10-Q 1 rrc-10q_20150331.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, 2015

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

169,072,268 Common Shares were outstanding on April 27, 2015

 

 

 

 

 


RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended March 31, 2015

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

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION 

  

 

ITEM 1.

 

Financial Statements

  

3

 

 

   Consolidated Balance Sheets (Unaudited)

  

3

 

 

   Consolidated Statements of Income (Unaudited)

  

4

 

 

   Consolidated Statements of Comprehensive Income (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

  

21

ITEM 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

32

ITEM 4.

 

Controls and Procedures

  

34

PART II – OTHER INFORMATION

  

 

ITEM 1.

 

Legal Proceedings

  

35

ITEM 1A.

 

Risk Factors

  

35

ITEM 6.

 

Exhibits

  

35

 

 

 

 

 

SIGNATURES

  

36

 

 

 

2


PART I – FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

 

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

519

 

 

$

448

 

      Accounts receivable, less allowance for doubtful accounts of $2,982 and $2,719

 

134,261

 

 

 

188,941

 

Derivative assets

 

358,544

 

 

 

363,049

 

Inventory and other

 

17,315

 

 

 

17,854

 

Total current assets

 

510,639

 

 

 

570,292

 

Derivative assets

 

71,311

 

 

 

40,314

 

Natural gas and oil properties, successful efforts method

 

10,687,735

 

 

 

10,567,971

 

Accumulated depletion and depreciation

 

(2,581,753

)

 

 

(2,590,398

)

 

 

8,105,982

 

 

 

7,977,573

 

Other property and equipment

 

127,920

 

 

 

127,808

 

Accumulated depreciation and amortization

 

(92,942

)

 

 

(90,227

)

 

 

34,978

 

 

 

37,581

 

Other assets

 

121,977

 

 

 

121,020

 

Total assets

$

8,844,887

 

 

$

8,746,780

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

278,248

 

 

$

396,942

 

Asset retirement obligations

 

17,689

 

 

 

15,067

 

Accrued liabilities

 

170,034

 

 

 

187,973

 

Accrued interest

 

22,994

 

 

 

39,695

 

Derivative liabilities

 

1,142

 

 

 

Deferred tax liabilities

 

121,198

 

 

 

115,587

 

Total current liabilities

 

611,305

 

 

 

755,264

 

Bank debt

 

912,000

 

 

 

723,000

 

Subordinated notes

 

2,350,000

 

 

 

2,350,000

 

Deferred tax liabilities

 

1,014,250

 

 

 

997,494

 

Deferred compensation liabilities

 

173,134

 

 

 

178,599

 

Asset retirement obligations and other liabilities

 

294,742

 

 

 

284,994

 

Total liabilities

 

5,355,431

 

 

 

5,289,351

 

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, 168,996,100 issued at

     March 31, 2015 and 168,711,131 issued at December 31, 2014

 

1,690

 

 

 

1,687

 

Common stock held in treasury, 73,537 shares at March 31, 2015 and 82,954

     shares at December 31, 2014

 

(2,762

)

 

 

(3,088

)

Additional paid-in capital

 

2,411,248

 

 

 

2,400,475

 

Retained earnings

 

1,079,280

 

 

 

1,058,355

 

Total stockholders’ equity

 

3,489,456

 

 

 

3,457,429

 

Total liabilities and stockholders’ equity

$

8,844,887

 

 

$

8,746,780

 

 

 

See accompanying notes.

3


 

RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share data)

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

325,483

 

 

$

572,017

 

 

Derivative fair value income (loss)

 

122,839

 

 

 

(146,850

)

 

Loss on the sale of assets

 

(175

)

 

 

(353

)

 

Brokered natural gas, marketing and other

 

14,485

 

 

 

32,528

 

 

Total revenues and other income

 

462,632

 

 

 

457,342

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Direct operating

 

37,137

 

 

 

39,795

 

 

Transportation, gathering and compression

 

89,426

 

 

 

74,161

 

 

Production and ad valorem taxes

 

9,928

 

 

 

11,678

 

 

Brokered natural gas and marketing

 

21,562

 

 

 

34,129

 

 

Exploration

 

7,886

 

 

 

14,846

 

 

Abandonment and impairment of unproved properties

 

11,491

 

 

 

9,995

 

 

General and administrative

 

48,329

 

 

 

49,212

 

 

Termination costs

 

5,950

 

 

 

 

Deferred compensation plan

 

(5,624

)

 

 

(2,035

)

 

Interest

 

39,207

 

 

 

45,401

 

 

Depletion, depreciation and amortization

 

147,290

 

 

 

128,682

 

 

Total costs and expenses

 

412,582

 

 

 

405,864

 

 

Income before income taxes

 

50,050

 

 

 

51,478

 

 

Income tax expense:

 

 

 

 

 

 

 

 

Current

 

 

 

6

 

 

Deferred

 

22,366

 

 

 

18,951

 

 

 

 

22,366

 

 

 

