10-Q 1 rrc-10q_20140331.htm 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

þ

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

For the quarterly period ended March 31, 2014

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)

Registrant’s telephone number, including area code

(817) 870-2601

 

Former Name, Former Address and Former Fiscal Year, if changed since last report: Not applicable

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  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).

    Yes  þ    No  ¨

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

 

Large Accelerated Filer

 

þ

  

Accelerated Filer

 

¨

 

 

 

 

Non-Accelerated Filer

 

¨  (Do not check if smaller reporting company)

  

Smaller Reporting Company

 

¨

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

    Yes  ¨    No  þ

163,879,524 Common Shares were outstanding on April 25, 2014

 

 

 

 

 


RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended March 31, 2014

Unless the context otherwise indicates, all references in this report to “Range,” “we,” “us,” or “our” are to Range Resources Corporation and its wholly-owned subsidiaries and its ownership interests in equity method investees.

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION 

  

 

ITEM 1.

 

Financial Statements:

  

3

 

 

Consolidated Balance Sheets (Unaudited)

  

3

 

 

Consolidated Statements of Operations (Unaudited)

  

4

 

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

  

5

 

 

Consolidated Statements of Cash Flows (Unaudited)

  

6

 

 

Selected Notes to Consolidated Financial Statements (Unaudited)

  

7

ITEM 2.

 

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

  

14

ITEM 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

14

ITEM 4.

 

Controls and Procedures

  

14

PART II – OTHER INFORMATION

  

 

ITEM 1.

 

Legal Proceedings

  

14

ITEM 1A.

 

Risk Factors

  

14

ITEM 6.

 

Exhibits

  

14

 

 

 

 

 

SIGNATURES

  

14

 

 

 

2


PART I – FINANCIAL INFORMATION

ITEM 1.

Financial Statements

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

March 31,

 

 

December 31,

 

 

2014

 

 

2013

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

246

 

 

$

348

 

     Accounts receivable, less allowance for doubtful accounts of $2,487 and $2,494

 

221,304

 

 

 

179,667

 

Derivative assets

 

80

 

 

 

4,421

 

Deferred tax asset

 

40,362

 

 

 

51,414

 

Inventory and other

 

17,353

 

 

 

12,451

 

Total current assets

 

279,345

 

 

 

248,301

 

Derivative assets

 

15,917

 

 

 

9,233

 

Equity method investments

 

123,791

 

 

 

129,034

 

Natural gas and oil properties, successful efforts method

 

9,309,743

 

 

 

9,032,881

 

Accumulated depletion and depreciation

 

(2,397,089

)

 

 

(2,274,444

)

 

 

6,912,654

 

 

 

6,758,437

 

Transportation and field assets

 

120,036

 

 

 

118,625

 

Accumulated depreciation and amortization

 

(87,955

)

 

 

(85,841

)

 

 

32,081

 

 

 

32,784

 

Other assets

 

118,987

 

 

 

121,297

 

Total assets

$

7,482,775

 

 

$

7,299,086

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

273,756

 

 

$

258,431

 

Asset retirement obligations

 

5,037

 

 

 

5,037

 

Accrued liabilities

 

164,585

 

 

 

161,520

 

Accrued interest

 

32,303

 

 

 

44,375

 

Derivative liabilities

 

72,854

 

 

 

26,198

 

Total current liabilities

 

548,535

 

 

 

495,561

 

Bank debt

 

594,000

 

 

 

500,000

 

Subordinated notes

 

2,640,866

 

 

 

2,640,516

 

Deferred tax liability

 

778,955

 

 

 

771,980

 

Derivative liabilities

 

142

 

 

25

 

Deferred compensation liability

 

235,307

 

 

 

247,537

 

Asset retirement obligations and other liabilities

 

235,289

 

 

 

229,015

 

Total liabilities

 

5,033,094

 

 

 

4,884,634

 

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, 163,763,190 issued at

     March 31, 2014 and 163,441,414 issued at December 31, 2013

 

1,638

 

 

 

1,634

 

Common stock held in treasury, 93,275 shares at March 31, 2014 and 98,520 shares

   at December 31, 2013

 

(3,455

)

 

 

(3,637

)

Additional paid-in capital

 

1,969,948

 

 

 

1,959,636

 

Retained earnings

 

476,554

 

 

 

450,583

 

Accumulated other comprehensive income

 

4,996

 

 

 

6,236

 

Total stockholders’ equity

 

2,449,681

 

 

 

2,414,452

 

Total liabilities and stockholders’ equity

$

7,482,775

 

 

$

7,299,086

 

 

See accompanying notes.

