Range Resources released their first quarter results yesterday. As is usually the case, the press release they issued (below, in its entirety) is dense with facts and figures and financial terms. Who wants to read all of it?! (That’s why you read MDN!) Yet there is important information contained in it. MDN will “bottom line” it first, and then we’ll highlight those sections which would be of most interest to landowners—people who either have signed with Range and want to know what they’re up to, or those who have not yet signed and want to know if Range is the kind of company they should sign with.
MDN’s Bottom Line
The bottom line from the press release below is this: Range ran $42 million in the red for the first three months of this year versus running $25 million in the red a year ago this time. The reason, according to Range, is that they are producing more (hence more expenses) and getting less money for what they produce because of the low commodity price of natural gas. However, they are concentrating on, and making progress with, drilling in liquids-rich portions of shale plays—in particular the Marcellus and Utica Shale plays. Nearly three-fourths (71 percent) of Range’s production came from liquids-rich areas vs. 29 percent from dry gas areas.
Here’s the full Range press release with MDN highlights:
RANGE RESOURCES CORPORATION RRC today announced its first quarter 2012 results. Revenues for the first quarter 2012 totaled $247 million, a 16% increase over the prior year quarter. Net cash provided from operating activities including changes in working capital totaled $156 million, an 11% increase over the prior year first quarter. The net loss for the first quarter 2012 was $42 million ($0.26 loss per diluted share) versus a net loss of $25 million for the first quarter 2011. Revenue and cash flow results were driven by higher production volumes and lower unit costs offset by lower realized prices. Earnings also included the impact of a derivative mark-to-market loss and a onetime retroactive charge for the recently adopted Pennsylvania impact fee.
Adjusted net income comparable to analysts’ estimates, a non-GAAP measure, was $24 million ($0.15 per diluted share) for first quarter 2012 versus the prior year quarter amount of $35 million ($0.22 per diluted share). Cash flow from operations before changes in working capital, a non-GAAP measure, was $163 million essentially equal to the prior year quarter. Comparing these amounts to analysts’ average First Call consensus estimates, the Company’s earnings per share of $0.15 per diluted share exceeded the consensus of analysts’ estimates of $0.13 per diluted share. Cash flow per share of $1.02 per diluted share also exceeded the consensus analysts’ estimates of $0.97 per diluted share. See "Non-GAAP Financial Measures" for a definition of each of these non-GAAP financial measures and tables that reconcile each of these non-GAAP measures to their most directly comparable GAAP financial measure.
Commenting on the announcement, Jeff Ventura, Range’s President and CEO, said, "The operational results from the first quarter 2012 demonstrate the progress that Range is making in expanding our liquid-rich development areas. 71% of our total production for the quarter was produced from our liquid-rich and oil projects. We are on track to significantly drive up our liquids production in 2012 while hitting our overall 30% to 35% production growth target. Financially, we held our own as first quarter 2012 cash flow was equal to the prior year quarter. Higher production volumes and lower unit costs offset the impact of lower natural gas prices. We strengthened our balance sheet during the quarter by issuing 5% ten and a half year subordinated notes. This allowed us to end the quarter with $123 million of invested cash and no outstanding amount under our bank credit facility. The combination of the invested cash and the unused credit facility increased our committed liquidity position to nearly $1.6 billion at quarter-end. Subsequent to quarter-end, we also increased our credit facility commitment from $1.5 billion to $1.75 billion and reaffirmed our $2 billion borrowing base. Operationally, we made important progress in all five of our liquids-rich and oil projects: super-rich Marcellus, super-rich Upper Devonian, wet Utica, horizontal Mississippian and Cline Shale. We have worked diligently over the past several years to develop a deep inventory of projects that generate attractive returns even in this period of low natural gas prices. Our financial strength coupled with our high return inventory puts us in an excellent position to continue to deliver per share value for our shareholders."
During the quarter, 71% of Range’s production came from our liquid-rich and oil areas with only 29% of our production coming from dry gas areas. Production for the first quarter 2012 averaged 655.5 Mmcfe net per day, a record high for the Company, and a 20% increase over the prior-year quarter. Adjusting for the Barnett Shale production sold in April 2011, the increase would have been 50%. This record production was driven by the continued success of the Company’s drilling program. On a year-over-year basis, crude oil production increased 36%, while natural gas liquid (NGL) production rose 20% and natural gas production increased 19%. For the quarter, production was comprised of 512.5 Mmcf per day of gas (78%), 17,152 barrels per day of NGLs (16%) and 6,682 barrels per day of oil (6%). Realized prices, including all cash-settled derivatives averaged $5.19 per mcfe before transportation, gathering and compression costs, a 14% decrease versus the prior-year quarter. The average realized prices by product were $4.01 per mcf for natural gas, $46.20 per barrel for NGLs and $83.54 per barrel for oil. (The realized price, including all cash-settled derivatives, but net of transportation, gathering and compression costs, averaged $4.51 per mcfe for the quarter.)
