山脈資源 (RRC) 2004 Q4 法說會逐字稿

Welcome to the Range Resources conference call. This call is being recorded. All lines have been placed on mute to prevent any background noise. Statements contained in this conference call that are not historical fact are forward- looking statements. Such statements are subject risk and uncertainty that could cause actual results to differ materially compared to the forward-looking statement. After the speakers' remarks, there will be a question and answer period. At this time, I would like to turn the call over to Mr. Rodney Waller, Senior Vice President of Range Resources. Please go ahead.

Thank you operator. Good afternoon and welcome. Range has achieved record results in almost every metrics you wish to measure for 2004. We're happy to discuss our results with you today. On the call with me are John Pinkerton, President and CEO, Charlie Blackburn our non-executive chairman, Jeff Ventura, Executive Vice President and COO, and Roger Manny, Senior Vice President and CFO.

Before turning the call over to John, I would like to cover some administrative items. First, we did file our 10K this morning with the SEC. It is now available on our home page . You can access through the Edgar System with the SEC. In addition, we have posted on our website supplemental tables, which will guide you through the calculation of the non-GAAP measures of cash flow, EBIT acts, finding and development costs, and reserve replacement percentages as discussed today.

Tables are also posted on the website that will give you detailed information as to our current hedged position by quarter for '05 and '06. Yesterday we announced the declaration of our first quarter 2005 cash dividend on our common stock of $0.02 per share, which is payable at the end of the quarter on March 31. Range will also be presenting at several conferences in the next few weeks.

Next week we will be presenting at the Raymond James 26th Annual Institutional Investor Conference in Orlando on Tuesday, March 8. The JP Morgan small-cap conference in Chicago on Wednesday, March 9. Range will also be participating on Friday, March 11, in Boston at the Harris Nesbitt North American Natural Gas Conference. We have also accepted an invitation to speak at the Howard Weil conference in New Orleans on April 6. Materials being presented at each of these conferences will be available on our website just prior to the conference. Now let me turn it over to John. John?

Thanks Rodney. Overall, as Rodney mentioned we're very pleased with the results for the year. Especially for the fourth quarter. I'll just hit (ph) on some of the high points. On a year-over-year basis, production rose 30% in the fourth quarter, and 23% for the entire year. At our drilling program continued to generate very attractive returns on capital expended, and we continue to be very pleased with the drilling results. On the acquisition front, the integration of both the Great Lakes and Pine Mountain acquisitions has been completed with no negative surprises.

The Great Lakes acquisition completes an initiative we began several years ago to simplify our balance sheet. That is now complete. The Pine Mountain transaction significantly increases our exposures to coalbed methane, which was one of our objectives. On the cost side of our business, progress continued to be made in terms of reducing unit costs over the last three years, our (indiscernible) unit costs have been reduced by over 30 percent. Very simply, we believe our primary objective is to grow production reserves at reasonable cost. In 2004, we were very successful in achieving this objective.

For the year, reserves grew 72% -- in costs of $1.20 per Mcfe. We believe the growth as well as the finding development costs per Mcfe will be near the top of the peer group. Lastly, we believe the key to long-term consistent growth and profitability is a large crop multi-year transparent inventory of drilling projects balanced between low, medium, and higher risk.

Through the combination of the projects generated by our technical teams, and those included in the acquisitions, we expand our inventory to nearly 5300 projects at year-end. For 2005, we plan to drill 787 wells, which represents roughly 15% of that inventory. With that, I will turn the call over to Roger to review our financial results.

Thank you John. The fourth quarter of 2004 was another terrific quarter for our company, with record levels of revenue and cash flow, driven by a 30% increase in production and a 22% increase in realized prices. As has been the case for 2004, the continued strong operating performance of the company is evident in our financial performance. Comparing the fourth quarter, this year to last year, revenues were up 42 million or 70%, while total expenses, including non-cash charges were up 26.7 million or 51%.

The fourth quarter of 2004 includes, 100% of the Appalachian division results compared to only the 50% interest that we owned in the division during the fourth quarter of '03. There was less than one month of results in the fourth quarter of 2004, from the Pine Mountain acquisition, as it just closed in mid December. Fourth quarter unit costs were encouraging. Especially considering the rising cost that we are experiencing. Operating expense was $0.67 per Mcfe for the fourth quarter, and $0.65 for Mcfe for the year, representing only a $0.02 or 3% year-over-year increase.

We view holding (ph) LOE to only a 3% unit cost increase as a real achievement, giving the rising service costs. We did sell 26 million of high operating expense non- strategic properties in 2004, and most of the sales occurred in the fourth quarter, which will further assist us in our efforts to control operating costs going forward. Production and ad-valorem (ph) taxes were $0.31 in Mcfe in the fourth quarter, and $0.29 for the full year, due to higher OM (ph) gas prices.

