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What Has Hedging Done for Range Resources?

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Hedging advantage

In 1Q16, natural gas hedging activities increased Range Resources’ (RRC) average realized natural gas price by $0.91 per Mcf (thousand cubic feet). As we discussed previously in this series, the 1Q16 average realized price for RRC’s natural gas production was $2.69 per Mcf. This means that the commodity hedging activities increased RRC’s average realized natural gas price by ~51%.

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Hedging activities

Range Resources has hedged its 2016, 2017, and 2018 natural gas production. As shown in above chart, for 2Q16, 3Q16, and 4Q16, RRC has fixed price hedges on natural gas for ~760 billion British thermal units per day at prices of $3.21 per mmBtu (million British thermal units), $3.22 per mmBtu, and $3.24 per mmBtu, respectively.

For 2017 and 2018, RRC has fixed price hedges on natural gas for ~205 billion British thermal units per day and ~50 billion British thermal units per day at prices of $2.83 per mmBtu and $2.88 per mmBtu, respectively.

As of March 31, 2016, Range Resources had derivative coverage for ~80% of forecasted natural gas production for 2016.

Production costs

In 1Q16, RRC’s total production costs, including LOE (lease operating expenses), production and ad valorem taxes, G&A (general and administrative) costs, gathering and transmission costs, and DD&A (depletion, depreciation, and amortization) costs amounted to $2.71 per Mcfe (million cubic feet equivalent), which is ~10% lower than in 1Q15.

In 1Q16, RRC’s LOE was $0.19 per Mcfe, which is ~37% lower than in 1Q15. In 1Q16, S&P 500 (SPY) upstream companies ConocoPhillips (COP), Marathon Oil (MRO), and Devon Energy (DVN) had LOEs of $9.42 per boe, $10.77 per boe, and $7.12 per boe, respectively.

Now let’s look at RRC’s debt.

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