RANGE RESOURCES CORP

Commodity prices have remained volatile. Benchmarks for natural gas, oil and NGLs decreased in 2023 compared to 2022 and, as a result, we experienced significant decreases in our price realizations when compared to the same period of 2022. Despite lower prices, we continued to focus on creating long-term value for our stockholders along with positioning ourselves to be a responsible and reliable supplier of natural gas.

Overview of 2023 Results

During 2023, we recognized net income of $871.1 million, or $3.57 per diluted common share compared to $1.2 billion, or $4.69 per diluted common share during 2022. The decrease in net income for the year ended December 31, 2023 when compared to 2022 is primarily due to significantly lower realized prices.

For the year ended December 31, 2023, we experienced a decrease in revenue from the sale of natural gas, NGLs and oil due to a 41% decrease in net realized prices (average prices including all derivative settlements and third-party transportation costs paid by us) when compared to 2022. Daily production in 2023 averaged 2.14 Bcfe compared to 2.12 Bcfe in 2022.

During 2023, our financial and operating performance included the following results:

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revenue from the sale of natural gas, NGLs and oil decreased 52% from the same period of 2022 with a 53% decrease in average realized prices (before cash settlements on our derivatives) partially offset by slightly higher production volumes;

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revenue from the sale of natural gas, NGLs and oil (including cash settlements on our derivatives) decreased 30% from the same period of 2022;

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transportation, gathering, processing and compression expense per mcfe was $1.43 in 2023 compared to $1.61 in the same period of 2022 primarily due to the impact of lower commodity prices;

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direct operating expense per mcfe was $0.12 in 2023 compared to $0.11 in the same period of 2022 due to higher workover costs;

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general and administrative expense per mcfe for 2023 decreased 5% from the same period of 2022 due to lower stock-based compensation;

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interest expense per mcfe for 2023 decreased 24% from the same period of 2022 due to lower debt balances;

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our DD&A rate per mcfe for 2023 decreased 2% from the same period of 2022;

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drilled 47.4 net wells with a 100% success rate;

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cash flow from operating activities for 2023 was 48% lower than the same period of 2022 due to lower commodity prices; and

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our capital budget spending for 2023 was $613.6 million, which was within our initially announced range of $570.0 million to $615.0 million.

The year ended December 31, 2023 also included the following highlights to enhance our balance sheet, return capital to investors and preserve liquidity:

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paid $77.2 million in dividends or $0.32 per share compared to $0.16 in 2022;

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repurchased $19.0 million of our common stock compared to $399.7 million in 2022;

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repurchased in the open market $61.6 million face value of our 4.875% senior notes due 2025 at a discount; and

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enhanced liquidity with the accumulation of cash on hand of $212.0 million along with $1.3 billion available under our credit facility.

We generated $977.9 million of cash from operating activities in 2023, a decrease of $886.9 million from 2022 which reflects significantly lower realized prices partially offset by lower comparative working capital outflows.

Acquisitions

During 2023, we invested $40.1 million to acquire unproved acreage compared to $28.7 million in 2022. We continue selective acreage leasing and lease renewals to consolidate our acreage positions in the Marcellus Shale play in Pennsylvania.

2024 Outlook

As we enter 2024, we believe we are positioned for sustainable long-term success. For 2024, we expect our capital budget to be in the range of $620 million to $670 million for natural gas, NGLs, crude oil and condensate related activities, excluding proved property acquisitions, for which we do not budget. As has been our historical practice, we will periodically review our capital expenditures throughout the year and may adjust the budget based on commodity prices, drilling success and other factors. We expect our 2024 capital budget to achieve production similar to our 2023 production. Our 2024 capital budget is focused on continuing to improve corporate returns and generating free cash flow. We expect it to be funded with operating cash flow. The prices we receive for our natural gas, NGLs and oil production are largely based on current market prices, which are beyond our control. The price risk on a portion of our forecasted natural gas, NGLs and oil production for 2024 is partially mitigated by entering into commodity derivative contracts and we intend to continue to enter into these types of contracts. We believe it is likely that commodity prices will continue to be volatile during 2024.