Interest expense per Mcfe, was $0.39 per Mcfe for the quarter ending 2004. This is due to higher debt from acquisitions and higher interest rates. Interest expense per Mcfe for the year was $0.32 Mcfe, comparing favorably to the $0.38 per Mcfe in 2003. As noted in last week's news release, our DD&A rate was $1.62 per Mcfe in the fourth quarter of 2004, primarily due to a 3.6 million impairment taken on a small offshore field that received hurricane damage.

The full year 2004 DD&A rate was $1.44 per Mcfe. That is $0.05 lower than the $1.49 rate from last year. This decline in DD&A rate mirrors reductions in our finding and development costs. However, the DD&A rate includes not only the rate associated with the completion of our own gas reserves, but also depreciation on our non oil and gas assets, and amortization of asset retirement obligations and other costs. For all of 2004, the depletion rate on just oil and gas reserves averaged $1.22 per Mcfe.

The difference between the all end (ph) DD&A rate of $1.44, this $1.22 number is attributable $0.09 to the impairment of proved an unproved properties, $0.07 cents to pipelines, and other fixed assets, and $0.06 cents to the accretion of asset retirement obligations. Now looking forward to 2005, our total DD&A rate is currently expected to average between $1.45 and $1.48 per Mcfe. Now the 2005 rate is higher than 2004 rate due to the fourth quarter sale of non strategic property, our Pine Mountain acquisition, and higher levels of transportation and field assets in Appalachia.

Non-cash deferred compensation plan expense increased significantly in the fourth quarter of 2004, due to our higher stock price. Now listeners will recall ,that we are required to mark the market of the range stock held in the deferred comp plan, through the income statement. The expense does not represent incremental costs, but a market adjustment to the value of the shares that already reside in the plan to fund future plan benefits. But the larger increase in range of stock price, the larger this non-cash expense becomes.

For the fourth quarter of 2004, this non-cash expense totaled $5.7 million. For the full year, it was 19.2 million. So, while we're never pleased with a large expense (indiscernible) with P&L, even a non-cash expense, this one at least has a favorable source, our increased stock price. G&A expense for the quarter, was $0.30 cents per Mcfe, compared to $0.29 for all of '04, and $0.31 for '03. In my view, the lower G&A unit cost in 2004 was encouraging as we, like all other public companies, incurred considerable Sarbanes Oxley expense.

Speaking of Sarbanes Oxley, I am pleased to report that our Section 404 audited report of internal controls contains no material weaknesses. This favorable outcome is consistent with our culture of strong financial controls and transparent financial disclosures. It is further evidenced by our low level of unproved properties, and our policy of not capitalizing any G&A or interest expense. Net income to common shareholders was 11.6 million for the fourth quarter, and 37.1 million for the full year compared to 3.9 million and 34.6 million for the fourth quarter and full year of 2003.

Earnings comparisons to last year are skewed by the 2003 18.5 million gain on debt retirement, and the 4.5 million gain from accounting change, and this year from the 2.2 million in additional preferred stock dividends paid in the fourth quarter with the conversion of the 5.9% preferred stock to common. Now, the exciting news here is that net income tripled from the fourth quarter of last year to this year. Adjusting for the special items, net income more than doubled from 2003 to 2004.

Our diluted earnings per share for the quarter was $0.16 cents versus $0.07 per share in the fourth quarter of last year. Excluding special items, our earnings per share for '04 would have been $0.72 versus $0.42 cents per share last year. This was a 71% increase. The quarter to quarter increase would be 54%. The outlook for 2005 is equally exciting as our production will continue to grow, our lower price swaps continue to roll off, and preferred dividends are no longer required. The results should be a continuation of the quarter to quarter improvement in our financial performance with record levels of revenue, cash flow, and earnings.

Cash flow for the fourth quarter of 2004 was 66.3 million, 62% higher than last year. For all of 2004, cash flow totaled 208.6 million, 45% higher than 2003. EBITDAX for the fourth quarter of '04 was 73.3 million, that's 63% higher than the fourth quarter of last year, and EBITDAX for all of 2004, was 230.7 million a 41% increase year over year. As Rodney mentioned, I would encourage listeners to visit the Range Resources website for detailed reconciliations of these non-GAAP measures.

Turning to the balance sheet, as was the story in the third quarter 2004, the fourth quarter brought positive changes. In December, 103 million in net equity proceeds from the issuance of 5,750,000 shares of common was used to partially fund the Pine Mountain acquisition. Now the combination of acquisition related equity issuances, and the increase in retained earnings, has more than doubled Ranges book equity during 2004. I feel this equity increase is especially significant as it confirms our disciplined approach to financing the growth of the company.

Although we increased our proved (ph) reserves by 72% in 2004, our leverage as measured by the debt to capitalization ratio actually declined from 57% at year-end '03 to 52% at year-end '04. As we have practiced throughout 2004, cash flow in excess of capital spending will be continue to be channeled toward that reduction, and we look forward to reducing our debt to cap ratio below 50% in probably the first half of '05. Another significant balance sheet improvement was the completion of our simplification program.

During 2004 retired both our 6% convertible diventures, as well as our 5.9% convertible preferred stock. We now have a simple capital structure of only senior bank debt, subordinated notes, and common equity. Not only is our capital structure easier to explain and comprehend, but for all of us common shareholders, there is no longer any overhang from convertible securities.