18,957

 

 

Net income

$

27,684

 

 

$

32,521

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.20

 

 

Diluted

$

0.16

 

 

$

0.20

 

 

Dividends paid per common share

$

0.04

 

 

$

0.04

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

166,039

 

 

 

160,794

 

 

Diluted

 

166,066

 

 

 

161,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Net income

$

27,684

 

 

$

32,521

 

Other comprehensive income:

 

 

 

 

 

 

 

De-designated hedges reclassified into natural gas, NGLs and oil sales, net of taxes (1)

 

 

 

(1,240

)

Total comprehensive income

$

27,684

 

 

$

31,281

 

(1) Amounts are net of income tax benefit of $924 for the three months ended March 31, 2014. As of March 31, 2013, we elected to discontinue hedge accounting prospectively and as of December 31, 2014, all remaining accumulated other comprehensive income (“AOCI”) hedging gains had been transferred to earnings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

5


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net income

$

27,684

 

 

$

32,521

 

Adjustments to reconcile net income to net cash provided from operating activities:

 

 

 

 

 

 

 

Loss from equity method investments, net of distributions

 

 

 

2,732

 

Deferred income tax expense

 

22,366

 

 

 

18,951

 

Depletion, depreciation and amortization

 

147,290

 

 

 

128,682

 

Exploration dry hole costs

 

103

 

 

 

1

 

Abandonment and impairment of unproved properties

 

11,491

 

 

 

9,995

 

Derivative fair value (income) loss

 

(122,839

)

 

 

146,850

 

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

   accounting

 

97,490

 

 

 

(104,584

)

Allowance for bad debt

 

250

 

 

 

Amortization of deferred financing costs, loss on extinguishment of debt and other

 

1,358

 

 

 

2,873

 

Deferred and stock-based compensation

 

9,218

 

 

 

12,593

 

Loss on the sale of assets

 

175

 

 

 

353

 

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

54,435

 

 

 

(41,643

)

Inventory and other

 

(1,072

)

 

 

(5,358

)

Accounts payable

 

7,098

 

 

 

9,997

 

Accrued liabilities and other

 

(44,409

)

 

 

(32,742

)

Net cash provided from operating activities

 

210,638

 

 

 

181,221

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(357,780

)

 

 

(226,331

)

Additions to field service assets

 

(672

)

 

 

(3,084

)

Acreage purchases

 

(30,126

)

 

 

(50,690

)

Equity method investments

 

 

 

2,511

 

Proceeds from disposal of assets

 

10,660

 

 

 

294

 

Purchases of marketable securities held by the deferred compensation plan

 

(4,664

)

 

 

(8,247

)

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

 

4,922

 

 

 

9,310

 

Net cash used in investing activities

 

(377,660

)

 

 

(276,237

)

Financing activities:

 

 

 

 

 

 

 

Borrowing on credit facilities

 

542,000

 

 

 

412,000

 

Repayment on credit facilities

 

(353,000

)

 

 

(318,000

)

Debt issuance costs

 

(1,700

)

 

 

Dividends paid

 

(6,759

)

 

 

(6,550

)

Change in cash overdrafts

 

(15,341

)

 

 

(1,122

)

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

 

1,893

 

 

 

8,586

 

Net cash provided from financing activities

 

167,093

 

 

 

94,914

 

Increase (decrease) in cash and cash equivalents

 

71

 

 

 

(102

)

Cash and cash equivalents at beginning of period

 

448

 

 

 

348

 

Cash and cash equivalents at end of period

$

519

 

 

$

246

 

 

 

 

 

 

 

 

See accompanying notes.

 

6


RANGE RESOURCES CORPORATION

SELECTED 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 Midcontinent 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 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2015. The results of operations for first quarter 2015 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 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.

 

(3) NEW ACCOUNTING STANDARDS

Not Yet Adopted

In May 2014, an accounting standards update was issued for “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Topic 605, Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for us for the reporting period beginning January 1, 2017, with early application not permitted. Entities have the option of using either a full retrospective or modified approach to adopt the new standard. We are currently evaluating the new guidance and have not determined the impact this standard may have on our financial statements or decided upon the method of adoption.

In August 2014, the Financial Accounting Standards Board (“FASB”) issued an update that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in United States auditing standards. This standard is effective for us in first quarter 2017 and early adoption is permitted. We do not expect the adoption of this standard to have any impact on our consolidated results of operations, financial position or cash flows.

Recently Adopted

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 operation. 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 a sale or (3) is classified as held for sale. This accounting standards update was effective for annual periods beginning on or after December 15, 2014 and is applied prospectively. Early adoption was permitted but only for disposals (or classifications that are held for sale) that had not been reported in financial statements previously issued or available for use. We adopted this new standard in first quarter 2014 and, as a result, the Conger Exchange is not reported as a discontinued operation.

