10-Q 1 rrc-10q_20160331.htm 10-Q rrc-10q_20160331.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 March 31, 2016

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

169,745,546 Common Shares were outstanding on April 25, 2016

 

 

 

 

 

 


 

RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended March 31, 2016

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

 

 

 

 

2


 

PART I – FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

 

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

529

 

 

$

471

 

      Accounts receivable, less allowance for doubtful accounts of $4,477 and $4,994

 

104,894

 

 

 

123,842

 

Derivative assets

 

261,079

 

 

 

281,544

 

Inventory and other

 

25,224

 

 

 

33,217

 

Total current assets

 

391,726

 

 

 

439,074

 

Derivative assets

 

5,430

 

 

 

7,218

 

Natural gas and oil properties, successful efforts method

 

8,965,379

 

 

 

8,996,336

 

Accumulated depletion and depreciation

 

(2,748,635

)

 

 

(2,635,031

)

 

 

6,216,744

 

 

 

6,361,305

 

Other property and equipment

 

110,444

 

 

 

110,013

 

Accumulated depreciation and amortization

 

(92,572

)

 

 

(90,558

)

 

 

17,872

 

 

 

19,455

 

Other assets

 

73,378

 

 

 

72,979

 

Total assets

$

6,705,150

 

 

$

6,900,031

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

133,853

 

 

$

117,346

 

Asset retirement obligations

 

15,071

 

 

 

15,071

 

Accrued liabilities

 

160,165

 

 

 

188,028

 

Accrued interest

 

28,953

 

 

 

30,139

 

Derivative liabilities

 

192

 

 

 

1,136

 

Total current liabilities

 

338,234

 

 

 

351,720

 

Bank debt

 

23,149

 

 

 

86,427

 

Senior notes

 

738,362

 

 

 

738,101

 

Senior subordinated notes

 

1,827,554

 

 

 

1,826,775

 

Deferred tax liabilities

 

735,971

 

 

 

777,947

 

Derivative liabilities

 

1,270

 

 

 

21

 

Deferred compensation liabilities

 

115,152

 

 

 

104,792

 

Asset retirement obligations and other liabilities

 

254,114

 

 

 

254,590

 

Total liabilities

 

4,033,806

 

 

 

4,140,373

 

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, 169,746,218 issued at

     March 31, 2016 and 169,375,743 issued at December 31, 2015

 

1,698

 

 

 

1,693

 

Common stock held in treasury, 49,563 shares at March 31, 2016 and 59,283

     shares at December 31, 2015

 

(1,871

)

 

 

(2,245

)

Additional paid-in capital

 

2,449,035

 

 

 

2,442,623

 

Retained earnings

 

222,482

 

 

 

317,587

 

Total stockholders’ equity

 

2,671,344

 

 

 

2,759,658

 

Total liabilities and stockholders’ equity

$

6,705,150

 

 

$

6,900,031

 

See accompanying notes.

3


 

 

RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

 

Three Months Ended

March 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

209,487

 

 

$

325,483

 

Derivative fair value income

 

86,908

 

 

 

122,839

 

Brokered natural gas, marketing and other

 

35,018

 

 

 

14,485

 

Total revenues and other income

 

331,413

 

 

 

462,807

 

Costs and expenses:

 

 

 

 

 

 

 

Direct operating

 

24,054

 

 

 

37,137

 

Transportation, gathering and compression

 

125,263

 

 

 

89,426

 

Production and ad valorem taxes

 

5,887

 

 

 

9,928

 

Brokered natural gas and marketing

 

36,558

 

 

 

21,562

 

Exploration

 

4,913

 

 

 

7,886

 

Abandonment and impairment of unproved properties

 

10,628

 

 

 

11,491

 

General and administrative

 

40,657

 

 

 

48,329

 

Termination costs

 

162

 

 

 

5,950

 

Deferred compensation plan

 

16,056

 

 

 

(5,624

)

Interest

 

37,739

 

 

 

39,207

 

Depletion, depreciation and amortization

 

120,561

 

 

 

147,290

 

Impairment of proved properties and other assets

 

43,040

 

 

 

 

Loss on the sale of assets

 

1,643

 

 

 

175

 

Total costs and expenses

 

467,161

 

 

 

412,757

 

(Loss) income before income taxes

 

(135,748

)

 

 

50,050

 

Income tax (benefit) expense:

 

 

 

 

 

 

 

Current

 

 

 

 

 

Deferred

 

(44,038

)

 

 

22,366

 

 

 

(44,038

)

 

 

22,366

 

Net (loss) income

$

(91,710

)

 

$

27,684

 

Net (loss) income per common share:

 

 

 

 

 

 

 

Basic

$

(0.55

)

 

$

0.16

 

Diluted

$

(0.55

)

 

$

0.16

 

Dividends paid per common share

$

0.02

 

 

$

0.04

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

166,803

 

 

 

166,039

 

Diluted

 

166,803

 

 

 

166,066

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


 

RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

Three Months Ended

March  31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net (loss) income

$

(91,710

)

 

$

27,684

 

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

 

