UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

      

FORM 10-Q

      

(Mark one)

 

For the quarterly period ended June 30, 2013

OR

 

For the transition period from                  to                 

Commission File Number: 001-12209

      

RANGE RESOURCES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

      

   

 

Registrant’s telephone number, including area code

(817) 870-2601

      

Former Name, Former Address and Former Fiscal Year, if changed since last report: Not applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ     No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).

Yes  þ     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

   

 

   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨     No  þ

163,396,396 Common Shares were outstanding on July 22, 2013.

      

      

   

   

   

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RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended June 30, 2013

Unless the context otherwise indicates, all references in this report to “Range,” “we,” “us,” or “our” are to Range Resources Corporation and its wholly-owned subsidiaries and its ownership interests in equity method investees.

TABLE OF CONTENTS

   

 

   

 

 

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PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

   

 

   

   

   

   

   

   

See accompanying notes.

 

 

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RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

   

 

   

   

   

   

   

   

   

   

   

   

See accompanying notes.

 

 

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RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

   

 

 

   

   

   

   

   

   

   

   

   

   

   

   

   

See accompanying notes.

 

 

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RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

   

 

   

   

   

See accompanying notes.

 

 

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RANGE RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

   

(1) SUMMARY OF ORGANIZATION AND NATURE OF BUSINESS

Range Resources Corporation (“Range,” “we,” “us,” or “our”) is a Fort Worth, Texas-based independent natural gas, natural gas liquids (“NGLs”) and oil company primarily engaged in the exploration, development and acquisition of natural gas and oil properties in the Appalachian and Southwestern regions of the United States. Our objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis. Range is a Delaware corporation with our common stock listed and traded on the New York Stock Exchange under the symbol “RRC.”

   

(2) BASIS OF PRESENTATION

Presentation

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Range Resources Corporation 2012 Annual Report on Form 10-K filed on February 27, 2013. The results of operations for the second quarter and the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for fair presentation of the results for the periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed. These consolidated financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission (the “SEC”) and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. Certain reclassifications have been made to prior year’s reported amounts in order to conform with the current year presentation. These reclassifications include gas purchases and other marketing costs which were previously reported in other income and are currently reported as a separate operating expense. These reclassifications have no impact on previously reported net income.

Impact Fee

In first quarter 2012, the Pennsylvania legislature passed an “impact fee” on unconventional natural gas and oil production. The impact fee is a per well annual fee imposed for a period of fifteen years on all unconventional wells drilled in Pennsylvania. The fee is based on the average annual price of natural gas and the Consumer Price Index. The annual fee per well declines each year over the fifteen-year time period as long as the well is producing. In first six months 2012, we recorded a retroactive impact fee of $24.7 million for wells drilled during 2011 and prior. This expense is reflected in our statements of operations as production and ad valorem taxes.

De-designation of Commodity Derivative Contracts

Effective March 1, 2013, we elected to discontinue hedge accounting prospectively. After March 1, 2013, both realized and unrealized gains and losses will be recognized in earnings immediately each quarter as derivative contracts are settled and marked to market. For second quarter 2013, unrealized gains of $103.8 million and for the six months ended June 30, 2013, unrealized gains of $22.4 million were included in our statements of operations that, prior to March 1, 2013, would have been deferred in accumulated other comprehensive income (“AOCI”) if we had continued using hedge accounting. Refer to Note 11 for additional information.

   

(3) NEW ACCOUNTING STANDARDS

Recently Adopted

In December 2011, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” requiring additional disclosures about offsetting and related arrangements. ASU 2011-11 is effective retrospectively for annual reporting periods beginning on or after January 1, 2013. Also, in January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” ASU 2013-01 revised and clarified the disclosures required by ASU No. 2011-11. We adopted these new requirements in first quarter 2013 and they did not have a material effect on our consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires information to be disclosed about the

 

 

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amounts reclassified out of AOCI by component. We adopted this new requirement in first quarter 2013 and it did not have a material effect on our consolidated financial statements.

   

(4) DISPOSITIONS

2013 Dispositions

In December 2012, we announced our plan to offer for sale certain of our Delaware and Permian Basin properties in southeast New Mexico and West Texas. On February 26, 2013, we announced we signed a definitive agreement to sell these assets for a price of $275.0 million, subject to normal post-closing adjustments. The agreement had an effective date of January 1, 2013 and consequently, operating net revenues after January 1, 2013 were a downward adjustment to the sales price. We closed this disposition on April 1 and we recognized a gain of approximately $83.5 million in second quarter 2013 related to this sale, before selling expenses of $4.2 million. Also in second quarter 2013, we received $14.2 million of proceeds from the sale of miscellaneous oil and gas properties in Pennsylvania and West Texas and we recognized a gain of $4.0 million on these transactions. In the first six months 2013, we also received $10.0 million of proceeds from the sale of miscellaneous oil and gas property in Pennsylvania.

2012 Dispositions

In June 2012, we sold a suspended well in the Marcellus Shale for proceeds of $2.5 million resulting in a pre-tax loss of $2.5 million. In March 2012, we sold seventy-five percent of a prospect in East Texas which included unproved properties and a suspended exploratory well to a third party for $8.6 million resulting in a pre-tax loss of $10.9 million. As part of this agreement, we retained a carried interest on the first well drilled and an overriding royalty of 2.5% to 5.0% in the prospect.

   

(5) INCOME TAXES

Income tax expense from operations was as follows (in thousands):

   

 

We compute our quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to our year-to-date income, except for discrete items. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For second quarter and the six months ended June 30, 2013 and 2012, our overall effective tax rate on pre-tax loss from operations was different than the federal statutory rate of 35% due primarily to state income taxes, valuation allowances and other permanent differences.

   

   

 

 

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(6) INCOME PER COMMON SHARE

Basic income or loss per share attributable to common shareholders is computed as (1) income or loss attributable to common shareholders (2) less income allocable to participating securities (3) divided by weighted average basic shares outstanding. Diluted income or loss per share attributable to common stockholders is computed as (1) basic income or loss attributable to common shareholders (2) plus diluted adjustments to income allocable to participating securities (3) divided by weighted average diluted shares outstanding. The following tables set forth a reconciliation of income or loss attributable to common shareholders to basic income or loss attributable to common shareholders to diluted income or loss attributable to common shareholders (in thousands except per share amounts):

   

 

 

   

The following table provides a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding (in thousands):

   

 

Weighted average common shares – basic for the three months ended June 30, 2013 excludes 2.6 million shares and the three months ended June 30, 2012 excludes 2.9 million shares of restricted stock held in our deferred compensation plans (although all awards are issued and outstanding upon grant). Weighted average common shares – basic for the six months ended June 30, 2013 excludes 2.7 million shares of restricted stock compared to 2.9 million in the same period of 2012. Stock appreciation rights (“SARs”) of 161,000 for the three months ended June 30, 2013 and 252,000 for the six months ended June 30, 2013 were outstanding but not included in the computations of diluted income from operations per share because the grant prices of the SARs were greater than the average market price of the common shares. SARs of 761,000 for the three months ended June 30, 2012 and 592,000 for the six months ended June 30, 2012 were outstanding but not included in the computations of diluted income from operations because the grant prices of the SARs were greater than the average market price of the common shares.

   

 

 

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(7) SUSPENDED EXPLORATORY WELL COSTS

We capitalize exploratory well costs until a determination is made that the well has either found proved reserves or that it is impaired. Capitalized exploratory well costs are presented in natural gas and oil properties in the accompanying consolidated balance sheets. If an exploratory well is determined to be impaired, the well costs are charged to exploration expense in the accompanying consolidated statements of operations. The following table reflects the changes in capitalized exploratory well costs for the six months ended June 30, 2013 and the year ended December 31, 2012 (in thousands except for number of projects):

   

 

As of June 30, 2013, $20.5 million of capitalized exploratory well costs have been capitalized for more than one year with five of the wells waiting on pipelines and three of the wells currently in the completion stage. Four of the wells are not operated by us and seven of the wells are in Pennsylvania. In first six months 2012, we sold a seventy-five percent interest in an East Texas exploratory well. Refer to Note 4 for additional information. The following table provides an aging of capitalized exploratory well costs that have been suspended for more than one year as of June 30, 2013 (in thousands):

   

 

   

   

(8) INDEBTEDNESS

We had the following debt outstanding as of the dates shown below (in thousands) (bank debt interest rate at June 30, 2013 is shown parenthetically; no interest was capitalized during the three months or the six months ended June 30, 2013 or 2012):

   

 

Bank Debt

In February 2011, we entered into an amended and restated revolving bank facility, which we refer to as our bank debt or our bank credit facility, which is secured by substantially all of our assets. The bank credit facility provides for an initial

 

 

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commitment equal to the lesser of the facility amount or the borrowing base. On June 30, 2013, the facility amount was $1.75 billion and the borrowing base was $2.0 billion. The bank credit facility provides for a borrowing base subject to redeterminations semi-annually and for event-driven unscheduled redeterminations. As part of our semi-annual bank review completed on April 8, 2013, our borrowing base was reaffirmed at $2.0 billion and our facility amount was also reaffirmed at $1.75 billion. Our current bank group is composed of twenty-eight financial institutions, with no one bank holding more than 9% of the total facility. The facility amount may be increased to the borrowing base amount with twenty days’ notice, subject to the banks agreeing to participate in the facility increase and payment of a mutually acceptable commitment fee to those banks. As of June 30, 2013, the outstanding balance under our bank credit facility was $309.0 million. Additionally, we had $84.7 million of undrawn letters of credit leaving $1.4 billion of borrowing capacity available under the facility. The bank credit facility matures on February 18, 2016. Borrowings under the bank credit facility can either be at the Alternate Base Rate (as defined) plus a spread ranging from 0.50% to 1.5% or LIBOR borrowings at the Adjusted LIBO Rate (as defined in the bank credit facility) plus a spread ranging from 1.5% to 2.5%. The applicable spread is dependent upon borrowings relative to the borrowing base. We may elect, from time to time, to convert all or any part of our LIBOR loans to base rate loans or to convert all or any of the base rate loans to LIBOR loans. The weighted average interest rate was 2.2% for the three months ended June 30, 2013 compared to 2.7% for the three months ended June 30, 2012. The weighted average interest rate was 2.1% for the six months ended June 30, 2013 compared to 2.3% for the six months ended June 30, 2012. A commitment fee is paid on the undrawn balance based on an annual rate of 0.375% to 0.50%. At June 30, 2013, the commitment fee was 0.375% and the interest rate margin was 1.5% on our LIBOR loans and 0.5% on our base rate loans. On June 30, 2013, the borrowings under the bank credit facility were at LIBOR.

Senior Subordinated Notes

In March 2013, we issued $750.0 million aggregate principal amount of 5.00% senior subordinated notes due 2023 (the “Outstanding Notes”) for net proceeds of $738.8 million after underwriting discounts and commissions of $11.2 million. The notes were issued at par. The offering of the Outstanding Notes were only offered to qualified institutional buyers and to Non- U.S. persons outside the United States in compliance with Rule 144A and Regulation S under the Securities Act of 1933 (the “Securities Act”). On June 19, 2013, substantially all of the Outstanding Notes were exchanged for an equal principal amount of registered 5.00% senior subordinated notes due 2013 pursuant to an effective registration statement on Form S-4 filed on April 26, 2013 under the Securities Act (the “Exchange Notes”). The Exchange Notes are identical to the Outstanding Notes except that the Exchange Notes are registered under the Securities Act and do not have restrictions on transfer, registration rights or provisions for additional interest. As used in this Form 10-Q, the term “5.00% Notes due 2023” refer to both the Outstanding Notes and the Exchange Notes. Interest on the 5.00% Notes due 2023 is payable semi-annually in March and September and is guaranteed by all of our subsidiary guarantors. We may redeem the 5.00% Notes due 2023, in whole or in part, at any time on or after March 15, 2018, at a redemption price of 102.5% of the principal amount as of March 15, 2018, declining to 100% on March 15, 2021 and thereafter. Before March 15, 2016, we may redeem up to 35% of the original aggregate principal amount of the 5.00% Notes due 2023 at a redemption price equal to 105% of the principal amount thereof, plus accrued and unpaid interest, if any, with the proceeds of certain equity offerings, provided that 65% of the aggregate principal amount of 5.00% Notes due 2023 remains outstanding immediately after the occurrence of such redemption and also provided such redemption shall occur within 60 days of the date of the closing of the equity offering. On closing of the 5.00% Notes due 2023, we used the proceeds to pay down our outstanding bank credit facility balance. We did not receive any proceeds from the issuance of the Exchange Notes.

If we experience a change of control, bondholders may require us to repurchase all or a portion of all of our senior subordinated notes at 101% of the aggregate principal amount plus accrued and unpaid interest, if any. All of the senior subordinated notes and the guarantees by our subsidiary guarantors are general, unsecured obligations and are subordinated to our bank debt and will be subordinated to future senior debt that we or our subsidiary guarantors are permitted to incur under the bank credit facility and the indentures governing the subordinated notes.

Early Extinguishment of Debt

On April 2, 2013, we announced a call for the redemption of $250.0 million of our outstanding 7.25% senior subordinated notes due 2018 at 103.625% of par which were redeemed on May 2, 2013. In second quarter 2013, we recognized a $12.3 million loss on extinguishment of debt, including transaction call premium cost as well as expensing of the remaining deferred financing costs on the repurchased debt.

 

 

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Guarantees

Range Resources Corporation is a holding company which owns no operating assets and has no significant operations independent of its subsidiaries. The guarantees by our subsidiaries of our senior subordinated notes are full and unconditional and joint and several, subject to certain customary release provisions. A subsidiary guarantor may be released from its obligations under the guarantee:

 

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in the event of a sale or other disposition of all or substantially all of the assets of the subsidiary guarantor or a sale or other disposition of all the capital stock of the subsidiary guarantor, to any corporation or other person (including an unrestricted subsidiary of Range) by way of merger, consolidation, or otherwise; or

 

·	if Range designates any restricted subsidiary that is a guarantor to be an unrestricted subsidiary in accordance with the terms of the indenture.

Debt Covenants and Maturity

Our bank credit facility contains negative covenants that limit our ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain hedging contracts, change the nature of our business or operations, merge, consolidate, or make investments. In addition, we are required to maintain a ratio of debt to EBITDAX (as defined in the credit agreement) of no greater than 4.25 to 1.0 and a current ratio (as defined in the credit agreement) of no less than 1.0 to 1.0. We were in compliance with our covenants under the bank credit facility at June 30, 2013.

The indentures governing our senior subordinated notes contain various restrictive covenants that are substantially identical to each other and may limit our ability to, among other things, pay cash dividends, incur additional indebtedness, sell assets, enter into transactions with affiliates, or change the nature of our business. At June 30, 2013, we were in compliance with these covenants.

   

(9) ASSET RETIREMENT OBLIGATIONS

Our asset retirement obligations primarily represent the estimated present value of the amounts we will incur to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include estimates of plugging and abandonment costs, estimated future inflation rates and well life. The inputs are calculated based on historical data as well as current estimated costs. A reconciliation of our liability for plugging and abandonment costs for the six months ended June 30, 2013 is as follows (in thousands):

   

 

Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying statements of operations.

   

 

 

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(10) CAPITAL STOCK

We have authorized capital stock of 485.0 million shares which includes 475.0 million shares of common stock and 10.0 million shares of preferred stock. We currently have no preferred stock issued or outstanding. The following is a schedule of changes in the number of common shares outstanding since the beginning of 2012:

   

 

   

   

(11) DERIVATIVE ACTIVITIES

We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We do not utilize complex derivatives as we typically utilize commodity swaps or collars to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. In 2011, we sold NGLs derivative swap contracts (“sold swaps”) for the natural gasoline (or C5) component of natural gas liquids and in 2012, we entered into purchased derivative swaps (“re-purchased swaps”) for C5 volumes. These re-purchased swaps were, in some cases, with the same counterparties as our sold swaps. We entered into these re-purchased swaps to lock in certain natural gasoline derivative gains. In second quarter 2012, we also entered into NGL derivative swap contracts for the propane (or C3) component of NGLs. The fair value of these contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”), approximated a net unrealized pre-tax gain of $127.5 million at June 30, 2013. These contracts expire monthly through December 2015. The following table sets forth our derivative volumes by year as of June 30, 2013:

   

 

 

 

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Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. Fair value is determined based on the difference between the fixed contract price and the underlying market price at the determination date. Changes in the fair value of our derivatives that qualified for hedge accounting are recorded as a component of AOCI in the stockholders’ equity section of the accompanying consolidated balance sheets, which is later transferred to natural gas, NGLs and oil sales when the underlying physical transaction occurs and the hedging contract is settled. As of June 30, 2013, an unrealized pre-tax derivative gain of $60.5 million was recorded in AOCI. See additional discussion below regarding the discontinuance of hedge accounting. If the derivative does not qualify as a hedge or is not designated as a hedge, changes in fair value of these non-hedge derivatives are recognized in earnings in derivative fair value income or loss.

For those derivative instruments that qualified or were designated for hedge accounting, settled transaction gains and losses are determined monthly, and are included as increases or decreases to natural gas, NGLs and oil sales in the period the hedged production is sold. Through February 28, 2013, we had elected to designate our commodity derivative instruments that qualified for hedge accounting as cash flow hedges. Natural gas, NGLs and oil sales include $30.5 million of gains in second quarter 2013 compared to gains of $78.6 million in the same period of 2012 related to settled hedging transactions. Natural gas, NGLs and oil sales include $67.0 million of gains in the first six months 2013 compared to gains of $136.2 million in the same period of 2012. Any ineffectiveness associated with these hedge derivatives is reflected in derivative fair value income in the accompanying statements of operations. The ineffective portion is generally calculated as the difference between the changes in fair value of the derivative and the estimated change in future cash flows from the item hedged. Derivative fair value income for the three months ended June 30, 2013 includes no ineffective gains or losses (unrealized and realized) compared to a gain of $1.9 million in the three months ended June 30, 2012. Derivative fair value income for the six months ended June 30, 2013 includes ineffective losses (unrealized and realized) of $2.9 million compared to a gain of $2.1 million in the same period of 2012. During the six months ended June 30, 2013, we recognized a pre-tax gain of $3.2 million in derivative fair value income as a result of the discontinuance of hedge accounting where we determined the transaction was probable not to occur primarily due to the sale of our Delaware and Permian Basin properties in New Mexico and West Texas.

