NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) SUMMARY OF ORGANIZATION AND NATURE OF BUSINESS
Range Resources Corporation is a Fort Worth, Texas-based independent natural gas, natural gas liquids (“NGLs”) and oil company primarily engaged in the exploration, development and acquisition of natural gas and oil properties in the Appalachian and the North Louisiana regions of the United States. Our objective is to build stockholder value through consistent returns-focused growth, on a per share debt-adjusted basis, of both reserves and production on a cost-efficient basis. Range is a Delaware corporation with our common stock listed and traded on the New York Stock Exchange under the symbol “RRC”.
(2) BASIS OF PRESENTATION
These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Range Resources Corporation 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018. The results of operations for the second quarter and the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for fair presentation of the results for the periods presented. All adjustments are of a normal recurring nature unless otherwise disclosed. These consolidated financial statements, including selected notes, have been prepared in accordance with the applicable rules of the SEC and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements.
Inventory.
As of June 30, 2018, we had $8.4 million of material and supplies inventory compared to $12.1 million at December 31, 2017. Material and supplies inventory consists of primarily tubular goods and equipment used in our operations and is stated at lower of specific cost of each inventory item or net realized value, on a first-in, first-out basis. At June 30, 2018, we also had commodity inventory of $364,000 compared to $508,000 at December 31, 2017. Commodity inventory as of June 30, 2018 consists of NGLs held in storage or as line fill in pipelines.
Unproved Properties.
Impairment of a significant portion of our unproved properties is assessed and amortized on an aggregate basis based on our average holding period, expected forfeiture rate and anticipated drilling success. In certain circumstances, our future plans to develop acreage may accelerate our impairment.
(3) NEW ACCOUNTING STANDARDS
Not Yet Adopted
In February 2016, an accounting standards update was issued that requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than twelve months. Classification of leases as either a finance or operating lease will determine the recognition, measurement and presentation of expenses. This accounting standards update also requires certain quantitative and qualitative disclosures about leasing arrangements. This standard is effective for us in first quarter 2019 and will be applied using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and early adoption is permitted. We do not plan to early adopt this new standard. This standard does not apply to leases to explore for or use minerals, oil or natural gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained. We are evaluating each of our lease arrangements and are currently enhancing our systems to track and calculate additional information necessary for adoption of this standard. We are evaluating the provisions of this accounting standards update and assessing the impact it will have on our consolidated results of operations, financial position and financial disclosures, in addition to developing any control changes necessary. We believe this new guidance will likely increase our recorded assets and liabilities that are not currently recognized under currently applicable guidance.
In June 2016, an accounting standards update was issued that changes the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. The standards update requires the use of a forward-looking “expected loss” model as opposed to the current “incurred loss” model. This standards update is effective for us in first quarter 2020 and should be adopted on a modified retrospective basis though a cumulative-effect adjustment to retained earnings as of the beginning of the adoption period. Early adoption is permitted starting January 2019. We are evaluating the provisions of this accounting standards update and assessing the impact, if any, it may have on our consolidated results of operations, financial position and financial disclosures.
7
Recently Adopted
In March 2017, an accounting standards update was issued which provides additional guidance on the presentation of net benefit cost in the statement of operations. Employers will present the service cost component of net periodic benefit cost in the same consolidated results of operations line item as other employee compensation costs arising from services rendered during the period. This new standards update was effective for annual reporting periods in first quarter 2018 and must be applied retrospectively. We adopted this standards update in first quarter 2018. The adoption did not impact our consolidated results of operations, financial position, cash flows or disclosures. We had no service cost recorded prior to 2018 due to the implementation of our postretirement benefit plan at the end of 2017. In 2018, our service cost is recorded in general and administrative expense.
In May 2017, an accounting standards update was issued which clarifies what constitutes a modification of a share-based award. This standards update is intended to provide clarity and reduce both diversity in practice and cost and complexity to a change to the terms or conditions of a share-based payment award. We adopted this standards update in first quarter 2018. The adoption of this standard did not have a material impact on our consolidated financial position or results of operations.
In May 2014, an accounting standards update was issued that superseded the existing revenue recognition requirements. This standard included a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Among other things, the standard also eliminated industry-specific revenue guidance, required enhanced disclosures about revenue, provided guidance for transactions that were not previously addressed comprehensively and improved guidance for multiple-element arrangements. This standard was effective for us in first quarter 2018 and we adopted the new standard using the modified retrospective method to all open contracts as of January 1, 2018. We utilized a bottom-up approach to analyze the impact of the new standard by reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts and the impact of adopting this standards update on our total revenues, operating income and our consolidated balance sheet. Our implementation of this standard did not result in a cumulative-effect adjustment on date of adoption; however, our financial statement presentation related to revenue received from certain gas processing contracts changed. Based on previous accounting guidance, certain of our gas processing contracts were reported in revenue at the net price (net of processing costs) we receive. Upon adoption of this accounting standards update, these contracts are now reported as a gross price received at a delivery point and separate transportation, marketing and processing expense. The impact of adoption of the new revenue recognition standard on our current period results is as follows (in thousands):
|
Three Months Ended June 30, 2018
|
|
As Reported
|
|
|
Previous Revenue
Recognition Method
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$ Per mcfe
|
|
|
|
$
|
|
|
|
$ Per
mcfe
|
|
|
|
Increase
|
|
|
|
$ Per
mcfe
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas, NGLs and oil sales
|
$
|
661,390
|
|
|
$
|
3.30
|
|
|
$
|
619,244
|
|
|
$
|
3.09
|
|
|
$
|
42,146
|
|
|
$
|
0.21
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation, gathering, processing and compression
|
$
|
269,910
|
|
|
$
|
1.35
|
|
|
$
|
227,764
|
|
|
$
|
1.14
|
|
|
$
|
42,146
|
|
|
$
|
0.21
|
|
Net loss
|
$
|
(79,836
|
)
|
|
|
|
|
|
$
|
(79,836
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
As Reported
|
|
|
Previous Revenue
Recognition Method
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$ Per
mcfe
|
|
|
|
$
|
|
|
|
$ Per
mcfe
|
|
|
|
Increase
|
|
|
|
$ Per
mcfe
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas, NGLs and oil sales
|
$
|
1,358,019
|
|
|
$
|
3.42
|
|
|
$
|
1,278,046
|
|
|
$
|
3.22
|
|
|
$
|
79,973
|
|
|
$
|
0.20
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation, gathering, processing and compression
|
$
|
514,538
|
|
|
$
|
1.29
|
|
|
$
|
434,565
|
|
|
$
|
1.09
|
|
|
$
|
79,973
|
|
|
$
|
0.20
|
Net loss
|
$
|
(30,598
|
)
|
|
|
|
|
|
$
|
(30,598
|
)
|
|
|
|
|
|
$
|
—
|
|
|
|
|
Changes to natural gas, NGLs and oil sales and transportation, gathering, processing, and compression expenses is due to the conclusion that we represent the role of principal in a certain gas processing and marketing agreement with a midstream entity in accordance with the new accounting standard. This represents a change from our previous conclusion utilizing the principal versus agent indication that we acted as the agent in that agreement. As a result, we were required to modify our presentation to present revenue on a gross basis for amounts expected to be received from third-party customers through the marketing process, with expenses incurred prior to control of the products transferring to the midstream entity at the tailgate of the plant presented as transportation, gathering, processing and compression expense.
8
In January 2017, an accounting standards update was issued that eliminates the requirements to calculate the implied fair value of goodwill to measure goodwill impairment charge. Instead,
entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard is effective for annual periods beginning after December 15, 2019 and should be applied on a prospective basis. Early ado
ption is permitted for any goodwill impairment tests performed in first quarter 2017 or later. We elected to adopt this accounting standards update in first quarter 2017. The adoption did not have a significant impact on our consolidated results of operati
ons, financial position, cash flows or disclosures; however, this standard did change our policy for our annual goodwill impairment assessment by eliminating the requirement to calculate the implied fair value of goodwill.
In July 2015, an accounting standards update was issued that requires an entity to measure inventory at the lower of cost or net realizable value. This excludes inventory measured using LIFO or the retail inventory method. This standard was effective for us in first quarter 2017 and was applied prospectively. Adoption of this standard did not have an impact on our consolidated results of operations, financial position or cash flows.
In August 2016, an accounting standards update was issued that clarifies how entities classify certain cash receipts and cash payments on the statement of cash flows. The guidance is effective for us in first quarter 2018 and should be applied retrospectively with early adoption permitted. We adopted this new standard in fourth quarter 2017 on a retrospective basis. Adoption of this standard did not have an impact on our consolidated cash flow statement presentation.
In January 2017, an accounting standards update was issued which clarifies the definition of a business. This new standard is effective for us in first quarter 2018 with early adoption permitted. We adopted this new standard in fourth quarter 2017. Adoption of this standard did not have a significant impact on our consolidated results of operations, financial position or cash flows.
(4) DISPOSITIONS
We recognized a pretax net gain on the sale of assets of $156,000 in second quarter 2018 compared to a pretax net gain of $807,000 in the same period of the prior year and a pretax net gain on the sale of assets of $179,000 in first six months 2018 compared to a pretax gain on the sale of assets of $23.4 million in first six months 2017.
2018 Dispositions
Other
. In second quarter 2018, we sold miscellaneous inventory and other assets for proceeds of $326,000 resulting in a pretax gain of $156,000. In first quarter 2018, we sold miscellaneous inventory and other assets for proceeds of $40,000 resulting in a pretax gain of $23,000.
2017 Dispositions
Western Oklahoma.
In first six months 2017, we sold properties in Western Oklahoma for proceeds of $26.0
million and we recorded a gain of $22.1 million related to this sale, after closing adjustments and transaction fees.
Other
. In second quarter 2017, we sold miscellaneous unproved property, inventory and other assets for proceeds of $1.2 million resulting in a pretax gain of $1.2 million. In first quarter 2017, we sold miscellaneous proved and unproved properties, inventory, other assets and surface acreage for proceeds of $53,000 resulting in a pretax gain of $69,000.
(5) GOODWILL
During 2016, we recorded goodwill associated with the acquisition of Memorial Resource Development Corp. (the “MRD Merger”), which represented the cost of the acquired entity over the net amounts assigned to assets acquired and liabilities assumed. Goodwill is assessed for impairment whenever events or circumstances indicate that impairment of the carrying value of goodwill is likely, but no less often than annually. During fourth quarter 2017, we performed our annual qualitative assessment of goodwill to determine whether it was more likely than not that the fair value of our business (our reporting unit) was less than its carrying amount. Based on the results of this assessment, we determined it was not likely that goodwill was impaired. We are not aware of any events or circumstances that occurred during first six months 2018 that would have more likely than not reduced the fair value of our reporting unit below its carrying value.
9
(6) INCOME TAXES
Income tax (benefit) expense was as follows (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Income tax (benefit) expense
|
$
|
(28,518
|
)
|
|
$
|
57,651
|
|
|
$
|
14,158
|
|
|
$
|
170,046
|
|
Effective tax rate
|
|
26.3
|
%
|
|
|
45.3
|
%
|
|
|
(86.1
|
%)
|
|
|
41.5
|
%
|
We compute our quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to our year-to-date income, except for discrete items. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For second quarter and first six months ended June 30, 2018 and 2017, our overall effective tax rate was different than the federal statutory rate due primarily to state income taxes (including adjustments to state income tax valuation allowances), equity compensation and other tax items which are detailed below (in thousands).
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Total (loss) income before income taxes
|
$
|
(108,354
|
)
|
|
$
|
127,201
|
|
|
$
|
(16,440
|
)
|
|
$
|
409,707
|
|
U.S. federal statutory rate
|
|
21
|
%
|
|
|
35
|
%
|
|
|
21
|
%
|
|
|
35
|
%
|
Total tax (benefit) expense at statutory rate
|
|
(22,754
|
)
|
|
|
44,520
|
|
|
|
(3,452
|
)
|
|
|
143,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal benefit
|
|
(3,745
|
)
|
|
|
4,146
|
|
|
|
749
|
|
|
|
13,128
|
|
Non-deductible executive compensation
|
|
291
|
|
|
|
—
|
|
|
|
553
|
|
|
|
140
|
|
Equity compensation
|
|
1,476
|
|
|
|
2,228
|
|
|
|
2,140
|
|
|
|
4,752
|
|
Change in valuation allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal net operating loss carryforwards & other
|
|
—
|
|
|
|
2,562
|
|
|
|
—
|
|
|
|
3,418
|
|
State net operating loss carryforwards & other
|
|
(2,042
|
)
|
|
|
4,127
|
|
|
|
13,636
|
|
|
|
6,212
|
|
Rabbi trust and other
|
|
18
|
|
|
|
68
|
|
|
|
1,399
|
|
|
|
(1,053
|
)
|
Permanent differences and other
|
|
(1,762
|
)
|
|
|
—
|
|
|
|
(867
|
)
|
|
|
52
|
|
Total (benefit) expense for income taxes
|
$
|
(28,518
|
)
|
|
$
|
57,651
|
|
|
$
|
14,158
|
|
|
$
|
170,046
|
|
Effective tax rate
|
|
26.3
|
%
|
|
|
45.3
|
%
|
|
|
(86.1
|
%)
|
|
|
41.5
|
%
|
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. The law significantly reformed the Internal Revenue Code of 1986, as amended. The reduction in the corporate tax rate required a one-time revaluation of certain tax related assets and liabilities to reflect their value at the lower corporate tax rate of 21%. Due to the complexities involved in the accounting for the enactment of the new law, the SEC Staff Accounting Bulletin (“SAB”) 118 allowed a provisional estimate for the year ended December 31, 2017, which we made. As of June 30, 2018, we have not made any material adjustments to our provisional estimate at year-end 2017. We have made a reasonable estimate of the effect on our deferred tax balances. We will continue to analyze the impact of the new law and additional impacts will be recorded as they are identified during the measurement period provided for in SAB 118.
10
(
7) (LOSS) INCOME PER COMMON SHARE
Basic income or loss per share attributable to common shareholders is computed as (1) income or loss attributable to common shareholders (2) less income allocable to participating securities (3) divided by weighted average basic shares outstanding. Diluted income or loss per share attributable to common shareholders is computed as (1) basic income or loss attributable to common shareholders (2) plus diluted adjustments to income allocable to participating securities (3) divided by weighted average diluted shares outstanding. The following sets forth a reconciliation of income or loss attributable to common shareholders to basic income or loss attributable to common shareholders to diluted income or loss attributable to common shareholders (in thousands except per share amounts):
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Net (loss) income, as reported
|
$
|
(79,836
|
)
|
|
$
|
69,550
|
|
|
$
|
(30,598
|
)
|
|
$
|
239,661
|
|
Participating earnings
(a)
|
|
(69
|
)
|
|
|
(751
|
)
|
|
|
(126
|
)
|
|
|
(2,619
|
)
|
Basic net (loss) income attributed to common shareholders
|
|
(79,905
|
)
|
|
|
68,799
|
|
|
|
(30,724
|
)
|
|
|
237,042
|
|
Reallocation of participating earnings
(a)
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Diluted net (loss) income attributed to common shareholders
|
$
|
(79,905
|
)
|
|
$
|
68,799
|
|
|
$
|
(30,724
|
)
|
|
$
|
237,045
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.32
|
)
|
|
$
|
0.28
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.97
|
|
Diluted
|
$
|
(0.32
|
)
|
|
$
|
0.28
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.97
|
|
(a)
|
Restricted Stock Awards represent participating securities because they participate in nonforfeitable dividends or distributions with common equity owners. Income allocable to participating securities represents the distributed and undistributed earnings attributable to the participating securities. Participating securities, however, do not participate in undistributed net losses.
|
The following provides a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Weighted average common shares outstanding – basic
|
|
245,880
|
|
|
|
245,177
|
|
|
|
245,795
|
|
|
|
244,916
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director and employee PSUs and RSUs
|
|
—
|
|
|
|
158
|
|
|
|
—
|
|
|
|
326
|
|
Weighted average common shares outstanding – diluted
|
|
245,880
|
|
|
|
245,335
|
|
|
|
245,795
|
|
|
|
245,242
|
|
Weighted average common shares outstanding-basic for second quarter 2018 excludes 3.4 million shares of restricted stock held in our deferred compensation plan compared to 2.7 million shares in second quarter 2017 (although all awards are issued and outstanding upon grant). Weighted average common shares outstanding-basic for first six months 2018 excludes 3.2 million shares of restricted stock compared to 2.7 million for first six months 2017. Due to our net loss for second quarter and first six months 2018, all outstanding equity grants have been excluded from the computation of diluted net loss per share because the effect would have been anti-dilutive to the computations. For second quarter 2017, equity grants of 1.9 million were outstanding but not included in the computation of diluted net income per share because the grant prices were greater than the average market price of our common shares and would be anti-dilutive to the computations. For first six months 2017, equity grants of 1.2 million were outstanding but not included in the computation of diluted net income per share because the grant prices were greater than the average market price of our common shares and would be anti-dilutive to the computations. For purposes of calculating diluted weighted average common shares, non-vested restricted stock and performance based equity awards are included in the computation using the treasury stock method with the deemed proceeds equal to the average unrecognized compensation during the period.
11
(8) SUSPENDED EXPLORATORY WELL COSTS
We capitalize exploratory well costs until a determination is made that the well has either found proved reserves or that it is impaired. Capitalized exploratory well costs are included in natural gas and oil properties in the accompanying consolidated balance sheets. If an exploratory well is determined to be impaired, the well costs are charged to exploration expense in the accompanying consolidated statements of operations. We do not have any suspended exploratory well costs as of June 30, 2018 or December 31, 2017.
(9) INDEBTEDNESS
We had the following debt outstanding as of the dates shown below (bank debt interest rate at June 30, 2018 is shown parenthetically). No interest was capitalized during the three months or six months ended June 30, 2018 or the year ended December 31, 2017 (in thousands).
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
|
|
December 31,
2017
|
|
Bank debt
(3.8%)
|
$
|
1,314,000
|
|
|
$
|
1,211,000
|
|
Senior notes:
|
|
|
|
|
|
|
|
4.875% senior notes due 2025
|
|
750,000
|
|
|
|
750,000
|
|
5.00% senior notes due 2023
|
|
741,531
|
|
|
|
741,531
|
|
5.00% senior notes due 2022
|
|
580,032
|
|
|
|
580,032
|
|
5.75% senior notes due 2021
|
|
475,952
|
|
|
|
475,952
|
|
5.875% senior notes due 2022
|
|
329,244
|
|
|
|
329,244
|
|
Other senior notes due 2022
|
|
590
|
|
|
|
590
|
|
Total senior notes
|
|
2,877,349
|
|
|
|
2,877,349
|
|
Senior subordinated notes:
|
|
|
|
|
|
|
|
5.00% senior subordinated notes due 2023
|
|
7,712
|
|
|
|
7,712
|
|
5.00% senior subordinated notes due 2022
|
|
19,054
|
|
|
|
19,054
|
|
5.75% senior subordinated notes due 2021
|
|
22,214
|
|
|
|
22,214
|
|
Total senior subordinated notes
|
|
48,980
|
|
|
|
48,980
|
|
Total debt
|
|
4,240,329
|
|
|
|
4,137,329
|
|
Unamortized premium
|
|
5,394
|
|
|
|
6,027
|
|
Unamortized debt issuance costs
|
|
(38,561
|
)
|
|
|
(34,550
|
)
|
Total debt net of debt issuance costs
|
$
|
4,207,162
|
|
|
$
|
4,108,806
|
|
Bank Debt
In April 2018, we entered into an amended and restated revolving bank facility, which we refer to as our bank debt or our bank credit facility, which is secured by substantially all of our assets and has a maturity date of April 13, 2023. The bank credit facility provides for a maximum facility amount of $4.0 billion and an initial borrowing base of $3.0 billion. The bank credit facility provides for a borrowing base subject to redeterminations annually by May and for event-driven unscheduled redeterminations. As of June 30, 2018, our bank group was composed of twenty-seven financial institutions with no one bank holding more than 5.8% of the total facility. The borrowing base may be increased or decreased based on our request and sufficient proved reserves, as determined by the bank group. The commitment amount may be increased to the borrowing base, subject to payment of a mutually acceptable commitment fee to those banks agreeing to participate in the facility increase. On June 30, 2018, bank commitments total $2.0 billion and the outstanding balance under our bank credit facility was $1.3 billion, before deducting debt issuance costs. Additionally, we had $281.4 million of undrawn letters of credit leaving $404.6 million of committed borrowing capacity available under the facility. During a non-investment grade period, borrowings under the bank credit facility can either be at the alternate base rate (“ABR,” as defined in the bank credit facility agreement) plus a spread ranging from 0.25% to 1.25% or LIBOR borrowings at the LIBOR Rate (as defined in the bank credit facility agreement) plus a spread ranging from 1.25% to 2.25%. The applicable spread is dependent upon borrowings relative to the borrowing base. We may elect, from time to time, to convert all or any part of our LIBOR loans to base rate loans or to convert all or any of the base rate loans to LIBOR loans. The weighted average interest rate was 3.7% for second quarter 2018 compared to 2.6% for second quarter 2017. The weighted average interest rate was 3.5% for first six months 2018 compared to 2.5% for first six months 2017. A commitment fee is paid on the undrawn balance based on an annual rate of 0.30% to 0.375%. At June 30, 2018, the commitment fee was 0.35% and the interest rate margin was 1.75% on our LIBOR loans and 0.75% on our base rate loans.
12
At any time during which we have an investment grade debt rating from Moody’s Investors Service, Inc. or Standard &
Poor’s Ratings Services and we have elected, at our discretion, to effect the investment grade rating period, certain collateral security requirements, including the borrowing base requirement and restrictive covenants, will cease to apply and an addition
al financial covenant (as defined in the bank credit facility) will be imposed. During the investment grade period, borrowings under the credit facility can either be at the ABR plus a spread ranging from 0.125% to 0.75% or at the LIBOR Rate plus a spread
ranging from 1.125% to 1.75% depending on our debt rating. The commitment fee paid on the undrawn balance would range from 0.15% to 0.30%. We currently do not have an investment grade debt rating.
Senior Notes
In September 2016, in conjunction with the MRD Merger, we issued $329.2 million senior unsecured 5.875% notes due 2022 (the “5.875% Notes”). In addition, we also completed a debt exchange offer to exchange senior subordinated notes for the following senior notes (in thousands):
|
|
|
|
|
Principal Amount
|
5.00% senior notes due 2023
|
$
|
741,531
|
5.00% senior notes due 2022
|
$
|
580,032
|
5.75% senior notes due 2021
|
$
|
475,952
|
|
|
|
All of the notes were offered to qualified institutional buyers and to non-U.S. persons outside the United States in compliance with Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). On October 5, 2017, the 5.875% Notes, the 5.00% senior notes due 2023, the 5.00% senior notes due 2022 and the 5.75% senior notes due 2021 (collectively, the “Old Notes”) were exchanged for an equal principal amount of registered notes pursuant to an effective registration statement on Form S-4 filed with the SEC on August 9, 2017 under the Securities Act (the “New Notes”). The New Notes are identical to the Old Notes except the New Notes are registered under the Securities Act and do not have restrictions on transfer, registration rights or provisions for additional interest. Under certain circumstances, if we experience a change of control, noteholders may require us to repurchase all of our senior notes at 101% of the aggregate principal amount plus accrued and unpaid interest, if any.
Senior Subordinated Notes
If we experience a change of control, noteholders may require us to repurchase all or a portion of our senior subordinated notes at 101% of the aggregate principal amount plus accrued and unpaid interest, if any. All of the senior subordinated notes and the guarantees by our subsidiary guarantors are general, unsecured obligations and are subordinated to our bank debt and are subordinated to existing and future senior debt that we or our subsidiary guarantors are permitted to incur.
Guarantees
Range is a holding company which owns no operating assets and has no significant operations independent of its subsidiaries. The guarantees by our subsidiaries, which are directly or indirectly owned by Range, of our senior notes, senior subordinated notes and our bank credit facility are full and unconditional and joint and several, subject to certain customary release provisions. A subsidiary guarantor may be released from its obligations under the guarantee:
|
•
|
in the event of a sale or other disposition of all or substantially all of the assets of the subsidiary guarantor or a sale or other disposition of all the capital stock of the subsidiary guarantor, to any corporation or other person (including an unrestricted subsidiary of Range) by way of merger, consolidation, or otherwise; or
|
|
|
•
|
if Range designates any restricted subsidiary that is a guarantor to be an unrestricted subsidiary in accordance with the terms of the indenture.
|
|
13
Debt Covenants
Our bank credit facility contains negative covenants that limit our ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain hedging contracts, change the nature of our business or operations, merge, consolidate, or make certain investments. In addition, we are required to maintain a ratio of EBITDAX (as defined in the bank credit facility agreement) to cash interest expense of equal to or greater than 2.5 and a current ratio (as defined in the bank credit facility agreement) of no less than 1.0. In addition, the ratio of the present value of proved reserves (as defined in the credit agreement) to total debt must be equal to or greater than 1.5 until Range has two investment grade ratings. We were in compliance with applicable covenants under the bank credit facility at June 30, 2018.
(10) ASSET RETIREMENT OBLIGATIONS
Our asset retirement obligations primarily represent the estimated present value of the amounts we will incur to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include estimates of plugging and abandonment costs, estimated future inflation rates and well lives. The inputs are calculated based on historical data as well as current estimated costs. A reconciliation of our liability for plugging and abandonment costs for the six months ended June 30, 2018 is as follows (in thousands):
|
|
Six Months
Ended
June 30,
2018
|
|
Beginning of period
|
|
$
|
276,855
|
|
Liabilities incurred
|
|
|
2,050
|
|
Acquisitions
|
|
|
13,438
|
|
Liabilities settled
|
|
|
(2,080
|
)
|
Accretion expense
|
|
|
8,210
|
|
Change in estimate
|
|
|
4,073
|
|
End of period
|
|
|
302,546
|
|
Less current portion
|
|
|
(6,327
|
)
|
Long-term asset retirement obligations
|
|
$
|
296,219
|
|
Accretion expense is recognized as a component of depreciation, depletion and amortization expense in the accompanying consolidated statements of operations. Acquisitions include an increase in our interest in certain properties in Northwest Pennsylvania.
(11) CAPITAL STOCK
We have authorized capital stock of 485.0 million shares which includes 475.0 million shares of common stock and 10.0 million shares of preferred stock. We currently have no preferred stock issued or outstanding. The following is a schedule of changes in the number of common shares outstanding since the beginning of 2017:
|
|
Six Months
Ended
June 30,
2018
|
|
|
Year
Ended
December 31,
2017
|
|
Beginning balance
|
|
|
248,129,430
|
|
|
|
247,144,356
|
|
Restricted stock grants
|
|
|
804,768
|
|
|
|
539,096
|
|
Restricted stock units vested
|
|
|
411,959
|
|
|
|
344,937
|
|
Performance stock units issued
|
|
|
76,149
|
|
|
|
85,461
|
|
Treasury shares issued
|
|
|
4,900
|
|
|
|
15,580
|
|
Ending balance
|
|
|
249,427,206
|
|
|
|
248,129,430
|
|
14
(12) DERIVATIVE ACTIVITIES
We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars, calls or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net loss of $104.3 million at June 30, 2018. These contracts expire monthly through December 2020. The following table sets forth our commodity-based derivative volumes by year as of June 30, 2018, excluding our basis and freight swaps which are discussed separately below:
Period
|
|
Contract Type
|
|
Volume Hedged
|
|
Weighted
Average Hedge Price
|
Natural Gas
|
|
|
|
|
|
|
|
|
2018
|
|
Swaps
|
|
1,246,739 Mmbtu/day
|
|
|
$ 2.96
|
|
2019
|
|
Swaps
|
|
514,589 Mmbtu/day
|
|
|
$ 2.81
|
|
October-December 2018
|
|
Calls
|
|
70,000 Mmbtu/day
|
|
|
$ 3.10
(1)
|
|
2018
|
|
Swaptions
|
|
160,000 Mmbtu/day
|
|
|
$ 3.07
(2)
|
|
2019
|
|
Swaptions
|
|
317,945 Mmbtu/day
|
|
|
$ 2.86
(2)
|
|
2020
|
|
Swaptions
|
|
10,000 Mmbtu/day
|
|
|
$ 2.75
(2)
|
|
|
|
|
|
|
|
|
|
|
Crude Oil
|
|
|
|
|
|
|
|
|
2018
|
|
Swaps
|
|
8,500 bbls/day
|
|
|
$ 53.20
|
|
2019
|
|
Swaps
|
|
6,624 bbls/day
|
|
|
$ 54.57
|
|
January-June 2020
|
|
Swaps
|
|
1,000 bbls/day
|
|
|
$ 57.00
|
|
January-March 2019
|
|
Collars
|
|
250 bbls/day
|
|
|
$ 63.00 − $ 73.00
|
|
|
|
|
|
|
|
|
|
|
NGLs (C2-Ethane)
|
|
|
|
|
|
|
|
|
July-September 2018
|
|
Swaps
|
|
1,000 bbls/day
|
|
|
$ 0.30/gallon
|
|
|
|
|
|
|
|
|
|
|
NGLs (C3-Propane)
|
|
|
|
|
|
|
|
|
2018
|
|
Swaps
|
|
10,918 bbls/day
|
|
|
$ 0.71/gallon
|
|
|
|
|
|
|
|
|
|
|
NGLs (NC4-Normal Butane)
|
|
|
|
|
|
|
|
|
2018
|
|
Swaps
|
|
4,250 bbls/day
|
|
|
$ 0.81/gallon
|
|
|
|
|
|
|
|
|
|
|
NGLs (C5-Natural Gasoline)
|
|
|
|
|
|
|
|
|
2018
|
|
Swaps
|
|
5,152 bbls/day
|
|
|
$ 1.23/gallon
|
|
2019
|
|
Swaps
|
|
1,244 bbls/day
|
|
|
$ 1.30/gallon
|
|
(1)
|
Weighted
average deferred premium of $0.16.
|
(2)
|
Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volume. For July through December of 2018, we have swaps in place for 160,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2019 at a weighted average price of $3.07. We have swaps in place for 2019 for 220,000 Mmbtu/day on which the counterparty can elect to double the volume at a weighted average price of $2.89. We also have swaps in place for 2019 for 130,000 Mmbtu per day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. For 2020, we have swaps in place for 10,000 Mmbtu/day on which the counterparty can elect to double the volume at a weighted average price of $2.75.
|
Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur.
Basis Swap Contracts
In addition to the swaps, collars, calls and swaptions described above, at June 30, 2018, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through October 2020 and include a total volume of 68,805,000 Mmbtu. The fair value of these contracts was a loss of $1.9 million at June 30, 2018.
At June 30, 2018, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly through December 2019 and include a total volume of 2,130,500 barrels. The fair value of these contracts was a loss of $2.1 million at June 30, 2018.
15
Freight Swap Contracts
In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at June 30, 2018, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly through December 2018 and cover 5,000 metric tons per month with a fair value gain of $166,000 at June 30, 2018. These contracts use observable third-party pricing inputs that we consider to be Level 2 fair value classification.
Derivative Assets and Liabilities
The combined fair value of derivatives included in the accompanying consolidated balance sheets as of June 30, 2018 and December 31, 2017 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):
|
|
|
June 30, 2018
|
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross
Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
of Assets Presented
in the
Balance Sheet
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
11,332
|
|
|
$
|
(8,481
|
)
|
|
$
|
2,851
|
|
|
–swaptions
|
|
|
14,045
|
|
|
|
(12,511
|
)
|
|
|
1,534
|
|
|
–basis swaps
|
|
|
846
|
|
|
|
(667
|
)
|
|
|
179
|
|
Crude oil
|
–swaps
|
|
|
—
|
|
|
|
(1,269
|
)
|
|
|
(1,269
|
)
|
|
−collars
|
|
|
12
|
|
|
|
(12
|
)
|
|
|
—
|
|
NGLs
|
–C3 propane spread swaps
|
|
|
17,193
|
|
|
|
(17,193
|
)
|
|
|
—
|
|
Freight
|
−swaps
|
|
|
166
|
|
|
|
(166
|
)
|
|
|
—
|
|
|
|
|
$
|
43,594
|
|
|
$
|
(40,299
|
)
|
|
$
|
3,295
|
|
|
|
|
June 30, 2018
|
|
|
|
|
Gross
Amounts of
Recognized
(Liabilities)
|
|
|
Gross
Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
of (Liabilities) Presented
in the
Balance Sheet
|
|
Derivative (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
(12,764
|
)
|
|
$
|
8,481
|
|
|
$
|
(4,283
|
)
|
|
–swaptions
|
|
|
(14,530
|
)
|
|
|
12,511
|
|
|
|
(2,019
|
)
|
|
–basis swaps
|
|
|
(2,754
|
)
|
|
|
667
|
|
|
|
(2,087
|
)
|
|
–calls
|
|
|
(701
|
)
|
|
|
—
|
|
|
|
(701
|
)
|
Crude oil
|
–swaps
|
|
|
(52,493
|
)
|
|
|
1,269
|
|
|
|
(51,224
|
)
|
|
−collars
|
|
|
—
|
|
|
|
12
|
|
|
|
12
|
|
NGLs
|
−C2 ethane swaps
|
|
|
(85
|
)
|
|
|
—
|
|
|
|
(85
|
)
|
|
–C3 propane swaps
|
|
|
(22,591
|
)
|
|
|
—
|
|
|
|
(22,591
|
)
|
|
–C3 propane spread swaps
|
|
|
(19,306
|
)
|
|
|
17,193
|
|
|
|
(2,113
|
)
|
|
–NC4 butane swaps
|
|
|
(8,906
|
)
|
|
|
—
|
|
|
|
(8,906
|
)
|
|
–C5 natural gasoline swaps
|
|
|
(17,585
|
)
|
|
|
—
|
|
|
|
(17,585
|
)
|
Freight
|
–swaps
|
|
|
—
|
|
|
|
166
|
|
|
|
166
|
|
|
|
|
$
|
(151,715
|
)
|
|
$
|
40,299
|
|
|
$
|
(111,416
|
)
|
16
|
|
|
December 31, 2017
|
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross
Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
of Assets Presented
in the
Balance Sheet
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
87,794
|
|
|
$
|
(4,106
|
)
|
|
$
|
83,688
|
|
|
–swaptions
|
|
|
18,817
|
|
|
|
(8,103
|
)
|
|
|
10,714
|
|
|
–basis swaps
|
|
|
1,815
|
|
|
|
(6,673
|
)
|
|
|
(4,858
|
)
|
|
–collars
|
|
|
3,039
|
|
|
|
(500
|
)
|
|
|
2,539
|
|
Crude oil
|
–swaps
|
|
|
2
|
|
|
|
(7,928
|
)
|
|
|
(7,926
|
)
|
NGLs
|
–C2 ethane swaps
|
|
|
57
|
|
|
|
—
|
|
|
|
57
|
|
|
–C3 propane swaps
|
|
|
—
|
|
|
|
(12,556
|
)
|
|
|
(12,556
|
)
|
|
–C3 propane collars
|
|
|
85
|
|
|
|
(85
|
)
|
|
|
—
|
|
|
–C3 propane spread swaps
|
|
|
12,762
|
|
|
|
(12,762
|
)
|
|
|
—
|
|
|
–NC4 butane swaps
|
|
|
—
|
|
|
|
(6,051
|
)
|
|
|
(6,051
|
)
|
|
–C5 natural gasoline swaps
|
|
|
—
|
|
|
|
(6,727
|
)
|
|
|
(6,727
|
)
|
Freight
|
–swaps
|
|
|
276
|
|
|
|
(276
|
)
|
|
|
—
|
|
|
|
|
$
|
124,647
|
|
|
$
|
(65,767
|
)
|
|
$
|
58,880
|
|
|
|
|
December 31, 2017
|
|
|
|
|
Gross
Amounts of
Recognized (Liabilities)
|
|
|
Gross
Amounts
Offset in the
Balance Sheet
|
|
|
Net Amounts
of (Liabilities) Presented
in the
Balance Sheet
|
|
Derivative (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas
|
–swaps
|
|
$
|
(216
|
)
|
|
$
|
4,106
|
|
|
$
|
3,890
|
|
|
–swaptions
|
|
|
(12,283
|
)
|
|
|
8,103
|
|
|
|
(4,180
|
)
|
|
–basis swaps
|
|
|
(9,580
|
)
|
|
|
6,673
|
|
|
|
(2,907
|
)
|
|
–collars
|
|
|
—
|
|
|
|
500
|
|
|
|
500
|
|
Crude oil
|
–swaps
|
|
|
(24,726
|
)
|
|
|
7,928
|
|
|
|
(16,798
|
)
|
NGLs
|
–C3 propane swaps
|
|
|
(34,325
|
)
|
|
|
12,556
|
|
|
|
(21,769
|
)
|
|
–C3 propane collars
|
|
|
—
|
|
|
|
85
|
|
|
|
85
|
|
|
–C3 propane spread swaps
|
|
|
(13,983
|
)
|
|
|
12,762
|
|
|
|
(1,221
|
)
|
|
–NC4 butane swaps
|
|
|
(11,188
|
)
|
|
|
6,051
|
|
|
|
(5,137
|
)
|
|
–C5 natural gasoline swaps
|
|
|
(13,488
|
)
|
|
|
6,727
|
|
|
|
(6,761
|
)
|
Freight
|
–swaps
|
|
|
—
|
|
|
|
276
|
|
|
|
276
|
|
|
|
|
$
|
(119,789
|
)
|
|
$
|
65,767
|
|
|
$
|
(54,022
|
)
|
The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):
|
Derivative Fair Value (Loss) Income
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
|
|
|
|
2017
|
|
Commodity swaps
|
$
|
(91,195
|
)
|
|
$
|
93,567
|
|
|
$
|
(107,730
|
)
|
|
$
|
260,319
|
|
Swaptions
|
|
(6,592
|
)
|
|
|
—
|
|
|
|
(2,993
|
)
|
|
|
—
|
|
Collars
|
|
11
|
|
|
|
4,790
|
|
|
|
(66
|
)
|
|
|
14,265
|
|
Puts
|
|
—
|
|
|
|
3,012
|
|
|
|
—
|
|
|
|
9,719
|
|
Calls
|
|
152
|
|
|
|
529
|
|
|
|
329
|
|
|
|
1,040
|
|
Basis swaps
|
|
(5,828
|
)
|
|
|
9,304
|
|
|
|
(6,693
|
)
|
|
|
(8,668
|
)
|
Freight swaps
|
|
162
|
|
|
|
(7
|
)
|
|
|
(146
|
)
|
|
|
77
|
|
Total
|
$
|
(103,290
|
)
|
|
$
|
111,195
|
|
|
$
|
(117,299
|
)
|
|
$
|
276,752
|
|
17
(13) FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three approaches for measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach, each of which includes multiple valuation techniques. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single present value amount using current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace the service capacity of an asset. This is often referred to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.
The fair value accounting standards do not prescribe which valuation technique should be used when measuring fair value and do not prioritize among the techniques. These standards establish a fair value hierarchy that prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The three levels of the fair value hierarchy are as follows:
|
•
|
Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
•
|
Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
|
•
|
Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect management’s best estimates of the assumptions market participants would use in determining fair value. Our Level 3 measurements consist of instruments using standard pricing models and other valuation methods that utilize unobservable pricing inputs that are significant to the overall fair value.
|
Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy.
Significant uses of fair value measurements include:
|
•
|
impairment assessments of long-lived assets;
|
|
•
|
impairment assessments of goodwill; and
|
|
•
|
recorded value of derivative instruments and trading securities.
|
The need to test long-lived assets and goodwill can be based on several indicators, including a significant reduction in prices of natural gas, oil and condensate, NGLs, sustained declines in our common stock, unfavorable adjustments to reserves, significant changes in the expected timing of production, other changes to contracts or changes in the regulatory environment in which a property is located.
18
Fair Values – Recurring
We use a market approach for our recurring fair value measurements and endeavor to use the best information available. The following tables present the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):
|
Fair Value Measurements at June 30, 2018 using:
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Carrying
Value as of
June 30,
2018
|
|
Trading securities held in the deferred compensation plans
|
$
|
68,876
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68,876
|
|
Derivatives
–
swaps
|
|
—
|
|
|
|
(103,092
|
)
|
|
|
—
|
|
|
|
(103,092
|
)
|
–collars
|
|
|
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
–calls
|
|
—
|
|
|
|
(701
|
)
|
|
|
—
|
|
|
|
(701
|
)
|
–basis swaps
|
|
—
|
|
|
|
(4,285
|
)
|
|
|
264
|
|
|
|
(4,021
|
)
|
–freight swaps
|
|
—
|
|
|
|
166
|
|
|
|
—
|
|
|
|
166
|
|
–swaptions
|
|
—
|
|
|
|
—
|
|
|
|
(485
|
)
|
|
|
(485
|
)
|
|
Fair Value Measurements at December 31, 2017 using:
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Carrying
Value as of
December 31,
2017
|
|
Trading securities held in the deferred compensation plans
|
$
|
67,117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
67,117
|
|
Derivatives –swaps
|
|
—
|
|
|
|
3,910
|
|
|
|
—
|
|
|
|
3,910
|
|
–collars
|
|
—
|
|
|
|
3,039
|
|
|
|
85
|
|
|
|
3,124
|
|
–basis swaps
|
|
—
|
|
|
|
(9,025
|
)
|
|
|
39
|
|
|
|
(8,986
|
)
|
–freight swaps
|
|
—
|
|
|
|
276
|
|
|
|
—
|
|
|
|
276
|
|
–swaptions
|
|
—
|
|
|
|
—
|
|
|
|
6,534
|
|
|
|
6,534
|
|
Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using end of period market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes. As of June 30, 2018, a portion of our natural gas derivative instruments contains swaptions where the counterparty has the right, but not the obligation, to enter into a fixed price swap on a pre-determined date. Derivatives in Level 3 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes. Subjectivity in the volatility factors utilized can cause a significant change in the fair value measurement of our swaptions. The following is a reconciliation of the beginning and ending balances for derivative instruments classified as Level 3 in the fair value hierarchy (in thousands):
|
|
As of
June 30,
2018
|
|
Balance at December 31, 2017
|
|
$
|
6,658
|
|
Total losses:
|
|
|
|
|
Included in earnings
|
|
|
(2,956
|
)
|
Settlements
|
|
|
(1,781
|
)
|
Transfer out of Level 3
(1)
|
|
|
(2,142
|
)
|
Balance at June 30, 2018
|
|
$
|
(221
|
)
|
(1
)
During first six months 2018, we transferred $2.1 million of swaption contracts out of Level 3 due to the exercise of these swaptions by our counterparties.
19
Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and
are included in other assets in the accompanying consolidated balance sheets. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends, and mark-to-market gains or losse
s are included in deferred compensation plan expense in the accompanying consolidated statements of operations. For second quarter 2018, interest and dividends were $213,000 and the mark-to-market adjustment was a gain of $324,000 compared to interest and
dividends of $204,000 and a mark-to-market gain of $1.5 million in second quarter 2017
. For first six months 2018
, interest and dividends were $
381,000
and the mark-to-market loss was $
798,000
compared to interest and dividends of $
323,000
and mark-to-mark
et gain of $
3.0
million in the same period of the prior year.
Fair Values—Non-recurring
Our proved natural gas and oil properties are reviewed for impairment periodically as events or changes in circumstances indicate the carrying amount may not be recoverable. In second quarter 2018, we increased our interest in certain properties in our shallow legacy oil and natural gas assets in Northwest Pennsylvania for a minimal dollar amount for which the fair value was previously determined to be zero. As a result, in second quarter 2018, we recorded additional impairment of $15.3 million related to these properties. In first quarter 2018, there were indicators that the carrying value of certain of our oil gas properties in Oklahoma may be impaired and undiscounted future cash flows attributed to these assets indicated their carrying amounts were not expected to be recovered. Their remaining fair value was measured using a market approach based upon the potential sale of these properties, which is a Level 3 input. We recorded non-cash charges in first quarter 2018 of $7.3 million related to these properties. The following presents the value of these assets measured at fair value on a non-recurring basis at the time impairment was recorded (in thousands):
|
|
Three Months Ended
June 30, 2018
|
|
|
|
Six Months Ended
June 30, 2018
|
|
|
Fair Value
|
|
|
|
Impairment
|
|
|
|
Fair Value
|
|
|
|
Impairment
|
|
Natural gas and oil properties
|
$
|
—
|
|
|
$
|
15,302
|
|
|
$
|
32,516
|
|
|
$
|
22,614
|
|
Fair Values—Reported
The following presents the carrying amounts and the fair values of our financial instruments as of June 30, 2018 and December 31, 2017 (in thousands):
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swaps, options and basis swaps
|
|
$
|
3,295
|
|
|
$
|
3,295
|
|
|
$
|
58,880
|
|
|
$
|
58,880
|
|
Marketable securities
(a)
|
|
|
68,876
|
|
|
|
68,876
|
|
|
|
67,117
|
|
|
|
67,117
|
|
(Liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity swaps, options and basis swaps
|
|
|
(111,416
|
)
|
|
|
(111,416
|
)
|
|
|
(54,022
|
)
|
|
|
(54,022
|
)
|
Bank credit facility
(b)
|
|
|
(1,314,000
|
)
|
|
|
(1,314,000
|
)
|
|
|
(1,211,000
|
)
|
|
|
(1,211,000
|
)
|
5.75% senior notes due 2021
(b)
|
|
|
(475,952
|
)
|
|
|
(487,741
|
)
|
|
|
(475,952
|
)
|
|
|
(493,872
|
)
|
5.00% senior notes due 2022
(b)
|
|
|
(580,032
|
)
|
|
|
(575,427
|
)
|
|
|
(580,032
|
)
|
|
|
(578,727
|
)
|
5.875% senior notes due 2022
(b)
|
|
|
(329,244
|
)
|
|
|
(334,551
|
)
|
|
|
(329,244
|
)
|
|
|
(339,200
|
)
|
Other senior notes due 2022
(b)
|
|
|
(590
|
)
|
|
|
(582
|
)
|
|
|
(590
|
)
|
|
|
(591
|
)
|
5.00% senior notes due 2023
(b)
|
|
|
(741,531
|
)
|
|
|
(716,808
|
)
|
|
|
(741,531
|
)
|
|
|
(735,614
|
)
|
4.875% senior notes due 2025
(b)
|
|
|
(750,000
|
)
|
|
|
(704,940
|
)
|
|
|
(750,000
|
)
|
|
|
(733,755
|
)
|
5.75% senior subordinated notes due 2021
(b)
|
|
|
(22,214
|
)
|
|
|
(22,699
|
)
|
|
|
(22,214
|
)
|
|
|
(22,192
|
)
|
5.00% senior subordinated notes due 2022
(b)
|
|
|
(19,054
|
)
|
|
|
(18,825
|
)
|
|
|
(19,054
|
)
|
|
|
(18,741
|
)
|
5.00% senior subordinated notes due 2023
(b)
|
|
|
(7,712
|
)
|
|
|
(7,484
|
)
|
|
|
(7,712
|
)
|
|
|
(7,614
|
)
|
Deferred compensation plan
(c)
|
|
|
(116,629
|
)
|
|
|
(116,629
|
)
|
|
|
(114,414
|
)
|
|
|
(114,414
|
)
|
(a)
|
Marketable securities, which are held in our deferred compensation plans, are actively traded on major exchanges.
|
(b)
|
The book value of our bank debt approximates fair value because of its floating rate structure. The fair value of our senior notes and our senior subordinated notes is based on end of period market quotes which are Level 2 inputs.
|
(c)
|
The fair value of our deferred compensation plan is updated at the closing price on the balance sheet date which is a Level 1 input.
|
Our current assets and liabilities include financial instruments, the most significant of which are trade accounts receivable and payable. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments and (2) our historical and expected incurrence of bad debt expense. Non-financial liabilities initially measured at fair value include asset retirement obligations. For additional information, see Note 10.
20
Concentrations of Credit Risk
As of June 30, 2018, our primary concentrations of credit risk are the risks of not collecting accounts receivable and the risk of a counterparty’s failure to perform under derivative obligations. Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate securities are obtained as deemed necessary to limit our risk of loss. Our allowance for uncollectable receivables was $5.6 million at June 30, 2018 and $7.1 million at December 31, 2017. Our derivative exposure to credit risk is diversified primarily among major investment grade financial institutions, where we have master netting agreements which provide for offsetting payables against receivables from separate derivative contracts. To manage counterparty risk associated with our derivatives, we select and monitor our counterparties based on our assessment of their financial strength and/or credit ratings. We may also limit the level of exposure with any single counterparty. At June 30, 2018, our derivative counterparties include twenty financial institutions, of which all but five are secured lenders in our bank credit facility. At June 30, 2018, our net derivative liability includes a net payable of $27.5 million to these five counterparties that are not participants in our bank credit facility.
(14) REVENUES FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
Natural gas, NGLs and oil sales revenues are generally recognized at the point in time that control of the product is transferred to the customer and collectability is reasonably assured. See a more detailed summary of our product types below.
Natural Gas and NGLs Sales
Under our gas processing contracts, we deliver natural gas to a midstream processing entity at the wellhead or the inlet of the midstream processing entity’s system. The midstream processing entity processes the natural gas and remits proceeds to us for the resulting sales of NGLs and residue gas. In these scenarios, we evaluate whether we are the principal or the agent in the transaction. For those contracts that we have concluded that we are the principal, the ultimate third party is our customer and we recognize revenue on a gross basis, with gathering, compression, processing, and transportation fees presented as an expense. Alternatively, for those contracts that we have concluded that we are the agent, the midstream processing entity is our customer and we recognize revenue based on the net amount of the proceeds received from the midstream processing entity.
In certain natural gas processing agreements, we may elect to take our residue gas and/or NGLs in-kind at the tailgate of the midstream entity’s processing plant and subsequently market the product on our own. Through the marketing process, we deliver product to the ultimate third party purchaser at a contractually agreed upon delivery point and receive a specified index price from the purchaser. In this scenario, we recognize revenue when control transfers to the purchaser at the delivery point based on the index price received from the purchaser. The gathering, processing and compression fees attributable to the gas processing contract, as well as any transportation fees incurred to deliver the product to the purchaser are presented as transportation, gathering, processing and compression expense.
Oil Sales
Our oil sales contracts are generally structured in one of the following ways:
|
•
|
We sell oil production at the wellhead and collect an agreed upon index price, net of transportation incurred by the purchaser (that is, a netback arrangement). In this scenario, we recognize revenue when control transfers to the purchaser at the wellhead at the net price received.
|
|
•
|
We deliver oil to the purchaser at a contractually agreed upon delivery point at which the purchaser takes custody, title, and risk of loss of the product. Under this arrangement, we pay a third party to transport the product and receive a specified index price from the purchaser with no deduction. In this scenario, we recognize revenue when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The third party costs are recorded as transportation, gathering, processing and compression expense.
|
21
Brokered Natural Gas, Marketing and Other
We realize brokered margins as a result of buying natural gas or NGLs utilizing separate purchase transactions, generally with separate counterparties and subsequently selling that natural gas or NGLs under our existing contracts to fulfill our contract commitments or utilizing existing infrastructure contracts to economically utilize available capacity. In these arrangements, we take control of the natural gas purchased prior to delivery of that gas under our existing gas contracts with a separate counterparty. Revenues and expenses related to brokering natural gas are reported gross as part of revenues and expenses in accordance with applicable accounting standards. Our net brokered margin was a loss of $5.6 million in second quarter 2018 and a loss of $2.5 million in first six months 2018.
Disaggregation of Revenue
We have identified three material revenue streams in our business: natural gas sales, NGLs sales and oil sales. Brokered revenue attributable to each product sales type is included here because the volume of product that we purchase is subsequently sold to separate counterparties in accordance with existing sales contracts under which we also sell our production. Revenue attributable to each of our identified revenue streams is disaggregated below (in thousands):
|
|
Three Months Ended
June 30, 2018
|
|
|
|
Six Months
Ended
June 30, 2018
|
|
Natural gas sales
(a)
|
$
|
457,706
|
|
|
$
|
948,954
|
|
NGLs sales
(b)
|
|
225,432
|
|
|
|
428,263
|
|
Oil sales
|
|
76,336
|
|
|
|
138,865
|
|
Total
|
$
|
759,474
|
|
|
$
|
1,516,082
|
|
(a)
|
Natural gas sales revenue reported above for the second quarter includes $93.4 million of brokered revenues and $3.9 million of marketing revenue. The six months includes $149.3 million of brokered revenues and $7.7 million of marketing revenue.
|
(b)
|
NGLs sales revenue reported above for the second quarter includes $729,000 of brokered revenues and for six months includes $1.0
million of brokered revenues.
|
Principal versus Agent
We engage in various types of transactions in which midstream entities process our wet gas and, in some scenarios, subsequently market the resulting NGLs and residue gas to third-party customers on our behalf. These types of transactions require judgment to determine whether we are the principal or the agent in the contract and, as a result, whether revenues are recorded gross or net.
Transaction Price Allocated to Remaining Performance Obligations
A significant number of our product sales are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient allowed in the new revenue accounting standard that exempts us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For our product sales that have a contract term greater than one year, we have also utilized the practical expedient that states that we are not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. Currently, our product sales that have a contractual term greater than one year have no long-term fixed consideration.
Contract Balances
Under our sales contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our product sales contracts do not give rise to contract assets or liabilities. Accounts receivable attributable to our revenue contracts with customers was $325.1 million at June 30, 2018 and $305.7 million at December 31, 2017.
22
Prior−Period Performance Obligations
We record revenue in the month production is delivered to the purchaser. However, settlement statements for certain gas and NGLs sales may be received for 30 to 90 days after the date production is delivered, and as a result, we are required to estimate the amount of production that was delivered to the purchaser and the price that will be received for the sale of the product. We record the differences between our estimates and the actual amounts for product sales in the month that payment is received from the purchaser. We have internal controls in place for our estimation process and any identified differences between our revenue estimates and actual revenue received historically have not been significant. For the three months and the six months ended June 30, 2018, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.
(15) STOCK-BASED COMPENSATION PLANS
Stock-Based Awards
We have one active equity-based stock plan, our Amended and Restated 2005 Equity-Based Incentive Compensation Plan, which we refer to as the 2005 Plan. Under this plan, various awards may be issued to non-employee directors and employees pursuant to decisions of the Compensation Committee, which is composed of only non-employee, independent directors. To better align the timing of senior officer equity awards with our proxy statement filing in 2018, senior officer equity grants were in March 2018 rather than May, as in previous years.
Total Stock-Based Compensation Expense
Stock-based compensation represents amortization of restricted stock and performance units. Unlike the other forms of stock-based compensation, the mark-to-market adjustment of the liability related to the vested restricted stock held in our deferred compensation plan is directly tied to the change in our stock price and not directly related to the functional expenses and therefore, is not allocated to the functional categories. The following details the allocation of stock-based compensation to functional expense categories (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2018
(1)
|
|
|
|
2017
|
|
Direct operating expense
|
$
|
539
|
|
|
$
|
522
|
|
|
$
|
1,130
|
|
|
$
|
1,046
|
|
Brokered natural gas and marketing expense
|
|
313
|
|
|
|
388
|
|
|
|
598
|
|
|
|
651
|
|
Exploration expense
|
|
371
|
|
|
|
528
|
|
|
|
1,122
|
|
|
|
1,035
|
|
General and administrative expense
|
|
8,814
|
|
|
|
14,279
|
|
|
|
32,725
|
|
|
|
25,197
|
|
Termination costs
|
|
—
|
|
|
|
(46
|
)
|
|
|
—
|
|
|
|
1,696
|
|
Total stock-based compensation
|
$
|
10,037
|
|
|
$
|
15,671
|
|
|
$
|
35,575
|
|
|
$
|
29,625
|
|
(1)
|
Includes $18.2 million accelerated vesting of equity grants.
|
Stock-Based Awards
Restricted Stock Awards
. We grant restricted stock units under our equity-based stock compensation plan. These restricted stock units, which we refer to as restricted stock Equity Awards, generally vest over a three year period, contingent on the recipient’s continued employment. The grant date fair value of the Equity Awards is based on the fair market value of our common stock on the date of grant.
The Compensation Committee also grants restricted stock to certain employees and non-employee directors of the board of directors as part of their compensation. We also grant restricted stock to certain employees for retention purposes. Compensation expense is recognized over the balance of the vesting period, which is typically three years for employee grants and immediate vesting for non-employee directors. All restricted stock awards are issued at prevailing market prices at the time of the grant and the vesting is based upon an employee’s continued employment with us. Prior to vesting, all restricted stock awards have the right to vote such stock and receive dividends thereon. Upon grant of these restricted shares, which we refer to as restricted stock Liability Awards, the majority of these shares are generally placed in our deferred compensation plan and, upon vesting, withdrawals are allowed in either cash or in stock. These Liability Awards are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market amount is reported in deferred compensation plan expense in the accompanying consolidated statements of operations. Historically, we have used authorized but unissued shares of stock when restricted stock is granted. However, we also utilize treasury shares when available.
Stock-Based Performance Units
.
We grant three types of performance share awards: two based on performance conditions measured against internal performance metrics (Production Growth Awards or “PG-PSUs” and Reserve Growth Awards or “RG-PSUs”) and one based on market conditions measured based on Range’s performance relative to a predetermined peer group (TSR Awards or “TSR-PSUs”).
23
Each unit granted represents
one share of our common stock. These units are settled in stock and the amount of the payout is based on (1) the vesting percentage, which can be from zero to 200% ba
sed on performance achieved and (2) the value
of our common stock on the
vesting
date which
is determined by the Compensation Committee. Dividend equivalent may accrue during the performance period and would be paid in stock at the end of the performance p
eriod. The performance period for the TSR-PSUs is a three year period. The performance period for the PG/RG-PSUs is based on annual performance targets earned over a three-year period.
SARs
.
At June 30, 2018, there were 1,104 SARs outstanding.
Restricted Stock –
Equity Awards
In first six months 2018, we granted 1.8 million restricted stock Equity Awards to employees at an average price of $17.00 which generally vest over a three-year period compared to 875,000 at an average price of $32.93 in first six months 2017. We recorded compensation expense for these awards of $12.4 million in first six months 2018 compared to $12.5 million in the same period of 2017. Restricted stock Equity Awards are not issued to employees until such time as they are vested and the employees do not have the option to receive cash.
Restricted Stock –
Liability Awards
In first six months 2018, we granted 675,000 shares of restricted stock Liability Awards as compensation to employees at an average price of $15.22 which vests generally over a three-year period and 131,000 shares were granted to non-employee directors at an average price of $15.46 with immediate vesting. The timing of equity grants to senior officers was moved to March 2018 to align with our proxy statement filings compared to grants in May in previous years. In first six months 2017, we granted 449,000 shares of restricted stock Liability Awards as compensation to employees at an average price of $26.18 with vesting generally over a three-year period and 90,000 shares were granted to non-employee directors at an average price of $25.01 with immediate vesting. We recorded compensation expense for these Liability Awards of $10.5 million in first six months 2018 compared to $9.0 million in first six months 2017. The majority of these awards are held in our deferred compensation plan, are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market amount is reported as deferred compensation expense in our consolidated statements of operations (see additional discussion below). The following is a summary of the status of our non-vested restricted stock outstanding at June 30, 2018:
|
Restricted Stock
Equity Awards
|
|
|
Restricted Stock
Liability Awards
|
|
|
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Outstanding at December 31, 2017
|
|
833,058
|
|
|
$
|
31.64
|
|
|
|
55,202
|
|
|
$
|
32.26
|
|
Granted
|
|
1,785,446
|
|
|
|
17.00
|
|
|
|
806,129
|
|
|
|
15.25
|
|
Vested
|
|
(516,493
|
)
|
|
|
24.18
|
|
|
|
(685,966
|
)
|
|
|
15.88
|
|
Forfeited
|
|
(128,447
|
)
|
|
|
22.09
|
|
|
|
(21,900
|
)
|
|
|
17.63
|
|
Outstanding at June 30, 2018
|
|
1,973,564
|
|
|
$
|
20.97
|
|
|
|
153,465
|
|
|
$
|
18.22
|
|
Stock-Based Performance Units
Production Growth and Reserve Growth Awards.
The PG-PSUs and RG-PSUs vest at the end of the three-year performance period. The performance metrics for each year are set by the Compensation Committee no later than March 31 of such year. If the performance metric for the applicable period is not met, then the portion is considered forfeited. The following is a summary of our non-vested PG/RG-PSUs awards outstanding at June
30,
2018:
|
|
|
|
|
Number of
Units
|
|
|
|
Weighted
Average
Grant Date Fair
Value
of Range Stock
|
|
Outstanding at December 31, 2017
|
|
122,921
|
|
|
$
|
18.66
|
|
Units granted
(a)
|
|
440,938
|
|
|
|
15.22
|
|
Forfeited
(b)
|
|
(23,668
|
)
|
|
|
24.15
|
|
Outstanding at June 30, 2018
|
|
540,191
|
|
|
$
|
15.61
|
|
(a)
|
Amounts granted reflect the number of performance units granted; however, the actual payout of shares will be between zero and 200% depending on achievement of specifically identified performance targets.
|
24
(b)
|
The first of three tranches of PG-PSUs granted in 2
017 are considered forfeited as the performance metric was not met.
|
We recorded PG/RG-PSUs compensation expense of $5.6 million in first six months 2018 compared to $145,000 in first six months 2017.
TSR Awards.
TSR-PSUs granted are earned, or not earned, based on the comparative performance of Range’s common stock measured against a predetermined group of companies in the peer group over a three-year performance period. The fair value of the TSR-PSUs is estimated on the date of grant using a Monte Carlo simulation model which utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. The fair value is recognized as stock-based compensation expense over the three year performance period. Expected volatilities utilized in the model were estimated using a combination of a historical period consistent with the remaining performance period of three years and option implied volatilities. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the life of the grant. The following assumptions were used to estimate the fair value of PSUs granted during first six months 2018 and 2017:
|
|
Six Months Ended
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Risk-free interest rate
|
|
|
2.42
|
%
|
|
|
1.49
|
%
|
|
Expected annual volatility
|
|
|
47
|
%
|
|
|
44
|
%
|
|
Grant date fair value per unit
|
|
$
|
18.51
|
|
|
$
|
26.26
|
|
|
The following is a summary of our non-vested TSR
–
PSUs award activities:
|
|
Number of
Units
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Outstanding at December 31, 2017
|
|
|
1,009,842
|
|
|
$
|
38.38
|
|
|
Units granted
(a)
|
|
|
329,486
|
|
|
|
18.51
|
|
|
Vested and issued
(b)
|
|
|
(76,149
|
)
|
|
|
56.81
|
|
|
Forfeited
|
|
|
(191,398
|
)
|
|
|
56.10
|
|
|
Outstanding at June 30, 2018
|
|
|
1,071,781
|
|
|
$
|
27.80
|
|
|
(a)
|
These
amounts reflect the number of performance units granted. The actual payout of shares may be between zero and 200% of the performance units granted depending on the total shareholder return ranking compared to our peer companies at the vesting date.
|
(b)
|
Includes 76,149 TSR-PSUs awards issued related to the 2015 performance period where the return on our common stock was the 46
th
percentile for the February 2015 grant and 36
th
percentile for the May 2015 grant. The remaining 2015 awards are considered to be forfeited.
|
We recorded TSR-PSUs compensation expense of $5.7 million in first six months 2018 compared to $6.8 million in the same period of 2017.
SARs
Information with respect to our SARs activities is summarized below.
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at December 31, 2017
|
|
|
382,779
|
|
$
|
76.54
|
|
Expired/forfeited
|
|
|
(381,675
|
)
|
|
75.97
|
|
Outstanding at June 30, 2018
|
|
|
1,104
|
|
$
|
81.74
|
|
25
Other Postretirement Benefits
Effective fourth quarter 2017, as part of our officer succession plan, we implemented a postretirement benefit plan to assist in providing health care to officers who are active employees (including their spouses) and have met certain age and service requirements. These benefits are not funded in advance and are provided up to age 65 or at the date they become eligible for Medicare, subject to various cost-sharing features. In first six months 2018, there were $185,000 of estimated prior service costs amortized from accumulated other comprehensive income into general and administrative expense. Those employees that qualify for the new postretirement health care plan are also fully vested in all equity grants.
Deferred Compensation Plan
Our deferred compensation plan gives non-employee directors and officers the ability to defer all or a portion of their salaries, bonuses or director fees and invest in Range common stock or make other investments at the individual’s discretion. Range provides a partial matching contribution to officers which vests over three years. The assets of the plan are held in a grantor trust, which we refer to as the Rabbi Trust, and are therefore available to satisfy the claims of our general creditors in the event of bankruptcy or insolvency. Our stock held in the Rabbi Trust is treated as a liability award as employees are allowed to take withdrawals from the Rabbi Trust either in cash or in Range stock. The liability for the vested portion of the stock held in the Rabbi Trust is reflected as deferred compensation liability in the accompanying consolidated balance sheets and is adjusted to fair value each reporting period by a charge or credit to deferred compensation plan expense on our consolidated statements of operations. The assets of the Rabbi Trust, other than our common stock, are invested in marketable securities and reported at their market value as other assets in the accompanying consolidated balance sheets. The deferred compensation liability reflects the vested market value of the marketable securities and Range stock held in the Rabbi Trust. Changes in the market value of the marketable securities and changes in the fair value of the deferred compensation plan liability are charged or credited to deferred compensation plan expense each quarter. We recorded mark-to-market loss of $6.6 million in second quarter 2018 compared to mark-to-market gain of $14.5 million in second quarter 2017. We recorded mark-to-market gain of $782,000 in first six months 2018 compared to a mark-to-market gain of $27.6 million in first six months 2017. The Rabbi Trust held 3.1 million shares (2.9 million of which were vested) of Range stock at June 30, 2018 compared to 2.9 million shares (2.8 million of which were vested) at December 31, 2017.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Net cash provided from operating activities included:
|
|
|
|
|
|
|
|
|
Income taxes refunded (paid) to taxing authorities
|
|
$
|
7,521
|
|
|
$
|
(98
|
)
|
Interest paid
|
|
|
(103,439
|
)
|
|
|
(84,653
|
)
|
Non-cash investing and financing activities included:
|
|
|
|
|
|
|
|
|
Increase in asset retirement costs capitalized
|
|
|
19,561
|
|
|
|
3,855
|
|
(Decrease) increase in accrued capital expenditures
|
|
|
(102,809
|
)
|
|
|
36,926
|
|
|
|
|
|
|
|
|
|
|
(17) COMMITMENTS AND CONTINGENCIES
Litigation
We are the subject of, or party to, a number of pending or threatened legal actions, administrative proceedings and claims arising in the ordinary course of our business. While many of these matters involve inherent uncertainty, we believe that the amount of the liability, if any, ultimately incurred with respect to these actions, proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations. We estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. We will continue to evaluate our litigation and regulatory proceedings quarterly and will establish and adjust any estimated liability as appropriate to reflect our assessment of the then current status of litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.
Transportation and Gathering Contracts
In first six months 2018, our transportation and gathering commitments increased by approximately $171.0
million over the next twenty years (through 2038) primarily due to pricing changes for current contracts.
26
(18) OFFICE CLOSING AND TERMINATION COSTS
In first quarter 2017, we recorded accruals for severance, other personnel costs and accelerated vesting of stock-based compensation as part of a continuing effort to reduce our general and administrative expenses due, in part, to the lower commodity price environment. The following summarizes our termination costs for the three months and six months ended June 30, 2018 and 2017 (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
Severance costs
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
2,422
|
|
|
|
Building lease
|
|
—
|
|
|
|
(50
|
)
|
|
|
|
(37
|
)
|
|
|
(22
|
)
|
|
|
Stock-based compensation
|
|
—
|
|
|
|
(46
|
)
|
|
|
|
—
|
|
|
|
1,696
|
|
|
|
Total termination costs
|
$
|
—
|
|
|
$
|
(96
|
)
|
|
|
$
|
(37
|
)
|
|
$
|
4,096
|
|
|
|
The following details our accrued liability as of June 30, 2018 (in thousands):
|
|
June 30,
2018
|
|
Beginning balance at December 31, 2017
|
$
|
1,855
|
|
Accrued building rent
|
|
(37
|
)
|
Payments
|
|
(1,024
|
)
|
Ending balance at June 30, 2018
|
$
|
794
|
|
(19)
Capitalized Costs and Accumulated Depreciation, Depletion and Amortization
(a)
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
(in thousands)
|
|
Natural gas and oil properties:
|
|
|
|
|
|
|
|
|
Properties subject to depletion
|
|
$
|
11,067,325
|
|
|
$
|
10,572,453
|
|
Unproved properties
|
|
|
2,599,162
|
|
|
|
2,644,000
|
|
Total
|
|
|
13,666,487
|
|
|
|
13,216,453
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(3,961,365
|
)
|
|
|
(3,649,716
|
)
|
Net capitalized costs
|
|
$
|
9,705,122
|
|
|
$
|
9,566,737
|
|
(a)
|
Includes capitalized asset retirement costs and the associated accumulated amortization.
|
(20)
Costs Incurred for Property Acquisition, Exploration and Development
(a)
|
|
Six Months
Ended
June 30,
2018
|
|
|
Year
Ended
December 31, 2017
|
|
|
|
(in thousands)
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
Acreage purchases
|
|
$
|
28,300
|
|
|
$
|
62,075
|
|
Oil and gas properties
|
|
|
1,683
|
|
|
|
18,269
|
|
Development
|
|
|
484,186
|
|
|
|
1,177,526
|
|
Exploration:
|
|
|
|
|
|
|
|
|
Drilling
|
|
|
2,235
|
|
|
|
2,030
|
|
Expense
|
|
|
14,096
|
|
|
|
50,920
|
|
Stock-based compensation expense
|
|
|
1,122
|
|
|
|
2,742
|
|
Gas gathering facilities:
|
|
|
|
|
|
|
|
|
Development
|
|
|
4,599
|
|
|
|
15,097
|
|
Subtotal
|
|
|
536,221
|
|
|
|
1,328,659
|
|
Asset retirement obligations
|
|
|
19,561
|
|
|
|
20,245
|
|
Total costs incurred
|
|
$
|
555,782
|
|
|
$
|
1,348,904
|
|
(a)
|
Includes costs incurred whether capitalized or expensed.
|
27