|Range Announces Third Quarter 2012 Results|
Adjusted net income comparable to analysts’ estimates, a non-GAAP
Commenting on the announcement,
Financial Discussion –
(Except for generally accepted accounting principles (“GAAP”)
reported amounts, specific expense categories exclude non-cash
impairments, unrealized mark-to-market on derivatives, non-cash stock
compensation and other items shown separately on the attached tables.
Effective with 2011 year-end reporting, the Company reclassified 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. We sold substantially all of our
For the third quarter, production averaged 790 Mmcfe per day, comprised
of 623.3 Mmcf per day of natural gas (79%), 20,040 barrels per day of
natural gas liquids (15%) and 7,748 barrels per day of oil (6%). Natural
gas production grew 52%, NGL production increased 30% and crude oil
production rose 36% 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 third 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 of 13% versus the prior-year
quarter, even with the
Capital Expenditures –
Third quarter drilling expenditures of
Asset Sales –
Recently, Range has signed agreements to sell assets with estimated
total sales proceeds of approximately
Hedging Status –
Range hedges portions of its expected future production volumes to
increase the predictability of its cash flow and to help maintain a
strong, flexible financial position. At
Operational Discussion –
Southern Marcellus Shale Division-
During the third quarter, the division brought online 68 horizontal
wells in southwest
In the southwest Marcellus, the Company drilled and cased 25 wells in
the third quarter as compared to 39 wells drilled and cased in the
second quarter. Sixty-eight wells were turned to sales in the third
quarter which was more than double the 33 wells turned to sales in the
second quarter. The Company’s backlog of 106 uncompleted wells and wells
waiting on pipeline connection at the end of the second quarter in
southwest Marcellus declined to 63 wells at the end of the third
In the super-rich area, we had a significant step-out well from our core area that tested at 1,044 barrels per day of liquids (267 barrels of condensate and 777 barrels of NGLs) and 10.3 Mmcf per day of gas, or 16.5 (14.0 net) Mmcfe per day. With ethane recovery, the well would have tested at 2,053 barrels per day of liquids (267 barrels of condensate and 1,786 barrels of NGLs) and 8.7 Mmcf per day of gas, or 21.1 (17.9 net) Mmcfe per day. The lateral length on this test was 3,797 feet and was completed using a 20-stage reduced cluster spacing (“RCS”) completion. We expect to bring this well online in late 2013 or early 2014 and drill additional wells in the area starting in 2013. Range’s second Upper Devonian super-rich well continued to clean-up following our August announcement and ultimately had a peak 24-hour rate of 552 barrels per day of liquids (172 barrels of condensate and 380 barrels of NGLs) and 4.7 Mmcf per day of gas, or 8.0 (6.8 net) Mmcfe per day. With ethane recovery, the well would have tested at 998 barrels per day of liquids (172 barrels of condensate and 826 barrels of NGLs) and 4.0 Mmcf per day of gas, or 10.0 (8.5 net) Mmcfe per day.
Northern Marcellus Shale Division-
In the northeast Marcellus, Range drilled and cased 13 wells in the
third quarter as compared to 22 wells in second quarter while running
five rigs. We expect to exit the year at one rig and plan to have one
rig running most of next year to maintain the continuous drilling
commitments under the leases. Sixteen wells were turned to sales in the
third quarter which was the same as the second quarter. The Company’s
backlog of 35 uncompleted and wells waiting on pipeline connection at
the end of the second quarter in the northeast Marcellus declined to 31
wells at the end of the third quarter. At
Significant production results included three wells with initial 24-hour rates of 17.9 (15.3 net) Mmcf per day, 11.3 (9.7 net) Mmcf per day and 9.9 (8.5 net) Mmcf per day. The average lateral length for these three wells was 4,100 feet with an average of 14 frac stages per well.
