Range Resources(RRC) - 2020 Q4 - Annual Report

Part I Business and Properties Range Resources, an independent natural gas, NGLs, and oil company, focused on strengthening its balance sheet in 2020, with proved reserves decreasing to 17.2 Tcfe, and plans a $425 million capital budget for 2021 - Range Resources is an independent natural gas, NGLs, and oil company with its principal area of operation in the Marcellus Shale in Pennsylvania[18] - The company's strategic focus in 2020 was on enhancing cash flow through cost reductions, operational efficiencies, and strengthening the balance sheet, rather than growth[20] 2020 Proved Reserves Characteristics | Characteristic | Value | | :--- | :--- | | Total Proved Reserves | 17.2 Tcfe | | Composition | 65% natural gas, 33% NGLs, 2% oil | | Proved Developed | 57% | | Reserve Life Index | ~22 years | | Pretax PV-10 | $3.0 billion | | Standardized Measure | $2.8 billion | 2020 Production Highlights | Metric | Value | | :--- | :--- | | Average Daily Production | 2.23 Bcfe per day | | YoY Change | -2% (due to divestiture) | | YoY Change (ex-divestiture) | +3% | - In 2020, the company received $246.1 million from asset sales, issued $850.0 million in new senior notes, and repurchased $1.2 billion of nearer-term notes to improve its debt maturity profile[22] Our Business Strategy The company's business strategy centers on building stockholder value through returns-focused development of natural gas properties, primarily in the Marcellus Shale - The company's business strategy is centered on building stockholder value through returns-focused development of its natural gas properties, primarily in the Marcellus Shale. Key elements include[25][26] - Committing to environmental protection and safety[27] - Concentrating operations in the core Marcellus area to achieve economies of scale[29] - Focusing on cost efficiency to maintain low finding, development, and production costs[30] - Maintaining a high-quality, multi-year drilling inventory of over 3,500 locations[31] - Marketing products to a diverse customer base in various markets[33] - Maintaining operational and financial flexibility, including using commodity derivatives[34] - Aligning employee incentives with stakeholder interests through equity ownership[35] Outlook for 2021 For 2021, Range has established a capital budget of $425 million, expected to be funded within operating cash flows, with a primary focus on safe and efficient operations - For 2021, Range has established a capital budget of $425.0 million, which is expected to be funded within operating cash flows[38] 2021 Capital Budget Allocation | Category | Amount (in millions) | | :--- | :--- | | Drilling Costs | $401.1 | | Acreage | $20.0 | | Other Expenditures | $3.9 | | Total | $425.0 | - Primary Near-Term Focus: - Operate safely and efficiently[40] - Target limiting capital spending at or below cash flow[40] - Reduce direct emissions and target net-zero direct emissions by 2025[40] - Achieve competitive returns on investments[40] - Preserve liquidity and improve financial strength[40] - Focus on organic opportunities through disciplined capital investments[40] Proved Reserves Total proved reserves decreased by 5% to 17.2 Tcfe in 2020, primarily due to asset sales and reclassifications, with PV-10 significantly lower due to commodity prices Total Proved Reserves (Mmcfe) | Year | Proved Developed | Proved Undeveloped | Total Proved | | :--- | :--- | :--- | :--- | | 2020 | 9,792,540 | 7,410,574 | 17,203,114 | | 2019 | 9,902,468 | 8,289,115 | 18,191,583 | | 2018 | 9,756,870 | 8,315,536 | 18,072,406 | - Total proved reserves decreased 5% from 18.2 Tcfe in 2019 to 17.2 Tcfe in 2020. The decrease was primarily driven by the sale of North Louisiana assets (828.1 Bcfe) and a reclassification of 961.1 Bcfe of PUDs to unproved, offset by reserve additions from drilling[19][36] - As of December 31, 2020, Proved Undeveloped Reserves (PUDs) totaled 7.4 Tcfe. Changes during the year included the conversion of 1.3 Tcfe to proved developed, addition of 1.2 Tcfe from new drilling, and a net negative revision of 675.1 Bcfe, largely due to reclassifying reserves out of the five-year development plan[49][51] - The pre-tax present value of future net cash flows from proved reserves, discounted at 10% (PV-10), was $3.0 billion at year-end 2020, a significant decrease from $7.6 billion at year-end 2019, primarily due to lower commodity prices used in the calculation[50] Property Overview The company's operations are almost exclusively concentrated in the Marcellus Shale, accounting for 95% of 2020 production and 100% of proved reserves - The company's operations are almost exclusively concentrated in the Marcellus Shale in the Appalachian region, which accounted for 95% of 2020 production and 100% of year-end proved reserves[51][53][55] Marcellus Shale Operating Data | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Production (Mmcfe) | 776,786 | 751,299 | | Avg. Sales Price (per mcfe) | $0.67 | $1.33 | | Lease Operating Cost (per mcfe) | $0.10 | $0.11 | - In 2020, the company spent $368.0 million in the Appalachian region to drill 52 net development wells, all of which were productive, achieving a 100% success rate[60] Drilling