 

 

 

 

 

 

Deferred income tax (benefit) expense

 

(44,038

)

 

 

22,366

 

Depletion, depreciation and amortization and impairment

 

163,601

 

 

 

147,290

 

Exploration dry hole costs

 

 

 

 

103

 

Abandonment and impairment of unproved properties

 

10,628

 

 

 

11,491

 

Derivative fair value income

 

(86,908

)

 

 

(122,839

)

Cash settlements on derivative financial instruments

 

109,466

 

 

 

97,490

 

Allowance for bad debt

 

200

 

 

 

250

 

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

 

1,707

 

 

 

1,358

 

Deferred and stock-based compensation

 

29,128

 

 

 

9,218

 

Loss on the sale of assets

 

1,643

 

 

 

175

 

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

18,752

 

 

 

54,435

 

Inventory and other

 

5,333

 

 

 

(1,072

)

Accounts payable

 

11,922

 

 

 

7,098

 

Accrued liabilities and other

 

(42,300

)

 

 

(44,409

)

Net cash provided from operating activities

 

87,424

 

 

 

210,638

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(107,015

)

 

 

(357,780

)

Additions to field service assets

 

(631

)

 

 

(672

)

Acreage purchases

 

(19,497

)

 

 

(30,126

)

Proceeds from disposal of assets

 

113,079

 

 

 

10,660

 

Purchases of marketable securities held by the deferred compensation plan

 

(8,662

)

 

 

(4,664

)

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

 

7,833

 

 

 

4,922

 

Net cash used in investing activities

 

(14,893

)

 

 

(377,660

)

Financing activities:

 

 

 

 

 

 

 

Borrowings on credit facilities

 

358,000

 

 

 

542,000

 

Repayments on credit facilities

 

(422,000

)

 

 

(353,000

)

Debt issuance costs

 

(124

)

 

 

(1,700

)

Dividends paid

 

(3,395

)

 

 

(6,759

)

Change in cash overdrafts

 

(6,368

)

 

 

(15,341

)

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

 

1,414

 

 

 

1,893

 

Net cash (used in) provided from financing activities

 

(72,473

)

 

 

167,093

 

Increase in cash and cash equivalents

 

58

 

 

 

71

 

Cash and cash equivalents at beginning of period

 

471

 

 

 

448

 

Cash and cash equivalents at end of period

$

529

 

 

$

519

 

 

 

 

See accompanying notes.

 

5


 

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 region 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 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2016. The results of operations for the three months ended March 31, 2016 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 that supersedes the existing revenue recognition requirements. This standard includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Among other things, the standard also eliminates industry-specific revenue guidance, requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. This standard is effective for us in first quarter 2018 and will be applied retrospectively to each prior reporting period presented or with the cumulative effect of initially applying the update recognized at the date of initial application. Early adoption is permitted with an effective date no earlier than first quarter 2017. We are evaluating the provisions of this accounting standards update and assessing the impact, if any, it may have on our consolidated results of operations, financial position or cash flows.

In August 2014, an accounting standards update was issued 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 a significant impact on our consolidated results of operations, financial position or cash flows.

In February 2016, an accounting standards update was issued that requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Classification of leases as either a finance or operating lease will determine the recognition, measurement and presentation of expenses. This accounting standards update also requires certain quantitative and qualitative disclosures about leasing arrangements. This standard is effective for us in first quarter 2019 and should be applied using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and early adoption is permitted. We are evaluating the provisions of this accounting standards update and assessing the impact it may have, if any, on our consolidated results of operations, financial position or cash flows.

In March 2016, an accounting standards update was issued that simplifies several aspects of the accounting for share-based payment award transactions. Among other things, this new guidance will require all income tax effects of share-based awards to be recognized in the statement of operations when the awards vest or are settled, will allow an employer to repurchase more of an employee’s shares for tax withholding purposes than it can today without triggering liability accounting and will allow a policy election to account for forfeitures as they occur. This standard is effective for us in the first quarter of 2017 with prospective application and early adoption is permitted. We are evaluating the provisions of this accounting standards update and assessing the impact it may have, if any, on our consolidated results of operations, financial position or cash flows.

Recently Adopted

In April 2015, an accounting standards update was issued that requires debt issuance costs to be presented in the balance sheet as a direct reduction from the associated debt liability. This standard was effective for the reporting period beginning on January 1, 2016 with early adoption permitted. As of December 31, 2015, we adopted this standard retrospectively and have accounted for the

6


 

debt issuance costs as a reduction of the associated debt liability. This adoption only affected our consolidated balance sheets and did not have an impact on our consolidated results of operations or cash flows.

In November 2015, an accounting standards update was issued which requires entities to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. This standard is effective for the reporting period beginning in January 1, 2017 with early adoption permitted. As of December 31, 2015, we adopted this standard retrospectively and reclassified our current deferred tax assets and liabilities into non-current deferred tax assets and liabilities. This adoption only affected our consolidated balance sheets and did not have an impact on our consolidated results of operations or cash flows.

