10-Q 1 rrc-10q_20180630.htm RRC-Q2-10-Q rrc-10q_20180630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

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

For the quarterly period ended June 30, 2018

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      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      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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

  

Accelerated Filer

 

 

 

 

 

Non-Accelerated Filer

 

  (Do not check if smaller reporting company)

  

Smaller Reporting Company

 

 

 

 

 

Emerging Growth Company

 

 

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

 

 

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

Yes      No  

249,454,545 Common Shares were outstanding on July 27, 2018

 

 

 

 


RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended June 30, 2018

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

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

  

28

ITEM 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

43

ITEM 4.

 

Controls and Procedures

  

46

PART II – OTHER INFORMATION

  

 

ITEM 1.

 

Legal Proceedings

  

46

ITEM 1A.

 

Risk Factors

  

46

ITEM 6.

 

Exhibits

  

47

 

 

 

 

 

SIGNATURES

  

48

 

 

2


PART I – FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

RANGE RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

June 30,

 

 

December 31,

 

 

2018

 

 

2017

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

415

 

 

$

448

 

Accounts receivable, less allowance for doubtful accounts of $5,615 and $7,111

 

362,490

 

 

 

348,833

 

Derivative assets

 

 

 

 

58,607

 

Inventory and other

 

21,967

 

 

 

21,346

 

Total current assets

 

384,872

 

 

 

429,234

 

Derivative assets

 

3,295

 

 

 

273

 

Goodwill

 

1,641,197

 

 

 

1,641,197

 

Natural gas and oil properties, successful efforts method

 

13,666,487

 

 

 

13,216,453

 

Accumulated depletion and depreciation

 

(3,961,365

)

 

 

(3,649,716

)

 

 

9,705,122

 

 

 

9,566,737

 

Other property and equipment

 

114,833

 

 

 

114,361

 

Accumulated depreciation and amortization

 

(101,643

)

 

 

(99,695

)

 

 

13,190

 

 

 

14,666

 

Other assets

 

78,401

 

 

 

76,734

 

Total assets

$

11,826,077

 

 

$

11,728,841

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

248,226

 

 

$

343,871

 

Asset retirement obligations

 

6,327

 

 

 

6,327

 

Accrued liabilities

 

341,428

 

 

 

317,531

 

Accrued interest

 

42,700

 

 

 

43,511

 

Derivative liabilities

 

101,328

 

 

 

44,233

 

Total current liabilities

 

740,009

 

 

 

755,473

 

Bank debt

 

1,304,584

 

 

 

1,208,467

 

Senior notes

 

2,853,948

 

 

 

2,851,754

 

Senior subordinated notes

 

48,630

 

 

 

48,585

 

Deferred tax liabilities

 

707,563

 

 

 

693,356

 

Derivative liabilities

 

10,088

 

 

 

9,789

 

Deferred compensation liabilities

 

87,087

 

 

 

101,102

 

Asset retirement obligations and other liabilities

 

310,133

 

 

 

286,043

 

Total liabilities

 

6,062,042

 

 

 

5,954,569

 

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, 249,437,273 issued at

     June 30, 2018 and 248,144,397 issued at December 31, 2017

 

2,494

 

 

 

2,481

 

Common stock held in treasury, 10,067 shares at June 30, 2018 and 14,967

     shares at December 31, 2017

 

(404

)

 

 

(599

)

Additional paid-in capital

 

5,607,707

 

 

 

5,577,732

 

Accumulated other comprehensive loss

 

(1,194

)

 

 

(1,332

)

Retained earnings

 

155,432

 

 

 

195,990

 

Total stockholders’ equity

 

5,764,035

 

 

 

5,774,272

 

Total liabilities and stockholders’ equity

$

11,826,077

 

 

$

11,728,841

 

 

 

 

 

See accompanying notes.

3


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

661,390

 

 

$

506,137

 

 

$

1,358,019

 

 

$

1,065,587

 

Derivative fair value (loss) income

 

(103,290

)

 

 

111,195

 

 

 

(117,299

)

 

 

276,752

 

Brokered natural gas, marketing and other

 

98,084

 

 

 

55,779

 

 

 

158,063

 

 

 

107,427

 

Total revenues and other income

 

656,184

 

 

 

673,111

 

 

 

1,398,783

 

 

 

1,449,766

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating

 

35,088

 

 

 

31,420

 

 

 

73,210

 

 

 

59,443

 

Transportation, gathering, processing and compression

 

269,910

 

 

 

191,590

 

 

 

514,538

 

 

 

369,238

 

Production and ad valorem taxes

 

