Moody's Lowers Outlook on Range Resources (RRC) to Stable; Notes Weaker Commodity Prices on Change

Moody's Investors Service changed Range Resources Corporation's (NYSE: RRC)(Range) rating outlook to stable from positive. At the same time, Moody's affirmed Range's Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default Rating, Ba1 rated senior unsecured notes rating, Ba2 rated senior subordinated notes ratings, and SGL-2 Speculative Grade Liquidity Rating.

"The stabilization of Range's outlook reflects the impact of weaker commodity prices on Range's cash flow-based financial leverage metrics relative to its Baa3 peers, which diminishes the company's ability to cross-over to investment grade through 2016," commented Gretchen French, Moody's Vice President -- Senior Credit Officer. "Range's Ba1 rating affirmation reflects the company's continued strong operating and capital efficiency, growing production profile, and favorable asset-based leverage metrics."

Range Resources Corporation Debt List:

Corporate Family Rating, Affirmed at Ba1

Probability of Default Rating, Affirmed at of Ba1-PD

...Senior Unsecured Bond/Debentures, Affirmed at Ba1 (LGD 3)

...Senior Subordinated Regular Bond/Debentures, Affirmed at Ba2 (LGD5)

Speculative Grade Liquidity Rating, Affirmed at SGL-2

Outlook, Changed to Stable from Positive

RATINGS RATIONALE

Range's Ba1 CFR reflects its leading position in the Marcellus Shale region, its investment grade size and scale, and its history of strong operational efficiency. The company has a deep, low full-cycle cost, drilling inventory in the Marcellus, providing good visibility to continued production growth. In addition, the company benefits from long-lived reserves and a high level of operational control of its reserves (96% of its proved reserves operated), providing significant control over the pace of future development. Given the weak commodity price environment, Range's returns are expected to be lower in 2015 and 2016 than its prior historically strong results. However, we still expect reasonable returns thanks to the benefit of Range's continued focus on reducing its cost structure and its ability to efficiently manage its drilling program, as well as a degree of cash flow protection provided by its hedging program.

Range's Ba1 CFR is constrained by its high and increasing cash flow-based financial leverage metrics and its portfolio concentration in the Marcellus region, which also entails a high degree of exposure to the successful build-out of midstream infrastructure by third parties. Primarily because of its exposure to weak natural gas and natural gas liquids prices, Range has weak unleveraged cash margins and lower retained cash flow (RCF)/debt compared to its Baa3 E&P peers. Helping to offset weak cash flow-based financial leverage metrics are Range's strong asset-based financial leverage metrics, with debt/PD reserves at $3.94/Boe at June 30, 2015, and the PV-10 value of the company's reserves/debt, which we expect to remain above 2.0x through 2016.

Range has weaker RCF/debt compared to its higher rated, key Baa3 E&P peers. We project Range's RCF/Debt to weaken to around 18-20% through 2016, with its key Baa3 E&P peers, Southwestern Energy Company (Baa3 stable) and EQT Corporation (Baa3 stable), expected to see RCF/Debt levels maintained closer to 30-35% during this time period.

We believe that management will continue to take certain actions to both protect its balance sheet and enable it to continue to grow production at competitive investment returns. Range could pursue asset sales to improve its leverage profile through 2016. However, asset sales face valuation and timing risks. While asset sale proceeds could materially reduce the company's debt levels, we do not see sufficient levels of improvement in the company's RCF/Debt metrics to support an investment-grade rating through 2016 given weak commodity prices.

Range's SGL-2 Speculative Liquidity Rating reflects the company's good liquidity profile through 2016. As of June 30, 2015, Range had $364 million in drawings under its revolving credit facility and $109 million in letters of credit outstanding under its $2 billion secured revolving credit facility. While Range continues to be reliant on its revolver for funding growth capital spending in excess of cash flow from operations (about $270 million in negative cash flow projected in 2015 and $100-$300 million in 2016) and letters of credit requirements, we project revolver availability of around at least $1 billion through 2016. In addition, the revolver is supported by a $3 billion borrowing base (which is not subject to redetermination until Spring 2016). The credit facility matures in October 2019 and has a minimum EBITDAX/Interest covenant of 2.5x; a minimum PV-9 to total debt of 1.5x; and a minimum current ratio covenant of 1.0x; we expect Range to be in compliance with these covenants through 2016. Essentially all of Range's assets are pledged as security for the revolving credit facility, but significant over-collateralization provides the opportunity for alternate liquidity should it be necessary. Range can elect to cease the collateral requirement of the revolver upon an upgrade to investment-grade.

The Ba1 rating on Range's unsecured notes reflect the overall probability of default of Range, to which Moody's assigns a PDR of Ba1-PD. The unsecured notes benefit from subsidiary guarantees, but are subordinated to Range's $2 billion secured revolving credit facility. However, the unsecured notes are rated at the same level as the CFR given their priority claim over Range's senior subordinated notes, which are rated one-notch below the CFR at Ba2.

The stable outlook is based on the expectation of continuing production and reserve growth at reasonable returns and conservative financial management.

To consider an upgrade, Range would need to be on track to improve its ratio of RCF/debt towards 30% and reduce the ratio of debt/average daily production to less than $15,000/Boe. An upgrade would also be contingent on the company maintaining its leveraged full cycle ratio of at least 1.5x, as well as the further build out of the Marcellus infrastructure by third parties to accommodate Range's growth plans.

Range's ratings could be downgraded if the company's capital productivity stalls, which would be signaled by an increase in leverage. If the ratio of debt/average daily production exceeds $25,000/Boe or if RCF/debt is sustained below 20%, a negative action becomes increasingly likely.

The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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