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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number: 001-12209

 

RANGE RESOURCES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

34-1312571

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

100 Throckmorton Street, Suite 1200

Fort Worth, Texas

 

76102

(Address of Principal Executive Offices)

 

(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, (Par Value $0.01)

 

RRC

 

New York Stock Exchange

Registrant’s telephone number, including area code

(817) 870-2601

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

 

 

 

 

Non-Accelerated Filer

 

  

Smaller Reporting Company

 

 

 

 

Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No  

255,747,337 Common Shares were outstanding on April 27, 2020

  

 


RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended March 31, 2020

Unless the context otherwise indicates, all references in this report to “Range Resources,” “Range,” “we,” “us,” or “our” are to Range Resources Corporation and its directly and indirectly owned subsidiaries. For certain industry specific terms used in this Form 10-Q, please see “Glossary of Certain Defined Terms” in our 2019 Annual Report on Form 10-K.

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION 

  

 

ITEM 1.

 

Financial Statements:

  

 

 

 

   Consolidated Balance Sheets (Unaudited)

  

3

 

 

   Consolidated Statements of Operations (Unaudited)

  

4

 

 

   Consolidated Statements of Comprehensive Income (Unaudited)

 

5

 

 

   Consolidated Statements of Cash Flows (Unaudited)

  

6

 

 

Consolidated Statements of Stockholders’ Equity (Unaudited)

 

7

 

 

   Notes to Consolidated Financial Statements (Unaudited)

  

9

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

27

ITEM 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

40

ITEM 4.

 

Controls and Procedures

  

43

PART II – OTHER INFORMATION

  

 

ITEM 1.

 

Legal Proceedings

  

43

ITEM 1A.

 

Risk Factors

  

43

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

ITEM 6.

 

Exhibits

  

45

 

 

 

 

 

SIGNATURES

  

46

 

 

2


PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

528

 

 

$

546

 

Accounts receivable, less allowance for doubtful accounts of $9,527 and $8,784

 

188,162

 

 

 

272,900

 

Derivative assets

 

257,347

 

 

 

136,848

 

Other current assets

 

21,080

 

 

 

17,508

 

Total current assets

 

467,117

 

 

 

427,802

 

Derivative assets

 

6,208

 

 

 

706

 

Natural gas and oil properties, successful efforts method

 

10,261,914

 

 

 

10,213,737

 

Accumulated depletion and depreciation

 

(4,271,947

)

 

 

(4,172,702

)

 

 

5,989,967

 

 

 

6,041,035

 

Other property and equipment

 

82,887

 

 

 

102,083

 

Accumulated depreciation and amortization

 

(77,493

)

 

 

(96,708

)

 

 

5,394

 

 

 

5,375

 

Operating lease right-of-use assets

 

56,412

 

 

 

62,053

 

Other assets

 

64,540

 

 

 

75,432

 

Total assets

$

6,589,638

 

 

$

6,612,403

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

163,277

 

 

$

155,341

 

Asset retirement obligations

 

2,393

 

 

 

2,393

 

Accrued liabilities

 

290,703

 

 

 

356,392

 

Accrued interest

 

33,752

 

 

 

39,299

 

Derivative liabilities

 

 

 

 

13,119

 

Total current liabilities

 

490,125

 

 

 

566,544

 

Bank debt

 

545,270

 

 

 

464,319

 

Senior notes

 

2,592,960

 

 

 

2,659,844

 

Senior subordinated notes

 

48,799

 

 

 

48,774

 

Deferred tax liabilities

 

210,803

 

 

 

160,196

 

Derivative liabilities

 

6,823

 

 

 

949

 

Deferred compensation liabilities

 

46,411

 

 

 

64,070

 

Operating lease liabilities

 

36,768

 

 

 

41,068

 

Asset retirement obligations and other liabilities

 

137,091

 

 

 

259,151

 

Total liabilities

 

4,115,050

 

 

 

4,264,915

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

Preferred stock, $1 par, 10,000,000 shares authorized, none issued and outstanding

 

 

 

 

 

Common stock, $0.01 par, 475,000,000 shares authorized, 255,684,829 issued at

     March 31, 2020 and 251,438,936 issued at December 31, 2019

 

