Range Resources: the mystery of the $3.48million Colombian...

Range Resources: the mystery of the $3.48million Colombian Performance bond

BY BEN TURNEY — THURSDAY 1 MAY 2014

While trawling through the quarterly reports of Range Resources (RRL), I stumbled across yet another mysterious and sizeable transaction. In the quarter ending September 30th 2013, Range suddenly referenced a “US$3.48million performance bond for Colombia” and included this as part of its cash balance. What is odd about this reference is, as far as I can make out (again!!!), this is the first time Range mentioned this material amount. In the two subsequent quarterly reports this “performance bond” continues to appear as a footnote and it now forms over half of Range’s apparent cash balance. Given how cash-strapped Range is, shareholders would do well to ask what on earth is this all about?

$3.48million matters a great deal to Range. With the $6.5million it apparently still owes to Platinum Partners, which was due for repayment yesterday, and the $8million it inexplicably lent to International Petroleum as part of the failed merger, and has yet to receive back, Range’s balance sheet looks increasingly distressed. Cash flow doesn’t look much better. Revenue has spectacularly failed to live up to expectations and as for the never-ending Texas sale and the planned reserve based lending, well...

To keep the show on the road, Range has been forced to enter into all manner of dilutive financial arrangements. It is all well and good for Range to claim it has reduced its debt by $2.2million since 31 December 2013, to $10.5million, but what this masks is how Range has achieved this. As item 1.17, Repayment of borrowings, in yesterday’s quarterly figures confirms, Range did not use any cash to pay back loans. It repaid loans by converting them into equity and the company now has an eye-watering 3.69billion shares in issue.

What is worse, despite Range’s claims to the contrary, for all the money it has spent there is little evidence that this has generated anything meaningful in delivering a sustainable business model. The company looks as reliant as ever on arcane financial transactions to survive.

Which brings us back to this “US$3.48million performance bond for Colombia”.

As with Range’s failure to announce details of the $6.5million Platinum Partners loans at the time they were entered into, it looks like Range hasn’t provided shareholders with any details about the Colombian performance bond.

The first reference I can find to this bond occurs at the bottom of the quarterly report for the period to September 30th 2013, as a footnote to item 1.22. I have been through every single RNS from July 1st to September 30th 2013 and cannot find any mention of this bond, let alone specific details of its terms. Equally, the half yearly report, published on March 17th 2014 and covering this period, isn’t at all forthcoming with any information whatsoever.

Does Range genuinely have access to the funds tied up in this $3.48million bond?

The answer is almost certainly not.

An interesting question to ask Range is what other performance bonds the company might have, relating to other projects?

What I am driving at here, is that Range says it had $6.68million cash at the end of March, but how much of this cash is unrestricted?

The answer surely has to be at least $3.48million less than the last stated cash balance.

Then there is what might happen in Colombia to consider.

Ten days ago, in its company update, Range quietly said “as previously announced, Range is continuing with non-core asset rationalization in Georgia and Colombia, as the strategic focus is now on the Company's world-class onshore position in Trinidad.” Ignoring Range’s use of its favourite phrase “as previously announced”, in plain English this statement very much sounds like Range is trying to offload its Colombian assets.

From a business perspective, this could make a great deal of sense. Progress in Colombia has apparently been minimal and there are questions over whether Range can afford to pursue this venture. Exiting looks sensible.

But what would this mean for the $3.48million performance bond?

If Range can find a buyer for its Colombian stake, I imagine all will be well. However, this is Range. Corporate transactions rarely seem to proceed smoothly for this business.

If Range cannot find a buyer for its Colombian stake, what further expenditure is the company contractually committed to, for development of this project?

There are two clear issues arising from all of this. The first concerns non-disclosure. Why has Range chosen not to inform shareholders about the terms of the $3.48million performance bond for Colombia?

The second issue is more serious and concerns unrestricted cash. We already know that Range’s unrestricted cash balance is almost certainly $3.48million less than the $6.68million the company claims to have, if other performance bonds or restrictions on available funds exist, what is Range’s true unrestricted cash position?

I will forward this article to Tim Thompson of Buchanan PR to ask for comment. Failing that, this looks like another matter to raise at Range’s investor call on May 14th.

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