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Range Resources Third Quarter 2020 Results

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   |    Monday,November 02,2020

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

Third Quarter Highlights

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

• 2020 annual capital spend expectation reduced by at least $15 million, due to efficiency improvements

• Total capital expenditures were $63.5 million during the quarter

• Transportation, gathering, processing and compression expense improved $0.10 per mcfe, or 7% versus prior year

• Lease operating expense improved to $0.10 per mcfe, a record low for the Company

• Total cash unit costs improved $0.18 per mcfe, or 9% versus prior year

• Closed on North Louisiana asset divestiture for gross proceeds of $245 million, plus an additional $90 million contingent on future commodity prices

• Issued $300 million in additional 2026 notes and repurchased $500 million in near-term maturities via tender offer, extending the Company's debt maturities while maintaining liquidity

• Reaffirmation of the existing $3.0 billion borrowing base and elected commitments of $2.4 billion

Commenting on the quarter, Jeff Ventura, the Company's CEO said, "Range continued to make steady progress in the third quarter by operating safely, improving our cost structure, reducing debt, extending our maturity runway, and methodically developing our core asset with peer-leading well costs and capital efficiency. As a result of efficient operations, we were able to reduce our capital budget for 2020 while accomplishing our operational objectives, setting us up well for 2021. Looking forward, our shallow base decline of less than 20% and peer leading well costs provide Range a sustaining capital requirement per unit of production that we believe is the best among peers, providing us a solid foundation for generating corporate returns. With an improved price outlook for natural gas and natural gas liquids, Range is well-positioned to generate durable free cash flow, which at today's stock price equates to a free cash flow yield that competes with any sector."

Financial Discussion

GAAP revenues for third quarter 2020 totaled $299 million, GAAP net cash provided from operating activities (including changes in working capital) was an outflow of $24 million, and GAAP earnings was a loss of $680 million ($2.83 per diluted share). Third quarter earnings include $522 million exit and termination costs associated with the sale of North Louisiana assets and a $125 million non-cash derivative loss due to increases in commodity prices.

Non-GAAP revenues for third quarter 2020 totaled $510 million, and cash flow from operations before changes in working capital, a non-GAAP measure, was $91 million. Adjusted earnings comparable to analysts' estimates, a non-GAAP measure, was a loss of $11 million ($0.05 per diluted share) in third quarter 2020.

Capital Expenditures

Third quarter 2020 drilling and completion expenditures were $60 million. In addition, during the quarter, a combined $3.5 million was invested in acreage and gathering systems. Total year-to-date expenditures were $298 million at the end of the third quarter. Well costs, including all facilities, averaged less than $600 per foot in the third quarter, the lowest normalized well costs in Appalachia. Given the realized efficiencies year-to-date, Range is lowering its anticipated capital spending by $15 million for 2020 to $415 million or less.

Asset Sale and Financial Position

In August, Range finalized the sale of its North Louisiana assets for gross proceeds of $245 million, with the potential for $90 million in additional proceeds contingent on future commodity prices.

During the quarter, Range issued $300 million aggregate principal amount of 9.25% senior notes due 2026. Proceeds from the senior notes offering and North Louisiana divestiture were used to redeem $500 million aggregate principal amount of the Company's notes due 2021 through 2023. In addition, Range retired approximately $2.9 million in principal amount of senior and subordinated notes through open market repurchases during the third quarter at a weighted average discount to par of 7%. In total during 2020, Range has reduced note maturities through 2024 by approximately $1.2 billion through refinancing and repayments.

At the end of the quarter, pursuant to the scheduled semi-annual borrowing base redetermination process, Range received reaffirmation of its $3.0 billion borrowing base under the Company's existing revolving credit facility. Aggregate lender commitments under the credit facility remain at $2.4 billion. Range had $706 million drawn on its revolver and approximately $1.4 billion of additional borrowing capacity under the commitment amount as of September 30, 2020.

Pricing

Third quarter 2020 natural gas, NGLs and oil price realizations (including the impact of derivative settlements which correspond to analysts' estimates) averaged $2.32 per mcfe.

• The average natural gas price, including the impact of basis hedging, was $1.53 per mcf, or a ($0.42) differential to NYMEX. Appalachian storage remained higher than normal during the third quarter while the basin experienced maintenance on multiple infrastructure projects, both weakening local prices. Range expects this weakness to dissipate with the onset of winter weather leading to improvements in basis pricing.
  
  
• Pre-hedge NGL realizations were $16.27 per barrel during the quarter, or approximately 40% of WTI (West Texas Intermediate), and in-line with the Mont Belvieu-equivalent barrel. NGL component pricing improved compared to second quarter as demand remained strong. Following the continued increase in C3+ pricing at Mont Belvieu and internationally, Range expects its fourth quarter and 2021 pre-hedge realized NGL price to reach the highest levels since early 2019, based on current strip pricing.
  