2,556

 

 

 

2,514

 

Common stock held in treasury, 9,807,327 shares at March 31, 2020 and 1,808,133

     shares at December 31, 2019

 

(29,750

)

 

 

(7,236

)

Additional paid-in capital

 

5,664,356

 

 

 

5,659,832

 

Accumulated other comprehensive loss

 

(715

)

 

 

(788

)

Retained deficit

 

(3,161,859

)

 

 

(3,306,834

)

Total stockholders’ equity

 

2,474,588

 

 

 

2,347,488

 

Total liabilities and stockholders’ equity

$

6,589,638

 

 

$

6,612,403

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

432,096

 

 

$

671,654

 

 

Derivative fair value income (loss)

 

233,175

 

 

 

(61,731

)

 

Brokered natural gas, marketing and other

 

28,649

 

 

 

138,214

 

 

Total revenues and other income

 

693,920

 

 

 

748,137

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Direct operating

 

32,035

 

 

 

33,227

 

 

Transportation, gathering, processing and compression

 

284,765

 

 

 

302,655

 

 

Production and ad valorem taxes

 

9,019

 

 

 

11,310

 

 

Brokered natural gas and marketing

 

32,624

 

 

 

132,305

 

 

Exploration

 

7,077

 

 

 

8,211

 

 

Abandonment and impairment of unproved properties

 

5,413

 

 

 

12,659

 

 

General and administrative

 

42,254

 

 

 

46,638

 

 

Termination costs

 

1,595

 

 

 

 

 

Deferred compensation plan

 

(8,537

)

 

 

3,581

 

 

Interest

 

47,518

 

 

 

51,537

 

 

Gain on early extinguishment of debt

 

(12,923

)

 

 

 

 

Depletion, depreciation and amortization

 

102,986

 

 

 

138,718

 

 

Impairment of proved properties

 

77,000

 

 

 

 

 

(Gain) loss on the sale of assets

 

(122,099

)

 

 

189

 

 

Total costs and expenses

 

498,727

 

 

 

741,030

 

 

Income before income taxes

 

195,193

 

 

 

7,107

 

 

Income tax (benefit) expense:

 

 

 

 

 

 

 

 

Current

 

(363

)

 

 

 

 

Deferred

 

50,581

 

 

 

5,688

 

 

 

 

50,218

 

 

 

5,688

 

 

Net income

$

144,975

 

 

$

1,419

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

$

0.58

 

 

$

0.01

 

 

Diluted

$

0.58

 

 

$

0.01

 

 

Dividends paid per common share

$                    ―

 

 

$

0.02

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

246,218

 

 

 

247,776

 

 

Diluted

 

247,684

 

 

 

249,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

Net income

$

144,975

 

 

$

1,419

 

Other comprehensive loss:

 

 

 

 

 

 

 

Postretirement benefits:

 

 

 

 

 

 

 

Actuarial gain (loss)

 

7

 

 

 

(12

)

Amortization of prior service costs

 

92

 

 

 

92

 

Income tax expense

 

(26

)

 

 

(20

)

Total comprehensive income

$

145,048

 

 

$

1,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net income

$

144,975

 

 

$

1,419

 

Adjustments to reconcile net income to net cash provided from

 

 

 

 

 

 

 

    operating activities:

 

 

 

 

 

 

 

Deferred income tax expense

 

50,581

 

 

 

5,688

 

Depletion, depreciation and amortization and impairment of proved properties

 

179,986

 

 

 

138,718

 

Abandonment and impairment of unproved properties

 

5,413

 

 

 

12,659

 

Derivative fair value (income) loss

 

(233,175

)

 

 

61,731

 

Cash settlements on derivative financial instruments

 

99,929

 

 

 

24,834

 

Allowance for bad debt

 

400

 

 

 

 

Amortization of deferred financing costs and other

 

1,657

 

 

 

1,807

 

Deferred and stock-based compensation

 

476

 

 

 

14,112

 

(Gain) loss on the sale of assets

 

(122,099

)

 

 

189

 

Gain on early extinguishment of debt

 

(12,923

)

 

 

 

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

84,345

 

 

 

134,006

 

Inventory and other

 

(4,432

)

 

 

