Range Achieves Double Digit Production, Reserve Growth
Range Resources announced its 2009 results. For 2009, Range again achieved its goal of double digit production and reserve growth at a top quartile or better cost structure, while maintaining a strong financial position. Specifically in 2009, production increased 13%, while sequential production growth reached 28 consecutive quarters. Proved reserves increased 18%, with all-in reserve replacement of 486%. All-in finding and development cost averaged $1.00 per mcfe, while drill bit only finding cost averaged $0.69 per mcfe. Production and reserve growth on a debt adjusted, per share basis exceeded 10%, representing the fifth consecutive year of double-digit per-share growth for both production and reserves. This growth was achieved despite roughly a 50% decrease in capital spending and the sale of $219 million of properties. Financial discipline was maintained as total debt declined by $83 million, while fully diluted shares outstanding increased by only 1.8%.
Financial results for 2009 were negatively impacted by the decline in oil and gas prices. Year-over-year, oil and gas prices fell 56%, however Range's hedging program softened the decline as our average realized prices, after hedging declined by only 25%. The decline in prices more than offset the increase in production resulting in oil and gas sales revenue (including cash-settled derivatives) decreasing 15% to $1.02 billion. Reported GAAP earnings resulted in a loss of $53.9 million or a diluted loss per share of $0.35, while net cash provided from operating activities including changes in working capital totaled $591.7 million. Adjusted net income comparable to analysts’ estimates was $164.7 million with diluted earnings per share of $1.04. On the same basis as analysts' estimates, earnings per share and cash flow from operations per share for the fourth quarter and the full-year 2009 exceeded the consensus of the analysts' estimates.
Commenting, John H. Pinkerton, the Company's Chairman and CEO, said, "Due to the recession, many companies in many industries spent 2009 restructuring their operations and balance sheets. In most cases, these companies downsized their operations and issued significant amounts of equity to reduce debt, resulting in a substantial loss in shareholder value. Fortunately, at Range, we weren't forced to undertake any of these measures. Despite the impact of the recession and lower commodity prices, we accomplished much during 2009. The benchmark for creating shareholder value in the exploration and production business is increasing production and reserves on a per share basis. In 2009, we grew both production and reserves per share by over 10%, marking the fifth consecutive year of double-digit per share growth in both production and reserves. This growth was achieved at a cost of $1.00 per mcfe -- the lowest all-in finding and development cost in our history. We also maintained our strong financial position as total debt declined $83 million during the year and the average diluted shares outstanding increased by only 1.8%.
"While the accomplishments noted above drive value on a year-over-year basis, I believe our most significant achievements in 2009 and over the past several years, have been refocusing our capital and technical teams away from the more traditional higher cost, lower growth plays to the unconventional plays that are lower cost, higher growth and have superior economics. In particular, our discovery of the Marcellus Shale play and the aggregation of 900,000 net acres in the high-quality portions of the play was an extraordinary achievement. As a result, Range is extremely well-positioned to achieve per share growth in production and reserves at low cost for many years to come. Even in the current commodity price environment, we believe we can generate very attractive returns on capital and continue to build substantial shareholder value. While our year-end proved reserves were 3.1 Tcfe, we believe that our current leasehold position of 2.5 million net acres contains 22 to 30 Tcfe of resource potential. Our goal is to exploit this resource potential for the benefit of Range's shareholders by continuing to drive up production and reserves on a per share basis at low cost."
Reported GAAP revenues for the fourth quarter were $247 million, net cash provided from operating activities including changes in working capital was $148 million and earnings were a net loss of $16.8 million. All these amounts were lower than the previous year. The amounts corresponding to analysts' estimates for the same measures, which are non-GAAP measures for the fourth quarter of 2009, are as follows (see the accompanying tables for the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure): Oil and gas sales, including all cash-settled derivatives, rose 9% to $277 million, production increased by 13% to 457 Mmcfe per day, realized prices declined 4% to $6.59 per mcfe, cash flow from operations before changes in working capital increased 14% to $188 million and adjusted net income decreased 1% to $51.6 million.
Production for the year totaled 159 Bcfe, comprised of 131 Bcf of gas and 4.7 million barrels of oil and liquids. Production rose in each quarter of the year and averaged 436 Mmcfe per day for the year. As noted above, Range has achieved sequential production growth for 28 consecutive quarters. Wellhead prices, after adjustment for all cash-settled hedges and derivatives, decreased 25% to $6.44 per mcfe. The average gas price declined 25% to $6.13 per mcf, as the average oil price decreased 8% to $62.58 per barrel. The cash margin per mcfe for 2009 averaged $4.17 per mcfe.
Proved reserves at December 31, 2009 totaled 3.1 Tcfe, including 2,615 Bcf of natural gas and 85.7 million barrels of crude oil and liquids. Reserves increased 475 Bcfe or 18% compared to the prior year. Range replaced 486% of production in 2009. Drilling alone replaced 540% of production. At year-end, reserves were 84% natural gas by volume, and the reserve life index stood at 19 years based on fourth quarter production rates. The percentage of proved undeveloped reserves increased to 45% versus 38% in 2008. Independent petroleum consultants reviewed 88% of the reserves by volume.
For year-end 2009, new Securities and Exchange Commission (“SEC”) rules were implemented requiring that the reserve calculations be based on the average prices throughout the year, versus the previous method which required year-end prices. The benchmark cash prices under the new method were $3.87 per Mmbtu for natural gas and $60.85 per barrel for crude oil (Cushing), representing the simple average of the prices for the first day of each month of 2009. Based on these prices adjusted for energy content, quality and basis differentials ($3.19 per Mmbtu and $54.65 per barrel, respectively), the pre-tax discounted (10%) present value of the year-end 2009 reserves was $2.6 billion. Using the previous SEC pricing method (year-end benchmark prices of $5.79 per Mmbtu and $79.36 per barrel with similar adjustments) proved reserves would have been 3.2 Tcfe and the pre-tax discounted (10%) present value would have been $5.1 billion. Using the 10-year futures strip prices at December 31, 2009 (averaging $6.91 per Mmbtu and $92.36 per barrel with similar adjustments), reserves would have been 3.3 Tcfe with a pre-tax discounted (10%) present value of $6.6 billion. As of year-end 2009, for each of its proved developed wells in the Marcellus Shale play, Range recorded on average 1.2 offset drilling locations as proved undeveloped reserves. In addition to the new SEC rules regarding oil and gas prices, the SEC also implemented new rules regarding proved undeveloped reserves.
The rule change allows for additional drilling locations to be classified as proved undeveloped reserves assuming such locations are supported by reliable technologies. As noted above for year-end 2009 using the new SEC rules for both oil and gas prices and proved undeveloped reserves, Range's finding and development cost from all sources, including leasehold additions and all price and performance revisions averaged $1.00 per mcfe. Based on the previous SEC rules for determining reserves and pricing, Range's finding and development cost for 2009, including leasehold additions and all price and performance revisions, would have been $1.22 per mcfe. The $1.22 per mcfe average for 2009 based on the previous SEC rules compares to Range’s historical average of $1.97 per mcfe for the five year period 2004 through 2008. The "apples-to-apples" decrease of approximately 40% in finding and development cost for 2009 versus the prior five-year period is a reflection of Range's high-graded property portfolio and, in particular, the impact of the Marcellus Shale play. Range’s drill-bit only finding and development cost with performance revisions and excluding acreage for 2009 would have been $0.95 per mcfe using the previous SEC rules.
2010 Capital Budget
Range's 2010 capital budget has been set at $950 million excluding acquisitions. The budget is expected to be funded internally from operating cash flow and asset sales. In December 2009, Range sold its New York properties for $36 million. Recently, Range announced that it had entered into a definitive agreement to sell its tight sand properties in Ohio for $330 million. The Ohio property sale is expected to close prior to the end of March. The 2010 capital program includes $700 million for the drilling of 464 (338 net) wells and 38 (29 net) recompletions, $190 million for leasehold, $20 million for seismic and $40 million for pipelines, facilities and field operations. Approximately 90% of the budget is allocated to the Marcellus, Barnett and Nora areas. A significant portion of the leasehold budget is associated with the Marcellus Shale and relates to blocking up our acreage position in key areas of the play.
Based on the capital budget, Range estimates that 2010 production volumes will increase by 12% over the prior year after deducting the asset sales. Pro forma for the New York and Ohio property sales, the 2010 projected production increase would have been 19%. Range estimates that companywide production growth in 2011 will be in the area of 25%. With regard to the Marcellus Shale play, Range exited 2009 with net production of slightly more than 100 Mmcfe per day. The Marcellus net production target for 2010 is 180-200 Mmcfe per day, doubling to 360-400 Mmcfe per day in 2011.
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