10,140

 

 

 

9,969

 

 

 

20,066

 

 

 

19,132

 

Brokered natural gas and marketing

 

102,747

 

 

 

55,857

 

 

 

158,341

 

 

 

109,407

 

Exploration

 

7,499

 

 

 

14,498

 

 

 

15,218

 

 

 

23,002

 

Abandonment and impairment of unproved properties

 

54,922

 

 

 

5,193

 

 

 

66,695

 

 

 

9,613

 

General and administrative

 

47,583

 

 

 

52,322

 

 

 

116,000

 

 

 

99,818

 

Termination costs

 

 

 

 

(96

)

 

 

(37

)

 

 

4,096

 

Deferred compensation plan

 

6,615

 

 

 

(14,466

)

 

 

(782

)

 

 

(27,635

)

Interest

 

53,862

 

 

 

47,926

 

 

 

106,247

 

 

 

95,027

 

Depletion, depreciation and amortization

 

161,026

 

 

 

152,504

 

 

 

323,292

 

 

 

302,325

 

Impairment of proved properties

 

15,302

 

 

 

 

 

 

22,614

 

 

 

 

Gain on the sale of assets

 

(156

)

 

 

(807

)

 

 

(179

)

 

 

(23,407

)

Total costs and expenses

 

764,538

 

 

 

545,910

 

 

 

1,415,223

 

 

 

1,040,059

 

(Loss) income before income taxes

 

(108,354

)

 

 

127,201

 

 

 

(16,440

)

 

 

409,707

 

Income tax (benefit) expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

(28,518

)

 

 

57,651

 

 

 

14,158

 

 

 

170,046

 

 

 

(28,518

)

 

 

57,651

 

 

 

14,158

 

 

 

170,046

 

Net (loss) income

$

(79,836

)

 

$

69,550

 

 

$

(30,598

)

 

$

239,661

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.32

)

 

$

0.28

 

 

$

(0.13

)

 

$

0.97

 

Diluted

$

(0.32

)

 

$

0.28

 

 

$

(0.13

)

 

$

0.97

 

Dividends paid per common share

$

0.02

 

 

$

0.02

 

 

$

0.04

 

 

$

0.04

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

245,880

 

 

 

245,177

 

 

 

245,795

 

 

 

244,916

 

Diluted

 

245,880

 

 

 

245,335

 

 

 

245,795

 

 

 

245,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

4


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited, in thousands)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(79,836

)

 

$

69,550

 

 

$

(30,598

)

 

$

239,661

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost

 

93

 

 

 

 

 

 

185

 

 

 

 

Income tax benefit

 

(23

)

 

 

 

 

 

(46

)

 

 

 

Total comprehensive (loss) income

$

(79,766

)

 

$

69,550

 

 

$

(30,459

)

 

$

239,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

5


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net (loss) income

$

(30,598

)

 

$

239,661

 

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

 

 

 

 

 

 

 

Deferred income tax expense

 

14,158

 

 

 

170,046

 

Depletion, depreciation and amortization and impairment

 

345,906

 

 

 

302,325

 

Exploration dry hole costs

 

2

 

 

 

161

 

Abandonment and impairment of unproved properties

 

66,695

 

 

 

9,613

 

Derivative fair value loss (income)

 

117,299

 

 

 

(276,752

)

Cash settlements on derivative financial instruments

 

(5,350

)

 

 

(794

)

Allowance for bad debts

 

(1,500

)

 

 

300

 

Amortization of deferred financing costs and other

 

2,376

 

 

 

2,557

 

Deferred and stock-based compensation

 

34,167

 

 

 

1,952

 

Gain on the sale of assets

 

(179

)

 

 

(23,407

)

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

(14,425

)

 

 

(13,610

)

Inventory and other

 

796

 

 

 

3,716

 

Accounts payable

 

14,615

 

 

 

18,426

 

Accrued liabilities and other

 

1,553

 

 

 

(22,866

)

Net cash provided from operating activities

 

545,515

 

 

 

411,328

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(584,432

)

 

 

(469,644

)

Additions to field service assets

 

(1,863

)

 

 

(2,966

)

Acreage purchases

 

(37,900

)

 

 

(37,987

)

Proceeds from disposal of assets

 

366

 

 

 

27,288

 

Purchases of marketable securities held by the deferred compensation plan

 

(27,271

)

 

 

(19,665

)

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

 

25,459

 

 

 

21,356

 

Net cash used in investing activities

 

(625,641

)

 

 

(481,618

)

Financing activities:

 

 

 

 

 

 