Discontinuance of Hedge Accounting

Effective March 1, 2013, we elected to de-designate all commodity contracts that were previously designated as cash flow hedges and elected to discontinue hedge accounting prospectively. AOCI included $103.6 million ($63.2 million after tax) of unrealized net gains, representing the marked-to-market value of the effective portion of our cash flow hedges as of February 28, 2013. As a result of discontinuing hedge accounting, the marked-to-market values included in AOCI as of the de-designation date were frozen and will be reclassified into earnings in future periods as the underlying hedged transactions occur. As of June 30, 2013, we expect to reclassify into earnings $49.5 million of unrealized net gains in the remaining months of 2013 and $10.9 million of unrealized net gains in 2014 from AOCI.

With the election to de-designate hedging instruments, all of our derivative instruments continue to be recorded at fair value with unrealized gains and losses recognized immediately in earnings rather than in AOCI. These marked-to-market adjustments will produce a degree of earnings volatility that can be significant from period to period, but such adjustments will have no cash flow impact relative to changes in market prices. The impact to cash flow occurs upon settlement of the underlying contract.

   

 

 

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Derivative Fair Value Income

The following table presents information about the components of derivative fair value income for the three months and the six months ended June 30, 2013 and 2012 (in thousands):

   

 

 

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of June 30, 2013 and December 31, 2012 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):

   

 

   

 

   

 

   

 

 

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The table below provides data about the fair value of our derivative contracts. Derivative assets and liabilities shown below are presented as gross assets and liabilities, without regard to master netting arrangements, which are considered in the presentation of derivative assets and liabilities in the accompanying consolidated balance sheets (in thousands):

   

 

 

   

   

 

 

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The effects of our cash flow hedges (or those derivatives that previously qualified for hedge accounting) on accumulated other comprehensive income in the accompanying consolidated balance sheets is summarized below (in thousands):

   

 

 

   

   

The effects of our non-hedge derivatives (or those derivatives that do not qualify for hedge accounting) and the ineffective portion of our hedge derivatives on our consolidated statements of operations is summarized below (in thousands):

   

   

 

   

 

   

   

   

 

 

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(12) FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.

The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:

 

·

Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

·	Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

·	Level 3 – Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.

   

 

 

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Fair Values – Recurring

We use a market approach for our recurring fair value measurements and endeavor to use the best information available. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):

   

 

   

 

Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using end of period market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes.

Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included in other assets in the accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends, and mark-to-market gains or losses are included in deferred compensation plan expense in the accompanying statement of operations. For second quarter 2013, interest and dividends were $629,000 and the mark-to-market adjustment was a loss of $1.0 million compared to interest and dividends of $125,000 and mark-to-market loss of $2.1 million in the same period of the prior year. For six months ended June 30, 2013, interest and dividends were $668,000 and the mark-to-market adjustment was a gain of $586,000 compared to interest and dividends of $275,000 and mark-to-market gain of $1.9 million in the same period of the prior year.

Fair Values—Non-recurring

We review our long-lived assets to be held and used for impairment including proved natural gas and oil properties, whenever events or circumstances indicate the carrying value of those assets may not be recoverable. In second quarter 2013, we evaluated certain surface property we own which included consideration of the potential sale of the assets and recognized an impairment charge of $741,000. The following table presents the fair value of these assets at June 30, 2013 measured at fair value on a non-recurring basis (in thousands):

   

 

   

   

 

 

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Fair Values—Reported

The following table presents the carrying amounts and the fair values of our financial instruments as of June 30, 2013 and December 31, 2012 (in thousands):

 

 

Our current assets and liabilities contain financial instruments, the most significant of which are trade accounts receivable and payable. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations including (1) the short-term duration of the instruments and (2) our historical incurrence of and expected future insignificance of bad debt expense. Non-financial liabilities initially measured at fair value include asset retirement obligations. Refer to Note 9 for additional information.

Concentrations of Credit Risk

As of June 30, 2013, our primary concentrations of credit risk are the risks of collecting accounts receivable and the risk of counterparties’ failure to perform under derivative obligations. Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate security are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectible receivables was $2.5 million at June 30, 2013 and $2.4 million at December 31, 2012. As of June 30, 2013, our derivative contracts consist of swaps and collars. Our exposure is diversified primarily among major investment grade financial institutions, the majority of which we have master netting agreements which provide for offsetting payables against receivables from separate derivative contracts. To manage counterparty risk associated with our derivatives, we select and monitor our counterparties based on our assessment of their financial strength and/or credit ratings. We may also limit the level of exposure with any single counterparty. At June 30, 2013, our derivative counterparties include fifteen financial institutions, of which all but two are secured lenders in our bank credit facility. At June 30, 2013, our net derivative assets include a receivable from the two counterparties not included in our bank credit facility of $7.9 million. For those counterparties who are not secured lenders in our bank credit facility or for which we do not have master netting arrangements, net derivative asset values are determined, in part, by reviewing credit default swap spreads for the counterparties. Net derivative liabilities are determined, in part, by using our market-based credit spread. None of our derivative contracts have margin requirements or collateral provisions that would require funding prior to the scheduled cash settlement date. We have also entered into the International Swaps and Derivatives Association Master Agreements (“ISDA Agreements”) with our counterparties. The terms of the ISDA Agreements provide us and our counterparties with rights of set off upon the occurrence of defined acts of default by either us or a counterparty to a derivative, whereby the party not in default may set off all derivative liabilities owed to the defaulting party against all derivative asset receivables from the defaulting party. We continue to monitor developments surrounding the derivative regulations adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act. We do not anticipate any significant changes to our hedging program as a result of this law.

 

 

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(13) STOCK-BASED COMPENSATION PLANS

Stock-Based Awards

Stock options represent the right to purchase shares of stock in the future at the fair value of the stock on the date of grant. Most stock options granted under our stock option plans vest over a three-year period and expire five years from the date they are granted. Beginning in 2005, we began granting SARs to reduce the dilutive impact of our equity plans. Similar to stock options, SARs represent the right to receive a payment equal to the excess of the fair market value of shares of common stock on the date the right is exercised over the value of the stock on the date of grant. All SARs granted under the 2005 Plan will be settled in shares of stock, vest over a three-year period and have a maximum term of five years from the date they are granted. Beginning in first quarter 2011, the Compensation Committee of the Board of Directors also began granting restricted stock units under our equity-based stock compensation plans. These restricted stock units, which we refer to as restricted stock Equity Awards, vest over a three-year period. All awards granted have been issued at prevailing market prices at the time of grant and the vesting of these shares is based upon an employee’s continued employment with us.

The Compensation Committee also grants restricted stock to certain employees and non-employee directors of the Board of Directors as part of their compensation. Upon grant of these restricted shares, which we refer to as restricted stock Liability Awards, the shares generally are placed in our deferred compensation plan and, upon vesting, employees are allowed to take withdrawals either in cash or in stock. Compensation expense is recognized over the balance of the vesting period, which is typically three years for employee grants and immediate vesting for non-employee directors. All restricted stock awards are issued at prevailing market prices at the time of the grant and vesting is based upon an employee’s continued employment with us. Prior to vesting, all restricted stock awards have the right to vote such shares and receive dividends thereon. These Liability Awards are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market adjustment is reported as deferred compensation plan expense in the accompanying consolidated statements of operations.

Total Stock-Based Compensation Expense

Stock-based compensation represents amortization of restricted stock grants and SARs expense. Unlike the other forms of stock-based compensation, the mark-to-market adjustment of the liability related to the vested restricted stock held in our deferred compensation plans is directly tied to the change in our stock price and not directly related to the functional expenses and therefore, is not allocated to the functional categories. The following table details the allocation of stock-based compensation that is allocated to functional expense categories (in thousands):

   

 

Stock and Option Plans

We have two active equity-based stock plans, the 2005 Plan and the Director Plan. Under these plans, incentive and non-qualified stock options, SARs, restricted stock units and various other awards may be issued to non-employee directors and employees pursuant to decisions of the Compensation Committee, which is comprised of only non-employee, independent directors. All awards granted under these plans have been issued at prevailing market prices at the time of the grant. Of the 2.7 million grants outstanding at June 30, 2013, all are grants relating to SARs. Information with respect to SARs activity is summarized below:

   

 

 

 

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Stock Appreciation Right Awards

During first six months 2013, we granted SARs to officers and non-officer employees. The weighted average grant date fair value per share of these SARs, based on our Black-Scholes-Merton assumptions, is shown below:

   

 

Restricted Stock Awards

Equity Awards

In first six months 2013, we granted 388,700 restricted stock Equity Awards to employees at an average grant price of $71.05 compared to 359,700 restricted stock Equity Awards granted to employees at an average grant price of $63.37 in the same period of 2012. These awards generally vest over a three-year period. We recorded compensation expense for these Equity Awards of $9.5 million in the first six months 2013 compared to $5.2 million in the same period of 2012. Equity Awards are not issued to employees until they are vested. Employees do not have the option to receive cash.

Liability Awards

In first six months 2013, we granted 406,100 shares of restricted stock Liability Awards as compensation to employees at an average price of $75.45 with vesting generally over a three-year period and 18,300 were granted to non-employee directors at an average price of $77.26 with immediate vesting. In the same period of 2012, we granted 355,400 shares of Liability Awards as compensation to employees at an average price of $63.87 with vesting generally over a three-year period and 14,700 were granted to non-employee directors at an average price of $64.35 with immediate vesting. We recorded compensation expense for Liability Awards of $11.1 million in first six months 2013 compared to $10.2 million in the same period of 2012. Substantially all of these awards are held in our deferred compensation plan, are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market adjustment is reported as deferred compensation expense in our consolidated statements of operations (see additional discussion below).

A summary of the status of our non-vested restricted stock outstanding at June 30, 2013 is summarized below:

   

 

   

Deferred Compensation Plan

Our deferred compensation plan gives non-employees directors, officers and key employees the ability to defer all or a portion of their salaries and bonuses and invest in Range common stock or make other investments at the individual’s discretion. Range provides a partial matching contribution which vests over three years. The assets of the plans are held in a grantor trust, which we refer to as the Rabbi Trust, and are therefore available to satisfy the claims of our creditors in the event of bankruptcy or insolvency. Our stock held in the Rabbi Trust is treated as a liability award as employees are allowed to take withdrawals from the Rabbi Trust either in cash or in Range stock. The liability for the vested portion of the stock held in the

 

 

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Rabbi Trust is reflected as deferred compensation liability in the accompanying consolidated balance sheets and is adjusted to fair value each reporting period by a charge or credit to deferred compensation plan expense on our consolidated statements of operations. The assets of the Rabbi Trust, other than our common stock, are invested in marketable securities and reported at their market value as other assets in the accompanying consolidated balance sheets. The deferred compensation liability reflects the vested market value of the marketable securities and Range stock held in the Rabbi Trust. Changes in the market value of the marketable securities and changes in the fair value of the deferred compensation plan liability are charged or credited to deferred compensation plan expense each quarter. We recorded mark-to-market income of $6.9 million in second quarter 2013 compared to mark-to-market loss of $9.3 million in second quarter 2012. We recorded mark-to-market loss of $35.5 million in the six months ended June 30, 2013 compared to $1.5 million in the same period of 2012. The Rabbi Trust held 2.9 million shares (2.3 million of vested shares) of Range stock at June 30, 2013 compared to 2.7 million shares (2.3 million of vested shares) at December 31, 2012.

   

(14) SUPPLEMENTAL CASH FLOW INFORMATION

   

 

   

   

(15) COMMITMENTS AND CONTINGENCIES

Litigation

James A. Drummond and Chris Parrish v. Range Resources-Midcontinent, LLC et al.; pending in the District Court of Grady County, State of Oklahoma; Case No. CJ-2010-510

Two individuals (one of whom is now deceased), only one of which was a current royalty owner, filed suit against Range Resources Corporation and two of our subsidiaries, including the proper defendant Range Resources-Midcontinent, LLC, in the District Court of Grady County, Oklahoma. This suit is similar to a number of cases filed in Oklahoma asserting claims that royalty owners are entitled to payment of royalties on several different categories of alleged “deductions” applied by third parties who transport and process natural gas production. The alleged deductions include fuel used by the third party in the transportation and processing of gas, condensate removed by the third party after the point of sale, the contractually agreed natural gas liquids recovery percentages, the percentage of proceeds contracts’ contractually agreed pricing percentages and other similar alleged “deductions.” In addition to the claims made with respect to the alleged categories of deductions, the Plaintiffs in this litigation have alleged fraud and the existence of a fiduciary duty to the royalty owners to attempt to support an argument that no statute of limitations applies, and the Plaintiffs also claim that interest accrues on the alleged damages at 12% compounded annually. As previously disclosed, on February 19, 2013, the District Court entered an order certifying a class of royalty owners as requested by the Plaintiffs and we appealed the certification order. While this appeal was pending, the parties successfully mediated the case in May 2013 and we executed a Stipulation and Agreement of Settlement, with an effective date of May 31, 2013, providing for a cash payment to the class in the amount of $87.5 million in settlement of all claims made by the class for the period prior to May 31, 2013. Pursuant to the settlement agreement, on June 28, 2013, we paid $87.5 million into an escrow account. While the settlement is subject to approval by the Court, we currently expect the settlement will ultimately receive final approval.

We are the subject of, or party to, a number of other pending or threatened legal actions, administrative proceedings and claims arising in the ordinary course of our business. While many of these matters involve inherent uncertainty, we believe that the amount of the liability, if any, ultimately incurred with respect to proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations. We will continue to evaluate our litigation quarterly and will establish and adjust any litigation reserves as appropriate to reflect our assessment of the then current status of litigation.

 

 

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Transportation and Gathering Contracts and Hydraulic Fracturing Services

In the six months ended June 30, 2013, we recognized rate adjustments on certain existing transportation and gathering contracts which increased our transportation and gathering commitments approximately $135.5 million over the next 10 years.

(16) Capitalized Costs and Accumulated Depreciation, Depletion and Amortization ^(a)

   

 

^(a) Includes capitalized asset retirement costs and the associated accumulated amortization.

(17) Costs Incurred for Property Acquisition, Exploration and Development ^(a)

   

 

^(a)Includes cost incurred whether capitalized or expensed.

   

   

       

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our business and results of operations together with our present financial condition. Certain sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business. These statements contain words such as “anticipates,” “believes,” “expects,” “targets,” “plans,” “projects,” “could,” “may,” “should,” “would” or similar words indicating that future outcomes are uncertain. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in the forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. For additional risk factors affecting our business, see Item 1A. Risk Factors as filed with our Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the SEC on February 27, 2013.

Overview of Our Business

We are a Fort Worth, Texas-based independent natural gas, natural gas liquids (“NGLs”) and oil company primarily engaged in the exploration, development and acquisition of natural gas and oil properties in the Appalachian and Southwestern regions of the United States. We operate in one segment and have a single company-wide management team that administers all properties as a whole rather than by discrete operating segments.

Our objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis. Our strategy to achieve our objective is to increase reserves and production through internally generated drilling projects occasionally coupled with complementary acquisitions. Our revenues, profitability and future growth depend substantially on prevailing prices for natural gas, NGLs and crude oil and on our ability to economically find, develop, acquire and produce natural gas, NGLs and crude oil reserves. We include condensate in our crude oil captions below. We use the successful efforts method of accounting for our natural gas, NGLs and oil activities. Our corporate headquarters is located at 100 Throckmorton Street, Fort Worth, Texas.

Market Conditions

Prices for our products significantly impact our revenue, net income and cash flow. Natural gas, NGLs and oil are commodities and prices for commodities are inherently volatile. The following table lists average New York Mercantile Exchange (“NYMEX”) prices for natural gas and oil and the Mont Belvieu NGL composite price for the three months and the six months ended June 30, 2013 and 2012:

   

 

^(a) Based on weighted average of bid week prompt month prices.

 

 

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Consolidated Results of Operations

Overview of Second Quarter 2013 Results

During second quarter 2013, we achieved the following financial and operating results:

 

·	increased revenue from the sale of natural gas, NGLs and oil by 47% from the same period of 2012;

 

·	achieved 27% production growth from the same period of 2012;

 

·	continued expansion of our activities in the Marcellus Shale in Pennsylvania by growing production, proving up acreage and acquiring additional unproved acreage;

 

·	continued expansion of our activities in the horizontal Mississippian play in Oklahoma by growing production and acquiring additional unproved acreage;

 

·	reduced direct operating expenses per mcfe 5% from the same period of 2012;

 

·	reduced our depletion, depreciation and amortization (“DD&A”) rate 13% from the same period of 2012;

 

·	received proceeds of $257.9 million primarily from the sale of our New Mexico and West Texas properties;

 

·	redeemed all $250.0 million aggregate principal amount of our 7.25% senior subordinated notes due 2018;

 

·	entered into additional derivative contracts for 2013, 2014 and 2015; and

 

·	realized $78.6 million of cash flow from operating activities (after $87.5 million Oklahoma lawsuit payment).

For the second quarter, total revenues increased $224.4 million or 50% over the same period of 2012. This increase was due to significantly higher production volumes, an increase in the mark-to-market gain from derivatives, higher realized prices and a higher gain on the sale of assets. Our second quarter 2013 production growth was due to the continued success of our drilling program, particularly in the Marcellus Shale. Second quarter 2013 natural gas production increased 24% from the comparable period of 2012 and, as we continue to focus our efforts on the growth of our liquids production, second quarter production for oil and NGLs increased over 35% from the same period of the prior year.

Overview of Six Months 2013 Results

During the six months ending June 30, 2013, we achieved the following financial and operating results:

 

·	increased revenue from the sale of natural gas, NGLs and oil by 36% from the same period of 2012;

 

·	achieved 29% production growth from the same period of 2012;

 

·	reduced direct operating expense per mcfe 13% from the same period of 2012;

 

·	reduced our DD&A rate 13% from the same period of 2012;

 

·	continued our expansion in the Marcellus Shale and the horizontal Mississippian plays;

 

·	issued $750.0 million of new 5% senior subordinated notes due 2023;

 

·	redeemed all $250.0 million aggregate principal amount of our 7.25% senior subordinated notes due 2018;

 

·	received proceeds of $296.1 million from the sale of non-core assets;

 

·	entered into additional derivative contracts for 2013, 2014 and 2015; and

 

·	realized $279.9 million of cash flow from operating activities (after $87.5 million Oklahoma lawsuit payment).

