|Range Announces Third Quarter 2011 Results|
FORT WORTH, Texas, Oct 25, 2011 (BUSINESS WIRE) --
RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its third quarter 2011 financial results. The favorable third quarter results were driven by higher production volumes, higher realized prices and lower unit costs. Reported GAAP net income for third quarter 2011 totaled $34.8 million ($0.21 per diluted share), up from a loss of $8.2 million ($0.05 per diluted share) for the prior year quarter. Net cash provided from operating activities including changes in working capital totaled $100.2 million for the third quarter versus $140.1 million for the prior year quarter. Adjusted net income comparable to analysts' estimates, a non-GAAP measure, was $44.7 million ($0.28 per diluted share), versus $18.9 million ($0.12 per diluted share) for the prior year quarter. Cash flow from operations before changes in working capital, a non-GAAP measure, increased 35% year-over-year to $190.0 million. Comparing these amounts to analysts' average First Call consensus estimates, the Company's earnings per share ($0.28 per diluted share) was greater than the consensus of analysts' estimates of $0.23 per diluted share and cash flow per share ($1.19 per diluted share) for the quarter was greater than the consensus analysts' estimates of $1.07 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.
The third quarter results reflect a 7% increase in production, a 15% increase in realized prices and a 9% decrease in the unit costs of the Company's five largest cost categories compared to the prior year quarter. As previously announced, production averaged 537.2 Mmcfe net per day. Production was 76% natural gas, 17% natural gas liquids (NGLs) and 7% crude oil. Targeted drilling to Range's liquids-rich plays increased the Company's liquid production by almost 12% between years. Realized prices, including all cash-settled derivatives, averaged $5.73 per mcfe, a 15% increase over the prior year quarter. The increase in the average per mcfe prices was primarily due to strong NGL and oil prices as well as liquids making up a larger percentage of the production mix. During the third quarter, the Company continued to drive down its unit costs. In aggregate, the Company's five largest cost categories, direct operating, production taxes, general and administrative, interest and depreciation, depletion and amortization, decreased 9% on a unit of production basis as compared to the prior year quarter. The most significant cost declines related to direct operating costs, production taxes and general and administrative expenses.
Range also announced that it has increased its year-over-year 2011 production growth target by ten percent from 10% to 11% for the year. Fourth quarter 2011 production guidance has been set at 608 Mmcfe per day. The fourth quarter production guidance represents a 12% increase over actual production in the prior year quarter. Adjusted for the Barnett sale, the fourth quarter production guidance represents a 43% increase over the prior year. Range also fine tuned its capital spending estimate for 2011 from $1.38 billion to $1.47 billion, a 6.5% increase. The additional capital spending is attributable to non-operated drilling activities in the Marcellus, Ardmore Woodford and Cana Woodford shale plays as well as leasehold acquisition costs related to the Mississippian horizontal play in Oklahoma.
Commenting on the announcement, John Pinkerton, Range's Chairman and CEO, said, "Third quarter results reflect terrific operating performance driving excellent financial performance. Higher production and higher realized prices combined with significantly lower unit costs drove a 35% increase in cash flow and more than doubled the analysts' earnings compared to the third quarter of last year. Due to our outstanding drilling results and the progress of the infrastructure build-out, we have increased our full year 2011 production growth target by 10%. Looking to the fourth quarter, we anticipate total production to jump 70 Mmcfe per day over the third quarter and for our Marcellus production to reach our exit rate goal of 400 Mmcfe per day net. Given the momentum of the higher production coupled with the cost reductions, we anticipate fourth quarter results to exceed those of the third quarter. In turn, these results should give our shareholders a good indication of how accelerating production growth and continued reduction in unit costs will positively impact our ongoing results. We believe these are the key elements that will drive our results for 2012 and beyond."
Financial Discussion -
(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 results associated with Barnett Shale properties combined with the reported continuing operations amounts.)
As previously announced, Range closed substantially all of the Barnett Shale property sale at the end of April and the remainder of the sale during the third quarter. Under generally accepted accounting principles (GAAP), the Barnett Shale properties have been reclassified as "Discontinued operations" for the quarter and for the prior-year comparable period. As a result, production, revenue and expenses associated with the properties have been removed from continuing operations and reclassified to discontinued operations. In this release, Range has included Statements of Operations that reconcile and reclassify Barnett Shale discontinued operations into continuing operations for comparative purposes. 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 the current year and the prior year periods.