Activity, Acreage, and Wells The company maintained a 100% drilling success rate in 2020, with 51.4 net development wells, and held 796,267 net acres and 1,310 net producing wells Drilling Activity (Net Wells) | Year | Development Wells Drilled | Success Ratio | | :--- | :--- | :--- | | 2020 | 51.4 | 100% | | 2019 | 92.6 | 100% | | 2018 | 101.7 | 100% | Acreage Summary (as of Dec 31, 2020) | Type | Gross Acres | Net Acres | | :--- | :--- | :--- | | Developed | 832,634 | 719,966 | | Undeveloped | 85,080 | 76,301 | | Total | 917,714 | 796,267 | - As of December 31, 2020, the company had 1,396 gross (1,310 net) producing wells with an average working interest of 94%[66] Governmental Regulation and Environmental Matters The company's operations are subject to extensive federal, state, and local regulations, particularly concerning hydraulic fracturing and climate change, with potential for increased costs and operational restrictions - The company's operations are subject to extensive federal, state, and local regulations covering leasing, drilling, production, transportation, emissions, waste handling, and hydraulic fracturing[95][96] - Hydraulic fracturing is a critical practice for the company and is primarily regulated at the state level. The company faces risks from potential new federal, state, or local restrictions on this process, which could increase costs or curtail activities[116][117] - The company is exposed to risks related to climate change, including potential regulations to reduce greenhouse gas (GHG) emissions. The EPA has adopted rules for GHG reporting and permitting, and Pennsylvania regulators are pursuing new rules to limit methane emissions from existing sources[122][123][196] - Upon taking office in January 2021, President Biden announced initiatives to combat climate change, including rejoining the Paris Agreement and pausing new oil and gas leases on federal land, which could impact the regulatory landscape[124][125] Risk Factors The company faces significant risks from volatile commodity prices, substantial indebtedness, operational uncertainties, extensive environmental regulations, and a material weakness in internal control over financial reporting related to tax accounting - Economic Risks: The volatility of natural gas, NGL, and oil prices is a primary risk, impacting revenues, cash flows, and the economic viability of production. The company's relatively high indebtedness could limit its ability to fund operations and react to market changes[157][159] - Operational Risks: Drilling is inherently uncertain and costly. Operations are concentrated in Pennsylvania, making the company vulnerable to regional regulatory, political, and infrastructure constraints. The business depends on third-party pipelines and processing facilities[176][183] - Industry & Regulatory Risks: The industry is subject to extensive regulation, particularly concerning environmental matters like hydraulic fracturing, water use, and air emissions. Climate change initiatives and regulations pose significant risks of increased costs and operational restrictions[188][217] - Financial Reporting Risks: A material weakness was identified in the company's internal control over financial reporting concerning the accounting for changes in tax law, which could adversely affect the business if not remediated[223] - General Risks: The business is exposed to cybersecurity threats and potential disruptions from events like the COVID-19 pandemic, which has impacted commodity demand and prices[223] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[226] Legal Proceedings The company is involved in various legal actions, including an environmental proceeding with the PDEP regarding a well in Lycoming County, which could result in monetary sanctions exceeding $250,000 - The company is party to various legal actions and claims typical for its business. Management does not believe any pending matters will have a material adverse effect on its financial position[227][228] - A subsidiary was notified by the PDEP regarding alleged methane escape from a well in Lycoming County. The company is appealing a January 2020 order and disputes the allegations, but a resolution could result in monetary sanctions over $250,000[229] Mine Safety Disclosures This section is not applicable to the company - Not applicable[230] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Range Resources' common stock trades on the NYSE under 'RRC', with the quarterly dividend suspended in January 2020, and the company repurchased 10.0 million shares for $30.0 million under its $100 million program - The company's common stock is listed on the New York Stock Exchange under the symbol "RRC"[233] - In January 2020, the board of directors suspended the dividend on common stock[235] - As of December 31, 2020, the company had repurchased 10.0 million shares for approximately $30.0 million under its $100 million stock repurchase program, with about $70.1 million remaining available[237] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, Range Resources focused on portfolio simplification and balance sheet strengthening, highlighted by the $245 million sale of its North Louisiana assets, resulting in a net loss of $711.8 