Also during the fourth quarter, we increased the senior bank credit facility (indiscernible) from 500 million to 575 million. In our year end 2004 outstanding balance drawn under the facility was 424 million. That leaves us 151 million in undrawn availability, plus we have an additional 17.4 million in a like kind exchange account readily available for us if we need it. Before summarizing, I would like to touch briefly on 2 other areas. IPF and hedging. The IPF portfolio declined during 2003 from sales and applications of investment proceeds to the receivable balances.

At year-end 2004, there were only 3 investments remaining in the portfolio, with a combined net balance of $4.5 million, and we've educed the administrative costs. We now have no full-time personnel assigned to IPF, and we anticipate that he portfolio will continue to benefit from high oil prices, and that it will wind down as proceeds are received and applied to the balance. Given the insignificance of these assets, we have chosen to carry IPF as other assets on our financial statement this year, rather than continue to portray them on separate line items.

At this time, there are 3 significant issues surrounding our hedging program I'd like to report. Number one, our mid 2003 shift away from swaps in favor of collars has progressed to the point where more of our future production is now hedged with upside sharing collars than swaps. 42% of our anticipated '05 production is hedged with collars, as opposed to 28% with swaps. For 2006, 26% are hedged with collars and only 2% with swaps. The second item is, that as our lower price hedges, particular the gas swaps that are in the low $4 range, continue to roll off, this results in built-in price realization increases as market prices remain well above these old hedge prices.

Lastly, with completion of our 2004 acquisitions, a larger percentage of our future production will be coming from the Appalachian Basin, where gas production commands a premium (indiscernible) which will further improve our price realizations. As Rodney mentioned, the Range website contains up to date, detailed hedging information of all our current positions. It is anticipated that in 2005, we will periodically add to our '06 hedged position, as market positions and our internal forecast prompt us to do so. Also, while no acquisitions are planned or budgeted, should an attractive opportunity become available, we would most likely hedge a portion of the acquired production.

In summary, 2004 ended in fine fashion with record levels of production, revenue, cash flow, and EBITDAX for the fourth quarter and the year. We demonstrated disciplined growth in structuring and financing our acquisitions, while resisting upward pressure in our unit costs. We enter 2005 with a clean balance sheet, plenty of excellent line of sight drilling opportunities, and the prospect of improving margins as our lower price hedges continue to roll off. With that I will turn it back to John.

Thanks Roger. Why don't we now turn the call over to Jeff and let him review the exportation and development activities, as well as the status for our capital program.

Thanks John. I will begin by reviewing production. For the fourth quarter, production averaged to wonder 214.8 million cubic feet equivalent per day, a 30% increase over the fourth quarter of 2003, and a 2% increase over the third quarter of 2004. This represents the highest quarterly production rate in the company's history. The 214.8 million per day, is comprised of 103.7 million per day or 48% from the Southwest division, 76.9 million per day or 36% from the Appalachian division, and 34.2 or 16% from the Gulf Coast division. This increase was due to the impact of the Great Lakes acquisition, and the success of our drilling program.

Approximately 70% of the company's production was natural gas. Our fourth quarter performance was higher than our plan and guidance and our operating teams did a terrific job achieving these results. For the full year, 2004 production was 23% higher than in 2003. For 2005, we're forecasting a further 20% increase over 2004. 2004 was a stellar year in terms of reserve growth. We replaced 821% of our production at a cost of find and development of $1.20 per Mcfe. This resulted in 72% reserve growth for the year. In looks like these results are among the best in the business.

Through the drill bit only we replaced 217% of our production, at a cost of $1.19 per Mcfe. I should note that this is the first time in company history that drilling replaced more than two times production. This is quite an accomplishment for any company. For the last three years, we've averaged 477% production replacement at a cost of $1.15 per Mcfe, an averaged 43% reserve growth. On the cost side, our direct operating expenses on a unit of production basis, came in at $0.67 for the quarter. For all of 2004, they were relatively flat versus 2003, $0.65 cents versus $0.63 per Mcfe.

Given the high oil and gas price environment that we're experiencing, I am very pleased that we have been able to control our costs since the increased activity has placed upper pressure on oil fields goods and services. Part of this is simply being very cost-conscious, and part is divesting of marginal high cost properties. We look at this every month and make it a priority. Our capital spending for 2004 was approximately $186 million, excluding acquisitions. The 186 million is comprised of 98 million or 53% from the Southwest division, 55 million or 30% from Appalachian division, and 33 million or 17% from the Gulf Coast division.

For all 2005, we are projecting capital spending to be 254 million. This reflects the additional 50% ownership that we have in the Appalachian division as a result of the Great Lakes acquisition and the Pine Mountain acquisition, as well as capital to facilitate additional development drilling. Turing to drilling results, in 2004, Range drilled 476 gross for 397 net wells and achieved a 95% success ratio. Currently, 403 of the successful wells have been placed on production with the remaining 49 wells waiting on pipeline and are anticipated to go on production shortly.