 

7


(4) ACQUISITIONS AND DISPOSITIONS

2015 Dispositions

In first quarter 2015, we sold miscellaneous unproved property, proved property and inventory for proceeds of $10.7 million resulting in a pre-tax loss of $175,000. Included in the $10.7 million of proceeds is $10.5 million received from the sale of West Texas properties which closed in February 2015.

2014 Dispositions

In first quarter 2014, we sold miscellaneous unproved and proved property for proceeds of $294,000 resulting in a pre-tax loss of $353,000.

Conger Exchange Transaction

In April 2014, we entered into an exchange agreement with EQT Corporation and certain of its affiliates (collectively, “EQT”) in which we sold our Conger assets in Glasscock and Sterling Counties, Texas in exchange for producing properties and gas gathering assets in Virginia and $145.0 million in cash, before closing adjustments. We closed the exchange transaction in June 2014 and recognized a pre-tax gain of $282.7 million. For the period from January 1, 2014 through March 31, 2014, we recognized $12.4 million of field net operating income (defined as natural gas, oil and NGLs sales and net brokered margin less direct operating expenses, production and ad valorem taxes and transportation expenses) for our Conger assets.

 

(5) INCOME TAXES

Income tax expense was as follows (in thousands):

 

 

Three Months Ended
March 31,

 

 

2015

 

 

2014

 

Income tax expense

$

22,366

 

 

$

18,957

 

Effective tax rate

 

44.7

%

 

 

36.8

%

 

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 2015 and 2014, our overall effective tax rate was different than the federal statutory rate of 35% due primarily to state income taxes, valuation allowances and other permanent differences. The first quarter 2015 includes $5.1 million income tax expense related to increases in our valuation allowances for state net operating loss carryforwards and an income tax benefit of $2.0 million adjusting our valuation allowance for our deferred tax asset related to future deferred compensation plan distributions of our senior executives.

 

(6) INCOME 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,

 

 

2015

 

 

2014

 

Net income, as reported

$

27,684

 

 

$

32,521

 

Participating earnings (a)

 

(463

)

 

 

(560

)

Basic net income attributed to common shareholders

 

27,221

 

 

 

31,961

 

Reallocation of participating earnings (a)

 

 

 

 

3

 

Diluted net income attributed to common shareholders

$

27,221

 

 

$

31,964

 

Net income per common share:

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.20

 

Diluted

$

0.16

 

 

$

0.20

 

(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.

8


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,

 

 

2015

 

 

2014

 

Weighted average common shares outstanding – basic

 

166,039

 

 

 

160,794

 

Effect of dilutive securities:

 

 

 

 

 

 

 

Director and employee stock options and SARs

 

27

 

 

 

1,031

 

Weighted average common shares outstanding – diluted

 

166,066

 

 

 

161,825

 

 

Weighted average common shares-basic for both the three months ended March 31, 2015 and 2014 excludes 2.8 million shares held in our deferred compensation plans (although all awards are issued and outstanding upon grant). Stock appreciation rights (“SARs”) of 1.4 million shares for the three months ended March 31, 2015, were outstanding but not included in the computations of diluted income per share because the grant prices of the SARs were greater than the average market price of the common stock. All SARs outstanding for the three months ended March 31, 2014 were included in the computations of diluted income per share because the grant prices of the SARs were less than the average market price of the common stock.

 

(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 income. We did not have any exploratory well costs that have been capitalized for a period greater than one year for each of the year ended December 31, 2014 and the three months ended March 31, 2015. The following table reflects the change in capitalized exploratory well costs for the three months ended March 31, 2015 and the year ended December 31, 2014 (in thousands):

 

 

 

March 31,

2015

 

 

 

December 31,

2014

 

Balance at beginning of period

$

2,996

 

 

$

6,964

 

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

 

9,017

 

 

 

18,747

 

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

 

¾

 

 

 

(15,735

)

Divested wells

 

¾

 

 

 

(6,980

)

Balance at end of period

 

12,013

 

 

 

2,996

 

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

 

(12,013

)

 

 

(2,996

)

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

$

¾

 

 

$

¾

 

 

    

(8) INDEBTEDNESS

We had the following debt outstanding as of the dates shown below (bank debt interest rate at March 31, 2015 is shown parenthetically). No interest was capitalized during the three months ended March 31, 2015 or the year ended December 31, 2014 (in thousands):

 

 

March 31,
2015

 

 

December 31,
2014

 

Bank debt (1.8%)

 

$

912,000

 

 

$

723,000

 

Senior subordinated notes:

 

 

 

 

 

 

 

 

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

 

$

3,262,000

 

 

$

3,073,000

 

