|Range Announces Second Quarter 2012 Results|
Adjusted net income comparable to analysts’ estimates, a non-GAAP
Commenting on the announcement,
“We now expect our 2012 production growth to be 35%, or the high end of our previous full-year guidance. We also expect liquids growth in the fourth quarter to reach 40% compared to the fourth quarter of 2011. With the excellent drilling results in the first half of the year and our strong hedge position, we are well positioned to add material per share value in the second half of 2012.”
Financial Discussion –
(Range sold substantially all of its
For the quarter, production averaged 719.3 Mmcfe per day, comprised of
574.7 Mmcf per day of gas (80%), 17,259 barrels per day of natural gas
liquids (14%) and 6,846 barrels per day of oil (6%). Natural gas
production grew 48%, NGL production increased 20% and crude oil
production increased 23% over the prior-year quarter due to outstanding
drilling results. Realized prices, including all cash-settled
Reported natural gas, NGL and oil sale revenues for the quarter were
During the second quarter of 2012, Range continued to lower its cost
structure. On a unit of production basis, the Company’s five largest
cash cost categories decreased an average 16% versus the prior year
quarter, even with the
Several non-cash or non-recurring items impacted second quarter results.
Capital Expenditures –
Second quarter drilling expenditures of
The capital expenditure budget for 2012 of
To optimize its portfolio and maintain a strong balance sheet, Range has
engaged RBC Richardson Barr to market its
Range hedges portions of its expected future production volumes to
increase the predictability of its cash flow and to help maintain a
strong financial position. At
Operational Discussion –
Southern Marcellus Shale Division-
During the second quarter, the division brought online 33 wells in
In the super-rich area, we recently tested a well that flowed at an initial 24-hour rate of 11.7 Mmcfe per day (5.7 Mmcf of gas, 546 barrels of condensate and 454 barrels of NGLs). In addition, we have recently drilled and brought online two pads that are along the wet/dry line of 1,050 BTU gas. One is just on the dry side and has 1,040 BTU gas. This pad has five wells that averaged 14.0 Mmcf per day per well for an initial 24-hour rate to sales. After two months of production, the wells have averaged 7.4 Mmcf per day and we expect reserves for these wells to average 7 to 8 Bcf each. The wells average lateral length is 2,630 feet with 11 stages. The other pad is just over the wet/dry line and has a BTU content of 1,065. This 10 well pad had an average IP of 13.7 Mmcf per day per well for its initial 24-hour rate to sales. After three months of production, these wells have averaged 5.6 Mmcf per day while being facility constrained and appear to have average reserves in the range of 7 to 8 Bcf each. They have an average lateral length of 2,700 feet with 10 stages per well. The two pads are about 35 miles apart, and we believe the quality of these wells is excellent.
Northern Marcellus Shale Division-
In the Northern Marcellus Shale Division, Range drilled 16 horizontal
wells during the second quarter in
Range expects to reduce the number of rigs to two rigs by the end of the
third quarter and one rig by the end of the fourth quarter. In addition
to Marcellus drilling, the Northern Division is planning to drill two
horizontal test wells in the
Range’s Midcontinent team is focused on the liquids-rich horizontal Mississippian play in northern Oklahoma. Results continue to improve with recent wells considerably better than our first 8 horizontal wells drilled. With the new processing facility commencing operation at the end of the quarter, four wells were turned to production with two of the wells not yet reaching their peak rates. The four wells have achieved combined peak rates to date of 2,848 (2,001 net) boe per day (1,277 barrels oil, 918 barrels NGLs and 3,917 mcf gas). Of these, the Balder #1-30N was our first well to test in excess of 1,000 barrels of oil equivalent per day. It produced at a peak 24-hour production rate of 1,363 (941 net) barrels of oil equivalent per day (782 barrels oil, 340 barrels NGLs and 1,448 mcf gas). Its peak 30-day average daily production rate was 1,258 (871 net) barrels of oil equivalent per day (665 barrels oil, 346 barrels NGLs and 1,478 mcf gas). The lateral length on this well reached a total of 3,911 feet with a 19 stage frac. This well is one of several recent tests to extend Range’s previous lateral lengths from 2,000 feet plus to a 4,000 foot target. Range has an 86.3% working interest in this well.
