UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

     

FORM 10-Q

     

(Mark one)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-12209

RANGE RESOURCES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

     

Delaware		34-1312571
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)
100 Throckmorton Street, Suite 1200
Fort Worth, Texas		76102
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code
(817) 870-2601

     Former Name, Former Address and Former Fiscal Year, if changed since last report: Not applicable

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).

Yes þ      No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o (Do not check if smaller reporting company)		Smaller Reporting Company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

160,029,859 Common Shares were outstanding on July 22, 2010.

 

 

RANGE RESOURCES CORPORATION
FORM 10-Q
Quarter Ended June 30, 2010

     Unless the context otherwise indicates, all references in this report to “Range,” “we,” “us,” or “our” are to Range Resources Corporation and its wholly-owned subsidiaries and its ownership interests in equity method investees.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets (Unaudited)			3
Consolidated Statements of Operations (Unaudited)			4
Consolidated Statements of Cash Flows (Unaudited)			5
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)			6
Selected Notes to Consolidated Financial Statements (Unaudited)			7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			30
ITEM 4. Controls and Procedures			31
PART II — OTHER INFORMATION
ITEM 1A. Risk Factors			33
ITEM 6. Exhibits			42
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

RANGE RESOURCES CORPORATION

		June 30, 2010				December 31, 2009
		(Unaudited)
Assets
Current assets:
Cash and equivalents		$	166,858			$	767
Accounts receivable, less allowance for doubtful accounts of $1,409 and $2,176			101,299				123,622
Deferred tax asset			—				8,054
Unrealized derivative gain			83,864				21,545
Inventory and other			21,391				21,292
Total current assets			373,412				175,280
Unrealized derivative gain			26,032				4,107
Equity method investments			150,748				146,809
Oil and gas properties, successful efforts method			6,522,267				6,308,707
Accumulated depletion and depreciation			(1,466,754	)			(1,409,888	)
			5,055,513				4,898,819
Transportation and field assets			135,727				161,034
Accumulated depreciation and amortization			(54,920	)			(69,199	)
			80,807				91,835
Other assets			76,333				79,031
Total assets		$	5,762,845			$	5,395,881
Liabilities
Current liabilities:
Accounts payable		$	254,405			$	214,548
Asset retirement obligations			2,446				2,446
Accrued liabilities			60,274				58,585
Deferred tax liability			7,952				—
Accrued interest			23,763				24,037
Unrealized derivative loss			2,781				14,488
Total current liabilities			351,621				314,104
Bank debt			475,000				324,000
Subordinated notes			1,384,562				1,383,833
Deferred tax liability			839,245				776,965
Unrealized derivative loss			—				271
Deferred compensation liability			113,247				135,541
Asset retirement obligations and other liabilities			72,331				82,578
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $1 par, 10,000,000 shares authorized, none issued and outstanding			—				—
Common stock, $0.01 par, 475,000,000 shares authorized, 160,007,428 issued at June 30, 2010 and 158,336,264 issued at December 31, 2009			1,600				1,583
Common stock held in treasury, 210,972 shares at June 30, 2010 and 217,327 shares at December 31, 2009			(7,741	)			(7,964	)
Additional paid-in capital			1,809,966				1,772,020
Retained earnings			680,392				606,529
Accumulated other comprehensive income			42,622				6,421
Total stockholders’ equity			2,526,839				2,378,589
Total liabilities and stockholders’ equity		$	5,762,845			$	5,395,881

The accompanying notes are an integral part of these consolidated financial statements.

RANGE RESOURCES CORPORATION

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Revenues
Oil and gas sales		$	206,784			$	192,523			$	443,544			$	395,712
Transportation and gathering			674				2,152				2,767				1,647
Derivative fair value income (loss)			6,546				(9,856	)			48,879				65,691
Gain (loss) on the sale of assets			10,176				(29	)			79,044				7
Other			637				(4,358	)			(938	)			(6,188	)
Total revenues			224,817				180,432				573,296				456,869
Costs and expenses
Direct operating			29,775				34,828				60,815				70,369
Production and ad valorem taxes			8,090				7,564				16,160				15,821
Exploration			14,473				11,368				29,108				24,707
Abandonment and impairment of unproved properties			13,497				40,954				25,904				60,526
General and administrative			35,836				29,103				64,006				54,013
Termination costs			—				—				7,938				—
Deferred compensation plan			(14,135	)			756				(19,847	)			13,190
Interest expense			30,779				29,555				61,066				56,184
Depletion, depreciation and amortization			90,997				88,713				179,623				173,033
Impairment of proved properties			—				—				6,505				—
Total costs and expenses			209,312				242,841				431,278				467,843
Income (loss) from operations			15,505				(62,409	)			142,018				(10,974	)
Income tax expense (benefit)
Current			—				619				—				619
Deferred			6,453				(23,145	)			55,387				(4,318	)
Total income tax expense (benefit)			6,453				(22,526	)			55,387				(3,699	)
Net income (loss)		$	9,052			$	(39,883	)		$	86,631			$	(7,275	)
Income (loss) per common share:
Basic		$	0.06			$	(0.26	)		$	0.54			$	(0.05	)
Diluted		$	0.06			$	(0.26	)		$	0.54			$	(0.05	)
Dividends per common share		$	0.04			$	0.04			$	0.08			$	0.08
Weighted average common shares outstanding:
Basic			156,820				154,389				156,608				154,056
Diluted			158,472				154,389				158,601				154,056

The accompanying notes are an integral part of these consolidated financial statements.