 

 

3


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

 

 

Three Months Ended

 

 

March 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

572,017

 

 

$

398,239

 

Derivative fair value loss

 

(146,850

)

 

 

(99,875

)

Loss on the sale of assets

 

(353

)

 

 

(166

)

Brokered natural gas, marketing and other

 

32,528

 

 

 

21,041

 

Total revenues and other income

 

457,342

 

 

 

319,239

 

Costs and expenses:

 

 

 

 

 

 

 

Direct operating

 

39,795

 

 

 

30,188

 

Transportation, gathering and compression

 

74,161

 

 

 

62,416

 

Production and ad valorem taxes

 

11,678

 

 

 

11,383

 

Brokered natural gas and marketing

 

34,129

 

 

 

22,315

 

Exploration

 

14,846

 

 

 

16,780

 

Abandonment and impairment of unproved properties

 

9,995

 

 

 

15,218

 

General and administrative

 

49,212

 

 

 

84,058

 

Deferred compensation plan

 

(2,035

)

 

 

42,360

 

Interest expense

 

45,401

 

 

 

42,210

 

Depletion, depreciation and amortization

 

128,682

 

 

 

115,101

 

Total costs and expenses

 

405,864

 

 

 

442,029

 

Income (loss) from operations before income taxes

 

51,478

 

 

 

(122,790

)

Income tax expense (benefit)

 

 

 

 

 

 

 

Current

 

6

 

 

25

 

Deferred

 

18,951

 

 

 

(47,205

)

 

 

18,957

 

 

 

(47,180

)

Net income (loss)

$

32,521

 

 

$

(75,610

)

Net income (loss) per common share:

 

 

 

 

 

 

 

Basic

$

0.20

 

 

$

(0.47

)

Diluted

$

0.20

 

 

$

(0.47

)

Dividends paid per common share

$

0.04

 

 

$

0.04

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

160,794

 

 

 

160,125

 

Diluted

 

161,825

 

 

 

160,125

 

 

 

 

 

See accompanying notes.

 

 

4


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Net income (loss)

$

32,521

 

 

$

(75,610

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Realized loss (gain) on hedge derivative contract settlements reclassified into

   natural gas, NGLs and oil sales from other comprehensive income, net of taxes (1)

 

 

 

(14,840

)

De-designated hedges reclassified into natural gas, NGLs and oil sales, net of taxes (2)

 

(1,240

)

 

 

(7,425

)

De-designated hedges reclassified to derivative fair value income, net of taxes (3)

 

 

 

(1,390

)

Change in unrealized deferred hedging (losses) gains, net of taxes (4)

 

 

 

(4,203

)

Total comprehensive income (loss)

$

31,281

 

 

$

(103,468

)

 

(1) 

Amounts are net of income tax benefit of $9,488 for the three months ended March 31, 2013.

(2) 

Amounts are net of income tax benefit of $924 for the three months ended March 31, 2014 and $4,747 for the three months ended March 31, 2013.

(3) 

Amounts relate to transactions not probable of occurring and are presented net of income tax benefit of $889 for the three months ended March 31, 2013.

(4) 

Amounts are net of income tax benefit of $2,687 for the three months ended March 31, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

5


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

32,521

 

 

$

(75,610

)

Adjustments to reconcile net income (loss) to net cash provided from operating activities:

 

 

 

 

 

 

 

Loss from equity method investments, net of distributions

 

2,732

 

 

 

610

 

Deferred income tax expense (benefit)

 

18,951

 

 

 

(47,205

)

Depletion, depreciation and amortization

 

128,682

 

 

 

115,101

 

Exploration dry hole costs

 

1

 

 

 

(159

)

Abandonment and impairment of unproved properties

 

9,995

 

 

 

15,218

 

Derivative fair value loss

 

146,850

 

 

 

99,875

 

Cash settlements on derivative financial instruments that do not qualify for hedge

   accounting

 

(104,584

)

 

 

382

 

Amortization of deferred financing costs and other

 

2,873

 

 

 

2,080

 

Deferred and stock-based compensation

 

12,593

 

 

 

54,991

 

