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Range Resources Third Quarter 2021 Results

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   |    Wednesday,October 27,2021

Range Resources Corp. announced its third quarter 2021 financial results.


  • Realizations before index hedges of $4.37 per mcfe, or approximately $0.36 above NYMEX natural gas
  • Pre-hedge NGL realization of $34.05 per barrel, a $6.14 per barrel increase versus prior quarter
  • Natural gas differentials, including basis hedging, averaged $0.35 per mcf below NYMEX
  • All-in third quarter capital spending was $96 million, approximately 23% of the annual budget
  • Production averaged 2.14 Bcfe per day, approximately 30% liquids
  • Reduced total debt outstanding by approximately $91 million
  • All-in 2021 capital budget lowered by $10 million to $415 million
  • Improved midpoint of 2021 natural gas differential guidance by approximately $0.07 per mcf
  • Increased midpoint of 2021 NGL differential guidance by $0.25 per barrel
  • Divestiture contingent consideration fair value increased $12.9 million to $50.2 million

Commenting on the quarter, Jeff Ventura, the Company's CEO said, "Range remains committed to disciplined capital spending and generating sustainable free cash flow. This was demonstrated in the third quarter, as Range generated $276 million in operating cash flow before changes in working capital, as compared to just $96 million of all-in capital spending. We expect to generate significant free cash flow in the coming quarters and rapidly approach balance sheet targets with leverage trending below 1x by the end of next year at current strip pricing. Additionally, we continue to make progress on other key objectives: improving margins, generating free cash flow, and operating safely while maintaining peer-leading capital efficiency. We believe Range is differentiated as a result of our low sustaining capital, competitive cost structure, liquids optionality, marketing strategies, environmental leadership and importantly, our multi-decade core inventory life, which is an increasingly important competitive advantage."

Financial Discussion

Third Quarter 2021

GAAP revenues for third quarter 2021 totaled $303 million, GAAP net cash provided from operating activities (including changes in working capital) was $192 million, and GAAP net earnings was a loss of $350 million ($1.44 per diluted share). Third quarter earnings results include a $652 million derivative fair value loss due to increases in commodity prices.

Non-GAAP revenues for third quarter 2021 totaled $795 million, and cash flow from operations before changes in working capital, a non-GAAP measure, was $276 million. Adjusted net income comparable to analysts' estimates, a non-GAAP measure, was $130 million ($0.52 per diluted share) in third quarter 2021.

The following table details Range's average production and realized pricing for third quarter 2021(a):

  3Q21 Production & Realized Pricing  
  Natural Gas
  Natural Gas
Net production per day 1,496,888   7,727   98,705   2,135,485  
Average index price(b) $4.01   $70.42   $33.22      
Differential (0.42)   (6.90)   0.83      
Basis hedging 0.06   -   -      
Realized prices before index hedges $3.66   $63.52   $34.05   $4.37  
Settled index hedges (0.96)   (13.20)   (2.88)   (0.86)  
Average realized prices after hedges $2.69   $50.32   $31.17   $3.51  

Third quarter 2021 natural gas, natural gas liquids (NGL) and oil price realizations (including the impact of cash-settled hedges and derivative settlements) averaged $3.51 per mcfe.

  • The average natural gas price, including the impact of basis hedging, was $3.66 per mcf, or a ($0.35) per mcf differential to NYMEX. The Company updated its average 2021 natural gas differential guidance to approximately $0.28 per mcf below NYMEX, a $0.07 per mcf annual improvement compared to the prior guidance midpoint.

  • Pre-hedge NGL realizations were $34.05 per barrel, an improvement of $6.14 per barrel versus the second quarter of 2021 and a $0.83 premium to the Mont Belvieu equivalent barrel. The Company updated its average 2021 premium differential estimate to the Mont Belvieu equivalent barrel to within a range of $1.00 to $2.00 per barrel for 2021, a $0.25 per barrel improvement at the midpoint of guidance.

  • Crude oil and condensate price realizations, before realized hedges, averaged $63.52 per barrel, or $6.90 below WTI (West Texas Intermediate). Range's estimated condensate differential to WTI during 2021 remains within an expected range of $7 to $9 below NYMEX.

Capital Expenditures

Third quarter 2021 drilling and completion expenditures were $91.8 million. In addition, during the quarter, $4.6 million was invested on acreage leasehold, gathering systems and other corporate items. Total capital expenditures year-to-date were $322 million at the end of the third quarter. As a result of continued efficiency gains realized year-to-date, Range expects annual capital spending of $415 million in 2021, or $10 million under the original budget.

Financial Position

As of September 30, 2021, Range had total debt outstanding of $2.98 billion, consisting of $30 million in bank debt and $2.95 billion in senior notes. The Company has approximately $750 million in senior notes that mature through 2023, which are expected to be retired with projected free cash flow at current strip pricing. Range had over $2.0 billion of borrowing capacity under the bank credit facility commitment amount at the end of the third quarter.

Production and Operational Activity

Production for the third quarter was 2.14 Bcfe per day, representing a 1.5% increase over second quarter 2021. Range expects a similar production increase in the fourth quarter and to exit the year near 2.2 Bcfe per day. Average daily production for calendar 2021 is expected to be 2.12 to 2.13 Bcfe per day, approximately 1% below the previous guidance.

