UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported):

October 25, 2016 (October 25, 2016)

 

RANGE RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code:  (817) 870-2601

(Former name or former address, if changed since last report):  Not applicable

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

 

 

 

 

 

 

 

 

 

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ITEM 2.02 Results of Operations and Financial Condition

On October 25, 2016 Range Resources Corporation issued a press release announcing its third quarter 2016 results.  A copy of this press release is being furnished as an exhibit to this report on Form 8-K.

ITEM 9.01 Financial Statements and Exhibits

(d) Exhibits:

99.1 Press Release dated October 25, 2016

 

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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 hereunto duly authorized.

 

Date: October 25, 2016

 

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EXHIBIT INDEX

 

 

 

 

Exhibit 99.1

NEWS RELEASE

RANGE ANNOUNCES THIRD QUARTER 2016 RESULTS

FORT WORTH, TEXAS, OCTOBER 25, 2016 RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its third quarter financial results.  

Highlights –

Commenting, Jeff Ventura, the Company’s CEO said, “Range reached another milestone in the Company’s history with the closing of the Memorial merger on September 16th.  Combining the North Louisiana stacked pay assets with our extensive Marcellus/Utica inventory makes Range a better and stronger company, with geographic diversity that allows us flexibility in capital allocation and marketing.  The integration of North Louisiana’s operations is going well and we expect the combined experience and skills from both teams will enhance the value of these high-quality assets.

Third quarter results were encouraging, as production increased, unit costs improved and unhedged cash margins rebounded.  We are excited as we look forward to fourth quarter 2016 and the full year 2017, as we anticipate improving margins on all of our products and continued improvement in capital efficiency across the Company.  With our extensive opportunity set in two high-quality natural gas plays, we believe Range is in a great position to drive shareholder value for many years to come.”

Financial Discussion

Except for generally accepted accounting principles (“GAAP”) reported amounts, specific expense categories exclude non-cash impairments, unrealized mark-to-market gain or loss on derivatives, non-cash stock compensation and other items shown separately on the attached tables.  “Unit costs” as used in this release are composed of direct operating, transportation, gathering, processing and compression, production and ad valorem taxes, general and administrative, interest and depletion, depreciation and amortization costs divided by production.  See “Non-GAAP Financial Measures” for a definition of each of the non-GAAP financial measures and the tables that reconcile each of the non-GAAP measures to their most directly comparable GAAP financial measure.

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Third Quarter 2016

GAAP revenues for third quarter 2016 totaled $413 million (a 14% decrease compared to third quarter 2015).  GAAP net cash provided from operating activities including changes in working capital was $32 million compared to $145 million in third quarter 2015 and GAAP earnings were a loss of $42 million ($0.23 loss per diluted share) versus a loss of $301 million ($1.81 per diluted share) in the prior-year quarter.  Third quarter 2016 included a $65 million derivative gain due to decreased commodity prices, compared to a $202 million gain in 2015.  Third quarter 2016 also included a deferred compensation plan gain of $12 million, due to the decrease in Range’s stock price during the quarter, compared to a $44 million gain in the prior-year quarter.

Non-GAAP revenues for third quarter 2016 totaled $402 million (a 3% decrease compared to third quarter 2015), cash flow from operations before changes in working capital, a non-GAAP measure, was $123 million compared to $169 million in third quarter 2015.  Adjusted net income comparable to analysts’ estimates, a non-GAAP measure, was a loss of $10.4 million ($0.06 loss per diluted share) for the third quarter 2016 compared to earnings of $5.5 million ($0.03 per diluted share) in the prior-year quarter.  The Company’s total unit costs improved by $0.09 per mcfe, or 3%, compared to the prior-year quarter, as shown below:

^(a) Totals may not add due to rounding.

Third quarter 2016 natural gas, NGLs and oil differentials all improved compared to the prior year as a result of transportation capacity, marketing contracts and 15 days of production from the newly acquired North Louisiana assets.  Additional detail on commodity price realizations can be found in the Supplemental Tables provided on the Company’s website at www.rangeresources.com.

