Quarterly / Earnings Reports | Second Quarter (2Q) Update | Financial Results | Hedging | Capital Markets | Drilling Activity | 2020 Guidance

Range Resources Second Quarter 2020 Results

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   |    Tuesday,August 04,2020

Range Resources Corp. announced its second quarter 2020 financial results. 

Second Quarter Highlights

• Well costs averaged less than $600 per lateral foot, including facility costs, the lowest in Appalachia

• Transportation, gathering, processing and compression expense improved $0.15 per mcfe, or 10% versus prior year

• Direct operating expense improved $0.05 per mcfe, or 31% versus prior year

• G&A expense (before certain items) improved $0.05 per mcfe, or 28% versus prior year

• Production taxes improved $0.02 per mcfe, or 40% versus prior year

• Interest expense improved $0.02 per mcfe, or 8% versus prior year

• DD&A expense improved $0.19 per mcfe, or 28% versus prior year

• Total cash unit costs improved $0.29 per mcfe, or 14% versus prior year

• Production averaged 2,349 Mmcfe per day, approximately 71% natural gas

• Repurchased approximately $47 million of outstanding notes principal at an average 20% discount to par

• In July, signed purchase and sale agreement to divest North Louisiana assets for gross proceeds of $245 million, plus an additional $90 million contingent on future commodity prices

Commenting on the quarter, Jeff Ventura, the Company’s CEO said, “Range continued to make steady progress in the second quarter - significantly improving our cost structure, operating safely, and methodically developing our core asset with peer-leading well costs and capital efficiency.  After the sale of our North Louisiana assets, Range’s cost structure and capital productivity will take another meaningful step forward, driven by material improvements in our cash unit costs and a base decline solidly under 20%.  Our shallow base decline and peer leading well costs provide Range a sustaining capital requirement per mcfe that we believe is the lowest amongst peers, providing us a solid foundation for generating corporate returns. 

"In 2020, we expect Range to reduce total debt outstanding for the third consecutive year in a row, reflecting our commitment to disciplined capital allocation and a strong balance sheet.  Range remains well-positioned to successfully navigate the current commodity environment and benefit from an improved outlook for natural gas and natural gas liquids, particularly given Range’s industry-leading inventory of core natural gas and liquids wells.”

Financial Discussion

GAAP revenues for second quarter 2020 totaled $377 million, GAAP net cash provided from operating activities (including changes in working capital) was $79 million, and GAAP earnings was a loss of $147 million ($0.61 per diluted share). 

Non-GAAP revenues for second quarter 2020 totaled $502 million, and cash flow from operations before changes in working capital, a non-GAAP measure, was $81 million.  Adjusted earnings comparable to analysts’ estimates, a non-GAAP measure, was a loss of $25 million ($0.10 per diluted share) in second quarter 2020.

Capital Expenditures

Second quarter 2020 drilling and completion expenditures were $99 million.  In addition, during the quarter, a combined $5 million was spent on acreage and gathering systems.  Total year-to-date expenditures were $235 million at the end of the second quarter.  Well costs, including all facilities, averaged less than $600 per foot in the second quarter, the lowest normalized well costs in Appalachia.  Range remains on track to spend at or below its total capital budget of $430 million for 2020.

Financial Position and Buyback Activity
                                               
At the end of the second quarter, Range had $639 million drawn on its revolver and over $1.4 billion of additional borrowing capacity under the commitment amount. Range expects its $3.0 billion borrowing base to be unchanged following the sale of its North Louisiana assets.  Following the planned closing on the Company’s North Louisiana asset sale in August, Range’s liquidity is expected to exceed $1.6 billion.

Range repurchased and retired approximately $47 million in principal amount of its senior and subordinated notes during the second quarter at a weighted average discount to par of 20%.  Range also repurchased 200,000 shares of the Company’s common stock during the second quarter at an average price of $2.22 per share.  In total, Range has repurchased $360 million in debt principal at a discount and ten million shares since second half 2019.

Price Realizations

Second quarter 2020 natural gas, NGLs and oil price realizations (including the impact of derivative settlements which correspond to analysts’ estimates) averaged $2.19 per mcfe.  Additional detail on commodity price realizations can be found in the Supplemental Tables provided on the Company’s website. 

• The average natural gas price, including the impact of basis hedging, was $1.41 per mcf, or a ($0.31) differential to NYMEX.  In the second quarter, Range sold additional natural gas volume in Appalachia following a pipeline outage in May that affected a portion of Range’s transportation to the Gulf Coast.  This minor impact to differentials was offset by lower gas transportation expense in the quarter. 
   