Market Conditions

We believe we are positioned for sustainable long-term success. We continue to monitor the impact of the actions of OPEC and other large producing nations, the Russia-Ukraine conflict, hostilities in the Middle East, global inventories of oil and gas, future monetary policy and governmental policies aimed at transitioning towards lower carbon energy and we expect prices for some or all of the commodities we produce to remain volatile given the complex dynamics of supply and demand that exist in the global market. In fourth quarter 2023, natural gas prices declined based on the relatively mild early days of winter and delays to a large liquefied natural gas export project in-service date. Longer term natural gas futures prices have remained stronger based on market expectations that associated gas-related activity in oil basins and dry gas basin activity will show modest rates of growth compared with the past due to infrastructure constraints, capital discipline and core inventory exhaustion. In addition, the global energy crisis further highlighted the low cost and low emissions shale gas resource base in North America, supporting continued strong structural demand growth for United States liquefied natural gas exports, domestic industrial gas demand and power generation. Other factors such as geopolitical disruptions, supply chain disruptions, cost inflation, concerns over a potential economic recession and the pace and extent of tightening global monetary policy may impact the demand for oil, natural gas and NGLs. We continue to assess and monitor the impact and consequences of these factors on our operations.

Prices for various quantities of natural gas, NGLs and oil that we produce significantly impact our revenues and cash flows. Prices for commodities, such as hydrocarbons, are inherently volatile. Recently, natural gas prices have decreased, when compared to December 2023, with the average NYMEX monthly settlement price for natural gas decreasing to $2.49 per mcf for February 2024 with the recent mild winter weather. Crude oil prices have increased, when compared to December 2023, to $73.86 per barrel in January 2024. The following table lists related benchmarks for natural gas, oil and NGLs composite prices for the years ended December 31, 2023 and 2022.

Our price realizations (not including the impact of our derivatives) may differ from the benchmarks for many reasons, including quality, location, or production being sold at different indices.

Natural Gas, NGLs and Oil Sales, Production and Realized Price Calculations

Our revenues vary from year to year as a result of changes in realized commodity prices and production volumes. In 2023, natural gas, NGLs and oil sales decreased 52% from 2022 with a 53% decrease in realized prices (excluding cash settlements on our derivatives) partially offset by slightly higher production volumes. The following table illustrates the primary components of natural gas, NGLs, crude oil and condensate sales for the last two years (in thousands):

Production is maintained through drilling success as we place new wells on production which is partially offset by the natural decline of our natural gas and oil reserves through production. Our production for the last two years is set forth in the following table:

Our average realized price (including all derivative settlements and third-party transportation costs paid by Range) received during 2023 was $1.88 per mcfe compared to $3.17 per mcfe in 2022. The majority of our production is sold at market-sensitive prices. Generally, if the related commodity index declines, the price we receive for our production will also decline. Because we record transportation costs on two separate bases, as required by U.S. GAAP, we believe computed final realized prices should include the impact of transportation, gathering, processing and compression expense. Average sales prices (excluding derivative settlements) do not include any derivative settlements or third-party transportation costs which are reported in transportation, gathering and compression expense on the accompanying consolidated statements of income. Average sales prices (excluding derivative settlements) do include transportation costs where we receive net proceeds from the purchaser. Our average realized price (including all derivative settlements and third-party transportation costs paid by Range) calculation includes all cash settlements for derivatives. Our derivative settlements included in our realized price calculations do not include settlements of contingent consideration related to the sale of our North Louisiana properties. Average realized price calculations for the last two years are shown below:

Realized prices include the impact of basis differentials and gains or losses realized from our basis hedging. The prices we receive for our natural gas can be more or less than the NYMEX price because of adjustments for delivery location, relative quality and other factors. The following table provides this impact on a per mcf basis:

The following tables reflect our production and average realized commodity prices (excluding derivative settlements and third-party transportation costs paid by Range) (in thousands, except prices):

Transportation, gathering, processing and compression expense was $1.1 billion in 2023 and $1.2 billion in 2022. These third-party costs are lower than the prior year due to lower fuel and lower electricity costs along with the impact of lower NGLs prices which results in lower processing costs. We have included these costs in the calculation of average realized prices (including all derivative settlements and third-party transportation expenses paid by Range). The following table summarizes transportation, gathering, processing and compression expense for the last two years (in thousands) and on a per mcf and per barrel basis:

Derivative fair value income (loss)was a gain of $821.2 million in 2023 compared to a loss of $1.2 billion in 2022. All of our derivatives are accounted for using the mark-to-market accounting method. Mark-to-market accounting treatment creates volatility in our revenues as unrealized gains and losses from derivatives are included in total revenues. As commodity prices increase or decrease, such changes will have an opposite effect on the mark-to-market value of our derivatives. Gains on our derivatives generally indicate lower wellhead revenues in the future while losses indicate higher future wellhead revenues. At December 31, 2023, our commodity derivative contracts were recorded at their fair value, which was a net derivative asset of $424.4 million, an increase of $563.0 million from the $138.6 million net derivative liability recorded as of December 31, 2022. We have also entered into basis swap agreements to limit volatility caused by changing differentials between NYMEX and regional prices received. These basis swaps are marked to market and we recognized a net derivative asset of $18.3 million as of December 31, 2023 compared to a net derivative asset of $521,000 as of December 31, 2022. The following table summarizes the impact of our commodity derivatives for the last two years (in thousands):