Loss on the sale of assets

 

353

 

 

 

166

 

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

(41,643

)

 

 

1,292

 

Inventory and other

 

(5,358

)

 

 

166

 

Accounts payable

 

9,997

 

 

 

17,061

 

Accrued liabilities and other

 

(32,742

)

 

 

17,281

 

Net cash provided from operating activities

 

181,221

 

 

 

201,249

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(226,331

)

 

 

(259,601

)

Additions to field service assets

 

(3,084

)

 

 

(1,071

)

Acreage purchases

 

(50,690

)

 

 

(8,794

)

Equity method investments

 

2,511

 

 

 

1,885

 

Proceeds from disposal of assets

 

294

 

 

 

38,196

 

Purchases of marketable securities held by the deferred compensation plan

 

(8,247

)

 

 

(17,936

)

Proceeds from the sales of marketable securities held by the deferred compensation plan

 

9,310

 

 

 

6,316

 

Net cash used in investing activities

 

(276,237

)

 

 

(241,005

)

Financing activities:

 

 

 

 

 

 

 

Borrowing on credit facilities

 

412,000

 

 

 

368,000

 

Repayment on credit facilities

 

(318,000

)

 

 

(1,060,000

)

Issuance of subordinated notes

 

 

 

 

750,000

 

Dividends paid

 

(6,550

)

 

 

(6,521

)

Debt issuance costs

 

 

 

 

(12,098

)

Issuance of common stock

 

 

 

 

343

 

Change in cash overdrafts

 

(1,122

)

 

 

(12,458

)

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

 

8,586

 

 

 

12,432

 

Net cash provided from financing activities

 

94,914

 

 

 

39,698

 

Decrease in cash and cash equivalents

 

(102

)

 

 

(58

)

Cash and cash equivalents at beginning of period

 

348

 

 

 

252

 

Cash and cash equivalents at end of period

$

246

 

 

$

194

 

 

 

 

See accompanying notes.

 

 

6


RANGE RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(1) SUMMARY OF ORGANIZATION AND NATURE OF BUSINESS

Range Resources Corporation (“Range,” “we,” “us,” or “our”) 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 Southwestern regions of the United States. Our objective is to build stockholder value through consistent growth in 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

Presentation

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Range Resources Corporation 2013 Annual Report on Form 10-K filed on February 26, 2014. The results of operations for the first quarter ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for fair presentation of the results for the periods presented. 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 Securities and Exchange Commission (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. Certain reclassifications have been made to prior years reported amounts in order to conform with the current year presentation including reclassifications between accounts payable and accrued liabilities within cash flow from operating activities and a change in the presentation for our derivative activities. These reclassifications have no impact on previously reported net income, stockholders’ equity or cash flows.

De-designation of Commodity Derivative Contracts

Effective March 1, 2013, we elected to discontinue hedge accounting prospectively. After March 1, 2013, both realized and unrealized gains and losses are recognized in derivative fair value income or loss immediately each quarter as derivative contracts are settled and marked to market. For additional information, see Note 11.

 

7


(3) NEW ACCOUNTING STANDARDS

Recently Adopted

In February 2013, an accounting standards update was issued to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations such as asset retirement and environmental obligations, contingencies, guarantees, income taxes and retirement benefits, which are separately addressed within U.S. GAAP. An entity is required to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of (1) the amount the entity agreed to pay on the basis of its arrangement among its co-obligors and (2) any amount the entity expects to pay on behalf of its co-obligors. Disclosure of the nature of the obligation, including how the liability arose, the relationship with other co-obligors and the terms and conditions of the arrangement is required. In addition, the total outstanding amount under the arrangement, not reduced by the effect of any amounts that may be recoverable from other entities, plus the carrying amount of any liability or receivable recognized must be disclosed. This accounting standards update is effective for us beginning in first quarter 2014 and should be applied retrospectively for those in-scope obligations resulting from joint and several liability arrangements that exist at the beginning of 2014. Early adoption was permitted and we adopted this new standard in first quarter 2014 which did not have an impact on our consolidated results of operations, financial position or cash flows.

