|RANGE RESOURCES CORP filed this Form 8-K on 07/31/2018|
RANGE ANNOUNCES SECOND QUARTER 2018 FINANCIAL RESULTS
FORT WORTH, TEXAS, JULY 30, 2018…RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its second quarter 2018 financial results.
Commenting, Jeff Ventura, the Company’s CEO said, “This year is off to a solid start with another quarter of improving cash margins and record production, lifting cash flow per share by 22% over the same period last year. This effort was led by our Marcellus operations, where long laterals and the utilization of existing pads and infrastructure are a tailwind for capital efficiencies, positioning us to deliver growth within cash flow for 2018 and in our five-year outlook. At the same time, Range is intently focused on actions to fast-forward the de-levering process swiftly and prudently through asset sales. We have processes underway and believe we can execute one or more successful sales in the current year, which would improve our balance sheet and corporate returns.”
Except for generally accepted accounting principles (“GAAP”) reported amounts, specific expense categories exclude non-cash impairments, unrealized mark-to-market adjustment on derivatives, non-cash stock compensation and other items shown separately on the attached tables. “Unit costs” as used in this release are composed of direct operating, transportation, gathering, processing and compression, production and ad valorem taxes, general and administrative, interest and depletion, depreciation and amortization costs divided by production. See “Non-GAAP Financial Measures” for a definition of each of the non-GAAP financial measures and the tables that reconcile each of the non-GAAP measures to their most directly comparable GAAP financial measure.
Second Quarter 2018
GAAP revenues for second quarter 2018 totaled $656 million (a 3% decrease compared to second quarter 2017), GAAP net cash provided from operating activities, including changes in working capital, was $175 million, compared to $185 million in second quarter 2017, and GAAP earnings was a loss of $80 million ($0.32 per diluted share) versus earnings of $70 million ($0.28 per diluted share) in the prior-year quarter. Second quarter earnings results include a $103 million derivative loss due to increases in future commodity prices compared to a $111 million derivative gain in the prior year and a $6.6 million mark to market loss related to the deferred compensation plan compared to a $14.5 million gain in the prior year. Second quarter 2018 also included a $55 million unproved impairment primarily related to expiring leases in North Louisiana and a $15 million impairment of proved properties related to legacy assets in northwest Pennsylvania.
Non-GAAP revenues for second quarter 2018 totaled $745 million, an increase of 32% compared to second quarter 2017, and cash flow from operations before changes in working capital, a non-GAAP measure, was $237 million, compared to $194 million in second quarter 2017. Adjusted net income comparable to analysts’ estimates, a non-GAAP measure, was $50 million ($0.20 per diluted share) in second quarter 2018, compared to $16 million ($0.06 per diluted share) in the prior-year quarter, an increase of 233%.
The following table details Range’s average production and realized pricing for the second quarter 2018:
Second quarter 2018 natural gas, NGLs and oil price realizations (including the impact of cash-settled hedges and derivative settlements which correspond to analysts’ estimates) averaged $3.23 per mcfe, a 12% increase from the prior-year quarter. Additional detail on commodity price realizations can be found in the Supplemental Tables provided on the Company’s website.
The following table details Range’s unit costs per mcfe, excluding stock-based compensation:
Second quarter 2018 drilling expenditures of $260 million funded the drilling and completion of 30 (27.3 net) wells. A 100% success rate was achieved. In addition $10.3 million was spent on acreage purchases during the second quarter. Total capital expenditures year to date were $521 million. Range remains on target with its $941 million total capital budget for 2018 which is expected to be funded within cash flows, excluding asset sale proceeds.
In addition, subsequent to quarter-end, Range sold Midcontinent properties for $23 million, consisting of approximately 11 Mmcfe per day of production and expected annualized cash flow of approximately $3 million.
Range’s net production for second quarter 2018 averaged 2,200 Mmcfe per day, consisting of 1,495 Mmcf per day of natural gas, 104,219 barrels per day of NGLs and 13,301 barrels per day of condensate and oil. This makes Range one of the top 10 natural gas producers in the U.S. and a top three NGL producer amongst E&P companies, providing leverage to improving oil and NGL pricing fundamentals.