Range now has 152,000 net acres in the horizontal Mississippian play. Early performance on wells in the 2012 drilling program with a longer lateral length indicates that the EUR’s will exceed the reserves assigned to wells drilled in 2009 to 2011, and expects reserves to be in the 600 Mboe range. We are continuing to prepare field infrastructure in anticipation of ramping up activity in the second half of 2012 and into 2013.
Drilling also continues in the Texas Panhandle with one active rig. Two
In the Cline shale and Wolfberry plays, Range has 100,000 net acres,
with approximately 91% held by production from our Conger field. Range
has drilled an additional Wolfberry well which is currently being
completed. We are also drilling our third Cline shale horizontal. The
average estimated ultimate recovery for the first two
Southern Appalachia Division-
The Southern Appalachia Division continued development of multi-pay
horizons on its 350,000 (235,000 net) acre position in
Guidance – Third Quarter 2012
Production per day Guidance
Total production growth for 2012 is now targeted at 35% year over year, or the high end of our previous full-year guidance. However, in the Marcellus where significant production is scheduled to be placed on line, placing five to eight wells per drilling pad could bring 25 Mmcfe per day to 80 Mmcfe per day on at one time assuming no infrastructure constraints. Therefore, third quarter production could vary by the timing of when each pad of wells are actually placed on production. Any variation in production from guidance is expected to be made up by the production in the fourth quarter to achieve the total year over year production guidance target.
Expense per mcfe Guidance
Differential Pricing History (c)
Conference Call Information –
The Company will host a conference call on
A simultaneous webcast of the call may be accessed over the Internet at www.rangeresources.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
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. Adjusted diluted earnings per share 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 adjusted diluted earnings per share. On its website, the Company provides additional comparative information on prior periods.
Second quarter 2012 earnings included a gain of
“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, NGLs 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 and transportation, gathering and compression costs, 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 of the details of each amount and provide a summary of the realized cash-settled amounts which historically were reported as natural gas, NGLs and oil sales. This information will serve to bridge the gap between various readers’ understanding and fully disclose the information needed.
The Company discloses in this release the detailed 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 of 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, NGLs 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, NGLs and oil sales in a supplemental table included with this release which would correspond to amounts shown by analysts for natural gas, NGLs and oil sales realized, including all cash-settled derivatives.
Except for historical information, statements made in this release such as excellent drilling results, strong hedge position, add material per share value, increased drilling efficiencies, reduced drilling costs, increase recoveries and improve out rates of return, high return projects, financial strength, future liquidity, expected number of rigs, and generates attractive returns 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 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 and environmental risks. Range undertakes no obligation to publicly update or revise any forward-looking statements.
Estimated ultimate recovery, or “EUR,” refers to our management’s internal estimates of per well hydrocarbon quantities that may be potentially recovered from a hypothetical future well completed as a producer in the area. These quantities do not necessarily constitute or represent reserves within the meaning of the Society of Petroleum Engineer’s Petroleum Resource Management System or the SEC’s oil and natural gas disclosure rules. Our management estimated these ultimate recoveries based on our previous operating experience in the given area and publicly available information relating to the operations of producers who are conducting operating in these areas. Actual quantities that may be ultimately recovered from Range's interests may 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 ultimate recoveries may change significantly as development of our resource plays provides additional data. In addition, our production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases.
Further information on risks and uncertainties is available in
Range’s filings with the
NOTE: SEE WEBSITE FOR OTHER SUPPLEMENTAL INFORMATION FOR THE PERIODS
Range Resources Corporation