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Range Resources 10-Q 2016

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
rrc-10q_20160630.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 June 30, 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

170,090,371 Common Shares were outstanding on July 25, 2016

 

 

 

 

 


RANGE RESOURCES CORPORATION

FORM 10-Q

Quarter Ended June 30, 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)

 

 

June 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

382

 

 

$

471

 

      Accounts receivable, less allowance for doubtful accounts of $4,722 and $4,994

 

81,418

 

 

 

123,842

 

Derivative assets

 

43,250

 

 

 

281,544

 

Inventory and other

 

20,662

 

 

 

33,217

 

Total current assets

 

145,712

 

 

 

439,074

 

Derivative assets

 

813

 

 

 

7,218

 

Natural gas and oil properties, successful efforts method

 

9,005,011

 

 

 

8,996,336

 

Accumulated depletion and depreciation

 

(2,864,358

)

 

 

(2,635,031

)

 

 

6,140,653

 

 

 

6,361,305

 

Other property and equipment

 

111,095

 

 

 

110,013

 

Accumulated depreciation and amortization

 

(94,606

)

 

 

(90,558

)

 

 

16,489

 

 

 

19,455

 

Other assets

 

76,512

 

 

 

72,979

 

Total assets

$

6,380,179

 

 

$

6,900,031

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

92,081

 

 

$

117,346

 

Asset retirement obligations

 

15,071

 

 

 

15,071

 

Accrued liabilities

 

179,812

 

 

 

188,028

 

Accrued interest

 

32,000

 

 

 

30,139

 

Derivative liabilities

 

20,649

 

 

 

1,136

 

Total current liabilities

 

339,613

 

 

 

351,720

 

Bank debt

 

 

 

 

86,427

 

Senior notes

 

738,616

 

 

 

738,101

 

Senior subordinated notes

 

1,828,345

 

 

 

1,826,775

 

Deferred tax liabilities

 

606,482

 

 

 

777,947

 

Derivative liabilities

 

19,243

 

 

 

21

 

Deferred compensation liabilities

 

127,090

 

 

 

104,792

 

Asset retirement obligations and other liabilities

 

255,863

 

 

 

254,590

 

Total liabilities

 

3,915,252

 

 

 

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, 170,081,406 issued at

     June 30, 2016 and 169,375,743 issued at December 31, 2015

 

1,701

 

 

 

1,693

 

Common stock held in treasury, 45,511 shares at June 30, 2016 and 59,283

     shares at December 31, 2015

 

(1,733

)

 

 

(2,245

)

Additional paid-in capital

 

2,470,814

 

 

 

2,442,623

 

Retained earnings (deficit)

 

(5,855

)

 

 

317,587

 

Total stockholders’ equity

 

2,464,927

 

 

 

2,759,658

 

Total liabilities and stockholders’ equity

$

6,380,179

 

 

$

6,900,031

 

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,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, NGLs and oil sales

$

224,606

 

 

$

258,053

 

 

$

434,093

 

 

$

583,536

 

Derivative fair value (loss) income

 

(162,798

)

 

 

(34,791

)

 

 

(75,890

)

 

 

88,048

 

Brokered natural gas, marketing and other

 

39,989

 

 

 

21,339

 

 

 

75,007

 

 

 

35,824

 

Total revenues and other income

 

101,797

 

 

 

244,601

 

 

 

433,210

 

 

 

707,408

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct operating

 

20,671

 

 

 

34,780

 

 

 

44,725

 

 

 

71,917

 

Transportation, gathering and compression

 

136,844

 

 

 

95,198

 

 

 

262,107

 

 

 

184,624

 

Production and ad valorem taxes

 

6,049

 

 

 

9,242

 

 

 

11,936

 

 

 

19,170

 

Brokered natural gas and marketing

 

40,925

 

 

 

27,031

 

 

 

77,483

 

 

 

48,593

 

Exploration

 

6,785

 

 

 

5,025

 

 

 

11,698

 

 

 

12,911

 

Abandonment and impairment of unproved properties

 

7,059

 

 

 

12,330

 

 

 

17,687

 

 

 

23,821

 

General and administrative

 

46,064

 

 

 

55,964

 

 

 

86,721

 

 

 

104,293

 

Memorial merger expenses

 

2,621

 

 

 

 

 

 

2,621

 

 

 

 

Termination costs

 

5

 

 

 

417

 

 

 

167

 

 

 

6,367

 

Deferred compensation plan

 

25,746

 

 

 

(7,282

)

 

 

41,802

 

 

 

(12,906

)

Interest

 

