10-Q 1 rrc-10q_20150930.htm 10-Q rrc-10q_20150930.htm

 

 

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 September 30, 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

169,369,679 Common Shares were outstanding on October 27, 2015

 

 

 

 

 


RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended September 30, 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 Operations (Unaudited)

  

4

 

 

   Consolidated Statements of Comprehensive (Loss) 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

  

23

ITEM 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

36

ITEM 4.

 

Controls and Procedures

  

38

PART II – OTHER INFORMATION

  

 

ITEM 1.

 

Legal Proceedings

  

39

ITEM 1A.

 

Risk Factors

  

39

ITEM 6.

 

Exhibits

  

39

 

 

 

 

 

SIGNATURES

  

40

 

 

 

2


PART I – FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

 

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

490

 

 

$

448

 

      Accounts receivable, less allowance for doubtful accounts of $3,306 and $2,719

 

110,792

 

 

 

188,941

 

Derivative assets

 

289,108

 

 

 

363,049

 

Inventory and other

 

23,038

 

 

 

17,854

 

Total current assets

 

423,428

 

 

 

570,292

 

Derivative assets

 

44,067

 

 

 

40,314

 

Natural gas and oil properties, successful efforts method

 

10,656,621

 

 

 

10,567,971

 

Accumulated depletion and depreciation

 

(2,871,827

)

 

 

(2,590,398

)

 

 

7,784,794

 

 

 

7,977,573

 

Other property and equipment

 

128,535

 

 

 

127,808

 

Accumulated depreciation and amortization

 

(98,700

)

 

 

(90,227

)

 

 

29,835

 

 

 

37,581

 

Other assets

 

115,780

 

 

 

121,020

 

Total assets

$

8,397,904

 

 

$

8,746,780

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

147,870

 

 

$

396,942

 

Asset retirement obligations

 

17,689

 

 

 

15,067

 

Accrued liabilities

 

172,702

 

 

 

187,973

 

Derivative liabilities

 

293

 

 

 

 

Accrued interest

 

31,756

 

 

 

39,695

 

Deferred tax liabilities

 

95,502

 

 

 

115,587

 

Total current liabilities

 

465,812

 

 

 

755,264

 

Bank debt

 

987,000

 

 

 

723,000

 

Senior notes

 

750,000

 

 

 

 

Subordinated notes

 

1,850,000

 

 

 

2,350,000

 

Deferred tax liabilities

 

843,189

 

 

 

997,494

 

Derivative liabilities

 

111

 

 

 

 

Deferred compensation liabilities

 

117,137

 

 

 

178,599

 

Asset retirement obligations and other liabilities

 

299,973

 

 

 

284,994

 

Total liabilities

 

5,313,222

 

 

 

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, 169,369,535 issued at

     September 30, 2015 and 168,711,131 issued at December 31, 2014

 

1,693

 

 

 

1,687

 

Common stock held in treasury, 60,015 shares at September 30, 2015 and 82,954

     shares at December 31, 2014

 

(2,275

)

 

 

(3,088

)

Additional paid-in capital

 

2,439,075

 

 

 

2,400,475

 

Retained earnings

 

646,189

 

 

 

1,058,355

 

Total stockholders’ equity

 

3,084,682

 

 

 

3,457,429

 

Total liabilities and stockholders’ equity

$

8,397,904

 

 

$

8,746,780

 

See accompanying notes.

3


 

RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

252,065

 

 

$

446,067

 

 

$

835,601

 

 

$

1,495,601

 

Derivative fair value income (loss)

 

202,004

 

 

 

142,057

 

 

 

290,052

 

 

 

(28,902

)

(Loss) gain on the sale of assets

 

(681

)

 

 

167

 

 

 

2,053

 

 

 

281,878

 

Brokered natural gas, marketing and other

 

25,864

 

 

 

28,324

 

 

 

61,688

 

 

 

90,904

 

Total revenues and other income

 

479,252

 

 

 

616,615

 

 

 

1,189,394

 

 

 

1,839,481

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating

 

35,058

 

 

 

37,792

 

 

 

106,975

 

 

 

112,522

 

Transportation, gathering and compression

 

99,634

 

 

 

84,777

 

 

 

