Range Resources Q3 2010 Earnings Call Transcript

Range Resources (RRC)

Q3 2010 Earnings Call

October 28, 2010 1:00 pm ET

Executives

Jeffrey Ventura - President, Chief Operating Officer and Director

Roger Manny - Chief Financial Officer and Executive Vice President

Rodney Waller - Senior Vice President and Assistant Secretary

John Pinkerton - Chairman, Chief Executive Officer and Member of Dividend Committee

Analysts

Dan McSpirit - BMO Capital Markets U.S.

David Kistler - Simmons & Company International

Ronald Mills - Johnson Rice & Company, L.L.C.

Gil Yang - BofA Merrill Lynch

Leo Mariani - RBC Capital Markets Corporation

Rehan Rashid - FBR Capital Markets & Co.

Presentation

Operator

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Greetings and welcome to the Range Resources Third Quarter 2010 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Mr. Rodney Waller, Senior Vice President for Range Resources. Thank you, Mr. Waller, you may begin.

Rodney Waller

Thank you, operator. Good afternoon, and welcome. Range Resources reported its results for the third quarter 2010 with record production breaking the 500 million a day mark for the first time. Range reported increase production in our liquid-rich areas of the Marcellus, Midcontinent and the Permian Basin and announced the decision to market our Barnett Shale properties. I know that these items, along with our operations update last week, will generate a number of questions today.

On the call with me are John Pinkerton, our Chairman and Chief Executive Officer; Jeff Ventura, our President and Chief Operating Officer; and Roger Manny, our Executive Vice President and Chief Financial Officer. Before turning the call over to John, I would like to cover a few administrative items.

First, we did file our 10-Q with the SEC this morning. It's available now 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 non-GAAP measures of cash flow, EBITDAX, cash margins and the reconciliation of our non-GAAP earnings or reported earnings that are discussed on the call today. We've also added tables, which will guide you in forecasting our future realized prices for natural gas, crude oil and natural gas liquids. Detailed information of our current hedge position by quarter is also included on the website.

Second, we'll be participating in several conferences and road shows in the coming weeks. Please check our website for a complete listing for the next several months. John will be speaking at the DUG East conference in Pittsburgh on November 4. Range will be attending the Morningstar Stock Forum in Chicago next week, the Boenning & Scattergood Energy Conference in New York on November 9, the Pritchard Capital Conference in Boston on November 10; the Bank of America Energy Conference in Miami on November 12; the UBS Energy Conference in New York on November 17; the Bank of America Credit Conference in New York on November 17; and the JP Morgan Conference in Boston on November 30. We hope we can see you at one of these conferences. Now let me turn it over to John.

John Pinkerton

Thanks, Rodney. Before Roger reviews the third quarter financial results, I'd like to take just a few minutes to review the key accomplishments in the third quarter. On a year-over-year basis, third quarter production rose 15% beating the high end of our guidance. This marks the 31st consecutive quarter of sequential production growth. In addition we reached, as Rodney mentioned, the 500 million per day production milestone for the first time in our company's history. Kudos goes out to our operating teams on that.

Our financial results reflect the fact that the 15% increase in production was more than offset by a 22% decrease in realized prices. We are pleased on the cost side. As on a per unit production basis, three out of the four major cost categories were lower than the prior year period. D&A expense per mcfe came in at 18% lower than last year, which is really significant. Interest expense per unit saw a 4% decrease, direct operating costs per mcfe were 3% lower than the prior period.

On the higher side of the G&A costs, we saw an 8% increase over last year. We're still building out our Marcellus team. And we'll see the impact of that for a couple more quarters or so in G&A, before we begin to see a decline or in unit production basis like the other metrics.

For the first nine months of the year, we have spent $780 million or 65% of our capital budget. For the year, we certainly don't want to spend more than our budget. And if anything, we may end up spending a few dollars less than budgeted. With regard to our Marcellus Shale play, we continue to make significant headway in the quarter as we continue to drill fantastic wells, filling our acreage position, test the other shale formations and continue to build out the infrastructure. I'm particularly pleased with the Marcellus acreage trade we've accomplished so far this year. In the third quarter, we did our largest trade to date. The acreage trades are difficult and very time-consuming to complete but are extremely beneficial to help to block out our acreage positions, which in turn significantly increase our capital efficiency.

The most encouraging aspect of the quarter is the 136% increase in our NGL volumes and the drilling results in our oil and liquid-rich plays in the Midcontinent and Permian areas. Our operating teams did an excellent job quickly shifting capital and getting these projects online.

All in all, third quarter was a very solid one. We executed on the production side, continued to reduce cost, successfully shifted capital to higher-margin liquid-rich plays and maintained a strong balance sheet. With that, I'll turn the call over to Roger to review the financial results.

Roger Manny

Thank you, John. Financially, third quarter 2010 saw significant progress in capital efficiency, balance sheet strength and incremental cash flow growth versus the second quarter of 2010. Third quarter natural gas, NGL and oil sales, including all cash-settled derivatives totaled $245 million, down 4% from last year due to lower prices, but up from last quarter on higher production. This figure also includes $15.7 million from the early settlement of hedged 2011 oil production that was subsequently re-hedged. Year-to-date natural gas, NGL and oil revenue, including all cash-settled derivatives, totaled $696 million.

Cash flow for the third quarter was $141 million, 18% below last year and 9% higher than the second quarter this year. Cash flow per share for the quarter was $0.88, matching the analysts' consensus estimate, year-to-date cash flow over $418 million. EBITDAX for the third quarter was $173 million, 13% lower than the third quarter of '09 but 11% higher than last quarter. EBITDAX for the year-to-date period was $505 million. Cash margins for the quarter was $3 per mcfe. That's 28% lower than last year solely due to lower gas prices.

With the Ohio asset sale behind us, there are only a few unusual revenue and expense items to highlight in the third quarter results. Our non-cash derivative mark-to-market losses totaled $15.9 million. And our deferred compensation plan actually had a $5.3 million non-cash income posting due to declining market values of assets held in the plan.

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