37,758

 

 

 

43,479

 

 

 

75,497

 

 

 

82,686

 

Depletion, depreciation and amortization

 

122,390

 

 

 

151,895

 

 

 

242,951

 

 

 

299,185

 

Impairment of proved properties

 

 

 

 

 

 

 

43,040

 

 

 

 

Loss (gain) on the sale of assets

 

3,304

 

 

 

(2,909

)

 

 

4,947

 

 

 

(2,734

)

Total costs and expenses

 

456,221

 

 

 

425,170

 

 

 

923,382

 

 

 

837,927

 

Loss before income taxes

 

(354,424

)

 

 

(180,569

)

 

 

(490,172

)

 

 

(130,519

)

Income tax benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

(129,488

)

 

 

(61,975

)

 

 

(173,526

)

 

 

(39,609

)

 

 

(129,488

)

 

 

(61,975

)

 

 

(173,526

)

 

 

(39,609

)

Net loss

$

(224,936

)

 

$

(118,594

)

 

$

(316,646

)

 

$

(90,910

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.35

)

 

$

(0.71

)

 

$

(1.90

)

 

$

(0.55

)

Diluted

$

(1.35

)

 

$

(0.71

)

 

$

(1.90

)

 

$

(0.55

)

Dividends paid per common share

$

0.02

 

 

$

0.04

 

 

$

0.04

 

 

$

0.08

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

167,126

 

 

 

166,421

 

 

 

166,964

 

 

 

166,230

 

Diluted

 

167,126

 

 

 

166,421

 

 

 

166,964

 

 

 

166,230

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


RANGE RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

Six Months Ended June 30,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(316,646

)

 

$

(90,910

)

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

 

 

 

 

 

 

 

Deferred income tax benefit

 

(173,526

)

 

 

(39,609

)

Depletion, depreciation and amortization and impairment

 

285,991

 

 

 

299,185

 

Exploration dry hole costs

 

 

 

 

106

 

Abandonment and impairment of unproved properties

 

17,687

 

 

 

23,821

 

Derivative fair value loss (income)

 

75,890

 

 

 

(88,048

)

Cash settlements on derivative financial instruments

 

207,544

 

 

 

222,716

 

Allowance for bad debt

 

450

 

 

 

250

 

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

 

3,437

 

 

 

3,090

 

Deferred and stock-based compensation

 

71,718

 

 

 

19,792

 

Loss (gain) on the sale of assets

 

4,947

 

 

 

(2,734

)

Changes in working capital:

 

 

 

 

 

 

 

Accounts receivable

 

41,955

 

 

 

73,695

 

Inventory and other

 

10,500

 

 

 

(3,749

)

Accounts payable

 

(19,194

)

 

 

3,492

 

Accrued liabilities and other

 

(41,149

)

 

 

(50,955

)

Net cash provided from operating activities

 

169,604

 

 

 

370,142

 

Investing activities:

 

 

 

 

 

 

 

Additions to natural gas and oil properties

 

(241,109

)

 

 

(671,166

)

Additions to field service assets

 

(1,304

)

 

 

(1,574

)

Acreage purchases

 

(23,554

)

 

 

(51,450

)

Other

 

 

 

 

(75

)

Proceeds from disposal of assets

 

190,803

 

 

 

14,301

 

Purchases of marketable securities held by the deferred compensation plan

 

(22,115

)

 

 

(19,897

)

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

 

22,997

 

 

 

24,992

 

Net cash used in investing activities

 

(74,282

)

 

 

(704,869

)

Financing activities:

 

 

 

 

 

 

 

Borrowings on credit facilities

 

647,000

 

 

 

1,009,000

 

Repayments on credit facilities

 

(739,000

)

 

 

(1,368,000

)

Issuance of senior notes

 

 

 

 

750,000

 

Debt issuance costs

 

(124

)

 

 

(13,929

)

Dividends paid

 

(6,796

)

 

 

(13,534

)

Change in cash overdrafts

 

(6,804

)

 

 

(35,921

)

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

 

10,313

 

 

 

7,184

 

Net cash (used in) provided from financing activities

 

(95,411

)

 

 

334,800

 

(Decrease) increase in cash and cash equivalents

 

(89

)

 

 

73

 

Cash and cash equivalents at beginning of period

 

471

 

 

 

448

 

Cash and cash equivalents at end of period

$

382

 

 

$

521

 

 

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 second quarter and the six months ended June 30, 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 fourth quarter 2016 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 first quarter 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 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. As of June 30, 2016, unamortized debt issuance costs

6


related to our bank credit facility exceeded our credit facility balance. The amount of debt issuance costs which exceeded the credit facility balance has been presented in other assets on our consolidated balance sheet.