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Capital Expenditures

Third quarter 2016 drilling expenditures of $90 million funded the drilling of 39 (38 net) wells.  A 100% success rate was achieved.  In addition, during the quarter, $7.4 million was incurred on acreage purchases, $6.3 million on exploration expense, and $0.3 million on gas gathering systems.  Range is on target with its previously announced $495 million capital budget for 2016, not including the North Louisiana Division.  Capital expenditures in fourth quarter 2016 for the North Louisiana Division is expected to be $74 million.  The Company expects to average nine rigs running for the fourth quarter of 2016, with five in the Southern Marcellus Division and four in the North Louisiana Division.

A new slide has been added to Range’s investor presentation on page seven, available on Range’s website at www.rangeresources.com.  The slide depicts a preliminary view of 2017 and 2018 year-over-year production growth, based on current strip pricing in 2017 and assuming $3.25 and $60.00 prices for natural gas and oil respectively in 2018.  Year-over-year production growth in 2017 is expected to be 33% to 35% with the inclusion of a full year of activity for the North Louisiana assets in 2017, or 11% to 13% of organic growth.  Anticipated year-over-year production growth in 2018 is projected to be approximately 20%.

The Company expects to announce the details for the 2017 capital plan in February, following approval by the Company’s Board of Directors.

Financial Position and Liquidity

Effective with the closing of the Memorial merger on September 16, 2016, Memorial’s bank credit facility was repaid and terminated, with the borrowings funded under Range’s existing bank credit facility.  The additional collateral of the North Louisiana assets support Range’s unchanged $4 billion credit facility with a $3 billion borrowing base and $2 billion committed amount.  As of September 30, 2016, the outstanding balance under Range’s bank facility was $937 million, before debt issuance costs, and $254 million in undrawn letter of credit, leaving $809 million of committed liquidity.  At September 30, 2016, Range’s bank group was composed of 29 financial institutions, with no bank holding more than 5.8% of the total facility.  The facility matures in October of 2019 and provides for annual redeterminations, with the next redetermination expected by May 2017. 

Concurrent with the closing of the Memorial merger, Range completed a series of exchange and tender offers that streamlined and standardized covenants across the debt capital structure.  This standardization enhances the Company’s financial flexibility and facilitates investor analysis of the debt securities. Of the $600 million in Memorial Senior Notes, Range received 99.8% participation in its offers to either exchange for newly issued Range Senior Notes or to redeem them in cash.  Simultaneously Range received 97.2% acceptance of its offer to exchange Range’s Senior Subordinated Notes for newly issued Senior Notes of identical maturity and coupon.

Operational Discussion

Range has updated its investor presentation with third quarter financial and operational results.  Please see www.rangeresources.com under the Investors tab, “Company Presentations” area, for the presentation entitled, “Company Presentation – October 25, 2016.”

The table below summarizes year-to-date activity and the number of wells expected to be turned to sales for the remainder of 2016.

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Several Marcellus wells that were previously expected to be turned to sales late in fourth quarter 2016 are now expected in the first two weeks of 2017.  This small adjustment has been captured in the Company’s fourth quarter production guidance, which remains on track with previous guidance.   In addition, the North Louisiana Division has approximately 25 drilled but uncompleted wells which are expected to be turned to sales in first quarter 2017.

Marcellus Shale

Total Marcellus production for the third quarter averaged 1,396 net Mmcfe per day, a 9% increase over the prior-year quarter.  The Southern Marcellus Shale Division averaged 1,228 net Mmcfe per day during the quarter, a 23% increase over the prior-year quarter.  The Northern Marcellus Shale Division averaged 169 net Mmcf per day during the quarter, a 39% decrease compared to the prior-year quarter, resulting from the sale of our Bradford County non-operated assets effective January 1, 2016, combined with a reduction in activity.

The Southern Marcellus Shale Division continues to drill and complete outstanding wells, with peer-leading EURs, while continuing to drive costs lower.  The examples below represent recent wells brought on line that continue to perform well.

Operational efficiency gains continued in the third quarter.  Year to date through September, the division completed 2,854 stages, compared to 2,643 stages in the previous year, an 8% increase, despite a reduction in overall activity and capital spending. 

Range also continues to drill faster and more efficiently.  Year to date through September, Range drilled 22% more lateral feet per day per rig, with a 5% reduction in drilling cost per lateral foot, when compared to the prior-year quarter.   Logistical improvements in water handling have resulted in annual savings of over $20 million, and costs of road construction have been reduced by 39% per mile over the past year. These and other efficiencies have driven Range’s normalized (per 1,000 feet of lateral) well costs, including surface facility costs, to among the lowest of other Marcellus peers.

