Range Resources announced its second quarter 2010 results. Production averaged 472 Mmcfe per day, a record high for the Company and a 9% increase over the prior-year quarter. This represents the 30th consecutive quarter of sequential production growth. The record level of production was achieved despite the impact of selling non-core properties at the end of the first quarter 2010. The driver for the production growth was solid results from all of the Company's divisions. The Marcellus Shale Division saw the largest production increase due to continued outstanding drilling results.
Reported GAAP net income increased to $9.1 million versus a loss of $39.9 million for the prior-year quarter. Diluted earnings per share rose to $0.06 compared to a loss of $0.26 for the prior-year quarter. Net cash provided from operating activities totaled $108 million for the second quarter. Adjusted net income comparable to analysts' estimates, a non-GAAP measure, was $14.1 million or $0.09 per diluted share compared to $33.7 million or $0.21 per diluted share for the prior-year quarter. Due to lower realized prices, cash flow from operations before changes in working capital, a non-GAAP measure, declined 17% from the prior-year quarter to $129 million.
Commenting on the announcement, John Pinkerton, Range's Chairman and CEO, said, "Significant progress was made in the second quarter. We fully replaced the production we sold with our Ohio sale and were able to record the highest quarterly production in our Company's history. We accomplished this while continuing to drive down our cost structure. The catalyst for our performance was outstanding drilling results. We believe we are on track to deliver all-in finding cost of below $1.00 per mcfe for 2010. As a result, we are generating attractive returns on our capital despite low natural gas prices. With 75% of our 2010 gas production hedged and 60% of our 2011 gas production hedged, coupled with our low cost structure, solid financial position, and high return projects, we are confident that we can continue to drive up our per share value."
For the quarter, production averaged 472 Mmcfe per day, comprised of 382 Mmcf per day of gas (81%), 9,651 barrels per day of natural gas liquids (12%) and 5,327 barrels per day of oil (7%). Natural gas production grew 9% over the prior-year quarter, despite the sale of the Ohio properties at the end of the first quarter. Adjusting for asset sales, second quarter natural gas production would have grown by 13%. Natural gas liquids production rose 67% as a result of outstanding drilling results in the liquids rich area of the Marcellus Shale play in southwest Pennsylvania. Compared to the prior-year quarter, oil production declined 34% primarily due to the sale of our West Texas oil properties last year. Wellhead prices, including cash-settled derivatives, averaged $5.07 per mcfe, an 18% decrease versus the prior-year quarter. The average realized gas price was $4.37 per mcf, a 25% decrease from the prior-year quarter. The natural gas liquids price increased 54% to $37.13 a barrel versus the prior-year quarter. The average oil price rose 12% to $67.96 a barrel over the prior-year quarter. Total natural gas, NGL and oil sales (including cash settled derivatives) declined 11% compared to the prior-year quarter to $217 million as lower prices more than offset higher volumes.
During the second quarter 2010, Range continued to lower its cost structure. On a unit of production basis, the Company's four largest cost categories fell by 8% in aggregate compared to the prior-year period. Direct operating expenses for the quarter were $0.68 per mcfe, a 21% decrease compared to the prior-year quarter of $0.86. Depreciation, depletion and amortization expense decreased 6% to $2.12 per mcfe. Interest expense declined 4% to $0.72 per mcfe. General and administrative expenses excluding the lawsuit settlements were $0.52 per mcfe, a $0.01 increase over the prior-year quarter due primarily to continued increases in the Marcellus Shale division.
In June, Range completed the second and final closing of its Ohio property sale, generating approximately $23 million of additional proceeds. Total proceeds from the sale were $323 million. The sale resulted in the recording of a pre-tax gain of $67 million in the first quarter and $10 million in the second quarter.
Also in June, Range acquired natural gas properties located in Virginia from a subsidiary of Chesapeake Energy Corporation for $135 million. The properties are contiguous to and partially overlap the Company’s existing Nora/Haysi properties. The acquired properties are currently producing 10 Mmcfe per day and include 115,000 net acres of leasehold and 30 miles of gas transmission lines. Range estimates the proved reserves associated with the acquisition total 125 Bcfe. The acquired properties contributed approximately 2 Mmcfe per day toward the Company's total average second quarter production of 472 Mmcfe per day. The Company owns the mineral interests in both the Nora and Haysi Fields. The acquisition blocks up over 350,000 acres for future development in stacked pay reservoirs of the shallow coal bed methane horizons, tight gas horizons and the deeper Huron Shale. These same reservoirs are currently being developed in the adjoining Nora Field. Based on the results of the infill drilling program at Nora over the last several years, Range believes that the acquired acreage has significant infill drilling and behind pipe opportunities with attractive economics even at low gas prices.
Second quarter drilling expenditures totaled $237 million, funding the drilling of 87 (65.6 net) wells. A 97% success rate was achieved. For the first six months of the year, 159 (123.5 net) wells were drilled. At June 30, 53 (38.6 net) wells were in various stages of completion or waiting on pipeline connection. As of June 30, Range had drilled 146 horizontal Marcellus wells to date of which 29 are awaiting completion and four are awaiting pipeline hook up. In addition in the second quarter, $32 million was expended on acreage, $8 million on expanding gas gathering systems and $13 million for exploration expense.
The Company's Board of Directors recently approved an additional $215 million in capital spending for 2010. This increases the 2010 capital budget from $950 million to $1.2 billion. The capital spending increase is related to seizing opportunities in the Marcellus Shale play ($210 million) and for development of the recently acquired properties in Virginia ($5 million). Of the additional Marcellus capital, approximately $65 million is for the planned drilling of 18 additional Marcellus wells in the southwest portion of the play and to complete 15 of them prior to year end. Because we are becoming more efficient, we are drilling more wells with the same number of rigs. Another $73 million is for the construction of drilling locations, roads and other infrastructure requirements for wells expected to be drilled in 2011. Given the size and scale of Range's acreage position, it is prudent and cost effective to undertake these construction activities prior to the winter season, in order to achieve a more cost efficient, continuous operation. Range is combining 14,000 net acres in Bradford County with Talisman in an industry joint venture. Range will own approximately a 33% working interest in the combined acreage position. Talisman has drilled some excellent wells in the area and will be the operator of the joint venture wells. Range's share of the joint venture's cost for the remainder of 2010 is estimated to be $25 million. An additional $40 million is for leasehold in the Marcellus Shale, allowing us to continue to block up acreage in our core areas. The remaining $7 million is for additional seismic expenditures.
With the increase in capital spending, Range is increasing its production growth guidance for 2010 from 12% to 14%. Specifically with regard to the Marcellus, Range is increasing its 2010 exit rate target from 180 to 200 Mmcfe net per day to 200 to 210 Mmcfe net per day. For 2011, Range currently anticipates that its production will increase by no less than 25% and the 2011 Marcellus exit rate target has been increased from 360 to 400 Mmcfe per day net to 400 to 420 Mmcfe per day net.
The Company had at quarter end a debt-to-capitalization ratio, net of cash, of 40% with almost $900 million of undrawn capacity under its bank credit facility. The increase in the 2010 capital budget will be funded by draws under the credit facility. Range is also considering additional asset sales to fund a portion of the capital increase.
Range's Marcellus Shale Division continues to exceed expectations. Current net production is approximately 160 Mmcfe per day, ahead of its mid-year target. Drilling rigs are becoming more efficient as are completions and production operations. These increased efficiencies and cost improvements are resulting in improved economics and rates of return. These efficiencies, coupled with being ahead of schedule on production volumes, are allowing us to add an additional $210 million of capital to the Marcellus project in 2010. The additional capital, in turn, will help us to accelerate the Company's net asset value of the Marcellus Shale play.
Pipeline, compression and plant processing infrastructure capacity in the Marcellus is on schedule. In the southwest portion of the play, an additional 30 Mmcfe per day of capacity is scheduled to be complete in the fourth quarter of this year and an additional 150 Mmcfe per day is scheduled for first quarter 2011. This processing capacity coupled with additional dry gas taps will position Range well in 2011 and beyond for increased production in the southwest portion of the play. With regard to the northeast portion of the play, solid progress is being made on the first phase of the Lycoming County pipeline project which is scheduled to begin flowing gas on or before year end 2010. Firm take away capacity has been contracted for both the southwest and northeast areas to allow our Marcellus Shale production to flow on time and within our forecasts.
As we ramp up development in the Marcellus, our technical team continues to make significant progress. Our production curves as updated and presented with zero time plots on our website illustrate continued improvements in well performance and demonstrate the progress that our technical team is making. Range previously announced an encouraging test of its first Upper Devonian Shale horizontal well. Given the Upper Devonian's prevalence across our acreage position, we are very encouraged regarding the increased unproved resource potential this well implies on our existing acreage in southwestern Pennsylvania. The Marcellus Shale team plans two additional Upper Devonian test wells in 2010. Range plans to spud another Utica Shale well early in the first quarter of 2011.
In the second quarter, the Southwest Division continued its success while running two rigs. In the Barnett Shale formation, the Company completed four wells with excellent results. In Johnson County, two wells were completed with a combined rate of 6.0 (3.6 net) Mmcfe per day, while in Tarrant County, another two wells were completed with combined rates of 10 (7.0 net) Mmcfe per day. In the Permian Basin, the division drilled and completed one new oil well and deepened another. One of the wells came online at 509 (381 net) Boe per day, while the other had initial production of 640 (480 net) Boe per day.
During the second quarter 2010, Range's Appalachian Division continued to focus its key tight gas sand, coal bed methane and horizontal drilling projects in the Nora field in Virginia, drilling a total of 35 (17.5 net) wells. During the quarter, Range drilled 12 vertical tight gas sand wells and one horizontal Huron Shale well. In addition, Range drilled 15 new coalbed methane wells and 7 infill coalbed methane wells in the Nora field for the quarter.
During the second quarter, the Midcontinent Division focused on the Texas Panhandle Granite Wash and the northern Oklahoma shallow oil plays. Two vertical Granite Wash wells commenced sales during the quarter at combined rates of 4.4 (3.5 net) Mmcfe per day. One additional well is completing with three more scheduled in the play for 2010. In the northern Oklahoma shallow oil play, one horizontal well was placed on production at a rate of 295 (236 net) BOE per day. This well reached only one-half of its projected lateral length, yet has responded with more than 50% of the production volumes associated with the first horizontal test. A second well is currently completing, with three additional wells planned for the remainder of the year. In the Ardmore Basin Woodford play, drilling operations also commenced in the quarter. One well is currently completing, and one rig will remain active for the remainder of 2010. All three of these main play areas of the Midcontinent contain oil components which greatly add to their well economics and rates of return.
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