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 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) DISPOSITIONS AND ACQUISITIONS

2016 Dispositions

We recognized a pretax net loss on the sale of assets of $3.3 million in second quarter 2016 compared to a pretax net gain of $2.9 million in the same period of the prior year and a pretax net loss on the sale of assets of $4.9 million in the six months ended June 30, 2016 compared to a pretax net gain of $2.7 million in the same period of the prior year.

Western Oklahoma. In second quarter 2016, we sold certain properties in Western Oklahoma for proceeds of $77.7 million and we recorded a $2.7 million loss related to this sale, after closing adjustments.

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 loss of $2.1 million related to this sale.

Other. In the second quarter 2016, we sold miscellaneous inventory and surface property for proceeds of $74,000 resulting in a loss of $640,000. 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 gain of $443,000. Included in the $1.6 million of proceeds is $1.2 million received from the sale of proved properties in Mississippi and South Texas.

2015 Dispositions

In second quarter 2015, we sold miscellaneous unproved properties and inventory for proceeds of $3.6 million resulting in a gain of $2.9 million. In first quarter 2015, we sold miscellaneous unproved property, proved property and inventory for proceeds of $10.7 million resulting in a loss of $175,000. Included in the $10.7 million of proceeds is $10.5 million received from the sale of certain West Texas properties which closed in February 2015.

Proposed Memorial Merger

On May 15, 2016, Range and Memorial Resource Development Corp. (“Memorial”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) which provides for the Merger of Memorial and Range. Pursuant to the terms of the Merger Agreement, a wholly-owned subsidiary of Range will merge with and into Memorial, with Memorial surviving as a wholly-owned subsidiary of Range (the “Merger”). In order to complete the Merger, among other conditions, Range stockholders must approve the issuance of Range common stock to Memorial stockholders in connection with the Merger and Memorial stockholders must approve and adopt the Merger Agreement and the transactions contemplated by the Merger Agreement.

If the Merger is completed, each share of Memorial common stock outstanding immediately before that time (including outstanding shares of restricted Memorial common stock, all of which will become fully vested and unrestricted under the terms of the Merger Agreement) will automatically be converted into the right to receive 0.375 of a share of Range common stock. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the Merger. Based on the closing price of Range common stock on the NYSE on May 13, 2016, the last trading day before public announcement of the Merger, the aggregate equity value of the Merger consideration payable to Memorial stockholders was approximately $3.2 billion. We may choose to use the availability under our current bank credit facility to complete the proposed Merger which includes the repayment of Memorial’s credit facility and the redemption of Memorial’s senior notes.

Based on the estimated number of shares of Range and Memorial common stock that will be outstanding immediately prior to the closing of the Merger, we estimate that, upon such closing, existing Range stockholders will own approximately 69% of Range’s outstanding shares and former Memorial stockholders will own approximately 31% of Range’s outstanding shares.

At a special meeting of Range stockholders, which is currently expected to be held on September 15, 2016, Range stockholders will be asked to vote on the proposal to approve the issuance of shares of Range common stock to Memorial stockholders in connection with the Merger. Approval of this proposal requires the affirmative vote of a majority of the shares of Range common stock, present in person or represented by proxy at the Range special meeting and entitled to vote thereon, assuming a quorum is present. The record date for the special meeting is expected to be August 10, 2016.

7


At a special meeting of Memorial stockholders, Memorial stockholders will be asked to vote on a proposal to approve and adopt the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. Approval of this proposal requires the affirmative vote of a majority of the outstanding shares of Memorial common stock entitled to vote thereon, assuming a quorum is present. At the special meeting, Memorial stockholders will also be asked to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Memorial’s named executive officers in connection with the Merger.

The foregoing description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed hereto as Exhibit 2.1 and is incorporated herein by reference.