In April 2014, an accounting standards update was issued that raised the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other material disposal transactions that do not meet the revised definition of a discontinued operations. Under the updated standard, a disposal of a component or group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component or group of components of the entity (1) has been disposed of by a sale, (2) has been disposed of other than by sale or (3) is classified as held for sale. This accounting standards update is effective for annual periods beginning on or after December 15, 2014 and is applied prospectively. Early adoption is permitted but only for disposals (or classifications that are held for sale) that have not been reported in financial statements previously issued or available for use. We adopted this new standard in first quarter 2014. There was no impact to our consolidated results of operations, financial position or cash flows as there were no disposals or assets held for sale in first quarter 2014.

 

(4) DISPOSITIONS

2014 Dispositions

In December 2013, we announced our plan to offer for sale certain of our properties in the Permian Basin. These properties included approximately 90,000 (70,000 net) acres, almost all of which are held by production in Glasscock and Sterling Counties and are currently producing approximately 28 Mmcfe per day. The data room opened in January 2014 and we received bids in late February. In late April, an agreement related to this transaction was executed, subject to board approval. The completion of this transaction is dependent upon continuing due diligence procedures and there can be no assurance the transaction will be completed. In first quarter 2014, we also sold miscellaneous unproved and proved properties for proceeds of $294,000 resulting in a pre-tax loss of $353,000.

     2013 Dispositions

In first quarter 2013, we sold miscellaneous proved properties and inventory for proceeds of $38.2 million resulting in a pre-tax loss of $166,000.

 

(5) INCOME TAXES

Income tax expense (benefit) from operations was as follows (in thousands):

 

 

  

Three Months Ended
March 31,

 

 

  

2014

 

  

2013

 

Income tax expense (benefit)

  

$

18,957

 

  

$

(47,180

Effective tax rate

  

 

36.8

%

  

 

38.4

We compute our quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to our year-to-date income, except for discrete items. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For first quarter ended March 31, 2014 and 2013, our overall effective tax rate on operations was different than the federal statutory rate of 35% due primarily to state income taxes, valuation allowances and other permanent differences.

8


 

(6) 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 stockholders 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 tables set 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,

 

 

 

 

2014

 

 

 

2013

 

Net income (loss), as reported

  

$

32,521

  

  

$

(75,610

Participating basic earnings (a)

  

 

 (560

  

 

(109

Basic net income (loss) attributed to common shareholders

  

 

 31,961

 

  

 

(75,719

Reallocation of participating earnings (a)

  

 

 3

 

  

 

  

Diluted net income (loss) attributed to common shareholders

  

$

31,964

  

  

$

(75,719

Net income (loss) per common share:

  

 

 

 

  

 

 

 

Basic

  

$

0.20

  

  

$

(0.47

Diluted

  

$

 0.20

  

  

$

(0.47

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

 

 

  

Three Months Ended
March 31,

 

 

  

2014

 

  

2013

 

Denominator:

  

 

 

 

  

 

 

 

Weighted average common shares outstanding – basic

  

 

160,794

 

  

 

160,125

  

Effect of dilutive securities:

  

 

 

 

  

 

 

 

Director and employee stock options and SARs

  

 

1,031

 

  

 

  

Weighted average common shares outstanding – diluted

  

 

161,825

 

  

 

160,125

  

Weighted average common shares – basic for the three months ended March 31, 2014 excludes 2.8 million shares and the three months ended March 31, 2013 excludes 2.7 million shares of restricted stock held in our deferred compensation plans (although all awards are issued and outstanding upon grant). Due to our loss from continuing operations for the three months ended March 31, 2013, we excluded all outstanding stock appreciation rights (“SARs”) and restricted stock from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations.

 

9


(7) 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 presented 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. The following table reflects the changes in capitalized exploratory well costs for the three months ended March 31, 2014 and the year ended December 31, 2013 (in thousands except for number of projects):

 

 

  

March 31,
2014

 

  

December 31,
2013

 

Balance at beginning of period

  

$

6,964

  

  

$

57,360

  

Additions to capitalized exploratory well costs pending the determination of proved reserves

  

 

 5,552

 

  

 

39,832

  

Reclassifications to wells, facilities and equipment based on determination of proved reserves

  

 

 

 

  

 

(84,840

Capitalized exploratory well costs charged to expense

  

 

 

 

  

 

  

Divested wells

  

 

  

  

 

(5,388

Balance at end of period

  

 

 12,516

 

  

 

6,964

  

Less exploratory well costs that have been capitalized for a period of one year or less

  

 

 (5,552

  

 

  

Capitalized exploratory well costs that have been capitalized for a period greater than one year