million and reduced operating cash flow - Key highlights for 2020 include simplifying the portfolio through the sale of North Louisiana assets for $245.0 million and strengthening the balance sheet by refinancing approximately $1.2 billion in debt maturities[246][248] - The company recorded a net loss of $711.8 million in 2020, compared to a net loss of $1.7 billion in 2019. The improvement was primarily due to significantly lower impairment charges on proved and unproved properties[257] - Cash flow from operating activities decreased to $268.7 million in 2020 from $681.8 million in 2019, reflecting significantly lower realized commodity prices and slightly lower production volumes[260][297] Results of Operations In 2020, total sales decreased to $1.61 billion due to lower production and a 27% drop in realized prices, while impairment charges significantly decreased Production and Sales Summary | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Production (Mmcfe) | 816,456 | 833,354 | | Avg. Daily Production (Mcfe) | 2,230,753 | 2,283,162 | | Total Sales | $1,607.7 million | $2,255.4 million | Average Realized Prices (per unit) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Natural Gas (per mcf) | $1.64 | $2.40 | | NGLs (per bbl) | $15.43 | $17.53 | | Crude Oil (per bbl) | $30.22 | $50.26 | | Total (per mcfe, incl. all costs & derivatives) | $1.03 | $1.49 | Key Expenses (per mcfe) | Expense Category | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Direct Operating | $0.11 | $0.16 | (31%) | | G&A | $0.20 | $0.22 | (9%) | | DD&A | $0.48 | $0.66 | (27%) | - Exit and termination costs were $547.4 million in 2020, primarily due to a $479.8 million obligation recorded for retained midstream commitments following the sale of North Louisiana assets[290] - Impairment of proved properties was $79.0 million in 2020, a significant decrease from $1.1 billion in 2019, which was mainly related to the North Louisiana assets that were subsequently sold[293] Liquidity and Capital Resources Cash flow from operations decreased significantly in 2020, but the company maintained $1.4 billion in available borrowing capacity and further enhanced liquidity by issuing new senior notes in January 2021 Cash Flow Summary (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $268,680 | $681,843 | | Net Cash (Used in) from Investing Activities | $(184,082) | $39,478 | | Net Cash Used in Financing Activities | $(84,686) | $(721,320) | - As of December 31, 2020, the company had a bank credit facility with a $3.0 billion borrowing base and $2.4 billion in lender commitments. Available borrowing capacity was $1.4 billion[304][305] - In January 2021, the company issued $600.0 million of new senior notes due 2029, using the proceeds to reduce the balance on its bank credit facility, further enhancing liquidity[302][494] Capitalization Summary (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Debt | $3,085,607 | $3,172,937 | | Stockholders' Equity | $1,637,535 | $2,347,488 | | Total Capitalization | $4,723,142 | $5,520,425 | | Debt to Capitalization Ratio | 65.3% | 57.5% | Critical Accounting Estimates The company's financial statements rely on several critical accounting estimates, including net reserves, fair value estimates, impairment assessments, asset retirement obligations, and income taxes, all requiring significant management judgment - The company's financial statements rely on several critical accounting estimates that require significant management judgment[327] - Net Reserves: Estimation of proved reserves is subjective and impacts depletion calculations and impairment tests. Independent consultants audited 97% of 2020 reserves[328][329] - Fair Value Estimates: Used for derivative instruments, impairment assessments, and retained liabilities. These often rely on Level 2 and Level 3 inputs, including forecasts of commodity prices and production[332] - Impairment Assessments: Long-lived assets are tested for impairment when indicators are present. This involves comparing carrying value to undiscounted future cash flows, which requires significant assumptions about prices, costs, and reserves[337] - Asset Retirement Obligations (ARO): Estimating future plugging and abandonment costs is difficult due to long time horizons and changing technologies and regulations[343] - Income Taxes: Realization of deferred tax assets depends on projections of future taxable income, which is inherently uncertain[345] Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to market risks from commodity price volatility and interest rate changes, managing these through derivative instruments and maintaining a largely fixed-rate debt profile - The company's primary market risks are related to the volatility of natural gas, NGLs, and oil prices, as well as changes in interest rates[356][357] - To manage commodity price risk, the company uses derivative contracts. At December 31, 2020, the fair value of its commodity derivative program was a net liability of $18.0 million[361] - The company is exposed to interest rate risk on its variable-rate bank debt. At December 31, 2020, $702.0 million of its $3.1 billion total debt was subject to floating rates. A 1% increase in short-term rates would increase