As these wells are put in production and we drill new wells, I expect to see continued production growth in the first quarter, and the rest of 2005 from our drilling program. For 2005, we will budget 787 gross or 586 net wells and 75 gross or 53 net re-completions. Currently, we have 13 rigs running. I will review some of the highlights of each of our divisions. I will start with the Appalachian division, where our recent acquisition of Pine Mountain is proceeding smoothly and efficiently. The acquisition currently appears to be better than what we projected our economics.

Current plans for drilling in (indiscernible) include 150 coal bed methane wells, and 20 tight gas sand (ph) wells for a total of 170 wells, versus the 110 wells that we assumed in our acquisition economics. We're also studying in fill drilling in the tight gas portion of the field. These tight gas sand wells are currently spaced on 120 acres per well and we are reviewing in filling on 60 acre spacing. No value was assigned to this upside potential, which looks very promising. We're also pursuing (indiscernible) the field and are looking at the potential of horizontal drilling. Hayside (ph) which is contiguous to the Nora (ph) field also looks encouraging.

We gave Hayside little value in the acquisition economics because it was essentially untested. We just finished drilling our first 5 coal bed methane wells on the property, and shortly we will begin completion of the wells. The gas content of the coals is similar to what we see in Nora field. We operate Hayside field and have a 70% working interest and 73.75% net revenue interest in 30,000 acres there. The reason our net revenue interest is higher than our working interest is that we own 100% of the minerals. We believe that it is possible that the Hayside field and Nora field will ultimately grow together into one very large field.

Another possible upside to the Pine Mountain acquisition is the acreage is the Widen (ph) acreage in West Virginia. This area contains the 79,000 acre block, in which Range has a 100% working interest and 100% revenue interest in 74,000 of those acres. Since we acquired the property, we've been approached by 2 successful, knowledgeable coal bed methane companies who want (indiscernible) in the acreage. We assigned little value to the property, but it may have significant upside. Prior to making any deal for this acreage, we will do a detailed study of the property.

Our coal bed methane project in Pennsylvania is also moving forward. After drilling a 5 well program on our Unity acreage last fall, we felt encouraged enough to commence an additional 7 well program this year. We've just recently finished a second well of the new program. Our drilling program for the deep Trenton Black River includes 5 wells for 2005. We plan on spudding our first well by July 1, and we will drill 3 deep in Bradford County in northern Pennsylvania and 2 wells in Washington County in southwest Pennsylvania.

Both areas contain (indiscernible) that look very similar to the (indiscernible) that are being successful drilled by Talisman. During our last conference call, I mentioned that we wanted to increase our working interest in this play. I'm happy that I can now say we have done so. In November, our working interest ranged from 12% to 69%, and we now currently ranges from 30% to 81%. We're also on target to drill shallow wells in our tight gas sand plays in Ohio and Pennsylvania. This compares to 270 wells that we drilled in 2004. Ramping up the drilling, increases the net present value profit as well as speed the conversion of non producing reserves to producing and the unproven reserves to proven.

Steve Gross and his team in Appalachia, have been planning for this ramp up for six months and are on target for achieving this goal. The next project in the division I want to talk about is refracts (ph). During our last conference call, I mentioned we had significant potential from refracting. We had completed 4 refracts, currently we have done 18 refracts and have 9 of them on line.

The pre-fract average of the 9 wells was 6 Mcfe per day pre-fract and post-fract they are averaging 33 Mcfe per day. The average cost to refract is $60,000, and the payout on this wells is about $5.50 per Mcfe (indiscernible). Prior to refracting additional wells we plan to get all 18 wells on line and watch our production performance. If the refract program is successful, we will continue on with the project. Finally, our highest risk opportunity in the basin is our shell (ph) test in Pennsylvania.

We have a 100% working interest in a 38,000 acre position in a shell play. We fract our first well in this play in October, and just recently finished long-term testing of the well. Our results are sufficiently encouraging that we will test 3 more wells in the second and third quarters of this year. We are also leasing more acreage in this play. In the Southwest division, range is continuing its in fill drilling and refract program in the West (indiscernible) and Moscow unit in Andrews County, Texas.

As a result of this work, the field is now producing 16.1 million cubic feet equivalent per day versus 4.5 million per day this time last year. This actually is the all-time high production rate for this field, which was discovered in the late 1930's. The technical team and field personnel working in that area have done a superb job. At our Congard (ph) field in West Texas, we plan on starting a 20 well drilling program in April. We also are continuing to test the re-completion potential of the field, which may have considerable upside.

The technical teams are continuing to do a good job of increasing production on our Val Verde area in West Texas and our Laura La Belle field in East Texas through additional drilling, work overs, and re-completions. Our Woodbind (ph) discovery in East Texas came on line at year end, and is currently producing 12.6 million cubic feet equivalent per day gross or 2.4 million net. In the areas of discovery, Range has nearly 15,000 acres of lease holdings, with working interest (indiscernible) between 25% and 100%.