RANGE RESOURCES CORPORATION

		Six Months Ended June 30,
		2010				2009
Operating activities:
Net income (loss)		$	86,631			$	(7,275	)
Adjustments to reconcile net cash provided from operating activities:
Loss from equity method investments			985				5,526
Deferred income tax expense (benefit)			55,387				(4,318	)
Depletion, depreciation, amortization and proved property impairment			186,129				173,033
Exploration dry hole costs			—				131
Mark-to-market (gain) loss on oil and gas derivatives not designated as hedges			(42,169	)			30,070
Abandonment and impairment of unproved properties			25,904				60,526
Unrealized derivative (gain) loss			(11	)			97
Deferred and stock-based compensation			5,866				32,794
Amortization of deferred financing costs and other			2,367				2,333
(Gain) loss on sale of assets and other			(79,044	)			1,943
Changes in working capital:
Accounts receivable			15,392				46,453
Inventory and other			338				(2,154	)
Accounts payable			13,859				(72,008	)
Accrued liabilities and other			(11,197	)			1,283
Net cash provided from operating activities			260,437				268,434
Investing activities:
Additions to oil and gas properties			(349,406	)			(275,999	)
Additions to field service assets			(10,270	)			(14,849	)
Acreage and proved property purchases			(187,192	)			(107,321	)
Additions to equity method investment			—				(6,400	)
Other assets			(45	)			9,079
Proceeds from disposal of assets			318,632				182,122
Purchase of marketable securities held by the deferred compensation plan			(14,553	)			(3,605	)
Proceeds from the sales of marketable securities held by the deferred compensation plan			13,296				1,981
Net cash used in investing activities			(229,538	)			(214,992	)
Financing activities:
Borrowing on credit facilities			371,000				451,000
Repayment on credit facilities			(220,000	)			(741,000	)
Dividends paid			(12,768	)			(12,541	)
Issuance of common stock			5,785				6,002
Issuance of subordinated notes			—				285,201
Debt issuance costs			—				(6,161	)
Change in cash overdrafts			(13,385	)			(38,212	)
Proceeds from the sales of common stock held by the deferred compensation plan			4,560				3,683
Purchases of common stock held by the deferred compensation plan			—				(15	)
Net cash provided from (used in) financing activities			135,192				(52,043	)
Increase in cash and equivalents			166,091				1,399
Cash and equivalents at beginning of period			767				753
Cash and equivalents at end of period		$	166,858			$	2,152

The accompanying notes are an integral part of these consolidated financial statements.

RANGE RESOURCES CORPORATION

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Net income (loss)		$	9,052			$	(39,883	)		$	86,631			$	(7,275	)
Other comprehensive (loss) income:
Realized (gain) loss on hedge derivative contract settlements reclassified into earnings from other comprehensive income, net of taxes			(11,371	)			(33,488	)			(12,124	)			(65,822	)
Change in unrealized deferred hedging gains (losses), net of taxes			(4,257	)			(3,000	)			48,325				43,183
Total comprehensive income (loss)		$	(6,576	)		$	(76,371	)		$	122,832			$	(29,914	)

The accompanying notes are an integral part of these consolidated financial statements.

RANGE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) ORGANIZATION AND NATURE OF BUSINESS

     We are engaged in the exploration, development and acquisition of oil and gas properties primarily in the Southwestern and the Appalachian regions of the United States. We seek to increase our reserves and production primarily through drilling and complementary acquisitions. Range Resources Corporation is a Delaware corporation with our common stock listed and traded on the New York Stock Exchange under the symbol “RRC.”

(2) BASIS OF PRESENTATION

     These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Range Resources 2009 Annual Report on Form 10-K filed on February 24, 2010. These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for fair presentation of the results for the periods presented. All adjustments are of a normal recurring nature unless disclosed otherwise. These consolidated financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission (“SEC”) and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.

(3) NEW ACCOUNTING STANDARDS

Recently Adopted

     Accounting standards for variable interest entities were amended by the Financial Accounting Standards Board (the “FASB”) in June 2009. The new accounting standards replace the existing quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity. In addition, the concept of qualifying special-purpose entities has been eliminated. Ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity are also required. The amended accounting standard for variable interest entities requires reconsideration for determining whether an entity is a variable interest entity when changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lack the power from voting rights or similar rights to direct the activities of the entity. Enhanced disclosures are required for any enterprise that holds a variable interest in a variable interest entity. The adoption of this guidance did not have an impact on our consolidated results of operations, financial position or cash flows.

     A standard to improve disclosures about fair value measurements was issued by the FASB in January 2010. The additional disclosures required include: (1) the different classes of assets and liabilities measured at fair value, (2) the significant inputs and techniques used to measure Level 2 and Level 3 assets and liabilities for both recurring and nonrecurring fair value measurements, (3) the gross presentation of purchases, sales, issuances and settlements for the rollforward of Level 3 activity, and (4) the transfers in and out of Levels 1 and 2. We adopted all aspects of this standard in the first quarter 2010. This adoption did not have a significant impact on our consolidated results of operations, financial position or cash flows. See Note 12 for our disclosures about fair value measurements.

     In February 2010, the FASB amended guidance on subsequent events to alleviate potential conflicts between FASB guidance and SEC requirements. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements in the first quarter 2010. The adoption of this guidance did not have an impact on our financial statements.

(4) DISPOSITIONS AND ACQUISITIONS

2010 Asset Sales

     In February 2010, we entered into an agreement to sell our tight gas sand properties in Ohio. We closed approximately 90% of the sale in March  2010 and closed the remainder in June 2010. Total proceeds received were approximately $323.0 million and we recorded a gain of $77.4 million. The agreement has an effective date of January 1, 2010, and consequently operating net revenues after January 1, 2010 are downward adjustments to the selling price. The asset sale is subject to typical post-closing adjustments. The proceeds we received were placed in a like-kind exchange account and are reflected in Cash and equivalents on our June 30, 2010 consolidated balance sheet. In June 2010, we used a portion of the proceeds to purchase proved and unproved gas properties in Virginia.

2009 Asset Sales

     In fourth quarter 2009, we sold natural gas properties in New York for proceeds of $36.3 million. The proceeds were credited to oil and gas properties, with no gain or loss recognized, as the sale did not materially impact the depletion rate of the remaining properties in the amortization base.

     In second quarter 2009, we sold oil properties located in West Texas for proceeds of $182.0 million. The proceeds were credited to oil and gas properties, with no gain or loss recognized, as the sale did not materially impact the depletion rate of the remaining properties in the amortization base.

2010 Acquisitions

     In June 2010, we purchased proved and unproved natural gas properties in Virginia for approximately $135.0 million. After recording asset retirement obligations, the purchase price allocated to proved property was $132.9 million and unproved property was $2.6 million. The purchase price allocation is preliminary and subject to revision pending finalization of closing adjustments. We used proceeds from our like-kind exchange account to fund this acquisition (see 2010 Asset Sales above).

