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Range Resources First Quarter 2022 Results

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   |    Wednesday,April 27,2022

Range Resources Corp. announced its first quarter 2022 financial results.

First Quarter 2022 Highlights:

  • Realizations before NYMEX hedges of $5.63 per mcfe, approximately $0.74 above NYMEX natural gas
  • Natural gas differentials, including basis hedging, averaged a $0.03 premium per mcf above NYMEX
  • Pre-hedge NGL realization of $40.03 per barrel, a premium of $0.74 per barrel above Mont Belvieu equivalent
  • Production averaged 2,071 Mmcfe per day, approximately 70% natural gas
  • First quarter capital spending was $117 million, approximately 25% of the 2022 budget
  • Reduced outstanding debt by $350 million following redemption of 2026 senior notes in January
  • In March, repurchased 600,000 shares at an average of $27.00 per share
  • In April, Range's $3.0 billion borrowing base was reaffirmed with a $1.5 billion elected commitment

Commenting on the quarter, Jeff Ventura, the Company's CEO said, "Improved commodity pricing and efficient operations drove record free cash flow and cash flow per share in the first quarter. Recent tragic geopolitical events have made it more apparent than ever that the world requires ethical, safe, secure, reliable, and abundant fuel sources. We believe Range is well positioned to help fulfill this energy need. Range is at the low-end of the global cost curve for natural gas as the most capital efficient operator in the largest natural gas field in the world. Range also has an advantaged emissions intensity profile relative to production from other basins in the U.S. and abroad, given the prolific nature of the shales we are developing, stringent drilling standards and our daily focus on operational efficiencies.

In order for the industry to meet growing demand for natural gas in the U.S. and worldwide, there will need to be support for additional infrastructure, including pipelines, compression, processing facilities and LNG export terminals in the months and years ahead. In the meantime, Range has access to multiple domestic and international markets for natural gas and NGLs, which drives our competitive realized pricing compared to other natural gas producers. Range's capital efficiency is industry-leading, which is reflected in our peer-leading capital spending per mcfe metric and sustaining capital requirements. Most importantly, despite having drilled a large number of wells since discovering the Marcellus Shale, Range has a multi-decade core inventory life that is unmatched among natural gas producers in the U.S. It is this core inventory that allows for repeatable capital efficiencies in the years ahead. We remain focused on realizing the value of this world class, world-scale asset base by consistently delivering value to our shareholders through disciplined capital allocation."

Financial Discussion

First Quarter 2022 Results

GAAP revenues for first quarter 2022 totaled $181 million, GAAP net cash provided from operating activities (including changes in working capital) was $406 million, and GAAP net loss was $457 million ($1.86 per diluted share). First quarter earnings results include a $939 million mark-to-market derivative loss due to the significant increase in commodity prices.

Non-GAAP revenues for first quarter 2022 totaled $987 million, and cash flow from operations before changes in working capital, a non-GAAP measure, was $489 million. Adjusted net income comparable to analysts' estimates, a non-GAAP measure, was $297 million ($1.18 per diluted share) in first quarter 2022.

First quarter 2022 natural gas, NGLs and oil price realizations (including the impact of cash-settled hedges and derivative settlements) averaged $4.83 per mcfe.

  • The average natural gas price, including the impact of basis hedging, was $4.92 per mcf, or a positive $0.03 per mcf differential to NYMEX. The first quarter natural gas differential includes strong year-over-year basis improvements in the premium Northeast and Midwest markets that Range has access to through its diversified transportation portfolio. As a result, the Company is adjusting guidance for average 2022 natural gas differentials versus NYMEX to an expected range of ($0.35) to ($0.40) per mcf.

  • Pre-hedge NGL realizations were $40.03 per barrel, an improvement of $3.77 per barrel compared to the fourth quarter of 2021 and a $0.74 premium over Mont Belvieu equivalent. First quarter NGL realizations were driven by higher ethane prices and an improving market for propane and heavier NGL products. Range continues to see strong NGL export premiums at Marcus Hook because of the Company's access to international markets and diversified portfolio of sales agreements. The Company expects a pre-hedge premium differential to Mont Belvieu equivalent of $0.00 - $2.00 per barrel for calendar 2022.

  • Crude oil and condensate price realizations, before realized hedges, averaged $87.70 per barrel, or $7.23 below WTI (West Texas Intermediate). Range continues to expect the 2022 condensate differential to average $6.00-$8.00 below WTI.

Capital Expenditures

First quarter 2022 drilling and completion expenditures were $108 million. In addition, during the quarter, $8.6 million was invested on acreage leasehold and gathering systems. First quarter capital spending represents approximately 25% of Range's total capital budget in 2022.