9


Bank Debt

In October 2014, 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 October 16, 2019. The bank credit facility provides for a maximum facility amount of $4.0 billion. On March 31, 2015, the bank commitments were $2.0 billion. The bank credit facility provides for a borrowing base subject to redeterminations annually each May and for event-driven unscheduled redeterminations. As part of our annual redetermination completed on March 31, 2015, our borrowing base was reaffirmed at $3.0 billion and our bank commitment was also reaffirmed at $2.0 billion. As of March 31, 2015, our bank group was composed of twenty-nine financial institutions with no one bank holding more than 6% of the total facility. The bank credit facility amount may be increased to the committed borrowing base amount, 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, 2015, the outstanding balance under our bank credit facility was $912.0 million. Additionally, we had $108.0 million of undrawn letters of credit leaving $980.0 million 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 agreement) plus a spread ranging from 0.25% to 1.25% or LIBOR borrowings at the Adjusted LIBO Rate (as defined in the bank credit 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 1.8% for the three months ended March 31, 2015 compared to 2.0% for the three months ended March 31, 2014. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At March 31, 2015, the commitment fee was 0.30% and the interest rate margin was 1.50% on our LIBOR loans and 0.50% on our base rate loans.

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 LIBOR borrowings 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%.

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, which are directly or indirectly owned by Range, of our 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 credit agreement) to cash interest expense of equal to or greater than 2.5 and a current ratio (as defined in the credit 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 March 31, 2015.

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, 2015, we were in compliance with these covenants.

 

10


(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 lives. The inputs are calculated based on historical data as well as current estimated costs. In the first quarter 2015, we increased our estimated abandonment costs on certain of our water impoundments and changed well lives for certain wells in Pennsylvania. A reconciliation of our liability for plugging and abandonment costs for the three months ended March 31, 2015 is as follows (in thousands):

 

 

  

Three Months
Ended
March 31,

 2015

 

Beginning of period

  

$

287,463

  

Liabilities incurred

  

 

1,460

 

Liabilities settled

 

 

(3,257

)

Disposition of wells

 

 

(4,112

)

Accretion expense

  

 

4,723

 

Change in estimate

  

 

14,353

 

End of period

  

 

300,630

 

Less current portion

  

 

(17,689

)

Long-term asset retirement obligations

  

$

282,941

 

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

(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 2014:

 

 

 

Three Months
Ended
March 31,
2015

 

 

Year
Ended
December 31,
2014

 

Beginning balance

 

 

168,628,177

 

 

 

163,342,894

 

Equity offering

 

 

 

 

 

4,560,000

 

SARs exercised

 

 

5,364

 

 

 

195,242

 

Restricted stock grants

 

 

84,999

 

 

 

270,062

 

Restricted stock units vested

 

 

194,606

 

 

 

244,413

 

Treasury shares issued

 

 

9,417

 

 

 

15,566

 

Ending balance

 

 

168,922,563

 

 

 

168,628,177

 

 

11


(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”) for natural gas and oil or Mont Belvieu for NGLs, approximated a net unrealized pre-tax gain of $430.1 million at March 31, 2015. These contracts expire monthly through December 2017. The following table sets forth our commodity-based derivative volumes by year as of March 31, 2015, excluding our basis swaps which are discussed separately below:

Period

  

Contract Type

  

Volume Hedged

  

Weighted
Average Hedge Price

Natural Gas

  

 

  

 

  

 

2015

  

Collars

  

145,000 Mmbtu/day

  

$ 4.07–$ 4.56

2015

  

Swaps

  

730,809 Mmbtu/day

  

$ 3.64

2016

  

Swaps

  

622,500 Mmbtu/day

  

$ 3.42

2017

 

Swaps

 

20,000 Mmbtu/day

 

$ 3.49

 

 

 

 

 

 

 

Crude Oil

  

 

  

 

  

 

2015

  

Swaps

  

10,671 bbls day

  

$ 87.26

2016

 

Swaps

 

2,000 bbls/day

 

$ 75.35

 

 

 

 

 

 

 

NGLs (C3-Propane)

  

 

  

 

  

 

2015

 

Swaps

 

13,331 bbls/day

 

$ 0.61/gallon

2016

 

Swaps

 

5,500 bbls/day

 

$ 0.60/gallon

 

 

 

 

 

 

 

NGLs (NC4-Normal Butane)

  

 

  

 

  

 

2015

  

Swaps

  

3,500 bbls/day

  

$ 0.72/gallon

2016

 

Swaps

 

2,500 bbls/day

 

$ 0.72/gallon

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

  

 

  

 

  

 

2015

  

Swaps

  

3,335 bbls/day

  

$ 1.15/gallon

2016

 

Swaps

 

2,000 bbls/day

 

$ 1.21/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. 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 as derivative fair value income or loss.

Basis Swap Contracts

In addition to the collars and swaps above, at March 31, 2015, 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 indices primarily in Appalachia. These contracts settle monthly through March 2017 and the volumes are for 44,070,000 Mmbtu. The fair value of these contracts was a loss of $1.4 million on March 31, 2015.

