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Rating Action:

Moody's rates Range's new notes Ba3 and affirms existing ratings

29 Jul 2010

Approximately $1.5 billion of debt securities affected

New York, July 29, 2010 -- Moody's Investors Service rated Range Resources, Inc.'s (Range) new senior subordinated notes Ba3 (LGD 5,72%). Moody's also affirmed Range's Ba2 Corporate Family Rating (CFR), the Ba2 Probability of Default Rating (PDR), and the Ba3, LGD 5 (the point estimate is changing to 72%) rating on the existing senior subordinated notes. The outlook is stable.

Proceeds from the new notes will be used to fund the redemption of the company's $200 million notes due 2013. Those notes are within the call period, and Range has announced that it is calling them. The balance of the proceeds will be used to repay borrowings under the company's senior secured credit facility, which at 6/30/10, had $475 million outstanding.

"The affirmation of the Ba2 rating reflects Range's solid track record of reserves and production growth while maintaining a competitive cost structure that compares favorably to its peers," said Ken Austin, Moody's Vice President. "However, this is offset by an aggressive spending program that could result in near-term leverage increasing from current levels unless Range raises additional, non-debt capital."

With proved developed reserves of 287.8 mmboe (1.7 tcfe) as of 12/31/09 and production averaging 78.6 mboe/day (471.8 mmcfe/day) for the quarter ended 6/30/10. This scale compares favorably to many similarly rated peers and is reflective of Range's strong track record of consistently building up its reserves and production. Furthermore, this growth has been achieved while maintaining a leverage profile (to date) and a cost structure that compares favorably with similarly rated E&P companies.

However, Range is embarking on an aggressive capital spending program as it looks to ramp up its Marcellus drilling and development. The company recently announced that it is expanding its capital spending by $215 million for the balance of 2010, bringing its total spending to $1.2 billion for the entire year. Prior to this increased spending budget, Moody's estimated that Range was already expected to outspend cashflow, and this expanded budget will widen the funding gap and push leverage higher, especially if natural gas prices remain weak through the end of the year.

Range's debt to proven developed (PD) reserves was $6.71/boe ($1.11/mcfe) based on debt at 6/30/10 and 12/31/09 reported reserves. While the company's debt to PD reserves is in-line with the peer group, it has increased since the beginning of the year and could move higher. In addition, Range's debt/average daily production at 6/30/10 was approximately $24,281/boe ($4,046/mcfe), which is higher than average for the Ba2 rated peer group. Given the pace of spending, this metric could increase by year-end even if the company meets its production targets.

The stable outlook can accommodate the increase in leverage given the company's still growing scale and its track record of keeping leverage in-line with the rating through equity issuance and asset sales. Although the company has indicated that it could pursue asset sales, at this point, the timing and amount are uncertain given the volatility of the equity and asset markets. This potential for higher leverage is currently restraining any positive rating momentum.

To consider a positive outlook, Range would need to raise sufficient equity or execute asset sales to cover its cash shortfall for 2010. A positive outlook would also be considered if Moody's has clear visibility that Range's 2011 capital spending budget will not result in any additional debt and leverage. A positive outlook would also anticipate Range continuing to grow its reserves and production while keeping its debt/PD metric around $6.00/boe ($1.00/mcfe) and debt to average daily production trends towards $20,000/boe ($3,333/mcfe).

A negative outlook would be considered if the company's capital productivity stalls, which would be signaled by production and reserves growth not being achieved as expected, or if the company's leverage or cost structure starts to rise significantly.

The last rating action for Range was on May 11, 2009, when Moody's assigned a Ba2 rating to its notes offering and affirmed all existing ratings.

The principal methodology used in rating Range Resources, Inc. was Moody's Global Exploration and Production (E&P) rating methodology, published in December, 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Range Resources, Inc. is headquartered in Fort Worth Texas.

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Kenneth Austin
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Range's new notes Ba3 and affirms existing ratings
No Related Data.
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