ITEM 1. Financial Statements
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) SUMMARY OF ORGANIZATION AND NATURE OF BUSINESS
Range Resources Corporation is a Fort Worth, Texas-based independent natural gas, natural gas liquids (“NGLs”) and oil company primarily engaged in the exploration, development and acquisition of natural gas and oil properties in the Appalachian and the North Louisiana regions of the United States. Our objective is to build stockholder value through consistent returns focused development, on a per share debt-adjusted basis, of both reserves and production on a cost-efficient basis. Range is a Delaware corporation with our common stock listed and traded on the New York Stock Exchange under the symbol “RRC”.
(2) BASIS OF PRESENTATION
These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement of the results for the periods reported. All adjustments are of a normal recurring nature unless otherwise disclosed. These consolidated financial statements, including selected notes, have been prepared in accordance with the applicable rules of the SEC and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements.
These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2019. The results of operations for the third quarter and the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year.
Inventory. As of September 30, 2019, we had $9.5 million of material and supplies inventory compared to $8.0 million at December 31, 2018. Material and supplies inventory consists of primarily tubular goods and equipment used in our operations and is stated at lower of specific cost of each inventory item or net realized value, on a first-in, first-out basis. At September 30, 2019, we also had commodity inventory of $836,000 compared to $965,000 at December 31, 2018. Commodity inventory as of September 30, 2019 consists of NGLs held in storage or as line fill in pipelines.
(3) NEW ACCOUNTING STANDARDS
Not Yet Adopted
Financial Instruments – Credit Losses
In June 2016, an accounting standards update was issued that changes the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. The standards update requires the use of a forward-looking “expected loss” model as opposed to the current “incurred loss” model. This standards update is effective for us in first quarter 2020 and will be adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. Early adoption was permitted starting January 2019. We are continuing to evaluate the provisions of this accounting standards update but we currently do not expect it will have a material impact on our results of operations, financial position and financial disclosures.
Fair Value Measurement
In August 2018, an accounting standards update was issued which provides additional disclosure requirements for fair value measurements. This new standards update eliminates the requirement to disclose transfers between Level 1 and Level 2 of the fair value hierarchy and provides for additional disclosures for Level 3 fair value measurements. This new standards update is effective for us in first quarter 2020 and will be adopted on a prospective or retrospective basis depending on the changes that apply. We are evaluating the provisions of this standards update and assessing the impact, if any, it may have on our financial disclosures.
9
Recently Adopted
Lease Accounting Standard
In February 2016, an accounting standards update was issued that requires an entity to recognize a right-of-use (“ROU”) asset and lease liability for all leases. Classification of leases as either a finance or operating lease determines the recognition, measurement and presentation of expenses. This accounting standards update also requires certain quantitative and qualitative disclosures about leasing arrangements.
The new standard was effective for us in first quarter 2019 and we adopted the new standard using a modified retrospective approach, with the date of initial application effective on January 1, 2019. Consequently, upon transition, we recognized a ROU asset (or operating lease right-of-use asset) and a lease liability with no retained earnings impact. We are applying the following practical expedients as provided in the standards update which provide elections to:
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•
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not apply the recognition requirements to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option);
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•
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not reassess whether a contract contains a lease, lease classification and initial direct costs; and
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•
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not reassess certain land easements in existence prior to January 1, 2019.
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Through our implementation process, we evaluated each of our lease arrangements and enhanced our systems to track and calculate additional information required upon adoption of this standards update. Our adoption did not have a material impact on our consolidated balance sheet as of January 1, 2019, with the primary impact relating to the recognition of ROU assets and operating lease liabilities for operating leases which represents approximately a 1% change to total assets and total liabilities. The impact of adoption of this new standards update was as follows (in thousands):
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January 1, 2019
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Adoption
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Reclassification (1)
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Total Adjustment
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Balance Sheet:
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|
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|
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Operating lease right-of-use assets
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$
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59,300
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|
|
$
|
(7,925
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)
|
|
$
|
51,375
|
|
|
Accrued liabilities – current
|
$
|
(14,811
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)
|
|
$
|
—
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|
|
$
|
(14,811
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)
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|
Operating lease liabilities – long-term
|
$
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(44,489
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)
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|
$
|
—
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|
|
$
|
(44,489
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)
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|
Asset retirement obligations and other liabilities
|
$
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—
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|
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$
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7,925
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|
|
$
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7,925
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(1)
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As of December 31, 2018, we had $7.9 million of operating lease liabilities recorded as part of purchase price accounting for building leases acquired because we did not expect to occupy the space or receive payments from our subleases. Lease incentives related to other buildings were also included. Upon adoption of the new standards update, these leases were included as part of our adoption. The ROU asset is reduced because we do not expect to use the asset.
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Adoption of the new standard did not impact our consolidated statements of operations, cash flows or stockholders’ equity. Leases acquired to explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained, are not within the scope of the standards update.
Revenue Recognition Standard
In May 2014, an accounting standards update was issued that superseded the existing revenue recognition requirements. This standard included a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Among other things, the standard also eliminated industry-specific revenue guidance, required enhanced disclosures about revenue, provided guidance for transactions that were not previously addressed comprehensively and improved guidance for multiple-element arrangements. This standard was effective for us in first quarter 2018 and we adopted the new standards update using the modified retrospective method to all open contracts as of January 1, 2018. Our implementation of this standard did not result in a cumulative-effect adjustment on date of adoption; however, our financial statement presentation related to revenue received from certain gas processing contracts changed. Based on previous accounting guidance, certain of our gas processing contracts were reported in revenue at the net price (net of processing costs) we receive. Upon adoption of this accounting standards update, these contracts are now reported as a gross price received at a delivery point and separate transportation, marketing and processing expense.
10
Pension Accounting Standard
In March 2017, an accounting standards update was issued which provides additional guidance on the presentation of net benefit cost in the statement of operations. Employers will present the service cost component of net periodic benefit cost in the same consolidated results of operations line item as other employee compensation costs arising from services rendered during the period. This new standards update was effective for annual reporting periods in first quarter 2018 and must be applied retrospectively. We adopted this standards update in first quarter 2018. The adoption did not impact our consolidated results of operations, financial position, cash flows or disclosures. In 2018 and 2019, our service cost is recorded in general and administrative expense.
Modification of Share – Based Awards
In May 2017, an accounting standards update was issued which clarifies what constitutes a modification of a share-based award. This standards update is intended to provide clarity and reduce both diversity in practice and cost and complexity to a change to the terms or conditions of a share-based payment award. We adopted this standards update in first quarter 2018. The adoption of this standard did not have a material impact on our consolidated financial position or results of operations.
(4) DISPOSITIONS
We recognized a pretax net loss of $36.3 million on the sale of assets in third quarter 2019 compared to a pretax net loss of $30,000 in third quarter 2018 and a pretax net loss of $30.7 million in first nine months 2019 compared to a pretax net gain of $149,000 in first nine months 2018. See discussion below for further details.
2019 Dispositions
Pennsylvania. In third quarter 2019, we sold a proportionately reduced 2.5% overriding royalty in three separate transactions primarily covering our Washington County, Pennsylvania leases for gross proceeds of $750.0 million. We recorded a loss of $36.5 million which represents closing adjustments and transaction fees. In second quarter 2019, we sold natural gas and oil property, primarily representing over 20,000 unproved acres, for proceeds of $34.0 million and recognized a pretax gain of $5.9 million.
Other. In third quarter 2019, we sold miscellaneous inventory and other assets for proceeds of $161,000, resulting in a pretax gain of $117,000. In first six months 2019, we sold miscellaneous inventory and other assets for proceeds of $366,000, resulting in a pretax loss of $187,000.
2018 Dispositions
Northern Oklahoma. In third quarter 2018, we sold properties in Northern Oklahoma for proceeds of $23.3 million and we recorded a net loss of $39,000 related to this sale, after closing adjustments.
Other. In third quarter 2018, we sold miscellaneous inventory and other assets for proceeds of $673,000 resulting in a pretax gain of $9,000. In first six months 2018, we sold miscellaneous inventory and other assets for proceeds of $366,000, resulting in a pretax gain of $179,000.
(5) REVENUES FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
Natural gas, NGLs and oil sales revenues are generally recognized when control of the product is transferred to the customer and collectability is reasonably assured.