12


Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of March 31, 2015 and December 31, 2014 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, 2015

 

 

 

  

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

  

$

242,156

 

  

$

 

  

$

242,156

  

 

–collars

 

 

51,439

 

 

 

 

 

 

51,439

 

 

–basis swaps

 

 

1,211

 

 

 

(1,487

)

 

 

(276

)

Crude oil

–swaps

  

 

113,693

 

  

 

 

  

 

113,693

 

NGLs

–C3 swaps

  

 

15,883

 

  

 

(1,448

)

  

 

14,435

 

 

–NC4 swaps

  

 

4,687

 

  

 

 

  

 

4,687

 

 

–C5 swaps

 

 

3,721

 

 

 

 

 

 

3,721

 

 

 

  

$

432,790

 

  

$

(2,935

)

  

$

429,855

 

 

 

 

  

March 31, 2015

 

 

 

  

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

–basis swaps

 

$

(2,629

)

 

$

1,487

 

 

$

(1,142

)

NGLs

–C3 swaps

  

 

(1,448

)

  

 

1,448

 

  

 

 

 

 

  

$

(4,077

)

  

$

2,935

 

  

$

(1,142

)

 

 

 

  

December 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

  

$

198,740

  

 

$

 

 

$

198,740

 

 

–collars

  

 

57,460

  

 

 

 

 

 

57,460

 

 

–basis swaps

  

 

2,442

  

 

 

(755

 

 

1,687

 

Crude oil

–swaps

  

 

128,578

  

 

 

 

 

 

128,578

 

NGLs

–C3 swaps

  

 

14,727

  

 

 

 

 

 

14,727

 

 

–C5 swaps

  

 

2,171

  

 

 

 

 

 

2,171

 

 

 

  

$

404,118

  

 

$

(755

)

 

$

403,363

 

 

 

 

  

December 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

–basis swaps

  

$

(755

 

$

755

  

 

$

 

 

 

  

$

(755

 

$

755

  

 

$

 

13


For the three months ended March 31, 2014, the effects of our cash flow hedges (or those derivatives that previously qualified for hedge accounting) on AOCI is summarized below (in thousands):

 

 

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

 

Swaps

 

$

836

 

Collars

 

 

1,328

 

Income taxes

 

 

(924

)

 

 

$

1,240

 

(a) 

For realized gains upon derivative contract settlement, the reduction in AOCI is offset by an increase in natural gas, NGLs and oil sales. For realized losses upon derivative contract settlement, the increase in AOCI is offset by a decrease in revenues.

The effects of our non-hedge derivatives (or those derivatives that do not qualify for hedge accounting) on our consolidated statements of income are summarized below (in thousands):

 

 

Three Months Ended March 31,

 

 

 

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

 

 

Derivative Fair Value
Income (Loss)

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Swaps

 

$

125,777

 

 

$

(44,073

)

 

$

125,777

 

 

$

(44,073

)

Collars

 

 

8,415

 

 

 

(39,148

)

 

 

8,415

 

 

 

(39,148

)

Basis swaps

 

 

(11,353

)

 

 

(63,629

)

 

 

(11,353

)

 

 

(63,629

)

Total

 

$

122,839

 

 

$

(146,850

)

 

$

122,839

 

 

$

(146,850

)

 

(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.

14


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, 2015 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,
2015

 

Trading securities held in the deferred compensation plans

 

$

69,360

 

 

$

 

 

$

 

 

$

69,360

 

Derivatives swaps

 

 

 

 

 

378,692

 

 

 

 

 

 

378,692

 

                    –collars

 

 

 —

 

 

 

51,439

 

 

 

 —

 

 

 

51,439

 

                    –basis swaps

  

 

  —

 

  

 

(1,418

)

 

 

 

 

  

 

(1,418

)

 

 

  

Fair Value Measurements at December 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
December 31,
2014

 

Trading securities held in the deferred compensation plans

  

$

68,454

  

  

$

  

 

$

  

  

$

68,454

  

Derivatives swaps

  

 

 —

 

  

 

344,216

 

 

 

  

  

 

344,216

 

                    –collars

  

 

 —

 

  

 

57,460

  

 

 

  

  

 

57,460

  

                    –basis swaps

  

 

 —

 

  

 

1,687

  

 

 

  

  

 

1,687

  

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.

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 statement of income. For first quarter 2015, interest and dividends were $109,000 and the mark-to-market adjustment was a gain of $1.4 million compared to interest and dividends of $274,000 and mark-to-market gain of $429,000 in first quarter 2014.

Fair Values—Reported

The following table presents the carrying amounts and the fair values of our financial instruments as of March 31, 2015 and December 31, 2014 (in thousands):

 

 

 

March 31, 2015

 

 

December 31, 2014

 

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity swaps, collars and basis swaps

 

$

429,855

 

 

$

429,855

 

 

$

403,363

 

 

$

403,363

 

Marketable securities(a)

 

 

69,360

 

 

 

69,360

 

 

 

68,454

 

 

 

68,454

 

(Liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity basis swaps

 

 

(1,142

)

 

 

(1,142

)

 

 

 

 

 

 

Bank credit facility(b)

 

 

(912,000

)

 

 

(912,000

)

 

 

(723,000

)

 

 

(723,000

)

