Exploration & Production | Quarterly / Earnings Reports | Second Quarter (2Q) Update
Range Resources Hones In on Assets in 2Q; Ups Production
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Range Resources Corp. has reported its second quarter 2014 financial results.
Second Quarter Highlights:
- Production volumes reached a record high, averaging 1,105 Mmcfe per day, a 21% increase over the prior-year quarter.
- Unit costs declined $0.41 per mcfe or 11% compared to the prior-year quarter.
- Reported quarterly net income increased 19% to $171 million.
- Expanded marketing capabilities by adding 17 new customers, increasing future firm transportation capacity by 400,000 Mmbtu per day and signing two LNG supply agreements.
- Continuing improvement in well performance both in the wet and dry gas areas of the Marcellus.
- Completed the asset exchange of Permian properties for Nora Field assets in Virginia and $145 million cash giving Range operating control of 350,000 net acres in Virginia and 111 Mmcf per day of production.
- Estimated production for the year increased to 25%, the high-end of previous guidance.
Commenting on the announcement, Jeff Ventura, Range's President and CEO, said, "We have confidence in our ability to grow our net production to 3 Bcfe per day, nearly three times where we are today. The wells have been identified, the compression and plants have been scheduled, and the takeaway capacity to multiple markets has been secured. Our long range plan, based on current strip pricing, estimates our operations to be cash flow positive in 2016. We believe our growth should coincide with the increased demand for natural gas, which will further accelerate our cash flow growth as prices improve. In addition, we expect continued improvements in our operating cost structure, more efficient capital spending, greater cost efficiency on gathering as we drill in areas of existing infrastructure and better well results as we continue to drill longer laterals with enhanced completion designs.
"In the second quarter, Range was able to grow production and achieve production guidance despite significant midstream disruptions. This shows the value and importance of having a flexible portfolio of properties and transportation outlets. The Range team, working in conjunction with our midstream partners, did a great job minimizing the production impact and downtime experienced during the second quarter. As a result, all of our impacted liquids-rich production is now back on-line, allowing significant production growth in the second half of the year."
Capital Expenditures
Second quarter drilling expenditures of $318 million funded the drilling of 79 (75 net) wells and the completion of previously drilled wells. A 100% drilling success rate was achieved. In addition, during the second quarter, $59 million was expended on acreage, $4 million on gas gathering systems and $12 million for exploration expense. Range is on track with its 2014 capital expenditure budget of $1.52 billion. For financial reporting purposes, the Company recorded a $280 million pre-tax gain on the Permian asset exchange, including the cash portion of the exchange, and recorded a fair value for accounting purposes of $550 million for the Nora exchanged properties.
Operational Discussion
Range produced a record average of 1,105 Mmcfe per day during the second quarter despite being negatively impacted by three events, two of which were unplanned. The first was a 200 Mmcf per day MarkWest plant being taken off-line for five weeks to repair damage due to severe weather. This resulted in liquids-rich production being shut in which negatively impacted condensate and NGL production. The second issue was extensive operational down time on Sunoco's Mariner West line which negatively impacted ethane netbacks. A third event during the quarter was the scheduled plant turnaround by MarkWest at its Houston complex which reduced the Company's quarterly liquids production. The combined effect of the unplanned events with the MarkWest plant and Sunoco pipeline disruptions was an estimated reduction of cash flow by approximately $19 million for the quarter. Range was able to grow its production despite these issues due to the flexibility of its portfolio of properties and transportation outlets. Range was able to divert production to alternate facilities as well as bring on new dry gas wells earlier than planned in areas not affected by the disruptions. The MarkWest plant is now back on-line and production has been restored with the Mariner West pipeline back to full operational capacity. With these midstream issues resolved, Range's current net production from our Marcellus Shale Divisions is approximately 1 Bcfe net per day.
