Range Resources Corporation — Fiscal 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also provides unaudited quarterly data, including fourth-quarter 2009 results. Range is a U.S.-based independent natural gas exploration and production company operating primarily in the Southwestern and Appalachian regions, with major exposure to the Barnett and Marcellus shales.
Key Financial and Operating Metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Total revenue | $907.3 million | $1.3247 billion | Down 32% |
| Oil and gas sales | $839.9 million | $1.2266 billion | Down 32% |
| Net income (loss) | $(53.9) million | $351.0 million | Turned to loss |
| Diluted EPS | $(0.35) | $2.25 | Declined |
| Cash flow from operations | $591.7 million | $824.8 million | Down 28% |
| Capital expenditures and acquisitions | $720.0 million | Not clearly comparable in the filing summary | Lower than 2008 |
| Total production | 159.1 Bcfe | 141.1 Bcfe | Up 13% |
| Average realized price, including all derivative settlements | $6.44/Mcfe | $8.58/Mcfe | Down 25% |
| Direct operating cost | $0.84/Mcfe | $1.01/Mcfe | Down 17% |
| Debt | $1.708 billion | $1.791 billion | Down $82.8 million |
| Debt to capitalization | 41.8% | 42.2% | Improved slightly |
Reported loss was driven by lower commodity prices, higher depletion, depreciation and amortization, increased general and administrative costs, higher deferred compensation expense and $113.5 million of abandonment and impairment expense for unproved properties. The company also recorded $66.4 million of derivative fair-value income, including substantial realized hedge gains, but derivative accounting generated significant earnings volatility.
Year-end cash was only $0.8 million, while current liabilities were $314.1 million and current assets were $175.3 million. Range reported $925.9 million of available committed borrowing capacity at December 31, 2009, under a $1.25 billion revolving facility with a $1.5 billion borrowing base. Management stated that operating cash flow, available borrowing capacity and hedges should satisfy near-term liquidity needs.
Material Changes Versus the Prior Comparable Period
- Production increased 13%, with Appalachian production up 28% and Southwestern production up 4%. Proved reserves increased 18% to 3.1 Tcfe.
- Commodity prices fell sharply. Wellhead gas price declined to $3.32/Mcf from $8.07/Mcf, while wellhead oil price declined to $54.98/barrel from $96.77/barrel.
- Operating efficiency improved: direct operating expense declined despite higher production, but general and administrative expense rose 26% to $116.7 million.
- Depletion, depreciation and amortization increased 25% to $374.4 million, including $10.3 million of accelerated depreciation for an Appalachian interim processing plant scheduled for dismantling in early 2010.
- Range issued $300 million of 8% senior subordinated notes due 2019 and used $285.2 million of proceeds to repay bank debt, reducing short-term refinancing exposure but increasing fixed interest expense.
- Asset sales generated approximately $234.1 million of proceeds, including West Texas oil properties and New York natural gas properties. Range also acquired approximately $176.9 million of acreage, primarily in the Marcellus Shale.
- Derivative settlements contributed $203.1 million to oil and gas sales in 2009, compared with a $63.6 million reduction in 2008.
- Fourth-quarter 2009 revenue was $246.8 million and net loss was $16.8 million, compared with fourth-quarter 2008 revenue of $344.9 million and net income of $93.6 million.
Reserves, Capital Program and Outlook
- Year-end proved reserves totaled 3.1 Tcfe, consisting of 84% natural gas, 55% proved developed reserves and an estimated 18.6-year reserve life based on fourth-quarter production.
- Reserve PV-10 was $2.6 billion before tax; the standardized after-tax measure was $2.1 billion. These values are based on SEC-required 12-month average prices and are not market values.
- Range budgeted approximately $950 million for 2010, including $700 million for drilling and recompletions, $190 million for land, $20 million for seismic and $40 million for gathering systems and facilities. Approximately 82% was directed to Appalachia.
- Management expected 2010 capital spending to be funded by operating cash flow and asset-sale proceeds, with spending subject to adjustment for commodity prices, drilling success and projected returns.
- In February 2010, Range announced a definitive agreement to sell its Ohio tight-gas properties for $330 million, subject to due diligence and customary closing conditions. The filing states that completion was not assured.
Risks, Contingencies and Unusual Items
- Results are highly sensitive to natural gas and oil prices, production levels, reserve revisions, hedging results and access to capital.
- Reserve estimates and PV-10 depend on commodity prices, development costs, production assumptions and a 10% discount rate; the new SEC pricing methodology reduced reserves by approximately 89 Bcfe relative to the prior methodology, partly offset by additions allowed under the revised rules.
- At year-end, approximately 81% of debt was fixed rate and 19% variable rate. A 1% increase in short-term rates would increase annual interest expense by approximately $3.2 million.
- Debt agreements impose covenants and restrictions on additional debt, asset sales, dividends and other transactions. Range reported compliance with all covenants at December 31, 2009.
- Material contractual obligations included $1.7 billion of debt, $372.9 million of transportation commitments, $156.0 million of drilling-rig commitments and $78.8 million of asset-retirement obligations.
- Range had six drilling-rig contracts supporting the Marcellus program; early termination penalties could have totaled $115.3 million, although management did not expect to incur them.
- Hydraulic fracturing, environmental regulation, greenhouse-gas rules, pipeline capacity, transportation interruptions, litigation and potential tax-law changes could increase costs or delay development.
- The company recognized a $9.0 million impairment of its Whipstock equity-method investment and incurred approximately $1.9 million of office-closing and divestiture-related termination costs.
- Management stated that ordinary-course litigation was not expected to have a material adverse effect, and that there were no material accrued contingent liabilities.
Most Important Facts for Investors to Verify
- Whether the Ohio asset sale closed and the amount of net proceeds after customary adjustments.
- 2010 production growth, realized prices and hedge settlements relative to the $950 million capital budget.
- Borrowing-base redeterminations and remaining availability under the revolving credit facility, particularly if gas prices weaken.
- Debt maturities beginning with $324 million of bank debt due in 2012 and $198.4 million of notes due in 2013.
- Marcellus production growth, gathering and processing capacity, transportation commitments and associated development costs.
- Changes in proved reserves and PV-10 under current commodity prices rather than the SEC standardized assumptions.
- Future impairment and lease-abandonment charges, given the $113.5 million of 2009 unproved-property impairment and abandonment expense.
- Impact of hydraulic-fracturing, environmental, climate-related and federal or state tax legislation.