Ranger Oil Corporation (NASDAQ:ROCC) is an independent oil and gas company focused on the onshore development and production of crude oil, natural gas liquids (NGLs), and natural gas. The company's operations are primarily concentrated in the Eagle Ford Shale region of South Texas, where it has established a strong foothold and continues to drive growth through strategic acquisitions and efficient development.
In the face of a volatile energy market, Ranger Oil has demonstrated its ability to navigate the challenges and capitalize on the opportunities presented. The company's financial performance has been robust, with annual net income reaching $464,518,000, annual revenue of $1,141,603,000, annual operating cash flow of $675,430,000, and annual free cash flow of $56,412,000.
Business Overview
Ranger Oil's core operations revolve around the development and production of crude oil, NGLs, and natural gas from its extensive acreage position in the Eagle Ford Shale. The company's strategy is focused on optimizing its existing assets, pursuing strategic acquisitions, and leveraging its operational expertise to drive sustainable growth.
The company's asset base is characterized by a high-quality, liquids-rich resource that provides a solid foundation for its development activities. Ranger Oil's acreage position in the Eagle Ford Shale totals approximately 186,900 gross (163,000 net) acres, with approximately 95% of this acreage held by production.
Ranger Oil's production mix is weighted towards crude oil, which accounted for 73% of total sales volume in the first quarter of 2023. The company's NGL and natural gas production contribute 14% and 13% of total sales volume, respectively, providing a diversified revenue stream.
Operational Highlights
During the first quarter of 2023, Ranger Oil continued to execute its development plan, completing 17 gross (15.4 net) wells and turning them to sales. This contributed to a 29% increase in total sales volume compared to the same period in 2022, reaching 4,386 thousand barrels of oil equivalent (Mboe) or 48,730 barrels of oil equivalent per day (boe/d).
The company's focus on operational efficiency and cost management has been a key driver of its financial performance. Lease operating expenses (LOE) increased on a per-unit basis to $6.84 per boe in the first quarter of 2023, up from $5.33 per boe in the same period of 2022, primarily due to higher repairs and maintenance costs, equipment rental costs, water disposal costs, and field labor costs, as well as the impact of overall cost inflation.
Gathering, processing, and transportation (GPT) expenses increased on an absolute basis, reaching $10.2 million in the first quarter of 2023, compared to $9.0 million in the same period of 2022. However, on a per-unit basis, GPT expenses decreased to $2.32 per boe from $2.66 per boe in the same period of 2022. This was driven by higher crude oil and natural gas volumes following the company's recent acquisitions.
Production and ad valorem taxes increased on an absolute basis to $16.0 million in the first quarter of 2023, up from $13.1 million in the same period of 2022, primarily due to higher estimated ad valorem tax assessments resulting from the company's property acquisitions and development activities, as well as the impact of higher prior year oil prices used in the valuation of Ranger Oil's producing properties.
Financials
Ranger Oil's financial performance has been strong, with the company reporting annual net income of $464,518,000, annual revenue of $1,141,603,000, annual operating cash flow of $675,430,000, and annual free cash flow of $56,412,000.
In the first quarter of 2023, the company's total revenues increased by 1% to $258,148,000, compared to $256,455,000 in the same period of 2022. This was driven by a 29% increase in total sales volume, which was partially offset by a 22% decrease in the company's aggregate realized price of $58.70 per boe.
Crude oil revenues, which accounted for 92% of total product revenues in the first quarter of 2023, increased by 4% to $236,932,000, compared to $226,732,000 in the same period of 2022. This was due to a 31% increase in crude oil sales volume, partially offset by a 20% decrease in the realized crude oil price to $74.25 per barrel.
NGL revenues decreased by 27% to $12,154,000 in the first quarter of 2023, compared to $16,740,000 in the same period of 2022, primarily due to a 40% decrease in the realized NGL price to $20.08 per barrel, partially offset by a 21% increase in NGL sales volume.