(5) INCOME TAXES

     Income tax expense (benefit) was as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Income tax expense (benefit)		$	6,453			$	(22,526	)		$	55,387			$	(3,699	)
Effective tax rate			41.6	%			36.1	%			39.0	%			33.7	%

     We compute our quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to our year-to-date income, except for discrete items. Income taxes for discrete items are computed and recorded in the period that the specific transaction occurs. For the three months ended June 30, 2010 and 2009, our overall effective tax rate on pre-tax income from operations was different than the statutory rate of 35% due primarily to state income taxes, valuation allowances and other permanent differences. For the six months ended June 30, 2010 and 2009, our overall effective tax rate on pre-tax income from operations was different than the statutory rate of 35% due primarily to state income taxes, valuation allowances and other permanent differences.

(6) EARNINGS PER COMMON SHARE

     Basic net income (loss) per share attributable to common shareholders is computed as (i) net income (loss) (ii) less income allocable to participating securities (iii) divided by weighted average basic shares outstanding. Diluted net income (loss) per share attributable to common shareholders is computed as (i) basic net income (loss) attributable to common shareholders (ii) plus diluted adjustments to income allocable to participating securities divided by weighted average diluted shares outstanding. The following table sets forth a reconciliation of net income (loss) to basic net income (loss) attributable to common shareholders and to diluted net income (loss) attributable to common shareholders and a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding (in thousands except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Numerator:
Net income (loss)		$	9,052			$	(39,883	)		$	86,631			$	(7,275	)
Less: Basic income allocable to participating securities (a)			(159	)			—				(1,491	)			—
Basic net income (loss) attributable to common shareholders			8,893				(39,883	)			85,140				(7,275	)
Diluted adjustments to income allocable to participating securities (a)			—				—				16				—
Diluted net income (loss) attributable to common shareholders		$	8,893			$	(39,883	)		$	85,156			$	(7,275	)
Denominator:
Weighted average common shares outstanding — basic			156,820				154,389				156,608				154,056
Effect of dilutive securities:
Employee stock options, SARs and stock held in the deferred compensation plan			1,652				—				1,993				—
Weighted average common shares — diluted			158,472				154,389				158,601				154,056
Income per common share:
Basic — net income		$	0.06			$	(0.26	)		$	0.54			$	(0.05	)
Diluted — net income		$	0.06			$	(0.26	)		$	0.54			$	(0.05	)

     The weighted average common shares — basic amount for the three months ended June 30, 2010 excludes 2.8 million shares of restricted stock at June 30, 2010 and 2.6 million shares of restricted stock at June 30, 2009 held in our deferred compensation plans (although all restricted stock is issued and outstanding upon grant). Weighted average common shares — basic for the six months ended June 30, 2010 excludes 2.7 million of shares of restricted stock compared to 2.4 million for the six months ended June 30, 2009. Stock appreciation rights of 1.1 million shares for the three months ended June 30, 2010 were outstanding but not included in the computations of diluted net income per share because the grant prices of the SARs were greater than the average market price of the common shares and would be anti-dilutive to the computations. For the six months ended June 2010, the per share calculations above exclude 1.1 million stock appreciation rights that were anti-dilutive. Due to our net loss from operations for the three months and the six months ended June 30, 2009, we excluded all outstanding stock options, stock appreciation rights and restricted stock from the computations of diluted net income per share because the effect would have been anti-dilutive.

(7) SUSPENDED EXPLORATORY WELL COSTS

     The following table reflects the changes in capitalized exploratory well costs for the six months ended June 30, 2010 and the year ended December 31, 2009 (in thousands):

		June 30,				December 31,
		2010				2009
Beginning balance at January 1		$	19,052			$	47,623
Additions to capitalized exploratory well costs pending the determination of proved reserves			12,774				26,216
Reclassifications to wells, facilities and equipment based on determination of proved reserves			(3,593	)			(52,849	)
Capitalized exploratory well costs charged to expense			—				(1,938	)
Balance at end of period			28,233				19,052
Less exploratory well costs that have been capitalized for a period of one year or less			(17,018	)			(10,778	)
Capitalized exploratory well costs that have been capitalized for a period greater than one year		$	11,215			$	8,274
Number of projects that have exploratory well costs that have been capitalized for a period greater than one year			5				6

     The $28.2 million of capitalized exploratory well costs at June 30, 2010 was incurred in 2010 ($12.1 million), in 2009 ($8.4 million) and in 2008 ($7.7 million). Of the five projects that have exploratory costs capitalized for more than one year, all are Marcellus Shale wells and are waiting on the completion of pipelines.

(8) INDEBTEDNESS

     We had the following debt outstanding as of the dates shown below (in thousands) (bank debt interest rate at June 30, 2010 is shown parenthetically). No interest expense was capitalized during the three months or the six months ended June 30, 2010 and 2009.

		June 30,				December 31,
		2010				2009
Bank debt (2.2%)		$	475,000			$	324,000
Subordinated debt:
7.375% Senior Subordinated Notes due 2013, net of discount			198,570				198,362
6.375% Senior Subordinated Notes due 2015			150,000				150,000
7.5% Senior Subordinated Notes due 2016, net of discount			249,660				249,637
7.5% Senior Subordinated Notes due 2017			250,000				250,000
7.25% Senior Subordinated Notes due 2018			250,000				250,000
8.0% Senior Subordinated Notes due 2019, net of discount			286,332				285,834
Total debt		$	1,859,562			$	1,707,833