Deferred compensation plan(c)

 

 

(196,161

)

 

 

(196,161

)

 

 

(203,433

)

 

 

(203,433

)

6.75% senior subordinated notes due 2020(b)

 

 

(500,000

)

 

 

(520,000

)

 

 

(500,000

)

 

 

(523,125

)

5.75% senior subordinated notes due 2021(b)

 

 

(500,000

)

 

 

(523,750

)

 

 

(500,000

)

 

 

(520,000

)

5.00% senior subordinated notes due 2022(b)

 

 

(600,000

)

 

 

(597,000

)

 

 

(600,000

)

 

 

(601,500

)

5.00% senior subordinated notes due 2023(b)

 

 

(750,000

)

 

 

(749,063

)

 

 

(750,000

)

 

 

(754,688

)

(a)

Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges. Refer to Note 13 for additional information.

(b)

The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior subordinated notes is based on end of period market quotes which are Level 2 inputs. Refer to Note 8 for additional information.

(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.

15


Our current assets and liabilities contain 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. For additional information, see Note 9.

Concentrations of Credit Risk

As of March 31, 2015, our primary concentrations of credit risk are the risks of not collecting accounts receivable and the risk of a counterparties’ 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 security are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectible receivables was $3.0 million at March 31, 2015 and $2.7 million at December 31, 2014. As of March 31, 2015, our derivative contracts consist of swaps and collars. Our exposure to credit risk is diversified 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 March 31, 2015, our derivative counterparties include seventeen financial institutions, of which all but two are secured lenders in our bank credit facility. At March 31, 2015, our net derivative assets include a net receivable from these two counterparties that are not included in our bank credit facility of $27.2 million.

 

(13) STOCK-BASED COMPENSATION PLANS

Stock-Based Awards

In 2005, we began granting SARs which represent the right to receive a payment equal to the excess of the fair market value of shares of common stock on the date the right is exercised over the value of the stock on the date of grant. All SARs granted under our Amended and Restated 2005 Equity-Based Incentive Compensation Plan (the “2005 Plan”) will be settled in shares of stock, vest over a three-year period and have a maximum term of five years from the date they are granted. Beginning in first quarter 2011, the Compensation Committee of the Board of Directors began granting restricted stock units under our equity-based stock compensation plans. These restricted stock units, which we refer to as restricted stock Equity Awards, vest over a three-year period. All awards granted have been issued at prevailing market prices at the time of grant and the vesting of these shares is based upon an employee’s continued employment with us.

In first quarter 2014, the Compensation Committee began granting performance share unit (“PSU”) awards under our 2005 Plan. The number of shares to be issued is determined by our total shareholder return compared to the total shareholder return of a predetermined group of peer companies over the performance period. The grant date fair value of the PSU awards is determined using a Monte Carlo simulation and is recognized as stock-based compensation expense over the three-year performance period. The actual payout of shares granted depends on our total shareholder return compared to our peer companies and will be between zero and 150%.

The Compensation Committee also grants restricted stock to certain employees and non-employee directors of the Board of Directors as part of their compensation. Upon grant of these restricted shares, which we refer to as restricted stock Liability Awards, the shares generally are placed in our deferred compensation plan and, upon vesting, employees are allowed to take withdrawals either in cash or in stock. 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 vesting is based upon an employee’s continued employment with us. Prior to vesting, all restricted stock awards have the right to vote such shares and receive dividends thereon. These Liability Awards are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market adjustment is reported as deferred compensation plan expense in the accompanying consolidated statements of income.

16


Total Stock-Based Compensation Expense

Stock-based compensation represents amortization of restricted stock, PSUs and SARs expense. 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 plans 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 table details the allocation of stock-based compensation that is allocated to functional expense categories (in thousands):

 

 

Three Months Ended
March 31,

 

 

2015

 

 

2014

 

Direct operating expense

$

886

 

 

$

852

 

Brokered natural gas and marketing expense

 

506

 

 

 

528

 

Exploration expense

 

732

 

 

 

1,153

 

General and administrative expense

 

11,080

 

 

 

11,604

 

Termination costs

 

1,287

 

 

 

 

Total

$

14,491

 

 

$

14,137

 

 

 

 

 

 

 

 

 

 

Stock Appreciation Right Awards

We have one active equity-based stock plan, the 2005 Plan. Under this plan, incentive and non-qualified stock options, SARs, and various other awards may be issued to non-employee directors and employees pursuant to decisions of the Compensation Committee, which is comprised of only non-employee, independent directors. There were 1.9 million SARs outstanding at March 31, 2015. Information with respect to SARs activity is summarized below:

 

 

 

Shares

 

 

Weighted
Average
Exercise Price

 

Outstanding at December 31, 2014

 

 

1,966,549

 

 

$

59.80

 

Exercised

 

 

(92,934

)

 

 

46.38

 

Expired/forfeited

 

 

(9,189

)

 

 

65.55

 

Outstanding at March 31, 2015

 

 