Also in the area, Range has a 25% interest in approximately 30,000 acres of lease hold options. In addition to the zone that was tested, there is significant behind pipe potential in the (indiscernible). In the Texas panhandle, 5 wells have been successfully drilled and currently 3 of them have been placed on production at a combined rate of 3.1 million cubic feet per day gross or 1.9 net. The remaining 2 wells should be on line shortly. In the Watonga Chikasha (ph) trend of western Oklahoma, 4 wells have been successfully drilled there, and 3 of them are on line producing at rate of 3.4 million cubic feet equivalent per day gross or 0.7 net.

The fourth well (indiscernible) and tested at a rate of 2 million per day gross or 1.3 net. It will be on line shortly. Traditionally, in northern Oklahoma, 2 wells have been successfully drilled finding Wilcox pay and the third is being completed in the Viola (ph) in Mississippi. Moving on to the Gulf Coast, during our last conference call, we announced this Smith No. 2 well, an offset to our onshore (indiscernible) discovery in Orange County Texas, found significant pay and would be on line in mid November. The well did come on line then, and currently both wells are producing at a combined rate of 17.8 million cubic feet equivalent day per gross or 8.9 net.

Both wells have significant pay behind pipe. Offshore both the East Cameron No. 10 and 11 wells were successful, encountering 36 feet and 29 feet of pay respectively. Range has a 25% working interest in these new field operated properties. Both of these wells will be on line by the end of April. Our recently re-completion of the (indiscernible) 28 No.40 has added 5 million per day gross or 1 million per day net. In the 2 wells drilled and placed on line late last year (indiscernible) 119 are currently producing 39.2 million per day gross or 3.4 net.

In summary, 2004 was truly a terrific year. We replaced 821% of the company's production at a now (ph) end cost of $1.20 per Mcfe. Our reserves grew 72% and at year-end were 1.18 Tcfe. Our 2004 production was 23% higher than in 2003, and we are projecting 20% growth for 2005. We also divested of about 26 million of high-cost, low rate marginal properties , which will allow us to focus on our core assets and help our unit costs. We clearly achieved our mission, which is to grow or production at good finding and development costs. I believe that with these metrics, we will be in the top of our peer group.

Although 2004 was a terrific year for Range, I am excited and focused on the future. Range now has a proved reserve base of 1.18 Tcfe of a solid long life properties. Our reserve life is now 14.9 years. In addition to that, we have discussed our drilling inventory, which contains 5,260 wells that equate to 1.38 Tcfe of net unrisked reserves of which, about 70% or 1 Tcfe is unbooked. This is a large, multi year inventory of projects that mostly consist of low-risk, highly repeatable development projects, complemented with several higher risk, higher potential exportation projects.

In addition to that, Range also has about 1 Tcfe of net unrisk reserve potential in the emerging plays. These are primarily technically driven resource plays involving coal bed methane, shell gas, and refract and re-completions opportunities within our existing core areas. So in total, we have slightly more than 1 Tcfe of proved reserves, 1 Tcfe of net unrisk, unbooked reserves on our drilling inventory, and one Tcfe of net unrisk reserves in emerging plays. Importantly, we are not depending on any 1 or 2 projects for growth. Having a large high quality drilling inventory is a real key in my mind.

One of the key strengths of Range is it's portfolio. The other is it's people. This is led by technical team that now consists of a total of 80 geologists, geophysicists, engineers, and land men. This is a talented group who is responsible for all of the projects that I have mentioned, and is continuing to generate exciting new opportunities. The company today is significantly different than it was a year ago, with our 72% reserve growth, we now have over 1 Tcfe of proved reserve. Importantly, the reserves that we've added are long life, low decline rate, very predictable reserves.

We now have a larger, more stable proved reserve base. We also have more upside with 2 Tcfe of net unrisked reserve potential. To help put our portfolio in perspective, I will list a few of the key projects. We have roughly 3000 drilling locations in shallow type gas sand plays in the Appalachian Basin, of which 1000 are not booked. We have roughly 1400 coal bed methane locations in Nora field, of which 740 are not yet booked. There are numerous identified Trenton Black River (indiscernible) on our acreage that are undrilled.

There are 70 additional locations to drill on the West (indiscernible) Moscow unit as well as significant additional refract and water flood potential, which will continue to add to production there. There are over 50 additional locations to drill at Congard field as well as a recompletions play that has a potential to significantly increase production and reserves. There is over 100 Bcfe of on net unrisk reserve potential on our Texas panhandle and Oklahoma acreage, and stack pace (ph) and at moderate depths in the Morrow (ph) Spring and Hunten (ph) formations, as well as some (indiscernible).

There are potentially 900 locations on our shell play in Pennsylvania. Importantly, we will continue to add the acreage in this play, which will increase the upside potential of the project. In addition to the shell play, we of a 100% working interest in 13,500 acres in a shell play in Texas, that has net and unrisk reserve potential of about 170 Bcfe. We will continue to look at that acreage in this play also. The unproven coal bed methane reserves at Hayside, could be greater than 100 Bcfe net. The unproven coal bed methane reserve potential of our Pennsylvania acreage could be greater the 100 Bcfe net.