Bank Debt

     In October 2006, we entered into an amended and restated revolving bank facility, which we refer to as our bank debt or our bank credit facility, which is secured by substantially all of our assets. The bank credit facility provides for an initial commitment equal to the lesser of the facility amount or the borrowing base. On June 30, 2010, the borrowing base was $1.5 billion and our facility amount was $1.25 billion. The bank credit facility provides for a borrowing base subject to redeterminations semi-annually and for event-driven unscheduled redeterminations. As part of our semi-annual bank review completed March 31, 2010, our borrowing base was reaffirmed at $1.5 billion and our facility amount was also reaffirmed at $1.25 billion. Our current bank group is comprised of twenty-six commercial banks each holding between 2.4% and 5.0% of the total facility. The facility amount may be increased up to the borrowing base amount with twenty days notice, subject to payment of a mutually acceptable commitment fee to those banks agreeing to participate in the facility amount increase. At June 30, 2010, the outstanding balance under the bank credit facility was $475.0 million and we had $100,000 of undrawn letters of credit leaving $774.9 million of borrowing capacity available under the facility amount. The loan matures October 2012. Borrowing under the bank credit facility can either be the Alternate Base Rate (as defined) plus a spread ranging from 0.875% to 1.625% or LIBOR borrowings at the adjusted LIBOR Rate (as defined) plus a spread ranging from 1.75% to 2.5%. The applicable spread is dependent upon borrowings relative to the borrowing base. We may elect, from time to time, to convert all or any part of our LIBOR loans to base rate loans or to convert all or any part of the base rate loans to LIBOR loans. The weighted average interest rate on the bank credit facility was 2.2% for the three months ended June 30, 2010 compared to 2.5% for the three months ended June 30, 2009. The weighted average interest rate on the bank credit facility was 2.2% for the six months ended June 30, 2010 compared to 2.6% for the six months ended June 30, 2009. A commitment fee is paid on the undrawn balance based on an annual rate of between 0.375% and 0.50%. At June 30, 2010, the commitment fee was 0.375% and the interest rate margin was 1.75% on our LIBOR loans and 0.875% on our base rate loans. At July 22, 2010, the interest rate (including applicable margin) was 2.3%.

Senior Subordinated Notes

     In May 2009, we issued $300.0 million aggregate principal amount of 8.0% senior subordinated notes due 2019 (“8.0% Notes”). The 8.0% Notes were issued at a discount, which is being amortized over the life of the 8.0% Notes. Interest on the 8.0% Notes is payable semi-annually, in May and November, and is guaranteed by certain of our subsidiaries. We may redeem the 8.0% Notes, in whole or in part, at any time on or after May 15, 2014, at redemption prices of 104.0% of the principal amount as of May 15, 2014 declining to 100.0% on May 15, 2017 and thereafter. Before May 15, 2012, we may redeem up to 35% of the original aggregate principal amount of the 8.0% Notes at a redemption price equal to 108.0% of the principal amount thereof, plus accrued and unpaid interest, if any, with the proceeds of certain equity offerings, provided that at least 65% of the original aggregate principal amount of the 8.0% Notes remain outstanding immediately after the occurrence of such redemption and also provided such redemption shall occur within 60 days of the date of the closing of the equity offering.

Debt Covenants

     Our bank credit facility contains negative covenants that limit our ability, among other things, to pay cash dividends, incur additional indebtedness, sell assets, enter into certain hedging contracts, change the nature of our business or operations, merge, consolidate, or make investments. In addition, we are required to maintain a ratio of debt to EBITDAX (as defined in the credit agreement) of no greater than 4.0 to 1.0 and a current ratio (as defined in the credit agreement) of no less than 1.0 to 1.0. We were in compliance with our covenants under the bank credit facility at June 30, 2010.

     The indentures governing our senior subordinated notes contain various restrictive covenants that are substantially identical to each other and may limit our ability to, among other things, pay cash dividends, incur additional indebtedness, sell assets, enter into transactions with affiliates or change the nature of our business. At June 30, 2010, we were in compliance with these covenants.

(9) ASSET RETIREMENT OBLIGATIONS

     Our asset retirement obligations primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the end of their productive lives. Significant inputs used in determining such obligations include estimates of plugging and abandonment costs, estimated future inflation rates and well life. A reconciliation of our liability for plugging, abandonment and remediation costs for the six months ended June 30, 2010 is as follows (in thousands):

		Six Months Ended
		June 30,
		2010
Beginning of period		$	78,812
Liabilities incurred			869
Acquisitions			556
Liabilities settled			(1,058	)
Liabilities sold			(12,891	)
Accretion expense			2,818
Change in estimate			—
End of period		$	69,106

     Accretion expense is recognized as a component of Depreciation, depletion and amortization expense on our consolidated statement of operations.

(10) CAPITAL STOCK

     We have authorized capital stock of 485 million shares, which includes 475 million shares of common stock and 10 million shares of preferred stock. The following is a summary of changes in the number of common shares outstanding since the beginning of 2009:

		Six Months				Year
		Ended				Ended
		June 30,				December 31,
		2010				2009
Beginning balance			158,118,937				155,375,487
Shares issued in lieu of cash bonuses			—				184,926
Stock options/SARs exercised			892,166				1,384,861
Restricted stock grants			398,769				413,353
Treasury shares			6,355				16,573
Shares issued for acreage purchases			380,229				743,737
Ending balance			159,796,456				158,118,937

Treasury Stock

     The Board of Directors has approved up to $10.0 million of repurchases of common stock based on market conditions and opportunities. During 2008, we repurchased 78,400 shares of common stock at an average price of $41.11 for a total of $3.2 million. We have $6.8 million remaining under this authorization.

(11) DERIVATIVE ACTIVITIES

     We use commodity-based derivative contracts to manage exposures to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. Historically, our derivative activities have consisted of collars and fixed price swaps. We do not utilize complex derivatives such as swaptions, knockouts or extendable swaps. We typically utilize commodity swap and collar contracts to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. At June 30, 2010, we had collars covering 152.9 Bcf of gas at weighted average floor and cap prices of $5.66 to $6.98 per mcf and 2.1 million barrels of oil at weighted average floor and cap prices of $70.44 to $90.33 per barrel. The fair value of these collars, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract prices and a reference price, generally New York Mercantile Exchange (“NYMEX”), on June 30, 2010, was a net unrealized pre-tax gain of $111.9 million. These contracts expire monthly through December 2011. We currently have not entered into any NGL derivative contracts.