For the quarter, production averaged 537.2 Mmcfe per day, comprised of 410.5 Mmcf per day of gas (76%), 15,429 barrels per day of natural gas liquids (17%) and 5,680 barrels per day of oil (7%). Due to continued drilling success in the Marcellus Shale and Midcontinent areas, the Company's liquids production increased 12% over the prior year period, while natural gas production grew 5%. Realized prices, including all cash-settled derivatives, averaged $5.73 per mcfe, a 15% increase over the prior-year quarter of $4.97. The increase in the average per mcfe price was due to a greater proportion of liquids in the total production mix and stronger NGL and crude oil prices. The average realized natural gas liquids price increased 45% to $49.52 a barrel versus the prior-year quarter, while the average oil price rose 22% to $81.70 a barrel. The average realized natural gas price was $4.51 per mcf, 4% higher than the prior-year quarter. Reported GAAP natural gas, NGL and oil sale revenues for the quarter were $271.8 million, an increase of 45% as compared to the prior year excluding sales from the Barnett Shale properties shown as discontinued operations. Total natural gas, NGL and oil sales (including all cash settled derivatives and the Barnett Shale properties) increased 23% compared to the prior-year quarter to $283.3 million resulting from higher volumes and prices. Total revenues include $9.4 million of cash proceeds for natural gas hedges that were included in the Barnett Shale property sale. Under GAAP, the proceeds of these hedges are recognized as the hedges are settled. The final $9.4 million of cash proceeds associated with these natural gas hedges will be recognized in the fourth quarter. Natural gas liquids realized prices include $3.1 million of cash-settled hedging gains for the quarter. These cash proceeds represent the first NGL hedges to be settled during 2011.
During the third quarter of 2011, Range continued to lower its cost structure. On a unit of production basis the Company's five largest cost categories fell by 9% in aggregate compared to the prior-year period with each of the five components showing meaningful improvements. Direct operating expenses dropped 20% to $0.58 per mcfe, production tax expense decreased 23% to $0.15 per mcfe, general and administrative expense fell 12% to $0.53 per mcfe, interest expense declined 5% to $0.69 per mcfe and depreciation, depletion and amortization expense decreased 4% to $1.89 per mcfe.
In addition to the final closing of the Barnett Shale property sale in the third quarter for $12 million in proceeds, the Company also sold producing properties located in East Texas for $11.0 million and some shallow coal bed methane properties in Pennsylvania for $6.0 million. An impairment charge of $31.2 million was recognized on the properties. An additional $7.5 million impairment was recognized on certain minor Gulf Coast dry gas properties due to low commodity prices at quarter end.
Capital Expenditures -
Third quarter drilling expenditures of $352.4 million funded the drilling of 77 (64 net) wells and the completion of previously drilled wells. A 100% drilling success rate was achieved. During the third quarter, total capital expenditures were $473.5 million which included $77.5 million on acreage acquisition and $25.5 million on infrastructure build-out primarily on non-operated properties. For the first nine months of 2011, Range has drilled 223 (197 net) wells and spent $900.8 million on drilling and recompletions. In addition, during the first nine months of 2011, $145.1 million was expended on acreage, $37.3 million on gas gathering systems and $53.3 million for exploration expense (includes $26.2 million for seismic, $14.2 million for delay rentals and $2.5 million for dry hole costs). During the third quarter, approximately $100 million was expended on our non-operated properties and leasehold acquisitions.
Credit Facility -
Last week, lenders under Range's revolving credit facility completed their regular semi-annual redetermination of the borrowing base, voting unanimously to reaffirm the $2.0 billion borrowing base and aggregate commitment of $1.5 billion. The facility is comprised of commitments from a diverse group of 26 financial institutions with no institution holding more than 7% of total commitments. The next borrowing base redetermination is scheduled for April 1, 2012. At the end of the third quarter, Range has $52 million of invested cash on hand and no amount outstanding on the credit facility.