11
Disaggregation of Revenue
We have three material revenue streams in our business: natural gas sales, NGLs sales and oil sales. Revenues on sales of natural gas, NGLs, oil and purchased natural gas and NGLs are recognized when control of the product is transferred to the purchaser and payment can be reasonably assured. Sales prices are negotiated based on factors normally considered in the industry, such as index or spot price, distance from the well to the pipeline or market, commodity quality and prevailing supply and demand conditions. We enter into purchase transactions with third parties and separate sale transactions to make use of unused gas pipeline capacity commitments. Revenues and expenses from these transactions are presented on a gross basis as we act as a principal in the transaction by assuming control of the commodities purchased and the responsibility to deliver the commodities sold. The majority of our product sale commitments are short-term in nature with a contract term of one year or less. Our product sales that have a contractual term greater than one year have no long-term fixed consideration. Accounts receivable attributable to our revenue contracts with customers was $209.1 million at September 30, 2019 and $438.3 million at December 31, 2018. Revenue attributable to each of our identified revenue streams is disaggregated below (in thousands):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2019
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2018
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2019
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2018
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Natural gas sales
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$
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284,980
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$
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390,656
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$
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1,063,323
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$
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1,182,580
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NGLs sales
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143,195
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278,563
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508,035
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705,793
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Oil sales
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46,579
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67,212
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138,629
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206,077
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Total natural gas, NGLs and oil sales
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474,754
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736,431
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1,709,987
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2,094,450
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Sales of purchased natural gas
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70,404
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105,840
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293,209
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255,134
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Sales of purchased NGLs
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(183
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)
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(154
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)
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1,425
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|
879
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Other marketing revenue
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2,794
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3,699
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9,200
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11,435
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Total
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$
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547,769
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$
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845,816
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$
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2,013,821
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$
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2,361,898
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(6) INCOME TAXES
We evaluate and update our annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of our actual earnings compared to annual projections, our effective tax rate may vary quarterly and may make comparisons not meaningful. Income tax (benefit) expense was as follows (in thousands):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2019
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2018
|
|
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2019
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2018
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Income tax (benefit) expense
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$
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(47,219
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)
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$
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24,137
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$
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(1,432
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)
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$
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38,295
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Effective tax rate
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63.1
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%
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|
33.2
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%
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(1.6
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%)
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68.1
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%
|
12
Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For the three and nine months ended September 30, 2019 and 2018, our overall effective tax rate was different than the federal statutory rate due primarily to state income taxes (including adjustments to state income tax valuation allowances), equity compensation and other tax items which are detailed below (in thousands).
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2019
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2018
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|
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2019
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2018
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Total (loss) income before income taxes
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$
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(74,800
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)
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|
$
|
72,676
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$
|
87,591
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|
$
|
56,236
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|
U.S. federal statutory rate
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|
21
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%
|
|
|
21
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%
|
|
|
21
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%
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|
21
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%
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|
Total tax (benefit) expense at statutory rate
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|
(15,708
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)
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15,262
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18,394
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|
11,810
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|
|
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State and local income taxes, net of federal benefit
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(2,721
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)
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2,691
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|
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3,822
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|
|
3,439
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State apportionment rate change
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|
(44,203
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)
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—
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(44,203
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)
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|
—
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Equity compensation
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|
286
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|
|
|
6
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4,174
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|
2,146
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Change in valuation allowances:
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Federal net operating loss carryforwards
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|
916
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|
|
|
—
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|
|
|
—
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|
|
—
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State net operating loss carryforwards and other
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14,952
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|
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|
5,558
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15,568
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19,194
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Other
|
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(481
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)
|
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|
100
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|
|
|
(782
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)
|
|
1,499
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Permanent differences and other
|
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(260
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)
|
|
|
520
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|
|
|
1,595
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|
|
207
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|
|
Total (benefit) expense for income taxes
|
$
|
(47,219
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)
|
|
$
|
24,137
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|
|
$
|
(1,432
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)
|
$
|
38,295
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Effective tax rate
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63.1
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%
|
|
|
33.2
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%
|
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(1.6
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%)
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68.1
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%
|
(7) INCOME (LOSS) PER COMMON SHARE
Basic income or loss per share attributable to common shareholders is computed as (1) income or loss attributable to common shareholders (2) less income allocable to participating securities (3) divided by weighted average basic shares outstanding. Diluted income or loss per share attributable to common shareholders is computed as (1) basic income or loss attributable to common shareholders (2) plus diluted adjustments to income allocable to participating securities (3) divided by weighted average diluted shares outstanding. The following sets forth a reconciliation of income or loss attributable to common shareholders to basic income or loss attributable to common shareholders to diluted income or loss attributable to common shareholders (in thousands, except per share amounts):
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Three Months Ended
September 30,
|
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Nine Months Ended
September 30,
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2019
|
|
|
|
2018
|
|
|
|
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2019
|
|
|
2018
|
|
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Net (loss) income, as reported
|
$
|
(27,581
|
)
|
|
$
|
48,539
|
|
|
|
$
|
89,023
|
|
$
|
17,941
|
|
|
Participating earnings (a)
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|
(67
|
)
|
|
|
(590
|
)
|
|
|
|
(1,105
|
)
|
|
(224
|
)
|
|
Basic net (loss) income attributed to common shareholders
|
|
(27,648
|
)
|
|
|
47,949
|
|
|
|
|
87,918
|
|
|
17,717
|
|
|
Reallocation of participating earnings (a)
|
|
—
|
|
|
|
2
|
|
|
|
|
3
|
|
|
—
|
|
|
Diluted net (loss) income attributed to common shareholders
|
$
|
(27,648
|
)
|
|
$
|
47,951
|
|
|
|
$
|
87,921
|
|
$
|
17,717
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
$
|
(0.11
|
)
|
|
$
|
0.19
|
|
|
|
$
|
0.35
|
|
$
|
0.07
|
|
|
Diluted
|
$
|
(0.11
|
)
|
|
$
|
0.19
|
|
|
|
$
|
0.35
|
|
$
|
0.07
|
|
|
(a)
|
Restricted Stock Awards represent participating securities because they participate in nonforfeitable dividends or distributions with common equity owners. Income allocable to participating securities represents the distributed and undistributed earnings attributable to the participating securities. Participating securities, however, do not participate in undistributed net losses.
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The following provides a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding (in thousands):
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Three Months Ended
September 30,
|
|
|
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Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Weighted average common shares outstanding – basic
|
|
248,082
|
|
|
|
246,451
|
|
|
|
|
247,878
|
|
|
|
246,016
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director and employee restricted stock and performance based equity awards
|
|
—
|
|
|
|
715
|
|
|
|
|
945
|
|
|
|
863
|
|
|
Weighted average common shares outstanding – diluted
|
|
248,082
|
|
|
|
247,166
|
|
|
|
|
248,823
|
|
|
|
246,879
|
|
13
Weighted average common shares outstanding-basic for third quarter 2019 excludes 3.3 million shares of restricted stock held in our deferred compensation plan compared to 3.0 million shares in third quarter 2018 (although all awards are issued and outstanding upon grant). Weighted average common shares outstanding-basic for both the first nine months 2019 and 2018 excludes 3.1 million shares of restricted stock. Due to our net loss in third quarter 2019, all outstanding equity grants have been excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations. For first nine months 2019, equity grants of 1.6 million were outstanding but not included in the computation of diluted net income per share because the grant prices were greater than the average market price of our common shares and would be anti-dilutive to the computation. For third quarter 2018, equity grants of 506,000 and for first nine months 2018, equity grants of 755,000 were outstanding but not included in the computations because the effect would have been anti-dilutive.
(8) LEASES
We determine if an arrangement is a lease at inception of the arrangement. To the extent that we determine an arrangement represents a lease, we classify that lease as an operating lease or a finance lease. We currently do not have any finance leases. We capitalize our operating leases on our consolidated balance sheet through a ROU asset and a corresponding lease liability. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Short-term leases that have an initial term of one year or less are not capitalized but are disclosed below. Short-term lease costs exclude expenses related to leases with a lease term of one month or less.
Our operating leases are reflected as operating lease ROU assets, accrued liabilities-current and operating lease liabilities on our consolidated balance sheet. Operating lease ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to the present value of lease payments, the operating lease ROU asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Nature of Leases
We lease certain office space, field equipment, vehicles and other equipment under cancelable and non-cancelable leases to support our operations. A more detailed description of our significant lease types is included below.
Office Agreements and Subleases
We rent office space from third parties for our corporate and field locations. Our office agreements are typically structured with non-cancelable terms of one to fifteen years. We have concluded our office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreements subsequent to the primary term.
We also sublease some of our office space to third parties. All of our subleases have terms that end in 2020 or 2022. The sublease agreements are non-cancelable through the end of the term and both parties have substantive rights to terminate the lease when the term is complete. Our sublease agreements are not capitalized and are recorded as sublease income (as a component of lease costs) in the period the rent is received.
Field Equipment
We rent compressors and coolers from third parties in order to facilitate the downstream movement of our production to market. Our compressor and cooler arrangements are typically structured with a non-cancelable primary term of one to two years and continue thereafter on a month-to-month basis subject to termination by either party with thirty days notice. We have concluded that our compressor and cooler rental agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreement subsequent to the primary term.