The table below summarizes wells turned to sales and the estimated activity for the remainder of the year. Estimated well costs, lateral lengths and EUR’s by area can be found in the company presentation on Range’s website.
Production for second quarter 2018 averaged approximately 1,876 net Mmcfe per day from the Appalachia division, a 25% increase over the prior-year quarter. The southwest area of the division averaged 1,752 net Mmcfe per day during the quarter, a 30% increase over second quarter 2017. This was achieved through continued operational improvements and exceptional well results across Range’s acreage position. The northeast Marcellus properties averaged 107 net Mmcf per day and legacy acreage produced approximately 17 net Mmcf per day during the second quarter 2018.
Production for the division in second quarter of 2018 averaged approximately 313 net Mmcfe per day. The division brought on line four wells during the quarter, and expects to bring on line an additional three wells during the remainder of the year for a total of 11 wells in 2018.
Marketing and Transportation
Range’s marketing efforts were affected by two separate third-party midstream events during the second quarter that took away the primary method of transportation for certain production. The Company minimized the impact to cash flow by working with our various midstream and processing partners to maintain production during the downtime.
The transportation of natural gas liquids on Sunoco’s Mariner East 1 pipeline was suspended for almost two months during the second quarter. As a result, Range lost access to capacity on the Mariner East 1 pipeline for a combined 40,000 barrels per day of ethane and propane. As one of the largest NGL producers in the United States, Range has taken a portfolio approach to the sale of its purity products. The marketing team utilized alternate markets for Mariner East ethane volumes or simply sold the ethane as natural gas. For propane, Range has access to another local pipeline and railcars that continued to provide outlets to international markets via the Marcus Hook terminal as well as various domestic markets. As a result, Range was able to realize propane prices that were, on average, above the Mont Belvieu index price, while paying slightly higher transportation expense. The Mariner East 1 pipeline was returned to service in mid-June.
In early June, TransCanada’s Leach Xpress project on which Range holds natural gas capacity (300,000 Dth/day) was taken offline following a pipeline rupture in West Virginia. Range rerouted the natural gas production earmarked for the Leach Xpress capacity into local Appalachian markets. On July 15th, the Leach Xpress project returned to service.
Energy Transfer’s Rover project (phase 2), which is the last major natural gas transportation project for which Range has contracted capacity, is expected to reach full completion in third quarter 2018. Once the Rover project is in service, over 70% of Range’s production can be sold in the Gulf Coast market, which currently receives near NYMEX pricing.
Production per day Guidance
Production for the third quarter of 2018 is expected to be approximately 2,220 Mmcfe per day. This excludes all Midcontinent volumes following the sale of that asset in early July.
Production expectations for the full year 2018 remain approximately 11% year-over-year growth.
3Q 2018 Expense Guidance
3Q 2018 Natural Gas Price Differentials (including basis hedging):NYMEX minus $0.20
Based on current market indications, Range expects to average the following pre-hedge differentials for calendar 2018 production.
Range hedges portions of its expected future production volumes to increase the predictability of cash flow and to help maintain a more flexible financial position. Range currently has over 80% of its expected second half 2018 natural gas production hedged at a weighted average floor price of $2.97 per Mmbtu. Similarly, Range has hedged over 70% of its second half 2018 projected crude oil production at a floor price of $53.20 and over 50% of its composite NGL production. Please see Range’s detailed hedging schedule posted at the end of the financial tables below and on its website at www.rangeresources.com.
Range has also hedged Marcellus and other basis differentials to limit volatility between NYMEX and regional prices. The fair value of the basis hedges was a loss of $1.9 million as of June 30, 2018. The Company also has propane basis swap contracts which lock in the differential between Mont Belvieu and international propane indices. The fair value of these contracts was a loss of $2.1 million on June 30, 2018.
A conference call to review the financial results is scheduled on Tuesday, July 31 at 9:00 a.m. ET. To participate in the call, please dial 866-900-7525 and provide conference code 9999543 about 10 minutes prior to the scheduled start time.
A simultaneous webcast of the call may be accessed at www.rangeresources.com. The webcast will be archived for replay on the Company's website until August 31, 2018.