284,258

 

 

 

235,747

 

Production and ad valorem taxes

 

7,336

 

 

 

10,110

 

 

 

26,506

 

 

 

32,632

 

Brokered natural gas and marketing

 

32,331

 

 

 

28,706

 

 

 

80,924

 

 

 

97,610

 

Exploration

 

4,235

 

 

 

11,443

 

 

 

17,146

 

 

 

39,910

 

Abandonment and impairment of unproved

    properties

 

12,366

 

 

 

13,444

 

 

 

36,187

 

 

 

32,771

 

General and administrative

 

46,178

 

 

 

54,963

 

 

 

150,471

 

 

 

161,063

 

Termination costs

 

(77

)

 

 

 

 

 

6,290

 

 

 

 

Deferred compensation plan

 

(43,705

)

 

 

(46,198

)

 

 

(56,611

)

 

 

(37,714

)

Interest

 

42,904

 

 

 

39,188

 

 

 

125,590

 

 

 

130,077

 

Loss on early extinguishment of debt

 

22,495

 

 

 

 

 

 

22,495

 

 

 

24,596

 

Depletion, depreciation and amortization

 

153,993

 

 

 

142,450

 

 

 

453,178

 

 

 

404,493

 

Impairment of proved properties and other assets

 

502,233

 

 

 

 

 

 

502,233

 

 

 

24,991

 

Total costs and expenses

 

914,981

 

 

 

376,675

 

 

 

1,755,642

 

 

 

1,258,698

 

(Loss) income before income taxes

 

(435,729

)

 

 

239,940

 

 

 

(566,248

)

 

 

580,783

 

Income tax (benefit) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

5

 

Deferred

 

(134,781

)

 

 

93,522

 

 

 

(174,390

)

 

 

230,450

 

 

 

(134,781

)

 

 

93,522

 

 

 

(174,390

)

 

 

230,455

 

Net (loss) income

$

(300,948

)

 

$

146,418

 

 

$

(391,858

)

 

$

350,328

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.81

)

 

$

0.87

 

 

$

(2.36

)

 

$

2.11

 

Diluted

$

(1.81

)

 

$

0.86

 

 

$

(2.36

)

 

$

2.10

 

Dividends paid per common share

$

0.04

 

 

$

0.04

 

 

$

0.12

 

 

$

0.12

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

166,517

 

 

 

165,841

 

 

 

166,327

 

 

 

162,866

 

Diluted

 

166,517

 

 

 

166,460

 

 

 

166,327

 

 

 

163,685

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited, in thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(300,948

)

 

$

146,418

 

 

$

(391,858

)

 

$

350,328

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(2,172

)

 

 

 

 

 

(6,458

)

Total comprehensive (loss) income

$

(300,948

)

 

$

144,246

 

 

$

(391,858

)

 

$

343,870

 

(1) Amounts are net of income tax benefit of $1,332 for the three months ended September 30, 2014 and $4,122 for the nine months ended September 30, 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)

 

 

Nine Months Ended September 30,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net (loss) income

$

(391,858

)

 

$

350,328

 

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

 

 

 

 

 

 

 

Loss from equity method investments, net of distributions

 

 

 

 

3,096

 

Deferred income tax (benefit) expense

 

(174,390

)

 

 

230,450

 

Depletion, depreciation and amortization and impairment

 

955,411

 

 

 

429,484

 

Exploration dry hole costs

 

87

 

 

 

1

 

Abandonment and impairment of unproved properties

 

36,187

 

 

 

32,771

 

Derivative fair value (income) loss

 

(290,052

)

 

 

28,902

 

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

   accounting

 

360,645

 

 

 

(113,859

)

Allowance for bad debt

 

600

 

 

 

250

 

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

 

27,572

 

 

 

31,430

 

Deferred and stock-based compensation

 

(10,679

)

 

 

15,486

 

Gain on the sale of assets

 

(2,053

)

 

 

(281,878

)

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

79,448

 

 

 

13,098

 

Inventory and other

 

(7,073

)

 

 

(5,335

)

Accounts payable

 

(13,158

)

 

 

(13,355

)

Accrued liabilities and other

 

(55,127

)

 

 

(65,931

)