North Louisiana

Although it has only been approximately 40 days since the closing of the Memorial merger, integration of the teams and assets has progressed quickly.  The North Louisiana assets will be operated as a new Range division, under the direction of Senior Vice President John Applegath, who for the past five years led Range’s Southern Marcellus Division.  John has an extensive energy industry background in areas all over the world, including prior experience with drilling and completion operations in the Cotton Valley formation.

For the third quarter, the division brought on line 16 wells, all located in the Terryville field.  Even with some outstanding well results over the past year, the team is focused on continued improvement in recoveries and capital efficiency.  Some recent examples include:

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There are currently three wells in progress in the extension acreage area, south of the Terryville field.  Based on log analysis, gas in place analysis and reservoir pressure data, combined with the stacked-pay potential in the area, Range is encouraged.  Two of the wells are currently being completed and the third well is still in the drilling phase.  Range expects to have well results by the end of the year.

Marketing and Transportation

Range’s marketing team has a track record of innovative and diversified marketing solutions across all products.  The second half of 2016 marks the confluence of several events that improve Range’s differentials and marketing options going forward.  The most notable event is the addition of the North Louisiana Division.  The newly acquired North Louisiana assets and production provide additional diversification and opportunities as the Company expects to explore new options for selling products in the Gulf Coast markets, where additional demand is expected from LNG exports, Mexican exports, power generation and the petrochemical industry.  Having the ability to sell production near seasonally strong Northeast and Midwest population centers while also having the expanded marketing ability near growing demand in the Gulf Coast area is expected to be a marketing advantage going forward.

For natural gas, Spectra’s Gulf Markets Expansion pipeline came on line in early October moving 150,000 Mmbtu per day of Range natural gas from Appalachia to markets close to the Gulf Coast.  At the same time the increased North Louisiana natural gas production bolsters Range’s natural gas realizations going forward given its proximity to the Gulf Coast.  As a result, Range’s fourth quarter natural gas differential is anticipated to improve to approximately $0.46 per mcf below NYMEX and the Company expects further improvement in 2017 to approximately $0.30 to $0.35 per mcf below NYMEX, based on current strip pricing.  Towards the end of 2017, Range has capacity on several Appalachian takeaway projects in southwest Pennsylvania that are expected to be completed on time that should result in additional improvements in 2018.

For NGLs, Range recently supplied a shipment of ethane to INEOS’ facilities in Grangemouth, Scotland.  This was the first shipment to the United Kingdom of ethane produced from shale reservoirs.  Range is proud to have played a significant role in this event which demonstrates one of Range’s innovative marketing solutions for its growing NGL production.  In addition, Range continues to sell propane from the Marcus Hook export terminal, placing over 1.8 million barrels of Range propane into international markets during the third quarter of 2016.  As a result of these exports, the full utilization of Range’s NGL marketing options and the addition of North Louisiana production, Range expects NGL realizations to improve to over 26% of WTI for the fourth quarter of 2016 and full-year 2017.

Regarding condensate, Range entered into long-term agreements in early July that will serve two Midwest refineries in purchasing condensate from southwest Pennsylvania.  The contracts largely drove the improvement in Marcellus condensate prices by approximately $7 per barrel during the quarter.  At the same time, Range’s condensate production in North Louisiana receives favorable pricing given its proximity to the Gulf Coast.   Combined, the Company expects the condensate differential to WTI to improve substantially to approximately $6.00 - $7.00 per barrel below NYMEX in the fourth quarter of 2016 and full-year 2017.

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Guidance

Production per day Guidance

Production for the fourth quarter of 2016 is expected to be approximately 1,850 Mmcfe per day with 31% to 33% liquids.

Fourth Quarter 2016 Expense Guidance

*Includes North Louisiana seismic expense of approximately $5.5 million for fourth quarter 2016

Differential Calculation

Based on current market pricing indications, Range would expect to average the following pre-hedge differentials for its fourth quarter 2016 and full year 2017 production.