We enter into daywork contracts for drilling rigs with third parties to support our drilling activities. Our drilling rig arrangements are typically structured with a term that is in effect until drilling operations are completed on a contractually specified well or well pad. Upon mutual agreement with the contractor, we typically have the option to extend the contract term for additional wells or well pads by providing thirty days notice prior to the end of the original contract term. We have concluded that our drilling rig arrangements represent short-term operating leases. The accounting guidance requires us to make an assessment at contract commencement if we are reasonably certain that we will exercise the option to extend the term. Due to the continuously evolving nature of our drilling schedules and the potential volatility in commodity prices in an annual
14
period, our strategy to enter into shorter term drilling rig arrangements allows us the flexibility to respond to changes in our operating and economic environment. We exercise our discretion in choosing to extend or not extend contracts on a rig by rig basis depending on the conditions present at the time the contract expires. At the time of contract commencement, we have determined we cannot conclude with reasonable certainty if we will choose to extend the contract beyond its original term. Pursuant to the successful efforts method of accounting, these costs are capitalized as part of natural gas and oil properties on our balance sheet when paid. See also short-term lease costs below.
Vehicles
We rent our vehicle fleet from a third party for our drilling and operations personnel. Our vehicle agreements are non-cancelable for a minimum of one year and a maximum term of four to eight years depending on the type of vehicle. However, we have assumed a term of three years based on the period covered by options to terminate that we are reasonably certain to exercise. We have concluded our vehicle commitments are operating leases.
Significant Judgments
Transportation, Gathering and Processing Arrangements
We engage in various types of transactions in which midstream entities transport, gather and/or process our product leveraging integrated systems and facilities wholly owned and operated by the midstream counterparty. Under most of these arrangements, we do not utilize substantially all of the third party’s underlying pipeline, gathering system or processing facilities, and thus, we have concluded that those underlying assets do not meet the definition of an identified asset. However, in limited circumstances, we do utilize substantially all of the capacity of a portion of the midstream system under our transportation, gathering and/or processing service contract. These arrangements require judgment to determine whether our capacity of the underlying midstream asset represents a lease. Under all of these arrangements, we have concluded that (i) the midstream entity maintains control of and has the ability to optimize and/or expand the underlying system throughout the duration of the contract term and (ii) the portion of the system or facility we utilize is highly integrated and interconnected to a broader system servicing a diverse set of customers. Consequently, the transportation, gathering and/or processing contract does not represent a lease of the underlying portion of the midstream system or facilities. We currently have not identified any of these commitments as leases.
Discount Rate
Our leases typically do not provide an implicit rate. Accordingly, we are required to use our incremental borrowing rate in determining the present value of lease payments based on the information available at commencement date. Our incremental borrowing rate reflects the estimated rate of interest that we would pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. We use the implicit rate in the limited circumstances in which that rate is readily determinable.
Practical Expedients and Accounting Policy Elections
Certain of our lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, we have utilized the practical expedient that exempts us from separating lease components from non-lease components. Accordingly, we account for the lease and non-lease components in an arrangement as a single lease component.
In addition, for all of our existing asset classes, we have made an accounting policy election not to apply the lease recognition requirements to our short-term leases (that is, a lease that, at commencement, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that we are reasonably certain to exercise). Accordingly, we recognize lease payments related to our short-term leases in our statement of operations on a straight-line basis over the lease term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those payments in our statement of operations in the period in which the obligation for those payments is incurred. Refer to “Nature of Leases” above for further information regarding those asset classes that include material short-term leases.
15
The components of our total lease expense for the three and nine months ended September 30, 2019, the majority of which is included in general and administrative expense, are as follows (in thousands):
|
|
|
Three Months Ended
September 30,
2019
|
|
|
Nine Months Ended
September 30,
2019
|
|
|
Operating lease cost
|
|
$
|
3,382
|
|
|
$
|
9,671
|
|
|
Variable lease expense (1)
|
|
|
1,369
|
|
|
|
3,723
|
|
|
Short-term lease expense (2)
|
|
|
918
|
|
|
|
2,088
|
|
|
Sublease income
|
|
|
(874
|
)
|
|
|
(2,622
|
)
|
|
Total lease expense
|
|
$
|
4,795
|
|
|
$
|
12,860
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term lease costs (3)
|
|
$
|
6,085
|
|
|
$
|
23,177
|
|
|
|
(1)
|
Variable lease payments that are not dependent on an index or rate are not included in the lease liability or ROU assets.
|
|
|
(2)
|
Short-term lease expense represents expense related to leases with a contract term of one year or less.
|
|
|
(3)
|
These short-term lease costs are related to leases with a contract term of one year or less and the majority of which are related to drilling rigs and are capitalized as part of natural gas and oil properties on our balance sheets.
|
Supplemental cash flow information related to our operating leases is included in the table below (in thousands):
|
|
|
Nine Months
Ended
September 30,
2019
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
11,752
|
|
|
ROU assets added in exchange for lease obligations (since adoption)
|
$
|
2,971
|
|
Supplemental balance sheet information related to our operating leases is included in the table below (in thousands):
|
|
|
September 30,
2019
|
|
|
Operating lease ROU assets
|
$
|
47,214
|
|
|
Accrued liabilities – current
|
$
|
(12,683
|
)
|
|
Operating lease liabilities – long-term
|
$
|
(40,350
|
)
|
Our weighted average remaining lease term and weighted average discount rate for our operating leases are as follows:
|
|
|
September 30,
2019
|
|
|
Weighted average remaining lease term
|
|
6.0 years
|
|
|
Weighted average discount rate
|
|
6.3%
|
|
Our lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands):
|
|
|
Operating Leases
|
|
|
Remainder of 2019
|
$
|
3,936
|
|
|
2020
|
|
14,699
|
|
|
2021
|
|
11,208
|
|
|
2022
|
|
6,990
|
|
|
2023
|
|
6,500
|
|
|
Thereafter
|
|
21,730
|
|
|
Total lease payments
|
|
65,063
|
|
|
Less effects of discounting
|
|
(12,030
|
)
|
|
Total lease liability
|
$
|
53,033
|
|
16
(9) Capitalized Costs and Accumulated Depreciation, Depletion and Amortization (a)
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
|
(in thousands)
|
|
|
Natural gas and oil properties:
|
|
|
|
|
|
|
|
|
|
Properties subject to depletion
|
|
$
|
10,277,879
|
|
|
$
|
10,974,929
|
|
|
Unproved properties
|
|
|
2,061,903
|
|
|
|
2,110,277
|
|
|
Total
|
|
|
12,339,782
|
|
|
|
13,085,206
|
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(4,044,212
|
)
|
|
|
(4,062,021
|
)
|
|
Net capitalized costs
|
|
$
|
8,295,570
|
|
|
$
|
9,023,185
|
|
|
(a)
|
Includes capitalized asset retirement costs and the associated accumulated amortization.
|
(10) INDEBTEDNESS
We had the following debt outstanding as of the dates shown below (bank debt interest rate at September 30, 2019 is shown parenthetically). No interest was capitalized during the three and nine months ended September 30, 2019 or the year ended December 31, 2018 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
|
|
December 31,
2018
|
|
|
Bank debt (3.3%)
|
$
|
328,000
|
|
|
$
|
943,000
|
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
4.875% senior notes due 2025
|
|
750,000
|
|
|
|
750,000
|
|
|
5.00% senior notes due 2023
|
|
741,531
|
|
|
|
741,531
|
|
|
5.00% senior notes due 2022
|
|
547,110
|
|
|
|
580,032
|
|
|
5.75% senior notes due 2021
|
|
421,425
|
|
|
|
475,952
|
|
|
5.875% senior notes due 2022
|
|
323,077
|
|
|
|
329,244
|
|
|
Other senior notes due 2022
|
|
590
|
|
|
|
590
|
|
|
Total senior notes
|
|
2,783,733
|
|
|
|
2,877,349
|
|
|
Senior subordinated notes:
|
|
|
|
|
|
|
|
|
5.00% senior subordinated notes due 2023
|
|
7,712
|
|
|
|
7,712
|
|
|
5.00% senior subordinated notes due 2022
|
|
19,054
|
|
|
|
19,054
|
|
|
5.75% senior subordinated notes due 2021
|
|
22,214
|
|
|
|
22,214
|
|
|
Total senior subordinated notes
|
|
48,980
|
|
|
|
48,980
|
|
|
Total debt
|
|
3,160,713
|
|
|
|
3,869,329
|
|
|
Unamortized premium
|
|
3,580
|
|
|
|
4,741
|
|
|
Unamortized debt issuance costs
|
|
(30,303
|
)
|
|
|
(37,209
|
)
|
|
Total debt net of debt issuance costs
|
$
|
3,133,990
|
|
|
$
|
3,836,861
|
|
Bank Debt
In April 2018, we entered into an amended and restated revolving bank facility, which we refer to as our bank debt or our bank credit facility, which is secured by substantially all of our assets and has a maturity date of April 13, 2023. The bank credit facility provides for a maximum facility amount of $4.0 billion and an initial borrowing base of $3.0 billion. The bank credit facility also provides for a borrowing base subject to redeterminations annually by May and for event-driven unscheduled redeterminations. As part of our annual redetermination completed on March 27, 2019, our borrowing base was reaffirmed for $3.0 billion and our bank commitment was also reaffirmed at $2.0 billion. As of September 30, 2019, our bank group was composed of twenty-seven financial institutions with no one bank holding more than 5.8% of the total facility. The borrowing base may be increased or decreased based on our request and sufficient proved reserves, as determined by the bank group. The commitment amount may be increased to the borrowing base, subject to payment of a mutually acceptable commitment fee to those banks agreeing to participate in the facility increase. On September 30, 2019, bank commitments totaled $2.0 billion and the outstanding balance under our bank credit facility was $328.0 million, before deducting debt issuance costs. Additionally, we had $255.2 million of undrawn letters of credit leaving $1.4 billion of committed borrowing capacity available under the facility. During a non-investment grade period, borrowings under the bank credit facility can either be at the alternate base rate (“ABR,” as defined in the bank credit facility agreement) plus a spread ranging from 0.25% to 1.25% or LIBOR borrowings at the LIBOR Rate (as defined in the bank credit facility agreement) plus a spread ranging from 1.25% to 2.25%. The applicable spread is dependent upon borrowings relative to the borrowing base. We may elect, from time to time, to convert all or any part of our LIBOR loans to base rate loans or to convert all or any of the base rate loans to LIBOR
17
loans. The weighted average interest rate was 3.8% for third quarter 2019 compared to 3.9% for third quarter 2018. The weighted average interest rate was 4.0% for first nine months 2019 compared to 3.7% for first nine months 2018. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At September 30, 2019, the commitment fee was 0.30% and the interest rate margin was 1.25% on our LIBOR loans and 0.25% on our base rate loans.