Net cash provided from operating activities

 

515,560

 

 

 

654,938

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(901,227

)

 

 

(867,285

)

Additions to field service assets

 

(2,878

)

 

 

(9,492

)

Acreage purchases

 

(61,213

)

 

 

(145,543

)

Other

 

(75

)

 

 

1,103

 

Proceeds from disposal of assets

 

14,825

 

 

 

147,126

 

Purchases of marketable securities held by the deferred compensation plan

 

(23,594

)

 

 

(23,053

)

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

 

28,168

 

 

 

25,206

 

Net cash used in investing activities

 

(945,994

)

 

 

(871,938

)

Financing activities:

 

 

 

 

 

 

 

Borrowing on credit facilities

 

1,940,000

 

 

 

1,682,000

 

Repayment on credit facilities

 

(1,676,000

)

 

 

(1,533,000

)

Issuance of senior notes

 

750,000

 

 

 

 

Repayment of subordinated notes

 

(516,875

)

 

 

(312,000

)

Debt issuance costs

 

(14,156

)

 

 

 

Dividends paid

 

(20,308

)

 

 

(19,862

)

Issuance of common stock, net of offering expenses

 

 

 

 

396,580

 

Change in cash overdrafts

 

(40,123

)

 

 

(12,305

)

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

 

7,938

 

 

 

15,707

 

Net cash provided from financing activities

 

430,476

 

 

 

217,120

 

Increase in cash and cash equivalents

 

42

 

 

 

120

 

Cash and cash equivalents at beginning of period

 

448

 

 

 

348

 

Cash and cash equivalents at end of period

$

490

 

 

$

468

 

 

 

 

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

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 the third quarter and the nine months ended September 30, 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, the Financial Accounting Standards Board (“FASB”) issued an accounting standard 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. In July 2015, the FASB approved a one-year deferral of the effective date of this new standard. Consequently, the new guidance is effective for us for the reporting period beginning January 1, 2018, with early adoption permitted in first quarter 2017. Entities have the option of using either a fully 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 FASB issued an accounting standards 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.

In April 2015, the FASB issued an accounting standards update, “Interest-Imputation of Interest:  Simplifying the Presentation of Debt Issuance Cost” which requires entities to present debt issuance cost related to a recognized debt liability as a direct deduction of the carrying amount of debt in the balance sheet, consistent with the presentation of debt discounts. This standard is effective for us for the reporting period beginning January 1, 2016, with early adoption permitted. Entities will be required to apply the guidance on a retrospective basis to each period presented as a change in accounting principle. Adoption of the new guidance will only affect the presentation of our consolidated balance sheets and will not have a material impact. We will adopt the new standard as of December 31, 2015.

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 was 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 (see discussion in Note 4 below) is not reported as a discontinued operation.

7


(4) ACQUISITIONS AND DISPOSITIONS

2015 Dispositions

In third quarter 2015, we sold miscellaneous inventory and surface acreage for proceeds of $524,000 resulting in a pre-tax loss of $681,000. In addition, the first six months 2015 includes the sale of miscellaneous unproved and proved property and inventory for proceeds of $14.3 million resulting in a pre-tax gain of $2.7 million. Included in the $14.3 million of proceeds is $10.5 million received from the sale of certain West Texas properties which closed in February 2015.

2014 Dispositions

In addition to the Conger Exchange described below, we sold miscellaneous unproved and proved property and inventory in the nine months ended September 30, 2014 for total proceeds of $2.1 million resulting in a pre-tax gain of $1.7 million.

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 (“the Conger Exchange”). We closed the exchange transaction on June 16, 2014 and recognized a pre-tax gain of $285.2 million, before selling expenses of $5.0 million, which is recognized as a gain on sale of assets in our consolidated statements of operations for the nine months ended September 30, 2014. For the period from January 1, 2014 through June 16, 2014, we recognized $21.9 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.

For the period from June 16, 2014 through September 30, 2014, we recognized $18.4 million of natural gas, oil and NGLs sales from the property interests acquired in the Conger Exchange and we recognized $14.6 million of field net operating income (defined as natural gas, oil and NGLs sales less direct operating expenses, production and ad valorem taxes and transportation expenses).