 

Borrowings on credit facilities

 

1,114,000

 

 

 

946,000

 

Repayments on credit facilities

 

(1,011,000

)

 

 

(874,000

)

Repayment of senior notes

 

 

 

 

(500

)

Dividends paid

 

(9,960

)

 

 

(9,914

)

Debt issuance costs

 

(8,257

)

 

 

 

Taxes paid for shares withheld

 

(3,021

)

 

 

(6,077

)

Change in cash overdrafts

 

(7,318

)

 

 

10,839

 

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

 

5,649

 

 

 

4,148

 

Net cash provided from financing activities

 

80,093

 

 

 

70,496

 

(Decrease) increase in cash and cash equivalents

 

(33

)

 

 

206

 

Cash and cash equivalents at beginning of period

 

448

 

 

 

314

 

Cash and cash equivalents at end of period

$

415

 

 

$

520

 

 

 

 

 

 

 

 

See accompanying notes.

 

6


RANGE RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) SUMMARY OF ORGANIZATION AND NATURE OF BUSINESS

Range Resources Corporation is a Fort Worth, Texas-based independent natural gas, natural gas liquids (“NGLs”) and oil company primarily engaged in the exploration, development and acquisition of natural gas and oil properties in the Appalachian and the North Louisiana regions of the United States. Our objective is to build stockholder value through consistent returns-focused growth, on a per share debt-adjusted basis, of both 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018. The results of operations for the second quarter and the six months ended June 30, 2018 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.

Inventory. As of June 30, 2018, we had $8.4 million of material and supplies inventory compared to $12.1 million at December 31, 2017. Material and supplies inventory consists of primarily tubular goods and equipment used in our operations and is stated at lower of specific cost of each inventory item or net realized value, on a first-in, first-out basis. At June 30, 2018, we also had commodity inventory of $364,000 compared to $508,000 at December 31, 2017. Commodity inventory as of June 30, 2018 consists of NGLs held in storage or as line fill in pipelines.

Unproved Properties. Impairment of a significant portion of our unproved properties is assessed and amortized on an aggregate basis based on our average holding period, expected forfeiture rate and anticipated drilling success. In certain circumstances, our future plans to develop acreage may accelerate our impairment.

(3) NEW ACCOUNTING STANDARDS

Not Yet Adopted

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 twelve 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 will 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 do not plan to early adopt this new standard. This standard does not apply to leases to explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained. We are evaluating each of our lease arrangements and are currently enhancing our systems to track and calculate additional information necessary for adoption of this standard. We are evaluating the provisions of this accounting standards update and assessing the impact it will have on our consolidated results of operations, financial position and financial disclosures, in addition to developing any control changes necessary. We believe this new guidance will likely increase our recorded assets and liabilities that are not currently recognized under currently applicable guidance.

In June 2016, an accounting standards update was issued that changes the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. The standards update requires the use of a forward-looking “expected loss” model as opposed to the current “incurred loss” model. This standards update is effective for us in first quarter 2020 and should be adopted on a modified retrospective basis though a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. Early adoption is permitted starting January 2019. 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 and financial disclosures.

7


Recently Adopted

In March 2017, an accounting standards update was issued which provides additional guidance on the presentation of net benefit cost in the statement of operations. Employers will present the service cost component of net periodic benefit cost in the same consolidated results of operations line item as other employee compensation costs arising from services rendered during the period. This new standards update was effective for annual reporting periods in first quarter 2018 and must be applied retrospectively. We adopted this standards update in first quarter 2018. The adoption did not impact our consolidated results of operations, financial position, cash flows or disclosures. We had no service cost recorded prior to 2018 due to the implementation of our postretirement benefit plan at the end of 2017. In 2018, our service cost is recorded in general and administrative expense.

In May 2017, an accounting standards update was issued which clarifies what constitutes a modification of a share-based award. This standards update is intended to provide clarity and reduce both diversity in practice and cost and complexity to a change to the terms or conditions of a share-based payment award. We adopted this standards update in first quarter 2018. The adoption of this standard did not have a material impact on our consolidated financial position or results of operations.