(5) INCOME TAXES

Income tax benefit was as follows (in thousands):

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended

June 30,

 

 

2016

 

 

 

2015

 

 

 

2016

 

 

 

2015

 

Income tax benefit

$

(129,488

)

 

$

(61,975

)

 

$

(173,526

)

 

$

(39,609

)

Effective tax rate

 

36.5

%

 

 

34.3

%

 

 

35.4

%

 

 

30.3

%

 

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 the six months ended June 30, 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 three months ended June 30, 2016 includes $3.2 million and the six months ended June 30, 2016 includes $7.7 million of tax expense related to an increase in our valuation allowance for state net operating loss carryforwards that we do not believe are realizable. The three months ended June 30, 2016 includes an income tax expense of $2.6 million and the six months ended June 30, 2016 includes an income tax expense of $2.5 million to adjust the valuation allowance on our deferred tax asset related to future deferred compensation plan distributions of our senior executives. In addition, for the six months ended June 30, 2016, we recorded income tax expense of $3.7 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 three months ended June 30, 2015 includes income tax expense of $6.1 million and the six months ended June 30, 2015 includes income tax expense of $11.3 million related to increases in our valuation allowances for state net operating loss carryforwards and credit carryforwards. The three months ended June 30, 2015 also includes income tax expense of $1.1 million and the six months ended June 30, 2015 includes income tax benefit of $874,000 adjusting our valuation allowance for our deferred tax asset related to future deferred compensation plan distributions of our senior executives.

(6) LOSS PER COMMON SHARE

Basic income or loss per share attributable to common shareholders is computed as (1) income or loss attributable to common shareholders (2) less income allocable to participating securities (3) divided by weighted average basic shares outstanding. Diluted income or loss per share attributable to common 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

June 30,

 

 

 

Six Months Ended

June 30,

 

 

2016

 

 

 

2015

 

 

 

2016

 

 

 

2015

 

Net loss, as reported

$

(224,936

)

 

$

(118,594

)

 

$

(316,646

)

 

$

(90,910

)

Participating earnings (a)

 

(56

)

 

 

(111

)

 

 

(111

)

 

 

(224

)

Basic net loss attributed to common shareholders

 

(224,992

)

 

 

(118,705

)

 

 

(316,757

)

 

 

(91,134

)

Reallocation of participating earnings (a)

 

¾

 

 

 

¾

 

 

 

¾

 

 

 

¾

 

Diluted net loss attributed to common shareholders

$

(224,992

)

 

$

(118,705

)

 

$

(316,757

)

 

$

(91,134

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.35

)

 

$

(0.71

)

 

$

(1.90

)

 

$

(0.55

)

Diluted

$

(1.35

)

 

$

(0.71

)

 

$

(1.90

)

 

$

(0.55

)

(a)

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

8


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

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended
June 30,

 

 

2016

 

 

 

2015

 

 

 

2016

 

 

 

2015

 

Weighted average common shares outstanding – basic

 

167,126

 

 

 

166,421

 

 

 

166,964

 

 

 

166,230

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director and employee SARs

 

¾

 

 

 

¾

 

 

 

¾

 

 

 

¾

 

Weighted average common shares outstanding – diluted

 

167,126

 

 

 

166,421

 

 

 

166,964

 

 

 

166,230

 

 

Weighted average common shares outstanding-basic for both the three months ended June 30, 2016 and the three months ended June 30, 2015 excludes 2.8 million shares of restricted stock held in our deferred compensation plan (although all awards are issued and outstanding upon grant). Weighted average common shares outstanding-basic for both the six months ended June 30, 2016 and the six months ended June 31, 2015 also exclude 2.8 million shares of restricted stock held in our deferred compensation plan. Due to our net loss from operations for the three months and six months ended June 30, 2016 and 2015, we excluded all outstanding stock appreciation rights (“SARs”) and restricted stock from the computation of diluted net loss per share because the effect would have been anti-dilutive.  

(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 June 30, 2016. The following table reflects the change in capitalized exploratory well costs for the six months ended June 30, 2016 and the year ended December 31, 2015 (in thousands):

 

 

 

June 30,

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

 

1,556

 

 

 

1,165

 

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

 

(5,717

)

 

 

¾

 

Divested wells

 

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 exploration well costs that have been capitalized greater than one year

 

¾

 

 

 

1

 

 

9


(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 June 30, 2016 is shown parenthetically) (in thousands). No interest was capitalized during the three or six months ended June 30, 2016 or the year ended December 31, 2015.

 

June 30,

 

 

December 31,

 

 

2016

 

  

2015

 

 

Bank debt (3.8%), net of unamortized debt issuance costs of $3,000 and $8,573 (a)

$

 

 

$

86,427

 

Senior notes:

 

 

 

 

 

 

 

4.875% senior notes due 2025, net of unamortized debt issuance costs of $11,384 and $11,899

 

738,616

 

 

 

738,101

 

Senior subordinated notes:

 

 

 

 

 

 

 

5.75% senior subordinated notes due 2021, net of unamortized debt issuance costs of $5,435 and $5,905

 

494,565

 

 

 

494,095

 

5.00% senior subordinated notes due 2022, net of unamortized debt issuance costs of $7,234 and $7,777

 

592,766

 

 

 

592,223

 

5.00% senior subordinated notes due 2023, net of unamortized debt issuance costs of $8,986 and $9,543

 

741,014

 

 

 

740,457

 

Total debt

$

2,566,961

 

 

$

2,651,303

 

(a) As of June 30, 2016, there were unamortized debt issuance costs of $4.1 million which exceeded our credit facility balance which were reclassified to other assets on our consolidated balance sheet.