 

(5) INCOME TAXES

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

 

 

Three Months Ended
September 30,

 

 

 

Nine Months Ended

September 30,

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Income tax (benefit) expense

$

(134,781

)

 

$

93,522

 

 

$

(174,390

)

 

$

230,455

 

Effective tax rate

 

30.9

%

 

 

39.0

%

 

 

30.8

%

 

 

39.7

%

 

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. The three months and the nine months ended September 30, 2015 includes tax expense of $28.5 million related to an increase in our valuation allowance for federal net operating loss carryforwards that we do not believe are realizable. The three months ended September 30, 2015 includes $8.5 million of income tax expense and the nine months ended September 30, 2015 includes $19.8 million income tax expense related to increases in our valuation allowances for state net operating loss and credit carryforwards that we do not believe are realizable. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For third quarter and the nine months ended September 30, 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 three months ended September 30, 2015 also includes an income tax benefit of $2.6 million and the nine months ended September 30, 2015 includes an income tax benefit of $3.5 million adjusting our valuation allowance for our deferred tax asset related to future deferred compensation plan distributions of our senior executives.

 

(6) (LOSS) 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
September 30,

 

 

 

Nine Months Ended
September 30,

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

8


Net (loss) income, as reported

$

(300,948

)

 

$

146,418

 

 

$

(391,858

)

 

$

350,328

 

Participating earnings (a)

 

(114

)

 

 

(2,479

)

 

 

(338

)

 

 

(5,940

)

Basic net (loss) income attributed to common shareholders

 

(301,062

)

 

 

143,939

 

 

 

(392,196

)

 

 

344,388

 

Reallocation of participating earnings (a)

 

¾

 

 

 

9

 

 

 

¾

 

 

 

28

 

Diluted net (loss) income attributed to common shareholders

$

(301,062

)

 

$

143,948

 

 

$

(392,196

)

 

$

344,416

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.81

)

 

$

0.87

 

 

$

(2.36

)

 

$

2.11

 

Diluted

$

(1.81

)

 

$

0.86

 

 

$

(2.36

)

 

$

2.10

 

(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
September 30,

 

 

 

Nine Months Ended
September 30,

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Weighted average common shares outstanding – basic

 

166,517

 

 

 

165,841

 

 

 

166,327

 

 

 

162,866

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director and employee stock options and SARs

 

¾

 

 

 

619

 

 

 

¾

 

 

 

819

 

Weighted average common shares outstanding – diluted

 

166,517

 

 

 

166,460

 

 

 

166,327

 

 

 

163,685

 

 

Weighted average common shares-basic for the three months ended September 30, 2015 excludes 2.8 million shares of restricted stock and the three months ended September 30, 2014 excludes 2.9 million shares of restricted stock held in our deferred compensation plan (although all awards are issued and outstanding upon grant). Weighted average common shares-basic for both the nine months ended September 30, 2015 and the nine months ended September 30, 2014 excludes 2.8 million shares of restricted stock held in our deferred compensation plan. Due to our net loss from operations for the three months and the nine months ended September 30, 2015, 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. For the three months ended September 30, 2014, 351,000 of SARs were outstanding but not included in the computations of diluted income from operations 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 nine months ended September 30, 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 included in natural gas and oil properties in the accompanying consolidated balance sheets. If an exploratory well is determined to be impaired, the well costs are charged to exploration expense in the accompanying consolidated statements of operations. We did not have any exploratory well costs that have been capitalized for a period greater than one year as of December 31, 2014 and September 30, 2015.  All exploratory well costs in 2015 are wells drilled in the Marcellus Shale. The following table reflects the change in capitalized exploratory well costs for the nine months ended September 30, 2015 and the year ended December 31, 2014 (in thousands):

 


9


 

 

 

September 30,

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

 

61,493

 

 

 

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

 

64,489

 

 

 

2,996

 

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

 

(64,489

)

 

 

(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 September 30, 2015 is shown parenthetically). No interest was capitalized during the three months or nine months ended September 30, 2015 and September 30, 2014 (in thousands):

 

 

September 30,
2015

 

 

December 31,
2014

 

Bank debt (1.8%)

 

$

987,000

 

 

$

723,000

 

Senior notes:

 