In October 2019, we increased our bank commitment amount to $2.4 billion. Our bank group continues to be composed of twenty-seven financial institutions.As part of the negotiation of the increase in the bank commitment, an additional fee was paid to those banks agreeing to participate in the facility increase and there was a revision to the limitation on restricted payments as defined in the credit facility agreement.
At any time during which we have an investment grade debt rating from Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and we have elected, at our discretion, to effect the investment grade rating period, certain collateral security requirements, including the borrowing base requirement and restrictive covenants, will cease to apply and an additional financial covenant (as defined in the bank credit facility) will be imposed. During the investment grade period, borrowings under the credit facility can either be at the ABR plus a spread ranging from 0.125% to 0.75% or at the LIBOR Rate plus a spread ranging from 1.125% to 1.75% depending on our debt rating. The commitment fee paid on the undrawn balance would range from 0.15% to 0.30%. We currently do not have an investment grade debt rating.
Early Extinguishment of Debt
In third quarter 2019, we purchased in the open market $32.9 million principal amount of our 5.00% senior notes due 2022, $6.2 million principal amount of our 5.875% senior notes due 2022 and $54.5 million principal amount of our 5.75% senior notes due 2021. We recognized a gain on early extinguishment of debt, including transaction costs and the expensing of the remaining deferred financing costs on the repurchased debt.
Senior Notes and Senior Subordinated Notes
If we experience a change of control, noteholders may require us to repurchase all or a portion of our senior notes and senior subordinated notes at 101% of the aggregate principal amount plus accrued and unpaid interest, if any. All of the senior subordinated notes and the guarantees by our subsidiary guarantors are general, unsecured obligations and are subordinated to our bank debt and to existing and future senior debt that we or our subsidiary guarantors are permitted to incur.
Guarantees
Range is a holding company which owns no operating assets and has no significant operations independent of its subsidiaries. The guarantees by our subsidiaries, which are directly or indirectly owned by Range, of our senior notes, senior subordinated notes and our bank credit facility are full and unconditional and joint and several, subject to certain customary release provisions. A subsidiary guarantor may be released from its obligations under the guarantee:
|
|
•
|
in the event of a sale or other disposition of all or substantially all of the assets of the subsidiary guarantor or a sale or other disposition of all the capital stock of the subsidiary guarantor, to any corporation or other person (including an unrestricted subsidiary of Range) by way of merger, consolidation, or otherwise; or
|
|
|
|
•
|
if Range designates any restricted subsidiary that is a guarantor to be an unrestricted subsidiary in accordance with the terms of the indenture.
|
|
Debt Covenants
Our bank credit facility contains negative covenants that limit our ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain hedging contracts, change the nature of our business or operations, merge, consolidate or make certain investments. In addition, we are required to maintain a ratio of EBITDAX (as defined in the bank credit facility agreement) to cash interest expense of equal to or greater than 2.5 and a current ratio (as defined in the bank credit facility agreement) of no less than 1.0. In addition, the ratio of the present value of proved reserves (as defined in the credit agreement) to total debt must be equal to or greater than 1.5 until Range has two investment grade ratings. We were in compliance with applicable covenants under the bank credit facility at September 30, 2019.
18
(11) ASSET RETIREMENT OBLIGATIONS
Our asset retirement obligations primarily represent the estimated present value of the amounts we will incur to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include estimates of plugging and abandonment costs, estimated future inflation rates and well lives. The inputs are calculated based on historical data as well as current estimated costs. A reconciliation of our liability for plugging and abandonment costs for the nine months ended September 30, 2019 and the year ended December 31, 2018 is as follows (in thousands):
|
|
|
Nine Months
Ended
September 30,
2019
|
|
|
Year
Ended
December 31,
2018
|
|
|
Beginning of period
|
|
$
|
312,754
|
|
|
$
|
276,855
|
|
|
Liabilities incurred
|
|
|
3,059
|
|
|
|
3,376
|
|
|
Acquisitions
|
|
|
—
|
|
|
|
13,438
|
|
|
Liabilities settled
|
|
|
(5,091
|
)
|
|
|
(5,052
|
)
|
|
Disposition of wells (a)
|
|
|
(80,014
|
)
|
|
|
(13,332
|
)
|
|
Accretion expense
|
|
|
12,289
|
|
|
|
25,456
|
|
|
Change in estimate
|
|
|
(2,247
|
)
|
|
|
12,013
|
|
|
End of period
|
|
|
240,750
|
|
|
|
312,754
|
|
|
Less current portion
|
|
|
(5,485
|
)
|
|
|
(5,485
|
)
|
|
Long-term asset retirement obligations
|
|
$
|
235,265
|
|
|
$
|
307,269
|
|
(a) The nine months ended September 30, 2019 represents the completion of the sale of approximately 1,300 shallow, non-core wells in Pennsylvania.
Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying consolidated statements of operations.
19
(12) DERIVATIVE ACTIVITIES
We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars, calls or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net gain of $152.3 million at September 30, 2019. These contracts expire monthly through December 2021. The following table sets forth our commodity-based derivative volumes by year as of September 30, 2019, excluding our basis and freight swaps which are discussed separately below:
|
Period
|
|
Contract Type
|
|
Volume Hedged
|
|
Weighted
Average Hedge Price
|
|
Natural Gas
|
|
|
|
|
|
|
|
|
|
2019
|
|
Swaps
|
|
1,271,739 Mmbtu/day
|
|
|
$ 2.82
|
|
|
2020
|
|
Swaps
|
|
674,208 Mmbtu/day
|
|
|
$ 2.64
|
|
|
2019
|
|
Swaptions
|
|
140,000 Mmbtu/day
|
|
|
$ 2.81 (1)
|
|
|
2020
|
|
Swaptions
|
|
147,568 Mmbtu/day
|
|
|
$ 2.77 (1)
|
|
|
2021
|
|
Swaptions
|
|
30,000 Mmbtu/day
|
|
|
$ 2.70 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
|
|
|
|
|
|
|
|
|
|
2019
|
|
Swaps
|
|
9,168 bbls/day
|
|
|
$ 56.11
|
|
|
2020
|
|
Swaps
|
|
6,738 bbls/day
|
|
|
$ 58.53
|
|
|
2019
|
|
Collars
|
|
1,000 bbls/day
|
|
|
$ 63.00 − $ 73.00
|
|
|
2020
|
|
Swaptions
|
|
1,000 bbls/day
|
|
|
$ 57.00 (2)
|
|
|
2021
|
|
Swaptions
|
|
1,000 bbls/day
|
|
|
$ 55.00 (2)
|
|
|
2020
|
|
Calls
|
|
500 bbls/day
|
|
|
$ 59.00
|
|
|
|
|
|
|
|
|
|
|
|
|
NGLs (C3-Propane)
|
|
|
|
|
|
|
|
|
|
2019
|
|
Swaps
|
|
500 bbls/day
|
|
|
$ 0.53/gallon
|
|
|
|
|
|
|
|
|
|
|
|
|
NGLs (NC4-Normal Butane)
|
|
|
|
|
|
|
|
|
|
2019
|
|
Swaps
|
|
1,000 bbls/day
|
|
|
$ 0.60/gallon
|
|
|
|
|
|
|
|
|
|
|
|
|
NGLs (iC4-Iso Butane)
|
|
|
|
|
|
|
|
|
|
2019
|
|
Swaps
|
|
500 bbls/day
|
|
|
$ 0.75/gallon
|
|
|
|
|
|
|
|
|
|
|
|
|
NGLs (C5-Natural Gasoline)
|
|
|
|
|
|
|
|
|
|
2019
|
|
Swaps
|
|
5,500 bbls/day
|
|
|
$ 1.30/gallon
|
|
|
(1)
|
Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volumes. We have swaps in place for 2019 for 140,000 Mmbtu/day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. In 2020, if the counterparty elects to double the volume, we would have additional swaps in place for 110,000 Mmbtu/day at a weighted average price of $2.78. We also have swaps in place for 2020 for 50,000 Mmbtu/day on which the counterparty can elect to extend the contract through December 2021 at a weighted average price of $2.75. In 2021, if the counterparty elects to double the volume, we would have additional swaps in place for 30,000 Mmbtu/day at a weighted average price of $2.70.
|
(2) Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volumes. We have swaps in place for 2020 for 1,000 bbls/day on which the counterparty can elect to extend the contract through 2021 at a weighted average price of $57.00. In 2021, if the counterparty elects to double the volume, we would have additional swaps in place for 1,000 bbls/day at a weighted average price of $55.00.
Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur.
Basis Swap Contracts
In addition to the swaps, collars, calls and swaptions described above, at September 30, 2019, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through December 2021 and include a total volume of 129,765,000 Mmbtu. The fair value of these contracts was a gain of $4.6 million at September 30, 2019.
20
At September 30, 2019, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly in October through December of 2019 and monthly in 2020 and include a total volume of 1,875,000 barrels. The fair value of these contracts was a loss of $3.3 million at September 30, 2019.
Freight Swap Contracts
In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at September 30, 2019, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly and cover 10,000 metric tons per month through December 2019, 4,000 metric tons per month in 2020 and 5,000 metric tons per month in 2021, with the fair value of these contracts equal to a gain of $1.4 million at September 30, 2019.
Derivative Assets and Liabilities
The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 30, 2019 and December 31, 2018 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):
|
|
|
|
September 30, 2019
|
|
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross
Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
of Assets Presented
in the
Balance Sheet
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
102,076
|
|
|
$
|
(1,106
|
)
|
|
$
|
100,970
|
|
|
|
–swaptions
|
|
|
27,309
|
|
|
|
(2,107
|
)
|
|
|
25,202
|
|
|
|
–basis swaps
|
|
|
6,695
|
|
|
|
(2,108
|
)
|
|
|
4,587
|
|
|
Crude oil
|
–swaps
|
|
|
19,012
|
|
|
|
(602
|
)
|
|
|
18,410
|
|
|
|
–swaptions
|
|
|
2,896
|
|
|
|
(1,382
|
)
|
|
|
1,514
|
|
|
|
–calls
|
|
|
—
|
|
|
|
(224
|
)
|
|
|
(224
|
)
|
|
|
−collars
|
|
|
869
|
|
|
|
—
|
|
|
|
869
|
|
|
NGLs
|
–C3 propane spread swaps
|
|
|
17,816
|
|
|
|
(17,816
|
)
|
|
|
—
|
|
|
|
–C3 propane swaps
|
|
|
132
|
|
|
|
—
|
|
|
|
132
|
|
|
|
–iC4 iso butane swaps
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
–NC4 normal butane swaps
|
|
|
160
|
|
|
|
—
|
|
|
|
160
|
|
|
|
−C5 natural gasoline swaps
|
|
|
5,229
|
|
|
|
—
|
|
|
|
5,229
|
|
|
Freight
|
−swaps
|
|
|
1,439
|
|
|
|
(1,439
|
)
|
|
|
—
|
|
|
|
|
|
$
|
183,633
|
|
|
$
|
(26,786
|
)
|
|
$
|
156,847
|
|
21
|
|
|
|
September 30, 2019
|
|
|
|
|
|
Gross
Amounts of
Recognized
(Liabilities)
|
|
|
Gross
Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
of (Liabilities) Presented in the
Balance Sheet
|
|
|
Derivative (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
(1,106
|
)
|
|
$
|
1,106
|
|
|
$
|
—
|
|
|
|
–swaptions
|
|
|
(2,107
|
)
|
|
|
2,107
|
|
|
|
—
|
|
|
|
–basis swaps
|
|
|
(2,075
|
)
|
|
|
2,108
|
|
|
|
33
|
|
|
Crude oil
|
–swaps
|
|
|
(602
|
)
|
|
|
602
|
|
|
|
—
|
|
|
|
–swaptions
|
|
|
(1,382
|
)
|
|
|
1,382
|
|
|
|
—
|
|
|
|
–calls
|
|
|
(224
|
)
|
|
|
224
|
|
|
|
—
|
|
|
NGLs
|
–C3 propane spread swaps
|
|
|
(21,105
|
)
|
|
|
17,816
|
|
|
|
(3,289
|
)
|
|
|
–iC4 iso butane swaps
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
—
|
|
|
Freight
|
–swaps
|
|
|
—
|
|
|
|
1,439
|
|
|
|
1,439
|
|
|
|
|
|
$
|
(28,603
|
)
|
|
$
|
26,786
|
|
|
$
|
(1,817
|
)
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross Amounts
Offset in the Balance Sheet
|
|
|
Net Amounts of
Assets Presented in the
Balance Sheet
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
20,834
|
|
|
$
|
(11,748
|
)
|
|
$
|
9,086
|
|
|
|
–swaptions
|
|
|
5,200
|
|
|
|
(3,883
|
)
|
|
|
1,317
|
|
|
|
–basis swaps
|
|
|
6,468
|
|
|
|
(2,822
|
)
|
|
|
3,646
|
|
|
Crude oil
|
–swaps
|
|
|
26,481
|
|
|
|
(651
|
)
|
|
|
25,830
|
|
|
|
–collars
|
|
|
5,945
|
|
|
|
(707
|
)
|
|
|
5,238
|
|
|
NGLs
|
–C3 propane swaps
|
|
|
18,719
|
|
|
|
(589
|
)
|
|
|
18,130
|
|
|
|
–C3 propane collars
|
|
|
8,538
|
|
|
|
—
|
|
|
|
8,538
|
|
|
|
–C3 propane spread swaps
|
|
|
8,984
|
|
|
|
(8,868
|
)
|
|
|
116
|
|
|
|
–NC4 normal butane swaps
|
|
|
4,084
|
|
|
|
—
|
|
|
|
4,084
|
|
|
|
–C5 natural gasoline swaps
|
|
|
17,371
|
|
|
|
—
|
|
|
|
17,371
|
|
|
Freight
|
–swaps
|
|
|
—
|
|
|
|
(561
|
)
|
|
|
(561
|
)
|
|
|
|
|
$
|
122,624
|
|
|
$
|
(29,829
|
)
|
|
$
|
92,795
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Gross
Amounts of
Recognized (Liabilities)
|
|
|
Gross Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts of
(Liabilities) Presented in the
Balance Sheet
|
|
|
Derivative (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
(18,332
|
)
|
|
$
|
11,748
|
|
|
$
|
(6,584
|
)
|
|
|
–swaptions
|
|
|
(7,972
|
)
|
|
|
3,883
|
|
|
|
(4,089
|
)
|
|
|
–basis swaps
|
|
|
(1,702
|
)
|
|
|
2,822
|
|
|
|
1,120
|
|
|
Crude oil
|
–swaps
|
|
|
—
|
|
|
|
651
|
|
|
|
651
|
|
|
|
–collars
|
|
|
—
|
|
|
|
707
|
|
|
|
707
|
|
|
NGLs
|
–C3 propane swaps
|
|
|
—
|
|
|
|
589
|
|
|
|
589
|
|
|
|
–C3 propane spread swaps
|
|
|
(8,868
|
)
|
|
|
8,868
|
|
|
|
—
|
|
|
Freight
|
–swaps
|
|
|
(561
|
)
|
|
|
561
|
|
|
|
—
|
|
|
|
|
|
$
|
(37,435
|
)
|
|
$
|
29,829
|
|
|
$
|
(7,606
|
)
|
22
The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):
|
|
Derivative Fair Value Income (Loss)
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Commodity swaps
|
$
|
60,090
|
|
|
$
|
(35,868
|
)
|
|
$
|
161,799
|
|
|
$
|
(143,598
|
)
|
|
Swaptions
|
|
10,358
|
|
|
|
7,093
|
|
|
|
39,451
|
|
|
|
4,100
|
|
|
Collars
|
|
356
|
|
|
|
(3,965
|
)
|
|
|
(3,590
|
)
|
|
|
(4,031
|
)
|
|
Calls
|
|
(224
|
)
|
|
|
197
|
|
|
|
(224
|
)
|
|
|
526
|
|
|
Basis swaps
|
|
3,448
|
|
|
|
(2,350
|
)
|
|
|
7,801
|
|
|
|
(9,043
|
)
|
|
Freight swaps
|
|
648
|
|
|
|
302
|
|
|
|
2,953
|
|
|
|
156
|
|
|
Total
|
$
|
74,676
|
|
|
$
|
(34,591
|
)
|
|
$
|
208,190
|
|
|
$
|
(151,890
|
)
|
(13) FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.