(4) ACQUISITIONS AND DISPOSITIONS

We recognized a pretax net loss on the sale of assets of $1.6 million in first quarter 2016 compared to a net loss of $175,000 in the same period of the prior year.

2016 Dispositions

Pennsylvania. In first quarter 2016, we sold our non-operated interest in certain wells and gathering facilities in northeast Pennsylvania for proceeds of $111.5 million. After closing adjustments, we recorded a pretax loss of $2.1 million related to this sale.

Other. In first quarter 2016, we sold miscellaneous proved and unproved properties, inventory, other assets and surface acreage for proceeds of $1.6 million resulting in a pre-tax gain of $443,000. Included in the $1.6 million of proceeds is $1.2 million received from the sales of proved properties in Mississippi and South Texas.

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.

 

(5) INCOME TAXES

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

 

 

Three Months Ended
March 31,

 

 

 

2016

 

 

 

2015

 

 

Income tax (benefit) expense

$

(44,038

)

 

$

22,366

 

 

Effective tax rate

 

32.4

%

 

 

44.7

%

 

 

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. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For first quarter ended March 31, 2016 and 2015, 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 2016 includes tax expense of $4.5 million related to an increase in our valuation allowance for state net operating loss carryforwards that we do not believe are realizable and an income tax benefit of $96,000 to adjust the valuation allowance on our deferred tax asset related to future deferred compensation plan distributions of our senior executives.  In addition, we recorded income tax expense of $3.6 million related to equity compensation because we no longer have a hypothetical additional paid-in capital pool (“APIC Pool”) available to offset reduced tax benefits for the excess of financial accounting compensation expense over the corporate income tax deduction.  The hypothetical APIC Pool represents the tax benefit of the cumulative excess of corporate income tax deductions over financial accounting compensation expense recognized for equity-based compensation awards which have fully vested.  The APIC Pool will increase or decrease each year as equity awards vest.  Shortfalls generated by the excess of compensation expense for financial accounting purposes over the corresponding corporate income tax deduction are charged to the APIC Pool rather than income tax expense.  Once the APIC Pool is fully depleted, the tax effect of any excess of financial accounting expense over the corresponding corporate income tax deduction is recorded as income tax expense.  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.

7


 

(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 shareholders is computed as (1) basic income or loss attributable to common shareholders (2) plus diluted adjustments to income allocable to participating securities (3) divided by weighted average diluted shares outstanding. The following 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,

 

 

 

2016

 

 

 

2015

 

 

Net (loss) income, as reported

$

(91,710

)

 

$

27,684

 

 

Participating earnings (a)

 

(56

)

 

 

(463

)

 

Basic net (loss) income attributed to common shareholders

 

(91,766

)

 

 

27,221

 

 

Reallocation of participating earnings (a)

 

¾

 

 

 

¾

 

 

Diluted net (loss) income attributed to common shareholders

$

(91,766

)

 

$

27,221

 

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

Basic

$

(0.55

)

 

$

0.16

 

 

Diluted

$

(0.55

)

 

$

0.16

 

 

(a)

Restricted Stock Awards represent participating securities because they participate in nonforfeitable dividends or distributions with common equity owners. Income allocable to participating securities represents the distributed and undistributed earnings attributable to the participating securities. Participating securities, however, do not participate in undistributed net losses.

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

 

 

Three Months Ended
March 31,

 

 

 

2016

 

 

 

2015

 

 

Weighted average common shares outstanding – basic

 

166,803

 

 

 

166,039

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Director and employee SARs

 

¾

 

 

 

27

 

 

Weighted average common shares outstanding – diluted

 

166,803

 

 

 

166,066

 

 

 

Weighted average common shares outstanding-basic for both the three months ended March 31, 2016 and the three months ended March 31, 2015 excludes 2.8 million shares of restricted stock held in our deferred compensation plan (although all awards are issued and outstanding upon grant). Due to our net loss from operations for the three months ended March 31, 2016, 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 March 31, 2015, 1.4 million 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.

8


 

(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 March 31, 2016. The following table reflects the change in capitalized exploratory well costs for the three months ended March 31, 2016 and the year ended December 31, 2015 (in thousands):

 

 

 

March 31,

2016

 

 

 

December 31,

2015

 

Balance at beginning of period

$

4,161

 

 

$

2,996

 

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

 

1,214

 

 

 

1,165

 

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

 

(5,375

)

 

 

¾

 

Capitalized exploratory well costs charged to expense

 

¾

 

 

 

¾

 

Balance at end of period

 

¾

 

 

 

4,161

 

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

 

¾

 

 

 

(1,165

)

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

$

¾

 

 

$

2,996

 

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

 

¾

 

 

 

1

 

 

(8) INDEBTEDNESS

We had the following debt outstanding as of the dates shown below which are net of debt issuance costs (bank debt interest rate at March 31, 2016 is shown parenthetically) (in thousands). No interest was capitalized during the three months ended March 31, 2016 or the year ended December 31, 2015.

