Range Resources Earnings: Strong Hedgebook Offsets Miserable Commodity Prices

Range Resources RRC is making the best of a tough year for natural gas prices. Since the beginning of the year the Nymex benchmark has lost 40% and at $2.70/million btu, the current spot price is a far cry from last year’s peak of over $9 (Aug. 22). To make matters worse for Marcellus producers like Range, in-basin prices deteriorated further in the second quarter because of a confluence of factors, including limited shoulder season demand pull outside the basin and high regional inventory (Range’s realized natural gas price was 29% below Nymex). But Range’s hedging strategy took the sting out of the price slump. Going into the second quarter, the firm had locked in a floor price of $3.48/mmbtu for over 50% of its projected natural gas output. As a result, the firm was still able to generate enough cash to cover its capital program. The firm also layered on additional protection for 2024 and has now covered 50% of its projected volumes with a $3.70 floor price, and has begun lining up 2025 and 2026 hedges as well.

The firm is on track to meet its previously stated goal of flat production in 2023, and there was no change to the $570 million-$615 million budget. Second-quarter output was in line with our model, and unit costs were consistent with our slightly-below-annual-guidance ranges. The full-year picture remains much the same as last quarter, with management guiding most drilling activity for full-year 2023 to be in the back half of the year, when demand for gas is expected to increase because of the winter months. Overall, the firm’s financial results were better than expected, with adjusted EBITDA and adjusted EPS coming in 7% and 30%, respectively, above FactSet consensus estimates.

We intend to incorporate these results shortly, but after this first look, our $21 per share fair value estimate and no moat rating are unchanged.