Hedging Status

Range hedges portions of its expected future production volumes to increase the predictability of cash flow.  Range currently has over 80% of its remaining 2016 natural gas production hedged at a weighted average floor price of $3.32 per mcf.  Range has approximately 50% of its expected 2017 gas production hedged at an average floor price of $3.21 with approximately 15% hedged using puts and collars which allow additional upside.  Similarly, Range has hedged over 80% of its remaining 2016 projected crude oil production at a floor price of $70.43 and approximately 85% of its composite fourth quarter 2016 NGL production.  Please see Range’s detailed hedging schedule posted at the end of the financial tables below and on its website at www.rangeresources.com.  

Range has hedged Marcellus and other basis differentials covering 59,385,000 Mmbtu per day for October 2016 through December 2017.  The fair value of the basis hedges based upon future strip prices as of September 30, 2016 was a gain of $13.8 million.

Range has also hedged the premium spread between the Mont Belvieu propane index and the respective European and Asian propane market indexes on approximately 33% of anticipated LPG sales through December 2017.  The fair value of these hedges based upon future strip prices as of September 30, 2016 was a gain of $4.1 million.

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Conference Call and Webcast Information

A conference call to review the financial results is scheduled on Wednesday, October 26 at 9:00 a.m. ET. To participate in the call, please dial 866-900-7525 and provide conference code 92858145 about 10 minutes prior to the scheduled start time.

A simultaneous webcast of the call may be accessed over the internet at www.rangeresources.com.  The webcast will be archived for replay on the Company’s website until November 26.

Non-GAAP Financial Measures

Adjusted net income or loss comparable to analysts’ estimates as set forth in this release represents income or loss before income taxes adjusted for certain non-cash items (detailed in the accompanying table) less income taxes.  We believe adjusted net income comparable to analysts’ estimates is calculated on the same basis as analysts’ estimates and that many investors use this published research in making investment decisions and evaluating operational trends of the Company and its performance relative to other oil and gas producing companies.  Diluted earnings per share (adjusted) as set forth in this release represents adjusted net income comparable to analysts’ estimates on a diluted per share basis.  A table is included which reconciles income or loss to adjusted net income (loss) comparable to analysts’ estimates and diluted earnings per share (adjusted).  On its website, the Company provides additional comparative information on prior periods along with non-GAAP revenue disclosures.

Cash flow from operations before changes in working capital (sometimes referred to as “adjusted cash flow”) as defined in this release represents net cash provided from operating activities before changes in working capital and exploration expense adjusted for certain non-cash compensation items.  Cash flow from operations before changes in working capital is widely accepted by the investment community as a financial indicator of an oil and gas company’s ability to generate cash to internally fund exploration and development activities and to service debt.  Cash flow from operations before changes in working capital is also useful because it is widely used by professional research analysts in valuing, comparing, rating and providing investment recommendations of companies in the oil and gas exploration and production industry.  In turn, many investors use this published research in making investment decisions.  Cash flow from operations before changes in working capital is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operating activities, investing, or financing activities as an indicator of cash flows, or as a measure of liquidity.  A table is included which reconciles net cash from operating activities to cash flow from operations before changes in working capital as used in this release.  On its website, the Company provides additional comparative information on prior periods for cash flow, cash margins and non-GAAP earnings as used in this release.

The cash prices realized for oil and natural gas production including the amounts realized on cash-settled derivatives and net of transportation, gathering and compression expense is a critical component in the Company’s performance tracked by investors and professional research analysts in valuing, comparing, rating and providing investment recommendations and forecasts of companies in the oil and gas exploration and production industry.  In turn, many investors use this published research in making investment decisions.  Due to the GAAP disclosures of various derivative transactions and third-party transportation, gathering and compression expense, such information is now reported in various lines of the statement of operations.  The Company believes that it is important to furnish a table reflecting the details of the various components of each statement of operations line to better inform the reader of the details of each amount and provide a summary of the realized cash-settled amounts and third-party transportation, gathering and compression expense which historically were reported as natural gas, NGLs and oil sales.  This information is intended to bridge the gap between various readers’ understanding and fully disclose the information needed.

The Company discloses in this release the detailed components of many of the single-line items shown in the GAAP financial statements included in the Company’s Quarterly Report on Form 10-Q.  The Company believes that it is important to furnish this detail of the various components comprising each line of the Statements of Operations to better inform the reader of the details of each amount, the changes between periods and the effect on its financial results.

