Range Resources Corporation

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Range Resources Corporation

777 Main Street, Suite 800
Fort Worth, Texas 76102
U.S.A.
Telephone: (817) 870-2601
Fax: (817) 870-2601
Web site: http://www.rangeresources.com

Public Company
Incorporated: 1980 as Lomak Petroleum Inc.
Employees: 139
Sales: $187.7 million (2000)
Stock Exchanges: New York
Ticker Symbol: RRC
NAIC: 211111 Crude Petroleum and Natural Gas Extraction

Range Resources Corporation is a Fort Worth, Texas, oil and gas company, primarily focused on the drilling of established, lower-risk properties. Nonetheless, it has also become more active in higher-risk exploration projects on some of its underdeveloped properties. Range Resources was created in 1998, the result of a merger between Lomak Petroleum Inc. and Domain Energy Corp. More than 70 percent of its reserves are natural gas, of which 83 percent are company-operated. Range Resources’ primary development areas are the Appalachian Basin of eastern Ohio, western Pennsylvania, western New York, and West Virginia; the Permian Basin of west Texas; midcontinent properties of Oklahoma and the Texas Panhandle; and the Gulf Coast region. Whereas the vast majority of the company’s drilling is done onshore, Range Resources engages in a limited amount of offshore drilling on the continental shelf of the Gulf of Mexico. It also had an operation in southern Argentina, inherited from Domain, which was sold just after the merger.

Lomak Petroleum Dating Back to 1976

The surviving corporate structure, and oldest of the two companies that formed Range Resources, was Lomak Petroleum, operating out of Hartville, Ohio. It was founded and incorporated in the state of Ohio in 1976 by a group of investors led by Rand Michaels, who became the chief executive, and K.G. Hungerford, a certified public accountant who became secretary-treasurer of the corporation. Michaels held a B.S. from Auburn University as well as an M.B.A. from the University of Denver, and gained previous executive experience at DuPont, BASF, and Edge Industries. Lomak, along with an affiliated partnership, acquired gas and oil-bearing properties in the Appalachian Basin and contracted outside companies to perform the actual drilling. In 1980 the company reorganized as a Delaware corporation, and a short time later made an initial public offering of stock, netting close to $3.4 million. Shares then began to trade on the NASDAQ. With an infusion of capital, Lomak expanded its small operations, staffing an exploration and geology department, and creating a construction and oil field service equipment division.

In 1981, the company’s first full year since its reorganization, Lomak generated almost $9 million in revenues and posted net income of $185,000. In that year the company also entered into a joint venture with a subsidiary of The Gillette Company, forming CLK Associates. Over the next two years Gillette would buy more Lomak stock, eventually owning as much as a 10.3 percent stake. For Gillette the association with Lomak was an attempt to secure a source for petroleum products used in the plastic resins required for many of its consumer products. Revenues topped $17 million in both 1982 and 1983, and Lomak was profitable enough to think about expanding its activities beyond the Appalachian Basin to become a multi-regional company. It established subsidiaries in Michigan and Texas, and although net income fell off somewhat, sales exceeded $21.5 million.

Acquisition of Lomak by Snyder Oil: 1988

An extended period of depressed oil and gas prices had a crippling effect on Lomak starting in 1985. Although the company pumped more product and revenues grew to $22.3 million, it lost $2.4 million. A cutback in drilling activity the next year saw revenues decline to $11.1 million, and income, to a further loss of $1.35 million. Conditions for Lomak grew even worse in 1987 when it was forced to discontinue its activities in Michigan and Texas. For the year, the company generated just $7.5 million in sales while losing another $6 million. Lacking the minimal level of required stockholder equity, Lomak was delisted by the NASDAQ in 1987. By early 1988 it was clear that the company would no longer be able to meet debt payments. As a result, Lomak was acquired by Snyder Oil Company.