(4,763

)

Accounts payable

 

18,660

 

 

 

(30,431

)

Accrued liabilities and other

 

(89,287

)

 

 

(99,275

)

Net cash provided from operating activities

 

124,506

 

 

 

260,694

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(129,962

)

 

 

(190,014

)

Additions to field service assets

 

(896

)

 

 

(576

)

Acreage purchases

 

(10,811

)

 

 

(23,646

)

Proceeds from disposal of assets

 

1,059

 

 

 

332

 

Purchases of marketable securities held by the deferred compensation plan

 

(7,648

)

 

 

(4,259

)

Proceeds from the sales of marketable securities held by the deferred

 

 

 

 

 

 

 

compensation plan

 

8,393

 

 

 

6,204

 

Net cash used in investing activities

 

(139,865

)

 

 

(211,959

)

Financing activities:

 

 

 

 

 

 

 

Borrowings on credit facilities

 

543,000

 

 

 

566,000

 

Repayments on credit facilities

 

(463,000

)

 

 

(614,000

)

Issuance of senior notes

 

550,000

 

 

 

 

Repayment of senior or senior subordinated notes

 

(580,099

)

 

 

 

Dividends paid

 

 

 

 

(5,023

)

Treasury stock purchases

 

(22,548

)

 

 

 

Debt issuance costs

 

(8,538

)

 

 

 

Taxes paid for shares withheld

 

(1,554

)

 

 

(3,161

)

Change in cash overdrafts

 

(1,933

)

 

 

7,218

 

Proceeds from the sales of common stock held by the deferred compensation plan

 

13

 

 

 

174

 

Net cash provided from (used in) financing activities

 

15,341

 

 

 

(48,792

)

Decrease in cash and cash equivalents

 

(18

)

 

 

(57

)

Cash and cash equivalents at beginning of period

 

546

 

 

 

545

 

Cash and cash equivalents at end of period

$

528

 

 

$

488

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands)

 

Fiscal Year 2020

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock

 

 

Additional

 

 

Retained

 

 

other

 

 

 

 

 

 

Common stock

 

 

held in

 

 

paid-

 

 

(deficit)

 

 

comprehensive

 

 

 

 

 

 

Shares

 

 

Par value

 

 

treasury

 

 

in capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of December 31, 2019

 

251,439

 

 

$

2,514

 

 

$

(7,236

)

 

$

5,659,832

 

 

$

(3,306,834

)

 

$

(788

)

 

$

2,347,488

 

Issuance of common stock

 

4,246

 

 

 

42

 

 

 

 

 

 

(1,406

)

 

 

 

 

 

 

 

 

(1,364

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

5,963

 

 

 

 

 

 

 

 

 

5,963

 

Treasury stock

 

 

 

 

 

 

 

(22,514

)

 

 

(33

)

 

 

 

 

 

 

 

 

(22,547

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

73

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

144,975

 

 

 

 

 

 

144,975

 

Balance as of March 31, 2020

 

255,685

 

 

$

2,556

 

 

$

(29,750

)

 

$

5,664,356

 

 

$

(3,161,859

)

 

$

(715

)

 

$

2,474,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

7


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except per share data)

Fiscal Year 2019

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock

 

 

Additional

 

 

Retained

 

 

other

 

 

 

 

 

 

Common stock

 

 

held in

 

 

paid-

 

 

(deficit)

 

 

comprehensive

 

 

 

 

 

 

Shares

 

 

Par value

 

 

treasury

 

 

in capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of December 31, 2018

 

249,520

 

 

$

2,495

 

 

$

(391

)

 

$

5,628,447

 

 

$

(1,570,462

)

 

$

(658

)

 

$

4,059,431

 

Issuance of common stock

 

1,628

 

 

 

17

 

 

 

 

 

 

(2,396

)

 

 

 

 

 

 

 

 

(2,379

)

Issuance of common stock

   upon vesting of PSUs

 

 

 

 

 

 

 

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

9,155

 

 

 

 

 

 

 

 

 

9,155

 

Cash dividends paid

   ($0.02 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,023

)

 

 

 

 

 

(5,023

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60

 

 

 

60

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

1,419

 

 

 

 

 

 

1,419

 

Balance as of March 31, 2019

 

251,148

 

 

$

2,512

 

 

$

(391

)

 

$

5,635,210

 

 

$

(1,574,070

)

 

$

(598

)

 

$

4,062,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


8


RANGE RESOURCES CORPORATION

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 region of the United States. Our objective is to build stockholder value through returns-focused development of natural gas and oil properties. 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 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2020. The results of operations for the first quarter ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

(3) NEW ACCOUNTING STANDARDS

Not Yet Adopted

None that are expected to have a material impact on our financial statements.