Brokered natural gas, marketing and other revenue was $218.6 million in 2023 compared to $424.2 million in 2022. We enter into purchase transactions with third parties and separate sale transactions with third parties at different times to utilize available pipeline capacity and to fulfill sales commitments in the event of operational upsets. The 2023 period includes $195.7 million of revenue from the sale of natural gas that is not related to our production (brokered) and $1.8 million of revenue from the sale of NGLs that is not related to our production, the receipt of $5.1 million in make-whole payments and $5.9 million of interest income. The 2022 period includes $408.6 million of revenue from the brokered sale of natural gas and $2.8 million of revenue from the sale of NGLs that is not related to our production and $2.5 million of interest income. These brokered revenues decreased compared to 2022 due to lower sales prices partially offset by higher brokered volumes.

Costs and Expenses per mcfe

We believe some of our expense fluctuations are best analyzed on a unit-of-production, or per mcfe, basis. The following presents information about certain of our expenses on a per mcfe basis for the last two years:

Direct operating expense was $96.1 million in 2023 compared to $84.3 million in 2022. Direct operating expenses include normally recurring expenses to operate and produce our wells, non-recurring workover and repair-related expenses. On an absolute dollar basis, our direct operating expenses for 2023 increased 14% from the prior year primarily due to higher water hauling/handling costs, higher labor costs and higher workover costs. We incurred $4.5 million of workover costs in 2023 compared to $3.0 million of workover costs in 2022.

On a per mcfe basis, operating expense for 2023 increased $0.01, or 9% from the same period of 2022, with the increase due to higher workover costs. Stock-based compensation expense represents the amortization of equity grants as part of the compensation of field employees. The following table summarizes direct operating expenses per mcfe for the last two years:

Taxes other than income expense was $23.7 million in 2023 compared to $35.4 million in 2022. This expense category is primarily the Pennsylvania impact fee. In 2012, Pennsylvania enacted an "impact fee" on unconventional natural gas and oil production which includes the Marcellus Shale. The impact fee is based upon the year wells are drilled and the fee varies, like a severance tax, based upon natural gas prices. The year ended December 31, 2023 includes a $21.8 million impact fee compared to $33.2 million in the year ended December 31, 2022, with the decrease primarily due to lower natural gas prices. This category also includes other taxes such as franchise, real estate and commercial activity taxes. The following table summarizes taxes other than income per mcfe for the last two years:

General and administrative expense was $164.7 million for 2023 compared to $168.1 million for 2022. The decrease in 2023, when compared to 2022, is primarily due to lower stock-based compensation and lower legal expenses partially offset by higher salaries and benefit costs. As of December 31, 2023, the number of general and administrative employees was the same when compared to December 31, 2022.

On a per mcfe basis, general and administrative expense for 2023 was 5% lower when compared to the same period of 2022 due to lower stock-based compensation. Stock-based compensation expense represents the amortization of stock-based compensation awards granted to our employees and our non-employee directors as part of their compensation. The following table summarizes general and administrative expenses per mcfe for the last two years:

Interest expense was $124.0 million for 2023 compared to $165.1 million for 2022. The following table summarizes interest expense per mcfe for the last two years:

On an absolute basis, the decrease in interest expense for 2023 from 2022 was primarily due to lower overall outstanding average debt balances. See Note 6 to our consolidated financial statements for additional information. Average debt outstanding on the bank credit facility for 2023 was $8.0 million compared to $48.4 million for 2022 and the weighted average interest rate on the bank credit facility was 8.4% for 2023 compared to 4.1% in 2022.

Depletion, depreciation and amortization ("DD&A") was $350.2 million in 2023 compared to $353.4 million in 2022. The decrease in 2023 when compared to 2022 is due to a 2% decrease in depletion rates. On a per mcfe basis, DD&A decreased to $0.45 in 2023 compared to $0.46 in 2022. Depletion expense, the largest component of DD&A, was $0.44 per mcfe in 2023 compared to $0.45 per mcfe in 2022. We have historically adjusted our depletion rates in the fourth quarter of each year based on our year-end reserve report and at other times during the year when circumstances indicate there has been a significant change in reserves or costs. The following table summarizes DD&A expenses per mcfe for the last two years:

Other Operating Expenses

Our total operating expenses also include other expenses that generally do not trend with production. These expenses include stock-based compensation, brokered natural gas and marketing, exploration expense, abandonment and impairment of unproved properties, exit costs, deferred compensation plan and gain or loss on early extinguishment of debt. The following table details stock-based compensation that is allocated to functional expense categories for the last two years (in thousands):

Stock-based compensation includes the amortization of restricted stock and performance-based grants.