 

 

 

 

 

 

 

4.875% senior notes due 2025

 

 

750,000

 

 

 

¾

 

Senior subordinated notes:

 

 

 

 

 

 

 

 

6.75% senior subordinated notes due 2020

 

 

¾

 

 

 

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

 

$

3,587,000

 

 

$

3,073,000

 

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 September 30, 2015, the bank commitments were $2.0 billion. The bank credit facility provides for a borrowing base subject to redeterminations annually by May and for event-driven unscheduled redeterminations. As part of our annual redetermination completed on March 31, 2015, our borrowing base was reaffirmed at $3.0 billion and our bank commitment was also reaffirmed at $2.0 billion. As of September 30, 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 September 30, 2015, the outstanding balance under our bank credit facility was $987.0 million. Additionally, we had $136.8 million of undrawn letters of credit leaving $876.2 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 LIBOR 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 1.7% for the three months ended September 30, 2015 compared to 2.1% for the three months ended September 30, 2014. The weighted average interest rate was 1.7% for the nine months ended September 30, 2015 compared to 2.1% for the nine months ended September 30, 2014. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At September 30, 2015, the commitment fee was 0.30% and the interest rate margin was 1.5% on our LIBOR loans and 0.5% 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 at the LIBOR Rate plus a spread ranging from

10


1.125% to 1.75% depending on our debt rating. The commitment fee paid on the undrawn balance would range from 0.15% to 0.30%. We currently do not have an investment grade debt rating from Moody’s Investors Service, Inc. or Standard & Poor’s Rating Service.

Senior Notes

In May 2015, we issued $750.0 million aggregate principal amount of 4.875% senior notes due 2025 (the “4.875% Notes”) for net proceeds of $737.4 million after underwriting discounts and commissions of $12.6 million. The notes were issued at par. The 4.875% Notes were offered to qualified institutional buyers and to non-U.S. persons outside the United States in compliance with Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). Interest due on the 4.875% Notes is payable semi-annually in May and November and is unconditionally guaranteed on a senior unsecured basis by all of our subsidiary guarantors. On or after February 15, 2025, we may redeem the notes, in whole or in part and from time to time, at 100% of the principal amount, plus accrued and unpaid interest. Upon the occurrence of certain changes in control, we must offer to repurchase the 4.875% Notes. The 4.875% Notes are unsecured and are subordinated to all of our existing and future secured debt, rank equally with all of Range’s existing and future senior unsecured debt, and rank senior to all of our existing and future subordinated debt. On the closing of the 4.875% Notes, we used the net proceeds to repay borrowings under our bank credit facility pending our intended redemption of all of our 6.75% senior subordinated notes due 2020, which was completed in August 2015 using borrowings under our bank credit facility.

Senior Subordinated Notes

If we experience a change of control, noteholders may require us to repurchase all or a portion 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 existing and 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.

Early Extinguishment of Debt

On July 1, 2015, we announced a call for the redemption of $500.0 million of our outstanding 6.75% senior subordinated notes due 2020 at a price of 103.375% of par plus accrued and unpaid interest, which were redeemed on August 3, 2015. In third quarter 2015, we recognized a loss on early extinguishment of debt of $22.5 million, including transaction call premium costs and the expensing of the remaining deferred financing costs on the repurchased debt.

On May 27, 2014, we announced a call for the redemption of $300.0 million of our outstanding 8.0% senior subordinated notes due 2019 at 104.0% of par plus accrued and unpaid interest, which were redeemed on June 26, 2014. In second quarter 2014, we recognized a $24.6 million loss on early extinguishment of debt, including transaction call premium costs and the expensing of the remaining deferred financing costs on the repurchased debt.

Guarantees

Range is a holding company which owns no operating assets and has no significant operations independent of its subsidiaries. The guarantees by our subsidiaries, which are directly or indirectly owned by Range, of our senior notes, senior subordinated notes and our bank credit facility are full and unconditional and joint and several, subject to certain customary release provisions. A subsidiary guarantor may be released from its obligations under the guarantee:

 

in the event of a sale or other disposition of all or substantially all of the assets of the subsidiary guarantor or a sale or other disposition of all the capital stock of the subsidiary guarantor, to any corporation or other person (including an unrestricted subsidiary of Range) by way of merger, consolidation, or otherwise; or

 

if Range designates any restricted subsidiary that is a guarantor to be an unrestricted subsidiary in accordance with the terms of the indenture.

