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Shareholder Letter - 2012 Annual Report
Dear Fellow Shareholders:
In 2012, Range posted the best operating results in the Company’s history. Production volumes rose 36% to 753 Mmcfe per day, a record high. Importantly, liquids production increased 41% in the fourth quarter versus the prior year, a reflection of focused drilling in our highest rate of return plays.
Proved reserves increased 29% to 6.5 Tcfe. Reserve replacement from drilling was 773%, at one of the industry’s best all-in finding and development cost of $0.86 per mcfe. We achieved our seventh consecutive year of double-digit per share, debt adjusted, growth in both production and reserves. All-in finding and development costs have been $1.00 or less per mcfe for each of the last four years. Our unproven resource potential totaled 48 to 68 Tcfe, including 2.3 to 3.5 billion barrels of oil and NGLs, providing a larger inventory of low cost, high return drilling projects. In the last three years, Range has moved 4.7 Tcfe of unproved resource potential to proved reserves. To put that in perspective, 4.7 Tcfe is more than our total proved reserves just two years ago. In many respects these are some of the best operating results of any U.S. oil and gas company.
While our operating results were outstanding, our financial results were impacted by a 23% decline in natural gas prices and an 18% decline in NGLs prices. Despite the sharp drop in prices, we were profitable in 2012, generating $13 million of reported net income while operating cash flow rose 2% to $756 million. We were able to more than offset the decrease in prices through a combination of higher production volumes and lower unit costs. Total unit costs for 2012 were reduced 9%, led by a 32% decrease in lease operating costs.
Other notable achievements in 2012 included the issuance of $500 million of ten-year senior subordinated notes at a record low interest rate of 5%. We also entered into two innovative marketing agreements which allow Range to tap the lucrative northeast U.S. and international markets for our growing NGL production. We continued to divest of higher cost, lower return properties generating $170 million of proceeds in 2012, and have recently executed an agreement to sell additional non-core properties at an attractive price of $275 million.
While 2012 was a terrific year for Range, 2013 looks to be even more exciting. Based on current commodity prices, we anticipate production, reserves, revenues, cash flow and earnings for 2013 will see double-digit increases over 2012. It all starts with our very large inventory of low cost, high return drilling projects. Our unproved resource potential of 48 to 68 Tcfe is roughly ten times our proved reserves, positioning us for line-of-sight production growth for many years. Because we are investing our capital in our highest rate of return plays, our cash flow should grow at an even faster rate each year than our production growth. Combining this top line growth with our low cost structure should generate substantially higher bottom line growth and higher per share value for all of Range’s shareholders.
Our positive outlook for 2013 is based on the current market for commodity prices coupled with our attractive hedge position. Over time, however, we believe that natural gas prices will rise and trade in the $4.00 to $6.00 per mcf range versus the $2.80 per mcf average for 2012. The natural gas market is supported by many factors including the gains in the use of natural gas in electric power generation, the return to the U.S. of manufacturing and petrochemical businesses, the continued build out of facilities for the growing demand for natural gas vehicles across the U.S., the relative low cost nature of natural gas versus other hydrocarbon fuels and renewable energy, and the positive impact natural gas has had on the environment. State and federal officials, as well as people on Main Street America, are gaining a better understanding of the substantial impact natural gas will have on America’s energy future.
In 2003, Charlie Blackburn joined our Board of Directors and was elected Chairman. Prior to Range, Charlie had a distinguished 34 year career in the oil and gas industry, including serving for ten years with Shell Oil Company as a Director and Executive Vice President of exploration and production. After ten years serving on the Range Board of Directors, including six years as Chairman, Charlie has decided to retire from our Board effective with the 2013 annual meeting. Charlie was the “right Chairman” at the “right time” for Range. He has served the Board and Range’s shareholders with integrity, wisdom and passion. All of us at Range thank Charlie for his service and leadership and wish him the best in the years ahead.
Finally, we gratefully thank all the Range employees for an outstanding job in 2012 and for their continued commitment to our culture that has made Range a high performance, shareholder focused company. We also thank the members of our Board of Directors for their advice and guidance. Lastly, we thank all of Range’s shareholders for your continued support and confidence.
John H. Pinkerton
Jeffrey L. Ventura
President & Chief Executive Officer
100 THROCKMORTON STREET, SUITE 1200 FORT WORTH, TX 76102
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