Brokered natural gas and marketing expense was $202.9 million in 2023 compared to $427.0 million in 2022. We enter into purchase transactions with third parties and separate sale transactions with third parties at different times to utilize available pipeline capacity and fulfill sales commitments in the event of operational upsets. The decrease in these costs reflects lower purchase prices partially offset by higher purchased volumes. The following table details our brokered natural gas, marketing and other net margin which includes the net effect of these third-party transactions for the two-year period ended December 31, 2023 (in thousands):

Exploration expense was $26.5 million in 2023 compared to $26.8 million in 2022. Exploration expense in 2023 was lower when compared to the prior year with lower delay rentals partially offset by higher seismic and personnel costs. Stock-based compensation represents the amortization of equity stock grants as part of the compensation of our exploration staff. The following table details our exploration related expenses for the last two years (in thousands):

Abandonment and impairment of unproved properties was $46.4 million in 2023 compared to $28.6 million in 2022. These costs increased when compared to the same period of 2022 due to higher estimated lease expirations in Pennsylvania. Impairment of individually insignificant unproved properties is assessed and amortized on an aggregate basis based on our average holding period, expected forfeiture rate and anticipated drilling success. We assess individually significant unproved properties for impairment on a quarterly basis and recognize a loss where circumstances indicate impairment in value. In determining whether a significant unproved property is impaired we consider numerous factors including, but not limited to, current exploration plans, favorable or unfavorable activity on the property being evaluated and/or adjacent properties, our geologists’ evaluation of the property and the remaining months in the lease term for the property.

Exit costsin 2023 were $99.9 million compared to $70.3 million in 2022. In August 2020, we completed the sale of our North Louisiana operations in a transaction that included the retention of certain related gathering, transportation and processing obligations extending until 2030. The present value of these estimated future obligations totaled $479.8 million which was recorded in third quarter 2020. In the twelve months ended December 31, 2023, we recorded $41.9 million accretion expense related to these retained liabilities and in second quarter 2023, we recorded an adjustment of $37.8 million to increase this obligation for an increase in forecasted rates due to inflation. In addition, in fourth quarter 2023, we recorded an additional $18.0 million adjustment to increase the obligation for a change to our forecasted drilling plans of the buyer. In the twelve months ended December 31, 2022, we recorded $43.6 million accretion expense related to these retained liabilities and we recorded an adjustment of $24.8 million to increase this obligation for a change in forecasted drilling plans of the buyer and other adjustments. The following table details our exit costs for the last two years (in thousands):

Deferred compensation plan expense was $26.6 million in 2023 compared to $61.9 million in 2022. Our stock price increased to $30.44 at December 31, 2023 from $25.02 at December 31, 2022. This non-cash item relates to the increase or decrease in value of the liability associated with our common stock that is vested and held in our deferred compensation plan. The deferred compensation liability is adjusted to fair value by a charge or a credit to deferred compensation plan expense. Common shares are placed in the deferred compensation plan when granted to eligible participants. The deferred compensation plan held 1.5 million vested shares at December 31, 2023 compared to 5.3 million shares at December 31, 2022.

Gain (loss) on early extinguishment of debtwas a gain of $438,000 in 2023 compared to a loss of $69.5 million in 2022. In second quarter 2023, we purchased on the open market $61.6 million principal amount of 4.875% senior notes due 2025 at a discount and recorded a gain of $438,000, net of transaction costs and the expensing of deferred financing costs on the repurchased debt. In first quarter 2022, we announced a call for the redemption of $850.0 million of our outstanding 9.25% senior notes due 2026 which were redeemed on February 1, 2022. The redemption price equaled 106.938% of par plus accrued and unpaid interest. We recognized a loss on early extinguishment of debt of $69.2 million.

Income tax expense was $229.2 million in 2023 compared to $230.5 million in 2022. Income tax expense was the same as the prior year with lower operating income offset by the impact of changes in our valuation allowances each year.

The following is a summary of income tax expense (in thousands):

See Note 4 to our consolidated financial statements for further detail.