Total revenues increased $292.7 million or 42% in the six months ended June 30, 2013 compared to the same period in 2012. This increase was due to significantly higher production volumes and higher gains on the sale of assets partially offset by a lower mark-to-market gain from derivatives. For the six months ended June 30, 2013, natural gas production increased 28% while liquids production increased 33% from the same period of the prior year.

We believe natural gas, NGLs and oil prices will remain volatile and will be affected by, among other things, weather, the U.S. and worldwide economy, new technology and the level of oil and gas production in North America and worldwide. Although we have entered into derivative contracts covering a portion of our production volumes for the remainder of 2013 and for 2014 and 2015, a sustained lower price environment would result in lower prices for unprotected volumes and reduce the prices that we can enter into derivative contracts for additional volumes in the future. As a result of relatively higher current prices for oil and NGLs than for natural gas, we continue to focus our capital budget expenditures on higher return oil and liquids-rich gas drilling activities.

 

 

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Natural Gas, NGLs and Oil Sales, Production and Realized Price Calculations

Our revenues vary primarily as a result of changes in realized commodity prices, production volumes and the value of certain of our derivative contracts. We generally sell natural gas, NGLs and oil under two types of agreements, which are common in our industry. Revenue from the sale of natural gas, NGLs and oil sales include netback arrangements where we sell natural gas and oil at the wellhead and collect a price, net of transportation incurred by the purchaser. In this instance, we record revenue at the price we receive from the purchaser. Revenues are also realized from sales arrangements where we sell natural gas or oil at a specific delivery point and receive proceeds from the purchaser with no transportation deduction. Third party transportation costs we incur to get our commodity to the delivery point are reported in transportation, gathering and compression expense. Hedges included in natural gas, NGLs and oil sales reflect settlements on those derivatives that qualified for hedge accounting. Cash settlements and changes in the market value of derivative contracts that are not accounted for as hedges are included in derivative fair value income or loss in the statement of operations. For more information on revenues from derivative contracts that are not accounted for as hedges, see Derivative fair value income discussion below. Effective March 1, 2013, we elected to de-designate all commodity contracts that were previously designated as cash flow hedges and elected to discontinue hedge accounting prospectively. Refer to Note 11 to the consolidated financial statements for more information.

In second quarter 2013, natural gas, NGLs and oil sales increased 47% from the same period of 2012 with a 27% increase in production and a 16% increase in realized prices. In the first six months 2013, natural gas, NGLs and oil sales increased 36% from the same period of 2012 with a 29% increase in production and a 5% increase in realized prices. The following table illustrates the primary components of natural gas, NGLs and oil sales for the three months and the six months ended June 30, 2013 and 2012 (in thousands):

   

 

 

   

 

 

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Our production continues to grow through drilling success as we place new wells on production offset by the natural decline of our natural gas and oil wells and asset sales. For second quarter 2013, our production volumes increased 34% in our Appalachian region and decreased 8% in our Southwestern region, primarily due to the sale of our Delaware and Permian Basin properties in New Mexico and West Texas, when compared to the same period of 2012. For the first six months 2013, our production volumes increased 38% in our Appalachian region and decreased 7% in our Southwestern region when compared to the same period of 2012. Our production for the three months and the six months ended June 30, 2013 and 2012 is set forth in the following table:

   

 

 

Our average realized price (including all derivative settlements and third-party transportation costs) received during second quarter 2013 was $4.23 per mcfe compared to $4.06 per mcfe in the same period of 2012. Our average realized price (including all derivative settlements and third-party transportation costs) received was $4.24 in the six months ended June 30, 2013 compared to $4.27 in the same period of the prior year.  Because we record transportation costs on two separate bases, as required by U.S. GAAP, we believe computed final realized prices should include the total impact of transportation, gathering and compression expense. Our average realized price (including all derivative settlements and third-party transportation costs) calculation also includes all cash settlements for derivatives, whether or not they qualified for hedge accounting. Average sales prices (wellhead) do not include derivative settlements or third party transportation costs which are reported in transportation, gathering and compression expense on the accompanying statements of operations. Average sales prices (wellhead) do include transportation costs where we receive net revenue proceeds. Average realized price calculations for the three months and the six months ended June 30, 2013 and 2012 are shown below:

   

 

   

 

 

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Derivative fair value income was $137.8 million in second quarter 2013 compared to $148.6 million in the same period of 2012. Derivative fair value income was $37.9 million in the six months ended June 30, 2013 compared to $87.7 million in the same period of 2012. Our derivatives that do not qualify or are not designated for hedge accounting are accounted for using the mark-to-market accounting method whereby all realized and unrealized gains and losses related to these contracts are included in derivative fair value income in the accompanying consolidated statements of operations. Mark-to-market accounting treatment results in volatility of our revenues as unrealized gains and losses from derivatives are included in total revenue. As commodity prices increase or decrease, such changes will have an opposite effect on the mark-to-market value of our derivatives. Gains on our derivatives generally indicate lower wellhead revenues in the future while losses indicate higher future wellhead revenues. Hedge ineffectiveness, also included in derivative fair value income, is associated with contracts that qualified for hedge accounting. The ineffective portion is calculated as the difference between the changes in the fair value of the derivative and the estimated change in future cash flows from the item being hedged. Effective March 1, 2013, we elected to discontinue hedge accounting prospectively. After March 1, 2013, all realized and unrealized gains and losses will be recognized in earnings immediately as derivative contracts are settled or marked to market.

   

 

 

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The following table presents information about the components of derivative fair value income for the three months and the six months ended June 30, 2013 and 2012 (in thousands):

   

 

 

Gain (loss) on the sale of assets was a gain of $83.3 million in second quarter 2013 compared to a loss of $3.2 million in the same period of 2012. In second quarter 2013, we recorded a gain on the sale of our New Mexico and West Texas properties of $83.5 million, before selling expenses. In second quarter 2012, we recorded a $2.5 million loss on the sale of a Marcellus exploration well. Gain (loss) on the sale of assets was a gain of $83.1 million in the first six months 2013 compared to a loss of $13.7 million in the same period of 2012. In the first six months 2012, we also sold a seventy-five percent interest in an East Texas prospect which included a suspended exploratory well and unproved properties for proceeds of $8.6 million resulting in a pre-tax loss of $10.9 million.

Brokered natural gas, marketing and other revenue in second quarter 2013 was $14.6 million compared to $5.2 million in the same period of 2012. The second quarter 2013 includes income from equity method investments of $353,000 and revenue from marketing and the sale of brokered gas of $14.4 million. The second quarter 2012 includes income from equity method investments of $502,000 and revenue from marketing and the sale of brokered gas of $5.4 million. Brokered natural gas, marketing and other revenue in the first six months 2013 was $35.7 million compared to $9.8 million in the same period of 2012. The first six months 2013 includes income from equity method investments of $273,000 and $35.5 million of revenue from marketing and the sale of brokered gas. The first six months 2012 includes income from equity method investments of $818,000 and $8.7 million of revenue from marketing and the sale of brokered gas. These revenues are increasing due to an increase in brokered volumes.

We believe some of our expense fluctuations are best analyzed on a unit-of-production, or per mcfe, basis. The following presents information about certain of our expenses on a per mcfe basis for the three months and the six months ended June 30, 2013 and 2012:

   

 

Direct operating expense was $32.6 million in second quarter 2013 compared to $27.0 million in the same period of 2012. We experience increases in operating expenses as we add new wells and manage existing properties. Direct operating expenses include normally recurring expenses to operate and produce our wells, non-recurring well workovers and repair-related expenses. Even though our production volumes increased 27%, on an absolute basis, our spending for direct operating expenses for second quarter 2013 increased 21% with an increase in the number of producing wells, higher workover costs, higher field services and personnel costs and somewhat offset by the sale of certain non-core assets at the beginning of second quarter 2013. We incurred $2.1 million of workover costs in second quarter 2013 compared to $632,000 of workover costs in the same period of 2012.

 

 

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On a per mcfe basis, direct operating expense in second quarter 2013 declined 5% from the same period of 2012, with the decrease consisting of lower equipment rental and well services partially offset by higher workover and personnel costs. We expect to experience lower costs per mcfe as we increase production from our dry gas Marcellus Shale wells due to their lower operating cost relative to our other operating areas somewhat offset by higher operating costs on our Marcellus Shale liquids-rich wells. Operating costs in the Mississippian play are higher on a per mcfe basis than the Marcellus Shale play. As production increases from the Mississippian play, our direct operating expenses per mcfe are expected to begin to increase.

Direct operating expense was $62.8 million in the six months ended June 30, 2013 compared to $56.1 million in the same period of 2012. Our production volumes increased 29%, on an absolute basis, our spending for direct operating expenses only increased 12% with an increase in the number of producing wells, higher utilities, higher well services, workovers and personnel costs somewhat offset by the sale of certain non-core assets.  We incurred $3.5 million of workover costs in the six months ended June 30, 2013 compared to $2.2 million in the same period of 2012. On a per mcfe basis, direct operating expense in the six months ended June 30, 2013 decreased 13% to $0.39 from $0.45 the same period of 2012, with the decrease consisting of lower well services. Stock-based compensation expense represents the amortization of restricted stock grants and SARs as part of the compensation of field employees. The following table summarizes direct operating expenses per mcfe for the three months and the six months ended June 30, 2013 and 2012:

   

 

Production and ad valorem taxes are paid based on market prices, not hedged prices. This expense category also includes the Pennsylvania impact fee that was assessed in 2012. Production and ad valorem taxes (excluding the impact fee) were $4.1 million in second quarter 2013 compared to $4.7 million in the same period of 2012. On a per mcfe basis, production and ad valorem taxes (excluding the impact fee) decreased to $0.05 in second quarter 2013 compared to $0.07 in the same period of 2012 due to an increase in volumes not subject to production taxes and the sale of non-core assets in New Mexico and West Texas partially offset by higher prices. In February 2012, the Commonwealth of Pennsylvania enacted an “impact fee” on unconventional natural gas and oil production which includes the Marcellus Shale. Included in second quarter 2013 is a $7.1 million impact fee ($0.09 per mcfe) compared to $6.4 million ($0.10 per mcfe) in the same period of the prior year. The second quarter 2012 also includes $707,000 ($0.01 per mcfe) retroactive fee which covered wells drilled prior to 2012.

Production and ad valorem taxes (excluding the impact fee) were $8.3 million ($0.05 per mcfe) in the first six months 2013 compared to $11.1 million ($0.09 per mcfe) in the same period of 2012 due to an increase in volumes not subject to production taxes partially offset by higher prices. Included in the six months 2013 is a $14.2 million ($0.09 per mcfe) impact fee compared to $12.6 million ($0.10 per mcfe) in the same period of 2012. The six months ended June 30, 2012 also includes $24.7 million ($0.20 per mcfe) retroactive impact fee which covered wells drilled prior to 2012.

   

 

 

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General and administrative (“G&A”) expense was $102.0 million in second quarter 2013 compared to $44.0 million for the same period of 2012. The 2013 increase of $58.0 million when compared to 2012 is primarily due to a legal settlement related to an Oklahoma lawsuit of $52.5 million, higher salary and benefit expenses of $1.2 million, an increase in stock-based compensation of $723,000 and higher legal and office expenses, including information technology. We continue to incur higher wages which we consider necessary to remain competitive in the industry. G&A expense for the six months ended June 30, 2013 increased $103.3 million or 125% from the same period of the prior year primarily due to a legal settlement related to an Oklahoma lawsuit of $87.5 million (of which $35.0 million was accrued in first quarter 2013), higher salary and benefit expenses of $5.5 million, an increase in stock-based compensation of $2.9 million and higher legal and office expenses, including information technology. Our number of G&A employees increased 8% from June 30, 2012 to June 30, 2013. Stock-based compensation expense represents the amortization of restricted stock grants and SARs granted to our employees and non-employee directors as part of compensation. On a per mcfe basis, G&A expense increased 84% from second quarter 2012 and 74% from the six months ended June 30, 2012 primarily due to the Oklahoma lawsuit. The following table summarizes general and administrative expenses per mcfe for the three months and the six months ended June 30, 2013 and 2012:

   

 

Interest expense was $45.1 million for second quarter 2013 compared to $42.9 million for second quarter 2012 and was $87.3 million in the six months ended June 30, 2013 compared to $80.1 million in the six months ended June 30, 2012. The following table presents information about interest expense for the three months and six months ended June 30, 2013 and 2012 (in thousands):

   

 

The increase in interest expense for second quarter 2013 from the same period of 2012 was primarily due to an increase in outstanding debt balances. In March 2013, we issued $750.0 million of 5.00% senior subordinated notes due 2023. We used the proceeds to repay our outstanding bank debt which carries a lower interest rate. In March 2012, we issued $600.0 million of 5.00% senior subordinated notes due 2022. We used the proceeds to repay $350.0 million of our outstanding credit facility balance and for general corporate purposes. The 2013 and 2012 note issuances were undertaken to better match the maturities of our debt with the life of our properties and to give us greater liquidity for the near term. Average debt outstanding on the bank credit facility for second quarter 2013 was $163.5 million compared to $91.3 million in the same period of 2012 and the weighted average interest rate on the bank credit facility was 2.2% in second quarter 2013 compared to 2.7% in the same period of 2012.

The increase in interest expense for the six months ended June 30, 2013 from the same period of 2012 was due to an increase in outstanding debt balances. Average debt outstanding on the bank credit facility was $424.6 million compared to $172.2 million for 2012 and the weighted average interest rate on the bank credit facility was 2.1% in the six months ended June 30, 2013 compared to 2.3% in the same period of 2012.

 

 

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Depletion, depreciation and amortization (“DD&A”) was $120.7 million in second quarter 2013 compared to $108.8 million in the same period of 2012. The increase in second quarter 2013 when compared to the same period of 2012 is due to a 13% decrease in depletion rates more than offset by a 27% increase in production. Depletion expense, the largest component of DD&A, was $1.38 per mcfe in second quarter 2013 compared to $1.58 per mcfe in the same period of 2012. We have historically adjusted our depletion rates in the fourth quarter of each year based on the year-end reserve report and other times during the year when circumstances indicate there has been a significant change in reserves or costs. The second quarter and the six months ended June 30, 2013 also includes $741,000 impairment related to surface acreage in North Texas.

DD&A was $235.8 million in the six months ended June 30, 2013 compared to $209.0 million in the same period of 2012. Depletion expense was $1.38 per mcfe in the six months ended June 30, 2013 compared to $1.59 per mcfe in the same period of 2012. The following table summarizes DD&A expense per mcfe for the three months and six months ended June 30, 2013 and 2012:

 

Other Operating Expenses

Our total operating expenses also include other expenses that generally do not trend with production. These expenses include stock-based compensation, transportation, gathering and compression expense, brokered natural gas and marketing expense, exploration expense, abandonment and impairment of unproved properties, loss on extinguishment of debt and deferred compensation plan expenses. Stock-based compensation includes the amortization of restricted stock grants and SARs grants. The following table details the allocation of stock-based compensation that is allocated to functional expense categories for the three months and the six months ended June 30, 2013 and 2012 (in thousands):

   

 

Transportation, gathering and compression expense was $66.0 million in second quarter 2013 compared to $44.7 million in the same period of 2012. Transportation, gathering and compression expense was $128.5 million in the six months ended June 30, 2013 compared to $85.6 million in the same period of 2012. These third party costs are higher than 2012 due to our production growth in the Marcellus Shale where we have third party gathering and compression agreements. We have included these costs in the calculation of average realized prices (including all derivative settlements and third party transportation expenses paid by Range).

Brokered natural gas and marketing expense was $16.7 million in second quarter 2013 compared to $6.5 million in the same period of 2012. Brokered natural gas and marketing expense was $39.0 million in the six months ended June 30, 2013 compared to $10.6 million in the same period of 2012. These costs are higher than 2012 primarily due to an increase in brokered volumes.

 

 

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Exploration expense was $13.1 million in second quarter 2013 compared to $15.5 million in the same period of 2012. Exploration expense was lower in second quarter 2013 when compared to 2012 due to lower seismic and dry hole costs. The six months ended June 30, 2013 also includes lower seismic and dry hole costs compared to the same period of 2012. The following table details our exploration related expenses for the three months and six months ended June 30, 2013 and 2012 (in thousands):

 

Abandonment and impairment of unproved properties was $19.2 million in second quarter 2013 compared to $43.6 million in the same period of 2012. Abandonment and impairment was $34.4 million in the six months ended June 30, 2013 compared to $63.9 million in the same period of 2012. We assess individually significant unproved properties for impairment on a quarterly basis and recognize a loss where circumstances indicate impairment in value. In determining whether a significant unproved property is impaired we consider numerous factors including, but not limited to, current exploration plans, favorable or unfavorable activity on the property being evaluated and/or adjacent properties, our geologists’ evaluation of the property and the remaining months in the lease term for the property. Impairment of individually insignificant unproved properties is assessed and amortized on an aggregate basis based on our average holding period, expected forfeiture rate and anticipated drilling success. As we continue to review our acreage positions and high grade our drilling inventory based on the current price environment, additional leasehold impairments and abandonments will likely be recorded. In second quarter 2012, we impaired individually significant unproved properties in Pennsylvania for $23.1 million because we determined that we were not going to drill in the area.

Deferred compensation plan expense was a gain of $6.9 million in second quarter 2013 compared to a loss of $9.3 million in the same period of 2012. This non-cash item relates to the increase or decrease in value of the liability associated with our common stock that is vested and held in our deferred compensation plan. The deferred compensation liability is adjusted to fair value by a charge or a credit to deferred compensation plan expense. Our stock price decreased from $81.04 at March 31, 2013 to $77.32 at June 30, 2013. In the same quarter of the prior year, our stock price increased from $58.14 at March 31, 2012 to $61.87 at June 30, 2012. During the six months ended June 30, 2013 deferred compensation plan expense was $35.5 million compared to $1.5 million in the same period of 2012. Our stock price increased from $62.83 at December 31, 2012 to $77.32 at June 30, 2013. In the same six months of 2012, our stock price decreased from $61.94 at December 31, 2011 to $61.87 at June 30, 2012.

Loss on extinguishment of debt for the second quarter and the six months ended June 30, 2013 was $12.3 million. On May 2, 2013, we redeemed our 7.25% senior subordinated notes due 2018 at 103.625% of par and we recorded a loss on extinguishment of debt of $12.3 million which includes a call premium and the expensing of related deferred financing costs on the repurchased debt.