The Northford (ph) play with the initial well to be drilled this year, has a potential to be about 100 Bcfe net and the Woodbind play with (indiscernible) has similar kind of upside. There are numerous other projects as well. However, hopefully this gives you a feel for Ranges portfolio, and why I am excited about our future. At the end of the day, it is a fairly simple business. The key is to grow production and reserves with good finding and life (ph) costs. The difficult part is to do it consistently over time. However, with our technical staff, and our drilling inventory, we are well- positioned to do just that. Back to you John.

Thanks Jeff. Now we will spend some time talking about the year we are in , 2005. Looking at the year, obviously given the update from Jeff, we see continued strong operating performance. We're looking for first quarter production to come in at about 124 to 126 million a day. This represents a 27% increase year-over-year. In also increases -- incorporates a number of issues I think are important to point out. First, as Jeff and Roger mentioned we did sell some properties towards the end of last year. That reduced our production 3 or 4 million a day.

But again, that has been reflected in that guidance number for the first quarter. In particular - I'm sorry (indiscernible) is 224 million to 226 million a day versus what I said, I apologize. Back on track, the other thing - is we have had some properties down the first part of this year in particularly West Delta 30, which has been down essentially the entire quarter for a third-party pipeline failure. As we have noted before, throughout our regions, we've seen increase downtime from third-party pipelines and compressor problems. We see this as an increasing trend in the industry as the infrastructures, obviously very old and tired.

But given all of that, still we factored all that into our guidance and are still looking for that 224 to 226 a day in the first quarter. We fill pretty confident with that. How that reflects in the revenues, the good news is, as Roger mentioned, with the hedges rolling off we're looking at first quarter realizations to be in the $5.10 to $5.15 per Mcfe range. This is roughly $0.20 higher then the $4.92 per Mcfe that we realized in the fourth quarter of '04. So, when you take all that obviously - the first quarter of '05 looks pretty good. We anticipate, again, record production, EBIDTA, cash flow, and earnings for the quarter.

When we view the first quarter of '05, we think it is pretty important in comparison in that it will bring together in a very tangible fashion all that we have accomplished over the last 12 months. And as I mentioned, it all starts with production, which I said we're looking at 27% increase. Second, is to realize prices. With their rolling off of the lower price swaps, we're estimating that on a year-over- year basis versus fourth quarter first quarter that the price realizations will be more than $1 higher in the first quarter of '05 versus the first quarter of '04. So that's obviously pretty dramatic.

When you do the math on that, you'll get total revenues of something slightly over $100 million. For the first quarter '05, it will be the first time in our history that we have broken $100 million revenue level for a quarter. While the revenues will increase dramatically, expenses are anticipated to increase only modestly on a per unit basis. So, as a result, again the bottom line earnings will jump pretty greatly and cash flow and EBITDA, again will reach record highs. Looking beyond the first quarter, we anticipate production to increase each quarter on a sequential basis throughout the year.

We stand by our previous announced 20% production growth target for '05. In fact, I am more confident today than when we announced that target several months ago. Based on current futures prices we anticipate per-share earnings in cash flow will increase sequentially for each quarter of the year. For the year, we expect cash flow from operations to increase by over 50% over the prior year and earnings per share to nearly double over '04. As you can see, 2005 shapes up to be a fairly remarkable year in terms of financial results.

While we have accomplished plenty in '04, that benefited '05, I believe the majority of our results will benefit 2006 and beyond. As you heard from Jeff, we now have projects in the pipeline that have over 2 Tcfe of unrisked reserve potential, we're roughly twice are existing proved reserves. Thinking ahead a little bit, over long term we believe the shareholder value is determined by the degree of success that a company like us has in generating attractive returns which (ph) is a wise investment of capital. The efforts and quality of our technical team are critical to this process.

As Jeff mentioned at Range, we have built a very high quality team, their generating very attractive opportunities in each one of our areas of operation. We enter 2005 with the largest drilling inventory in our history. Which, again as Jeff mentioned, is a combination of lower risk and medium risk exportation projects and a large diversified group of higher-risk, higher potential exploration projects. We believe that -- in some ways we are pretty unique in that, for a company of our size we have a very large transparent drilling inventory. And an even larger 2.5 million gross lease hold position.

We worked tenaciously at lowering our cost structure and building our drilling inventory, to drive our long-term growth and profitability. We fully understand that the key is continued execution of our strategy. Day to day, our teams of professionals are focused on continuing to execute our strategy and delivering attractive returns. We continue to maintain a great vigilance and discipline. For example, we are keenly aware of the recent increase in oil field service costs, and Jeff and I continue to approve all material capital expenditure request, we will only spend capital if we project, based on up to date costs, that attractive returns will be generated.

As shown in the methodical building of our drilling inventory over many years, we will not sacrifice the long term for non repeatable short term gain. We are in a superb position to add materially to our shareholder value over the next several years, and keenly focused on delivering that to our shareholders. Lastly, I would like to publicly congratulate and thank our talented team of over 500 employees, for a terrific job that they have done in 2004.

