued $500.0 million of 4.75% senior notes due 2030 and used the proceeds, cash and credit-facility resources to redeem $850.0 million of 9.25% senior notes due 2026. The redemption generated a $69.2 million loss on early extinguishment of debt.
The company also retired its 2022-maturity notes and had $528.6 million of 5.00% senior notes due 2023 outstanding at quarter-end.
The amended revolving credit facility has a $3.0 billion borrowing base, $1.5 billion of lender commitments and an April 2027 maturity. There were no borrowings outstanding, $330.5 million of undrawn letters of credit and approximately $1.2 billion of remaining committed capacity.
Management reported approximately $1.4 billion of total liquidity, comprising cash and available credit capacity, and stated that liquidity should be sufficient to execute the business plan for the foreseeable future.
Range repurchased 10.8 million shares for $313.9 million during the first nine months and paid $19.5 million of dividends. The quarterly dividend was reinstated at $0.08 per share.

Material changes versus the prior comparable period

Higher natural gas, NGL and oil prices drove the substantial increase in sales, operating cash flow and profitability despite broadly stable production.
The company moved from a net loss to net income in both the quarter and year-to-date period.
Derivative fair value losses remained substantial, rising to $1.637 billion for nine months. These losses were primarily non-cash mark-to-market effects associated with higher commodity prices and may represent higher future physical commodity revenues.
Net cash provided by operations increased $776.8 million year over year, while cash declined by $57.3 million after debt repayments, share repurchases, capital spending and dividends.
Exit and termination costs increased to $58.2 million for nine months from $9.6 million, including a $24.8 million unfavorable adjustment related to retained divestiture obligations and revised buyer drilling plans.
Management expects the 2022 capital program to approach the high end of the previously announced $460 million to $480 million range because of inflation in labor, steel, fuel and other costs.
In Q3 2022, Range recorded a $20.7 million tax benefit from Pennsylvania legislation reducing future corporate tax rates.

Guidance, outlook, risks and unusual items

Management expects continued commodity-price volatility due to the Russia-Ukraine conflict, global energy markets, LNG demand, monetary policy, potential recessionary conditions, supply-chain constraints and the energy transition.
Commodity prices, production volumes, basis differentials, infrastructure availability and derivative settlements materially affect revenue, cash flow, reserves and borrowing capacity.
The company had a net derivative liability of approximately $816.0 million at quarter-end. Contracts expire monthly through December 2024, with additional basis swaps settling through December 2025.
Range has hedged more than 50% of projected production for the remainder of 2022 and more than 55% of projected natural gas production. Hedging limits the benefit of higher prices and exposes the company to counterparty and basis risk.
Retained transportation, gathering and processing obligations from the North Louisiana divestiture extend through 2030. The estimated discounted divestiture contract obligation was $401.2 million at September 30, 2022.
An extension of certain gathering agreements could increase commitments by approximately $800 million upon completion of specified construction expected in 2024. A fleet lease extension created a remaining operating-lease obligation of approximately $60 million.
Management targets net-zero Scope 1 and Scope 2 greenhouse-gas emissions by year-end 2025.
Pending legal, royalty, contract and environmental matters arise in the ordinary course. Management does not expect them to have a material adverse effect, but additional losses remain reasonably possible in some matters.
Disclosure controls and procedures were assessed as effective as of September 30, 2022, with no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

Whether elevated commodity prices and operating cash flow persist after accounting for the company’s substantial hedging program and derivative settlements.
The timing and funding of the $528.6 million 2023 debt maturity and the company’s planned debt-repayment strategy.
The actual 2022 capital program relative to the $460 million to $480 million target range and the effect of cost inflation.
The magnitude and timing of cash payments under divestiture, transportation, gathering and processing commitments, including the potential $800 million increase.
The remaining authorization and subsequent activity under the expanded stock-repurchase program; the board authorized an additional $1.0 billion on October 21, 2022.
The effect of future commodity-price changes on derivative liabilities, liquidity, borrowing-base determinations and reported earnings.