Income tax expense was $97.5 million in second quarter 2013 compared to $39.0 million in second quarter 2012. The increase in income taxes in second quarter 2013 reflects a 155% increase in income from operations when compared to the same period of 2012. For the second quarter, the effective tax rate was 40.4% in 2013 compared to 41.2% in 2012. Income tax expense was $50.3 million in the six months ended June 30, 2013 compared to $11.2 million in the same period of 2012.  For the six months ended June 30, 2013, the increase in income taxes reflects a 374% increase in income from operations when compared to the prior year period. For the six months June 30, 2013, the effective tax rate was 42.4% compared to 44.6% in the six months ended June 30, 2012. The 2013 and 2012 effective tax rates were different than the statutory tax rate due to state income taxes, permanent differences and changes in our valuation allowances related to our deferred tax asset for future deferred compensation plan distributions to senior executives to the extent their estimated future compensation (including these distributions) would exceed the $1.0 million deductible limit provided under section 162 (m) of the Internal Revenue Code. We expect our effective tax rate to be approximately 40% for the remainder of 2013. Our effective tax rate may be reduced in the third quarter 2013 by tax legislation passed in the Commonwealth of Pennsylvania that may allow us to revise a valuation allowance we currently have recorded for our Pennsylvania net operating loss carryforward.

 

 

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Management’s Discussion and Analysis of Financial Condition, Capital Resources and Liquidity

Cash Flow

Cash flows from operations are primarily affected by production volumes and commodity prices, net of the effects of settlements of our derivatives. Our cash flows from operations are also impacted by changes in working capital. We generally maintain low cash and cash equivalent balances because we use available funds to reduce our bank debt. Short-term liquidity needs are satisfied by borrowings under our bank credit facility. Because of this, and since our principal source of operating cash flows (proved reserves to be produced in the following year) cannot be reported as working capital, we often have low or negative working capital. We sell a large portion of our production at the wellhead under floating market contracts. From time to time, we enter into various derivative contracts to provide an economic hedge of our exposure to commodity price risk associated with anticipated future natural gas, NGLs and oil production. The production we hedge has varied and will continue to vary from year to year depending on, among other things, our expectation of future commodity prices. Any payments due to counterparties under our derivative contracts should ultimately be funded by prices received from the sale of our production. Production receipts, however, often lag payments to the counterparties. Any interim cash needs are funded by borrowings under the bank credit facility. As of June 30, 2013, we have entered into hedging agreements covering 132.4 Bcfe for 2013, 196.2 Bcfe for 2014 and 57.3 Bcfe for 2015.

Net cash provided from operations in the first six months 2013 was $279.9 million compared to $282.9 million in the same period of 2012. Cash provided from continuing operations is largely dependent upon commodity prices and production, net of the effects of settlement of our derivative contracts. The decrease in cash provided from operating activities from 2012 to 2013 reflects a 29% increase in production offset by lower realized prices (a decline of 1%) and higher operating costs, including the payment of the Oklahoma lawsuit. As of June 30, 2013, we have hedged approximately 77% of our projected production for the remainder of 2013, with approximately 77% of our projected natural gas production hedged. Net cash provided from continuing operations is also affected by working capital changes or the timing of cash receipts and disbursements. Changes in working capital (as reflected in our consolidated statements of cash flows) for first six months 2013 was a negative $45.1 million compared to positive $21.4 million for the same period of 2012.

 

 

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Net cash used in investing activities from operations in first six months 2013 was $328.1 million compared to $919.7 million in the same period of 2012.

During the six months ended June 30, 2013, we:

 

·	spent $592.7 million on natural gas and oil property additions;

 

·	spent $27.4 million on acreage primarily in the Marcellus Shale and the Mississippian; and

 

·	received proceeds from asset sales of $296.1 million.

During the six months ended June 30, 2012, we:

 

·	spent $781.6 million on natural gas and oil property additions;

 

·	spent $147.9 million on acreage primarily in the Marcellus Shale; and

 

·	received proceeds from asset sales of $15.6 million.

Net cash provided from financing activities in first six months 2013 was $48.2 million compared to $636.8 million in the same period of 2012. Historically, sources of financing have been primarily bank borrowings and capital raised through equity and debt offerings.

During the six months ended June 30, 2013, we:

 

·	borrowed $893.0 million and repaid $1.3 billion under our bank credit facility, ending the quarter with a $309.0 million outstanding balance on our bank debt;

 

·	issued $750.0 million aggregate principal amount of 5.00% senior subordinated notes due 2023, at par, with net proceeds of approximately $738.8 million;

 

·	redeemed all $250.0 million aggregate principal amount of 7.25% senior subordinated notes due 2018 including related expenses; and

 

·	spent $12.3 million related to debt issuance costs.

During the six months ended June 30, 2012, we:

 

·	borrowed $697.0 million and repaid $649.0 million under our bank credit facility, ending the period with $235.0 million outstanding borrowings under our bank credit facility;

 

·	issued $600.0 million principal amount of 5.00% senior subordinated notes due 2022, at par, with net proceeds of approximately $589.5 million; and

 

·	spent $12.5 million related to debt issuance costs.

   

Liquidity and Capital Resources

Our main sources of liquidity and capital resources are internally generated cash flow from operations, a bank credit facility with uncommitted and committed availability, access to the debt and equity capital markets and asset sales. We continue to take steps to ensure adequate capital resources and liquidity to fund our capital expenditure program. In first six months 2013, we entered into additional commodity derivative contracts for 2013, 2014 and 2015 to protect future cash flows. In March 2013, we issued $750.0 million of new 5.00% ten-year senior subordinated notes due 2023. On April 2, 2013, we called for redemption the entire $250.0 million outstanding principal amount of our 7.25% senior subordinated notes due 2018 which were redeemed on May 2, 2013.

During the first six of months 2013, our net cash provided from continuing operations of $279.9 million, proceeds from the sale of assets of $296.1 million, proceeds from the issuance of our 5.00% senior subordinated notes due 2023 and borrowings under our bank credit facility were used to fund $622.2 million of capital expenditures (including acreage acquisitions). At June 30, 2013, we had $284,000 in cash and total assets of $6.9 billion.

Long-term debt at June 30, 2013 totaled $2.9 billion, including $309.0 million outstanding on our bank credit facility and $2.6 billion of senior subordinated notes. Our available committed borrowing capacity at June 30, 2013 was $1.4 billion. Cash is required to fund capital expenditures necessary to offset inherent declines in production and reserves that are typical in the oil and natural gas industry. Future success in growing reserves and production will be highly dependent on capital resources available and the success of finding or acquiring additional reserves. We currently believe that net cash generated from operating activities, unused committed borrowing capacity under the bank credit facility and proceeds from asset sales combined with our natural gas, NGLs and oil derivatives contracts currently in place will be adequate to satisfy near-term

 

 

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financial obligations and liquidity needs. To the extent our capital requirements exceed our internally generated cash flow and proceeds from asset sales, debt or equity securities may be issued to fund these requirements. Long-term cash flows are subject to a number of variables including the level of production and prices as well as various economic conditions that have historically affected the oil and natural gas business. A material drop in natural gas, NGLs and oil prices or a reduction in production and reserves would reduce our ability to fund capital expenditures, meet financial obligations and remain profitable. We operate in an environment with numerous financial and operating risks, including, but not limited to, the inherent risks of the search for, development and production of natural gas, NGLs and oil, the ability to buy properties and sell production at prices which provide an attractive return and the highly competitive nature of the industry. Our ability to expand our reserve base is, in part, dependent on obtaining sufficient capital through internal cash flow, bank borrowings, asset sales or the issuance of debt or equity securities. There can be no assurance that internal cash flow and other capital sources will provide sufficient funds to maintain capital expenditures that we believe are necessary to offset inherent declines in production and proven reserves.

Our expectations concerning liquidity and our ability to avail ourselves in the future of the financing options mentioned in the above forward-looking statements are based on currently available information. If this information proves to be inaccurate, future availability of financing may be adversely affected. Factors that affect the availability of financing include our performance, the state of the worldwide debt and equity markets, investor perceptions and expectations of past and future performance, the global financial climate and, in particular, with respect to borrowings, the level of our working capital or outstanding debt and credit ratings by rating agencies.

Credit Arrangements

As of June 30, 2013, we maintained a $2.0 billion revolving credit facility, which we refer to as our bank credit facility. The bank credit facility is secured by substantially all of our assets and has a maturity date of February 18, 2016. Availability under the bank credit facility is subject to a borrowing base set by the lenders semi-annually with an option to set more often in certain circumstances. The borrowing base is dependent on a number of factors but primarily on the lenders’ assessment of future cash flows. Redeterminations of the borrowing base require approval of two thirds of the lenders; increases to the borrowing base require 97% lender approval. On April 8, 2013, the facility amount on our bank credit facility was reaffirmed at $1.75 billion and our borrowing base was reaffirmed at $2.0 billion. Our current bank group is currently composed of twenty-eight financial institutions.

Our bank debt and our subordinated notes impose limitations on the payment of dividends and other restricted payments (as defined under the debt agreements for our bank debt and our subordinated notes). The debt agreements also contain customary covenants relating to debt incurrence, working capital, dividends and financial ratios. We were in compliance with all covenants at June 30, 2013.

Capital Requirements

Our primary capital requirements are for exploration, development and acquisition of natural gas and oil properties, repayment of principal and interest on outstanding debt and payment of dividends. During the first six months of 2013, $672.2 million of capital was expended on drilling projects. Also in the first six months of 2013, $31.0 million was expended on acquisitions of unproved acreage, primarily in the Marcellus Shale and in the horizontal Mississippian oil play. Our 2013 capital program, excluding acquisitions, is expected to be funded by net cash flow from operations, our prior debt offering, proceeds from asset sales and borrowings under our bank credit facility. Our capital expenditure budget for 2013 is currently set at $1.3 billion, excluding proved property acquisitions. To the extent capital requirements exceed internally generated cash flow, proceeds from asset sales and our committed capacity under our bank credit facility will be used to fund these requirements. In addition, debt or equity may also be issued in capital market transactions to fund these requirements. We monitor our capital expenditures on an ongoing basis, adjusting the amount up or down and also between our operating regions, depending on commodity prices, cash flow and projected returns. Also, our obligations may change due to acquisitions, divestitures and continued growth. We may issue additional shares of stock, subordinated notes or other debt securities to fund capital expenditures, acquisitions, extend maturities or to repay debt.

The forward-looking statements about our capital budget are based on current expectations, estimates and projections and are not guarantees of future performance. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially include prices of and demand for natural gas and oil, actions of competitors, disruptions or interruptions of our production and unforeseen hazards such as weather conditions, acts of war or terrorists acts and the government or military response, and other operating and economic considerations.

Cash Dividend Payments

The amount of future dividends is subject to declaration by the Board of Directors and primarily depends on earnings, capital expenditures, debt covenants and various other factors. On June 1, 2013, the Board of Directors declared a dividend of

 

 

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four cents per share ($6.5 million) on our common stock, which was paid on June 28, 2013 to stockholders of record at the close of business on June 14, 2013.

Cash Contractual Obligations

Our contractual obligations include long-term debt, operating leases, drilling commitments, derivative obligations, asset retirement obligations and transportation and gathering commitments. As of June 30, 2013, we do not have any capital leases. As of June 30, 2013, we do not have any significant off-balance sheet debt or other such unrecorded obligations and we have not guaranteed any debt of any unrelated party. As of June 30, 2013, we had a total of $84.7 million of undrawn letters of credit under our bank credit facility.

Since December 31, 2012, there have been no material changes to our contractual obligations other than a $430.0 million reduction to our outstanding bank credit facility balance, an issuance of $750.0 million of new 5.00% senior subordinated notes due 2023, a redemption of $250.0 million 7.25% senior subordinated notes due 2018 and adjustments to certain transportation and gathering contracts which increased these commitments $135.5 million over the next 10 years.

Hedging – Oil and Gas Prices

We use commodity-based derivative contracts to manage our exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We do not utilize complex derivatives, as we typically utilize commodity swap and collar contracts to (1) reduce the effect of price volatility on the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. In 2011, we also entered into “sold” NGL derivative swap contracts for the natural gasoline component of NGLs and in 2012 we entered into “re-purchased” derivative swaps for the natural gasoline component of NGLs. In addition, in second quarter 2012, we entered into NGL derivative swap contracts for propane. While there is a risk that the financial benefit of rising natural gas, NGLs and oil prices may not be captured, we believe the benefits of stable and predictable cash flow are more important. Among these benefits are a more efficient utilization of existing personnel and planning for future staff additions, the flexibility to enter into long-term projects requiring substantial committed capital, smoother and more efficient execution of our on-going development drilling and production enhancement programs, more consistent returns on invested capital, and better access to bank and other credit markets.

At June 30, 2013, we had open swap contracts covering 65.5 Bcf of natural gas at prices averaging $3.85 per mcf, 4.4 million barrels of oil at prices averaging $94.18 per barrel, 1.2 million net barrels of NGLs (the C5 component of NGLs) at prices averaging $92.72 per barrel and 1.8 million barrels of NGLs (the C3 component of NGLs) at prices averaging $37.49 per barrel. We had collars covering 267.8 Bcf of natural gas at weighted average floor and cap prices of $4.03 to $4.61 per mcf and 1.3 million barrels of oil at weighted average floor and cap prices of $87.72 to $100.00 per barrel. The fair value of these contracts, represented by the estimated amount that would be realized or payable on termination, based on a comparison of the contract price and a reference price, generally NYMEX, approximated a pretax gain of $127.5 million at June 30, 2013. The contracts expire monthly through December 2015.

At June 30, 2013, the following commodity derivative contracts were outstanding:

 

 

 

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Interest Rates

At June 30, 2013, we had approximately $2.9 billion of debt outstanding. Of this amount, $2.7 billion bears interest at fixed rates averaging 5.8%. Bank debt totaling $309.0 million bears interest at floating rates, which averaged 1.8% at June 30, 2013. The 30-day LIBOR rate on June 30, 2013 was approximately 0.2%. A 1% increase in short-term interest rates on the floating-rate debt outstanding on June 30, 2013 would cost us approximately $3.1 million in additional annual interest expense.

Off-Balance Sheet Arrangements

We do not currently utilize any off-balance sheet arrangements with unconsolidated entities to enhance our liquidity or capital resource position, or for any other purpose. However, as is customary in the oil and gas industry, we have various contractual work commitments some of which are described above under cash contractual obligations.

Inflation and Changes in Prices

Our revenues, the value of our assets and our ability to obtain bank loans or additional capital on attractive terms have been and will continue to be affected by changes in natural gas, NGLs and oil prices and the costs to produce our reserves. Natural gas, NGLs and oil prices are subject to significant fluctuations that are beyond our ability to control or predict. Although certain of our costs and expenses are affected by general inflation, inflation does not normally have a significant effect on our business. We expect costs for the remainder of 2013 to continue to be a function of supply and demand.

   

 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in natural gas, NGLs and oil prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market-risk exposure. All of our market-risk sensitive instruments were entered into for purposes other than trading. All accounts are U.S. dollar denominated.

Market Risk

We are exposed to market risks related to the volatility of natural gas, NGLs and oil prices. We employ various strategies, including the use of commodity derivative instruments, to manage the risks related to these price fluctuations. These derivatives instruments apply to a varying portion of our production and provide only partial price protection. These arrangements limit the benefit to us of increases in prices but offer protection in the event of price declines. Further, if our counterparties defaulted, this protection might be limited as we might not receive the benefits of the derivatives. Realized prices are primarily driven by worldwide prices for oil and spot market prices for North American natural gas production. Natural gas and oil prices have been volatile and unpredictable for many years. Natural gas prices affect us more than oil prices because approximately 74% of our December 31, 2012 proved reserves are natural gas. We are also exposed to market risks related to changes in interest rates. These risks did not change materially from December 31, 2012 to June 30, 2013.

   

Commodity Price Risk

We use commodity-based derivative contracts to manage exposures to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We do not utilize complex derivatives such as swaptions, knockouts or extendable swaps. At times, certain of our derivatives are swaps where we receive a fixed price for our production and pay market prices to the counterparty. Our derivatives program also includes collars, which establish a minimum floor price and a predetermined ceiling price. At June 30, 2013, our derivatives program includes swaps (both purchased and sold NGL swaps) and collars. As of June 30, 2013, we had open swap contracts covering 65.5 Bcf of natural gas at prices averaging $3.85 per mcf, 4.4 million barrels of oil at prices averaging $94.18 per barrel, 1.2 million net barrels of NGLs (the C5 component of NGLs) at prices averaging $92.72 per barrel and 1.8 million barrels of NGLs (the C3 component of NGLs) at prices averaging $37.49 per barrel. We had collars covering 267.8 Bcf of natural gas at weighted average floor and cap prices of $4.03 to $4.61 per mcf and 1.3 million barrels of oil at weighted average floor and cap prices of $87.72 to $100.00 per barrel. These contracts expire monthly through December 2015. The fair value of these contracts, represented by the estimated amount that would be realized upon immediate liquidation as of June 30, 2013, approximated a net unrealized pretax gain of $127.5 million.

At June 30, 2013, the following commodity derivative contracts were outstanding:

 

   

 

 

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We expect our NGL production to continue to increase. In our Marcellus Shale operations, propane is a large product component of our NGL production and we believe NGL prices are somewhat seasonal. Therefore, the percentage of NGL prices to NYMEX WTI (or West Texas Intermediate) will vary due to product components, seasonality and geographic supply and demand. We sell NGLs in several regional markets. Approximately 70% of our NGL production is in the Marcellus Shale.

The relationship between the price of oil and the price of natural gas is at an unprecedented spread. Normally, natural gas liquids production is a by-product of natural gas production. Due to the current differences in prices, we and other producers may choose to sell natural gas at or below cost or otherwise dispose of natural gas to allow for the sale of only natural gas liquids.

Currently, because there is little demand, or facilities to supply the existing demand, for ethane in the Appalachian region, for our Appalachian production volumes, ethane remains in the natural gas stream. We currently have waivers from two transmission pipelines that allow us to leave ethane in the residue natural gas. We have announced three ethane agreements where we have contracted to either sell or transport ethane from our Marcellus Shale area, which are expected to begin operations in late 2013, early 2014 and early 2015. We cannot assure you that these facilities will become available. If we are not able to sell ethane, we may be required to curtail production which will adversely affect our revenues.

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. At times, we have entered into basis swap agreements. The price we receive for our gas production can be more or less than the NYMEX price because of adjustments for delivery location (“basis”), relative quality and other factors; therefore, we have entered into basis swap agreements in the past that effectively fix the basis adjustments. We currently have no financial basis swap agreements outstanding.