  

$

6,964

  

  

$

6,964

  

Number of projects that have exploratory well costs that have been capitalized for a period greater than one year

  

 

1

 

  

 

1

  

As of March 31, 2014, $7.0 million of capitalized exploratory well costs have been capitalized for more than one year which relates to one well in our Marcellus Shale area where we are evaluating pipeline options. The following table provides an aging of capitalized exploratory well costs that have been suspended for more than one year as of March 31, 2014 (in thousands):

 

 

  

Total

 

  

2013

 

  

2012

 

  

2011

 

Capitalized exploratory well costs that have been capitalized for more than one year

  

$

6,964

  

  

$

110

  

  

$

6,801

  

  

$

53

  

 

 

(8) INDEBTEDNESS

We had the following debt outstanding as of the dates shown below (bank debt interest rate at March 31, 2014 is shown parenthetically) (in thousands). No interest was capitalized during the three months ended March 31, 2014 or the year ended December 31, 2013:

 

 

  

March 31,
2014

 

  

December 31,
2013

 

Bank debt (1.9%)

  

$

594,000

  

  

$

500,000

  

Senior subordinated notes:

  

 

 

 

  

 

 

 

8.00% senior subordinated notes due 2019, net of $9,134 and $9,484 discount, respectively

  

 

 290,866

 

  

 

290,516

  

6.75% senior subordinated notes due 2020

  

 

 500,000

 

  

 

500,000

  

5.75% senior subordinated notes due 2021

  

 

 500,000

 

  

 

500,000

  

5.00% senior subordinated notes due 2022

  

 

 600,000

 

  

 

600,000

  

5.00% senior subordinated notes due 2023

  

 

 750,000

 

  

 

750,000

  

Total debt

  

$

 3,234,866

  

  

$

3,140,516

  

Bank Debt

In February 2011, 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. The bank credit facility provides for an initial commitment equal to the lesser of the facility amount or the borrowing base. On March 31, 2014, the facility amount was $1.75 billion and the borrowing base was $2.0 billion. The bank credit facility provides for a borrowing base subject to redeterminations semi-annually and for event-driven unscheduled redeterminations. As part of our semi-annual bank review completed on April 3, 2014, our borrowing base was reaffirmed at $2.0 billion and our facility amount was also reaffirmed at $1.75 billion. Our current bank group is composed

10


of twenty-eight financial institutions with no one bank holding more than 9% of the total facility. The bank credit facility amount may be increased to the borrowing base amount with twenty days’ notice, subject to the banks agreeing to participate in the facility increase and our payment of a mutually acceptable commitment fee to those banks. As of March 31, 2014, the outstanding balance under our bank credit facility was $594.0 million. Additionally, we had $127.4 million of undrawn letters of credit leaving $1.0 billion of borrowing capacity available under the facility. The bank credit facility matures on February 18, 2016. Borrowings under the bank credit facility can either be at the Alternate Base Rate (as defined in the bank credit facility) plus a spread ranging from 0.50% to 1.5% or LIBOR borrowings at the Adjusted LIBO Rate (as defined in the bank credit facility) plus a spread ranging from 1.5% to 2.5%. 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 2.0% for the three months ended March 31, 2014 compared to 2.1% for the three months ended March 31, 2013. A commitment fee is paid on the undrawn balance based on an annual rate of 0.35% to 0.50%. At March 31, 2014, the commitment fee was 0.375% and the interest rate margin was 1.75% on our LIBOR loans and 0.75% on our base rate loans.

Senior Subordinated Notes

If we experience a change of control, bondholders may require us to repurchase all or a portion of all of our 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 will be subordinated to future senior debt that we or our subsidiary guarantors are permitted to incur under the bank credit facility and the indentures governing the subordinated notes.

Guarantees

Range Resources Corporation is a holding company which owns no operating assets and has no significant operations independent of its subsidiaries. The guarantees by our subsidiaries of our senior subordinated notes 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 and Maturity

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 investments. In addition, we are required to maintain a ratio of debt to EBITDAX (as defined in the credit agreement) of no greater than 4.25 to 1.0 and a current ratio (as defined in the credit agreement) of no less than 1.0 to 1.0. We are in compliance with our covenants under the bank credit facility at March 31, 2014.