Adjustments to 2021 production guidance are a result of temporary gathering and transportation outages and delays alongside weather-related force majeure events. Range remains committed to the originally planned activity cadence and disciplined capital spending and expects to be under budget for the fourth consecutive year.

The table below summarizes estimated activity for 2021 regarding the number of wells to sales for each area.

  Wells TIL
3Q 2021
  Calendar 2021
Planned TIL
SW PA Super-Rich 4   17   4  
SW PA Wet 0   18   3  
SW PA Dry 8   25   0  
Total Wells 12   60   7  

Marketing and Transportation

The natural gas pricing benchmark, Henry Hub, averaged $4.01 per Mmbtu during the quarter, the highest since 2014. The East, Midwest, and Gulf markets, where Range sells its natural gas production, have experienced meaningful improvements compared to 2020 in terms of both basis and absolute pricing due to strong summer demand and storage deficits relative to historical averages across each region. Range reported a third quarter natural gas differential of $0.35 per mcf below NYMEX, including basis hedging. As a result of year-to-date performance and improving regional basis into the upcoming winter months, the Company updated its average 2021 natural gas differential guidance to approximately $0.28 per mcf below NYMEX, a $0.07 per mcf annual improvement compared to the prior guidance midpoint. The updated guidance implies a fourth quarter natural gas differential estimate of approximately $0.24 per mcf below NYMEX, inclusive of basis hedging.

Propane prices ended the third quarter at the highest level in over seven years, as the Mont Belvieu weighted price for Range's NGL barrel increased by approximately $7.50 per barrel, compared to the second quarter, to over $33 per barrel. Range's NGL exports continue to deliver significant value versus domestic northeast prices, as the Company's NGL portfolio of contracts drove an $0.83 per barrel premium to the Mont Belvieu equivalent for the quarter. The flexibility of Range's transportation and sales portfolio places the Company in a strong position to serve increased domestic and international demand. As a result of year-to-date performance and strong domestic and international prices, Range has improved its estimated 2021 premium differential to the Mont Belvieu equivalent barrel to within a range of $1.00 to $2.00 per barrel, a $0.25 per barrel improvement at the midpoint of guidance.

Range's forecasted 2021 pre-hedge NGL realization has increased by approximately $4 per barrel since July, resulting in an increase of over $140 million in forecasted revenue. As a result of higher NGL prices and the effect of Range's price-linked processing contracts, Range is increasing guidance for 2021 GP&T expense to $1.48 to $1.52 per mcfe. Net of projected processing costs, Range's forecasted pre-hedge cash flow from NGL sales in 2021 has increased by over $100 million since July. As previously disclosed, Range expects GP&T expense to decline annually in 2022 and beyond based on existing gathering contracts. The reduction in annual gathering expenses relative to 2021 totals approximately $70 million by 2025 and greater than $100 million by 2030.

Guidance 2021

Capital & Production Guidance

Range's updated 2021 all-in capital budget is $415 million. Production for full-year 2021 is expected to average approximately 2.12 to 2.13 Bcfe per day, with ~30% attributed to liquids production.

Full Year 2021 Expense Guidance

Direct operating expense: $0.09 - $0.11 per mcfe  
Transportation, gathering, processing and compression expense: $1.48 - $1.52 per mcfe  
Production tax expense: $0.02 - $0.04 per mcfe  
Exploration expense: $20 - $25 million  
G&A expense: $0.15 - $0.16 per mcfe  
Interest expense: $0.26 - $0.28 per mcfe  
DD&A expense: $0.47 - $0.50 per mcfe  
Net brokered gas marketing net expense: $0 - $4 million  

Full Year 2021 Price Guidance

Based on current market indications, Range expects to average the following price differentials for its production in 2021.

Natural Gas:(1) NYMEX minus $0.28  
Natural Gas Liquids (including ethane):(2) Mont Belvieu plus $1.00 to $2.00 per barrel  
Oil/Condensate: WTI minus $7.00 to $9.00  

Hedging Status and Divestiture Contingent Payments

Range hedges portions of its expected future production volumes to increase the predictability of cash flow and to help maintain a strong, flexible financial position. As of October 20, 2021, Range had approximately 65% of its fourth quarter 2021 net revenue hedged and less than 50% of its expected calendar 2022 net revenue hedged. Since Range's July update, the average floor and ceiling prices on incremental 2022 natural gas hedges were $3.76 and $4.19, respectively. For additional information, please see the detailed hedging schedule posted on the Range website under Investor Relations - Financial Information.

Range also hedges basis for natural gas and NGL volumes to limit volatility between published pricing benchmarks and regional sales prices. The combined fair value of the natural gas basis, NGL freight and spread hedges as of September 30, 2021 was a net gain of $9 million.

Range is entitled to receive contingent consideration from last year's sale of North Louisiana assets. The remaining contingent consideration of up to $75.0 million is based on future achievement of natural gas and oil prices based on published indexes and realized NGLs prices of the buyer for the years 2021, 2022 and 2023. At the end of third quarter, the fair value of the potential payments was $50.2 million, an increase of $12.9 million compared to last quarter.

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