Recently 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 new standards update was effective for us in first quarter 2020. The adoption of this standards update did not have a material impact on our financial statements.

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 was effective for us in first quarter 2020. The adoption of this standards update did not have a material impact on our financial statements.

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 required 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. 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.

 

(4) DISPOSITIONS

9


We recognized a pretax net gain of $122.1 million on the sale of assets in first quarter 2020 compared to a pretax net loss of $189,000 in first quarter 2019. See discussion below for further details.

2020 Dispositions

Pennsylvania. In first quarter 2020, we completed the sale of our shallow legacy assets in Northwest Pennsylvania for proceeds of $1.0 million. Based upon the receipt of approval from state governmental authorities of a change in operatorship during the quarter, we recognized a pretax gain of $122.7 million primarily due to the elimination of the asset retirement obligation associated with these properties.

Other. In first quarter 2020, we sold miscellaneous inventory and other assets for proceeds of $59,000, resulting in a pretax loss of $617,000.

2019 Dispositions

Other. In first quarter 2019, we sold miscellaneous inventory and other assets for proceeds of $332,000 resulting in a pretax loss of $189,000. 

(5) REVENUES FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

We have three material revenue streams in our business: natural gas sales, NGLs sales and crude oil and condensate sales (referred to below as “oil sales”). Brokered revenue attributable to each product sales type is included here because the volume of product that we purchase is subsequently sold to separate counterparties in accordance with existing sales contracts under which we also sell our production. Accounts receivable attributable to our revenue contracts with customers was $142.4 million at March 31, 2020 and $237.0 million at December 31, 2019. Revenue attributable to each of our identified revenue streams is disaggregated below (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

 

2020

 

 

 

2019

 

 

Natural gas sales

$

253,249

 

 

$

434,720

 

 

NGLs sales

 

143,239

 

 

 

197,813

 

 

Oil sales

 

35,608

 

 

 

39,121

 

 

Total natural gas, NGLs and oil sales

 

432,096

 

 

 

671,654

 

 

Sales of purchased natural gas

 

24,875

 

 

 

134,801

 

 

Sales of purchased NGLs

 

1,140

 

 

 

424

 

 

Other marketing revenue

 

2,634

 

 

 

2,989

 

 

Total

$

460,745

 

 

$

809,868

 

 

 

(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 expense was as follows (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

 

2019

 

 

Income tax expense

$

50,218

 

 

$

5,688

 

 

Effective tax rate

 

25.7

%

 

 

80.0

%

 

 

10


Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For the three months ended March 31, 2020 and 2019, 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).

 

 

 

Three Months Ended

March 31,

 

 

 

 

2020

 

 

 

2019

 

 

 

Total income before income taxes

$

195,193

 

 

$

7,107

 

 

 

U.S. federal statutory rate

 

21

%

 

 

21

%

 

 

Total tax expense at statutory rate

 

40,991

 

 

 

1,492

 

 

 

 

 

 

 

 

 

 

 

 

 

State and local income taxes, net of federal benefit

 

5,803

 

 

 

818

 

 

 

Equity compensation

 

3,843

 

 

 

3,391

 

 

 

Change in valuation allowances:

 

 

 

 

 

 

 

 

 

Federal net operating loss carryforwards

 

(1,313

)

 

 

 

 

 

State net operating loss carryforwards and other

 

2,800

 

 

 

352

 

 

 

Other

 

(537

)

 

 

231

 

 

 

Permanent differences and other

 

(1,369

)

 

 

(596

)

 

 

Total expense for income taxes

$

50,218

 

 

$

5,688

 

 

 

Effective tax rate

 

25.7

%

 

 

80.0

%

 

 

 

(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):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

 

2019

 

 

Net income, as reported

$

144,975

 

 

$

1,419

 

 

Participating earnings (a)

 

(1,855

)

 

 

(14

)

 

Basic net income attributed to common shareholders

 

143,120

 

 

 

1,405

 

 

Reallocation of participating earnings (a)

 

11

 

 

 

 

 

Diluted net income attributed to common shareholders

$

143,131

 

 

$

1,405

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

$

0.58

 

 

$

0.01

 

 

Diluted

$

0.58

 

 

$

0.01

 

 

(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.