In May 2014, an accounting standards update was issued that superseded the existing revenue recognition requirements. This standard included 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 eliminated industry-specific revenue guidance, required enhanced disclosures about revenue, provided guidance for transactions that were not previously addressed comprehensively and improved guidance for multiple-element arrangements. This standard was effective for us in first quarter 2018 and we adopted the new standard using the modified retrospective method to all open contracts as of January 1, 2018. We utilized a bottom-up approach to analyze the impact of the new standard by reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts and the impact of adopting this standards update on our total revenues, operating income and our consolidated balance sheet. Our implementation of this standard did not result in a cumulative-effect adjustment on date of adoption; however, our financial statement presentation related to revenue received from certain gas processing contracts changed. Based on previous accounting guidance, certain of our gas processing contracts were reported in revenue at the net price (net of processing costs) we receive. Upon adoption of this accounting standards update, these contracts are now reported as a gross price received at a delivery point and separate transportation, marketing and processing expense. The impact of adoption of the new revenue recognition standard on our current period results is as follows (in thousands):

 

Three Months Ended June 30, 2018

As Reported

 

 

Previous Revenue

Recognition Method

 

 

 

 

 

 

 

 

 

 

$

 

 

 

$ Per mcfe

 

 

 

$

 

 

 

$ Per

mcfe

 

 

 

Increase

 

 

 

$ Per

mcfe

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

661,390

 

 

$

3.30

 

 

$

619,244

 

 

$

3.09

 

 

$

42,146

 

 

$

0.21

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation, gathering, processing and compression

$

269,910

 

 

$

1.35

 

 

$

227,764

 

 

$

1.14

 

 

$

42,146

 

 

$

0.21

 

Net loss

$

(79,836

)

 

 

 

 

 

$

(79,836

)

 

 

 

 

 

$

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

As Reported

 

 

Previous Revenue

Recognition Method

 

 

 

 

 

 

 

 

 

$

 

 

 

$ Per

mcfe

 

 

 

$

 

 

 

$ Per

mcfe

 

 

 

Increase

 

 

 

$ Per

mcfe

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

1,358,019

 

 

$

3.42

 

 

$

1,278,046

 

 

$

3.22

 

 

$

79,973

 

 

$

0.20

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation, gathering, processing and compression

$

514,538

 

 

$

1.29

 

 

$

434,565

 

 

$

1.09

 

 

$

79,973

 

 

$

0.20

Net loss

$

(30,598

)

 

 

 

 

 

$

(30,598

)

 

 

 

 

 

$

 

 

 

 

Changes to natural gas, NGLs and oil sales and transportation, gathering, processing, and compression expenses is due to the conclusion that we represent the role of principal in a certain gas processing and marketing agreement with a midstream entity in accordance with the new accounting standard. This represents a change from our previous conclusion utilizing the principal versus agent indication that we acted as the agent in that agreement. As a result, we were required to modify our presentation to present revenue on a gross basis for amounts expected to be received from third-party customers through the marketing process, with expenses incurred prior to control of the products transferring to the midstream entity at the tailgate of the plant presented as transportation, gathering, processing and compression expense.

8


In January 2017, an accounting standards update was issued that eliminates the requirements to calculate the implied fair value of goodwill to measure goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard is effective for annual periods beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for any goodwill impairment tests performed in first quarter 2017 or later. We elected to adopt this accounting standards update in first quarter 2017. The adoption did not have a significant impact on our consolidated results of operations, financial position, cash flows or disclosures; however, this standard did change our policy for our annual goodwill impairment assessment by eliminating the requirement to calculate the implied fair value of goodwill.

In July 2015, an accounting standards update was issued that requires an entity to measure inventory at the lower of cost or net realizable value. This excludes inventory measured using LIFO or the retail inventory method. This standard was effective for us in first quarter 2017 and was applied prospectively. Adoption of this standard did not have an impact on our consolidated results of operations, financial position or cash flows.

In August 2016, an accounting standards update was issued that clarifies how entities classify certain cash receipts and cash payments on the statement of cash flows. The guidance is effective for us in first quarter 2018 and should be applied retrospectively with early adoption permitted. We adopted this new standard in fourth quarter 2017 on a retrospective basis. Adoption of this standard did not have an impact on our consolidated cash flow statement presentation.

In January 2017, an accounting standards update was issued which clarifies the definition of a business. This new standard is effective for us in first quarter 2018 with early adoption permitted. We adopted this new standard in fourth quarter 2017. Adoption of this standard did not have a significant impact on our consolidated results of operations, financial position or cash flows.

(4) DISPOSITIONS

We recognized a pretax net gain on the sale of assets of $156,000 in second quarter 2018 compared to a pretax net gain of $807,000 in the same period of the prior year and a pretax net gain on the sale of assets of $179,000 in first six months 2018 compared to a pretax gain on the sale of assets of $23.4 million in first six months 2017.