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RANGE RESOURCES CORPORATION (NYSE: RRC) is a leading U.S. independent oil and natural gas producer with operations focused in stacked-pay projects in the Appalachian Basin and North Louisiana.  The Company pursues an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk development drilling opportunities. The Company is headquartered in Fort Worth, Texas. More information about Range can be found at www.rangeresources.com.

 

All statements, except for statements of historical fact, made in this release regarding activities, events or developments the Company expects, believes or anticipates will or may occur in the future, such as those regarding merger integration, future well costs, expected asset sales, well productivity, future liquidity and financial resilience, anticipated exports and related financial impact, NGL market supply and demand, improving commodity fundamentals and pricing, future capital efficiencies, future shareholder value, emerging plays, capital spending, anticipated drilling and completion activity, acreage prospectivity, expected pipeline utilization, and future guidance information are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and Range's future performance are subject to a wide range of business risks and uncertainties and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the volatility of oil and gas prices, the results of our hedging transactions, the costs and results of actual drilling and operations, the timing of production, mechanical and other inherent risks associated with oil and gas production, weather, the availability of drilling equipment, changes in interest rates, litigation, uncertainties about reserve estimates, environmental risks and regulatory changes, the ultimate timing, outcome and results of integrating the operations of Range and Memorial Resource Development Corp. (“MRD”); the effects of the business combination of Range and MRD, including the combined company’s future financial condition, results of operations, strategy and plans; potential adverse reactions or changes to business relationships resulting from the completion of the business combination; expected synergies and other benefits from the business combination and the ability of Range to realize such synergies and other benefits.  Range undertakes no obligation to publicly update or revise any forward-looking statements. Further information on risks and uncertainties is available in Range's filings with the Securities and Exchange Commission ("SEC"), which are incorporated by reference.

In addition, our production forecasts and expectations for future periods are dependent upon many assumptions, including estimates of production decline rates from existing wells and the undertaking and outcome of future drilling activity, which may be affected by significant commodity price declines or drilling cost increases. Investors are urged to consider closely the disclosure in our most recent Annual Report on Form 10-K, available from our website at www.rangeresources.com or by written request to 100 Throckmorton Street, Suite 1200, Fort Worth, Texas 76102.  You can also obtain this Form 10-K on the SEC’s website at www.sec.gov or by calling the SEC at 1-800-SEC-0330.

 

2016-20

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SOURCE:  Range Resources Corporation

Investor Contacts:

Laith Sando, Vice President – Investor Relations

817-869-4267

lsando@rangeresources.com

David Amend, Investor Relations Manager

817-869-4266

damend@rangeresources.com

Michael Freeman, Senior Financial Analyst

817-869-4264

mfreeman@rangeresources.com

Josh Stevens, Financial Analyst

817-869-1564

jrstevens@rangeresources.com

 

Media Contact:

Matt Pitzarella, Director of Corporate Communications

724-873-3224

mpitzarella@rangeresources.com

www.rangeresources.com

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RANGE RESOURCES CORPORATION

(a) See separate natural gas, NGLs and oil sales information table.

(b) Included in Brokered natural gas, marketing and other revenues in the 10-Q.

(c) Costs associated with stock compensation and restricted stock amortization, which have been reflected in the categories associated with the direct personnel costs, which are combined with the cash costs in the 10-Q.

(d) Reflects the change in market value of the vested Company stock held in the deferred compensation plan.

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RANGE RESOURCES CORPORATION

 

 

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RANGE RESOURCES CORPORATION

 

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RANGE RESOURCES CORPORATION

(a) Represents volumes sold regardless of when produced.

(b) Oil and NGLs are converted at the rate of one barrel equals six mcfe based upon the approximate relative energy content of oil to natural gas, which is not necessarily indicative of the relationship of oil and natural gas prices.

(c) Excluding third party transportation, gathering and compression costs.

(d) Net of transportation, gathering, processing and compression costs.

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RANGE RESOURCES CORPORATION

 

 

(a)  Deferred taxes are estimated to be approximately 38%.

NM = Not meaningful

    

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RANGE RESOURCES CORPORATION

HEDGING POSITION AS OF October 21, 2016

(Unaudited) –

 

 

 

 

NOTE:  SEE WEBSITE FOR OTHER SUPPLEMENTAL INFORMATION FOR THE PERIODS

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