1,864,426

 

 

$

60.44

 

Performance Share Unit Awards

The following is a summary of our non-vested PSU awards outstanding at March 31, 2015:

 

 

 


Units

 

 

Weighted
Average
Grant Date Fair Value

 

Outstanding at December 31, 2014

 

 

134,341

 

 

$

86.11

 

Units granted (a)

 

 

77,119

 

 

 

55.17

 

Units vested

 

 

(26,102

)

 

 

76.75

 

Units forfeited

 

 

(2,679

)

 

 

82.60

 

Outstanding at March 31, 2015

 

 

182,679

 

 

$

74.44

 

(a) Amounts granted reflect the number of performance units granted; however, the actual payout of shares will be between zero percent and 150% of the performance units granted depending on the total shareholder return ranking compared to the peer companies at the end of the three-year performance period.

The following assumptions were used to estimate the fair value of PSUs granted during first quarter 2015:

 

 

 

Three

Months Ended March 31, 2015

 

Risk-free interest rate

 

 

1.05

%

Expected annual volatility

 

 

33.9

%

Grant date fair value per unit

 

$

55.17

 

We recorded PSU compensation expense of $1.3 million in first quarter 2015 compared to $533,000 in the same period of 2014.

17


Restricted Stock Awards

Equity Awards

In first quarter 2015, we granted 548,000 restricted stock Equity Awards to employees at an average grant price of $52.45 compared to 351,000 restricted stock Equity Awards granted to employees at an average grant price of $84.89 in first quarter 2014. These awards generally vest over a three-year period. We recorded compensation expense for these Equity Awards of $7.8 million in first quarter 2015 compared to $6.5 million in the same period of 2014. Equity Awards are not issued to employees until they are vested. Employees do not have the option to receive cash.

Liability Awards

In first quarter 2015, we granted 95,000 shares of restricted stock Liability Awards as compensation to employees at an average price of $52.25 with vesting generally over a three-year period. In first quarter 2014, we granted 76,000 shares of Liability Awards as compensation to employees at an average price of $85.02 with vesting generally over a three-year period. We recorded compensation expense for Liability Awards of $3.9 million in first quarter 2015 compared to $4.7 million in first quarter 2014. Substantially all of these awards are held in our deferred compensation plan, are classified as a liability and are remeasured at fair value at the end of each reporting period. This mark-to-market adjustment is reported as deferred compensation expense in our consolidated statements of income (see additional discussion below). The following is a summary of the status of our non-vested restricted stock outstanding at March 31, 2015:

 

 

 

Equity Awards

 

 

Liability Awards

 

 

 

Shares

 

 

Weighted
Average Grant
Date Fair Value

 

 

Shares

 

 

Weighted
Average Grant
Date Fair Value

 

Outstanding at December 31, 2014

 

 

360,415

 

 

$

79.60

 

 

 

304,504

 

 

$

80.33

 

Granted

 

 

548,046

 

 

 

52.45

 

 

 

94,573

 

 

 

52.25

 

Vested

 

 

(127,637

)

 

 

69.98

 

 

 

(73,396

)

 

 

74.14

 

Forfeited

 

 

(8,957

)

 

 

69.99

 

 

 

(9,574

)

 

 

72.77

 

Outstanding at March 31, 2015

 

 

771,867

 

 

$

62.03

 

 

 

316,107

 

 

$

73.60

 

Deferred Compensation Plan

Our deferred compensation plan gives non-employee directors and officers the ability to defer all or a portion of their salaries and bonuses and invest in Range common stock or make other investments at the individual’s discretion. Range provides a partial matching contribution which vests over three years. The assets of the plans 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 income. 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 $5.6 million in first quarter 2015 compared to mark-to-market gain of $2.0 million in first quarter 2014. The Rabbi Trust held 2.8 million shares (2.5 million of vested shares) of Range stock at March 31, 2015 compared to 2.8 million shares (2.5 million of vested shares) at December 31, 2014.

 

(14) SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Three Months Ended
March 31,

 

 

 

2015

 

 

2014

 

 

 

(in thousands)

 

Net cash provided from operating activities included:

 

 

 

 

 

 

 

 

Income taxes paid to taxing authorities

 

$

 

 

$

39

 

Interest paid

 

 

54,284

 

 

 

55,190

 

Non-cash investing and financing activities included:

 

 

 

 

 

 

 

 

Increase in asset retirement costs capitalized

 

 

15,813

 

 

 

3,218

 

(Decrease) increase in accrued capital expenditures

 

 

(110,622

)

 

 

6,808

 

 

 

 

 

 

 

 

 

 

 

18


 

(15) 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 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 will continue to evaluate our litigation quarterly and will establish and adjust any litigation reserves as appropriate to reflect our assessment of the then current status of litigation.

Transportation and Gathering Contracts

In first quarter 2015, our transportation and gathering commitments increased by approximately $52.9 million over the next nine years primarily from new firm transportation contracts.