The following table shows the fair value of our collars and swaps and the hypothetical change in fair value that would result from a 10% and a 25% change in commodity prices at June 30, 2013. 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):

 

Our commodity-based contracts expose us to the credit risk of non-performance by the counterparty to the contracts. Our exposure is diversified among major investment grade financial institutions and we have master netting agreements with the majority of 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 June 30, 2013, our derivative counterparties include fifteen financial institutions, of which all but two are secured lenders in our bank credit facility. Counterparty credit risk is considered when determining the fair value of our derivative contracts. While counterparties are major investment grade financial institutions, the fair value of our derivative contracts have been adjusted to account for the risk of non-performance by certain of our counterparties, which was immaterial.

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 subordinated debt and variable rate bank debt. At June 30, 2013, we had $2.9 billion of debt outstanding. Of this amount, $2.7 billion bears interest at fixed rates averaging 5.8%. Bank debt totaling $309.0 million bears interest at floating rates, which was 1.8% on June 30, 2013. On June 30, 2013, the 30-day LIBOR rate was approximately 0.2%. A 1% increase in short-term interest rates on the floating-rate debt outstanding on June 30, 2013, would cost us approximately $3.1 million in additional annual interest expense.

   

 

 

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedure

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2013 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS  

Litigation  

James A. Drummond and Chris Parrish v. Range Resources-Midcontinent, LLC et al.; pending in the District Court of Grady County, State of Oklahoma; Case No. CJ-2010-510

Two individuals (one of whom is now deceased), only one of which was a current royalty owner, filed suit against Range Resources Corporation and two of our subsidiaries, including the proper defendant Range Resources-Midcontinent, LLC, in the District Court of Grady County, Oklahoma. This suit is similar to a number of cases filed in Oklahoma asserting claims that royalty owners are entitled to payment of royalties on several different categories of alleged “deductions” applied by third parties who transport and process natural gas production. The alleged deductions include fuel used by the third party in the transportation and processing of gas, condensate removed by the third party after the point of sale, the contractually agreed natural gas liquids recovery percentages, the percentage of proceeds contracts’ contractually agreed pricing percentages and other similar alleged “deductions.” In addition to the claims made with respect to the alleged categories of deductions, the Plaintiffs in this litigation have alleged fraud and the existence of a fiduciary duty to the royalty owners to attempt to support an argument that no statute of limitations applies, and the Plaintiffs also claim that interest accrues on the alleged damages at 12% compounded annually.  As previously disclosed, on February 19, 2013, the District Court entered an order certifying a class of royalty owners as requested by the Plaintiffs and we appealed the certification order. While the appeal was pending, the parties successfully mediated the case in May 2013 resulting in a settlement and we executed a Stipulation and Agreement of Settlement, with an effective date of May 31, 2013, providing for a cash payment to the class in the amount of $87.5 million in settlement of all claims made by the class for the period prior to May 31, 2013. Pursuant to the settlement agreement, on June 28, 2013, we paid $87.5 million into an escrow account. While the settlement is subject to the approval by the Court, we currently expect the settlement will receive final approval.

We are the subject of, or party to, a number of other pending or threatened legal actions and claims arising in the ordinary course of our business. While many of these matters involve inherent uncertainty, we believe that the amount of the liability, if any, ultimately incurred with respect to proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations. We will continue to evaluate our litigation quarterly and will establish and adjust any litigation reserves as appropriate to reflect our assessment of the then current status of litigation.

   

ITEM 1A. RISK FACTORS

We are subject to various risks and uncertainties in the course of our business. In addition to the factors discussed elsewhere in this report, you should carefully consider the risks and uncertainties described under Item 1A. Risk Factors filed in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes from the risk factors previously disclosed in that Form 10-K.

 

 

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ITEM 6. EXHIBITS

   

 

      

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 24, 2013

 

Date: July 24, 2013

 

 

 

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Exhibit index

   

 

      

 

 

 

 

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Exhibit 10.1

IN THE DISTRICT COURT OF GRADY COUNTY

STATE OF OKLAHOMA

   

 

   

STIPULATION AND AGREEMENT OF SETTLEMENT

This Stipulation and Agreement of Settlement (hereinafter the “Settlement Agreement” or “Stipulation”) is entered into between James A. Drummond and Mark Parrish as Personal Representative of the Estate of Chris Parrish,¹ on behalf of themselves and all others similarly situated (“Plaintiffs” or “Class Representatives”), and Range Resources Corporation, Range Resources-Midcontinent, LLC, and Range Production Company (separate legal entities collectively referred to as “Range” for convenience).   Class Representatives and Range are referred to collectively as the “Parties” or “Settling Parties.”  The Settlement contemplated by this Settlement Agreement is conditioned on the approval of the Court, as required by Okla. Stat. tit. 12, § 2023, as more fully described below:

WITNESSETH:

WHEREAS, the above-styled action was originally filed on December 27, 2010 in Grady County, Oklahoma (the “Litigation” or “Action”), where it is currently pending;

WHEREAS, Plaintiff has made certain claims against Range, as more fully described in the Petition;

WHEREAS, Class Representatives and Class Counsel have prosecuted this Action for over two years, which has included discovery of documents and data, research, accounting review and analysis, depositions of Range employees, consultation with and preparation of expert witnesses, settlement negotiations among counsel, land and lease record review and analysis, engineering review and analysis, damage modeling, and other investigations and preparation;

WHEREAS, Class Representatives and Class Counsel acknowledge that during the course of their prosecution of this Action, they have received, examined, and analyzed information, documents, and materials they deem necessary and appropriate to enable them to enter into this Settlement Agreement on a fully-informed basis, and after such examination and analysis, and based on the experience of Class Counsel and the expert witnesses and consultants, Class Representatives and Class Counsel have concluded the terms and conditions of this Settlement Agreement are fair, reasonable, adequate and in the best interests of the Class.  Class Representatives agreed to settle the claims asserted in the Litigation pursuant to this Stipulation after considering the (i) substantial benefits Class Members will receive from resolution of the Litigation, (ii) risks of further litigation, and (iii) desirability of permitting the Settlement to be consummated as provided by the terms of this Stipulation;

WHEREAS, all Parties to this Settlement Agreement agree that further prosecution and defense of the Action would be protracted and expensive, have taken into account the uncertainty and risks inherent in any such litigation, and have determined that it is desirable to compromise and settle all claims in the Action;  

WHEREAS, the Parties have executed this Settlement Agreement solely to compromise and settle the Action for the reasons set forth herein; and

   

 

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¹ On March 14, 2013, the Court granted the application of Mark Parrish, Personal Representative of the estate of Chris Parrish, deceased, to be substituted for Chris Parrish in this Action.

WHEREAS, Range believes that it has properly paid its royalty owners and for that reason Range has denied, and continues to deny, any and all liability to Class Representatives, the Class, and Class Counsel.

NOW THEREFORE, in consideration of the payments, mutual promises, agreements, undertakings, releases, and other terms and provisions of this Settlement Agreement, the sufficiency of which is hereby acknowledged by all Parties hereto, Range and Class Representatives, on behalf of themselves and the Class, stipulate and agree as follows, subject to the approval of the Court, without admission of any liability or wrongdoing, and in consideration of the benefits flowing to the Parties as set forth herein, that all Released Claims (defined below) shall be fully, finally and forever compromised, settled, released and discharged and the Litigation shall be dismissed with prejudice, upon and subject to the following terms and conditions.

1.  DEFINITIONS

As used throughout this Settlement Agreement, the Plan of Allocation and Distribution Order and all other documents attached hereto, the following phrases and words will be given the meanings set forth below:

1.1  “Administration, Notice and Distribution Costs” means the reasonable and necessary: (1) fees, costs and expenses generated or incurred in the administration, distribution, notification or other aspects of implementing the Settlement (except those described in subparagraph (9) of this paragraph 1.1); (2) fees, costs and expenses associated with the Settlement Administrator (if any) retained by the Settling Parties in conjunction with the administration, distribution, notification or other aspects of implementing the Settlement; (3) fees, costs and expenses associated with the Escrow Agent or Escrow Account (if any) utilized by the Settling Parties in conjunction with the administration, distribution, notification or other aspects of implementing the Settlement; (4) fees, costs and expenses associated with any expert(s) retained by Range in conjunction with the administration, distribution, notification or other aspects of implementing the Settlement; (5) fees, costs and expenses incurred to identify the names, addresses and tax identification numbers of members of the Class; (6) fees, costs and expenses incurred to publish and mail the Notice of Settlement to the Class (including, but not limited to, the cost to print the Notices, mail the Notices, and publish the Notices pursuant to the Plan of Notice); (7) fees, costs and expenses to prepare, issue and mail (and re-issue and re-mail, if necessary) the Distribution Checks to the members of the Class; (8) fees, costs and expenses to provide a reconciliation of the Distribution Checks issued, cashed, returned and which become stale-dated; and (9) fees, costs, expenses incurred by Class Counsel and/or Class Representatives (including the fees, costs and expenses of experts or other personnel retained by Class Representatives or Class Counsel) for the administration, distribution, notification or other aspects of assuring themselves that the Settlement is implemented.  Subject to Court approval, Class Counsel and Class Representatives shall have the right to recover, out of the Class’s share of the Settlement Fund, all fees, costs, and expenses listed in subsection (9) of this paragraph (in addition to recovering all other fees, costs and expenses they incurred on behalf of the Class).  Range shall bear all other administration, distribution, notification or other fees, costs and expenses, including those listed in subsections (1)-(8) of this paragraph; provided, however, that to the extent any residual or unclaimed funds remain in the Escrow Account after distribution has otherwise been completed, Range shall, pursuant to Court order, be reimbursed from such funds for the out-of-pocket costs incurred by Range under this paragraph.

1.2  “Case Contribution Award” means the award ordered by the Court, if any, to Class Representatives for their time, expense and/or participation in this Litigation.

1.3  “Claim Period” means the times during and for which the Class is making claims relating to the Class Wells.  The Claim Period commences separately for each Class Well on the earlier of either:  (i) the date on which Range began operating or separately marketing gas and its constituents from that Class Well, or (ii) the effective date from which Range is alleged to have assumed the liability of a predecessor entity or assignor for alleged royalty underpayment, but not prior to the date that predecessor entity or assignor operated or separately marketed the gas and its constituents.  The Claim Period ends for each Class Well on the earlier of either:  (i) the date on which Range stopped operating or separately marketing gas and its constituents from that Class Well, (ii) the effective date of the assignment by Range to an unaffiliated successor entity and any other entities to whom Range sold its interests in Class Wells, with effective dates of sale being those set forth in the respective purchase and sale agreements, or (iii) May 31, 2013.   No claims are released related to production that occurs after May 31, 2013.

1.4  “Class Action Litigation” and/or “Litigation” and/or “Action” means that class action pending in the District Court of Grady County, Oklahoma, styled and numbered:  James A. Drummond and Chris Parrish v. Range Resources Corporation, Range Resources-Midcontinent, LLC, and Range Production Company, Case No. CJ-2010-510.

 

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1.5  “Class Leases” means all oil and gas leases covering any mineral interest in land on which one or more Class Wells are located, either directly or as part of an Oklahoma Corporation Commission designated Unit or other unit or communitization agreement, and where one or more Class Members are the royalty owners under the lease(s) during all or part of the Claim Period for the Class Well(s) associated with the lease(s).  Additionally, the term “Class Leases” includes “Class Force Pooled Royalty Interests,” which, used separately, means the royalty interest of Class Members created under the terms of Oklahoma Corporation Commission (OCC) force pooling orders to the extent such force pooled royalty interest relates to Class Members during the Claim Period for Class Well(s).

1.6  “Class Member” or “Class” means a royalty owner within the description of the Class in the Class Action Litigation and who has not filed a Request for Exclusion (subsection 1.29) in response to the Notice of Class Certification and Notice of Settlement.  Based on prior review by Range, Class Counsel and their experts, and by approval of the Court, Class Members will be assumed to be those persons in the most recent and reasonably available royalty pay deck during the Claim Period for each Class Well after first excluding persons who have opted out of the Class or are excluded under the terms of the class definition.  The Class is more specifically described as follows:

All non-excluded persons or entities who are or were royalty owners in Oklahoma wells where Range, including its predecessors or affiliates, is or was the operator (or, as a non-operator, Range separately marketed gas). The Class Claims relate only to payment for gas and its constituents (helium, residue gas, natural gas liquids, nitrogen and condensate) produced from the wells. The Class does not include overriding royalty owners or other owners who derive their interest through the oil and gas lessee.

The persons or entities excluded from the Class are: (1) agencies, departments or instrumentalities of the United States of America and the State of Oklahoma; (2) publicly traded oil and gas exploration companies and their affiliates; and (3) persons or entities that Class Counsel is, or may be prohibited from representing under Rule 1.7 of the Oklahoma Rules of Professional conduct.

1.7  “Class Wells” means every oil and gas well that Range or its predecessors have operated or separately marketed gas from in the State of Oklahoma.  The Settling Parties have attempted to prepare a complete list of Class Wells and their Claim Periods in Exhibit 1, attached hereto.  The claims on Class Wells are only settled for the Claim Period(s) for each Class Well.  However, in the event there is any mistake as to the Class Well name or description, or if a Class Well has been mistakenly omitted, that name or description may be subsequently corrected by agreement of the parties or Order of the Court, without further notice to the Class.  The list of Class Wells shown in the attached exhibit also show in relation to each well the percentage of the Net Settlement Proceeds attributable to each Class Well that has been determined by Class Counsel.  Exhibit 1 has been prepared based on the electronic accounting data and gas marketing data provided by Range through discovery in this Action, and production data obtained from the State of Oklahoma and other third parties.  Range represents the records it provided are kept in the ordinary course of Range’s business operations and, to Range’s knowledge, represent the best information available to Range concerning the Class Wells.  However, the data may include clerical and other inadvertent mistakes. The definitions of the Class (subsection 1.6) and Claim Period (subsection 1.3) for each Class Well are controlling for all purposes over the information contained in Exhibit 1.

1.8  “Court” means the Honorable Richard VanDyck, District Court of Grady County, Oklahoma.   

1.9  “Defendant” and/or “Range” means Range Resources Corporation, Range Resources-Midcontinent, LLC, and Range Production Company, the Defendants in this Action.

1.10  “Distribution Check” means a check payable to a Class Member who does not opt-out of this Settlement, or who is not otherwise excluded by order of the Court, for the purpose of paying that Class Member’s share of the Net Settlement Fund payable to such Class Member pursuant to the Class Distribution Order.

1.11  “Effective Date” means the first date by which all of the events and conditions specified in Paragraph 1.15 of this Stipulation have been met, have been waived, or have occurred, as set forth in that paragraph.

1.12  “Escrow Account” means an interest-bearing account maintained by the Escrow Agent.

1.13  “Escrow Agent” means the escrow agent appointed and approved by the Court.

1.14  “Escrow Agreement” means the agreement(s) between Class Counsel (on behalf of Class Representatives and the Class) and the Escrow Agent setting forth the terms under which the Escrow Agent shall maintain the Escrow Account in accordance with this Stipulation.

 

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1.15  “Final” when referring to the Judgment (subsection 1.18), means the later of:  (i) if there is an appeal from the Judgment, the date of final affirmance on appeal and the expiration of the time for any further judicial review whether by appeal, reconsideration, or a petition for a writ of certiorari and, if a writ of certiorari is granted, the date of final affirmance of the Judgment following review pursuant to the grant; or (ii) the expiration of the time for the filing or noticing of any appeal from the Judgment.  No appeal or proceeding seeking judicial review pertaining solely to (a) Court approval of the Plan of Allocation; and/or (b) the Court’s award of attorneys’ fees, Case Contribution Awards, costs or expenses shall affect whether the Judgment becomes Final or the timing thereof.

1.16  “Final Fairness Hearing” means the hearing set by the Court under Okla. Stat. tit. 12 § 2023(E) of the Oklahoma Rules of Civil Procedure to consider final approval of the Settlement.

1.17  “Gross Settlement Fund” means the Settlement Amount (subsection 1.31), plus any interest on or other income or gains in respect of that amount earned while such amount is held by the Escrow Agent.

1.18  “Judgment” means the Order Approving Class Action Settlement and Judgment of Grady County, Oklahoma, finally approving the Settlement between the Class and Range, which shall include provisions substantially as set forth in paragraph 3.5 herein and substantially in the form attached hereto as Exhibit 2.

1.19  “Litigation Expenses” means the reasonable costs and expenses incurred by Class Counsel in commencing and prosecuting the Litigation.

1.20  “Net Settlement Amount” has the same meaning as “Net Settlement Fund(s)” and “Net Settlement Proceeds” and means the Gross Settlement Fund less: (1) Class Counsel’s Fees and Litigation Expenses, (2) any Case Contribution Award awarded by the Court; (3) any Administration, Notice and Distribution Costs incurred by Class Counsel and/or Class Representatives under subsection 1.1(9) as allowed by the Court; and (4) any other expenses that the Court orders to be deducted from the Settlement Amount.  Subject to paragraph 1.1, Range’s costs of Administration, Notice and Distribution are not to be deducted from the Net Settlement Amount.  

1.21  “Notice of Settlement” means the Notice of Pendency of Class Action and Proposed Settlement, Final Approval Hearing, and Motion for Attorney’s Fees and Reimbursement of Litigation Expenses to the Class Members in substantially the form of Exhibit 3 attached hereto and the Summary Notice of Settlement for Publication in substantially the form of Exhibit 4 attached hereto.

1.22  “Petition” means the original Petition filed with the Court on December 27, 2010.

1.23  “Plaintiffs” or “Class Representatives” means James A. Drummond and Mark Parrish, as Personal Representative of the Estate of Chris Parrish (see footnote 1), who the Court appointed as Class Representatives in its February 19, 2013 Order Granting Plaintiffs’ Motion for Class Certification.  

1.24  “Plaintiffs’ Counsel” or “Class Counsel” means the law firms of Barnes & Lewis, LLP (“B&L”) and Nix, Patterson & Roach, LLP (“NPR”).  The Court appointed B&L and NPR as Class Counsel in its February 19, 2013 Order Granting Plaintiffs’ Motion for Class Certification. Additionally, the law firm of Park, Nelson, Caywood, Jones, LLP is also Plaintiffs’ Counsel with B&L and NPR.

1.25  “Plan of Allocation” means the proposed plan of allocation and/or any order(s) entered by the Court authorizing and directing that the Net Settlement Fund be allocated and distributed, in whole or in part, to the members of the Class who do not opt-out of this Settlement, or who are not otherwise excluded by order of the Court.  