  
• Crude oil and condensate price realizations, before realized hedges, averaged $31.47 per barrel, or $9.43 below WTI. Range expects condensate differentials to continue improving through the rest of 2020 and further into 2021.

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 third quarter 2020 averaged approximately 2.19 Bcfe net per day. The southwest Appalachia area averaged 2.04 Bcfe net per day during the quarter, reflecting strategic production curtailments in September, as discussed below. The northeast Marcellus properties averaged 81 Mmcf net per day and North Louisiana, which was sold in August, averaged approximately 73 Mmcfe net per day during the third quarter.

Marketing and Transportation

During the third quarter, Appalachian natural gas storage remained higher than normal while the basin experienced maintenance on multiple infrastructure projects, causing weakness in local prices. In response to low in-basin natural gas prices, Range curtailed up to 210 Mmcf per day of gross natural gas production during the last two weeks of September and the majority of October. Range expects local price to improve with the onset of winter weather, as demonstrated by improving basis futures, leading to improving corporate natural gas differentials into 2021. The deferred production is expected to receive the benefit of higher future prices, thereby increasing cash flow. As of October 28^th, all curtailed production had been returned to sales.

Range continues to see strong NGL export premiums at Marcus Hook relative to the Mont Belvieu index. Range's NGL pre-hedge price realizations in the third quarter improved by $3.47 per barrel versus the previous quarter and a $1.21 per barrel improvement compared to the prior-year quarter, despite hurricane-related demand weakness on the Gulf Coast. Looking ahead, Range expects NGL balances to tighten further with ongoing declines in associated NGL production and improving demand. With respect to propane and butane, the start of winter should boost domestic demand while new LPG export capacity becomes operational on the Gulf Coast. At the same time, global LPG balances are expected to tighten by more than 10% between October and the first quarter of 2021. These strengthening fundamentals set the stage for stronger propane and butane prices moving into 2021. In this environment, Range's flexible transportation portfolio creates opportunities to maximize value by optimizing sales into both domestic and international markets, supporting the Company's premium differentials to Mont Belvieu.

Third quarter condensate production was lower versus the prior quarter as a result of the sale of North Louisiana and relatively light activity in the super-rich area for 2020. Condensate prices improved by almost 50% during the quarter, trending with crude prices. Consequently, Range experienced a sharp increase in condensate price realizations to $31.47/bbl. The Company expects condensate price differentials to WTI to tighten in fourth quarter 2020 and early 2021 as regional production continues to decline, while demand for transportation fuels appears likely to recover.

Corporate Sustainability Report

In August, Range published an updated Corporate Sustainability Report. The 2020 Corporate Sustainability Report covers a broader and deeper set of topics, with a focus on material issues for the business and key stakeholders, underscoring the Company's commitment to increased transparency. Included in the report, Range set industry-leading emissions goals. The Company's medium-term goal is to achieve the objective of net zero greenhouse gas (GHG) emissions by 2025 through continued emissions reductions and the use of carbon offsets associated with reforestation and forest management. As an additional interim goal, Range intends to further reduce GHG emissions intensity relative to 2019 levels by 15 percent by 2025.

To achieve these targets, Range continues to invest in new technologies and engineering solutions, implement best-in-class emissions reductions practices and develop improved methods to measure emissions. These efforts have positioned Range as a leader in emissions reductions amongst peers. Based on third-party data from Rystad Energy, an independent energy research firm, Range had the lowest CO2 emissions intensity in a group of 58 global oil and natural gas producers. The full report is available at csr.rangeresources.com.

Guidance 2020

Production per day Guidance

Accounting for the strategic production curtailments, Range expects fourth quarter production to average approximately 2.10 Bcfe per day. Production for full-year 2020 is expected to average approximately 2.24 Bcfe per day, reflecting adjustments associated with the sale of the North Louisiana assets and strategic curtailments.

Full Year 2020 Expense Guidance

Full Year 2020 Price Guidance

Based on current market indications and including the mid-August North Louisiana assets divestiture, Range expects to average the following price differentials for its production in 2020.

(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 to increase the predictability of cash flow and to help maintain a more flexible financial position. Range has over 75% of its remaining 2020 projected natural gas production hedged at a weighted average floor price of $2.62 per Mmbtu. Similarly, Range has hedged over 80% of its remaining 2020 projected crude oil production at an average floor price of $58.02. For 2021, Range has hedged 1.0 Bcf per day of natural gas production with an average floor price of $2.60 and an average ceiling price of $2.80.

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 gain of $5.4 million as of September 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 $1.9 million at September 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