Operational Discussion -
Marcellus Shale Division
Significant progress was made on multiple fronts in the Marcellus Shale and the division is solidly on track to reach the 2011 year-end production target of 400 Mmcfe per day net to Range. Currently, total production from the Marcellus Shale is running approximately 350 Mmcfe per day net to Range. In southwest Pennsylvania, Range drilled 42 wells during the third quarter. During the quarter, a total of 28 wells were turned to sales bringing the total horizontal Marcellus wells producing in the southwest to 214 wells. At the end of the third quarter, there were 12 wells waiting on pipeline and 74 wells waiting on completion in the southwest. In northeast Pennsylvania, Range drilled 14 wells during the third quarter. A total of 10 wells were turned to sales during the third quarter. At quarter-end, there were 15 wells on production in the northeast with 11 wells waiting on pipeline and 22 wells waiting on completion.
In addition to the operational progress in the Marcellus, Range made substantial progress during the quarter regarding infrastructure build-out and marketing arrangements. Below are the key accomplishments achieved during the third quarter.
Third quarter activity in the Midcontinent Division focused on the Texas Panhandle St. Louis play, as well as increased leasing in the Mississippian horizontal play of northern Oklahoma. Two offset St. Louis horizontal wells were added in the Texas Panhandle at combined rates of 20.4 Mmcf of natural gas and 1,394 barrels of liquids per day or 28.8 (13.1 net) Mmcfe per day based on 24-hour test rates. The original discovery well, which was placed on production in January of this year, continues producing at rates of 11.2 Mmcf of natural gas and 694 barrels of liquids per day or 15.4 (4.7 net) Mmcfe per day. The cumulative production for the discovery well is 4.6 Bcfe. Drilling activity continues in the play with two additional St. Louis offsets scheduled to be drilled during the fourth quarter. In the Woodford play of the Ardmore Basin, three wells were connected to sales during the quarter at combined rates of 2,738 gross (1,307 net) boe per day. Activity by other companies in the Cana Woodford is further de-risking our held by production leasehold position of 42,000 net acres in the play. Range has participated in three non-operated wells in the Cana during the year.
Leasing activity expanded during the quarter in the Mississippian horizontal play of northern Oklahoma. Having started the year with 15,000 net acres, Range's position has increased to 105,000 net acres. Reserve projections are estimated in the range of 400-500 Mboe per well for approximately 2,000 foot laterals at depths of 5,000 feet. These potential reserves generate attractive finding and development costs, along with strong rates of return in this liquids-rich play. Range's production from the Mississippi horizontal area continues to hold at 3,400 gross (2,709 net) boe per day. With its larger acreage position, Range is targeting a two rig drilling program in 2012 and is currently focused on adding the necessary infrastructure to facilitate future development.
The Appalachian Division continued development of its 350,000 (235,000 net) acre position in Virginia during the third quarter of 2011. Range owns the gas rights on 216,000 royalty acres of this position and receives the added economic benefit of the royalty for wells drilled on this acreage. The division averaged three drilling rigs running in the quarter with activity focused on tight gas sand and horizontal drilling projects in Nora. The division drilled 10 (10 net) vertical and 10 (10 net) horizontal wells in the quarter. The horizontal wells targeted the Huron Shale and Berea Sandstone in the Nora field. Over the past three years, Range has continued to optimize horizontal drilling operations in these formations by reducing the number of drilling days and corresponding well cost while at the same time increasing lateral length by 30%. With increased lateral length, Range has also increased the number of frac stages per well to effectively stimulate the formation. The initial 30-day average production from these longer laterals is 40% higher than the average of earlier drilled horizontals. Through longer laterals and more frac stages, we have improved our estimated ultimate recoveries from about 1 Bcf per well up to 1.3 Bcf per well while keeping our cost at $1.2 million. Also in the quarter, Range performed seven recompletions of behind-pipe pays in its continued efforts to maximize production on existing wells.
Hedging Position as of October 25, 2011
Conference Call Information -
The Company will host a conference call on Wednesday, October 26 at 1:00 p.m. ET to review the third quarter results. To participate in the call, please dial 877-407-0778 and ask for the Range Resources' third quarter earnings conference call. A replay of the call will be available through December 11. To access the phone replay dial 877-660-6853. The account number is 286 and the conference ID is 381259. Additional financial and statistical information about the period not included in this release but discussed on the conference call will be available on our home page at www.rangeresources.com.