• Pre-hedge NGL realizations were $12.80 per barrel, or a $0.37 per barrel premium to the Mont Belvieu weighted barrel and approximately 47% of WTI (West Texas Intermediate).  Lower NGL prices in the second quarter were partially offset by lower processing costs.
   
• Crude oil and condensate price realizations, before realized hedges, averaged $14.81 per barrel, or $12.28 below WTI.  Condensate pricing in the second quarter was impacted by weakness in regional demand.  However, regional condensate demand has increased following the second quarter, and Range expects differentials and fundamentals to improve in second half 2020. As a result, Range deferred some liquids-rich activity into second half 2020 and its Appalachia condensate production is expected to increase versus the second quarter.  

Operational Discussion

The table below summarizes estimated activity for 2020 regarding the number of wells to sales for each area.

Production by Area

Total production for second quarter 2020 averaged approximately 2,349 net Mmcfe per day.  The southwest Appalachia area averaged 2,083 net Mmcfe per day during the quarter, a 6% increase over second quarter 2019.  The northeast Marcellus properties averaged 86 net Mmcf per day and North Louisiana production during second quarter 2020 averaged approximately 179 net Mmcfe per day. Second quarter 2020 North Louisiana production includes the benefit of one-time land and legal adjustments as part of the divestiture process.

Marketing and Transportation

During the quarter, Range sold additional natural gas volume in Appalachia following a third-party pipeline outage in early May affecting a portion of Range’s transportation that takes natural gas to the Gulf Coast.  This had a minor impact to natural gas differentials during the quarter and was mostly offset by lower gas transportation expense.  Range continues to benefit from its diverse set of natural gas transportation outlets as unexpected events in any one market do not materially impact the overall portfolio.

Domestic U.S. natural gas production declined significantly during the quarter, led by associated gas shut-ins and legacy basin declines in response to the price of both oil and natural gas.  Range expects recently announced activity reductions for the industry to weigh on second half 2020 production levels, more than offsetting the return of shut-in production, while LNG export demand recovers from current levels.  Evidenced by one of the lightest 2021 hedge positions among natural gas producers, Range anticipates that a sustained move higher in the forward curve for natural gas is needed to incentivize activity from dry gas producing basins to avoid extremely low storage levels next year.

As previously disclosed, entering second quarter, demand for gasoline and jet fuel were directly impacted by COVID-19 related reductions in vehicle and air travel.  The abrupt change in demand put temporary pressure on condensate pricing during the quarter.  Production and sales were unaffected as Range’s marketing team found domestic or international outlets for all products.  The Northeast condensate market began to rebound in the months of June and July, with substantial improvements in pricing, pointing to a better second half of the year. 

Range experienced healthy NGL demand during the second quarter as a result of its strong and diverse customer base as well as a flexible transportation portfolio that allows access to multiple domestic and international markets.  The Company increased its access to waterborne exports via Mariner East and Marcus Hook during the second quarter, where LPG export premiums at Marcus Hook have remained stable at a few cents per gallon above Mont Belvieu index.  Range expects NGL and condensate fundamentals to continue strengthening during the second half of 2020, as a lack of U.S. drilling and completions activity is expected to result in declining supply while demand continues to recover.  Range’s liquids-weighted activity during the balance of 2020 is set to take advantage of this improving macro environment for both condensate and NGL pricing.

Guidance – 2020 

Production per day Guidance

Production for full-year 2020 is expected to average approximately 2.25 Bcfe per day, reflecting adjustments associated with the sale of North Louisiana assets.  Full-year 2020 Appalachia production is expected to average approximately 2.15 Bcfe per day.

Full Year 2020 Expense Guidance

Full Year 2020 Price Guidance

Hedging Status

Range hedges portions of its expected future production to increase the predictability of cash flow and to help maintain a more flexible financial position.  Range has over 70% of its remaining 2020 natural gas production hedged at a weighted average floor price of $2.57 per Mmbtu.  Similarly, Range has hedged over 80% of its remaining 2020 projected crude oil production at an average floor price of $58.12. 

Range has also hedged Marcellus and other natural gas basis to limit volatility between NYMEX and regional prices.  The fair value of basis hedges was a loss of $4.5 million as of June 30, 2020.  The Company also has propane basis swap contracts and freight swaps which lock in the differential between Mont Belvieu and international propane indices.  The combined fair value of these contracts was a loss of $4.0 million at June 30, 2020. 

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Frac / Completion Crew (s)

Production Daily Equivalent(mmcfe/d)

 Click here for More Planned 2024 Activity