When Range Resources began drilling a vertical test well between the towns of Westland and Hickory, Pennsylvania, in 2004, the Texas exploration-and-production (E&P) company had no idea what it would discover. The sedimentary layers of gray shale rock lying more than a mile beneath the Appalachian Basin had been thought to hold a modest 1.9 trillion cubic feet of natural gas. But when Range’s Renz well No.1 instantly tapped a large methane reserve, the company’s technical team realized that they were onto something big. As geological experts descended on the rocky area known as the Marcellus Formation, the public soon learned that the shale might contain as much as 516 trillion cubic feet of natural gas, making it one of the largest natural gas reserves in the world. The Great Shale Gas Rush had begun.

  

Since the drilling of the Renz well in 2004, leaders in industry and government have called the Marcellus discovery “a game changer” and a potential savior of the U.S. economy. Range Resources, with its 1.4 million acres of drilling territory in the region, is one of only a handful of exploration companies positioned to turn that hope into reality. In 2008, Range’s technical teams extracted 30 million cubic feet of natural gas per day from the Marcellus Formation. By 2012, production had jumped to 400 million cubic feet of gas per day. Looking ahead, Range executives predict that crews could capture as much as 1 billion cubic feet of natural gas daily.

  

“Our technical team is one of the best in the industry,” says Jeffrey Ventura, Range’s president and CEO. “They not only discovered the Marcellus and ramped production up, but we were the first company to drill a horizontal Devonian shale well in Pennsylvania, which is the shale right on top of the Marcellus, and we were the first to drill a horizontal well in the Utica, which is below the Marcellus. So we have a great technical team and a great acreage position.”

  

According to Range’s top executives, the discovery of the Marcellus has led the company to adopt a tenyear growth outlook based on high production and a low-cost operating structure. “Our low-cost structure gives us a huge competitive advantage,” says Roger Manny, Range’s chief financial officer (CFO). “In the commodity business, all of us are selling our products for about the same price. So being able to do it at a lower cost really gives you a big edge.” Manny adds that controlling costs improves Range’s cash flow and gives the company discretionary cash to explore and drill more wells.

  

Range’s financial managers have various tools to monitor performance and control costs. “Our balance sheet is the first element of that strategy,” says Manny. “It’s a simple balance sheet that consists of senior bank debt, ten-year subordinated notes, and common equity. So having a simple strong balance sheet is the core to our financial strategy.” While financial statements help measure the company’s financial health over time, a strong cash position helps the company battle turbulence in the economy. Because of the topsy-turvy nature of the global recession, Range manages its massive land acreage portfolio in a way that provides added liquidity—the ability to sell assets in a pinch to pay off debts. “Another feature of our financial strategy is having liquidity to absorb shocks in the market,” Manny states.

    

At Range, keeping a lid on expenses is not just the job of company accountants—it’s everyone’s job. “Maintaining a low-cost structure is not so much what we do but who we are,” Manny says. “It’s part of our culture.” Range encourages employees to make costcutting a part of their regular duties, and it rewards them with equity in the company. “Equity ownership creates a unique bond among employees and also between the employees and shareholders,” says Manny, “because, after all, they themselves are shareholders.” Range’s CFO believes that companies perform best when everyone has skin in the game. “I think the fact that everybody owns equity in the company makes them more willing to be vigilant about costs. And that’s a big contributor to the long-term cost performance of the company,” Manny states.

    

Range’s money management philosophy has paid off. Over the past ten years, Range Resources has been one of the top three performing E&P companies on the New York Stock Exchange (NYSE). In addition, the company has delivered nearly a decade of sequential annual growth with some of the lowest finding and development costs in the industry—all this during a global recession that has torpedoed top corporations. “Clearly, 2009 was one of the most difficult periods in time in terms of running a business in America,” says Range executive chairman John Pinkerton, reflecting on the economic downturn. “A number of companies simply didn’t make it, a lot of companies had to totally restructure their business, and other companies issued a lot of equity and diluted their shareholders. The good news is that none of that happened at Range; we ended that year with less debt than we started, and we didn’t have to issue any equity to prop up our balance sheet.”

  

“Most importantly,” Pinkerton adds, “we’ve had terrific operating results. We drove up double-digit growth in production reserves. So the company came through a very challenging financial market in stronger shape than we began, and I think that really is going to set the tone for the next decade.” 

    

Ultimately, effective financial control frees Range to do what it does best: develop America’s clean energy future. Says Pinkerton: “I think the most exciting thing when you look at Range going forward is some of the assets we have, in particular the Marcellus. It could be one of the largest gas fields in the United States and maybe the world. To be involved with that is fabulous, and it’s going to help drive our growth.”

    

Short-term thinking can be disastrous for a business. What indications are there to show that financial managers at Range Resources take a long-term approach to financial performance and control?