uploads///RRC MRD Merger E Debt

Will Range Resources’ Debt Burden Increase after the Merger?


Dec. 4 2020, Updated 10:53 a.m. ET

Range Resources’ pro forma net debt

As of March 31, 2016, Range Resources’ (RRC) total debt stood at ~$2.59 billion. With only ~$0.5 million in cash and cash equivalents, its net debt was ~$2.59 billion at the end of 1Q16. After merging with Memorial Resource Development (MRD), Range Resources is going to assume its net debt of $1.1 billion. This will result in an increase in Range Resources’ net debt to ~$3.69 billion on a pro forma basis.

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Range Resources’ pro forma EBITDA estimates for 2016

For 2016, Wall Street analysts estimate Range Resources’ EBITDA to be lower by ~40% YoY (year-over-year) at ~$517 million. Similarly, Wall Street analysts estimate Memorial Resource Development’s EBITDA at ~$462 million for 2016. Combined with Memorial Resource Development, Range Resources’ pro forma EBITDA for 2016 is ~$979 million.

Range Resources’ pro forma net debt-to-EBITDA estimate for 2016

Based on the above calculations, Range Resources’ pro forma net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) is ~3.8x for 2016. This is ~25% better than Range Resources’ existing estimated 2016 net debt-to-EBITDA of ~5x.

Other upstream companies like Diamondback Energy (FANG), CONSOL Energy (CNX), Pioneer Natural Resources (PXD), and Chesapeake Energy (CHK) have net debt-to-EBITDA ratios of ~1.1x, ~5.7x, ~1.5x, and 3.5x, respectively. Apart from upstream companies’ EBITDA, movements in natural gas prices also impact the United States Natural Gas ETF (UNG), the VelocityShares 3X Long Natural Gas ETN (UGAZ), and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

Range Resources’ pro forma cash flow estimate for 2016

According to Range Resources’ presentation on its merger with Memorial Resource Development, it’s expecting an ~108% boost to its 2016 estimated cash flow. After the merger with Memorial Resource Development, Range Resources is expecting a pro forma 2016 cash flow of ~$780 million. The existing Range Resources had an estimated 2016 cash flow of ~$375 million. Range Resources is expecting increased cash flow mainly due to the ~62% increase in its estimated 2016 cash margin per Mcfe (thousand cubic feet equivalent) to $1.17 per Mcfe from $0.72 per Mcfe.

So, Range Resources’ decision to acquire Memorial Resource Development is looking advantageous from its point of view.


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