Debt Covenants

Our bank credit facility contains negative covenants that limit our ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain hedging contracts, change the nature of our business or operations, merge, consolidate, or make certain investments. In addition, we are required to maintain a ratio of EBITDAX (as defined in the 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 September 30, 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 September 30, 2015, we were 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 lives. The inputs are calculated based on historical data as well as current estimated costs. In the first nine months 2015, we increased our estimated abandonment costs on certain of our water impoundments and changed estimated well lives for certain wells in Pennsylvania. A reconciliation of our liability for plugging and abandonment costs for the nine months ended September 30, 2015 is as follows (in thousands):

 

 

  

Nine Months
Ended
September 30,

 2015

 

Beginning of period

  

$

287,463

  

Liabilities incurred

  

 

4,135

 

Liabilities settled

 

 

(13,205

)

Disposition of wells

 

 

(4,116

)

Accretion expense

  

 

14,521

 

Change in estimate

  

 

15,727

 

End of period

  

 

304,525

 

Less current portion

  

 

(17,689

)

Long-term asset retirement obligations

  

$

286,836

 

Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying consolidated 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 2014:

 

 

 

Nine Months
Ended
September 30,
2015

 

 

Year
Ended
December 31,
2014

 

Beginning balance

 

 

168,628,177

 

 

 

163,342,894

 

Equity offering

 

 

 

 

 

4,560,000

 

SARs exercised

 

 

77,002

 

 

 

195,242

 

Restricted stock grants

 

 

334,201

 

 

 

270,062

 

Restricted stock units vested

 

 

247,201

 

 

 

244,413

 

Treasury shares issued

 

 

22,939

 

 

 

15,566

 

Ending balance

 

 

169,309,520

 

 

 

168,628,177

 

 

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”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net asset of $334.8 million at September 30, 2015. These contracts expire monthly through December 2017. In 2013 and 2014, we sold crude oil derivative swap contracts (“sold swaps”) and in third quarter 2015, we entered into purchased crude oil swaps (“re-purchased swaps”) for certain of the sold swaps to lock in derivative gains for fourth quarter 2015. The following table sets forth our commodity-based derivative volumes by year as of September 30, 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

  

727,500 Mmbtu/day

  

$ 3.63

2016

  

Swaps

  

630,000 Mmbtu/day

  

$ 3.42

2017

 

Swaps

 

20,000 Mmbtu/day

 

$ 3.49

 

 

 

 

 

 

 

Crude Oil

  

 

  

 

  

 

2015

  

Sold Swaps

  

11,250 bbls/day

  

$ 85.87

2015

 

Re-Purchased Swaps

 

2,500 bbls/day

 

$ 40.19

2016

 

Swaps

 

3,999 bbls/day

 

$ 66.09

2017

 

Swaps

 

500 bbls/day

 

$ 55.00

 

 

 

 

 

 

 

NGLs (C3-Propane)

  

 

  

 

  

 

2015

 

Swaps

 

12,000 bbls/day

 

$ 0.55/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

  

4,000 bbls/day

  

$ 1.16/gallon

2016

 

Swaps

 

2,500 bbls/day

 

$ 1.23/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 September 30, 2015, we had natural gas basis swap contracts 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 include a total volume of 37,285,000 Mmbtu. The fair value of these contracts was a loss of $2.0 million on September 30, 2015.

13


Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 30, 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):

 

 

  

September 30, 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

  

$

213,837

 

  

$

 

  

$

213,837

  

 

–collars

 

 

19,657

 

 

 

 

 

 

19,657

 

 

–basis swaps

 

 

1,875

 

 

 

(3,458

)

 

 

(1,583

)

Crude oil

–sold swaps

  

 

66,494

 

  

 

 

  

 

66,494

 

 

–re-purchased swaps

 

 

1,287

 

 

 

 

 

 

1,287

 

NGLs

–C3 swaps

  

 

13,933

 

  

 

 

  

 

13,933

 

 

–NC4 swaps

  