     The following table sets forth our derivative volumes and average hedge prices as of June 30, 2010:

						Average
Period		Contract Type		Volume Hedged		Hedge Price
Natural Gas
2010		Collars		325,000 Mmbtu/day		$	5.55-$7.20
2011		Collars		255,000 Mmbtu/day		$	5.73-$6.83
Crude Oil
2010		Collars		1,000 bbls/day		$	75.00-$93.75
2011		Collars		5,244 bbls/day		$	70.00-$90.00

     Every derivative instrument is recorded on the balance sheet as either an asset or a liability measured at its fair value. Fair value is generally determined based on the difference between the fixed contract price and the underlying estimated market price at the determination date. Changes in the fair value of derivatives that qualify for hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) on our consolidated balance sheet, which is later transferred to oil and gas sales when the underlying physical transaction occurs and the hedging contract is settled. Amounts included in AOCI at June 30, 2010 and December 31, 2009 relate solely to our derivative activities. As of June 30, 2010, an unrealized pre-tax derivative gain of $68.6 million was recorded in AOCI. This gain is expected to be reclassified into earnings as a $26.4 million gain in 2010 and as a $42.2 million gain in 2011. The actual reclassification to earnings will be based on market prices at the contract settlement date.

     For those derivative instruments that qualify for hedge accounting, settled transaction gains and losses are determined monthly, and are included as increases or decreases to oil and gas sales in the period the hedged production is sold. Oil and gas sales include $18.3 million of gains in the three months ended June 30, 2010 compared to gains of $53.2 million in the same period of 2009 related to settled hedging transactions. Oil and gas sales include $19.6 million of gains in the six months ended June 30, 2010 compared to gains of $104.5 million in the six months ended June 30, 2009 related to settled hedging transactions. Any ineffectiveness associated with these hedge derivatives is reflected in Derivative fair value income (loss) on our consolidated statement of operations. The ineffective portion is calculated as the difference between the change in fair value of the derivative and the estimated change in future cash flows from the item hedged. The six months ended June 30, 2010 includes ineffective losses (unrealized and realized) of $341,000 compared to gains of $1.5 million in the same period of 2009.

     Through June 2010, we have elected to designate our commodity derivative instruments that qualify for hedge accounting as cash flow hedges. To designate a derivative as a cash flow hedge, we document at the hedge’s inception our assessment that the derivative will be highly effective in offsetting expected changes in cash flows from the item hedged. This assessment, which is updated at least quarterly, is generally based on the most recent relevant historical correlation between the derivative and the item hedged. The ineffective portion of the hedge is calculated as the difference between the change in fair value of the derivative and the estimated change in cash flows from the item hedged. If, during the derivative’s term, we determine the hedge is no longer highly effective, hedge accounting is prospectively discontinued and any remaining unrealized gains or losses, based on the effective portion of the derivative at that date, are reclassified to earnings as oil or gas sales when the underlying transaction occurs. If it is determined that the designated hedge transaction is not probable to occur, any unrealized gains or losses are recognized immediately as Derivative fair value income (loss) on our consolidated statement of operations. During the first six months of 2010, there were no gains or losses recorded due to the discontinuance of hedge accounting treatment for these derivatives. During the first six months of 2009, there were gains of

$5.4 million reclassified into earnings as a result of the discontinuance of hedge accounting treatment for some of our derivatives due to asset sales.

     Some of our derivatives do not qualify for hedge accounting or are not designated as a hedge but provide an economic hedge of our exposure to commodity price risk associated with anticipated future oil and gas production. These contracts are accounted for using the mark-to-market accounting method. We recognize all unrealized and realized gains and losses related to these contracts as Derivative fair value income (loss) on our consolidated statement of operations (for additional information see table below).

     In addition to the collars discussed above, we have entered into basis swap agreements, which do not qualify for hedge accounting and are marked to market. The price we receive for our gas production can be more or less than the NYMEX price because of adjustments for delivery location (“basis”), relative quality and other factors; therefore, we have entered into basis swap agreements that effectively fix a portion of our basis adjustments. The fair value of the basis swaps was a net unrealized pre-tax loss of $4.8 million at June 30, 2010 and expire through the first quarter of 2011.

Derivative Fair Value Income (Loss)

     The following table presents information about the components of derivative fair value income (loss) in the three months and the six months ended June 30, 2010 and 2009 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Hedge ineffectiveness — realized		$	5			$	1,081			$	(352	)		$	1,578
— unrealized			260				356				11				(97	)
Change in fair value of derivatives that do not qualify for hedge accounting(a)			(4,409	)			(61,595	)			42,169				(30,070	)
Realized gain on settlements — gas(a) (b)			10,690				48,370				7,051				86,742
Realized gain on settlements — oil (a) (b)			—				1,932				—				7,538
Derivative fair value income (loss)		$	6,546			$	(9,856	)		$	48,879			$	65,691

     The combined fair value of derivatives included in our consolidated balance sheets as of June 30, 2010 and December 31, 2009 is summarized below (in thousands). We conduct commodity derivative activities with fourteen financial institutions, thirteen of which are secured lenders in our bank credit facility. We believe all of these institutions are acceptable credit risks. At times, such risks may be concentrated with certain counterparties. The credit worthiness of our counterparties is subject to periodic review. On our balance sheet, derivative assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty.

		June 30,				December 31,
		2010				2009
Derivative assets:
Natural gas — collars		$	113,433			$	26,649
— basis swaps			(1,977	)			(1,063	)
Crude oil — collars			(1,560	)			66
		$	109,896			$	25,652
Derivative liabilities:
Natural gas — collars		$	—			$	2,020
— basis swaps			(2,781	)			(16,779	)
Crude oil — collars			—				—
		$	(2,781	)		$	(14,759	)

     The table below provides data about the fair value of our derivative contracts. Derivative assets and liabilities shown below are presented as gross assets and liabilities, without regard to master netting arrangements, which are considered in the presentation of derivative assets and liabilities in our consolidated balance sheets (in thousands):

		June 30, 2010												December 31, 2009
		Assets				(Liabilities)								Assets				(Liabilities)
										Net												Net
		Carrying				Carrying				Carrying				Carrying				Carrying				Carrying
		Value				Value				Value				Value				Value				Value
Derivatives that qualify for cash flow hedge accounting:
Collars(1)		$	93,448			$	—			$	93,448			$	22,062			$	—			$	22,062
		$	93,448			$	—			$	93,448			$	22,062			$	—			$	22,062
Derivatives that do not qualify for hedge accounting:
Collars(1)		$	20,574			$	(2,149	)		$	18,425			$	6,673			$	—			$	6,673
Basis swaps(1)			—				(4,758	)			(4,758	)			65				(17,907	)			(17,842	)
		$	20,574			$	(6,907	)		$	13,667			$	6,738			$	(17,907	)		$	(11,169	)