Natural gas revenues decreased by 31% to $8,345,000 in the first quarter of 2023, compared to $12,127,000 in the same period of 2022, driven by a 45% decrease in the realized natural gas price to $2.36 per Mcf, partially offset by a 26% increase in natural gas sales volume.
Liquidity
Ranger Oil maintains a strong liquidity position, with $12.4 million in cash and cash equivalents and $259.0 million in available borrowing capacity under its $1.0 billion revolving credit facility as of March 31, 2023. The company's total debt, net of unamortized discounts and issuance costs, stood at $629.5 million as of the same date.
The company's capital expenditures during the first quarter of 2023 totaled $148.9 million, with the majority, $146.5 million, directed towards drilling and completion activities. Ranger Oil's strong cash flow generation and liquidity position provide the necessary resources to fund its ongoing development program and pursue strategic growth opportunities.
Commodity Price Risk Management
Ranger Oil actively manages its exposure to commodity price volatility through the use of derivative instruments, including swaps, put options, and call options. As of March 31, 2023, the company had hedged a portion of its estimated future crude oil, NGL, and natural gas production through the first half of 2024.
The company's commodity derivative portfolio was in a net liability position of $9.6 million as of March 31, 2023, with the contracts associated with this position held with seven investment-grade financial institution counterparties. Ranger Oil's disciplined approach to hedging has helped to mitigate the impact of commodity price fluctuations on its financial performance.
Pending Baytex Merger
On February 27, 2023, Ranger Oil announced that it had entered into an agreement to merge with Baytex Energy Corp. (NYSE:BTE). Under the terms of the agreement, each share of Ranger Oil's Class A common stock will be converted into the right to receive 7.49 Baytex common shares and $13.31 in cash.
The transaction, which was unanimously approved by the boards of directors of both companies, is expected to close in the late second quarter or early third quarter of 2023, subject to the satisfaction of customary closing conditions, including shareholder and regulatory approvals.
Shareholder Returns
Ranger Oil is committed to delivering value to its shareholders through a balanced approach to capital allocation. In the first quarter of 2023, the company paid a cash dividend of $0.075 per share of Class A common stock, totaling $3.1 million in the aggregate, including the corresponding distribution to common unitholders.
Additionally, the company has an active share repurchase program in place, under which it has authorization to repurchase up to $140 million of its outstanding Class A common stock through June 30, 2023. During the first quarter of 2023, Ranger Oil repurchased 121,857 shares at a total cost of $4.8 million and an average purchase price of $39.52 per share.
Risks and Challenges
Ranger Oil operates in a dynamic and challenging industry, with exposure to various risks, including commodity price volatility, regulatory changes, and operational challenges. The company's financial performance is heavily influenced by fluctuations in crude oil, NGL, and natural gas prices, which have been volatile in recent years due to factors such as the Russia-Ukraine war, OPEC+ production decisions, and global economic conditions.
Outlook
Despite these risks, Ranger Oil's management team has demonstrated its ability to navigate the industry's complexities and deliver strong financial and operational results. The company's focus on cost control, efficient operations, and strategic acquisitions has positioned it well to capitalize on opportunities in the current market environment.
Looking ahead, Ranger Oil's pending merger with Baytex Energy Corp. represents a significant milestone for the company and its shareholders. The combined entity is expected to benefit from enhanced scale, diversification, and financial strength, positioning it for continued success in the evolving energy landscape.
Conclusion
Ranger Oil Corporation has proven its resilience and adaptability in the face of a volatile energy market. The company's strong operational performance, disciplined financial management, and strategic initiatives have enabled it to deliver robust financial results, including annual net income of $464,518,000, annual revenue of $1,141,603,000, annual operating cash flow of $675,430,000, and annual free cash flow of $56,412,000.
As Ranger Oil navigates the challenges and opportunities ahead, its focus on optimizing its asset base, pursuing strategic growth, and delivering value to shareholders positions it well for continued success. The pending merger with Baytex Energy Corp. further strengthens the company's outlook, creating a combined entity with enhanced scale, diversification, and financial strength to capitalize on the evolving energy landscape.