Financial Discussion —
(Range sold its Barnett Shale properties in April of 2011. Under generally accepted accounting principles, activity in 2011 for the Barnett Shale properties was reclassified as "Discontinued operations." As a result, production, revenue and expenses associated with the properties were removed from continuing operations and reclassified as discontinued operations. In this release, the Statements of Income are broken out to reconcile and show the changes to the current period and the prior-year period for the reclassification of the discontinued operations. These supplemental non-GAAP tables present the reported GAAP amounts as compared to the amounts that would have been reported if the Barnett Shale operations were included in continuing operations. All variances discussed in this release include the Barnett Shale operations as continuing operations in all prior year periods. Except for reported GAAP amounts, specific expense categories exclude non-cash property impairments, mark-to-market on unrealized derivatives, non-cash stock compensation and other items shown separately on attached tables but include the amounts associated with Barnett Shale properties combined with the reported continuing operations amounts. Effective with 2011 year-end reporting, the Company reclassified only third party transportation, gathering and compression costs as a separate component of operating expenses which previously was included as a reduction of natural gas, natural gas liquids and oil sales. Prior reported results have been similarly reclassified to conform to the current year presentation.)
First quarter financial results were driven by the 20% increase in production and a 6% reduction in unit costs partially offset by a 14% decline in realized prices. Natural gas, NGL and oil revenue (including all cash settled derivatives) was $309.8 million, 24% higher than the prior year quarter of $250.6 million (excluding the Barnett Shale properties sold in April 2011 shown as discontinued operations). Adjusting for the Barnett Shale properties, the year-over-year revenue increase would have been 5%.
During the first quarter of 2012, Range continued to lower its cost structure. On a unit of production basis, the Company’s five largest cost categories fell by 6% in aggregate compared to the prior-year period. Lease operating expense decreased 36% to $0.48 per mcfe, interest expense decreased 15% to $0.62 per mcfe while general and administrative expense decreased 9% to $0.50 per mcfe. Transportation, gathering and compression expense of $0.68 per mcfe increased 23% due to continued expansion of Marcellus infrastructure. Depreciation, depletion and amortization expense rose 2% to $1.68 per mcfe as there was no depletion in March 2011 for discontinued operations related to the Barnett Shale properties.
Several non-cash or non-recurring items impacted first quarter results. A $53.0 million mark-to-market loss was recorded to reflect the reduction in the value of the Company’s commodity hedges due to increased oil and natural gasoline (C5) commodity prices during the quarter. A $24.0 million onetime expense was recorded in the first quarter due to the retroactive payment required under the recently adopted Pennsylvania impact fee for wells drilled in 2011 and prior years. A $10.4 million loss was incurred from the sale of certain East Texas properties. A $7.8 million reduction in expense relating to the Company’s deferred compensation plan was recorded due to the decrease in our common stock price during the quarter.
Capital Expenditures —
First quarter drilling expenditures of $334 million funded the drilling of 74 (58 net) wells and the completion of previously drilled wells. A 100% drilling success rate was achieved. During the quarter, total capital expenditures were $436 million which included $75 million for leasehold, $21 million for exploration and $6 million for infrastructure build-out. The capital expenditure budget for the year of $1.6 billion remains unchanged.
Credit Facility —
On April 9th, lenders under Range’s bank credit facility completed their regular semi-annual redetermination of the borrowing base, unanimously reaffirming the requested $2.0 billion borrowing base. The lenders also agreed to increase the aggregate commitment under the borrowing base from $1.5 billion to $1.75 billion. The facility is comprised of commitments from a diverse group of 29 financial institutions with no institution holding more than 6% of the total commitment. The next borrowing base redetermination is scheduled for October 1, 2012. At the end of the first quarter 2012, Range had $123 million of invested cash on hand and no amount outstanding under the credit facility.
Operational Discussion —
Marcellus Shale Division
Current Marcellus Shale production is approximately 460 Mmcfe per day net with roughly 80% of the production coming from the liquid-rich area of the play. We are on track to meet our 600 Mmcfe per day net production target by year-end 2012. During the first quarter, 28 horizontal wells were brought online in southwest Pennsylvania, all of which are located in the wet area of the play. The initial 24-hour production rates of the new wells averaged 6.6 Mmcf per day of natural gas and 252 barrels of NGLs and condensate per day or 8.2 (7.0 net) Mmcfe per day. Two wells in the wet area utilized the new reduced cluster spacing ("RCS") completion technique and produced at approximately twice the initial rate of non-RCS wells on the same pad. Due to the capacity limitations of the production facilities, many of the 28 newly connected wells are producing at constrained rates. Of significance at quarter-end there were three wells producing into sales at a combined rate of 45 (37.1 net) Mmcfe per day. Subsequent to the end of the quarter, three additional wells on the same pad were turned to sales with total production now at approximately 75 (61.8 net) Mmcfe per day. At quarter-end, in southwest Pennsylvania there were 57 Marcellus Shale wells waiting on completion and 43 additional wells waiting on pipeline. A few days ago, we commenced flowback operations on one well at the edge of the super-rich area. The peak one-day production was 108 barrels per day condensate, 501 barrels per day NGLs, and 7.1 Mmcf per day gas. If ethane was extracted, we estimate that the well would have made 6 Mmcf per day and over 1,300 barrels per day of liquids. (Range’s net revenue interest in this well is 83.75%.) The well’s lateral length is 2,752 feet and was completed with 14 stages using the RCS method. Based on its initial results, the new targeting methods combined with the RCS completion have significantly improved the well’s performance and we believe that this could be impactful in both the wet and super-rich areas.