Range's individual play updates can be accessed below:
Range Betting on Pennsylvania Stacked Plays; IDs Hot Spot
Range Gains Full Ownership of Nora Prospect; Talks Future Ops
Range Continues Evaluation of Mississippian Chat Acreage
Production
Production for the second quarter averaged 76 net Mmcf per day for the division. Production at the end of the quarter with the completion of the exchange was approximately 111 Mmcf net per day. For the remainder of 2014, the Company expects to perform 20 coalbed methane (CBM) recompletions while also drilling vertical tight gas, CBM and horizontal shale wells. The division's capital budget for 2014 has been increased to $40 million by transferring the remaining planned capital from the Permian properties.
Financial Discussion
GAAP revenues for the second quarter of 2014 totaled $766 million (14% increase as compared to second quarter 2013), GAAP net cash provided from operating activities including changes in working capital reached $260 million (231% increase as compared to second quarter 2013) and GAAP earnings were $171 million ($1.04 per diluted share) versus net income of $144 million ($0.88 per diluted share) in the second quarter 2013.
Several non-cash or non-recurring items impacted second quarter results. A $280 million pre-tax gain was recorded on the Permian asset exchange. A $25 million loss on the early extinguishment of debt was recorded after calling our highest coupon bonds (8%). A $25 million impairment of proved properties was provided on some legacy properties. A $11 million mark-to-market expense due to the increase in value of the Company's common stock held in the Company deferred compensation plan (which was fully funded on the date of grant), and $25 million of non-cash stock compensation expenses were recorded.
Non-GAAP revenues for second quarter 2014 totaled $482 million (13% increase as compared to second quarter 2013), cash flow from operations before changes in working capital, a non-GAAP measure, reached $249 million (a 10% increase as compared to second quarter 2013). Adjusted net income, a non-GAAP measure, for second quarter 2014 was $59 million (an 8% increase as compared to second quarter 2013).
Total unit costs improved by $0.41 per mcfe or 11% compared to the prior-year quarter as every unit cost measure decreased, led by general and administrative costs, interest expense and lease operating expense all falling by 15% or more.
Second quarter production volumes averaged 1,105 Mmcfe per day, a 21% increase over the prior-year quarter despite Marcellus production being significantly impacted by plant turnarounds and midstream downtime. Midstream downtime resulted in a reduction to cash flow of approximately $19 million for the quarter. Year-over-year oil and condensate production increased 14%, NGL production rose 111%, while natural gas production was up 4%. The second quarter 2014 natural gas, NGLs and oil price realizations (including the impact of cash-settled hedges and derivative settlements which would correspond to analysts' estimates, a non-GAAP measure) averaged $4.49 per mcfe, an 11% decrease over the prior-year quarter of $5.02 per mcfe.
- Production and realized prices after hedging for each commodity for the second quarter of 2014 were: natural gas - 745 Mmcf per day ($3.88 per mcf), NGLs - 49,130 barrels per day ($24.34 per barrel) and crude oil and condensate - 10,875 barrels per day ($80.63 per barrel).
- The second quarter average natural gas realized price before hedging settlements was $4.07. Financial hedges based upon NYMEX decreased realizations by $0.21 per mcf while financial basis hedges increased realizations by $0.02 per mcf during the quarter. The average Company natural gas differential including the settled financial basis hedges but before NYMEX hedging, for the second quarter was $(0.58) per mcf compared to $(0.24) per mcf for the first quarter 2014. (See the schedule below which details the components of the non-GAAP average realized natural gas price for the quarter and the tables presented elsewhere that reconcile the non-GAAP measures to their most directly comparable GAAP financial measure.)
- NGL pricing before the impact of hedging was 24% of WTI or $24.60 per barrel for the second quarter of 2014. Ethane was approximately 50% of the total composite barrel in the Marcellus during the quarter.
- Crude oil and condensate price realizations, before financial hedges, for the second quarter averaged 85% of WTI or $87.79 per barrel.
Guidance - Third Quarter 2014
Production Guidance
Production growth for 2014 is now targeted at 25% year-over-year. Average daily production for the third quarter is expected to be approximately 1.20 Bcfe per day, with 30% liquids and fourth quarter production is expected to be approximately 1.35 Bcfe per day, with 30% liquids.