 

6,004

 

  

 

 

  

 

6,004

 

 

–C5 swaps

 

 

13,546

 

 

 

 

 

 

13,546

 

 

 

  

$

336,633

 

  

$

(3,458

)

  

$

333,175

 

 

 

 

  

September 30, 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

 

$

(3,862

)

 

$

3,458

 

 

$

(404

)

 

 

  

$

(3,862

)

  

$

3,458

 

  

$

(404

)

 

 

 

  

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

  

 

$

 

14


For the three and nine months ended September 30, 2014, the realized gains from our cash flow hedges (for those derivatives that previously qualified for hedge accounting which were reclassified from AOCI into revenue) is summarized below (in thousands):

 

 

Three Months Ended

September 30,

 

 

 

Nine Months Ended

September 30,

 

 

 

2014

 

 

 

2014

 

Swaps

$

1,255

 

 

$

3,144

 

Collars

 

2,249

 

 

 

7,436

 

Income taxes

 

(1,332

)

 

 

(4,122

)

 

$

2,172

 

 

$

6,458

 

 

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

 

 

Three Months Ended September 30,

 

 

 

Nine Months Ended September 30,

 

 

 

Derivative Fair Value

Income (Loss)

 

 

 

Derivative Fair Value

Income (Loss)

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Swaps

$

198,245

 

 

$

105,767

 

 

$

281,921

 

 

$

23,173

 

Re-purchased swaps

 

1,683

 

 

 

 

 

 

1,683

 

 

 

 

Collars

 

5,626

 

 

 

30,119

 

 

 

12,391

 

 

 

(7,997

)

Basis swaps

 

(3,550

)

 

 

6,171

 

 

 

(5,943

)

 

 

(44,078

)

Total

$

202,004

 

 

$

142,057

 

 

$

290,052

 

 

$

(28,902

)

 

 

(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 do 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.

15


Fair Values – Recurring

We use a market approach for our recurring fair value measurements and endeavor to use the best information available. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):

 

 

 

Fair Value Measurements at September 30, 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
September 30,
2015

 

Trading securities held in the deferred compensation plans

 

$

60,273

 

 

$

 

 

$

 

 

$

60,273

 

Derivatives swaps

 

 

 

 

 

315,101

 

 

 

 

 

 

315,101

 

                    –collars

 

 

 —

 

 

 

19,657

 

 

 

 —

 

 

 

19,657

 

                    –basis swaps

  

 

  —

 

  

 

(1,987

)

 

 

 

  

 

(1,987

)

 

 

  

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 consolidated statements of operations. For third quarter 2015, interest and dividends were $164,000 and the mark-to-market adjustment was a loss of $4.5 million compared to interest and dividends of $151,000 and a mark-to-market loss of $1.2 million in third quarter 2014. For the nine months ended September 30, 2015, interest and dividends were $412,000 and the mark-to-market adjustment was a loss of $3.7 million compared to interest and dividends of $322,000 and a mark-to-market gain of $1.3 million in the same period of 2014.

Fair Values—Non-recurring

Our proved natural gas and oil properties are reviewed for impairment periodically as events or changes in circumstances indicate the carrying amount may not be recoverable. In the three months ended September 30, 2015, due to declines in commodity prices, there were indicators that the carrying value of certain of our oil and gas properties may be impaired and undiscounted future cash flows attributed to these assets indicated their carrying amounts were not expected to be recovered. Their remaining fair value was measured using an income approach based upon internal estimates of future production levels, prices, drilling and operating costs and discount rates, which are Level 3 measurements. We recorded non-cash charges during the three months and the nine months ended September 30, 2015 of $502.2 million related to natural gas and oil properties in Northern Oklahoma and shallow legacy natural gas and oil properties in Northwest Pennsylvania. In the nine months ended September 30, 2014, we recognized an impairment expense of $25.0 million on certain of our oil and gas properties in Mississippi, West Texas and North Texas. Our estimates of future cash flows attributable to our natural gas and oil properties could decline further with commodity prices which may result in additional impairment charges. The following table presents the value of these assets measured at fair value on a non-recurring basis at the time impairment was recorded (in thousands):

16


 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

Fair Value

 

 

 

Impairment