2018 Dispositions

Other. In second quarter 2018, we sold miscellaneous inventory and other assets for proceeds of $326,000 resulting in a pretax gain of $156,000. In first quarter 2018, we sold miscellaneous inventory and other assets for proceeds of $40,000 resulting in a pretax gain of $23,000.

2017 Dispositions

Western Oklahoma. In first six months 2017, we sold properties in Western Oklahoma for proceeds of $26.0 million and we recorded a gain of $22.1 million related to this sale, after closing adjustments and transaction fees.

Other.  In second quarter 2017, we sold miscellaneous unproved property, inventory and other assets for proceeds of $1.2 million resulting in a pretax gain of $1.2 million. In first quarter 2017, we sold miscellaneous proved and unproved properties, inventory, other assets and surface acreage for proceeds of $53,000 resulting in a pretax gain of $69,000.

(5) GOODWILL

During 2016, we recorded goodwill associated with the acquisition of Memorial Resource Development Corp. (the “MRD Merger”), which represented the cost of the acquired entity over the net amounts assigned to assets acquired and liabilities assumed. Goodwill is assessed for impairment whenever events or circumstances indicate that impairment of the carrying value of goodwill is likely, but no less often than annually. During fourth quarter 2017, we performed our annual qualitative assessment of goodwill to determine whether it was more likely than not that the fair value of our business (our reporting unit) was less than its carrying amount. Based on the results of this assessment, we determined it was not likely that goodwill was impaired. We are not aware of any events or circumstances that occurred during first six months 2018 that would have more likely than not reduced the fair value of our reporting unit below its carrying value.

9


(6) INCOME TAXES

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

 

 

Three Months Ended

June 30,

 

 

 

Six Months Ended

June 30,

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

Income tax (benefit) expense

$

(28,518

)

 

$

57,651

 

 

$

14,158

 

 

$

170,046

 

Effective tax rate

 

26.3

%

 

 

45.3

%

 

 

(86.1

%)

 

 

41.5

%

 

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 second quarter and first six months ended June 30, 2018 and 2017, our overall effective tax rate was different than the federal statutory rate due primarily to state income taxes (including adjustments to state income tax valuation allowances), equity compensation and other tax items which are detailed below (in thousands).

 

 

Three Months Ended

June 30,

 

 

 

Six Months Ended

June 30,

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

Total (loss) income before income taxes

$

(108,354

)

 

$

127,201

 

 

$

(16,440

)

 

$

409,707

 

U.S. federal statutory rate

 

21

%

 

 

35

%

 

 

21

%

 

 

35

%

Total tax (benefit) expense at statutory rate

 

(22,754

)

 

 

44,520

 

 

 

(3,452

)

 

 

143,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and local income taxes, net of federal benefit

 

(3,745

)

 

 

4,146

 

 

 

749

 

 

 

13,128

 

Non-deductible executive compensation

 

291

 

 

 

 

 

 

553

 

 

 

140

 

Equity compensation

 

1,476

 

 

 

2,228

 

 

 

2,140

 

 

 

4,752

 

Change in valuation allowances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal net operating loss carryforwards & other

 

 

 

 

2,562

 

 

 

 

 

 

3,418

 

State net operating loss carryforwards & other

 

(2,042

)

 

 

4,127

 

 

 

13,636

 

 

 

6,212

 

Rabbi trust and other

 

18

 

 

 

68

 

 

 

1,399

 

 

 

(1,053

)

Permanent differences and other

 

(1,762

)

 

 

 

 

 

(867

)

 

 

52

 

Total (benefit) expense for income taxes

$

(28,518

)

 

$

57,651

 

 

$

14,158

 

 

$

170,046

 

Effective tax rate

 

26.3

%

 

 

45.3

%

 

 

(86.1

%)

 

 

41.5

%

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. The law significantly reformed the Internal Revenue Code of 1986, as amended. The reduction in the corporate tax rate required a one-time revaluation of certain tax related assets and liabilities to reflect their value at the lower corporate tax rate of 21%. Due to the complexities involved in the accounting for the enactment of the new law, the SEC Staff Accounting Bulletin (“SAB”) 118 allowed a provisional estimate for the year ended December 31, 2017, which we made. As of June 30, 2018, we have not made any material adjustments to our provisional estimate at year-end 2017. We have made a reasonable estimate of the effect on our deferred tax balances. We will continue to analyze the impact of the new law and additional impacts will be recorded as they are identified during the measurement period provided for in SAB 118.