     The effects of our cash flow hedges on accumulated other comprehensive income (loss) on the consolidated balance sheets are summarized below:

		Three Months Ended June 30,																Six Months Ended June 30,
										Realized Gain (Loss)																Realized Gain (Loss)
		Change in Hedge								Reclassified from OCI								Change in Hedge								Reclassified from OCI
		Derivative Fair Value								into Revenue (a)								Derivative Fair Value								into Revenue (a)
		2010				2009				2010				2009				2010				2009				2010				2009
Collars		$	(6,868	)		$	(4,760	)		$	18,340			$	53,156			$	77,943			$	69,320			$	19,555			$	104,479
Income taxes			2,611				1,760				(6,969	)			(19,668	)			(29,618	)			(26,137	)			(7,431	)			(38,657	)
		$	(4,257	)		$	(3,000	)		$	11,371			$	33,488			$	48,325			$	43,183			$	12,124			$	65,822

     The effects of our non-hedge derivatives and the ineffective portion of our hedge derivatives on our consolidated statements of operations is summarized below:

		Three Months Ended June 30,
		Gain (Loss) Recognized in								Gain (Loss) Recognized in								Derivative Fair Value
		Income (Non-hedge Derivatives)								Income (Ineffective Portion)								Income (Loss)
		2010				2009				2010				2009				2010				2009
Swaps		$	—			$	5,558			$	—			$	—			$	—			$	5,558
Collars			1,483				(6,713	)			265				1,437				1,748				(5,276	)
Basis Swaps			4,798				(10,138	)			—				—				4,798				(10,138	)
Total		$	6,281			$	(11,293	)		$	265			$	1,437			$	6,546			$	(9,856	)

		Six Months Ended June 30,
		Gain (Loss) Recognized in								Gain (Loss) Recognized in								Derivative Fair Value
		Income (Non-hedge Derivatives)								Income (Ineffective Portion)								Income (Loss)
		2010				2009				2010				2009				2010				2009
Swaps		$	—			$	53,558			$	—			$	—			$	—			$	53,558
Collars			48,438				24,870				(341	)			1,481				48,097				26,351
Basis Swaps			782				(14,218	)			—				—				782				(14,218	)
Total		$	49,220			$	64,210			$	(341	)		$	1,481			$	48,879			$	65,691

(12) FAIR VALUE MEASUREMENTS

Fair Values-Recurring

     We use a market approach for our fair value measurements and endeavor to use the best information available. Accordingly, valuation techniques that maximize the use of observable impacts are favored. The following presents the fair value hierarchy table for assets and liabilities measured at fair value, on a recurring basis (in thousands):

		Fair Value Measurements at June 30, 2010 Using:
		Quoted Prices in				Significant								Total
		Active Markets				Other				Significant				Carrying
		for Identical				Observable				Unobservable				Value as of
		Assets				Inputs				Inputs				June 30,
		(Level 1)				(Level 2)				(Level 3)				2010
Trading securities held in the deferred compensation plans		$	42,947			$	—			$	—			$	42,947
Derivatives — collars			—				111,873				—				111,873
— basis swaps			—				(4,758	)			—				(4,758	)

     These items are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy. Our trading securities in Level 1 are exchange-traded and measured at fair value with a market approach using June 30, 2010 market values. Derivatives in Level 2 are measured at fair value with a market approach using third-party pricing services, which have been corroborated with data from active markets or broker quotes.

     Our trading securities held in the deferred compensation plan are accounted for using the mark-to-market accounting method and are included as Other assets on our consolidated balance sheet. We elected to adopt the fair value option to simplify our accounting for the investments in our deferred compensation plan. Interest, dividends and mark-to-market gains/losses are included as Deferred compensation plan expense on our consolidated statement of operations. For the three months ended June 30, 2010, interest and dividends were $39,000 and mark-to-market was a gain of $3.2 million. For the three months ended June 30, 2009, interest and dividends were $50,000 and mark-to-market was a gain of $4.9 million. For the six months ended June 30, 2010, interest and dividends were $71,000 and mark-to-market was a gain of $3.8 million. For the six months ended June 30, 2009, interest and dividends were $93,000 and mark-to-market was a gain of $3.4 million. For additional information on the accounting for our deferred compensation plan, see Note 13.

Fair Values-Nonrecurring

     The following table shows the values of assets measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition.

		Three Months Ended June 30,																Six Months Ended June 30,
		2010								2009								2010								2009
		Fair								Fair								Fair								Fair
		Value				Impairment				Value				Impairment				Value				Impairment				Value				Impairment
Long-lived asset held for use		$	—			$	—			$	—			$	—			$	16,075			$	6,505			$	—			$	—

     In the first quarter 2010, we recorded oil and gas property impairment of $6.5 million. Due to declining gas prices, the fair value of our Gulf Coast property depletion pool, at the time of impairment, was measured at $16.1 million using an estimate of future cash flows with Level 3 inputs. This resulted in an impairment of $6.5 million. The fair value of the assets impaired was measured using an income approach based upon internal estimates of future production levels, prices and discount rate, which are Level 3 inputs.

Fair Values-Reported

     The following table presents the carrying amounts and the fair values of our financial instruments as of June 30, 2010 and December 31, 2009 (in thousands):

		June 30, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Assets:
Commodity collars and basis swaps		$	109,896			$	109,896			$	25,652			$	25,652
Marketable securities(a)			42,947				42,947				43,554				43,554
Liabilities:
Commodity collars and basis swaps			(2,781	)			(2,781	)			(14,759	)			(14,759	)
Long-term debt(b)			(1,859,562	)			(1,876,562	)			(1,707,833	)			(1,826,458	)

Concentration of Credit Risk

     Most of our receivables are from a diverse group of companies, including major energy companies, pipeline companies, local distribution companies, financial institutions and end-users in various industries. Letters of credit or other appropriate security are obtained as necessary to limit risk of loss. Our allowance for uncollectible receivables was $1.4 million at June 30, 2010 and $2.2 million at December 31, 2009. Commodity-based contracts expose us to the credit risk of nonperformance by the counterparty to the contracts. As of June 30, 2010, these contracts consist of collars and basis swaps. This exposure is diversified among major investment grade financial institutions and we have master netting agreements with the counterparties that provide for offsetting payables against receivables from separate derivative contracts. Our derivative counterparties include fourteen financial institutions, thirteen of which are secured lenders in our bank credit facility. Our oil and gas assets provide collateral under our credit facility and our derivative exposure. J. Aron & Company is the only counterparty not in our bank group. At June 30, 2010, our net derivative payable includes a payable to J. Aron & Company of $463,000. None of our derivative contracts have margin requirements or collateral provisions that would require funding prior to the scheduled cash settlement date.