 

March 31,

 

 

December 31,

 

 

2016

 

  

2015

 

 

Bank debt (2.4%), net of unamortized debt issuance costs of $7,851 and $8,573

$

23,149

 

 

$

86,427

 

Senior notes:

 

 

 

 

 

 

 

4.875% senior notes due 2025, net of unamortized debt issuance costs of $11,638 and $11,899

 

738,362

 

 

 

738,101

 

Senior subordinated notes:

 

 

 

 

 

 

 

5.75% senior subordinated notes due 2021, net of unamortized debt issuance costs of $5,671 and $5,905

 

494,329

 

 

 

494,095

 

5.00% senior subordinated notes due 2022, net of unamortized debt issuance costs of $7,508 and $7,777

 

592,492

 

 

 

592,223

 

5.00% senior subordinated notes due 2023, net of unamortized debt issuance costs of $9,267 and $9,543

 

740,733

 

 

 

740,457

 

Total debt

$

2,589,065

 

 

$

2,651,303

 

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.  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 17, 2016, our borrowing base was reaffirmed at $3.0 billion and our bank commitment was also reaffirmed at $2.0 billion. As of March 31, 2016, our bank group was composed of twenty-nine financial institutions with no one bank holding more than 5.8% of the total facility. The borrowing base may be increased or decreased based on our request and sufficient proved reserves, as determined by the bank group. The commitment amount may be increased to the borrowing base, subject to payment of a mutually acceptable commitment fee to those banks agreeing to participate in the facility increase. As of March 31, 2016, the outstanding balance under our bank credit facility was $31.0 million, before deducting debt issuance costs. Additionally, we had $230.8 million of undrawn letters of credit leaving $1.7 billion of committed borrowing capacity available under the facility. During a non-investment grade period, borrowings under the bank credit facility can either be at the alternate base rate (“ABR,” as defined in the bank credit 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

9


 

base. We may elect, from time to time, to convert all or any part of our LIBOR loans to base rate loans or to convert all or any of the base rate loans to LIBOR loans. The weighted average interest rate was 2.1% for the three months ended March 31, 2016 compared to 1.8% for the three months ended March 31, 2015. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At March 31, 2016, the commitment fee was 0.30% and the interest rate margin was 1.25% on our LIBOR loans and 0.25% on our base rate loans.

At any time during which we have an investment grade debt rating from Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and we have elected, at our discretion, to effect the investment grade rating period, certain collateral security requirements, including the borrowing base requirement and restrictive covenants, will cease to apply and an additional financial covenant (as defined in the bank credit facility) will be imposed. During the investment grade period, borrowings under the credit facility can either be at the ABR plus a spread ranging from 0.125% to 0.75% or at the LIBOR Rate plus a spread ranging from 1.125% to 1.75% depending on our debt rating. The commitment fee paid on the undrawn balance would range from 0.15% to 0.30%. We currently do not have an investment grade debt rating.

Senior Notes

In May 2015, we issued $750.0 million aggregate principal amount of 4.875% senior notes due 2025 (the “Outstanding Notes”) for net proceeds of $737.4 million after underwriting discounts and commissions of $12.6 million. The notes were issued at par and were offered to qualified institutional buyers and non-U.S. persons outside the United States in compliance with Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). On April 8, 2016, all of the Outstanding Notes were exchanged for an equal principal amount of registered 4.875% senior notes due 2025 pursuant to an effective registration statement on Form S-4 filed with the SEC on February 29, 2016 under the Securities Act (the “Exchange Notes”). The Exchange Notes are identical to the Outstanding Notes except the Exchange Notes are registered under the Securities Act and do not have restrictions on transfer, registration rights or provisions for additional interest. Under certain circumstances, if we experience a change of control, noteholders may require us to repurchase all of our senior notes at 101% of the aggregate principal amount plus accrued and unpaid interest.

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.

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 March 31, 2016.

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, 2016, we were in compliance with these covenants. Our senior subordinated notes also include a limitation on the amount of credit facility debt we can incur. Certain thresholds, as set forth in the indenture debt incurrence test, may limit our ability to incur debt under our bank credit facility in excess of a $1.5 billion floor amount based on levels of commodity prices of natural gas, NGLs and crude oil used in the annual calculation of discounted future

10


 

cash flows relating to proved oil and gas reserves (as further defined in the indenture). Based on the year-end 2015 discounted future net cash flows, our bank credit facility usage is limited to $1.5 billion until higher prices or proved reserve additions increase discounted future net cash flows.