The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:
|
|
•
|
Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
|
•
|
Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
|
|
•
|
Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect management’s best estimates of the assumptions market participants would use in determining fair value. Our Level 3 measurements consist of instruments using standard pricing models and other valuation methods that utilize unobservable pricing inputs that are significant to the overall fair value.
|
|
Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.
Significant uses of fair value measurements include:
|
|
•
|
impairment assessments of long-lived assets; and
|
|
|
•
|
recorded value of derivative instruments and trading securities.
|
23
The need to test long-lived assets can be based on several indicators, including a significant reduction in prices of natural gas, oil and condensate, NGLs, unfavorable adjustments to reserves, significant changes in the expected timing of production, other changes to contracts or changes in the regulatory environment in which a property is located.
Fair Values – Recurring
We use a market approach for our recurring fair value measurements and endeavor to use the best information available. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):
|
|
Fair Value Measurements at September 30, 2019 using:
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Carrying
Value as of
September 30,
2019
|
|
|
|
Trading securities held in the deferred compensation plans
|
$
|
58,264
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
58,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity price derivatives –swaps
|
|
—
|
|
|
|
124,899
|
|
|
|
—
|
|
|
|
124,899
|
|
|
–collars
|
|
—
|
|
|
|
869
|
|
|
|
—
|
|
|
|
869
|
|
|
–calls
|
|
—
|
|
|
|
(224
|
)
|
|
|
—
|
|
|
|
(224
|
)
|
|
–basis swaps
|
|
—
|
|
|
|
1,331
|
|
|
|
—
|
|
|
|
1,331
|
|
|
–swaptions
|
|
—
|
|
|
|
—
|
|
|
|
26,716
|
|
|
|
26,716
|
|
|
Derivatives–freight swaps
|
|
—
|
|
|
|
1,439
|
|
|
|
—
|
|
|
|
1,439
|
|
|
|
Fair Value Measurements at December 31, 2018 using:
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Carrying
Value as of
December 31,
2018
|
|
|
Trading securities held in the deferred compensation plans
|
$
|
57,293
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
57,293
|
|
|
Commodity price derivatives –swaps
|
|
—
|
|
|
|
69,156
|
|
|
|
—
|
|
|
|
69,156
|
|
|
–collars
|
|
—
|
|
|
|
5,945
|
|
|
|
8,538
|
|
|
|
14,483
|
|
|
–basis swaps
|
|
—
|
|
|
|
4,883
|
|
|
|
—
|
|
|
|
4,883
|
|
|
–swaptions
|
|
—
|
|
|
|
—
|
|
|
|
(2,772
|
)
|
|
|
(2,772
|
)
|
|
Derivatives–freight swaps
|
|
—
|
|
|
|
(561
|
)
|
|
|
—
|
|
|
|
(561
|
)
|
Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using end of period market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services which have been corroborated with data from active markets or broker quotes. As of September 30, 2019, a portion of our natural gas derivative instruments contains swaptions where the counterparty has the right, but not the obligation, to enter into a fixed price swap on a pre-determined date. Derivatives in Level 3 are measured at fair value with a market approach using third-party pricing services which have been corroborated with data from active markets or broker quotes. Subjectivity in the volatility factors utilized can cause a significant change in the fair value measurement of our swaptions. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy (in thousands):
|
|
|
As of
September 30,
2019
|
|
|
Balance at December 31, 2018
|
|
$
|
5,766
|
|
|
Total gains:
|
|
|
|
|
|
Included in earnings
|
|
|
31,683
|
|
|
Settlements, net
|
|
|
(10,762
|
)
|
|
Transfers out of Level 3
|
|
|
29
|
|
|
Balance at September 30, 2019
|
|
$
|
26,716
|
|
24
Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included in other assets in the accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends, and mark-to-market gains or losses are included in deferred compensation plan expense in the accompanying consolidated statements of operations. For third quarter 2019, interest and dividends were $197,000 and the mark-to-market adjustment was a loss of $361,000 compared to interest and dividends of $225,000 and a mark-to-market gain of $1.3 million in third quarter 2018. For first nine months 2019, interest and dividends were $560,000 and the mark-to-market adjustment was a gain of $6.3 million compared to interest and dividends of $606,000 and a mark-to-market gain of $522,000 in the same period of the prior year.
Fair Values – Non-recurring
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Our proved natural gas and oil properties are reviewed for impairment periodically as events or changes in circumstances indicate the carrying amount may not be recoverable. In first quarter 2018, there were indicators that the carrying value of certain of our oil and natural gas properties in Oklahoma may be impaired and undiscounted future cash flows attributed to these assets indicated their carrying amounts were not expected to be recovered. Their remaining fair value was measured using a market approach based upon the potential sale of these Oklahoma properties, which is a Level 3 input. We recorded non-cash charges in first quarter 2018 of $7.3 million related to these properties of which the fair value was determined to be $32.5 million. In second quarter 2018, we recorded impairment of $15.3 million related to certain shallow legacy oil and natural gas assets in Northwest Pennsylvania where we had increased our working interest during the quarter. The fair value of these assets had previously been determined to be zero. There were no impairment charges in the third quarter or the first nine months 2019.
Fair Values – Reported
The following presents the carrying amounts and the fair values of our financial instruments as of September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swaps, options and basis swaps
|
|
$
|
156,847
|
|
|
$
|
156,847
|
|
|
$
|
92,795
|
|
|
$
|
92,795
|
|
|
Marketable securities (a)
|
|
|
58,264
|
|
|
|
58,264
|
|
|
|
57,293
|
|
|
|
57,293
|
|
|
(Liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swaps, options and basis swaps
|
|
|
(1,817
|
)
|
|
|
(1,817
|
)
|
|
|
(7,606
|
)
|
|
|
(7,606
|
)
|
|
Bank credit facility (b)
|
|
|
(328,000
|
)
|
|
|
(328,000
|
)
|
|
|
(943,000
|
)
|
|
|
(943,000
|
)
|
|
5.75% senior notes due 2021 (b)
|
|
|
(421,425
|
)
|
|
|
(419,154
|
)
|
|
|
(475,952
|
)
|
|
|
(455,972
|
)
|
|
5.00% senior notes due 2022 (b)
|
|
|
(547,110
|
)
|
|
|
(513,102
|
)
|
|
|
(580,032
|
)
|
|
|
(519,343
|
)
|
|
5.875% senior notes due 2022 (b)
|
|
|
(323,077
|
)
|
|
|
(311,385
|
)
|
|
|
(329,244
|
)
|
|
|
(305,989
|
)
|
|
Other senior notes due 2022 (b)
|
|
|
(590
|
)
|
|
|
(587
|
)
|
|
|
(590
|
)
|
|
|
(581
|
)
|
|
5.00% senior notes due 2023 (b)
|
|
|
(741,531
|
)
|
|
|
(648,699
|
)
|
|
|
(741,531
|
)
|
|
|
(654,683
|
)
|
|
4.875% senior notes due 2025 (b)
|
|
|
(750,000
|
)
|
|
|
(618,503
|
)
|
|
|
(750,000
|
)
|
|
|
(616,313
|
)
|
|
5.75% senior subordinated notes due 2021 (b)
|
|
|
(22,214
|
)
|
|
|
(21,855
|
)
|
|
|
(22,214
|
)
|
|
|
(21,638
|
)
|
|
5.00% senior subordinated notes due 2022 (b)
|
|
|
(19,054
|
)
|
|
|
(17,927
|
)
|
|
|
(19,054
|
)
|
|
|
(17,072
|
)
|
|
5.00% senior subordinated notes due 2023 (b)
|
|
|
(7,712
|
)
|
|
|
(6,815
|
)
|
|
|
(7,712
|
)
|
|
|
(6,690
|
)
|
|
Deferred compensation plan (c)
|
|
|
(66,349
|
)
|
|
|
(66,349
|
)
|
|
|
(80,092
|
)
|
|
|
(80,092
|
)
|
|
(a)
|
Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges.
|
|
(b)
|
The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior notes and our senior subordinated notes is based on end of period market quotes which are Level 2 inputs.
|
|
(c)
|
The fair value of our deferred compensation plan is updated at the closing price on the balance sheet date which is a Level 1 input.
|
Our current assets and liabilities include financial instruments, the most significant of which are trade accounts receivable and payable. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments and (2) our historical and expected incurrence of bad debt expense. Non-financial liabilities initially measured at fair value include asset retirement obligations and operating lease liabilities. For additional information, see Note 8 and 11.
