Range is prepared to finish out 2011 with again record-setting production volumes and taking that momentum into 2012. I think you'll hear those same themes reiterated from each of our speakers 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 on the homepage of our website, or you can access it using the SEC's EDGAR system. In addition, we've posted on our website supplemental tables, which will guide you in the calculation of the non-GAAP measures of cash flow, EBITDAX, cash margins and the reconciliation of our adjusted non-GAAP earnings to reported earnings that are discussed on the call today. We've also added tables, which will guide you in the forecasting of our future realized prices for natural gas, crude oil and natural gas liquids. Detailed information of our current hedge position by quarter is also available on the website. Second, we will be participating in several conferences in November. Check our website for a complete listing for the next several months. We will be at the Morningstar Conference in Chicago on November 10; the Bank of America Energy Conference in Miami on November 15; and the UBS Access Conference in Boston on November 17. In addition, we'll have several teams on the road during November. We hope that we can meet with you personally in the very near future. Now let me give the call over to John. John? John H. Pinkerton Thanks, Rodney. Before Roger reviews the third quarter financial results, I'll review the key accomplishments that we achieved in the third quarter.
On a year-over-year basis, third quarter production rose 7%, materially exceeding the high end of our guidance due to better-than-expected timing as to infrastructure buildout. Adjusting for the Barnett sale, third quarter 2011 production growth would have been 27% year-over-year. Most importantly, by the end of September, we had fully replaced the production in sold in the Barnett sale. Because the Barnett production represented 20% of our total production at the time of the sale, this represents a tremendous achievement by our operating teams to have replaced the Barnett production in just 5 months as Rodney mentioned. They deserve a big round of applause.Our drilling program was on schedule throughout the quarter as we drilled 77 gross wells. We continue to be extremely excited with the drilling results. Despite the low natural gas prices, we continue to generate very attractive rates of return on our drilling. We currently have 21 rigs in operation. The 7% increase in production was complemented by a 15% increase in realized prices. As a result, third quarter oil and gas revenues were 15% higher than the prior year. Due to significantly lower unit cost, cash flow was a whopping 35% higher than last year. Speaking of costs, we are most pleased on the unit cost performance side. We saw a 9% decrease in our 5 largest cost categories combined. This was the first quarter where we saw a decrease in each of the 5 major cost categories. Most impressively, direct operating cost per Mcf was reduced by 20%, while G&A expense fell 12%. With regard to our Marcellus Shale play, significant headway was made in the quarter as we continue to drill fantastic wells, fill out our acreage position and continue to build out infrastructure. In particular, the progress made on the infrastructure marketing fronts has been very impressive. My hat goes off to those teams as well. As a result, we are very well positioned to achieve our 400 million a day net production exit rate target for the Marcellus. Currently, we're approximately 350 million a day in the Marcellus net.
While our focus for this year has clearly been on the Marcellus, we have quietly built a very high-quality acreage position in horizontal Mississippian play in Northern Oklahoma that now totals 105,000 net acres. We believe the horizontal Mississippian play will be an excellent complement for our Marcellus play.All in all, I'm very impressed and very pleased on how much we accomplished in the third quarter. I complement the entire Range team for a job well done. With that, I'll turn the call over to Roger to review the financial results. Roger S. Manny Thank you, John. From a financial perspective, the first half of 2011 was a transformative period, with the Barnett sale providing significant future funding and such of an improvement in our liquidity and balance sheet. The first half also brought about declining unit costs and increasing production revenue and cash flow. For the third quarter, we built upon the favorable trends of the first half with continued top line growth, lower costs and higher production. The primary Barnett sale closing occurred in April, so the third quarter is our first quarter which includes essentially no Barnett activity. And as I've mentioned on previous calls, with the Barnett sale, we're again required to report our financial statements using discontinued operations accounting. Our filed financial statements break out the historical results of our Barnett assets as discontinued operations. We've also posted supplemental tables on our website and in the press release that reconcile the discontinued operations results with our historical results that include the Barnett. This information's provided so that investors may more easily compare their prior period projections with our current period results. On this call, when referring to historical performance, I'll be referencing the non-GAAP results that include the Barnett matching those used in the press release and supplemental tables. Read the rest of this transcript for free on seekingalpha.com