10


(7) (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 sets forth a reconciliation of income or loss attributable to common shareholders to basic income or loss attributable to common shareholders to diluted income or loss attributable to common shareholders (in thousands except per share amounts):

 

 

 

Three Months Ended

June 30,

 

 

 

Six Months Ended

June 30,

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

Net (loss) income, as reported

$

(79,836

)

 

$

69,550

 

 

$

(30,598

)

 

$

239,661

 

Participating earnings (a)

 

(69

)

 

 

(751

)

 

 

(126

)

 

 

(2,619

)

Basic net (loss) income attributed to common shareholders

 

(79,905

)

 

 

68,799

 

 

 

(30,724

)

 

 

237,042

 

Reallocation of participating earnings (a)

 

 

 

 

 

 

 

 

 

 

3

 

Diluted net (loss) income attributed to common shareholders

$

(79,905

)

 

$

68,799

 

 

$

(30,724

)

 

$

237,045

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.32

)

 

$

0.28

 

 

$

(0.13

)

 

$

0.97

 

Diluted

$

(0.32

)

 

$

0.28

 

 

$

(0.13

)

 

$

0.97

 

(a)

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

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

 

 

 

Three Months Ended

June 30,

 

 

 

Six Months Ended

June 30,

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

Weighted average common shares outstanding – basic

 

245,880

 

 

 

245,177

 

 

 

245,795

 

 

 

244,916

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director and employee PSUs and RSUs

 

 

 

 

158

 

 

 

 

 

 

326

 

Weighted average common shares outstanding – diluted

 

245,880

 

 

 

245,335

 

 

 

245,795

 

 

 

245,242

 

 

Weighted average common shares outstanding-basic for second quarter 2018 excludes 3.4 million shares of restricted stock held in our deferred compensation plan compared to 2.7 million shares in second quarter 2017 (although all awards are issued and outstanding upon grant). Weighted average common shares outstanding-basic for first six months 2018 excludes 3.2 million shares of restricted stock compared to 2.7 million for first six months 2017. Due to our net loss for second quarter and first six months 2018, all outstanding equity grants have been excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations. For second quarter 2017, equity grants of 1.9 million were outstanding but not included in the computation of diluted net income per share because the grant prices were greater than the average market price of our common shares and would be anti-dilutive to the computations. For first six months 2017, equity grants of 1.2 million were outstanding but not included in the computation of diluted net income per share because the grant prices were greater than the average market price of our common shares and would be anti-dilutive to the computations. For purposes of calculating diluted weighted average common shares, non-vested restricted stock and performance based equity awards are included in the computation using the treasury stock method with the deemed proceeds equal to the average unrecognized compensation during the period.

11


(8) 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 do not have any suspended exploratory well costs as of June 30, 2018 or December 31, 2017.

(9) INDEBTEDNESS

We had the following debt outstanding as of the dates shown below (bank debt interest rate at June 30, 2018 is shown parenthetically). No interest was capitalized during the three months or six months ended June 30, 2018 or the year ended December 31, 2017 (in thousands).

 

 

June 30,

2018

 

 

 

December 31,

2017

 

Bank debt (3.8%)

$

1,314,000

 

 

$

1,211,000

 

Senior notes:

 

 

 

 

 

 

 

4.875% senior notes due 2025

 

750,000

 

 

 

750,000

 

5.00% senior notes due 2023

 

741,531

 

 

 

741,531

 

5.00% senior notes due 2022

 

580,032

 

 

 

580,032

 

5.75% senior notes due 2021

 

475,952

 

 

 

475,952

 

5.875% senior notes due 2022

 

329,244

 

 

 

329,244

 

Other senior notes due 2022

 

590

 

 

 

590

 

Total senior notes

 

2,877,349

 

 

 

2,877,349

 

Senior subordinated notes:

 

 

 

 

 

 

 

5.00% senior subordinated notes due 2023

 

7,712

 

 

 

7,712

 

5.00% senior subordinated notes due 2022

 

19,054

 

 

 

19,054

 

5.75% senior subordinated notes due 2021

 

22,214

 

 

 

22,214

 

Total senior subordinated notes

 

48,980

 

 

 

48,980

 

Total debt

 

4,240,329

 

 

 

4,137,329

 

Unamortized premium

 

5,394

 

 

 

6,027

 

Unamortized debt issuance costs

 

(38,561

)

 

 

(34,550

)

Total debt net of debt issuance costs

$

4,207,162

 

 

$

4,108,806

 