1.26  “Preliminary Approval Order” means the order (substantially in the form attached hereto as Exhibit 5) to be entered by the Court preliminarily approving the Settlement and directing that the Notice of Settlement be provided to the Class as set forth therein.

 

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1.27  “Released Claims” include all claims associated with the marketing of and calculation and reporting of royalty on gas and its constituents (including helium, residue gas, natural gas liquids, nitrogen and condensate) during the Claim Period for each Class Well.  The Released Claims include those set out in the Petition, including: (1) that Range underpaid royalty as a result of direct or indirect deductions from royalty associated with marketing, gathering, compressing, dehydrating, treating, processing, including plant and compressor fuel, and similar services with respect to gas and its constituents; (2) that Range improperly paid royalty based on proceeds received from sale of the gas and gas constituents under “percentage of proceeds” (“POP”) or similar contracts; (3) that Range underpaid royalty by not paying royalty on gas used off the lease, gas used for gas plants, and gas used in the manufacture of products (fuel gas); (4) that Range failed to pay or underpaid royalty on drip gas or condensate that was separated from the gas stream in the gathering system or gas plant; (5) that Range underpaid royalty by not paying royalty on the full value (before deduction of any costs) of residue gas and natural gas liquids that were part of the gas stream at the wellhead gas meter; (6) that Range misled Class Members in monthly royalty payments as to the amount and nature of deductions from royalty on gas and gas constituents; (7) that Range violated fiduciary duties to the Class Members; (8) that Range failed to provide all of the information required by the Oklahoma Production Revenue Standards Act (PRSA) on monthly check stubs, and otherwise failed to comply with the PRSA; (9) that Range failed to make diligent efforts to secure the best terms available for the sale of gas and its constituents; (10) that Range failed to account to Class Members for the full value of the production, including all deductions and reductions from the value of production, and including prior adjustments called for on the Class Members’ open accounts with Range; and (11) that Range is liable to Class Members for breach of contract, tortious breach of contract, breach of fiduciary duty, actual fraud, constructive fraud, deceit, conversion, conspiracy, unjust enrichment/disgorgement, accounting, punitive damages, statutory interest and penalties under the PRSA or otherwise, and fees (attorney fees, expert fees and litigation costs) under the PRSA.  The Released Claims also include all other legal theories that, based on the facts alleged in the Petition, could have been asserted as to royalties payable and the reporting of royalties by Range on the production of gas and its constituents from the Class Wells during the Claim Period(s), except to the extent described in the next paragraph.

The Released Claims do not include royalty paid by Range as a pass-through agent for “take-in-kind” working interest owners pursuant to 52 O.S. 570.4(B), for which the Parties agree Range has no liability.  The Released Claims do not include any claims associated with production that occurs after May 31, 2013.  The Released Claims also specifically do not include: (a) royalty payment adjustments made or to be made in the ordinary course of business; (b) claims that Range is obligated to make routine prior period adjustments for clerical or administrative errors concerning prices actually received, volumes actually sold or produced, or decimal interest designations of the type that historically have been addressed by Range by way of prior-period adjustments, but only to the extent that Range in fact received, or receives, a retroactive price, volume or value adjustment; (c) claims to money held in suspense by Range as of the release date; (d) claims that Range failed to comply with obligations to protect the Class Members from drainage; (e) and/or claims that Range breached obligations to the Class Members to develop Oklahoma oil and gas leases.  “Class Claims” shall have the same meaning as “Released Claims.”  The Parties agree that the Settlement Cash Amount does not include any payment for underpaid royalties from Class Wells sold by Range to other parties for production that has occurred from and after the effective date such Class Wells were sold by Range to such other party or parties.

1.28  “Released Parties” means Range, and all past and present parents, affiliates, directors, officers, employees, attorneys, agents, consultants, servants, stockholders, representatives, subsidiaries, predecessor entities of, and affiliated successor entities to Range.  Released Parties shall also include the assignor of any Class Wells for which Range has assumed the assignor’s liability for any alleged royalty underpayment, but only as to Class Claims with respect to such assigned Class Wells during the Claim Period.  Other working interest owners in Class Wells also constitute Released Parties, but only to the extent Range, as well operator, marketed gas and its constituents and paid royalty on behalf of such other working interest owners during the Claim Period(s).  No claims are released against other working interest owners to the extent they separately marketed gas from Class Wells.  No claims are released as to gas marketed for Range by third-party operators not affiliated with Range; however, the Class and all Class Members covenant not to sue the Released Parties for any alleged royalty underpayment with respect to such gas and its constituents marketed by others during the Claim Period for any Class Well.  The Class does not release Range’s assignees in Class Wells for any claims occurring or arising after the Claim Period(s) for any well(s) so assigned to any assignee.  Released Parties do not include any entity to whom Range has sold any of the Class Wells (and associated Class Leases and Class Force Pooled Royalty Interests) for any claims occurring or arising after the Claim Period(s) for any Class Well(s) sold to any such entity.  Further, notwithstanding any language herein to the contrary, Released Parties do not include any non-affiliated company to whom Range sold Class Wells, for any claims relating to underpaid royalty on production that has occurred from and after the effective date such Class Wells were sold by Range to such other company.

1.29  “Request for Exclusion” means any request for exclusion from the Class pursuant to Okla. Stat. tit. 12, § 2023.

1.30  “Settlement Administrator” means, subject to approval and appointment by the Court, the person or entity who shall administer the Settlement.

 

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1.31  “Settlement Amount” has the same meaning as “Settlement Cash Amount,” “Settlement Funds,” or “Settlement Proceeds” and means the total cash amount of $87,500,000.00, to be paid by Range in settlement of all Released Claims on Class Wells for the Claim Period(s) for Class Members who have not opted out of the Class, or who have not been otherwise excluded by an order of the Court, for all alleged deductions or reductions from the values and/or volumes of the gas and its constituents and all alleged royalty underpayments with respect thereto, as alleged by Class Representatives, and all related damages alleged to be potentially recoverable in conjunction therewith, plus interest. “Settlement Amount,” “Settlement Cash Amount,” “Settlement Funds” and/or “Settlement Proceeds” does not include those Administration and Distribution Costs as defined in subsections (1) through (8) of paragraph 1.1, which shall be performed at the sole expense of Range.

1.32  “Settling Parties” or “Parties” means (i) Class Representatives on behalf of themselves and the Class Members, and (ii) Range.

2.  CONSIDERATION

2.1  The Settling Parties agree, subject to final approval of the Court, to settle the claims in this case for the cash sum of $87,500,000.00, to be paid by Range to the Class.  In consideration of the Settlement, Range shall pay or cause to be paid the Settlement Amount in cash into the Escrow Account within five (5) business days after the later of (i) entry of the Preliminary Approval Order, or (ii) receipt by Range of information from Class Representative necessary to effectuate a transfer of funds, including wiring instructions to include the bank name and ABA routing number, account name and number, and a signed W-9 reflecting a valid taxpayer identification number for the qualified settlement fund in which the Escrow Account has been established. Range shall not be responsible for any interest so long as the full Settlement Amount is paid within the prescribed period.  If the full Settlement Amount is not paid by Range within the period set forth in this paragraph, Range shall be responsible for interest on any unpaid amount from the end of the prescribed period forward at twelve percent (12%) compounded annually until paid into the Escrow Account.  Upon paying the Settlement Amount required hereunder, Range shall have no further obligation to make any further payment to the Class for any of the Released Claims, unless the Settlement is not finally approved, at which point the Parties will return to their pre-Settlement positions.  The Settlement Amount and any accrued interest will be refunded to Range if the Settlement is not finally approved.  Any accrued interest on the Escrow Account is for the benefit of the Gross Settlement Fund, unless the Settlement is not finally approved.

2.2  The Settlement Amount shall not be reduced due to (1) the inability to locate any Class Member or (2) the existence of royalty owned by any non-class member(s).

2.3  The Class Members who participate in this Settlement agree, in exchange for the cash Settlement Cash Amount, to give the Mutual Release, Dismissal with prejudice and Covenant Not to Sue described in Section 4, below, and the other valuable consideration provided herein.

3.  PLAN OF NOTICE AND COURT APPROVALS

3.1  No later than three (3) business days after this Stipulation is executed by the Parties, and in no event later than June 30, 2013, Class Representatives and Range will file a joint motion with the Court seeking Preliminary Approval of Settlement, which shall include a Preliminary Approval Order, substantially in the form attached hereto as Exhibit 5, preliminarily approving the Settlement, directing that Notice be provided to the Class as set forth therein, and scheduling a Final Fairness Hearing.

3.2  As soon as reasonably possible, and not more than 30 days after entry of the Preliminary Approval Order, Range will mail or caused to be mailed the Notice of Settlement by first class mail to all Class Members who can be identified.  On wells currently operated by Range, the Notice of Settlement will be mailed to Class Members using the most current royalty pay deck available to Range.   For Non-Operated wells, Range will mail the Notice of Settlement based on the most current royalty owner names and addresses reasonably available to Range from the well operator.  For wells that have been sold or are no longer producing, Range will mail the Notice of Settlement to the last known royalty owners based on electronic data reasonably available from Range data.  However, if Range is unable through reasonable efforts to obtain current royalty owner names and addresses for Non-Operated wells, or wells that have been sold or no longer producing, Range will publish or cause to be published the Notice of Settlement as described below.  On or before the tenth business day, after the mailing of notice begins, Range also shall publish or cause to be published the summary Notice of Settlement one time in each of the following newspapers: (1) The Oklahoman, a paper of general circulation in Oklahoma, (2) The Tulsa World, a paper of general circulation in Oklahoma and (3) Chickasha Express-Star in Grady County, Oklahoma.  From approximately such tenth business day through the Final Fairness Hearing, the Settlement Administrator will also display or cause to be displayed on an Internet website dedicated to this Class Action Litigation the following documents:  (1) the Notice of Settlement; (2) the Petition, Answer, Order on Motion to Dismiss, Order Granting Plaintiff’s Motion for Class Certification; (3) this Stipulation and Agreement of Settlement (including all exhibits to same), and (4) the Preliminary Approval Order.

 

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3.3  All objections to the Settlement, including, but not limited to, objections to the Settlement, Notice, Plan of Allocation, application for attorneys’ fees and/or Litigation Expenses and/or Case Contribution Award and/or expenses must be filed with (and received by) the Court and served into the hands of counsel for the Settling Parties as described more fully below and by the date and in the manner set by the Court in the Preliminary Approval Order and specified in the Notice, which shall state that objections must be filed with (and received by) the Court and served into the hands of counsel for the Settling Parties by 5:00 p.m cdt on August 15, 2013, unless such deadline is modified or extended by Order of the Court.  All Requests for Exclusion must be delivered into the hands of the Settlement Administrator as described more fully below and by the date and in the manner set by the Court in the Preliminary Approval Order and specified in the Notice, which shall state that all Requests for Exclusion must be delivered into the hands of the Settlement Administrator by 5:00 p.m cdt on August 15, 2013, unless such deadline is modified or extended by Order of the Court.  No later than twenty-one (21) calendar days prior to the Final Fairness Hearing, and unless the Settlement has otherwise been terminated pursuant to this Stipulation, Class Counsel and Class Representative shall move for (a) final approval of the Settlement pursuant to Okla. Stat. tit 12 § 23(E) of the Oklahoma Rules of Civil Procedure and (b) entry of a Judgment substantially in the form attached as Exhibit 2.

3.4  Neither the Settling Parties, Class Representatives, the Class, Class Counsel, nor Range’s Counsel shall have any liability for failure of the Notice to the Class to reach one or more members of the Class.

3.5  After Notice of Settlement is given in the manner directed by the Court, providing for notice of:  (a) the Court’s certification of the Class and preliminary approval of this Settlement Agreement; (b) the terms of the proposed settlement; (c) Class Members’ opportunity to opt-out and/or object to the proposed settlement; and, (d) Class Counsel’s request for Class Counsel’s Fees and Expenses (including Class Representative Fees and Expenses), the parties will request the Court to hold the Settlement Fairness Hearing as described in the Notice of Settlement, and then to enter Judgment approving the settlement between the Class Representatives, the Class, and Range and specifically approving all terms and provisions of this Settlement Agreement, including the Plan of Allocation and Distribution. The Judgment shall include substantially the following provisions:

 

 

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4.  MUTUAL RELEASE, DISMISSAL AND COVENANT NOT TO SUE

4.1(a)  Upon the Effective Date, the Released Parties (as defined in paragraph 1.28 herein), individually and collectively, shall be fully, finally and forever released from the Released Claims (as defined in paragraph 1.27 herein) of the Class Members who do not opt out of the Class, and the Class Members who do not opt out of the Class shall be enjoined from asserting or prosecuting any Released Claims against any Released Parties. It is specifically understood that no claims related to production from any Class Well that occurs after May 31, 2013 is released by any Class Member.  It is further understood that claims related to each Class Well are only released for the the Claim Period of each such Class Well.

4.1(b)    Upon the Effective Date, Range, on behalf of itself and its officers, directors, agents, successors and assigns, individually and collectively, (a) shall be deemed by operation of law to have fully, finally and forever released, relinquished, waived, discharged and dismissed any and all claims against Class Counsel (including Class experts and consultants), Plaintiffs’ Counsel Class Representatives and the Class regarding this litigation, the Released Claims, and/or any claim that Class Counsel, Plaintiffs’ Counsel, or Class Representatives acted in bad faith or had no basis for filing or prosecuting this matter; (b) shall be enjoined from asserting or prosecuting any such claims against same; and (c) agrees and covenants not to sue Class Counsel, Plaintiffs’ Counsel, Class Representatives and/or the Class on the basis of any such claims or to assist any third party in commencing or maintaining any suit related to any such claims.  In addition to the covenant not to sue in paragraph 1.20, the Settlement Class and all Class Members also covenant not to sue Range, and all past and present directors, officers, employees, attorneys, agents, consultants, servants, stockholders, representatives, subsidiaries, predecessor entities of, and affiliated successor entities to Range for any Class Claims which relate to production occurring during the Claim Period separately for each well i.e. the period of time for each Class Well when Range either marketed gas as the well operator or Range separately marketed gas from a well where Range was not the operator.  No release of any claims applies to gas (including all of its constituents) which is produced from any well after May 31, 2013.

4.2  Upon final approval of the Settlement by the Court and payment of the Settlement Amount with accrued interest, if any, Class Representatives and the Class (with Court approval) will dismiss the Class Claims against Range with prejudice; however, all obligations arising from the Settlement shall survive until they are determined by the Court to have been fully performed, and the Court will retain exclusive jurisdiction of this Litigation and the Settling Parties for purposes of enforcing the Settlement and any issues associated therewith.

5.  USE OF GROSS SETTLEMENT FUND AND PAYMENT OF TAXES

5.1  Except as otherwise provided herein, the Gross Settlement Fund shall be used to pay any:  (i) taxes of any type that may be required to be withheld or paid from the Net Settlement Fund (“Taxes”); (ii) Case Contribution Awards approved by the Court; (iii) attorneys’ fees awarded by the Court; (iv) Litigation Expenses awarded by the Court; and (v) other Court-approved deductions including, but not limited to, any costs set forth pursuant to paragraph 1.1.

5.2  Except as provided herein or pursuant to orders of the Court, the Gross Settlement Fund shall remain in the Escrow Account.  All funds held by the Escrow Agent shall be deemed to be in the custody of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds shall be distributed or returned pursuant to the terms of this Settlement Agreement and/or further order of the Court.  Unless otherwise approved by the Court upon the application of Class Counsel, the Escrow Agent shall invest any funds in excess of U.S. $100,000 in United States Treasury Bills having maturities of ninety (90) days or less, or money market mutual funds comprised of investments secured by the full faith and credit of the United States Government, or an account fully insured by the United States Government Federal Deposit Insurance Corporation (FDIC).  Any funds held in escrow in an amount of less than U.S. $100,000 may be held in an interest-bearing account insured by the FDIC or money market mutual funds comprised of investments secured by the full faith and credit of the United States Government or fully insured by the United States Government.  All risks related to the investment of the Gross Settlement Fund shall be borne by the Gross Settlement Fund, and Range, Range’s counsel, Plaintiffs, Class Counsel and Plaintiffs’ Counsel shall not have any liability whatsoever for any loss arising from the investment thereof.

 

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5.3  The Settling Parties agree that the Gross Settlement Fund is intended to be a qualified settlement fund within the meaning of Treasury Regulation § 1.468B-1 and that the Settlement Administrator, as administrator of the Escrow Account Fund within the meaning of Treasury Regulation § 1.468B-2(k)(3), shall be solely responsible for filing or causing to be filed all informational and other tax returns as may be necessary or appropriate (including, without limitation, the returns described in Treasury Regulation § 1.468B-2(k)) for the Gross Settlement Fund.  Such returns shall be consistent with this paragraph and in all events shall reflect that all taxes on the income earned on the Gross Settlement Fund shall be paid out of the Gross Settlement Fund as provided herein. The Settlement Administrator shall also be solely responsible for causing payment to be made from the Gross Settlement Fund of any Taxes owed with respect to the Gross Settlement Fund.  The Settlement Administrator, as administrator of the Gross Settlement Fund within the meaning of Treasury Regulation §1.468B-2(k)(3), shall timely make such elections as are necessary or advisable to carry out this paragraph, including, as necessary, making a “relation back election,” as described in Treasury Regulation § 1.468B-1(j), to cause the qualified settlement fund to come into existence at the earliest allowable date, and shall take or cause to be taken all actions as may be necessary or appropriate in connection therewith.

5.4  All such Taxes shall be paid out of the Gross Settlement Fund, and shall be timely paid by the Escrow Agent pursuant to the disbursement instructions set forth in the Escrow Agreement, and without prior Order of the Court.  Any tax returns prepared for the Gross Settlement Fund (as well as the election set forth therein) shall be consistent with the previous paragraph and in all events shall reflect that all Taxes (including any interest or penalties) on the income earned by the Gross Settlement Fund shall be paid out of the Gross Settlement Fund as provided herein.  The Gross Settlement Fund shall indemnify and hold all Released Parties, including but not limited to, Range’s Counsel and Class Counsel, harmless for any Taxes and related expenses of any kind whatsoever (including without limitation, taxes payable by reason of any such indemnification).  The Parties and their counsel shall notify the Escrow Agent promptly upon receipt of any notice of any claim for Taxes relating to the Gross Settlement Fund.

