|RANGE RESOURCES CORP filed this Form 10-K on 02/22/2017|
We realize brokered margins as a result of buying and selling natural gas utilizing separate purchase and sale transactions, typically with separate counterparties, whereby Range or the counterparty takes titles to the natural gas purchased or sold. Revenues and expenses related to brokering natural gas are reported gross as part of revenues and expenses in accordance with applicable accounting standards. In 2014, we included additional broker revenues and broker expenses from the release of transportation capacity where we had taken firm transportation ahead of our production volumes. Our net brokered margin was a loss of $2.8 million in 2016 compared to a loss of $2.7 million in 2015 and a gain $9.4 million in 2014.
Although receivables are concentrated in the oil and gas industry, we do not view this as an unusual credit risk. We provide for an allowance for doubtful accounts for specific receivables judged unlikely to be collected based on the age of the receivable, our experience with the debtor, potential offsets to the amount owed and economic conditions. In certain instances, we require purchasers to post stand-by letters of credit. Many of our receivables are from joint interest owners of properties we operate. Thus, we may have the ability to withhold future revenue disbursements to recover any non-payment of joint interest billings. We have allowances for doubtful accounts relating to exploration and production receivables of $5.6 million at December 31, 2016 compared to $5.0 million at December 31, 2015. We recorded bad debt expense of $800,000 in the year ended December 31, 2016 compared to $2.3 million in the year ended December 31, 2015 and $250,000 in the year ended 2014.
Revenues from the production of natural gas, NGLs and oil on properties in which we have joint ownership are recorded under the sales method. Under the sales method, we and other joint owners may sell more or less than our entitled share of production. Should our sales exceed our share of remaining reasonable reserves, a liability is recorded. Imbalances are not significant in the periods presented.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and on deposit and investments in highly liquid debt instruments with maturities of three months or less. Outstanding checks in excess of funds on deposit is included in accounts payable on the consolidated balance sheets and the change in such overdrafts is classified as financing activities on the consolidated statements of cash flows.
Investments in unaffiliated equity securities held in our deferred compensation plans qualify as trading securities and are recorded at fair value. Investments held in the deferred compensation plans consist of various publicly-traded mutual funds. These funds include equity securities and money market instruments and is reported in other assets in the accompanying consolidated balance sheet.
Inventories were comprised of $9.4 million of materials and supplies at December 31, 2016 compared to $20.8 million at December 31, 2015. Inventories consist primarily of tubular goods and equipment used in our operations and are stated at the lower of specific cost of each inventory item or market, on a first-in, first-out basis. Our material and supplies inventory is primarily acquired for use in future drilling operations or repair operations. At December 31, 2016, we also had commodity inventory of $8.3 million, compared to $4.8 million at December 31, 2015, which is carried at lower of weighted average cost or market, on a first-in, first-out basis. Commodity inventory at December 31, 2016 consists of natural gas and NGLs held in storage or as line fill in pipelines.
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Such goodwill is not amortized, but rather is tested for impairment annually and when events or changes in circumstances indicate the fair value of a reporting unit with goodwill has been reduced below carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. However, we have only one reporting unit. Our annual assessment date will be November 1. The fair value of a reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book value, including goodwill, then the recorded goodwill is impaired to its implied fair value with a charge to impairment expense. To assess impairment, we have the option to qualitatively assess if it is more likely than not that the fair value of the reporting unit is less than the carrying value. Absent a qualitative assessment, or, through a qualitative assessment, if we determine it is more likely than not that the fair value of the reporting unit is less than the carrying value, a quantitative assessment is prepared to calculate the fair value of the reporting unit. For additional information see Note 4.
Natural Gas and Oil Properties
Property Acquisition Costs. We use the successful efforts method of accounting for natural gas and oil producing activities. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, delay rentals and costs of carrying and retaining unproved properties are expensed. Costs incurred for exploratory wells that find reserves that cannot yet be classified as proved are capitalized if (a) the well has found a sufficient quantity of reserves to justify its completion as a producing well and (b) we