25
Concentrations of Credit Risk
As of September 30, 2019, our primary concentrations of credit risk are the risks of not collecting accounts receivable and the risk of a counterparty’s failure to perform under derivative obligations. Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate securities are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectable receivables was $4.3 million at September 30, 2019 and $6.1 million at December 31, 2018. Our derivative exposure to credit risk is diversified primarily among major investment grade financial institutions, where we have master netting agreements which provide for offsetting payables against receivables from separate derivative contracts. To manage counterparty risk associated with our derivatives, we select and monitor our counterparties based on our assessment of their financial strength and/or credit ratings. We may also limit the level of exposure with any single counterparty. At September 30, 2019, our derivative counterparties include nineteen financial institutions, of which all but three are secured lenders in our bank credit facility. At September 30, 2019, our net derivative liability includes a net receivable of $2.0 million to these three counterparties that are not participants in our bank credit facility.
(14) STOCK-BASED COMPENSATION PLANS
Stock-Based Awards
We have two active equity-based stock plans, our Amended and Restated 2005 Equity-Based Incentive Compensation Plan, which we refer to as the 2005 Plan and the new 2019 Equity-Based Compensation Plan, which was approved by our stockholders in May 2019. Under these plans, various awards may be issued to non-employee directors and employees pursuant to decisions of the Compensation Committee, which is composed of only non-employee, independent directors.
Total Stock-Based Compensation Expense
Stock-based compensation represents amortization of restricted stock and performance units. Unlike the other forms of stock-based compensation, the mark-to-market adjustment of the liability related to the vested restricted stock held in our deferred compensation plan is directly tied to the change in our stock price and not directly related to the functional expenses and therefore, is not allocated to the functional categories. The following details the allocation of stock-based compensation to functional expense categories (in thousands):
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Direct operating expense
|
$
|
319
|
|
|
$
|
537
|
|
|
$
|
1,459
|
|
|
$
|
1,667
|
|
|
Brokered natural gas and marketing expense
|
|
522
|
|
|
|
403
|
|
|
|
1,523
|
|
|
|
1,001
|
|
|
Exploration expense
|
|
496
|
|
|
|
405
|
|
|
|
1,372
|
|
|
|
1,527
|
|
|
General and administrative expense
|
|
8,423
|
|
|
|
5,607
|
|
|
|
27,561
|
|
|
|
38,332
|
|
|
Termination costs
|
|
(1)
|
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
|
Total stock-based compensation
|
$
|
9,759
|
|
|
$
|
6,952
|
|
|
$
|
31,940
|
|
|
$
|
42,527
|
|
Stock-Based Awards
Restricted Stock Awards. We grant restricted stock units under our equity-based stock compensation plans. These restricted stock units, which we refer to as restricted stock Equity Awards, generally vest over a three-year period, contingent on the recipient’s continued employment. The grant date fair value of the Equity Awards is based on the fair market value of our common stock on the date of grant.
The Compensation Committee also grants restricted stock to certain employees and non-employee directors of the board of directors as part of their compensation. We also grant restricted stock to certain employees for retention purposes. Compensation expense is recognized over the balance of the vesting period, which is typically three years for employee grants and immediate vesting for non-employee directors. All restricted stock awards are issued at prevailing market prices at the time of the grant and the vesting is based upon an employee’s continued employment with us. Prior to vesting, all restricted stock awards have the right to vote such stock and receive dividends thereon. Upon grant of these restricted shares, which we refer to as restricted stock Liability Awards, the majority of these shares are generally placed in our deferred compensation plan and, upon vesting, withdrawals are allowed in either cash or in stock. These Liability Awards are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market amount is reported in deferred compensation plan expense in the accompanying consolidated statements of operations. Historically, we have used authorized but unissued shares of stock when restricted stock is granted. However, we also utilize treasury shares when available.
26
Stock-Based Performance Units. We grant three types of performance share awards: two based on performance conditions measured against internal performance metrics (Production Growth Awards or “PG-PSUs” and Reserve Growth Awards or “RG-PSUs”) and one based on market conditions measured based on Range’s performance relative to a predetermined peer group (TSR Awards or “TSR-PSUs”).
Each unit granted represents one share of our common stock. These units are settled in stock and the amount of the payout is based on (1) the vesting percentage, which can be from zero to 200% based on performance achieved and (2) the value of our common stock on the vesting date which is determined by the Compensation Committee. Dividend equivalents may accrue during the performance period and are paid in stock at the end of the performance period. The performance period for the TSR-PSUs is three years. The performance period for the PG/RG-PSUs is based on annual performance targets earned over a three-year period.
SARs. At September 30, 2019, there were no SARs outstanding.
Restricted Stock – Equity Awards
In first nine months 2019, we granted 2.8 million restricted stock Equity Awards to employees at an average price of $10.59 which generally vest over a three-year period compared to 1.8 million at an average price of $16.97 in first nine months 2018. We recorded compensation expense for these awards of $18.9 million in first nine months 2019 compared to $18.2 million in the same period of 2018. Restricted stock Equity Awards are not issued to employees until such time as they are vested and the employees do not have the option to receive cash.
Restricted Stock – Liability Awards
In first nine months 2019, we granted 1.0 million shares of restricted stock Liability Awards as compensation to employees at an average price of $10.39 which vests generally over a three-year period and 183,000 shares were granted to non-employee directors at an average price of $9.11 with immediate vesting. In first nine months 2018, we granted 877,000 shares of restricted stock Liability Awards as compensation to employees at an average price of $15.30 with vesting generally over a three-year period and 138,000 shares were granted to non-employee directors at an average price of $15.54 with immediate vesting. We recorded compensation expense for these Liability Awards of $7.0 million in first nine months 2019 compared to $11.0 million in first nine months 2018. The majority of these awards are held in our deferred compensation plan, are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market amount is reported as deferred compensation expense in our consolidated statements of operations (see additional discussion below). The following is a summary of the status of our non-vested restricted stock outstanding at September 30, 2019:
|
|
Restricted Stock
Equity Awards
|
|
|
Restricted Stock
Liability Awards
|
|
|
|
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
Outstanding at December 31, 2018
|
|
1,386,088
|
|
|
$
|
20.04
|
|
|
|
184,579
|
|
|
$
|
15.65
|
|
|
Granted
|
|
2,792,438
|
|
|
|
10.59
|
|
|
|
1,206,480
|
|
|
|
10.20
|
|
|
Vested
|
|
(1,246,420
|
)
|
|
|
15.73
|
|
|
|
(733,187
|
)
|
|
|
10.76
|
|
|
Forfeited
|
|
(370,035
|
)
|
|
|
13.44
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at September 30, 2019
|
|
2,562,071
|
|
|
$
|
12.79
|
|
|
|
657,872
|
|
|
$
|
11.10
|
|
27
Stock-Based Performance Units
Production Growth and Reserve Growth Awards (debt-adjusted). The PG-PSUs and RG-PSUs vest at the end of the three-year performance period. The performance metrics for each year are set by the Compensation Committee no later than March 31 of such year. If the performance metric for the applicable period is not met, that portion is considered forfeited and there is an adjustment to the expense recorded. The following is a summary of our non-vested PG/RG-PSUs awards outstanding at September 30, 2019:
|
|
|
|
|
|
|
Number of
Units
|
|
|
|
Weighted
Average Grant Date Fair Value
|
|
|
Outstanding at December 31, 2018
|
|
536,798
|
|
|
$
|
15.61
|
|
|
Units granted (a)
|
|
345,202
|
|
|
|
10.32
|
|
|
Forfeited
|
|
(427
|
)
|
|
|
15.65
|
|
|
Outstanding at September 30, 2019
|
|
881,573
|
|
|
$
|
11.70
|
|
|
(a)
|
Amounts granted reflect the number of performance units granted; however, the actual payout of shares will be between zero and 200% depending on achievement of specifically identified performance targets.
|
We recorded PG/RG-PSUs compensation expense of $2.3 million in first nine months 2019 compared to $5.8 million in first nine months 2018.
TSR Awards. TSR-PSUs granted are earned, or not earned, based on the comparative performance of Range’s common stock measured against a predetermined group of companies in the peer group over a three-year performance period. The fair value of the TSR-PSUs is estimated on the date of grant using a Monte Carlo simulation model which utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. The fair value is recognized as stock-based compensation expense over the three-year performance period. Expected volatilities utilized in the model were estimated using a combination of a historical period consistent with the remaining performance period of three years and option implied volatilities. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the life of the grant. The following assumptions were used to estimate the fair value of PSUs granted during first nine months 2019 and 2018:
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Risk-free interest rate
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
Expected annual volatility
|
|
|
46
|
%
|
|
|
48
|
%
|
|
|
Grant date fair value per unit
|
|
$
|
11.34
|
|
|
$
|
18.51
|
|
|
The following is a summary of our non-vested TSR – PSUs award activities:
|
|
|
Number of
Units
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
Outstanding at December 31, 2018
|
|
|
1,067,886
|
|
|
$
|
27.81
|
|
|
|
Units granted (a)
|
|
|
314,152
|
|
|
|
11.34
|
|
|
|
Vested and issued (b)
|
|
|
(12,283
|
)
|
|
|
30.47
|
|
|
|
Forfeited
|
|
|
(376,303
|
)
|
|
|
37.25
|
|
|
|
Outstanding at September 30, 2019
|
|
|
993,452
|
|
|
$
|
19.00
|
|
|
|
(a)
|
These amounts reflect the number of performance units granted. The actual payout of shares may be between zero and 200% of the performance units granted depending on the total shareholder return ranking compared to our peer companies at the vesting date.
|
|
(b)
|
Includes 12,283 TSR-PSUs awards issued related to the 2016 performance period where the return on our common stock was in the 20th percentile for the February 2016 grant. The remaining February 2016 awards are considered to be forfeited. The May 2016 awards were 100% forfeited as the performance was not achieved.
|
28
We recorded TSR-PSUs compensation expense of $2.2 million in first nine months 2019 compared to $6.1 million in the same period of 2018. Fair value is amortized over the performance period with no adjustment to the expense recorded for actual targets achieved.
