|RANGE RESOURCES CORP filed this Form 8-K on 10/24/2018|
RANGE ANNOUNCES THIRD QUARTER 2018 FINANCIAL RESULTS
FORT WORTH, TEXAS, October 23, 2018 RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its third quarter 2018 financial results.
Commenting, Jeff Ventura, the Company’s CEO said, “Range continues to successfully execute on the plan outlined in the beginning of this year, delivering another quarter of record production and increasing cash flow by 27% compared to the prior-year third quarter. Following the recently-announced royalty sale, coupled with our exposure to improved liquids pricing, Range now expects leverage to be under 3.0x debt to EBITDAX at the end of this year, accelerating the de-levering process outlined in our five-year outlook by two years. Range continues to pursue additional accretive asset sales that will reduce leverage closer to our longer-term target of under 2.0x. At the same time, Range, as a leading NGL producer in Appalachia, is uniquely positioned to continue to benefit from improved domestic and international markets for NGL purity products.”
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.
Third Quarter 2018
GAAP revenues for third quarter 2018 totaled $811 million (a 68% increase compared to third quarter 2017), GAAP net cash provided from operating activities (including changes in working capital) was $229 million, compared to $189 million in third quarter 2017, and GAAP income was $48.5 million ($0.19 per diluted share) versus a net loss of $127.7 million ($0.52 per diluted share) in the prior-year third quarter. Third quarter earnings results include a $34.6 million derivative loss due to increases in future commodity prices compared to an $88.4 million derivative loss in the prior-year third quarter and a $0.2 million mark to market loss related to the deferred compensation plan compared to a $9.2 million gain in the prior-year third quarter.
Non-GAAP revenues for third quarter 2018 totaled $811 million, an increase of 38% compared to third quarter 2017, and cash flow from operations before changes in working capital, a non-GAAP measure, was $260 million, compared to $204 million in third quarter 2017. Adjusted net income comparable to analysts’ estimates, a non-GAAP measure, was $63.9 million ($0.26 per diluted share) in third quarter 2018, compared to $11.6 million ($0.05 per diluted share) in the prior-year third quarter, an increase of 420%.
The following table details Range’s average production and realized pricing for third quarter 2018:
Third 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 $3.36 per mcfe, a 17% increase from the prior-year third 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(a):
Third quarter 2018 drilling expenditures of $191 million funded the drilling and completion of 24 (24 net) wells. A 100% success rate was achieved. In addition, during third quarter 2018, $12.5 million was spent on acreage purchases and $1.5 million on gathering systems. Total capital expenditures year to date were $726 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.
Following third quarter 2018, Range signed and closed the sale of a proportionately reduced 1% overriding royalty in its Washington County, Pennsylvania leases for gross proceeds of $300 million.
Range’s Washington County properties encompass approximately 300,000 net surface acres that produced 1.8 Bcfe per day in the third quarter of 2018. The overriding royalty applies to existing and future Marcellus, Utica and Upper Devonian development on the subject leases, while excluding shallower and deeper formations. Post-close, Range maintains a net revenue interest of approximately 82% on the subject Washington County acreage. Cash flow to the buyer, after paying applicable transport costs, is expected to be approximately $25 million in 2019. The net proceeds were used to reduce total debt by an expected 7%, which lowers annualized interest expense by approximately $15 million, resulting in a net reduction in estimated 2019 cash flow of $10 million.
Range’s net production for third quarter 2018 averaged 2,267 Mmcfe per day, consisting of 1,530 Mmcf per day of natural gas, 111,469 barrels per day of NGLs and 11,314 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.
The table below summarizes wells turned to sales and the estimated activity for the remainder of the year. As a result of drilling longer laterals, Range has reduced the number of wells being turned to sales in the Marcellus from 100 down to 92. The total lateral feet and number of stages being completed for 2018 remains approximately the same.
Production for third quarter 2018 averaged approximately 1,988 net Mmcfe per day from the Appalachia division, a 24% increase over the prior-year third quarter. The southwest area of the division averaged 1,872 net Mmcfe per day during third quarter 2018, a 29% increase over third quarter 2017. This was achieved through continued operational improvements, exceptional well results across Range’s acreage position and additional outlets for ethane during the quarter. The northeast Marcellus properties averaged 98 net Mmcf per day and legacy acreage produced approximately 18 net Mmcf per day during the third quarter 2018.
In southwest Pennsylvania, Range recently drilled a lateral length of 18,566 feet, making it the longest lateral Marcellus well in the basin to date. Additionally, Range recently completed two 18,000 foot laterals that were drilled earlier this year and expects to announce results from these wells with year-end earnings.
Production for the division in third quarter 2018 averaged approximately 278 net Mmcfe per day. The division brought on line two wells during the quarter, and expects to bring on line one additional well during the remainder of the year for a total of 11 wells in 2018.
Marketing and Transportation
As highlighted on the second quarter 2018 earnings call, Appalachia has in-basin fractionation and control of purity products with access to international markets. Range expects the unique nature of the Appalachia NGL model will become evident over the next year, as purity products with access to international markets should garner premiums. Range, the only producer with propane capacity on Mariner East 1, has been able to capture above Mont Belvieu prices, on average, by exporting the majority of its propane to international markets since early 2016. In addition, the Company has been sending normal butane and remaining propane volumes this summer via local rail to Marcus Hook for export. In total, Range marketed approximately 80% of its corporate NGL production into purity markets during the third quarter. As a result of the Company’s current arrangements and the improved NGL market fundamentals, fourth quarter 2018 pre-hedge NGL differentials should improve to approximately 40% of WTI.
Energy Transfer’s Rover project, which is the last major natural gas transportation project for which Range has contracted capacity, received approval during third quarter 2018 for both the Majorsville and Burgettstown laterals, allowing Range to begin flowing volumes in September. The project enables Range to access additional Midwest and Gulf Coast markets, which should help reduce corporate basis volatility over the coming years.
Guidance – 2018
Production per day Guidance
Production for the fourth quarter of 2018 is expected to be approximately 2,255 to 2,265 Mmcfe per day. This excludes all Appalachia volumes associated with the 1% overriding royalty sale.
Production expectations for the full year 2018 remain approximately 11% year-over-year growth.
4Q 2018 Expense Guidance
4Q 2018 Natural Gas Price Differentials (including basis hedging): NYMEX minus $0.12
4Q 2018 NGL Differentials: 39% - 40% of WTI
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 fourth quarter 2018 natural gas production hedged at a weighted average floor price of $2.98 per Mmbtu. Similarly, Range has hedged over 75% of its fourth quarter 2018 projected crude oil production at a floor price of $53.20 and over 60% 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 $1.3 million as of September 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 $2.0 million on September 30, 2018.
Conference Call Information
A conference call to review the financial results is scheduled on Wednesday, October 24 at 9:00 a.m. ET. To participate in the call, please dial 866-900-7525 and provide conference code 8399762 about 10 minutes prior to the scheduled start time.
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.
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.