5.5  All distributions shall be subject to any required federal or state income tax withholding, which the Settlement Administrator (or any entity distributing the settlement proceeds on its behalf) shall be entitled to withhold and pay to the appropriate taxing authorities; however, before withholding taxes and sending payments, the Settlement Administrator (or any entity distributing the settlement proceeds on its behalf), with the aid of Range, shall make reasonable efforts to: (a) locate current Class Member owners and (b) obtain Class Members’ tax identification numbers, where unknown, including making reasonable inquiry and sending form W-9 Request for Taxpayer Identification Number and Certification to the best reasonably obtainable address of any Class Member whose taxpayer identification number is unknown. The Settlement Administrator (or any entity distributing the settlement proceeds on its behalf) shall provide 1099’s or other explanations of payments to Class Members sufficient to allow them to assure themselves that proper tax payments have been or can be made, or to allow them to submit requests for refunds. In the event distribution checks are not cashed or are returned to the Settlement Administrator, such that the Class Members do not receive payment of the amounts distributed, the Settlement Administrator (or any entity distributing the settlement proceeds on its behalf) shall make a request for refund to the taxing authority to whom any withheld taxes were paid on behalf of a Class Member who did not receive payment; provided, however, no such request for refund shall be necessary where the amount to be refunded is less than $10.00.  Subject to the foregoing, all withheld taxes on distribution amounts that were not received by Class Members, or on funds that were not distributed, will be subject to payment as determined by the Court, in accordance with the provisions of this settlement.

5.6  Range continues to maintain for all purposes that its gas sales were arms-length at the point of delivery for such sales and that even if not arms-length, then such sales represented either market value or price received less allowable costs.

5.7  All income taxes incurred on the part of the Class Members in connection with the implementation of this Settlement Agreement shall be reported and paid by the individual Class Members to the extent of their individual tax liability on proceeds they individually receive.  Except for amounts withheld by the Settlement Administrator (or any entity distributing amounts of its behalf), the individual Class Members are solely responsible for the payment of any taxes attributable to payments to them under this Settlement Agreement, and neither Class Counsel, Plaintiffs’ Counsel, Range, Range’s Counsel, the Settlement Fund, the Settlement Administrator, nor Class Representatives shall have any responsibility or liability whatsoever for any such payments.

5.8  To the extent an appropriate taxing authority determines that any severance, gross production or other taxes or assessments, including applicable interest or penalties, may be due and payable by the Class Members on all or any portion of the Settlement Amount and provides notice of such determination to Range, then Range shall give written notice to the Class Members of such assessment, determination, or other inquiry by the taxing authority, as soon as reasonably practicable, so that the Class Members may have the opportunity to contest such an assessment.  The Parties agree that Range, Range’s Counsel and Class Counsel have no responsibility or liability for any gross production or severance taxes that may be due.

 

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5.9  In the event Range is required to pay any such taxes or assessments attributable to the Class Members, including any applicable interest or penalties, Range shall be entitled to recover from each Class Member that portion of such taxes or assessments, interest and penalties attributable to the portion of the Settlement Amount allocated to such Class Member by any lawful means available to Range, including offset from any future royalty or other payments or credits to the Class Member, whether or not related to the specific well, lease, or unit the taxes, interest or penalty relate to.  Neither Class Counsel nor Class Representatives shall have any responsibility or liability whatsoever for any such payments.

5.10  Class Representatives and Range acknowledge that at this time they do not know what, if any, such gross production taxes or assessments are or may be due on the Settlement Cash Amount.  Before distribution of any funds to Class Members, Class Counsel and Class Representatives will make a reasonable determination, based upon other similar class action settlements, whether any gross production taxes are owed on behalf of the Class as a result of settlement, make a reasonable estimate of any such amount, if any, and pay such reasonable estimated amount of taxes should they be due.  Any such payment will be made with Court approval from the Gross Settlement Fund (after payment of fees and expenses) prior to final calculation of the distribution to Class Members; Class Counsel, Class Representatives, Range, Range’s Counsel, and the Settlement Administrator shall have no liability whatsoever for such payments.   Distribution of the Net Settlement Cash Amount is authorized to proceed once the Court has entered an order authorizing payment (if any) to the Oklahoma Tax Commission and such payment has been made.  Range will have no input in determining the amount of taxes payable by the Class or how the taxes will be paid from the Settlement Cash Amount, and likewise will not be bound in any respect by such determination or be attributed with any agreement as to whether the taxes paid by the Class are due or payable.

5.11  Upon the Effective Date, except as otherwise provided in paragraphs 1.1 and 5.9 herein, Range will not have any right to the return of the Gross Settlement Fund or any portion thereof.

5.12  Following entry of the Preliminary Approval Order, Class Counsel may cause to be paid from the Escrow Account without further approval from Range or further order of the Court reasonable Administration, Notice and Distribution Costs as set forth in Paragraph 1.1(9).  In the event the Settlement is terminated pursuant to the terms of this Stipulation, all Administration, Notice and Distribution Costs actually paid or incurred will not be returned or repaid to Range.  Prior to final approval of the Settlement, the amount that may be paid for Administration, Notice and Distribution Costs without further approval from Range or further order of the Court pursuant to this paragraph may not exceed $250,000.00.

5.13  Except as provided in Section 6 hereof, the Released Parties shall have no responsibility for, interest in, or liability whatsoever with respect to the maintenance, investment or distribution of the Gross Settlement Fund, the establishment or maintenance of the Escrow Account, the terms or administration of any Plan of Allocation or of the determination, administration, or calculation of claims, the payment or withholding of Taxes, the distribution or disbursement of the Net Settlement Fund, the administration of the Settlement, or any other expenses or losses in connection with such matters.  Without limiting the foregoing, the Gross Settlement Fund shall be the sole source of Taxes, attorneys’ fees, Case Contribution Award and Litigation Expenses, and there shall be no recourse against Range, Range’s Counsel or Class Counsel for any such expenses.  

6.  CLAIMS ADMINISTRATION, ALLOCATION AND DISTRIBUTION OF NET SETTLEMENT FUND

6.1  The Settlement Administrator shall administer the Settlement under Class Counsel’s supervision in accordance with this Stipulation and subject to the jurisdiction of the Court.  Range and Range’s Counsel shall cooperate in the administration of the Settlement to the extent reasonably necessary to effectuate its terms.  The Net Settlement Fund shall be distributed to Class Members according to the Plan of Allocation and Distribution Order, a proposed version of which is attached hereto as Exhibit 6, or according to such other plan of allocation and distribution order(s) as the Court approves.    

6.2  The allocation of the Net Settlement Fund among Class Members is a matter separate and apart from the proposed Settlement between the Settling Parties, and any decision by the Court concerning the Plan of Allocation shall not affect the validity or Finality of the Settlement.  Class Representative may not terminate the Stipulation or the Settlement based on this Court’s or any other court’s ruling with respect to the Plan of Allocation or any plan of allocation in the Litigation.  Further, after the issuance of any notice contemplated by this Settlement Agreement, or after the issuance of any notice ordered by the Court, the Plan of Allocation may be modified without any further notice being required.

 

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6.3  Range shall reasonably cooperate to provide all reasonably available data and other information: (i) reasonably necessary to complete the Settlement and (ii) available to Range from records to which Range has access or can reasonably and timely obtain through requests to others; provided, however, Range shall not be required to take legal action against any third party to obtain the requested information.  As soon as possible after preliminary approval of this Settlement by the Court, and in no event more than thirty (30) days after preliminary approval, Range shall provide Class Counsel in a readily usable electronic format with names, addresses, tax identification numbers and royalty decimal interests of Class Members on a well-by-well basis for currently producing wells operated by Range.  For all other Class Wells, Range will provide names, addresses, tax identification numbers and royalty decimal interests of Class Members on a well-by-well basis as soon as reasonably possible in a readily useable electronic format, but in no event more than sixty (60) days after preliminary approval, provided that Range is able to obtain the information from the operators of those Class Wells, and absent agreement by Class Counsel, order of the Court, or extraordinary circumstances preventing completion by that date.  To the extent possible, the data will be based on ownership as of March 2013, or the most recently available pay deck.  For clarification purposes, the reference to a specific month’s royalty pay deck means the royalty ownership determined in good faith by the well operator to apply to gas production proceeds for that particular month. The Parties recognize that, for some wells no longer producing, or previously sold, or operated by other companies, Range may not have and may not be able to obtain information necessary to identify Class Members in those wells.  If after using reasonable efforts the Parties and the Settlement Administrator are unable to identify the individual Class Members in such a well within 12 months after the Settlement is Final, the portion of the Net Settlement Fund allocated to those wells will be subject to reimbursement of Range’s out-of-pocket costs as described in paragraph 1.1.

6.4  The Class Counsel shall, subject to Court approval, first allocate Net Settlement Fund to individual Class Wells proportionately, with due regard for the production marketed by Range on behalf of itself and/or other well owners, the amount and date of claimed royalty underpayment to Class Members, and each well’s Claim Period.  The allocation of the Net Settlement Fund among Class Wells as determined by Class Counsel is shown on Exhibit 1.  This allocation is subject to final approval by the Court.  Thereafter, the Settlement Administrator, with the aid of Range, will allocate the Net Settlement Fund for each Class Well proportionately among all Class Members based on their royalty decimal interest in such well using the March 2013 royalty pay deck (or the most current available royalty pay deck), subject to review and approval by Class Counsel, not to be unreasonably withheld, and the Court.  

6.5  It is recognized that on non-operated wells with current production, that the Settlement Administrator will either pay to the operator the settlement funds attributable to that non-operated Class Well for further distribution to royalty owners or make those payments directly.  On Range operated wells, the Settlement Administrator will pay settlement proceeds proportionately to royalty owners who are Class members and have not opted out based upon the March 2013 royalty pay deck for each well, or the most recently available pay deck.  In the case of non-operated wells without current production, Range will make reasonable commercial efforts to determine Class Member royalty owners (along with decimal interest and last known address) by contacting last known well operators.  If such information can be gathered, then the Settlement Administrator will make distribution to them.  However, if the information needed to make distribution cannot be obtained through such efforts, the portion of the Net Settlement Fund attributable to such Class Well will remain in the Escrow Account as part of the unclaimed amount, and may be used for reimbursement of Range’s out-of-pocket costs as described in paragraph 1.1.  The Settlement Administrator or either Party may, but are not required to, seek to have the Court require that such current operators distribute such funds to those current royalty owners who are Class Members, and neither party shall object to such a request.  In the event current operators are required to make distributions on the Class Wells they operate, then Range and the Settlement Administrator will provide assistance to the operators as reasonably required.  However, it is recognized that, on non-operated wells, it is the well operator (not Range) who has direct access to royalty owner pay decks. All such distributions will be subject to review and approval by Class Counsel, not to be unreasonably withheld, and the Court.  

6.6  Returned or stale-dated Distribution Checks shall be reissued as necessary to ensure delivery to the appropriate Class Members by the Settlement Administrator, using commercially reasonable methods subject to review and approval by Class Counsel, not to be unreasonably withheld, and the Court.  To the extent that Class Members cannot be located, after all commercially reasonable efforts have been expended, the portion of the Net Settlement Proceeds attributable to them will remain in the Escrow Account for at least one year from the date that the Judgment becomes final.  Thereafter, such remaining funds will be considered to be residual unclaimed funds which may be used to reimburse Range for out-of-pocket costs incurred for Administration Notice and Distribution upon Court approval or be paid pursuant to the provisions of paragraph 6.13.

 

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6.7  Included with each Distribution Check shall be an enclosure that includes the following or substantially similar notice:

TO: Class Member or Designated Royalty Distributor: The enclosed check represents a share of the net settlement proceeds in the Class Action James A. Drummond, et al. v. Range Resources-Midcontinent, LLC, et al., Case No. CJ-2010-510 in Grady County, Oklahoma. You are receiving this notice and check because: (l) you have been identified as a Class Member in this action, or (2) you are the designated royalty distributor pursuant to the Production Revenue Standards Act of a well you operate in which Range Resources Corporation, Range Resources-Midcontinent, LLC, or Range Production Company (collectively “Range”), or a predecessor or assignor of Range, currently and/or in prior periods, marketed its own gas.  If you are not legally entitled to the proceeds identified on the check apron, the Court has entered an Order that requires you to pay these proceeds to persons legally entitled thereto or return this check uncashed to the remitter of it.  If you are a designated royalty distributor, you are required to pay these proceeds to the current royalty owners in each of the wells identified on the check detail, and a copy of this notice should be included with the payment to each of the royalty owners.

The distribution described above to Class Members is based on the assumption that very few sales of royalty interests have occurred. It has also been assumed that where sales did occur, it was the intent of the parties that the buyer was entitled to receive payment for past claims.  Finally, it has been assumed that where royalty interests passed through inheritance, devise or interfamily transfers, that it was the intent that the heir, or devisee or transferee also was entitled to receive payment for past claims.  To the extent that these assumptions are not correct in relation to particular transfers of interest, the Court has ordered that the Class Member who receives payment shall in turn make payment to the proper party or return this check uncashed to the remitter of it.

The person to whom this check was originally made payable, and anyone to whom the check has been assigned by that person, has accepted this payment pursuant to the terms of the Settlement Agreement, Notice of Settlement, and Judgment related thereto, which releases, inter alia, Range and its past and present parents, affiliates, directors, officers, employees, attorneys, agents, consultants, servants, stockholders, representatives, subsidiaries, predecessor entities, and affiliated successor entities (but not entities to which Range assigned interests in Class Wells as to any claims occurring or arising after the Claim Period(s) for any well(s) sold to any such entity) from any and all Released Claims as defined in the Settlement Agreement.  Pursuant to the Order of the Court, it is the duty of the payee of the check to ensure that the funds are paid to the Class Member(s) entitled to the funds, and the release by Class Member(s) entitled to the funds shall be effective regardless of whether such Class Member(s) receive some, all, or none of the proceeds paid to a payee of a settlement check.

This check shall be null and void if not endorsed and negotiated within ninety (90) days of its date.  The release of claims provided in the settlement shall be effective regardless of whether this check is cashed.

6.8  Except as otherwise provided herein, upon the Settlement Agreement being finally approved by the Court and such final approval no longer being subject to appeal, and after Court approval of the Plan of Allocation, the Settlement Administrator will make prompt distribution of the Net Settlement Fund to the persons ordered by the Court to receive those funds, and Range shall bear all Administration, Notice and Distribution Costs except for those set forth in clause (9) of paragraph 1.1.  Subject to paragraphs 1.1, 6.12 and 6.13, to the extent that any part of the Net Settlement Fund becomes subject to the escheat statutes of various states, the Settlement Administrator will make payment to the appropriate governmental body upon Court approval.  The Settlement Administrator, with the aid of Range as called for herein, will make a diligent effort to make the first distributions within ninety (90) days of the Settlement becoming final and complete the distributions within 270 days to Class Members representing at least ninety-five percent (95%) of the Net Settlement Fund.  The remainder of the Net Settlement Fund will be distributed within one year of the Settlement becoming Final.  Any portion of the Net Settlement Fund remaining in the Escrow Account thereafter will be considered to be residual or unclaimed funds.

6.9  Distributions will only be made based on an order of the Court, approved by Class Counsel and Class Representatives.  It is contemplated that distributions will be made in a series of waves so that payments to readily identifiable royalty owners are not unduly delayed.

6.10  Range, Range’s Counsel, Plaintiffs’ Counsel, Class Counsel and Class Representatives shall have no liability to any Class Member for non-payment, mis-payment, over-payment, and/or under-payment.

 

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6.11  If any Class Member has been paid any portion of the Net Settlement Proceeds for any period of time for which that Class Member was not entitled to receive that payment, and some other person or entity who owned or claims to have owned the minerals during that time asserts a claim against any Released Party for payment of all or a portion of the settlement proceeds, or asserts a claim for an alleged underpayment of the royalty share or mineral owner’s share of such production that is based on what is defined herein as a Released Claim, then the Class Member who received an amount in excess of his share shall be liable for the payment of the amount he was overpaid to the person who is determined to have been properly owed that amount, and that Class Member shall indemnify any Released Party, Class Counsel and other members of the Class, or any Party to this Settlement Agreement against whom a claim is made, but only to the extent of any overpayment received by the indemnifying Class Member, interest thereon, and reasonable attorneys’ fees and costs.

6.12  Upon completion of the distribution (including any necessary supplemental distributions) to the Class Members to the extent called for hereunder, and upon compliance with the Court’s order(s) in furtherance of this Settlement, Range and any Settlement Administrator will have satisfied all obligations relating to the distribution of the Net Settlement Fund. Subject to paragraph 1.1 above concerning reimbursement of Notice and Administration Costs, Range or the Settlement Administrator, will then turn administration of any remaining monies in the Escrow Account over to Class Counsel for further administration and handling pursuant to paragraph 6.13.

6.13  Any residual funds remaining in the Escrow Account after distribution has otherwise been completed, and Range has been reimbursed for out-of-pocket Administration, Notice, and Distribution Costs, as provided for elsewhere herein, and for which further distribution is not economically viable, shall pursuant to Court order be contributed to non-sectarian, not-for-profit, 501(c)(3) organization(s) recommended by Class Counsel and deemed by the Court, in its sound discretion, to be worthy of the funds.

6.14  The Court shall retain jurisdiction to determine any issues relating to the payment and distribution of the Net Settlement Fund, and any claims relating thereto shall be determined by the Court alone, and shall be limited to a determination of the claimant’s entitlement to any portion of the Net Settlement Fund, and no consequential, punitive or other damages shall be awarded in any proceeding regarding any such determination.

6.15  At such time as the Judgment becomes final and no longer being subject to appeal (or as otherwise provided herein), Class Representatives, Class Counsel and Range will promptly obtain the Court’s approval of a list of the names of Class Members who have not opted-out and to whom Distribution Checks are to be mailed, along with the amounts of the Distribution Check for each such Class Member.  The names, addresses, and amounts will be determined in accordance with this Section 6. In relation to producing Class Wells that Range does not operate the Settling Parties may seek Court approval for payment of the funds to the current operator for further distribution to Class Members proportionately in the well.  At the direction of the Court, the Settlement Administrator will cause Distribution Checks to be issued and deposited in the United States mails, addressed to the addresses for members of the Class that are reasonably available to Range, or if approved by the Court, the operator of producing non-operated wells.  The Parties recognize that there may be a series of distribution orders since the identity of (and amount due to) Class Members will not be available for all Class Members at the same time.