We set the bar very high in 2005, but I am confident that with our continuing dedication, passion, and talent, they will meet or exceed our goals for the year. Charlie, wont I give you a few minutes to let you give a few comments.

Charlie Blackburn. Thank you very much John. On behalf of the board of directors, I would like to issue my congratulations to the management team, the technical team, and everyone else at Range for what has turned out to be an exceptional year in 2004. The technical team in particular are doing an outstanding job. They are generating exciting new projects at an accelerating pace.

One of the things that I do here is to get involved in reviewing and analyzing potential plays. I am very pleased to see that the technical teams are trying new approaches to create value. We have expanded our low risk shallow drilling while looking re-completions, refracts in field (indiscernible) drilling, to maximize production of existing areas. At the same time, we're branching out into unconventional reserves and testing several deep plays. Little bit riskier but very high potential.

This portfolio of projects positions us very well for future growth. As John said, we will remain focused on our strategy. The board is pleased with the $1.20 per Mcfe finding cost in 2004, as well as the outstanding growth in production reserves. We're delighted with the record year, and excited about our prospects in 2005 and beyond. Back to you John.

Thanks Charlie. Before turn the call over to question and answers, a little late breaking news that we have done in the last hour or so is, that we have announced that we plan to offer in a 144A (ph) (indiscernible) 150 million of senior subordinated notes. The proceeds will be used to reduce the balance outstanding (ph) on our bank facility and extend the maturities of our debt to better fit our 15 year long reserve life. With that operator let's go ahead and open up the call for some questions.

q-and-a

Thank you Mr. Pinkerton.

[Operator instructions].

Your first question comes from Ron Mills with Johnson Rice.

Good afternoon. How are you doing? Question for Jeff on a couple of the future project areas, in particular Hayside and Northwood (ph). Can you walk through in more detail what some of the activities for this year are, especially in Hayside and at what point do you think you'll get to the first Norhtwood project?

In Hayside field, like I said to put Hayside in perspective, it is immediately adjacent to and slightly - or north of our Nora Field, which is one of the premier coal bed methane fields in the basin. Literally right next door to Nora is where Console (ph) operates that has been of great coal bed methane area, this really is adjacent to them. We have of course (indiscernible) holds and things through there that looked very favorable, showed similar type - gas content. So we've just recently drilled 5 coal bed methane wells there.

We are going to fract those and complete them and put them on line and watch them. To the extent that works, we will continue to drill all bad methane wells in Hayside. And ultimately, like I said it has the potential that Hayside and Nora - that whole area literally is just one giant coal bed methane gas field. In terms of Northwood I would expect-- that project has been delayed a couple of times, we've talked about it on the call.

The project is still there and we're leasing acreage. I would expect, at this point that we will drill a well probably some time in the summer. It is a very exciting project. They are big wells, potential 50 Bcfe a well. And they are very repeatable, we know what the look like. We have identified a number of prospects off of (indiscernible). So, that is a very exciting-- it is - Hayside is very low risk but has a nice upside. The Northwood is higher risk, but higher potential.

If we spud that well in the summertime, those are deep wells, there will be below 20,000 feet, you're probably looking at results late third quarter, fourth quarter type of thing.

Okay. In terms of the Appalachian ramp up especially on the shallow tight gas ends, is a lot of that related to the acquisition of the GLEP properties and the acceleration potential that those held?

It is related to it in that we now control 100% of it. Of course we have a big inventory of very low risk projects that have great economics down -- up in that area, down to $4 flat gas. They have fantastic rates of return at strip pricing we're looking at now. As a recognition is just that we have a large inventory, and by ramping up our drilling, it increases the net present value of the project.

In just - again it speeds conversion of non proved reserves to proved. It helps prove unproven things, because our proven reserves they are literally just one well off that. So, if you go to a second location or third, there's a lot of potential. So, that's what it's related to we just see a lot of opportunity to increase net present value and therefore our ramping up our shallow program. It's a great time to be drilling oil and gas wells.

Okay and then two real quick ones for Roger. On the price differential especially as we move into the first quarter, are you seeing any widening in price differentials in terms of the corporate average for your first quarter to get to about 5.10 or 5.15 on an equivalency basis? It is narrowing--

When we look at that Ron, it is narrowing a little bit. But again remember, we have more Appalachian gas here than we have Pine Mountain which is more near Nynex pricing. But again, most of our gas is marketed on bid week, so you need to keep your sensitivity as to how you measure Nynex as to how you measure your differentials.

Okay. And then on the notes Roger, the 150 million, you're just going to reduce the borrowings under your revolver. Any expected change in the borrowing base related to this, or will you just end up then with an incremental 150 availability?

Our bank meeting is in just a couple of weeks Ron. So, we will know more about the borrowing base then, but it is our intention to just reduce the balance outstanding with the 10 year notes.

Alright. I will let someone else jump on. Thanks

Your next question comes from Phillips Johnston of JP Morgan.