 

(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. A reconciliation of our liability for plugging and abandonment costs for the three months ended March 31, 2016 is as follows (in thousands):

 

 

  

Three Months
Ended
March 31,

 2016

 

Beginning of period

  

$

264,137

 

Liabilities incurred

  

 

194

 

Liabilities settled

 

 

(3,201

)

Disposition of wells

 

 

(2,164

)

Accretion expense

  

 

3,978

 

Change in estimate

  

 

821

 

End of period

  

 

263,765

 

Less current portion

  

 

(15,071

)

Long-term asset retirement obligations

  

$

248,694

 

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 2015:

 

 

 

Three Months
Ended
March 31,
2016

 

 

Year
Ended
December 31,
2015

 

Beginning balance

 

 

169,316,460

 

 

 

168,628,177

 

SARs exercised

 

 

 

 

 

77,002

 

Restricted stock grants

 

 

132,237

 

 

 

335,103

 

Restricted stock units vested

 

 

238,238

 

 

 

252,507

 

Treasury shares issued

 

 

9,720

 

 

 

23,671

 

Ending balance

 

 

169,696,655

 

 

 

169,316,460

 

 

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 crude oil or Mont Belvieu for NGLs, approximated a net asset of $262.0 million at March 31, 2016. These contracts expire monthly through December 2018. The following table sets forth our commodity-based derivative volumes by year as of March 31, 2016, excluding our basis and freight swaps which are discussed separately below:

 

Period

  

Contract Type

  

Volume Hedged

  

Weighted
Average Hedge Price

Natural Gas

  

 

  

 

  

 

2016

  

Swaps

  

760,000 Mmbtu/day

  

$ 3.22

2017

 

Swaps

 

155,000 Mmbtu/day

 

$ 2.82

2018

 

Swaps

 

27,500 Mmbtu/day

 

$ 2.84

 

 

 

 

 

 

 

Crude Oil

  

 

  

 

  

 

2016

 

Swaps

 

5,498 bbls/day

 

$ 59.74

2017

 

Swaps

 

1,000 bbls/day

 

$ 50.13

 

 

 

 

 

 

 

NGLs (C3-Propane)

  

 

  

 

  

 

2016

 

Swaps

 

5,500 bbls/day

 

$ 0.60/gallon

 

 

 

 

 

 

 

NGLs (NC4-Normal Butane)

  

 

  

 

  

 

2016

 

Swaps

 

3,750 bbls/day

 

$ 0.66/gallon

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

  

 

  

 

  

 

2016

 

Swaps

 

3,417 bbls/day

 

$ 1.12/gallon

2017

 

Swaps

 

750 bbls/day

 

$ 0.91/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, 2016, 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 52,360,000 Mmbtu. The fair value of these contracts was a gain of $640,000 on March 31, 2016.

At March 31, 2016, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly through December 2017 and include a total volume of 1,675,000 barrels in 2016 and 750,000 barrels in 2017. The fair value of these contracts was a gain of $2.5 million on March 31, 2016.

Freight Swap Contracts

In connection with our international propane spread swaps, at March 31, 2016, we had freight swap contracts which lock in the freight rate for a specific trade route on the Baltic Exchange. These contracts settle monthly in fourth quarter 2016. These contracts cover 5,000 metric tons per month and have a fair value of a loss of $11,000 on March 31, 2016. These contracts use observable third-party pricing inputs that we consider to be a level 2 fair value classification.

12


 

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of March 31, 2016 and December 31, 2015 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, 2016

 

 

 

  

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

  

$

214,389

 

  

$

(1,943

)

  

$

212,446

 

 

–basis swaps

 

 

3,327

 

 

 

(2,648

)

 

 

679

 

Crude oil

–swaps

  

 

29,273

 

  

 

(183

)

  

 

29,090

 

NGLs

–C3 propane swaps

  

 

8,380

 

  

 

¾

 

  

 

8,380

 

 

–C3 propane spread swaps

 

 

7,373

 

 

 

(4,916

)

 

 

2,457

 

 

–NC4 butane swaps

  

 

4,972

 

  

 

(199

)

  

 

4,773

 

 

–C5 natural gasoline swaps

 

 

9,457

 

 

 

(762

)

 

 

8,695

 

Freight

–swaps

 

 

¾

 

 

 

(11

)

 

 

(11

)

 

 

  

$

277,171

 

  

$

(10,662

)

  

$

266,509

 

 

 

 

  

March 31, 2016

 

 

 

  

Gross

Amount of 

Recognized (Liabilities)

 

  

Gross Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of

(Liabilities) Presented in the

Balance Sheet

 

Derivative (liabilities):

 

  

 

 

 

  

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

(3,399

)

 

$

1,943

 

 

$

(1,456

)

 

–basis swaps

 

 

(2,686

)

 

 

2,648

 

 

 

(38

)

Crude oil

–swaps

 

 

(81

)

 

 

183

 

 

 

102

 

NGLs

–C3 propane spread swaps

 

 

(4,916

)

 

 

4,916

 

 

 

¾

 

 

–NC4 butane swaps

 

 

(199

)

 

 

199

 

 

 

¾

 

 

–C5 natural gasoline swaps

 

 

(832

)

 

 

762

 

 

 

(70

)

Freight

–swaps

 

 

(11

)

 

 

11

 

 

 

¾

 

 

 

  

$

(12,124

)

  

$

10,662

 

  

$

(1,462

)

 

 

 

December 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

$

219,357

 

 

$

(10,245

)

 

$

209,112

 

 

–basis swaps

 

8,251

 

 

 

(2,765

)

 

 

5,486

 

Crude oil

–swaps

 

38,699

 

 

 

¾

 

 

 

38,699

 

NGLs

–C3 propane swaps

 

15,884

 

 

 