SARs
Information with respect to our SARs activity is summarized below.
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
|
Outstanding at December 31, 2018
|
|
|
1,104
|
|
$
|
81.74
|
|
|
Expired
|
|
|
(1,104
|
)
|
|
81.74
|
|
|
Outstanding at September 30, 2019
|
|
|
—
|
|
$
|
—
|
|
Other Post Retirement Benefits
Effective fourth quarter 2017, as part of our officer succession plan, we implemented a post retirement benefit plan to assist in providing health care to officers who are active employees (including their spouses) and have met certain age and service requirements. These benefits are not funded in advance and are provided up to age 65 or at the date they become eligible for Medicare, subject to various cost-sharing features. There was approximately $92,000 of estimated prior service costs amortized from accumulated other comprehensive income into general and administrative expense in both the three months ended September 30, 2019 and 2018 and approximately $275,000 amortized in both the nine months ended September 30, 2019 and 2018. Those employees that qualified for the new retirement health care plan were also fully vested in all equity grants. Effective October 2018, officers who qualified for the plan are required to provide reasonable notice of retirement and beginning in 2019 must provide one year of service after the grant date to be fully vested in an equity grant.
Deferred Compensation Plan
Our deferred compensation plan gives non-employee directors and officers the ability to defer all or a portion of their salaries, bonuses or director fees and invest in Range common stock or make other investments at the individual’s discretion. Range provides a partial matching contribution to officers which vests over three years. The assets of the plan are held in a grantor trust, which we refer to as the Rabbi Trust, and are therefore available to satisfy the claims of our general creditors in the event of bankruptcy or insolvency. Our stock held in the Rabbi Trust is treated as a liability award as employees are allowed to take withdrawals from the Rabbi Trust either in cash or in Range stock. The liability for the vested portion of the stock held in the Rabbi Trust is reflected as deferred compensation liability in the accompanying consolidated balance sheets and is adjusted to fair value each reporting period by a charge or credit to deferred compensation plan expense on our consolidated statements of operations. The assets of the Rabbi Trust, other than our common stock, are invested in marketable securities and reported at their market value as other assets in the accompanying consolidated balance sheets. The deferred compensation liability reflects the vested market value of the marketable securities and Range stock held in the Rabbi Trust. Changes in the market value of the marketable securities and changes in the fair value of the deferred compensation plan liability are charged or credited to deferred compensation plan expense each quarter. We recorded mark-to-market gain of $8.9 million in third quarter 2019 compared to mark-to-market loss of $223,000 in third quarter 2018. We recorded mark-to-market gain of $16.4 million in first nine months 2019 compared to a mark-to-market gain of $559,000 in first nine months 2018. The Rabbi Trust held 3.2 million shares (2.5 million of which were vested) of Range stock at September 30, 2019 compared to 2.6 million shares (2.4 million of which were vested) at December 31, 2018.
(15) TERMINATION COSTS
In second quarter 2019, we announced a reduction in our work force. For second quarter ended June 30, 2019, we recorded $2.2 million of severance costs and $25,000 of stock-based compensation related to this work force reduction. In third quarter 2019, we sold various non-core assets in Pennsylvania and accrued $819,000 of severance costs related to this sale. The following summarizes our termination costs for the three months and nine months September 30, 2019 and 2018 (in thousands):
|
|
|
Three Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Severance costs
|
$
|
819
|
|
|
$
|
(356
|
)
|
|
$
|
3,000
|
|
|
$
|
(356
|
)
|
|
Building lease
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
Stock-based compensation
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
|
|
$
|
819
|
|
|
$
|
(336
|
)
|
|
$
|
3,025
|
|
|
$
|
(373
|
)
|
29
The following details the accrued liability as of September 30, 2019 (in thousands):
|
|
Nine Months
Ended
|
|
|
|
September 30,
2019
|
|
|
Beginning balance
|
$
|
—
|
|
|
Accrued severance costs
|
|
3,000
|
|
|
Payments
|
|
(1,292
|
)
|
|
Ending balance
|
$
|
1,708
|
|
(16) CAPITAL STOCK
We have authorized capital stock of 485.0 million shares which includes 475.0 million shares of common stock and 10.0 million shares of preferred stock. We currently have no preferred stock issued or outstanding. The following is a schedule of changes in the number of common shares outstanding since the beginning of 2018:
|
|
|
Nine Months
Ended
September 30,
2019
|
|
|
Year
Ended
December 31,
2018
|
|
|
Beginning balance
|
|
|
249,510,022
|
|
|
|
248,129,430
|
|
|
Restricted stock grants
|
|
|
1,178,732
|
|
|
|
865,095
|
|
|
Restricted stock units vested
|
|
|
714,271
|
|
|
|
434,046
|
|
|
Performance stock units issued
|
|
|
12,283
|
|
|
|
73,985
|
|
|
Performance stock dividends
|
|
|
464
|
|
|
|
2,164
|
|
|
Treasury shares issued
|
|
|
1,532
|
|
|
|
5,302
|
|
|
Ending balance
|
|
|
251,417,304
|
|
|
|
249,510,022
|
|
In October 2019, our board of directors authorized an $100.0 million common stock repurchase program. Under this stock repurchase program, we may repurchase shares in open market transactions, from time to time, in accordance with applicable SEC rules and federal securities laws. The stock repurchase program has no time limit and may be modified, suspended or terminated at any time by our board of directors.
(17) SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
(in thousands)
|
|
|
Net cash provided from operating activities included:
|
|
|
|
|
|
|
|
|
|
Income taxes refunded from taxing authorities
|
|
$
|
—
|
|
|
$
|
7,521
|
|
|
Interest paid
|
|
|
(151,602
|
)
|
|
|
(161,444
|
)
|
|
Non-cash investing and financing activities included:
|
|
|
|
|
|
|
|
|
|
Increase in asset retirement costs capitalized
|
|
|
812
|
|
|
|
20,452
|
|
|
Decrease in accrued capital expenditures
|
|
|
(4,424
|
)
|
|
|
(107,070
|
)
|
|
|
|
|
|
|
|
|
|
|
30
(18) COMMITMENTS AND CONTINGENCIES
Litigation
We are the subject of, or party to, a number of pending or threatened legal actions, administrative proceedings and claims arising in the ordinary course of our business. While many of these matters involve inherent uncertainty, we believe that the amount of the liability, if any, ultimately incurred with respect to these actions, proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations. We estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. We will continue to evaluate our litigation and regulatory proceedings quarterly and will establish and adjust any estimated liability as appropriate to reflect our assessment of the then current status of litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.
(19) SUSPENDED EXPLORATORY WELL COSTS
We capitalize exploratory well costs until a determination is made that the well has either found proved reserves or that it is impaired. Capitalized exploratory well costs are included in natural gas and oil properties in the accompanying consolidated balance sheets. If an exploratory well is determined to be impaired, the well costs are charged to exploration expense in the accompanying consolidated statements of operations. We did not have any suspended exploratory well costs as of September 30, 2019.
(20) Costs Incurred for Property Acquisition, Exploration and Development (a)
|
|
|
Nine Months
Ended
September 30,
2019
|
|
|
Year
Ended
December 31, 2018
|
|
|
|
|
(in thousands)
|
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
Acreage purchases
|
|
$
|
31,582
|
|
|
$
|
62,390
|
|
|
Oil and gas properties
|
|
|
—
|
|
|
|
1,683
|
|
|
Development
|
|
|
541,455
|
|
|
|
834,552
|
|
|
Exploration:
|
|
|
|
|
|
|
|
|
|
Drilling
|
|
|
—
|
|
|
|
1,380
|
|
|
Expense
|
|
|
25,961
|
|
|
|
32,196
|
|
|
Stock-based compensation expense
|
|
|
1,372
|
|
|
|
1,921
|
|
|
Gas gathering facilities:
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
3,127
|
|
|
|
10,218
|
|
|
Subtotal
|
|
|
603,497
|
|
|
|
944,340
|
|
|
Asset retirement obligations
|
|
|
812
|
|
|
|
28,826
|
|
|
Total costs incurred
|
|
$
|
604,309
|
|
|
$
|
973,166
|
|
|
(a)
|
Includes costs incurred whether capitalized or expensed.
|
31