The third phase of the
In addition to Marcellus drilling, the division drilled and successfully
completed the industry’s first wet
Marcellus Shale Infrastructure-
As the anchor shipper under the 15-year
Range also executed a 15-year ethane sales agreement with
Range’s three liquids transportation (Mariner East, Mariner West and
ATEX) and sales agreements are expected to provide the Company
substantial operational and marketing flexibility. If the full
contractual volumes under these three contracts were currently being
delivered using current prices with a portion of its propane being
exported, Range estimates these projects would add
Range expects these agreements will provide long-term assurance of
meeting pipeline gas quality standards by removing ethane from the gas
stream and allowing for potential increased development in the
liquids-rich, stacked pay area of southwest
Midcontinent operations for the third quarter focused on infrastructure buildout and commencement of pad drilling operations in the Horizontal Mississippian oil play. Six wells were completed and turned to sales with the majority of the activity during the quarter focused on drilling and completion of salt water disposal facilities. Current plans are to begin 2013 with a five rig drilling program.
Of the six Horizontal Mississippian wells placed on production late in the third quarter, the 24-hour peak rate to sales averaged 445 (312 net) boe per day (254 barrels oil, 111 barrels NGLs and 475 mcf gas). The wells came on production late in the quarter and many have not yet reached 30-days of production with volumes continuing to show improvement with time. Of the six wells, the lateral lengths averaged 3,700 feet with 17 to 20 frac stages. Range has increased its acreage position in the play to approximately 156,000 net acres.
During the third quarter, Range brought on the Nancy Ann #1-1S at a peak 24-hour rate to sales of 1,227 (742 net) barrels of oil equivalent per day (834 barrels of oil, 230 barrels NGLs, and 980 mcf gas). This represents the second Range Horizontal Mississippian well to exceed 1,000 barrels of oil equivalent per day. The lateral length on the well totaled 3,985 feet with a 20 stage frac. Range owns a 74.9% working interest. Range’s Balder #1-30N which was turned to sales in the second quarter of 2012 has achieved a 90-day average of 1,049 (724 net) barrels of oil equivalent per day (479 barrels of oil, 333 barrels of NGLs, and 1,421 mcf of gas). The Nancy Ann and Balder wells are approximately eight miles apart, being on the western and eastern sides of the Nehama Ridge, helping to de-risk the Nehama Ridge in this area.
Range completed its third Wolfberry well with an initial 24-hour
production rate to sales of 505 boe per day (243 barrels of oil, 126
barrels NGLs, and 814 mcf gas) or 397 boe per day net. This is
substantially better than Range’s first two Wolfberry wells which are
projected to recover 216 Mboe (EUR) each. The cost to drill and complete
the third well was
Southern Appalachia Division-
The Southern Appalachia Division continued development of multi-pay
horizons on its 350,000 (235,000 net) acre position in
Guidance – Fourth Quarter 2012
Production per day Guidance:
Production growth for 2012 is targeted at 35% year-over-year, the high-end of our previous full-year guidance. Our original guidance included the Ardmore Woodford properties for the entire year. Due to sale of these properties, coupled with curtailed production in portions of the wet and super-rich Marcellus due to bottlenecks and equipment limitations in the gathering systems which we expect to continue during the fourth quarter, we are revising our fourth quarter liquids growth as compared to the fourth quarter of 2011 to 33% to 36% versus our previous guidance of 40%.
Expense per mcfe Guidance:
(a) Prior to year-end 2011 this expense was netted against revenue. Please refer to Table 6 of the 3Q 2012 Supplement Tables for historical detail of this expense by product.
(b) Production tax expense in fourth quarter should equal approximately
Differential Pricing History (c)
(c) Differentials based on pre-hedge pricing, excluding transportation, gathering and compression expense.
Conference Call Information –
The Company will host a conference call on
A simultaneous webcast of the call may be accessed over the internet at http://www.rangeresources.com
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.
Third quarter 2012 earnings included a reduction in value 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 (loss) income” in the Company’s 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 expected improvement in well performance, expected greater capital efficiency, protecting our financial position, the expected continued reduction in units costs, expected timing and amounts of proceeds from asset sales, expected addition of future value for shareholders, expected amount of future capital spending, expected timing, methods utilized and number of rigs related to drilling operations, expected timing of infrastructure improvements and future production and unit cost guidance information 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
(a) See separate natural gas, NGLs and oil sales information table.
(a) Represents volumes sold regardless of when produced.
(a) Represents volumes sold regardless of when produced.
NOTE: SEE WEBSITE FOR OTHER SUPPLEMENTAL INFORMATION FOR THE PERIODS
Range Resources Corporation