A simultaneous webcast of the call may be accessed over the internet at www.rangeresources.com or www.vcall.com. To listen, please go to either website in time to register and install any necessary software. The webcast will be archived for replay on the Company's website until January 26.
Non-GAAP Financial Measures and Supplemental Tables -
Adjusted net income comparable to analysts' estimates as used in this release represents income from continuing operations before income taxes adjusted for certain items (detailed below and in the accompanying table) less income taxes. We believe adjusted net income comparable to analysts' estimates is calculated on the same basis as analysts' estimates and that many investors use this published research in making investment decisions useful in evaluating operational trends of the Company and its performance relative to other oil and gas producing companies. Diluted earnings per share (adjusted) as set forth in this release represents adjusted net income comparable to analysts' estimates on a diluted per share basis. A table is included which reconciles income or loss from continuing operations to adjusted net income comparable to analysts' estimates and diluted earnings per share (adjusted). On its website, the Company provides additional comparative information on prior periods.
Third quarter 2011 earnings included income of $55.0 million for the non-cash unrealized mark-to-market increase in value of the Company's derivatives, loss of $8.7 million recorded for the mark-to-market in the deferred compensation plan for the increase in the Company's common stock during the period and $10.2 million of non-cash stock compensation expense, $38.7 million of proved property impairment reflecting lower gas prices related to Gulf Coast properties and the sold East Texas properties, and an unproved property impairment expense of $16.6 million. Excluding these items, net income would have been $44.7 million or $0.28 per share ($0.28 fully diluted). Excluding similar non-cash items from the prior-year quarter, net income would have been $18.9 million or $0.12 per share ($0.12 fully diluted). By excluding these non-cash items from our reported earnings, we believe we present our earnings in a manner consistent with the presentation used by analysts in their projection of the Company's earnings. (See the reconciliation of non-GAAP earnings in the accompanying table.)
"Cash flow from operations before changes in working capital" as used in this release represents net cash provided by operations before changes in working capital and exploration expense adjusted for certain non-cash compensation items. Cash flow from operations before changes in working capital is widely accepted by the investment community as a financial indicator of an oil and gas company's ability to generate cash to internally fund exploration and development activities and to service debt. Cash flow from operations before changes in working capital is also useful because it is widely used by professional research analysts in valuing, comparing, rating and providing investment recommendations of companies in the oil and gas exploration and production industry. In turn, many investors use this published research in making investment decisions. Cash flow from operations before changes in working capital is not a measure of financial performance under GAAP and should not be considered as an alternative to "Cash flows from operating, investing, or financing activities" as an indicator of cash flows, or as a measure of liquidity. A table is included which reconciles "Net cash provided from operating activities" to "Cash flow from operations before changes in working capital" as used in this release. On its website, the Company provides additional comparative information on prior periods for cash flow, cash margins and non-GAAP earnings as used in this release.
The cash prices realized for natural gas, NGL and oil production including the amounts realized on cash-settled derivatives is a critical component in the Company's performance tracked by investors and professional research analysts in valuing, comparing, rating and providing investment recommendations and forecasts of companies in the oil and gas exploration and production industry. In turn, many investors use this published research in making investment decisions. Due to the GAAP disclosures of various hedging and derivative transactions, such information is now reported in various lines of the Statements of Operations. The Company believes that it is important to furnish a table reflecting the details of the various components of each line in the statements of operations to better inform the reader the details of each amount and provide a summary of the realized cash-settled amounts which historically were reported as natural gas, NGL and oil sales. This information will serve to bridge the gap between various reader's understanding and fully disclose the information needed.
The Company discloses in this release the detail components of many of the single line items shown in the GAAP financial statements included in the Company's Quarterly Report on Form 10-Q. The Company believes that it is important to furnish this detail of the various components comprising each line of the Statements of Operations to better inform the reader the details of each amount, the changes between periods and the effect on its financial results.