The indentures governing our senior subordinated notes contain various restrictive covenants that are substantially identical to each other and may limit our ability to, among other things, pay cash dividends, incur additional indebtedness, sell assets, enter into transactions with affiliates, or change the nature of our business. At March 31, 2014, we are in compliance with these covenants.

 

11


(9) 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 life. 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, 2014 is as follows (in thousands):

 

  

Three Months
Ended
March 31, 2014

 

Beginning of period

  

$

230,077

  

Liabilities incurred

  

 

2,128

 

Liabilities settled

  

 

(384

)

Disposition of wells

  

 

(122

)

Accretion expense

  

 

3,707

 

Change in estimate

  

 

1,089

 

End of period

  

 

 236,495

 

Less current portion

  

 

(5,037

)

Long-term asset retirement obligations

  

$

 231,458

 

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

 

(10) 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 2013:

 

 

  

Three Months
Ended
March 31,
2014

 

  

Year
Ended
December 31,
2013

 

Beginning balance

  

 

163,342,894

  

  

 

162,514,098

  

SARs exercised

  

 

48,280

 

  

 

278,916

  

Restricted stock granted

  

 

74,553

 

  

 

401,122

  

Restricted stock units vested

  

 

198,943

 

  

 

119,480

  

Treasury shares issued

  

 

 5,245

 

  

 

29,278

  

Ending balance

  

 

 163,669,915

 

  

 

163,342,894

  

 

 

12


(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 do not utilize complex derivatives as we typically utilize commodity swaps or collars 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”), approximated a net unrealized pre-tax loss of $53.4 million at March 31, 2014. These contracts expire monthly through December 2016. The following table sets forth our derivative volumes by year as of March 31, 2014:

 

Period

  

Contract Type

  

Volume Hedged

  

Weighted
Average Hedge Price

Natural Gas

  

 

  

 

  

 

2014

  

Collars

  

447,500 Mmbtu/day

  

$ 3.84–$ 4.48

2015

  

Collars

  

145,000 Mmbtu/day

  

$ 4.07–$ 4.56

2014

  

Swaps

  

240,145 Mmbtu/day

  

$ 4.18

2015

  

Swaps

  

234,966 Mmbtu/day

  

$ 4.19

2016

  

Swaps

  

60,000 Mmbtu/day

  

$ 4.18

 

 

 

 

 

 

 

Crude Oil

  

 

  

 

  

 

2014

  

Collars

  

2,000 bbls/day

  

$ 85.55–$ 100.00

2014

  

Swaps

  

9,169 bbls/day

  

$ 94.40

2015

  

Swaps

  

6,000 bbls day

  

$ 89.48

 

 

 

 

 

 

 

NGLs (C3-Propane)

  

 

  

 

  

 

2014

  

Swaps

  

12,000 bbls/day

  

$ 1.02/gallon

 

 

 

 

 

 

 

NGLs (NC4-Normal butane)

  

 

  

 

  

 

2014

  

Swaps

  

4,000 bbls/day

  

$ 1.34/gallon

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

  

 

  

 

  

 

2014

  

Swaps

  

1,000 bbls/day

  

$ 2.11/gallon

Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. Through February 28, 2013, changes in the fair value of our derivatives that qualified for hedge accounting were recorded as a component of accumulated other comprehensive income (“ AOCI”) in the stockholders’ equity section of the accompanying consolidated balance sheets, which is later transferred to natural gas, NGLs and oil sales when the underlying physical transaction occurs and the hedging contract is settled. As of March 31, 2014, an unrealized pre-tax derivative gain of $8.1 million ($5.0 million after tax) was recorded in AOCI. See additional discussion below regarding the discontinuance of hedge accounting. If the derivative does not qualify as a hedge or is not designated as a hedge, changes in fair value of these non-hedge derivatives are recognized in earnings in derivative fair value income or loss.

For those derivative instruments that qualified or were designated for hedge accounting, settled transaction gains and losses were determined monthly, and were included as increases or decreases to natural gas, NGLs and oil sales in the period the hedged production was sold. Through February 28, 2013, we had elected to designate our commodity derivative instruments that qualified for hedge accounting as cash flow hedges. Natural gas, NGLs and oil sales include $2.2 million of gains in first quarter 2014 compared to gains of $36.5 million in the same period of 2013 related to settled hedging transactions. Any ineffectiveness associated with these hedge derivatives is reflected in derivative fair value income or loss in the accompanying statements of operations. The ineffective portion is generally calculated as the difference between the changes in fair value of the derivative and the estimated change in future cash flows from the item hedged. Derivative fair value loss for the three months ended March 31, 2014 includes no ineffective gains or losses compared to a loss of $2.9 million in the three months ended March 31, 2013. During the three months ended March 31, 2013, we recognized a pre-tax gain of $2.3 million in derivative fair value loss as a result of the discontinuance of hedge accounting where we determined the transaction was probable not to occur primarily due to the sale of our Delaware and Permian Basin properties in New Mexico and West Texas.