¾

 

 

 

15,884

 

 

–C3 propane spread swaps

 

2,497

 

 

 

(2,497

)

 

 

¾

 

 

–NC4 butane swaps

 

6,968

 

 

 

¾

 

 

 

6,968

 

 

–C5 natural gasoline swaps

 

12,694

 

 

 

(81

)

 

 

12,613

 

 

 

$

304,350

 

 

$

(15,588

)

 

$

288,762

 

13


 

 

 

 

December 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

–swaps

$

(10,245

)

 

$

10,245

 

 

$

¾

 

 

–basis swaps

 

(2,786

)

 

 

2,765

 

 

 

(21

)

NGLs

–C3 propane spread swap

 

(3,633

)

 

 

2,497

 

 

 

(1,136

)

 

–C5 natural gasoline swaps

 

(81

)

 

 

81

 

 

 

¾

 

 

 

$

(16,745

)

 

$

15,588

 

 

$

(1,157

)

 

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 March 31,

 

 

 

 

Derivative Fair Value

Income (Loss)

 

 

 

2016

 

 

 

2015

 

 

Commodity swaps

$

79,644

 

 

$

125,777

 

 

Collars

 

¾

 

 

 

8,415

 

 

Basis swaps

 

7,275

 

 

 

(11,353

)

 

Freight swaps

 

(11

)

 

 

¾

 

 

Total

$

86,908

 

 

$

122,839

 

 

 

 

(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.

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, 2016 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,
2016

 

Trading securities held in the deferred compensation plans

 

$

63,018

 

 

$

 

 

$

 

 

$

63,018

 

Derivatives swaps

 

 

 

 

 

261,961

 

 

 

 

 

 

261,961

 

                    –basis swaps

  

 

  —

 

  

 

3,097

 

 

 

 

  

 

3,097

 

                    –freight swaps

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

 

 

  

Fair Value Measurements at December 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
December 31,
2015

 

Trading securities held in the deferred compensation plans

  

$

62,376

  

  

$

  

 

$

  

  

$

62,376

  

Derivatives swaps

  

 

 —

 

  

 

283,276

 

 

 

  

  

 

283,276

 

                    –basis swaps

  

 

 —

 

  

 

4,329

  

 

 

  

  

 

4,329

  

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 first quarter 2016, interest and dividends were $136,000 and the mark-to-market adjustment was a gain of $259,000 compared to interest and dividends of $109,000 and a mark-to-market gain of $1.4 million in first quarter 2015.

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 March 31, 2016, 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 also considered the potential sale of certain of these properties. We recorded non-cash charges during the three months ended March 31, 2016 of $43.0  million related to our natural gas and oil properties in Western Oklahoma. 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):

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

 

 

 

Fair Value

 

 

 

Impairment

 

 

 

Fair Value Value

 

 

 

Impairment

 

 

Natural gas and oil properties

$

90,150

 

 

$

43,040

 

 

$

¾

 

 

$

¾

 

 

15


 

Fair Values—Reported

The following table presents the carrying amounts and the fair values of our financial instruments as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity swaps and basis swaps

 

$

266,509

 

 

$

266,509

 

 

$

288,762

 

 

$

288,762

 

Marketable securities (a)

 

 

63,018

 

 

 

63,018

 

 

 

62,376

 

 

 

62,376

 

(Liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity swaps and basis swaps

 

 

(1,462

)

 

 

(1,462

)

 

 

(1,157

)

 

 

(1,157

)

Bank credit facility (b)

 

 

(31,000

)

 

 

(31,000

)

 

 

(95,000

)

 

 

(95,000

)

Deferred compensation plan (c)

 

 

(139,279

)

 

 

(139,279

)

 

 

(122,918

)

 

 

(122,918

)

4.875% senior notes due 2025 (b)

 

 

(750,000

)

 

 

(651,563

)

 

 

(750,000

)

 

 

(572,813

)

5.75% senior subordinated notes due 2021 (b)

 

 

(500,000

)

 

 

(441,250

)

 

 

(500,000

)

 

 

(396,250

)

5.00% senior subordinated notes due 2022 (b)

 

 

(600,000

)

 

 

(515,250

)

 

 

(600,000

)

 

 

(447,000

)

5.00% senior subordinated notes due 2023 (b)

 

 

(750,000

)

 

 

(635,625

)

 

 

(750,000

)

 

 

(551,250

)

(a)

Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges.

(b)

The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior notes and our senior subordinated notes is based on end of period market quotes which are Level 2 inputs.

(c)

The fair value of our deferred compensation plan is updated at the closing price on the balance sheet date which is a Level 1 input.