6.16  The Mutual Release, Dismissal, and Covenant Not to Sue shall be effective as provided in this Settlement Agreement, regardless of whether or not particular members of the Class did or did not receive payment from the Net Settlement Fund and regardless of whether any member of the Class who was obligated pursuant to the Judgment to pay some or all of the distributed funds to another Class Member in fact made such payment to such other Class Member.  The failure of a Class Member to make payment to another Class Member pursuant to the payment obligations of the Judgment shall not be a defense to enforcement of the Release of the Released Claims against the Released Parties or the Covenant Not to Sue, as to any Class Member.

6.17  Neither Range, Range’s Counsel, Class Counsel, Plaintiffs’ Counsel, Class Representatives, nor the Class shall have any liability for loss of any portion of the Gross or Net Settlement Fund under any circumstances, except in the case of willful and intentional malfeasance of a dishonest nature directly causing such loss.

7.  ATTORNEYS’ FEES, CASE CONTRIBUTION AWARDS
AND LITIGATION EXPENSES

7.1  No later than twenty-one (21) calendar days prior to the Final Fairness Hearing, Class Counsel may apply to the Court for a collective award of attorneys’ fees to Class Counsel, Case Contribution Awards, and for reimbursement of Litigation Expenses.  Range shall take no position with respect to the amount of attorneys’ fees, Case Contribution Awards, or Litigation Expenses, or to whether the Court should make any or all such awards.  The Released Parties shall have no responsibility for and shall take no position with respect to the allocation among Class Counsel, nor will it encourage anyone to object thereto, and/or any other person or entity who may assert some claim thereto, of any award of attorneys’ fees or Litigation Expenses that the Court may make in the Litigation.  

 

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7.2  Any attorneys’ fees and Litigation Expenses that are awarded by the Court shall be paid to Class Counsel from the Escrow Account, immediately upon award (but in no event before the entry of the Judgment), notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part thereof; provided, however, that Class Counsel shall make appropriate refunds or repayments into the Escrow Account, plus accrued interest at the same net rate as is earned by the Gross Settlement Fund, if the Settlement is terminated pursuant to the terms of this Stipulation or if, as a result of any appeal or further proceedings on remand, or successful collateral attack, the award of attorneys’ fees and/or Litigation Expenses is reduced or reversed.  Class Counsel shall make the appropriate refund or repayment in full no later than fourteen (14) business days after receiving notice of the termination of the Settlement or notice of any reduction of the award of attorneys’ fees and/or Litigation Expenses.   

7.3  Any Case Contribution Awards that are awarded by the Court shall be paid to Class Representatives with the Court’s approval from the Escrow Account, on or after the Effective Date.  

7.4  An award of attorneys’ fees, Case Contribution Awards and/or Litigation Expenses is not a necessary term of this Stipulation and is not a condition of this Stipulation.  No decision by the Court or any court on any application for an award of attorneys’ fees, Case Contribution Awards or Litigation Expenses shall affect the validity or finality of the Settlement.  Class Representatives and Class Counsel may not cancel or terminate the Stipulation or the Settlement based on this Court’s or any appellate court’s ruling with respect to attorneys’ fees, Case Contribution Awards and/or Litigation Expenses.

8.  “OPT-OUTS”

8.1  Class Representatives shall not opt out of the Class, and neither the Class Representatives, Class Counsel, Range nor Range’s Counsel, nor anyone acting on behalf of said persons, shall encourage anyone else to opt out of the Class. Nevertheless, this Settlement Agreement does not prohibit Class Counsel from counseling any Class Member as to his, her, or its legal rights or prohibit any Class Member who seeks such counsel from the Class.²

8.2  The Settlement Amount will not be reduced by any opt-outs constituting less than 5% by value of the Class.  Range has the unilateral right to reduce the Settlement Amount (and recover the reduced portion plus any interest attributable thereto) for any opt-outs constituting in excess of 5% by value of the Class.  

8.3  Class counsel and Range’s counsel shall each promptly (i.e., within two business days from receipt thereof) furnish to the other, by fax or email, copies of all opt-outs received.

9.  WAIVER OR TERMINATION

9.1  Within ten (10) business days of:  (a) the Court’s entry of an order expressly declining to enter the Preliminary Approval Order in any material respect; (b) the Court’s refusal to approve this Stipulation or any material part of it; (c) the Court’s declining to enter the Judgment in any material respect; or (d) the date upon which the Judgment is modified or reversed in any material respect and such modification or reversal becomes Final, Class Representative and Range shall each have the right to terminate the Settlement and this Stipulation, by providing written notice to the other of an election to do so; provided, however, that any decision, ruling, or order solely with respect to an application for attorneys’ fees, Case Contribution Awards, or Litigation Expenses, or to any Plan of Allocation shall not be grounds for termination.

   

   

   

   

   

   

   

² By making the agreement set forth in this paragraph, Range, Range’s Counsel, and Class Counsel acknowledge and stipulate that they have “not participate[d] in offering or making . . . . an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a controversy between private parties.”  Oklahoma Rules of Professional Conduct, Rule 5.6.  The parties further stipulate that any interpretation of this provision that would result in a violation of Rule 5.6, or that would prohibit, restrict, confine, modify or interfere with Class Counsel’s duties, obligations and communications owed to the Class pursuant to the Oklahoma Rules of Professional Conduct would be unintended by all parties hereto and would be void ab initio.

 

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9.2  The Effective Date, defined in paragraph 1.11, shall be the first business day on which all of the following shall have occurred or been waived:

 

   

9.3  If Range exercises its right to terminate the Settlement or Range or Class Representatives exercise their respective rights to terminate the Settlement pursuant to paragraph 9.1:

 

   

9.4  If a certain portion of the persons or entities who would otherwise be Class Members exclude themselves from the Class by submitting a Request for Exclusion, that portion being specified in a separate supplemental agreement between Class Representative and Range (“Supplemental Agreement”), then Range shall have the option to terminate its participation in this Stipulation and the Settlement, pursuant to the terms set forth in the Supplemental Agreement.  The Supplemental Agreement shall not be filed with the Court, unless requested by the Court, and then shall only be filed under seal for in camera inspection by the Court.

9.5  Except as otherwise provided herein, in the event the Settlement is terminated, the Settlement shall be without prejudice, and none of the terms shall be effective or enforceable and the fact and terms of the Settlement shall not be admissible in any trial of this Action or in any other litigation or proceeding, and, except as otherwise expressly provided herein, this Stipulation shall be null and void and shall have no further force or effect, and the Settling Parties and members of the Class shall proceed in all respects as if this Stipulation and any related orders had not been entered.  

10.  APPEAL OF OBJECTORS

10.1  Any Class Member wishing to remain a Class Member, but objecting to any part of the Settlement, can do so only as set forth herein and in the Class Notice attached as Exhibit 3.  If the Court determines that the settlement and the awards of fees and expenses are fair to the Settlement Class as a whole, individual objections may be severed for separate appeal and review based upon the individual claims of the objecting Class Member, the intent being not to delay distribution to Class Members who do not object and not to delay payment of court awarded costs, fees and expenses except those which would be specifically subject to the objection(s) of the objecting Class Member(s).

 

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10.2  If any appeal is taken by any objector(s) that challenges the Settlement to the remaining Class Members or any award of costs, fees, and expenses, Range shall, upon the request of Class Representative, join in and support any motion to the trial court and/or appellate court seeking to have the appeal limited to the funds attributable to the royalty interest(s) of the objecting Class Member(s), so that the appeal cannot challenge the Settlement to the remaining Class Members, challenge the overall award of costs, fees, and expenses, or cause the non-objecting Class Members to be prejudiced by the delay in payment of their share of Settlement Proceeds as a result of interference by objectors who seek to delay or otherwise affect payment of any funds beyond those the objectors might argue they are individually entitled to receive.  Because any appeal by an objecting Class Member would delay the payment under the Settlement, each Class Member that appeals agrees that if such Class Member’s claim and objection are not severed for separate appeal pursuant to Section 10.1, then each such Class Member shall put up a cash bond to be set by the court sufficient to reimburse Class Counsel’s appellate fees, Class Counsel’s expenses, and the lost interest to the Class caused by the delay, but in no event less than two percent (2%) per annum.

11.  COMMUNICATIONS WITH CLASS MEMBERS

11.1  Through order dated October 11, 2011, the Court prohibited Range from contacting members of the Class concerning the status, compromise, settlement or other disposition of the claims set forth in the Petition absent notice and approval by the Court.  Class Representatives and Class Counsel agree this prohibition shall be suspended once the deadline for members of the Class to opt-out of the Settlement has passed and the prohibition shall be terminated upon final approval by the Court.  This suspension shall cease if the Settlement is terminated for any reason.  Class Representatives and Class Counsel agree that, if required, it will move jointly with Range for an order suspending and, if final approval is granted, terminating the prohibition.

12.  OTHER TERMS AND CONDITIONS

12.1  Range expressly denies all allegations of wrongdoing or liability with respect to the claims and allegations in the Litigation. It is expressly agreed that neither this Settlement, the Settlement Agreement, nor any document referred to herein, nor any action taken to carry out the Settlement Agreement is, may be construed as, or may be used as an admission by Range of any fault, wrongdoing or liability whatsoever with respect to the claims and allegations in this Action.  There has been no determination by any court, administrative agency, or other tribunal regarding the claims and allegations made against Range.  By agreeing to settle the claims of the Class in this Action, Range does not admit that the Action could have been properly maintained as a contested class action, and the Class does not admit any deficiency in the merits of their claims.  Range also continues to claim that it had valid defenses to Class Representatives’ claims and that it has settled the case without the admission of any fault, wrongdoing or liability whatsoever.  Range asserts it is entering into the Settlement Agreement solely to compromise the disputed claims and avoid the risk and expense of continued litigation.

12.2  Entering into or carrying out the Settlement Agreement, and any negotiations or proceedings related thereto, is not, and shall not be construed as, or deemed to be evidence of, an admission or concession by any of the Parties to the Settlement Agreement and shall not be offered or received in evidence in any action or proceeding by or against any party hereto in any court, administrative agency or other tribunal for any purpose whatsoever other than:  (a) to enforce the provisions of the Settlement between Range and any Class Member(s), the provisions of the Settlement Agreement, or the provisions of any related agreement, order, judgment or release; and, (b) to aid any proceedings by Range seeking indemnification or contribution for a portion of the Settlement Amount from other working interest owners in the Class Wells.

12.3  Any putative Class Member who opts out of the Class by executing a timely and valid Request for Exclusion, as described below, shall have no right to object to the Settlement in any way, including but not limited to, the fairness, reasonableness and/or amount of any aspect of the Settlement, Notice, Class Counsel’s request for attorneys’ fees, costs and expenses, Case Contribution Awards, any Plan of Allocation and/or Distribution Order(s), or any distribution of the Net Settlement Fund.  All Requests for Exclusion must be delivered into the hands of the Settlement Administrator by the date set by the Court in the Preliminary Approval Order and specified in the Notice and must include:  (a) the Class Member’s name, address, telephone number, and notarized signature; (b) a statement that the Class Member wishes to be excluded from the Class in James A. Drummond, et al. v. Range Resources-Midcontinent, LLC, et al.; and (c) a description of the Class Member’s interest in any Class Well(s), including the name, Range well number, and legal location of such Class Well(s).  Requests for Exclusion may not be submitted through the website or by telephone, facsimile, or e-mail.  

12.4  The Notice of Settlement shall require that any objection to the Settlement, to this Settlement Agreement, or to the application for Class Counsel’s attorneys’ fees and/or Litigation Expenses be in writing and comply with all the requirements set forth herein and by the Court in the Notice of Settlement to Class Members.

 

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12.5  If a Class Member remains in the Class, he or she shall have the right to file a valid objection only under the provisions the Court may determine are appropriate, including the following:  

Only a person or entity who remains a member of the Class shall have the right to object to the proposed Settlement with Range in any way including, but not limited to, the fairness, reasonableness and amount of any aspect of the Settlement, Notice, Class Counsel’s requested fees and expenses, Case Contribution Awards, and any Plan of Allocation and/or Distribution Order(s), or any distribution of the Net Settlement Fund.  Persons who desire to object to the Settlement or the fees and expenses must file a written statement with Grady County District Court, 4^th & Choctaw Street, P.O. Box 605, Chickasha, Oklahoma, and deliver a copy of same into the hands of Class Counsel and Range’s Counsel at least 14 days prior to the Final Fairness Hearing. The written statement must contain:

 

   

Any Class Member who fails to timely file such written statement and provide the required information will not be permitted to present any objections at the Final Fairness Hearing and such failure will render any such attempted objection untimely and of no effect. All presentations of objections will be further limited by the information listed.

12.6  All Parties shall use their best efforts to encourage and obtain approval of the Settlement and to assist in the completion of the terms of this Settlement Agreement and the distribution of the Net Settlement Fund to the Class Members, and their representatives and counsel or to any other party designated by the Court to receive unclaimed funds resulting from the Settlement.  The Parties also agree to promptly prepare and execute all documentation as may be reasonably required to obtain final approval by the Court of this Settlement, and to carry out the terms of this Settlement Agreement.

12.7  After distribution of the Net Settlement Fund is complete, counsel and experts will return or destroy any confidential documents produced by the other party in the Action. This provision does not apply:  (1) to transcripts of depositions or trial testimony or other sworn statements of witnesses or exhibits to any transcripts or statements or to any documents filed in the public record; (2) to any documents the Settling Parties may agree are not to be considered confidential; or (3) to any documents subject to a prior agreement between the Settling Parties allowing their use in other litigation.  After two years following a Final and unappealable Judgment in this Action that includes all issues, and particularly the distribution of the Net Settlement Fund, confidential documents that were within the materials retained for two years shall be destroyed or returned to the producing party if so requested.

12.8  Except as otherwise provided herein or by a writing signed by all the signatories hereto, this Settlement Agreement shall constitute the entire agreement among the Settling Parties related to the Settlement of this Action, and no representations, warranties or inducements have been made to any party concerning the Settlement other than the representations, warranties and covenants contained and memorialized in this Settlement Agreement.  All of the Exhibits attached to this Settlement Agreement are hereby incorporated into this Settlement Agreement as though fully set forth herein.  This Settlement Agreement may not be modified or amended, nor may any of its provisions be waived, except by a writing signed by all signatories hereto or their successors-in-interest.  

12.9  This Settlement Agreement may be executed in one or more counterparts, including by facsimile or imaged signatures.  All executed counterparts taken together shall be deemed to be one and the same instrument.

 

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12.10  The Settling Parties and their counsel have mutually contributed to the preparation of this Settlement Agreement.  Accordingly, no provision of the Settlement Agreement shall be construed against any party on the grounds that one of the parties or its counsel drafted the provision.  The Settling Parties are each represented by competent counsel who have advised their own clients as to the legal effects of this Settlement, and none of the Settling Parties has received or relied upon advice from opposing counsel.  Except as otherwise provided herein, each party shall bear its own costs in connection with the Settlement and preparation of the Settlement Agreement.

12.11  This Settlement Agreement and any disputes arising regarding the agreement are governed by the laws of the State of Oklahoma.  

12.12  The Settlement Agreement shall be binding upon, and inure to the benefit of, the successors, trustees, and assigns of the parties hereto.

12.13  The Settling Parties intend this Settlement to be a final and complete resolution of all disputes asserted or that could be asserted with respect to the Settled Claims.  Accordingly, the Settling Parties agree not to assert in any forum that this Action was brought by Class Representatives or Class Counsel, or defended by Range or Range’s Counsel, in bad faith or without a reasonable basis.  The Settling Parties agree that the amount paid and the other terms of this Settlement were negotiated at arm’s-length and in good faith, and reflect a settlement that was reached voluntarily after consultation with experienced legal counsel.  The Settling Parties shall assert no claims of any violation of the Oklahoma Rules of Civil Procedure or any other law or rule governing litigation conduct, relating to the maintenance, defense or settlement of this Action.

12.14  The headings herein are used for the purpose of convenience only and are not meant to have legal effect.

12.15  All disputes and proceedings with respect to the administration of the Settlement Agreement and the determination of all controversies relating thereto, including disputed questions of law and fact with respect to the timeliness, validity and amounts of Claims, shall be subject to the jurisdiction of the Court.  The Settling Parties waive any right to trial by jury of any dispute arising under or relating to this Stipulation or the Settlement.  

12.16  To the extent non-material modifications of this Stipulation are necessary, such modification may be made by the Settling Parties after the Execution Date without further notice to the Class as provided herein.  

12.17  All counsel and any other person executing this Stipulation and any of the exhibits hereto, or any related Settlement documents, warrant and represent that they have the full authority to do so and that they have the authority to take appropriate action required or permitted to be taken pursuant to the Stipulation to effectuate its terms.  The Settling Parties each represent and warrant that they hold the claims being released in the Settlement and that they have full authority to release such claims.

12.18  The Settling Parties stipulate and agree that all activity in this Action, except that contemplated herein and in the Preliminary Approval Order, the Notice, and the Judgment, shall be stayed and all hearings, deadlines, and other proceedings in this Action, except a preliminary approval hearing (if any) and the Final Fairness Hearing, shall be taken off calendar.  If any party is required to give notice to the other parties under this Stipulation, such notice shall be in writing and shall be deemed to have been duly given upon receipt by hand delivery, facsimile transmission or electronic mail to the recipients in the signature block below.

   

 

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IN WITNESS WHEREOF, the Parties and their counsel have executed this Agreement, in several, effective the 31st day of May, 2013.

   

 

 

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EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Jeff L. Ventura, certify that:

   

 

   

 

   

   

       

 

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EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Roger S. Manny, certify that:

   

 

   

 

   

   

       

 

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EXHIBIT 32.1

CERTIFICATION OF

PRESIDENT AND CHIEF EXECUTIVE OFFICER

OF RANGE RESOURCES CORPORATION

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ending June 30, 2013 and filed with the Securities and Exchange Commission on the date hereof (the “Report”) and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Jeff L. Ventura, President and Chief Executive Officer of Range Resources Corporation (the “Company”), hereby certify that, to my knowledge:

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

   

 

   

       

 

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EXHIBIT 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

OF RANGE RESOURCES CORPORATION

PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ending June 30, 2013 and filed with the Securities and Exchange Commission on the date hereof (the “Report”) and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Roger S. Manny, Chief Financial Officer of Range Resources Corporation (the “Company”), hereby certify that, to my knowledge:

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

   

 

   

 

   

       

 

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