During the quarter, our first Upper Devonian test in the super-rich area of southwest Pennsylvania was drilled and is currently being completed. A second Upper Devonian test in the super-rich area is currently drilling. Rotary sidewall cores have been taken on both Upper Devonian wells. The preliminary core analysis is very encouraging from both wells.
During the first quarter, 10 horizontal wells were drilled in northeast Pennsylvania and five horizontal wells were turned to sales in the Lycoming County area. First quarter results include four wells that had outstanding 24-hour initial test rates. The average test rate for the four wells was 22 (18.9 net) Mmcf per day and the wells had an average lateral length of 3,000 feet with 10 stages. At the end of the first quarter, there were 8 wells waiting on pipeline and 21 wells waiting on completion in northeast Lycoming area. In Bradford County on our non-operated position, 10 (2.5 net) horizontal wells were drilled and 7 (1.8 net) wells were turned to sales. At the end of the quarter 15 (3.8 net) wells were waiting on pipeline and 22 (5.5 net) wells were waiting on completion. Range has no non-operated rigs running in Bradford County.
Range continues to make progress with its midstream partners in expanding the infrastructure to accommodate the significant growth in volumes anticipated over the next several years. In the super-rich and wet areas of southwest Pennsylvania, an additional 50 miles of twenty-inch trunkline is currently being constructed that will interconnect with gas processing facilities. Also in southwest Pennsylvania, in Allegheny and Butler Counties, where Range owns a sizeable leasehold position, 40 miles of twenty-inch trunkline was recently completed to flow natural gas into the Dominion Transmission system. In northeast Pennsylvania, phase two of the trunkline system, encompassing 18 miles of thirty-inch pipeline was also recently completed.
Range’s Midcontinent team continues to focus its efforts in the horizontal Mississippian play which yielded strong initial results for the quarter. Range’s acreage position in the play has increased to 145,000 net acres at quarter-end, up from 105,000 net acres at year-end 2011. Range is currently running two rigs in the play. Initial results on the first two wells of the 2012 program compare favorably with prior results. Initial 24-hour rates for the two wells averaged 525 (428 net) boe per day per well (320 barrels per day oil, 117 barrels per NGLs and 530 mcf per day gas), with an average lateral length of 2,700 feet and 15 stages. Estimates of ultimate reserves per well continue to be consistent with our 400-500 Mboe per well projection for the play. As the program gains momentum, longer lateral lengths and varying stimulation methods will be attempted to determine the most efficient and cost effective means to add value. A third processing facility and associated infrastructure is currently under construction in the play and is expected to become operational late in the second quarter. Two other processing facilities are currently being used.
In the Texas Panhandle, one rig is currently running in the development of the horizontal St. Louis Lime play. The first well of the 2012 program has been completed and is expected to be turned to sales in the second quarter. Additional drilling will continue with 7 (4.6 net) St. Louis Lime horizontals and 1 (0.8 net) Granite Wash horizontal well planned for the year. Range has secured capacity in several third party projects being developed in the Texas Panhandle to increase pipeline and processing capacity to support its planned development in this area.
Range’s Permian team is focusing on 100,000 net acres in our Conger field area in Glasscock and Sterling Counties, Texas that is over 90% held by production. Range announced the results of its first Cline Shale well in February of this year and performance is continuing to outperform the projected ultimate recovery of 340 Mboe. A second well has been drilled and completed at 484 (378 net) boe per day (282 barrels per day oil, 123 barrels per day NGLs and 476 mcf per day gas). For the remainder of 2012, Range plans to drill three more horizontal Cline Shale wells. The three wells will be spread across the Conger field properties to further de-risk the acreage block.
The Permian team’s first vertical Wolfberry well in the Conger field had an initial production rate of 495 (371.3 net) boe per day (195 barrels per day oil, 141 barrels per day NGLs and 954 mcf per day gas). The 90-day average production rate for the well was 204 (153.0 net) boe per day (59 barrels per day oil, 83 barrels per day NGLs, and 372 mcf per day gas). The team has also completed its second vertical Wolfberry well at an initial production rate of 517 (403.3 net) boe per day (212 barrels per day oil, 144 barrels per day NGLs and 969 mcf per day gas). Range has the potential for 100 – 150 additional Wolfberry locations on 40 acre spacing at Conger. Range plans to drill two more vertical Wolfberry wells in 2012.
Southern Appalachia Division
The Southern Appalachia Division continued development of multi-pay horizons on its 350,000 (235,000 net) acre position in Virginia during the first quarter of 2012. The division had one drilling rig and two completion rigs running in the quarter. The division placed on line 16 wells including four tight-gas sand, eight coalbed methane and four horizontal Huron Shale wells. The division also performed cleanouts on five horizontal wells in the field resulting in doubling the wells’ production.
*Range Resources (Apr 25, 2012) – Range Announces First Quarter 2012 Results