Range Resources Corporation Q1 2010 Earnings Call Transcript

Range Resources Corporation Q1 2010 Earnings Call Transcript
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Range Resources Corporation (RRC)

Q1 2010 Earnings Call Transcript

April 28, 2010 1:00 pm ET

Executives

Rodney Waller – SVP & Assistant Secretary

John Pinkerton – Chairman & CEO

Roger Manny – EVP & CFO

Jeff Ventura – President & COO

Analysts

Marshall Carver – Capital One Southcoast

Leo Mariani – RBC Capital Markets

Dave Kistler – Simmons & Company

Ron Mills – Johnson Rice

David Heikkinen – Tudor, Pickering & Holt

Dan McSpirit – BMO Capital Markets

Presentation

Operator

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Greetings and welcome to the Range Resources first quarter 2010 earnings conference call. This call is being recorded. All lines have been placed on mute to prevent any background noise. Statements contained in this conference call that are not historical facts are forward-looking statements. Such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. After the speaker's remarks, there will be a question-and-answer period.

At this time, I would like to turn the call over to Mr. Rodney Waller, Senior Vice President of Range Resources. Please go ahead, sir.

Rodney Waller

Thank you, operator. Good afternoon and welcome. Range Resources reported results for the first quarter 2010 with record production, leading the consensus numbers and continued to execute our business plan with improvement in unit cost while navigation this period of challenging commodity prices.

The first quarter marked our 29th consecutive quarter of sequential production growth. Although we are encouraged with our resource base to continue to grow production and reserves in the future, we are more focused on achieving those targets at an optimum cost structure on a per share basis to maximize shareholder value. I think you will hear those same things reiterated from each of the speakers today.

On the call with me today are John Pinkerton, our Chairman and Chief Executive Officer; Jeff Ventura, our President and Chief Operating Officer; Roger Manny, our Executive Vice President and Chief Financial Officer.

Before turning the call over to John, I'd like to cover a few administrative items. First, we did file our 10-Q with the SEC this morning. It's now available on the home page of our website, or you can access it using the SEC's EDGAR system. In addition, we posted on our website supplemental tables, which will guide you in the calculation of the non-GAAP measures of cash flow, EBITDA and cash margins, and the reconciliation of our adjusted non-GAAP earnings to reported earnings that are discussed on the call today. Tables are also posted on the website that will give you the detailed information of our current hedge position by quarter.

Secondly, we will be participating in several conferences in May. Check our website for a complete listing for the next several months. Moving at (inaudible) it's going be held at May 13 to 14, on last 13 (inaudible) conference in Houston on May 21st, and the UBS Oil & Gas Conference on May 27 stockholders meeting will be held on May the 19th, with the help of each of the stockholder as received their proxy material and we urge each stockholder for the proposal being submitted in the proxy.

Now let me turn it over the call to John.

John Pinkerton

Thanks, Rodney. Before Roger reviews the first quarter financial results, I will review some of the key accomplishments so far in 2010. First, on a year-over-year basis, first quarter production rose 12%, reaching the high end of guidance.

This also marks the 29th consecutive quarter of sequential production growth. If you adjust for asset sales first quarter 2010 production would have been 18%. Second, our joint program is on schedule throughout the quarter as we drilled 72 wells. We continue to be very pleased with our drilling results and despite the lower prices. We are generating attractive returns on the capital.

Currently, we have 22 rigs in operation. A 12% increase in production was more than offset by 16% decrease in realized prices. As a result, first quarter oil and gas revenues were down 6%, compared to the prior year. We are most pleased on the cost side as on our per unit production basis nearly all cost categories were lower than the prior period.

In particular, direct operating cost came in $0.73 per Mcfe. This is 22% lower than the prior year period, quite an achievement. With regards to our Marcellus Shale play, significant headwind was made in the quarter as we continue to drill some fantastic wells filling our acreage position to test the other Shale formations and continue to build out infrastructure.

In addition, we continue to add high quality technical personnel to our Marcellus team in Pittsburgh, which now includes over 200 people. Right at the end of the quarter, we completed the initial phase of our Ohio asset sale which generated roughly $300 million of proceeds. This sale included 3300 wells in over 13,000 leases.

I'm really pleased that we were able to get it close so early in the year. All now I couldn't be more pleased on how much we accomplished in the first quarter. I think it's a real testimony to all of us here at Range especially the technical folks. With that I will turn the call over to Roger to view financial results.

Roger Manny

Thank you, John. The first quarter of 2010 in some way was a lot like the first quarter of 2009. Production reached to record quarterly high 12% higher than the prior year and Range posted another solidly profitable first quarter despite oil and gas prices in the first quarter like last year been sharply low.

Turning to a bit deeper into the numbers however, revealed a stronger operating performance in the last year, to significantly lower unit operating cost plus the balance sheet benefits having sold most of our Ohio tight gas sand properties at the end of March.

Quarterly oil and gas sales including past settled derivatives totaled $233 million down 6% from the last year's revenue figure of 248. Once again unfortunately, the decline in prices just offset the benefit of higher production volumes. Cash flow for the first quarter of 2010 was $147 million, 7% below the first quarter of '09 with cash flow per share $0.92, $0.02 above the analyst consensus estimate of $0.90.

EBITDAX for the quarter was $176 million, 5% lower than the first quarter of '09. First quarter of 2010 cash margins were down 18% from last year at $3.49 per Mcfe compared to $4.25 per Mcfe in 2009. There were a few extraordinary revenue and expense items going through the financial statements this quarter starting with the pretax unrealized marketing and market gain on our hedges of $46 million, and a $69 million pretax book gain primarily from the sale of our Ohio properties.

On the expense side, we have $7.9 million in severance cost from Ohio sale along with the $6.5 million low gas price in dues impairment of the Gulf Coast property. Lastly, as our stock price declined slightly during the quarter, we reported non-cash income of $5.7 million related to our deferred compensation plan, and quarterly GAAP net income was $78 million.

Quarterly earnings calculated using analyst methodology for the first quarter, which excludes non-recurring items such as asset sales, unrealized derivative mark-to-market entries, that was $26 million or $0.16 per fully diluted share and that's $0.02 higher than the analyst consensus estimate of $0.14.

As Rodney mentioned the Range Resources website contains a full reconciliation of these non-GAAP measures I just mentioned including cash flow, EBITDAX, cash margins and analyst earnings. These non-recurring items should not math some of the recurring good news found deeper in the expense line to the income statement. And first up on the good news was as John mentioned is the cash direct operating expense reduction per Mcfe of $0.023 in the first quarter, compared to $0.93 last year.

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