The following provides a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

 

2019

 

Weighted average common shares outstanding – basic

 

246,218

 

 

 

247,776

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Director and employee restricted stock and performance based equity awards

 

1,466

 

 

 

1,378

 

Weighted average common shares outstanding – diluted

 

247,684

 

 

 

249,154

 

 

11


Weighted average common shares outstanding-basic for first quarter 2020 excludes 3.2 million shares of restricted stock held in our deferred compensation plan compared to 2.5 million shares in first quarter 2019 (although all awards are issued and outstanding upon grant). For first quarter 2020, equity grants of 2.5 million, compared to equity grants of 1.6 million for first quarter 2019, 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. Nonvested restricted stock and performance based equity awards are included in the computation using the treasury stock method with the deemed proceeds equal to the average unrecognized compensation during the period.

(8) Capitalized Costs and Accumulated Depreciation, Depletion and Amortization (a)

 

 

March 31,
2020

 

 

December 31,
2019

 

 

 

(in thousands)

 

Natural gas and oil properties:

 

 

 

 

 

 

 

 

Properties subject to depletion

 

$

9,395,279

 

 

$

9,345,557

 

Unproved properties

 

 

866,635

 

 

 

868,180

 

Total

 

 

10,261,914

 

 

 

10,213,737

 

Accumulated depletion and depreciation

 

 

(4,271,947

)

 

 

(4,172,702

)

Net capitalized costs

 

$

5,989,967

 

 

$

6,041,035

 

(a)

Includes capitalized asset retirement costs and the associated accumulated amortization.

(9) INDEBTEDNESS

We had the following debt outstanding as of the dates shown below (bank debt interest rate at March 31, 2020 is shown parenthetically). No interest was capitalized during the three months ended March 31, 2020 or the year ended December 31, 2019 (in thousands).

 

 

March 31,

2020

 

 

 

December 31,

2019

 

Bank debt (3.0%)

$

557,000

 

 

$

477,000

 

Senior notes:

 

 

 

 

 

 

 

4.875% senior notes due 2025

 

750,000

 

 

 

750,000

 

5.00% senior notes due 2023

 

684,886

 

 

 

741,531

 

5.00% senior notes due 2022

 

463,431

 

 

 

511,886

 

5.75% senior notes due 2021

 

50,059

 

 

 

374,139

 

5.875% senior notes due 2022

 

115,865

 

 

 

297,617

 

9.25% senior notes due 2026

 

550,000

 

 

 

 

Other senior notes due 2022

 

490

 

 

 

590

 

Total senior notes

 

2,614,731

 

 

 

2,675,763

 

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

 

3,220,711

 

 

 

3,201,743

 

Unamortized premium

 

1,305

 

 

 

3,013

 

Unamortized debt issuance costs

 

(34,987

)

 

 

(31,819

)

Total debt net of debt issuance costs

$

3,187,029

 

 

$

3,172,937

 

 

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 periodic redeterminations and for event-driven unscheduled redeterminations. As of March 31, 2020, our bank group was composed of twenty-seven financial institutions with no one bank holding more than 7.0% 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.

12


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 loans. The weighted average interest rate was 3.1% for first quarter 2020 compared to 4.0% for first quarter 2019. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At March 31, 2020, the commitment fee was 0.30% and the interest rate margin was 2.00% on our LIBOR loans and 1.0% on our base rate loans.