Discontinuance of Hedge Accounting

Effective March 1, 2013, we elected to de-designate all commodity contracts that were previously designated as cash flow hedges and elected to discontinue hedge accounting prospectively. AOCI included $103.6 million ($63.2 million after tax) of unrealized net gains, representing the marked-to-market value of the effective portion of our cash flow hedges as of February 28, 2013. As a result of discontinuing hedge accounting, the marked-to-market values included in AOCI as of the de-designation date were frozen and will be reclassified into earnings in natural gas, NGLs and oil sales in future periods as the underlying hedged

13


transactions occur. As of March 31, 2014, we expect to reclassify into earnings $8.1 million of unrealized net gains in the remaining months of 2014.

With the election to de-designate hedging instruments, all of our derivative instruments continue to be recorded at fair value with unrealized gains and losses recognized immediately in earnings rather than in AOCI. These marked-to-market adjustments will produce a degree of earnings volatility that can be significant from period to period, but such adjustments will have no cash flow impact relative to changes in market prices. The impact to cash flow occurs upon settlement of the underlying contract.

Basis Swap Contracts

At March 31, 2014, we had natural gas basis swap contracts that are not designated for hedge accounting, which lock in the differential between NYMEX and certain of our physical pricing options in Appalachia. These contracts are for 254,164 Mmbtu/day and settle monthly through March 2015. The fair value of these contracts was a loss of $3.7 million on March 31, 2014.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of March 31, 2014 and December 31, 2013 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):

 

 

  

March 31, 2014

 

 

 

  

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

  

$

8,347

  

  

$

— 

  

  

$

8,347

  

 

–collars

  

 

7,328

 

  

 

(584

  

 

6,744

 

 

–basis swaps

 

 

3,123

 

 

 

(3,123

)

 

 

 

 

Crude oil

–swaps

  

 

 1,179

 

  

 

 (273

  

 

 906

 

NGLs

–C3 swaps

  

 

1,877

 

  

 

 (1,877

  

 

 

 

–C4 swaps

  

 

3,159

 

  

 

 (3,159

  

 

 

 

 

  

$

25,013

  

  

$

(9,016

)  

  

$

15,997

 

 

 

 

  

March 31, 2014

 

 

 

  

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

  

$

(27,720

)  

  

$

  

  

$

(27,720

)

 

–collars

  

 

(26,738

  

 

584

 

  

 

(26,154

)

 

–basis swaps

 

 

(6,762

)

 

 

3,123

 

 

 

(3,639

)

Crude oil

–swaps

  

 

 (10,027

  

 

273

 

  

 

(9,754

)

 

–collars

  

 

 (972

  

 

 —

 

  

 

(972

)

NGLs

–C3 swaps

  

 

(9,692

)

  

 

1,877

 

  

 

(7,815

)

 

–C4 swaps

  

 

 

  

 

3,159

 

  

 

 3,159

 

 

–C5 swaps

  

 

(101

)

  

 

 

  

 

(101

)

 

 

  

$

(82,012

  

$

9,016

 

  

$

(72,996

)

14


 

 

 

  

December 31, 2013

 

 

 

  

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

  

$

4,240

  

 

$

(1,218

 

$

3,022

 

 

–collars

  

 

16,057

  

 

 

(7,671

 

 

8,386

 

 

–basis swaps

  

 

7,686

  

 

 

(7,686

 

 

 

Crude oil

–swaps

  

 

3,567

  

 

 

(1,321

 

 

2,246

 

NGLs

–C3 swaps

  

 

826

  

 

 

(826

 

 

 

 

–C4 swaps

  

 

863

  

 

 

(863

 

 

 

 

–C5 swaps

  

 

121

  

 

 

(121

 

 

 

 

 

  

$

33,360

  

 

$

(19,706

 

$

13,654

 

 

 

 

  