(13) EMPLOYEE BENEFIT AND EQUITY PLANS

     We have two active equity-based stock plans. Under these plans, incentive and nonqualified options, SARs and annual cash incentive awards may be issued to employees and directors pursuant to decisions of the Compensation Committee, which is made up of non-employee, independent directors from the Board of Directors. All awards granted have been issued at prevailing market prices at the time of the grant. Since the middle of 2005, only SARs have been granted under the plans to limit the dilutive impact of our equity plans. Information with respect to stock option and SARs activities is summarized below:

						Weighted
						Average
						Exercise
		Shares				Price
Outstanding on December 31, 2009			7,154,712			$	31.38
Granted			1,376,581				46.17
Exercised			(1,510,525	)			19.09
Expired/forfeited			(47,269	)			47.37
Outstanding on June 30, 2010			6,973,499			$	36.85

     The weighted average fair value of an option/SAR to purchase one share of common stock granted during 2010 was $17.05. The fair value of each stock option/SAR granted during 2010 was estimated as of the date of grant using the Black-Scholes-Merton option-pricing model based on the following average assumptions: risk-free interest rate of 1.6%; dividend yield of 0.3%; expected volatility of 49% and an expected life of 3.6 years. Of the 7.0 million stock option/SARs outstanding at June 30, 2010, 820,000 are stock options and 6.2 million are SARs.

Restricted Stock Grants

     During the first six months of 2010, 385,000 shares of restricted stock (or non-vested shares) were issued to employees at an average price of $45.97 with a three-year vesting period and 21,000 shares were granted to directors at an average price of $45.51 with immediate vesting. In the first six months of 2009, we issued 532,900 shares of restricted stock as compensation to employees at an average price of $37.70 with a three-year vesting period and 22,700 shares were granted to our directors at an average price of $41.60 with immediate vesting. We recorded compensation expense related to restricted stock grants which is based upon the market value of the shares on the date of grant of $11.5 million in the first six months of 2010 compared to $8.8 million in the six month period ended June 30, 2009. As of June 30, 2010, unrecognized compensation cost related to restricted stock awards was $32.1 million, which is expected to be recognized over the weighted average period of 2 years. Substantially all of our restricted stock grants are held in our deferred compensation plans. All restricted stock awards held in our deferred compensation plan is classified as a liability award and remeasured at fair value each reporting period. This mark-to-market is reported as Deferred compensation plan expense in our consolidated statement of operations (see additional discussion below). All awards granted have been issued at prevailing market prices at the time of the grant and the vesting of these shares is based upon an employee’s continued employment with us.

     A summary of the status of our non-vested restricted stock outstanding at June 30, 2010 is presented below:

						Weighted
						Average Grant
		Shares				Date Fair Value
Non-vested shares outstanding at December 31, 2009			627,189			$	45.64
Granted			405,802				45.95
Vested			(246,542	)			46.15
Forfeited			(7,033	)			43.17
Non-vested shares outstanding at June 30, 2010			779,416			$	45.66

Deferred Compensation Plan

     Our deferred compensation plan gives directors, officers and key employees the ability to defer all or a portion of their salaries and bonuses and invest such amounts in Range common stock or make other investments at the individual’s discretion. The assets of the plan are held in a grantor trust, which we refer to as the Rabbi Trust, and are therefore available to satisfy the claims of our creditors in the event of bankruptcy or insolvency. Our stock granted and held in the Rabbi Trust is treated as a liability award as employees are allowed to take withdrawals either in cash or in Range stock. The liability associated with the vested portion of the stock is adjusted to fair value each reporting period by a charge or credit to deferred compensation plan expense on our consolidated statement of operations. The assets of the Rabbi Trust, other than Range common stock, are invested in marketable securities and reported at market value as Other assets on our consolidated balance sheet. Changes in the market value of the securities are charged or credited to Deferred compensation plan expense each quarter. The Deferred compensation liability on our consolidated balance sheet reflects the vested market value of the marketable securities and Range common stock held in the Rabbi Trust. We recorded non-cash, mark-to-market income

related to our deferred compensation plan of $14.1 million in the three months ended June 30, 2010 compared to expense of $756,000 in the same period of 2009. We recorded non-cash, mark-to-market income related to our deferred compensation plan of $19.8 million in first six months 2010 compared to mark-to-market expense of $13.2 million in first six months 2009.

(14) SUPPLEMENTAL CASH FLOW INFORMATION

		Six Months Ended
		June 30,
		2010				2009
		(in thousands)
Non-cash investing and financing activities included:
Asset retirement costs capitalized, net		$	864			$	(3,866	)
Unproved property purchased with stock(a)		$	20,000			$	15,920
Market value of restricted stock issued		$	18,328			$	18,255
Shares of restricted stock issued			398,769				475,306
Net cash provided from operating activities included:
Interest paid		$	58,457			$	51,185
Income taxes paid (refunded)		$	(684	)		$	507

Litigation

     We are involved in various legal actions and claims arising in the ordinary course of our business. While the outcome of these lawsuits cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial position, cash flows or results of operations.