Snyder Oil was founded by Harvard graduate John Snyder. Two of his executives would be assigned the task of restructuring Lomak. Michaels stepped down as chairman and CEO in favor of Thomas J. Edelman, who had served as Snyder’s vice-chairman after earlier merging his company with Snyder Oil. Michaels now assumed the roles of president and COO. Also joining Lomak as a vice-president and director was John H. Pinkerton, who would eventually rise to the top of the company and continue to serve as president of Range Resources. Pinkerton earned an M.B.A. at the University of Texas, then worked with Arthur Andersen for four years before joining Snyder Oil in 1981.

As part of the Lomak restructuring, all of the directors resigned, except for Michaels, whose stake in the company was reduced from 25 percent to around 3 percent. Edelman and Pinkerton now called the shots. In 1992, headquarters was moved to Fort Worth, Texas, where Snyder Oil was located. Because the company held properties that were widely dispersed, it had been saddled with exorbitant overhead costs, as much as 30 to 50 percent of cash flow. The new management team dissolved joint ventures and sold off all assets and operations outside of Ohio. Overhead costs, as a result, dropped to less than 15 percent. After a secondary offering of stock, Lomak began to once again acquire oil and gas properties, following a strategy employed by Snyder Oil in Texas in which it looked to concentrate assets to create efficient operations and gain economies of scale. Although revenues fell to less than $5 million in 1989, the company posted a profit, $103,000, for the first time in five years. Lomak’s financial picture had improved enough that in early 1990 it was able to request relisting on the NASDAQ.

As Snyder Oil began to divest its stake in Lomak, Pinkerton gained more executive control. He became president in 1990 and CEO in 1992. From the restructuring of the company in 1988 through early 1995, Lomak spent more than $131 million in completing 59 acquisitions. Some of the most important included Dallas Oil & Minerals at the cost of $1.8 million, adding 337 wells in the midcontinent region; Appalachian Exploration for $1.87 million in cash and $222,000 in stock; a 50 percent interest in Michigan Oil (the balance owned by Snyder Oil) at a cost of more than $10 million, thus gaining a stake in 134 wells located in Michigan, Nebraska, Mississippi, and Alabama; Latoka Inc. with 54 oil and gas wells located in south Texas and Louisiana; Mark Resources Corp. for $28.4 million; and Red Eagle Resources Corp. at a cost of $38.3 million.

Pinkerton’s plan was to acquire enough properties to generate the kind of cash flow necessary to support Lomak’s entry into exploration of its undeveloped properties. Indeed, revenues and profits rose steadily in the early 1990s, growing from $9.6 million in 1991 to $13.3 million in 1992, $19.1 million in 1993, $34.3 million in 1994, and $50.8 million in 1995. Net income also improved more than tenfold during this period, from $400,000 in 1991 to $4.4 million in 1995. Furthermore, in 1995 Snyder Oil sold its remaining interest in Lomak, leaving Edelman and Pinkerton as the only remnant of the company that had rescued Lomak several years earlier.

In 1996 Lomak, with $300 million in assets, moved from the NASDAQ to the New York Stock Exchange. It also initiated an exploration and development program and soon made a significant financial commitment to it, spending $58.8 million in 1997 and $81.5 million in 1998. In the meantime, Lomak continued its aggressive expansion. Early in 1997 it more than doubled its asset base by acquiring American Cometra Inc. in a $381 million deal that included $355 million in cash and $26 million in stock. Lomak gained 515 onshore producing wells in Texas and offshore wells in the Gulf of Mexico, as well as 265 miles of pipeline, a natural-gas processing plant, and properties with excellent exploration possibilities spread across 150,000 acres. The company announced immediate plans to spend $140 million over the next five years to explore its new portfolio of properties. Lomak’s asset base now totaled $670 million, a far cry from the $25 million it was worth less than ten years earlier. Later in 1997 Lomak increased its Pennsylvania holdings, buying properties from Cabot Oil & Gas Corp. for $92.5 million.

Early in 1998 Lomak sold off some Texas properties while acquiring others, but this activity was only a prelude to an announcement in May that it would merge with Domain Energy Corp. to create a company with assets of $1.1 billion, making it the 15th largest publicly traded independent oil and gas exploration company in the country. Domain was very much focused on exploration, with approximately two-thirds of its properties located in the Gulf of Mexico and one-third in the Gulf Coast, as well as a 50 percent stake in a subsidiary operating in Argentina. The deal was accomplished through a stock exchange, with Lomak serving as the acquiring corporation. Once the deal was completed in August 1998, Lomak changed its name to Range Resources Corporation, although it continued to operate out of its Fort Worth offices.