Hedging and Derivatives -
In this release, Range has reclassified within total revenues its reporting of the cash settlement of its commodity derivatives. Under this presentation those hedges considered "effective" under ASC 815 are included in "Natural gas, NGL and oil sales" when settled. For those hedges designated to regions where the historical correlation between NYMEX and regional prices is "non-highly effective" or there is "volumetric ineffectiveness" due to the sale of the underlying reserves, they are deemed to be "derivatives" and the cash settlements are included in a separate line item shown as "Derivative fair value income" in the Form 10-Q along with the change in mark-to-market valuations of such unrealized derivatives. The Company has provided additional information regarding natural gas, NGL and oil sales in a supplemental table included with this release which would correspond to amounts shown by analysts for natural gas, NGL and oil sales realized, including all cash-settled derivatives.
RANGE RESOURCES CORPORATION (NYSE: RRC) is an independent natural gas company operating in the Appalachia and Southwest regions of the United States.
Except for historical information, statements made in this release such as attractive returns on capital, expected operating costs, expected production growth, expected capital funding sources, expectation of exceptional results in subsequent periods, expected reduction of future unit costs, attractive hedge positions and expansion of plays are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and Range's future performance are subject to a wide range of business risks and uncertainties and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the volatility of oil and gas prices, the results of our hedging transactions, the costs and results of drilling and operations, the timing of production, mechanical and other inherent risks associated with oil and gas production, weather, the availability of drilling equipment, changes in interest rates, litigation, uncertainties about reserve estimates, environmental risks and regulatory changes. Range undertakes no obligation to publicly update or revise any forward-looking statements. Further information on risks and uncertainties is available in Range's filings with the Securities and Exchange Commission ("SEC"), which are incorporated by reference.
The SEC permits oil and gas companies, in filings made with the SEC, to disclose proved reserves, which are estimates that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions as well as the option to disclose probable and possible reserves.Range has elected not to disclose the Company's probable and possible reserves in its filings with the SEC.Range uses certain broader terms such as "resource potential," or "unproved resource potential" or "upside" or other descriptions of volumes of resources potentially recoverable through additional drilling or recovery techniques that may include probable and possible reserves as defined by the SEC's guidelines.Range has not attempted to distinguish probable and possible reserves from these broader classifications. The SEC's rules prohibit us from including in filings with the SEC these broader classifications of reserves.These estimates are by their nature more speculative than estimates of proved, probable and possible reserves and accordingly are subject to substantially greater risk of being actually realized.Unproved resource potential refers to Range's internal estimates of hydrocarbon quantities that may be potentially discovered through exploratory drilling or recovered with additional drilling or recovery techniques and have not been reviewed by independent engineers. Unproved resource potential does not constitute reserves within the meaning of the Society of Petroleum Engineer's Petroleum Resource Management System and does not include proved reserves. Area wide unproven, unrisked resource potential has not been fully risked by Range's management. Actual quantities that may be ultimately recovered from Range's interests will differ substantially. Factors affecting ultimate recovery include the scope of Range's drilling program, which will be directly affected by the availability of capital, drilling and production costs, commodity prices, availability of drilling services and equipment, drilling results, lease expirations, transportation constraints, regulatory approvals, field spacing rules, recoveries of gas in place, length of horizontal laterals, actual drilling results, including geological and mechanical factors affecting recovery rates and other factors. Estimates of resource potential may change significantly as development of our resource plays provides additional data. Investors are urged to consider closely the disclosure in our most recent Annual Report on Form 10-K, available from our website at www.rangeresources.com or by written request to 100 Throckmorton Street, Suite 1200, Fort Worth, Texas 76102. You can also obtain this Form 10-K by calling the SEC at 1-800-SEC-0330.
(a) See separate natural gas, NGL and oil sales information table.
(b) Costs associated with stock compensation and restricted stock amortization, which have been reflected in the categories associated with the direct personnel costs, which are combined with the cash costs in the 10-Q.
(c) Included in Derivative fair value income in the 10-Q.
(d) Included in Other revenues in the 10-Q.
(e) Reflects the change in market value of the vested Company stock held in the deferred compensation plan.
HEDGING POSITION AS OF OCTOBER 25, 2011
NOTE:SEE WEBSITE FOR OTHER SUPPLEMENTAL INFORMATION FOR THE PERIODS
SOURCE: Range Resources Corporation
Range Resources Corporation
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