(16) CAPITALIZED COSTS AND ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION^(a)

		June 30,				December 31,
		2010				2009
		(in thousands)
Oil and gas properties:
Properties subject to depletion		$	5,732,690			$	5,534,204
Unproved properties			789,577				774,503
Total			6,522,267				6,308,707
Accumulated depreciation, depletion and amortization			(1,466,754	)			(1,409,888	)
Net capitalized costs		$	5,055,513			$	4,898,819

(17) COSTS INCURRED FOR PROPERTY ACQUISITIONS, EXPLORATION AND DEVELOPMENT^(a)

		Six Months				Year
		Ended				Ended
		June 30,				December 31,
		2010				2009
		(in thousands)
Acquisitions:
Unproved leasehold		$	2,646			$	—
Proved oil and gas properties			132,338				—
Asset retirement obligations			556				—
Acreage purchases(b)			52,199				176,867
Development			375,555				497,702
Exploration:
Drilling			24,199				57,121
Expense			26,904				42,082
Stock-based compensation expense			2,205				4,817
Gas gathering facilities			12,406				29,524
Subtotal			629,008				808,113
Asset retirement obligations			864				6,131
Total costs incurred		$	629,872			$	814,244

     In February 2010, we entered into an agreement to sell our tight gas sand properties in Ohio. We closed approximately 90% of the sale in March 2010 and closed the remainder of the sale in June 2010. The first quarter 2010 includes $5.1 million accrued severance costs, which is reflected in Termination costs on our consolidated statement of operations. As part of their severance agreement, our Ohio employees’ vesting of SARs and restricted stock grants was accelerated, increasing our Termination costs for stock compensation expense in first quarter 2010 by approximately $2.8 million.

     In third quarter 2009, we announced the closing of our Gulf Coast area office in Houston, Texas. In the year ended December 31, 2009, we accrued $1.3 million of severance costs. The properties are now operated out of our Southwest Area office in Fort Worth.

     In December 2009, we sold our natural gas properties in New York. In fourth quarter 2009, we accrued $635,000 of severance costs related to this divestiture.

     The following table details our exit activities, which are included in accrued liabilities in our consolidated balance sheet as of June 30, 2010 (in thousands):

Balance at December 31, 2009		$	1,568
Accrued one-time termination costs			5,138
Payments			(3,254	)
Balance at June 30, 2010		$	3,452

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Certain sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business. These statements typically contain words such as “anticipates,” “believes,” “estimates,” “expects,” “targets,” “plans,” “could,” “may,” “should,” “would” or similar words indicating that future outcomes are uncertain. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in forward-looking statements. For additional risk factors affecting our business, see Item 1A. Risk Factors.

Critical Accounting Estimates and Policies

     The preparation of financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Actual results could differ from the estimates and assumptions used. These policies and estimates are described in our 2009 Annual Report on Form 10-K. We have identified the following critical accounting policies and estimates used in the preparation of our financial statements: accounting for oil and gas revenue, oil and gas properties, stock-based compensation, derivative financial instruments, asset retirement obligations and deferred income taxes.

Market Conditions

     Prices for various quantities of oil and gas that we produce significantly impact our revenues and cash flows. Prices have been volatile in recent years. The following table lists average NYMEX prices for oil and natural gas for the three and six months ended June 30, 2010 and 2009.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Average NYMEX prices(a)
Oil (per bbl)		$	77.72			$	59.77			$	78.28			$	51.54
Natural gas (per mcf)		$	4.08			$	3.59			$	4.72			$	4.21

Results of Operations

Overview

     Total revenues increased $44.4 million, or 25% for second quarter 2010 over the same period of 2009. The increase includes a $14.3 million increase in oil and gas sales, a gain recorded from the sale of the final portion of our tight gas sand properties in Ohio of $10.4 million and an increase in derivative fair value income (loss) of $16.4 million. Oil and gas sales vary due to changes in volumes of production sold and realized commodity prices. Due to volatility in oil and gas prices, realized prices decreased from the same period of the prior year, which was more than offset by an increase in production, including a 67% increase in natural gas liquid (“NGL”) production from the same period of the prior year due to increased liquids-rich production in our Appalachian area. For second quarter 2010, production increased 9% from the same period of the prior year while realized prices (including all derivative settlements) declined 18%. We believe oil and gas prices will remain volatile and will be affected by, among other things, weather, the U.S. and worldwide economy, new regulations, new technology, and the level of oil and gas production in North America and worldwide. Although we have entered into derivative contracts covering a portion of our production volumes for 2010 and 2011, a sustained lower price environment would result in lower realized prices for unprotected volumes and reduce the prices we can enter into derivative contracts on additional volumes in the future.

     With the lower commodity price environment, we continue to focus our efforts on improving our operating efficiency. These efforts resulted in 22% lower direct operating expense per mcfe for second quarter 2010 when compared to the same period of the prior year. We continue to experience increases in general and administrative expenses per mcfe as we continue to hire employees to staff our Marcellus Shale operations.

Oil and Gas Sales, Production and Realized Price Calculation

     Our oil and gas sales vary from quarter to quarter as a result of changes in realized commodity prices and volumes of production sold. Hedges included in oil and gas sales reflect settlement on those derivatives that qualify for hedge accounting. Cash settlement of derivative contracts that are not accounted for as hedges are included in our consolidated statement of operations category called derivative fair value income (loss). The following table summarizes the primary components of oil and gas sales for the three months and the six months ended June 30, 2010 and 2009 (in thousands):

		Three Months Ended																Six Months Ended
		June 30,																June 30,
		2010				2009				Change				%				2010				2009				Change				%
Oil wellhead		$	32,913			$	39,943			$	(7,030	)			(18	%)		$	68,797			$	68,023			$	774				1	%
Oil hedges realized			23				2,642				(2,619	)			(99	%)			23				12,007				(11,984	)			(100	%)
Total oil sales			32,936				42,585				(9,649	)			(23	%)			68,820				80,030				(11,210	)			(14	%)
Gas wellhead			122,923				86,722				36,201				42	%			286,693				203,642				83,051				41	%
Gas hedges realized			18,317				50,514				(32,197	)			(64	%)			19,532				92,472				(72,940	)			(79	%)
Total gas sales			141,240				137,236				4,004				3	%			306,225				296,114				10,111				3	%
NGL			32,608				12,702				19,906				157	%			68,499				19,568				48,931				250	%
Combined wellhead			188,444				139,367				49,077				35	%			423,989				291,233				132,756				46	%
Combined hedges realized			18,340				53,156				(34,816	)			(65	%)			19,555				104,479				(84,924	)			(81	%)
Total oil and gas sales		$	206,784			$	192,523			$	14,261				7	%		$	443,544			$	395,712			$	47,832				12	%