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 June 30, 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 June 30, 2016, the outstanding balance under our bank credit facility was $3.0 million, before deducting debt issuance costs. Additionally, we had $232.1 million of undrawn letters of credit leaving $1.8 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 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 2.8% for the three months ended June 30, 2016 compared to 1.7% for the three months ended June 30, 2015. The weighted average interest rate was 2.4% for the six months ended June 30, 2016 compared to 1.7% for the six months ended June 30, 2015. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At June 30, 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, if any.

10


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 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, 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 June 30, 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 cash flows relating to proved oil and gas reserves (as further defined in the indenture). Based on our current 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 six months ended June 30, 2016 is as follows (in thousands):

 

 

  

Six Months
Ended
June 30,

 2016

 

Beginning of period

  

$

264,137

 

Liabilities incurred

  

 

921

 

Liabilities settled

 

 

(5,700

)

Disposition of wells

 

 

(4,731

)

Accretion expense

  

 

8,172

 

Change in estimate

  

 

2,819

 

End of period

  

 

265,618

 

Less current portion

  

 

(15,071

)

Long-term asset retirement obligations

  

$

250,547

 

11


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:

 

 

 

Six Months
Ended
June 30,
2016

 

 

Year
Ended
December 31,
2015

 

Beginning balance

 

 

169,316,460

 

 

 

168,628,177

 

SARs exercised

 

 

 

 

 

77,002

 

Restricted stock grants

 

 

459,099

 

 

 

335,103

 

Restricted stock units vested

 

 

246,564

 

 

 

252,507

 

Treasury shares issued

 

 

13,772

 

 

 

23,671

 

Ending balance

 

 

170,035,895

 

 

 

169,316,460

 

 

(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 $4.1 million at June 30, 2016. These contracts expire monthly through December 2018. The following table sets forth our commodity-based derivative volumes by year as of June 30, 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

  

788,315 Mmbtu/day

  

$ 3.22

2017

 

Swaps

 

300,000 Mmbtu/day

 

$ 2.91

2018

 

Swaps

 

70,000 Mmbtu/day

 

$ 2.92

 

 

 

 

 

 

 

Crude Oil

  

 

  

 

  

 

2016

 

Swaps

 

6,000 bbls/day

 

$ 58.40

2017

 

Swaps

 

2,496 bbls/day

 

$ 51.29

 

 

 

 

 

 

 

NGLs (C2-Ethane)

 

 

 

 

 

 

2016

 

Swaps

 

500 bbls/day

 

$ 0.22/gallon

2017

 

Swaps

 

3,000 bbls/day

 

$ 0.27/gallon

 

 

 

 

 

 

 

NGLs (C3-Propane)

  

 

  

 

  

 

2016

 

Swaps

 

5,500 bbls/day

 

$ 0.60/gallon

2017

 

Swaps

 

3,966 bbls/day

 

$ 0.53/gallon

 

 

 

 

 

 

 

NGLs (NC4-Normal Butane)

  

 

  

 

  

 

2016

 

Swaps

 

4,750 bbls/day

 

$ 0.66/gallon

2017

 

Swaps

 

500 bbls/day

 

$ 0.61/gallon

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

  

 

  

 

  

 

2016

 

Swaps

 

3,500 bbls/day

 

$ 1.11/gallon

2017

 

Swaps

 

1,750 bbls/day

 

$ 0.97/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.

12


Basis Swap Contracts

In addition to the swaps above, at June 30, 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 December 2017 and include a total volume of 64,125,000 Mmbtu. The fair value of these contracts was a loss of $3.8 million on June 30, 2016.

At June 30, 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 1,162,500 barrels in 2016 and 1,650,000 barrels in 2017. The fair value of these contracts was a gain of $4.0 million on June 30, 2016.

Freight Swap Contracts

In connection with our international propane spread swaps, at June 30, 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 and cover 5,000 metric tons per month with a fair value loss of $34,000 on June 30, 2016. These contracts use observable third-party pricing inputs that we consider to be a 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, 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):

 

 

  

June 30, 2016