Company Perspectives:

The Company seeks to build value primarily through lower-risk development drilling and acquisitions while, to a lesser degree, pursuing higher-risk exploitation and exploration projects on its extensive inventory of underdeveloped acreage.

Formation of Range Resources in 1998

Domain was only two years old, the result of a management buyout from Tenneco Inc. Its CEO, Michael V. Ronca, had worked for Tenneco for more than 20 years. After graduating from college he had gone to work for an insurance company, Philadelphia Life, which Tenneco purchased in the late 1970s. He held a number of positions at Tenneco, then in 1992 founded an exploration and production and petroleum finance business unit called Tenneco Ventures Corp. After buying the energy business from the parent company, he took it public in 1997 as Domain Energy. Ronca and Pinkerton became acquainted while attending a baseball game, then in February 1998 met again at a Credit Suisse First Boston conference held in Vail, Colorado. They began to discuss the possibility of merging their two companies, finally coming to the conclusion that the businesses complemented one another, and in a matter of weeks the two parties worked out the details of the merger.

Pinkerton became the chief executive officer of Range Resources and Ronca became the chief operating officer, while Edelman stayed on as chairman of the corporation. Although both men were optimistic about the company’s prospects, investors did not share their enthusiasm. In less than four months the price for Range Resources stock fell by more than 50 percent, to a level less than two times its cash flow for the year. According to analysts Range Resources had brought together two divergent groups of investors and failed to satisfy either. Lomak had been viewed as a low-risk energy company and Domain as a high-risk venture, with the result that Range Resources became a medium-risk company that appealed to neither group of investors. Pinkerton and Ronca had a long-term view of the company, but many investors took a short-term view and sold their interests.

More troubling were depressed energy prices that forced the company to lay off 54 of its 420 employees. In 1998 Range Resources lost $175.2 million while generating $146.6 million in revenues, the result of poor commodity prices and failure of the company’s recent purchases to perform up to expectations. Much of 1999 was devoted to retrenching efforts. Noncore assets were sold off to reduce debt and the company cut back on its drilling budget for the year. Range Resources formed Great Lakes Energy Partners, a joint venture with FirstEnergy Corp. in the Appalachian Basin that allowed Range to contribute property that included $200 million in debt, thus allowing the company to reduce its bank debt considerably, to just $160 million. An exchange of common stock for fixed income securities helped to reduce debt further, to approximately $90 million. By the end of the third quarter energy prices rebounded and Range Resources finally began to return to profitability. For the full year the company increased revenues to $161.2 million, and the net loss was reduced to $7.8 million.

With strong energy prices in 2000 Range Resources took great strides in improving its financial health. It continued to pay down debt while increasing its capital expenditures and boosting production. As a result, the company’s stock also began to show improvement. For the year, Range Resources generated $187.7 million in revenues and posted a profit of $38 million. The company was able to more than double its capital budget for 2001 to $100 million. Its fortunes continued to improve during the course of 2001, prompting management to believe that Range Resources had turned the corner in its restructuring efforts and that it could look forward to long-term growth and profitability.

Principal Subsidiaries

Range Production Company; Range Holdco, Inc.; Range Gas Company; Domain Energy International Corporation; Energy Assets Operating Company.

Principal Competitors

Anadarko Petroleum Corporation; Cabot Oil & Gas; BP p.I.e.; Chevron Corporation; Exxon Mobil Corporation; Phillips Petroleum Company; Pioneer Natural Resources.

Key Dates:

1976:: Lomak Petroleum is incorporated in Ohio.
1980:: The company is reincorporated in Delaware and goes public.
1987:: Stock is delisted from NASDAQ.
1988:: Snyder Oil Company gains control.
1995:: Snyder Oil divests its Lomak holdings.
1996:: The company is listed on the New York Stock Exchange.
1998:: Lomak merges with Domain Energy to create Range Resources Corporation.