Bank Debt

In April 2018, we entered into an amended and restated revolving bank facility, which we refer to as our bank debt or our bank credit facility, which is secured by substantially all of our assets and has a maturity date of April 13, 2023. The bank credit facility provides for a maximum facility amount of $4.0 billion and an initial borrowing base of $3.0 billion. The bank credit facility provides for a borrowing base subject to redeterminations annually by May and for event-driven unscheduled redeterminations. As of June 30, 2018, our bank group was composed of twenty-seven 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. On June 30, 2018, bank commitments total $2.0 billion and the outstanding balance under our bank credit facility was $1.3 billion, before deducting debt issuance costs. Additionally, we had $281.4 million of undrawn letters of credit leaving $404.6 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 facility agreement) plus a spread ranging from 0.25% to 1.25% or LIBOR borrowings at the LIBOR Rate (as defined in the bank credit facility agreement) plus a spread ranging from 1.25% to 2.25%. The applicable spread is dependent upon borrowings relative to the borrowing base. We may elect, from time to time, to convert all or any part of our LIBOR loans to base rate loans or to convert all or any of the base rate loans to LIBOR loans. The weighted average interest rate was 3.7% for second quarter 2018 compared to 2.6% for second quarter 2017. The weighted average interest rate was 3.5% for first six months 2018 compared to 2.5% for first six months 2017. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At June 30, 2018, the commitment fee was 0.35% and the interest rate margin was 1.75% on our LIBOR loans and 0.75% on our base rate loans.

12


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 September 2016, in conjunction with the MRD Merger, we issued $329.2 million senior unsecured 5.875% notes due 2022 (the “5.875% Notes”). In addition, we also completed a debt exchange offer to exchange senior subordinated notes for the following senior notes (in thousands):

 

 

Principal Amount

5.00% senior notes due 2023

$

741,531

5.00% senior notes due 2022

$

580,032

5.75% senior notes due 2021

$

475,952

 

 

 

All of the 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 under the Securities Act of 1933, as amended (the “Securities Act”). On October 5, 2017, the 5.875% Notes, the 5.00% senior notes due 2023, the 5.00% senior notes due 2022 and the 5.75% senior notes due 2021 (collectively, the “Old Notes”) were exchanged for an equal principal amount of registered notes pursuant to an effective registration statement on Form S-4 filed with the SEC on August 9, 2017 under the Securities Act (the “New Notes”). The New Notes are identical to the Old Notes except the New 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, if any.

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 are subordinated to existing and future senior debt that we or our subsidiary guarantors are permitted to incur.

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.

 

13


Debt Covenants

Our bank credit facility contains negative covenants that limit our ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain hedging contracts, change the nature of our business or operations, merge, consolidate, or make certain investments. In addition, we are required to maintain a ratio of EBITDAX (as defined in the bank credit facility agreement) to cash interest expense of equal to or greater than 2.5 and a current ratio (as defined in the bank credit facility agreement) of no less than 1.0. In addition, the ratio of the present value of proved reserves (as defined in the 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 June 30, 2018.

(10) ASSET RETIREMENT OBLIGATIONS

Our asset retirement obligations primarily represent the estimated present value of the amounts we will incur to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include estimates of plugging and abandonment costs, estimated future inflation rates and well lives. The inputs are calculated based on historical data as well as current estimated costs. A reconciliation of our liability for plugging and abandonment costs for the six months ended June 30, 2018 is as follows (in thousands):

 

 

 

  

Six Months

Ended

June 30,

 2018

 

Beginning of period

  

$

276,855

 

Liabilities incurred

  

 

2,050

 

Acquisitions

 

 

13,438

 

Liabilities settled

 

 

(2,080

)

Accretion expense

  

 

8,210

 

Change in estimate

  

 

4,073

 

End of period

  

 

302,546

 

Less current portion

  

 

(6,327

)

Long-term asset retirement obligations

  

$

296,219

 

Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying consolidated statements of operations. Acquisitions include an increase in our interest in certain properties in Northwest Pennsylvania.

(11) 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 2017:

 

 

 

Six Months
Ended
June 30,
2018

 

 

Year
Ended
December 31,
2017

 

Beginning balance

 

 

248,129,430

 

 

 

247,144,356

 

Restricted stock grants

 

 

804,768

 

 

 

539,096

 

Restricted stock units vested

 

 

411,959

 

 

 

344,937

 

Performance stock units issued

 

 

76,149

 

 

 

85,461

 

Treasury shares issued

 

 

4,900

 

 

 

15,580

 

Ending balance

 

 

249,427,206

 

 

 

248,129,430

 

 

14


(12) DERIVATIVE ACTIVITIES

We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars, calls or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net loss of $104.3 million at June 30, 2018. These contracts expire monthly through December 2020. The following table sets forth our commodity-based derivative volumes by year as of June 30, 2018, excluding our basis and freight swaps which are discussed separately below:

 

Period

  

Contract Type

  

Volume Hedged

  

Weighted
Average Hedge Price

Natural Gas

  

 

  

 

  

 

 

 

2018

 

Swaps

 

1,246,739 Mmbtu/day

 

 

$ 2.96

 

2019

 

Swaps

 

514,589 Mmbtu/day

 

 

$ 2.81

 

October-December 2018

 

Calls

 

70,000 Mmbtu/day

 

 

$ 3.10 (1)

 

2018

 

Swaptions

 

160,000 Mmbtu/day

 

 

$ 3.07 (2)

 

2019

 

Swaptions

 

317,945 Mmbtu/day

 

 

$ 2.86 (2)

 

2020

 

Swaptions

 

10,000 Mmbtu/day

 

 

$ 2.75 (2)

 

 

 

 

 

 

 

 

 

 

Crude Oil

  

 

  

 

  

 

 

 

2018

 

Swaps

 

8,500 bbls/day

 

 

$ 53.20

 

2019

 

Swaps

 

6,624 bbls/day

 

 

$ 54.57

 

January-June 2020

 

Swaps

 

1,000 bbls/day

 

 

$ 57.00

 

January-March 2019

 

Collars

 

250 bbls/day

 

 

$ 63.00 − $ 73.00

 

 

 

 

 

 

 

 

 

 

NGLs (C2-Ethane)

 

 

 

 

 

 

 

 

July-September 2018

 

Swaps

 

1,000 bbls/day

 

 

$ 0.30/gallon

 

 

 

 

 

 

 

 

 

 

NGLs (C3-Propane)

  

 

  

 

  

 

 

 

2018

 

Swaps

 

10,918 bbls/day

 

 

$ 0.71/gallon

 

 

 

 

 

 

 

 

 

 

NGLs (NC4-Normal Butane)

  

 

  

 

  

 

 

 

2018

 

Swaps

 

4,250 bbls/day

 

 

$ 0.81/gallon

 

 

 

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

  

 

  

 

  

 

 

 

2018

 

Swaps

 

5,152 bbls/day

 

 

$ 1.23/gallon

 

2019

 

Swaps

 

1,244 bbls/day

 

 

$ 1.30/gallon

 

 

(1)

Weighted average deferred premium of $0.16.

(2)

Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volume. For July through December of 2018, we have swaps in place for 160,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2019 at a weighted average price of $3.07. We have swaps in place for 2019 for 220,000 Mmbtu/day on which the counterparty can elect to double the volume at a weighted average price of $2.89. We also have swaps in place for 2019 for 130,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. For 2020, we have swaps in place for 10,000 Mmbtu/day on which the counterparty can elect to double the volume at a weighted average price of $2.75.

Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur.

Basis Swap Contracts

In addition to the swaps, collars, calls and swaptions described above, at June 30, 2018, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through October 2020 and include a total volume of 68,805,000 Mmbtu. The fair value of these contracts was a loss of $1.9 million at June 30, 2018.

At June 30, 2018, 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 2019 and include a total volume of 2,130,500 barrels. The fair value of these contracts was a loss of $2.1 million at June 30, 2018.

15


Freight Swap Contracts

In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at June 30, 2018, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly through December 2018 and cover 5,000 metric tons per month with a fair value gain of $166,000 at June 30, 2018. These contracts use observable third-party pricing inputs that we consider to be Level 2 fair value classification.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of June 30, 2018 and December 31, 2017 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):

 

 

  

June 30, 2018

 

 

 

  

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

  

$

11,332

 

  

$

(8,481

)

  

$

2,851

 

 

–swaptions

 

 

14,045

 

 

 

(12,511

)

 

 

1,534

 

 

–basis swaps

 

 

846

 

 

 

(667

)

 

 

179

 

Crude oil

–swaps

 

 

 

 

 

(1,269

)

 

 

(1,269

)

 

−collars

 

 

12

 

 

 

(12

)

 

 

 

NGLs

–C3 propane spread swaps

 

 

17,193

 

 

 

(17,193

)

 

 

 

Freight

−swaps

 

 

166

 

 

 

(166

)

 

 

 

 

 

  

$

43,594

 

  

$

(40,299

)

  

$

3,295

 

 

 

 

  

June 30, 2018

 

 

 

  

Gross

Amounts of 

Recognized

(Liabilities)

 

  

Gross 

Amounts

Offset in the

Balance Sheet

 

 

Net Amounts

of (Liabilities) Presented

in the

Balance Sheet

 

Derivative (liabilities):