Delivery Commitments

In first quarter 2015, we entered into new agreements with several pipeline companies and end users to deliver natural gas volumes from our production. The new agreements are to deliver from 1,000 Mmbtu per day to 40,000 Mmbtu per day of natural gas and the commitments are between two and five years and are expected to begin in second quarter 2015.  

                             

(16) OFFICE CLOSING AND TERMINATION COSTS

In first quarter 2015, we announced the closing of our Oklahoma City administrative and operational office to reduce our general and administrative expenses, due in part to the impact of lower commodity prices on our operations. In the year ended December 31, 2014, we accrued an estimated $8.4 million relating to the closure of this office. In first quarter 2015, those plans and personnel involved were finalized which resulted in additional accruals for severance and other costs for personnel involved of $275,000, additional accelerated vesting of stock-based compensation of $608,000 and $3.2 million of building lease costs. Also in first quarter 2015, additional accruals for severance of $1.2 million and stock-based compensation of $680,000 was recorded for additional expected personnel reductions in order to reduce our lease operating expenses due to the lower commodity price environment. The following summarizes our termination costs (in thousands):

 

 

 

Three Months

Ended

March 31, 2015

 

 

 

Year Ended

December 31, 2014

 

Termination costs

$

1,431

 

 

$

5,372

 

Building lease

 

3,232

 

 

 

 

Stock-based compensation

 

1,287

 

 

 

2,999

 

 

$

5,950

 

 

$

8,371

 

The following details our accrued liability as of March 31, 2015 (in thousands):

 

 

 

Three Months

Ended

March 31, 2015

 

Beginning balance

$

5,372

 

Additional accrued termination costs

 

1,431

 

Accrued building rent

 

3,232

 

Payments

 

(1,674

)

Ending balance

$

8,361

 

 

 

19


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

 

 

 

March 31,
2015

 

 

December 31,
2014

 

 

 

(in thousands)

 

Natural gas and oil properties:

 

 

 

 

 

 

 

 

Properties subject to depletion

 

$

9,745,129

 

 

$

9,624,725

 

Unproved properties

 

 

942,606

 

 

 

943,246

 

Total

 

 

10,687,735

 

 

 

10,567,971

 

Accumulated depreciation, depletion and amortization

 

 

(2,581,753

)

 

 

(2,590,398

)

Net capitalized costs

 

$

8,105,982

 

 

$

7,977,573

 

(a)

Includes capitalized asset retirement costs and the associated accumulated amortization.

 

(18) Costs Incurred for Property Acquisition, Exploration and Development (a)

 

 

Three
Months Ended
March 31,
2015

 

 

Year
Ended
December 31,
2014

 

 

 

(in thousands)

 

Acquisitions

 

$

 

 

$

404,252

(b)

Acreage purchases

 

 

13,354

 

 

 

226,475

 

Development

 

 

240,792

 

 

 

1,119,896

 

Exploration:

 

 

 

 

 

 

 

 

Drilling

 

 

21,056

 

 

 

180,925

 

Expense

 

 

7,154

 

 

 

58,979

 

Stock-based compensation expense

 

 

732

 

 

 

4,569

 

Gas gathering facilities:

 

 

 

 

 

 

 

 

Development

 

 

2,184

 

 

 

13,137

 

Subtotal

 

 

285,272

 

 

 

2,008,233

 

Asset retirement obligations

 

 

15,813

 

 

 

56,822

 

Total costs incurred

 

$

301,085

 

 

$

2,065,055

 

(a)

Includes costs incurred whether capitalized or expensed.

(b)

The year ended December 31, 2014 represents the EQT assets in Virginia we received as part of the Conger Exchange transaction.  The transaction was recorded at fair value and we also received $145.0 million in cash, before closing adjustments.

 

 

 

20


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our business and results of operations together with our present financial condition. Certain sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business. These statements contain words such as “anticipates,” “believes,” “expects,” “targets,” “plans,” “projects,” “could,” “may,” “should,” “would” or similar words indicating that future outcomes are uncertain. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in the forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our current forecasts for our existing operations and do not include the potential impact of any future acquisitions. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. For additional risk factors affecting our business, see Item 1A. Risk Factors as set forth in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 24, 2015.

Overview of Our Business

We are 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 Midcontinent regions of the United States. We operate in one segment and have a single company-wide management team that administers all properties as a whole rather than by discrete operating segments. We track only basic operational data by area.

Our overarching business objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis. Our strategy to achieve our business objective is to increase reserves and production through internally generated drilling projects occasionally coupled with complementary acquisitions. Our revenues, profitability and future growth depend substantially on prevailing prices for natural gas, NGLs, crude oil and condensate and on our ability to economically find, develop, acquire and produce natural gas, NGLs and crude oil reserves. Prices for natural gas, NGLs and oil fluctuate widely and affect:

the amount of cash flows available for capital expenditures;

our ability to borrow and raise additional capital;

the quantity of natural gas, NGLs and oil we can economically produce; and