2010 was a value-creating year for our Company. While our financial results reflected the impact of lower natural gas prices, we achieved the best operating results in our Company's history. Proved reserves increased 42% to 4.4 Tcfe. Reserve replacement from all sources totaled 931%. Importantly, this reserve growth was achieved at an industry-leading finding and development cost of $0.71 per mcfe. Despite selling our legacy Ohio properties for $325 million, production grew 14%, representing our eighth consecutive year of production growth. At Range we are keenly focused on growth on a per-share basis. We are pleased to report that once again Range achieved double-digit per-share growth in both production and reserves. Not only did we achieve double-digit per-share growth, but we coupled it with one of the lowest cost structures in the industry.

Our financial results felt the impact of a 19% drop in realized commodity prices. Lower prices more than offset higher production, causing cash flow to decline 14%. Due to the announced agreement to sell the Barnett Shale properties, a non-cash impairment was recorded at year-end, resulting in a reported loss of $318 million for the year. Adjusted net income comparable to analysts' estimates was $89 million or $0.56 per share. We are encouraged by the tangible results we saw on the cost side of the income statement. Depreciation, depletion and amortization expense, the largest expense item for most natural gas and oil companies, decreased 14% on a unit-of-production basis. Direct operating costs, our second largest line item, were reduced 12% on a per-unit basis. Importantly, we ended 2010 with a stronger financial position as our liquidity reached nearly $1 billion.

Looking ahead, we are off to an excellent start in 2011. Recently, we announced the signing of an agreement to sell our Barnett Shale properties for $900 million, subject to adjustments. Assuming the sale is completed in April as planned, coupled with the recent renewal and extension of our bank credit facility, we will have the strongest balance sheet in our history with $1.9 billion of go-forward liquidity. We expect the Barnett sale to be a catalyst for Range to become cash flow positive in 2013. By selling our more mature, higher cost properties, like the Ohio properties in 2010 and the anticipated Barnett sale in 2011, we are strengthening our financial position and preserving the resource potential of the Marcellus Shale and our other key projects for our shareholders. Currently, we estimate our unproven resource potential to be 35-52 trillion cubic feet equivalent, which is 8 to 12 times our current proved reserves.

For 2011, we anticipate that production will increase by 10% despite selling the Barnett Shale properties, which currently make up more than 20% of our production. In fact, we expect to fully replace the Barnett Shale production by the end of the third quarter 2011. The Marcellus Shale will drive these results, as we anticipate doubling our Marcellus Shale production from a rate just over 200 Mmcfe per day at year-end 2010 to a rate of 400 Mmcfe per day by year-end 2011. For 2012, we are currently expecting Marcellus Shale production to reach 600 Mmcfe per day by year end. Company-wide, we anticipate 2011 production to increase by 25% to 30%. For both 2011 and 2012, we currently project that finding and development cost will average $1.00 per mcfe or less.

Due to the success of a number of shale gas plays in the United States, our domestic natural gas supply has increased dramatically, causing natural gas prices to decline. While this is good news for our country and consumers, it makes for a challenging time for natural gas-focused production companies. Many companies are shifting their capital spending to more speculative oil projects. At Range, we are uniquely positioned to prosper in this period of low natural gas prices. Over the past several years, we have taken a disciplined approach toward lowering our cost structure by selling our more mature, higher cost properties and investing our capital into higher return, lower cost properties.   
 

Sincerely yours,

John H. Pinkerton
Chairman and Chief Executive Officer
 

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