Financial Position and Share Buyback

In January, Range issued $500 million aggregate principal amount of 4.75% senior notes due 2030 and used proceeds, cash on hand and the bank facility to redeem all outstanding 9.25% senior notes due 2026. As a result, Range's interest expense is expected to improve by 25% year-over-year in 2022 to an approximate $0.20 per mcfe annual midpoint average.

In late February, Range's Board of Directors approved the expansion of the Company's equity repurchase program to $500 million. This repurchase program, which is equivalent to a significant percentage of Range's current market capitalization, is expected to be funded with free cash flow generation. In March, Range repurchased 600,000 shares for approximately $16.2 million, an average of $27.00 per share.

As of March 31, 2022, Range had total debt outstanding of $2.6 billion, an undrawn credit facility with $2.1 billion of committed borrowing capacity, and approximately $113 million of cash on hand. On a trailing twelve-month basis, Range's leverage ratio, defined as Net-Debt-to-EBITDAX, was approximately 1.6x, with further improvement expected over the coming quarters as debt is reduced. Subsequent to quarter end, Range's $3.0 billion borrowing base was reaffirmed in April with a new elected commitment amount of $1.5 billion. The credit facility matures on April 14, 2027 and is subject to semi-annual redeterminations.

Operational Activity

The table below summarizes expected 2022 activity regarding the number of wells to sales in each area.

      Wells TIL
1Q 2022
  Calendar 2022
Planned TIL
SW PA Super-Rich     4   7   3
SW PA Wet     3   21   18
SW PA Dry     3   26   23
NE PA Dry     0   9   9
Total Wells     10   63   53

Range continues to target holding production approximately flat with an annual average production of 2,120 2,160 Mmcfe per day. Range's production guidance incorporates weather-related downtime in February that affected first quarter 2022 by approximately 35 Mmcfe per day, in addition to planned third-party downstream maintenance that is expected in the second quarter. Despite these transient delays, Range is expecting to deliver maintenance production at a capital cost of approximately $0.60 per mcfe, which we believe is the most efficient program in Appalachia.

As previously disclosed, Range has transportation capacity to sell approximately half of the Company's natural gas to Gulf Coast markets. Range currently sells over 400 Mmbtu/d of natural gas to LNG exporters as part of long-term sales contracts. Most of these contracts end over the next two years, presenting an opportunity for Range to enter new sales contracts that take advantage of a growing LNG export market over the coming years.

Based on recent strip pricing, Range's expected pre-hedge NGL price realization in 2022 has increased by approximately $6.00 per barrel relative to strip pricing in February, resulting in a projected increase of over $200 million in annual pre-hedge revenue. As previously disclosed, these higher realized NGL prices will result in slightly higher processing costs, as Range's processing costs are based on the price received. Net of price-linked processing costs, the increase in forecasted NGL prices is expected to add approximately $170 million in cash flow versus prior expectations, demonstrating continued strong margin expansion with rising NGL prices. Additionally, in 2022, Range's gathering costs are expected to improve by approximately $25 million compared to 2021, driven by contractual decreases in Range's gathering fees, while contracted gathering capacity remains the same. Range expects an additional $25 million in gathering expense savings in 2023 and annual savings of more than $100 million by 2030 when compared to 2021 costs.

Guidance 2022

Capital & Production Guidance

As previously noted, Range is targeting holding production approximately flat at 2.12 2.16 Bcfe per day, with ~30% attributed to liquids production for the full year 2022. Range's 2022 all-in capital budget is $460 million - $480 million.

Updated Full Year 2022 Expense Guidance

Direct operating expense: $0.09 - $0.11 per mcfe
Transportation, gathering, processing and compression expense: $1.56 - $1.64 per mcfe
Production tax expense: $0.03 - $0.05 per mcfe
Exploration expense: $22 - $28 million
G&A expense: $0.15 - $0.17 per mcfe
Interest expense: $0.19 - $0.21 per mcfe
DD&A expense: $0.46 - $0.50 per mcfe
Net brokered gas marketing expense: $10 - $20 million

Updated Full Year 2022 Price Guidance

Based on recent market indications, Range expects to average the following price differentials for its production in 2022.

Natural Gas:(1) NYMEX minus $0.35 to $0.40
Natural Gas Liquids (including ethane):(2) Mont Belvieu plus $0.00 to $2.00 per barrel
Oil/Condensate: WTI minus $6.00 to $8.00

(1) Including basis hedging
(2) Weighting based on 53% ethane, 27% propane, 7% normal butane, 4% iso-butane and 9% natural gasoline.

Hedging Status

Range hedges portions of its expected future production volumes to increase the predictability of cash flow and to help improve and maintain a strong, flexible financial position. Please see the detailed hedging schedule posted on the Range website under Investor Relations - Financial Information.

Range has also hedged Marcellus and other basis differentials for natural gas to limit volatility between benchmark and regional prices. The combined fair value of the natural gas basis hedges as of March 31, 2022 was a net gain of $22.5 million.

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