As part of our redetermination completed on March 27, 2020, our borrowing base was reaffirmed for $3.0 billion and our bank commitment was also reaffirmed at $2.4 billion. Effective on that date, we also agreed to return to a semi-annual borrowing base redetermination with the next scheduled redetermination to occur by November 2020, an increase in the applicable margin of 50 basis points on drawn facility balances and an increase to the letter of credit sublimit. On March 31, 2020, bank commitments totaled $2.4 billion and the outstanding balance under our bank credit facility was $557.0 million, before deducting debt issuance costs. Additionally, we had $333.0 million of undrawn letters of credit leaving $1.5 billion of committed borrowing capacity available under the facility.

New Senior Notes

In January 2020, we issued $550.0 million aggregate principal amount of 9.25% senior notes due 2026 (the “9.25% Notes”) for an estimated net proceeds of $541.6 million after underwriting expenses and commissions of $8.4 million. The notes were issued at par. The 9.25% Notes were offered to qualified institutional buyers and to non-U.S. persons outside the United States in compliance with Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). Interest due on the 9.25% Notes is payable semi-annually in February and August and is unconditionally guaranteed on a senior unsecured basis by all of our subsidiary guarantors. On or after February 1, 2025, we may redeem the 9.25% Notes, in whole or in part and from time to time, at 100% of the principal amounts plus accrued and unpaid interest. We may redeem the notes prior to their maturity at redemption prices based on a premium, plus accrued and unpaid interest as described in the indenture governing the 9.25% Notes.  Upon occurrence of certain changes in control, we must offer to repurchase the 9.25% Notes. The 9.25% Notes are unsecured and are subordinated to all of our existing and future secured debt, rank equally with all of our existing and future unsecured debt and rank senior to all of our existing and future subordinated debt. On the closing of the issuance of the 9.25% Notes, we used the proceeds to redeem $324.1 million of our 5.75% senior notes due 2021 and $175.9 million of our 5.875% senior notes due 2022 with the remainder used to repay a portion of our borrowings under our bank credit facility.

Early Extinguishment of Debt

In January 2020, we purchased for cash $500.0 million aggregate principal amount of our 5.75% senior notes due 2021 and our 5.875% senior notes due 2022. An early cash tender of $15.1 million was paid to note holders who tendered their notes within the ten business day early offer period. We recorded a loss on early extinguishment of debt in first quarter 2020 of $17.5 million, net of transaction call premium costs and the expenses of the remaining deferred financing costs on the repurchased debt. The cash tender offer and early cash tender premium were financed from the issuance of our new 9.25% Notes.  See New Senior Notes above.

In first quarter 2020, we also purchased in the open market $48.5 million principal amount of our 5.00% senior notes due 2022, $5.8 million principal amount of our 5.875% senior notes due 2022 and $56.6 million principal amount of our 5.00% senior notes due 2023. We recognized a gain on early extinguishment of debt in first quarter 2020 of $30.4 million, net of 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.

13


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 bank credit facility 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 March 31, 2020.

(10) 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 three months ended March 31, 2020 and the year ended December 31, 2019 is as follows (in thousands):

 

  

Three Months

Ended

March 31,

 2020

 

 

Year

Ended

December 31,

2019

 

Beginning of period

  

$

251,076

 

 

$

312,754

 

Liabilities incurred

  

 

651

 

 

 

4,063

 

Acquisitions

 

 

102

 

 

 

 

Liabilities settled

 

 

(729

)

 

 

(5,953

)

Disposition of wells (a)

 

 

(126,117

)

 

 

(82,576

)

Accretion expense

  

 

2,800

 

 

 

15,658

 

Change in estimate

  

 

497

 

 

 

7,130

 

End of period

  

 

128,280

 

 

 

251,076

 

Less current portion

  

 

(2,393

)

 

 

(2,393

)

Long-term asset retirement obligations

  

$

125,887

 

 

$

248,683

 

(a) The three months ended March 31, 2020 primarily represents the completion of the sale of our shallow legacy assets in Northwest Pennsylvania.

Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying consolidated statements of operations.

14


(11) 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, three-way 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 $256.0 million at March 31, 2020. These contracts expire monthly through December 2021. The following table sets forth our commodity-based derivative volumes by year as of March 31, 2020, excluding our basis and freight swaps which are discussed separately below:

 

Period

  

Contract Type

  

Volume Hedged

  

Weighted Average Hedge Price

 

 

 

 

 

 

Swap

 

Sold Put