Our current assets and liabilities 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, 2016, our primary concentrations of credit risk are the risks of not collecting accounts receivable and the risk of a counterparty’s failure to perform under derivative obligations. Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate security are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectable receivables was $4.5 million at March 31, 2016 and $5.0 million at December 31, 2015. As of March 31, 2016, our derivative contracts consist of swaps. Our derivative exposure to credit risk is diversified primarily among major investment grade financial institutions, where we have master netting agreements which provide for offsetting payables against receivables from separate derivative contracts. To manage counterparty risk associated with our derivatives, we select and monitor our counterparties based on our assessment of their financial strength and/or credit ratings. We may also limit the level of exposure with any single counterparty. At March 31, 2016, our derivative counterparties include nineteen financial institutions, of which all but four are secured lenders in our bank credit facility. At March 31, 2016, our net derivative assets include a net receivable from these four counterparties that are not included in our bank credit facility of $9.5 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 our 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. In 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%.

16


 

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 based on their distribution elections. Compensation expense is recognized over 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 operations.

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 plan is directly tied to the change in our stock price and not directly related to the functional expenses and therefore, is not allocated to the functional categories. The following table details the allocation of stock-based compensation to functional expense categories (in thousands):

 

 

 

Three Months Ended
March 31,

 

 

 

2016

 

 

 

2015

 

 

Direct operating expense

$

588

 

 

$

886

 

 

Brokered natural gas and marketing expense

 

516

 

 

 

506

 

 

Exploration expense

 

690

 

 

 

732

 

 

General and administrative expense

 

11,113

 

 

 

11,080

 

 

Termination costs

 

¾

 

 

 

1,287

 

 

Total stock-based compensation

$

12,907

 

 

$

14,491

 

 

 

Performance Share Unit Awards

The following is a summary of our non-vested PSU awards outstanding at March 31, 2016:

 

 


Number of

Units

 

 

Weighted
Average
Grant Date Fair Value

 

Outstanding at December 31, 2015

 

 

262,124

 

 

$

64.77

 

Units granted (a)

 

 

118,193

 

 

 

30.47

 

Units vested

 

 

(42,546

)

 

 

60.75

 

Units forfeited

 

 

¾

 

 

 

¾

 

Outstanding at March 31, 2016

 

 

337,771

 

 

$

53.28

 

(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 2016:

 

 

Three Months Ended

March 31,

 

 

2016

 

 

 

2015

 

Risk-free interest rate

 

0.85

%

 

 

1.05

%

Expected annual volatility

 

51.7

%

 

 

33.9

%

Weighted average grant date fair value per unit

$

30.47

 

 

$

55.17

 

 

We recorded PSU compensation expense of $2.5 million in first quarter 2016 compared to $1.3 million in the same period of 2015.

17


 

Restricted Stock Awards

Equity Awards

In first quarter 2016, we granted 927,000 restricted stock Equity Awards to employees at an average grant price of $28.04 compared to 548,000 restricted stock Equity Awards granted to employees at an average grant price of $52.25 in first quarter 2015. These awards generally vest over a three-year period. We recorded compensation expense for these Equity Awards of $5.8 million in first quarter 2016 compared to $7.8 million in the same period of 2015. 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 2016, we granted 136,000 shares of restricted stock Liability Awards as compensation to employees at an average price of $28.40 with vesting generally over a three-year period. In first quarter 2015, we granted 95,000 shares of Liability Awards as compensation to employees at an average price of $52.25 with vesting generally over a three-year period. We recorded compensation expense for Liability Awards of $3.7 million in the first quarter 2016 compared to $3.9 million in the same period of 2015. 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 operations (see additional discussion below). The following is a summary of the status of our non-vested restricted stock outstanding at March 31, 2016:

 

 

 

Equity Awards

 

 

Liability Awards

 

 

 

Shares

 

 

Weighted
Average Grant
Date Fair Value

 

 

Shares

 

 

Weighted
Average Grant
Date Fair Value

 

Outstanding at December 31, 2015

 

 

436,764

 

 

$

59.74

 

 

 

308,737

 

 

$

65.80

 

Granted

 

 

927,266

 

 

 

28.04

 

 

 

136,275

 

 

 

28.40

 

Vested

 

 

(135,715

)

 

 

49.30

 

 

 

(69,683

)

 

 

65.22

 

Forfeited

 

 

(30,281

)

 

 

50.73

 

 

 

(4,038

)

 

 

52.45

 

Outstanding at March 31, 2016

 

 

1,198,034

 

 

$

36.61

 

 

 

371,291

 

 

$

52.32

 

Stock Appreciation Right Awards

We have one active equity-based stock plan which we refer to as 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 1.4 million SARs outstanding at March 31, 2016. Information with respect to SARs activity is summarized below:

 

 

 

Shares

 

 

Weighted
Average
Exercise Price

 

Outstanding at December 31, 2015

 

 

1,510,977

 

 

$

63.73

 

Exercised

 

 

¾

 

 

 

 

Expired/forfeited

 

 

(102,661

)

 

 

49.18

 

Outstanding at March 31, 2016

 

 

1,408,316

 

 

$

64.79

 