December 31, 2013

 

 

 

  

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

  

$

(4,790

 

$

1,218

  

 

$

(3,572

)

 

–collars

  

 

(13,345

 

 

7,671

  

 

 

(5,674

)

 

–basis swaps

  

 

(3,756

 

 

7,686

  

 

 

3,930

  

Crude oil

–swaps

  

 

(4,711

 

 

1,321

  

 

 

(3,390

)

 

–collars

  

 

(398

 

 

  

 

 

(398

)

NGLs

–C3 swaps

  

 

(18,172

 

 

826

  

 

 

(17,346

)

 

–C4 swaps

  

 

(757

 

 

863

  

 

 

106

  

 

–C5 swaps

  

 

  

 

 

121

  

 

 

121

  

 

 

  

$

(45,929

 

$

19,706

  

 

$

(26,223

)

The effects of our cash flow hedges (or those derivatives that previously qualified for hedge accounting) on AOCI in the accompanying consolidated balance sheets is summarized below (in thousands):

 

 

  

Three Months Ended March 31,

 

 

  

Change in Hedge
Derivative Fair Value

 

 

Realized Gain (Loss)
Reclassified from OCI
into Revenue
(a)

 

 

  

2014

 

  

2013

 

 

2014

 

  

2013

 

Swaps

  

$

 —

  

  

$

125

 

 

$

836

  

  

$

8,047

  

Collars

  

 

 

  

 

(7,015

 

 

 1,328

 

  

 

30,732

  

Income taxes

  

 

 —

 

  

 

2,687

  

 

 

(924

  

 

(15,124

)

 

  

$

 —

 

  

$

(4,203

 

$

1,240

  

  

$

23,655

  

(a) 

For realized gains upon derivative contract settlement, the reduction in AOCI is offset by an increase in revenues, NGLs and oil sales. For realized losses upon derivative contract settlement, the increase in AOCI is offset by a decrease in revenues. See additional discussion above regarding the discontinuance of hedge accounting.

The effects of our non-hedge derivatives (or those derivatives that do not qualify for hedge accounting) and the ineffective portion of our hedge derivatives on our consolidated statements of operations is summarized below (in thousands):

 

 

  

Three Months Ended March 31,

 

 

  

Gain (Loss) Recognized in
Income (Non-hedge Derivatives)

 

 

Gain (Loss) Recognized in
Income (Ineffective Portion)

 

 

Derivative Fair Value
Income (Loss)

 

 

  

2014

 

  

2013

 

 

2014

 

  

2013

 

 

2014

 

  

2013

 

Swaps

  

$

(44,073

)  

  

$

(43,076

 

$

 —

  

  

$

(1,995

 

$

(44,073

)  

  

$

(45,071

Re-purchased swaps

  

 

  

 

  

 

1,185

  

 

 

  

 

  

 

  

 

 

  

 

  

 

1,185

  

Collars

  

 

 (39,148

  

 

(55,003

 

 

  

 

  

 

(896

 

 

 (39,148

  

 

(55,899

Call options

  

 

(63,629

  

 

(90

 

 

  —

 

  

 

  

 

 

 (63,629

  

 

(90

Total

  

$

(146,850

)  

  

$

(96,984

 

$

 —

  

  

$

(2,891

 

$

(146,850

)  

  

$

(99,875

15


 

 

(12) 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 that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of 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.

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 March 31, 2014 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
March 31,
2014

 

Trading securities held in the deferred compensation plans

  

$

67,119

  

  

$

 —

  

 

$

 —

  

  

$

67,119

  

Derivatives swaps

  

 

  —

  

  

 

(32,979

 

 

 —

 

  

 

(32,979

                    –collars

 

 

 —

 

 

 

(20,381

)

 

 

 —

 

 

 

(20,381

)

                    –basis swaps

  

 

  —

 

  

 

 (3,611

 

 

(28

  

 

 (3,639

 

 

  

Fair Value Measurements at December 31, 2013 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,
2013

 

Trading securities held in the deferred compensation plans

  

$

67,766

  

  

$

  

 

$

  

  

$

67,766

  

Derivatives swaps

  

 

 —

 

  

 

(18,812

 

 

  

  

 

(18,812

                    –collars

  

 

 —

 

  

 

2,314

  

 

 

  

  

 

2,314

  

                    –basis swaps

  

 

 —

 

  

 

3,381