Hi gentlemen, a question for Jeff. Can you provide us an update on the 5 wells that were planned for the shallow portion of the Trenton Black River during Q4, including I guess an offset to the Harper (ph) No. 1 well?

We plan those wells. We ended up drilling 3 of those wells. We ended up not offsetting the Harper yet, that has been delayed. It is an exciting project, however, we do not operate it, and that well is still not online yet. So, before we do additional drilling there we are still waiting to get l on-line, which ultimately will happen again, we are not in control of the operator.

But once we get that well on line we will look at offsetting it. The wells we did drill were exploratory tells the where Queenston (ph) wells, where we did make producing wells. We took the wells slightly deeper to test at Trenton. All 3 of those wells - exploratory tell there is 1,00 feet or so they were all 3 of them dry wholes.

Okay. So are you more or less encouraged about drilling the deeper proportion of the Trenton Black River then I guess you were prior to the fourth quarter?

In terms of drilling the deeper portion of the Trenton Black River I would say I am more encouraged, as we continue to work that area, as well as watch industry results and talk to some of the industry partners, I think we really have excellent looking (indiscernible) and features to test. What we have done is we've built our technical team up. That is in place. We have the acreage. We of the seismic data. We're still working on our strategy in terms of the partners that we will have drilling them. But either way, we will spud a well on or before July 1, so I'm real excited about the deep Trenton Black River.

Great thanks.

Your next question comes from Rehan Rashid from Friedman Billings Ramsey.

Jeff if you could just talk about the Appalachian shallow program? John mentioned in the beginning also that maybe the infrastructure is getting a little bit tired. Can we continue to drill at the pace that we are drilling to accelerate (indiscernible) not at capacity constraints or line pressure issues as we kind of grow? And then I might have another follow-up or two.

In terms of the shallow portion of the Appalachian Basin, I do not see that as an issue at all. What John was really referring to, and in general, he was talking about in general, the industry equipment is somewhat aged. The problems that we have experienced actually that he mentioned were offshore, on the shelf. But in particularly again, the Appalachian Basin -- there's a lot pipeline capacity through there. I do not see any issue in terms of the ramp up that we have. It is again, a great place to be selling gas. You're right in the center of a bunch of the US demand.

On the Hayside, did you mention that wells have been-- I missed a portion of the beginning of the call, did you more mentioned wells have been drilled?

Correct, the wells have been drilled, they have not completed yet we will start that shortly

Got you, and your seeing positive results?

Yes.

Okay. Anything on the Congard side any update there, also the Appalachian refract. I might have missed that as well. Did you mention that --?

Yes. I mentioned the Appalachian refracts on the call. You might give me a call later on since I already talked about that, if you want to talk in more detail or you can listen to that. In terms of Conger, we're having good success drilling the traditional Cisco (ph) Canyon things. We have had good success with some Cisco re-completions and will continue to do those. And then we have the unconventional farther up (indiscernible) interval, that we're in the process of testing now.

Okay. Thank you.

We are nearing the end of today's conference. We will go to Jack Aydin of McDonald Investments for the next question.

Jeff, you mentioned something in shell play in Texas. 15,500 acres, 170 potential. Could you give us more detail where this play is? I know Texas. Could you mention the county?

Jack, I would love to do that, but we're building a great position and will continue to build it. It is competitive. So, at this point, that is all we're going to say.

Let me say it this way. Is it Core 1, Core 2, Core 3, Tier1, Tier 2, Tier 3, in that pipe (ph) area?

I am sticking to my answer.

Okay. A question for John. What kind of pricing assumptions John are you using in making the statement about 50% cash flow increase and about doubling earnings?

Jack, we're taking our existing hedge position that we've got, and we're using the current futures strip.

Current future strip, you're talking about $50 oil and 650 gas pipe?

No, I mean whatever the - and this was a couple of weeks ago. I do not have it quite in front of me right now. It is whatever those month-to-month futures prices were out there. I am not trying to project the future any more than the futures prices are.

Okay. Jeff, could you elaborate a little bit more on the Conger field recompletions on the (indiscernible)? Could you give us more detail, if you add more little more acreage - little more color?

I hate to say this, that is another one I can't add a lot of color to. It is a very competitive situation. I probably at this point can't say any more than I had. Obviously at some point, we will fully disclose all of that. But I can't do that right now.

Well, two out of three, I am not doing that well. Better quit. Thanks.

Thank you. This concludes today's question and answer session. I will turn the call back over to Mr. Pinkerton.

Thank you all for joining us today. Obviously pleased from our perspective, we think 2004 was a watershed year for the company. We are excited about 2005. That being said we certainly have not lost any of our enthusiasm for what we're doing here. We're very excited. We've got a great team of people working very hard to continue to build value.

It certainly has been an interesting time in the business. We feel like we're well positioned. If some of you all have questions and were not able to get through the queue there, feel free to call Rodney or Roger or myself or Jeff. We will be happy to answer any questions that the accountants and lawyers will allow us to answer. So with that we will sign off. Thank you very much.

Thank you for your participation in today's conference. You may disconnect at this time.

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