annual interest expense by approximately $7.0 million[324][368] Commodity Derivative Sensitivity Analysis (as of Dec 31, 2020) | Instrument | Fair Value (in thousands) | Hypothetical Change in Fair Value (10% Price Increase) | | :--- | :--- | :--- | | Swaps | $6,642 | $(66,854) | | Collars | $3,529 | $(20,466) | | Three-way collars | $(17,818) | $(17,369) | Financial Statements and Supplementary Data The 2020 consolidated financial statements were audited by Ernst & Young LLP, with both management and the auditor concluding internal controls were ineffective due to a material weakness in tax accounting, leading to a correction of a prior error - Management concluded that as of December 31, 2020, the company's internal control over financial reporting was not effective due to a material weakness. The weakness was a failure to design and maintain effective controls over the accounting for changes in tax law, specifically related to the CARES Act[376][377][379] - The independent registered public accounting firm, Ernst & Young LLP, also issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2020, due to the identified material weakness[384][385] - The financial statements include a correction of an error in previously reported 2020 interim financial statements related to the misstatement of deferred income taxes[424][570] Notes to Consolidated Financial Statements Key notes detail 2020 asset dispositions, including the $245 million North Louisiana sale, $3.1 billion total debt with active refinancing, $18.0 million net derivative liability, $547.4 million in exit costs, and a decrease in proved reserves to 17.2 Tcfe - Note 4 (Dispositions): In 2020, the company sold its North Louisiana assets for $245.0 million in cash plus contingent consideration, resulting in a pre-tax loss of $9.5 million. It also sold shallow legacy assets in Northwest Pennsylvania for a pre-tax gain of $122.5 million, primarily due to the elimination of the associated asset retirement obligation[473][474] - Note 8 (Indebtedness): As of Dec 31, 2020, total debt was $3.1 billion. The company actively managed its debt profile by issuing $850 million of 9.25% senior notes due 2026 and repurchasing over $1.1 billion of nearer-term notes[488][492][495][496] - Note 10 (Derivative Activities): The company uses swaps, collars, and other derivatives to manage commodity price risk. As of Dec 31, 2020, the fair value of these instruments was a net liability of $18.0 million[506] - Note 16 (Exit and Termination Costs): The company recorded $547.4 million in exit and termination costs in 2020, including a $479.8 million liability for retained midstream obligations from the North Louisiana divestiture[566][568] - Note 19 (Supplemental Oil & Gas Information): Proved reserves decreased from 18.2 Tcfe at year-end 2019 to 17.2 Tcfe at year-end 2020. The standardized measure of discounted future net cash flows decreased from $6.6 billion to $2.8 billion over the same period, primarily due to lower commodity prices[582][592] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[595] Controls and Procedures Due to a material weakness in internal control over financial reporting related to tax accounting, management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2020 - Management concluded that due to the material weakness in internal control over financial reporting, the company's disclosure controls and procedures were not effective as of December 31, 2020[596] - Other than the identification of the material weakness, there were no changes in internal control over financial reporting during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, internal controls[597] Other Information The company reports no other information for this item - None[599] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement, which includes its Code of Ethics - Information required for this item is incorporated by reference from the company's Proxy Statement for the 2021 Annual Meeting of Stockholders[602] - The company has adopted a Code of Ethics, which is available on its website[604] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Information required for this item is incorporated by reference from the company's Proxy Statement for the 2021 Annual Meeting of Stockholders[605] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2021 Proxy Statement - Information required for this item is incorporated by reference from the company's Proxy Statement for the 2021 Annual Meeting of Stockholders[606] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information required for this item is incorporated by reference from the company's Proxy Statement for the 2021 Annual Meeting of Stockholders[607] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2021 Proxy Statement - Information required for this item is incorporated by reference from the company's Proxy Statement for the 2021 Annual Meeting of Stockholders[608] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report, including credit agreements, indentures, and certifications - This item lists all financial statements and exhibits filed with the Form 10-K, including consents from the independent registered public accounting firm and independent petroleum consultants[611]