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Shareholder Letter - 2011 Annual Report
Dear Fellow Shareholders:
2011 was a significant year for Range, with several important accomplishments that have put Range on the threshold of an incredibly bright future for the Company and its shareholders. With this in mind, we have chosen the theme “Inflection Point” for this year’s annual report.
In 2011, we achieved record operating results and solid financial results, and positioned the Company for accelerated growth and profitability. Proved reserves increased 14% to 5.1 Tcfe. Reserve replacement from all sources totaled 849%, and was achieved at an industry-leading finding and development cost of $0.89 per Mcfe. Despite selling $954 million of properties during the year, production grew 12%, representing our ninth consecutive year of production growth. Importantly, we achieved our sixth consecutive year of double-digit per share growth in both production and reserves. All of these operating results represent record highs for Range.
Our 2011 financial results were encouraging, as net income increased to $58 million, or $0.36 per diluted share, compared to a loss realized in 2010. Cash flow from operations rose 23% to $632 million, due to higher production and higher realized prices. Significant progress was made on the cost side of our business as we continued our disciplined approach to reducing our unit costs. The highlight was a 16% decrease in direct operating unit costs and a 14% decline in our depreciation, depletion and amortization rate, our largest expense component.
In April 2011, we closed the sale of our Barnett Shale properties for approximately $900 million. This bold move significantly strengthened our financial position, lowered our cost structure and allowed us to focus more intently on our higher return projects. While the Barnett properties represented more than 20% of our total production at the time of the sale, we fully replaced the sold production in just five months. Most importantly, the sale allowed Range to finish the year with the strongest balance sheet in our history. At year-end 2011, we had $1.3 billion of liquidity under our bank credit facility with no debt maturities until 2016.
Looking to 2012 and beyond, Range is exceptionally well-positioned to continue to generate substantial value for its shareholders. We begin 2012 with an unproven resource potential of 44 – 60 Tcfe, which is roughly 10 times our proved reserves. This resource potential, coupled with our strong financial position, low-cost structure and extraordinary team of employees, will serve as the drivers to accelerate our growth and profitability in the years ahead. We believe that Range has reached an “inflection point” whereby our results over the next several years will substantially exceed those of the prior years. To illustrate, our 2012 capital budget has been set at $1.6 billion, essentially level with 2011’s capital spending. However, our 2012 production growth target has been set at 30 - 35%, well above the 12% production growth we achieved in 2011.
Beginning in 2011 and into 2012, natural gas prices have declined while oil prices have risen. In response, we are allocating 75% of our 2012 capital budget to projects that carry a higher amount of oil and NGL reserves, including the liquids-rich portion of the Marcellus Shale and oil projects in the horizontal Mississippian play in the Midcontinent area and the Cline Shale oil play in West Texas. As we focus on these liquids-rich plays, we anticipate our liquids production will increase by 40% for 2012. Increasing liquids production and our strong natural gas hedge position for 2012 and 2013 will help us to continue to grow our Company during this period of low natural gas prices.
Because of the success of the shale gas plays like the Marcellus Shale and the potential of the oil shale plays, the United States is now positioned to become energy-independent for the first time in years. America has relied on other countries for a substantial amount of its energy for far too long. By developing an energy policy that is centered on domestic clean-burning natural gas, America can reduce its energy reliance on other countries, help protect the environment, create jobs for U.S. citizens and recast its foreign policy. We encourage all Americans to reach out to their state and federal officials to insist that they develop an energy policy that will put the U.S. on a path towards energy independence.
Lastly, we wish to thank all the Range employees for a job exceedingly well done in 2011, and for their continued commitment to our culture that has made Range a high-performance company. We also thank the members of our Board of Directors for their advice and guidance. Finally, we sincerely thank all of the Range shareholders for their steadfast support.
John H. Pinkerton
Jeffrey L. Ventura
President & Chief Executive Officer
100 THROCKMORTON STREET, SUITE 1200 FORT WORTH, TX 76102
Copyright © 2010 Range Resources Corporation. All rights reserved.