SEC Filings

10-Q
RANGE RESOURCES CORP filed this Form 10-Q on 10/23/2018
Entire Document
 

Other Commodity Risk

We are impacted by basis risk, caused by factors that affect the relationship between commodity futures prices reflected in derivative commodity instruments and the cash market price of the underlying commodity. Natural gas transaction prices are frequently based on industry reference prices that may vary from prices experienced in local markets. If commodity price changes in one region are not reflected in other regions, derivative commodity instruments may no longer provide the expected hedge, resulting in increased basis risk. Therefore, in addition to the swaps discussed above, we have entered into natural gas basis swap agreements. The price we receive for our gas production can be more or less than the NYMEX Henry Hub price because of basis adjustments, relative quality and other factors. Basis swap agreements effectively fix the basis adjustments. The fair value of the natural gas basis swaps was a loss of $1.3 million at September 30, 2018 and they settle monthly through September 2021.

At September 30, 2018, we also had propane basis contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly through December 2019 and include a total volume of 1,943,000 barrels. The fair value of these contracts was a loss of $2.0 million on September 30, 2018.

The following table shows the fair value of our swaps and basis swaps and the hypothetical changes in fair value that would result from a 10% and a 25% change in commodity prices at September 30, 2018. We remain at risk for possible changes in the market value of commodity derivative instruments; however, such risks should be mitigated by price changes in the underlying physical commodity (in thousands):

 

  

 

 

 

  

Hypothetical Change in Fair Value

 

 

Hypothetical Change in Fair Value

 

 

  

 

 

 

  

Increase of

 

 

Decrease of

 

 

  

Fair Value

 

  

10%

 

  

25%

 

 

10%

 

  

25%

 

Swaps

 

$

(104,471

)

 

$

(140,424

)

 

$

(351,057

)

 

$

141,359

 

 

$

355,408

 

Collars

 

 

(3,954

)

 

 

(6,094

)

 

 

(15,689

)

 

 

5,784

 

 

 

14,633

 

Swaptions

 

 

4,134

 

 

 

(53,839

)

 

 

(167,254

)

 

 

40,971

 

 

 

93,879

 

Calls

 

 

(504

)

 

 

(1,241

)

 

 

(3,954

)

 

 

366

 

 

 

487

 

Basis swaps

 

 

(3,296

)

 

 

(55

)

 

 

(58

)

 

 

26

 

 

 

75

 

Freight swaps

 

 

301

 

 

 

303

 

 

 

758

 

 

 

(303

)

 

 

(766

)

Our commodity-based derivative contracts expose us to the credit risk of non-performance by the counterparty to the contracts. Our exposure is diversified primarily among major investment grade financial institutions and we have master netting agreements with our counterparties that provide for offsetting payables against receivables from separate derivative contracts. Our derivative contracts are with multiple counterparties to minimize our exposure to any individual counterparty. At September 30, 2018, our derivative counterparties include twenty-one financial institutions, of which all but five are secured lenders in our bank credit facility. Counterparty credit risk is considered when determining the fair value of our derivative contracts. While our counterparties are primarily major investment grade financial institutions, the fair value of our derivative contracts has been adjusted to account for the risk of non-performance by certain of our counterparties, which was immaterial. Our propane sales from the Marcus Hook facility near Philadelphia are short-term and are to a single purchaser. Our ethane sales from Marcus Hook are to a single international customer bearing a credit rating similar to Range.

Interest Rate Risk

We are exposed to interest rate risk on our bank debt. We attempt to balance variable rate debt, fixed rate debt and debt maturities to manage interest costs, interest rate volatility and financing risk. This is accomplished through a mix of fixed rate senior and senior subordinated debt and variable rate bank debt. At September 30, 2018, we had $4.2 billion of debt outstanding. Of this amount, $2.9 billion bears interest at fixed rates averaging 5.2%. Bank debt totaling $1.3 billion bears interest at floating rates, which was 3.9% on September 30, 2018. On September 30, 2018, the 30-day LIBOR Rate was approximately 2.3%. A 1% increase in short-term interest rates on the floating-rate debt outstanding on September 30, 2018, would cost us approximately $12.7 million in additional annual interest expense.

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