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 plan are held in a grantor trust, which we refer to as the Rabbi Trust, and are therefore available to satisfy the claims of our general creditors in the event of bankruptcy or insolvency. Our stock held in the Rabbi Trust is treated as a liability award as employees are allowed to take withdrawals from the Rabbi Trust either in cash or in Range stock. The liability for the vested portion of the stock held in the Rabbi Trust is reflected as deferred compensation liability in the accompanying consolidated balance sheets and is adjusted to fair value each reporting period by a charge or credit to deferred compensation plan expense on our consolidated statements of operations. The assets of the Rabbi Trust, other than our common stock, are invested in marketable securities and reported at their market value as other assets in the accompanying consolidated balance sheets. The deferred compensation liability reflects the vested market value of the marketable securities and Range stock held in the Rabbi Trust. Changes in the market value of the marketable securities and changes in the fair value of the deferred compensation plan liability are charged or credited to deferred compensation plan expense each quarter. Due to an increase in the Range stock price since December 31, 2015, we recorded a mark-to-market loss of $16.1 million in first quarter 2016 compared to a gain of $5.6 million in first quarter 2015. The Rabbi Trust held 2.8 million shares (2.4 million of which were vested) of Range stock at March 31, 2016 compared to 2.8 million shares (2.5 million of which were vested) at December 31, 2015.

18


 

(14) SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Three Months Ended
March 31,

 

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Net cash provided from operating activities included:

 

 

 

 

 

 

 

 

Income taxes refunded from taxing authorities

 

$

73

 

 

$

 

Interest paid

 

 

(37,117

)

 

 

(54,284

)

Non-cash investing and financing activities included:

 

 

 

 

 

 

 

 

Increase in asset retirement costs capitalized

 

 

1,015

 

 

 

15,813

 

Increase (decrease) in accrued capital expenditures

 

 

9,719

 

 

 

(110,622

)

 

 

 

 

 

 

 

 

 

 

(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 these actions, proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations. We estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. We will continue to evaluate our litigation and regulatory proceedings quarterly and will establish and adjust any estimated liability as appropriate to reflect our assessment of the then current status of litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.

Transportation and Gathering Contracts

In first quarter 2016, our transportation and gathering commitments increased by approximately $12.7 million over the next nine years primarily from new firm transportation contracts and price changes to current contracts.

Delivery Commitments

In first quarter 2016, 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 1,500 to 15,000 Mmbtu per day of natural gas and the commitments are between one and five years and began as early as April 1, 2016.  

(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 fourth quarter 2014, we initially accrued an estimated $8.4 million of termination costs relating to the closure of this office as it was probable of occurring. In early 2015, those plans and personnel involved were finalized which resulted in additional accruals in 2015 for severance and other personnel costs of $275,000, additional accelerated vesting of stock-based compensation of $608,000 and $3.2 million of building lease costs. The following summarizes our termination costs for the three months ended March 31, 2016 and 2015 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

 

2015

 

Termination costs

$

 

 

$

1,431

 

Building lease

 

162

 

 

 

3,232

 

Stock-based compensation

 

 

 

 

1,287

 

 

$

162

 

 

$

5,950

 

19


 

The following details our accrued liability as of March 31, 2016 (in thousands):

 

 

 

March 31,

2016

 

Beginning balance

$

11,630

 

Accrued building rent

 

162

 

Payments

 

(5,405

)

Ending balance

$

6,387

 

 

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

 

 

March 31,
2016

 

 

December 31,
2015

 

 

 

(in thousands)

 

Natural gas and oil properties:

 

 

 

 

 

 

 

 

Properties subject to depletion

 

$

8,030,190

 

 

$

8,047,181

 

Unproved properties

 

 

935,189

 

 

 

949,155

 

Total

 

 

8,965,379

 

 

 

8,996,336

 

Accumulated depreciation, depletion and amortization

 

 

(2,748,635

)

 

 

(2,635,031

)

Net capitalized costs

 

$

6,216,744

 

 

$

6,361,305

 

(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,

2016

 

 

Year

Ended
December 31, 2015

 

 

 

(in thousands)

 

Acreage purchases

 

$

5,341

 

 

$

73,025

 

Development

 

 

120,903

 

 

 

708,268

 

Exploration:

 

 

 

 

 

 

 

 

Drilling

 

 

9,097

 

 

 

87,505

 

Expense

 

 

4,223

 

 

 

18,421

 

Stock-based compensation expense

 

 

690

 

 

 

2,985

 

Gas gathering facilities:

 

 

 

 

 

 

 

 

Development

 

 

848

 

 

 

13,337

 

Subtotal

 

 

141,102

 

 

 

903,541

 

Asset retirement obligations

 

 

1,015

 

 

 

22,184

 

Total costs incurred

 

$

142,117

 

 

$

925,725

 

(a)

Includes costs incurred whether capitalized or expensed.

 

 

 

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 events. 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, 2015, as filed with the SEC on February 24, 2016.

Overview of Our Business

We are a Fort Worth, Texas-based independent natural gas, natural gas liquids (“NGLs”) and oil company engaged in the exploration, development and acquisition of natural gas and oil properties primarily in the Appalachian region 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. We do not maintain complete separate financial statement information by area. We measure financial performance as a single enterprise and not on an area-by-area basis.

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. Natural gas and crude oil prices continue to be depressed. Prices for natural gas, NGLs and oil fluctuate widely and affect: