We are a Fort Worth, Texas-based independent natural gas company, engaged in the exploration, development and acquisition of primarily natural gas properties, mostly in the Southwestern and Appalachian regions of the United States. We were incorporated in 1980 under the name Lomak Petroleum, Inc. and, later that year, we completed an initial public offering and began trading on the NASDAQ. In 1996, our common stock was listed on the New York Stock Exchange. In 1998, we changed our name to Range Resources Corporation. In 1999, we implemented a strategy of internally generated drillbit growth coupled with complementary acquisitions. Our objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis. During the past five years, we have increased our proved reserves 166% (from 1.2 Tcfe in 2004 to 3.1 Tcfe in 2009), while production has increased 122% (from 71,726 Mmcfe in 2004 to 159,112 Mmcfe in 2009) during that same period.
At year-end 2009, our proved reserves had the following characteristics:
• 3.1 Tcfe of proved reserves;
• 84% natural gas;
• 55% proved developed;
• 79% operated;
• a reserve life of 18.6 years (based on fourth quarter 2009 production);
• a pre-tax present value of $2.6 billion of future net cash flows attributable to our reserves, discounted at 10% per annum (“PV-10”); and
• a standardized after-tax measure of discounted future net cash flows of $2.1 billion.
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PV-10 may be considered a non-GAAP financial measure as defined by the SEC. We believe that the presentation of PV-10 is relevant and useful to our investors as supplemental disclosure to the standardized measure, or after-tax amount, because it presents the discounted future net cash flows attributable to our proved reserves before taking into account future corporate income taxes and our current tax structure. While the standardized measure is dependent on the unique tax situation of each company, PV-10 is based on prices and discount factors that are consistent for all companies. Because of this, PV-10 can be used within the industry and by creditors and securities analysts to evaluate estimated net cash flows from proved reserves on a more comparable basis. The difference between the standardized measure and the PV-10 amount is discounted estimated future income tax of $501.7 million at December 31, 2009.
At year-end 2009, we owned 3,214,000 gross (2,504,000 net) acres of leasehold, including 289,000 acres where we also own a royalty interest. We have built a multi-year drilling inventory that is estimated to contain over 11,500 drilling locations, both proven and unproven.
Our corporate offices are located at 100 Throckmorton Street, Suite 1200, Fort Worth, Texas 76102. Our telephone number is (817) 870-2601.
Business Strategy
Our objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis. Our strategy is to employ internally generated drillbit growth coupled with complementary acquisitions. Our strategy requires us to make significant investments in technical staff, acreage and seismic data and technology to build drilling inventory. Our strategy has the following principal elements:
• Concentrate in Core Operating Areas. We currently operate in two regions: the Southwestern (which includes the Barnett Shale of North Central Texas, the Permian Basin of West Texas and eastern New Mexico, the East Texas Basin, the Texas Panhandle and the Anadarko Basin of Western Oklahoma) and Appalachian (which includes tight-gas, shale, coal bed methane and conventional oil and gas production in Pennsylvania, Virginia, Ohio, New York and West Virginia). Concentrating our drilling and producing activities in these core areas allows us to develop the regional expertise needed to interpret specific geological and operating trends and develop economies of scale. Operating in multiple core areas allows us to blend the production characteristics of each area to balance our portfolio toward our goal of consistent production and reserve growth.
• Focus on cost efficiency. We concentrate in core areas which we believe to have sizeable hydrocarbon deposits in place that will allow us to consistently increase production while controlling costs. As there is little long-term competitive sales price advantage available to a commodity producer, the costs to find, develop, and produce a commodity are important to organizational sustainability and long-term shareholder value creation. We endeavor to control costs such that our cost to find, develop and produce oil and gas is in the best performing quartile of our peer group.
• Maintain Multi-Year Drilling Inventory. We focus on areas where multiple prospective, productive horizons and development opportunities exist. We use our technical expertise to build and maintain a multi-year drilling inventory. A large, multi-year inventory of drilling projects increases our ability to consistently grow production and reserves. Currently, we have over 11,500 identified drilling locations in inventory, both proven and unproven. In 2009, we drilled 463 gross (285.4 net) wells.
• Maintain Long-Life Reserve Base. Long-life oil and gas reserves provide a more stable growth platform than short-life reserves. Long-life reserves reduce reinvestment risk as they lessen the amount of reinvestment capital deployed each year to replace production. Long-life oil and gas reserves also assist us in minimizing costs as stable production makes it easier to build and maintain operating economies of scale. We use our acquisition, divestiture, and drilling activity to execute this strategy.
• Maintain Flexibility. Because of the volatility of commodity prices and the risks involved in drilling, we remain flexible and adjust our capital budget throughout the year. We may defer capital projects to seize an attractive acquisition opportunity. If certain areas generate higher than anticipated returns, we may accelerate drilling and acquisitions in those areas and decrease capital expenditures and acquisitions elsewhere. We also believe in maintaining a strong balance sheet and using commodity hedging, which allows us to be more opportunistic in lower price environments and provides more consistent financial results.
• Make Complementary Acquisitions. We target complementary acquisitions in existing core areas where our existing operating and technical knowledge is transferable and drilling results can be forecast with confidence. Over the past three years, we have completed $612.1 million of complementary acquisitions. These acquisitions have been located primarily in the Barnett Shale in North Central Texas and the Marcellus Shale in Pennsylvania.
• Equity Ownership and Incentive Compensation. We want our employees to think and act like owners. To achieve this, we reward and encourage them through equity ownership in Range. All full-time employees receive equity grants. As of December 31, 2009, our employees owned equity securities in our benefit plans (vested and unvested) that had an aggregate market value of approximately $312.7 million.
Significant Accomplishments in 2009
• Production and reserve growth — Fourth quarter 2009 marked Range’s 28th consecutive quarter of sequential production growth. In 2009, our annual production averaged 435.9 Mmcfe per day, an increase of 13% from 2008. Proven reserves increased 18% in 2009 to 3.1 Tcfe, marking the eighth consecutive year our proven reserves have increased. This achievement is the result of our continued drilling success, as all of production and reserve growth in 2009 came from our drilling program. Our business is inherently volatile, and while consistent growth such as we have experienced over the past seven years will be challenging to sustain, the quality of our technical teams and our sizable drilling inventory bode well for the future.
• Successful drilling program — In 2009, we drilled 463 gross wells. Production was replaced by 484% through drilling in 2009, and our overall success rate was nearly 100%. As we continue to build our drilling inventory for the future, our ability to drill a large number of wells each year on a cost effective and efficient basis is critical.
• Large resource potential from unconventional plays — Maintaining a large exposure to potential resources is important. We continued expansion of our resource shale plays in 2009. We have two large unconventional plays — the Marcellus Shale in Pennsylvania and the Barnett Shale in North Texas. These plays cover expansive areas, provide multi-year drilling opportunities and have sustainable lower risk growth profiles. The economics of these plays have been enhanced by continued advancements in drilling and completion technologies. We have now leased 1.2 million net acres in these two shale plays. We also have 263,000 net acres in our coal bed methane plays in Virginia, West Virginia and Pennsylvania.
• Maintenance of a strong balance sheet — Financial leverage, as measured by the debt-to-capitalization ratio, remained level at 42% for both year-end 2008 and 2009. We refinanced $285.2 million of shorter-term bank debt by issuing $300.0 million of senior subordinated fixed rate 8.0% notes having a 10-year maturity, at a discount. This helped to align the maturity schedule of our debt with the long-term life of our assets and reduce interest rate volatility.
• Successful unproved property purchases completed — In 2009, we acquired $176.9 million of acreage located in our core areas, primarily in the Marcellus Shale. We paid cash and issued stock for this acreage. We continued to see outstanding results in the Marcellus Shale. Production increased 150%, we proved up additional unproved acreage, acquired additional acreage and continue to work with outside parties to gain pipeline and processing capacity.
• Successful dispositions completed — In second quarter 2009, we sold oil properties in West Texas for proceeds of $181.8 million. In fourth quarter 2009, we sold our natural gas properties in New York for proceeds of $36.3 million. See also Note 3 to our consolidated financial statements.
Industry Operating Environment
The oil and gas industry is affected by many factors that we generally cannot control. Government regulations, particularly in the areas of taxation, energy, climate change and the environment, can have a significant impact on operations and profitability. For several years preceding the 2008 worldwide economic decline, the oil and gas industry had been characterized by volatile but upward trending oil, NGL and gas commodity prices. However, since mid-year 2008, we have experienced declines in commodity prices, especially with regard to natural gas prices.
Significant factors that will impact 2010 crude oil prices include: political and social developments in the Middle East, demand in Asian and European markets, and the extent to which members of the Organization of Petroleum Exporting Countries (“OPEC”) and other oil exporting nations are able to manage oil supply through export quotas. Natural gas prices are generally determined by North American supply and demand and are also affected by imports of liquefied natural gas. In addition, weather has a significant impact on demand for natural gas since it is a primary heating source.
Plans for 2010
Our capital expenditure budget for 2010 has been initially set at approximately $950.0 million. As has been our historical practice, we will periodically review our capital expenditures throughout the year and adjust the budget based on commodity prices and drilling success. The 2010 budget includes $700.0 million to drill 464 gross (338.2 net) wells and to undertake 38 gross (29.0 net) recompletions. Also included is $190.0 million for land, $20.0 million for seismic and $40.0 million for the expansion and enhancement of gathering systems and facilities. Approximately 82% of the budget is attributable to the Appalachian region and 18% to the Southwestern region.
In December 2009, we announced our plan to offer for sale our tight gas sand properties in Ohio. The properties include approximately 3,500 producing wells, 418,000 net acres of leasehold and 1,600 miles of pipeline and gathering system infrastructure. Parties began conducting evaluations in January 2010 and on February 8, 2010 we announced that we had entered into a definitive agreement to sell these assets for a price of $330.0 million, subject to typical post-closing adjustments. However, the completion of the sale is dependent upon prospective buyer due diligence procedures and there can be no assurance the sale will be completed.
Production, Price and Cost History
Employees
As of January 1, 2010, we had 787 full-time employees, 373 of whom were field personnel. All full-time employees are eligible to receive equity awards approved by the Compensation Committee of the Board of Directors. No employees are covered by a labor union or other collective bargaining arrangement. We believe that the relationship with our employees is excellent. We regularly use independent consultants and contractors to perform various professional services, particularly in the areas of drilling, completion, field, on-site production services and certain accounting functions.