Non-GAAP Financial Measures
Adjusted net income comparable to analysts’ estimates as set forth in this release represents income or loss from operations before income taxes adjusted for certain non-cash items (detailed 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 and 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 operations to adjusted net income comparable to analysts’ estimates and diluted earnings per share (adjusted). The Company provides additional comparative information on prior periods along with non-GAAP revenue disclosures on its website.
Cash flow from operations before changes in working capital (sometimes referred to as “adjusted cash flow”) as defined 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 operations, 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 by operations 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 oil and natural gas production, including the amounts realized on cash-settled derivatives and net of transportation, gathering, processing and compression expense, 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 derivative transactions and third-party transportation, gathering, processing and compression expense, such information is now reported in various lines of the income statement. The Company believes that it is important to furnish a table reflecting the details of the various components of each line in the statement of operations to better inform the reader of the details of each amount and provide a summary of the realized cash-settled amounts and third-party transportation, gathering, processing and compression expense which historically were reported as natural gas, NGLs and oil sales. This information is intended 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.
We believe that the presentation of PV-10 is relevant and useful to our investors as supplemental disclosure to the standardized measure, or after-tax amount, because it presents the discounted future net cash flows attributable to our proved reserves before taking into account future corporate income taxes and our current tax structure. While the standardized measure is dependent on the unique tax situation of each company, PV-10 is based on prices and discount factors that are consistent for all companies. Because of this, PV-10 can be used within the industry and by creditors and security analysts to evaluate estimated net cash flows from proved reserves on a more comparable basis.
RANGE RESOURCES CORPORATION (NYSE: RRC) is a leading U.S. independent oil and natural gas producer with operations focused in stacked-pay projects in the Appalachian Basin and North Louisiana. The Company pursues an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk development drilling opportunities. The Company is headquartered in Fort Worth, Texas. More information about Range can be found at www.rangeresources.com.
Included within this news release are certain “forward-looking statements” within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect Range’s current beliefs, expectations or intentions regarding future events. Words such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “outlook,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” and similar expressions are intended to identify such forward-looking statements.
All statements, except for statements of historical fact, made within regarding activities, events or developments the Company expects, believes or anticipates will or may occur in the future, such as those regarding future well costs, expected asset sales, well productivity, future liquidity and financial resilience, anticipated exports and related financial impact, NGL market supply and demand, improving commodity fundamentals and pricing, future capital efficiencies, future shareholder value, emerging plays, capital spending, anticipated drilling and completion activity, acreage prospectivity, expected pipeline utilization and future guidance information are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. Further information on risks and uncertainties is available in Range's filings with the Securities and Exchange Commission (SEC), including its most recent Annual Report on Form 10-K. Unless required by law, Range undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date they are made.
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 its probable and possible reserves in its filings with the SEC. Range uses certain broader terms such as "resource potential,” “unrisked resource potential,” "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 actually being 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 resource potential has not been fully risked by Range's management. “EUR”, or estimated ultimate recovery, refers to our management’s estimates of hydrocarbon quantities that may be recovered from a well completed as a producer in the area. These quantities may 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. Actual quantities that may be recovered from Range's interests could 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.
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. 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 on the SEC’s website at www.sec.gov or by calling the SEC at 1-800-SEC-0330.
SOURCE: Range Resources Corporation
Laith Sando, Vice President – Investor Relations
Michael Freeman, Director – Investor Relations & Hedging
John Durham, Senior Financial Analyst
Michael Mackin, Director of External Affairs
(a) See separate natural gas, NGLs and oil sales information table.
(b) Included in Brokered natural gas, marketing and other revenues in the 10-Q.
(c) 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.
(d) Reflects the change in market value of the vested Company stock held in the deferred compensation plan.
RANGE RESOURCES CORPORATION
RANGE RESOURCES CORPORATION
(a) Represents volumes sold regardless of when produced.
(b) Oil and NGLs are converted at the rate of one barrel equals six mcfe based upon the approximate relative energy content of oil to natural gas, which is not necessarily indicative of the relationship of oil and natural gas prices.
(c) Excluding third party transportation, gathering and compression costs.
(d) Net of transportation, gathering and compression costs.