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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from ___________ to ___________

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. (Check one):

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

     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

     160,071,797 Common Shares were outstanding on October 25, 2010.

 

 

RANGE RESOURCES CORPORATION
FORM 10-Q
Quarter Ended September 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			21
ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk			32
ITEM 4.		Controls and Procedures			33
PART II — OTHER INFORMATION
ITEM 1A.		Risk Factors			35
ITEM 6.		Exhibits			36
EX-10.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1
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

		September 30, 2010				December 31, 2009
		(Unaudited)
Assets
Current assets:
Cash and equivalents		$	2,078			$	767
Accounts receivable, less allowance for doubtful accounts of $1,386 and $2,176			97,601				123,622
Deferred tax asset			—				8,054
Unrealized derivative gain			153,585				21,545
Inventory and other			23,699				21,292
Total current assets			276,963				175,280
Unrealized derivative gain			46,412				4,107
Equity method investments			152,269				146,809
Natural gas and oil properties, successful efforts method			6,748,261				6,308,707
Accumulated depletion and depreciation			(1,553,257	)			(1,409,888	)
			5,195,004				4,898,819
Transportation and field assets			137,586				161,034
Accumulated depreciation and amortization			(58,837	)			(69,199	)
			78,749				91,835
Other assets			87,768				79,031
Total assets		$	5,837,165			$	5,395,881
Liabilities
Current liabilities:
Accounts payable		$	232,332			$	214,548
Asset retirement obligations			2,446				2,446
Accrued liabilities			66,011				58,585
Deferred tax liability			36,038				—
Accrued interest			39,863				24,037
Unrealized derivative loss			1,957				14,488
Total current liabilities			378,647				314,104
Bank debt			165,000				324,000
Subordinated notes			1,686,260				1,383,833
Deferred tax liability			842,228				776,965
Unrealized derivative loss			—				271
Deferred compensation liability			116,601				135,541
Asset retirement obligations and other liabilities			73,159				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, 160,062,048 issued at September 30, 2010 and 158,336,264 issued at December 31, 2009			1,600				1,583
Common stock held in treasury, 210,269 shares at September 30, 2010 and 217,327 shares at December 31, 2009			(7,716	)			(7,964	)
Additional paid-in capital			1,815,576				1,772,020
Retained earnings			665,822				606,529
Accumulated other comprehensive income			99,988				6,421
Total stockholders’ equity			2,575,270				2,378,589
Total liabilities and stockholders’ equity		$	5,837,165			$	5,395,881

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

RANGE RESOURCES CORPORATION

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Revenues and other income
Natural gas, NGL and oil sales		$	219,560			$	202,122			$	663,104			$	597,834
Transportation and gathering			(1,634	)			2,444				1,133				4,091
Derivative fair value income (loss)			9,981				(482	)			58,860				65,209
Gain on the sale of assets			67				32				79,111				39
Other			(1,013	)			(475	)			(1,951	)			(6,663	)
Total revenues and other income			226,961				203,641				800,257				660,510
Costs and expenses
Direct operating			34,287				31,111				95,102				101,480
Production and ad valorem taxes			8,873				7,600				25,033				23,421
Exploration			15,236				10,902				44,344				35,609
Abandonment and impairment of unproved properties			20,534				24,053				46,438				84,579
General and administrative			36,523				29,928				100,529				83,941
Termination costs			—				840				7,938				840
Deferred compensation plan			(5,347	)			16,445				(25,194	)			29,635
Interest expense			33,806				30,633				94,872				86,817
Loss on early extinguishment of debt			5,351				—				5,351				—
Depletion, depreciation and amortization			91,768				97,208				271,391				270,241
Impairment of proved properties			—				—				6,505				—
Total costs and expenses			241,031				248,720				672,309				716,563
(Loss) income from operations			(14,070	)			(45,079	)			127,948				(56,053	)
Income tax (benefit) expense
Current			(10	)			(695	)			(10	)			(76	)
Deferred			(5,892	)			(14,566	)			49,495				(18,884	)
Total income tax (benefit) expense			(5,902	)			(15,261	)			49,485				(18,960	)
Net (loss) income		$	(8,168	)		$	(29,818	)		$	78,463			$	(37,093	)
(Loss) income per common share:
Basic		$	(0.05	)		$	(0.19	)		$	0.49			$	(0.24	)
Diluted		$	(0.05	)		$	(0.19	)		$	0.49			$	(0.24	)
Dividends per common share		$	0.04			$	0.04			$	0.12			$	0.12
Weighted average common shares outstanding:
Basic			157,109				154,653				156,777				154,257
Diluted			157,109				154,653				158,493				154,257

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

RANGE RESOURCES CORPORATION

		Nine Months Ended September 30,
		2010				2009
Operating activities:
Net income (loss)		$	78,463			$	(37,093	)
Adjustments to reconcile net cash provided from operating activities:
Loss from equity method investments			1,830				6,548
Deferred income tax expense (benefit)			49,495				(18,884	)
Depletion, depreciation, amortization and proved property impairment			277,896				270,241
Exploration dry hole costs			1,661				342
Mark-to-market (gain) loss on gas and oil derivatives not designated as hedges			(23,885	)			83,393
Abandonment and impairment of unproved properties			46,438				84,579
Unrealized derivative (gain) loss			(2,400	)			483
Deferred and stock-based compensation			10,313				58,844
Amortization of deferred financing costs and other			8,891				6,441
Gain on sale of assets			(79,111	)			(39	)
Changes in working capital:
Accounts receivable			10,279				38,373
Inventory and other			(2,407	)			(807	)
Accounts payable			12,365				(67,076	)
Accrued liabilities and other			9,040				18,423
Net cash provided from operating activities			398,868				443,768
Investing activities:
Additions to oil and gas properties			(589,753	)			(425,376	)
Additions to field service assets			(12,284	)			(21,959	)
Acreage and proved property purchases			(249,731	)			(118,724	)
Additions to equity method investment			—				(6,099	)
Other assets			(45	)			8,604
Proceeds from disposal of assets			327,454				182,230
Purchase of marketable securities held by the deferred compensation plan			(16,399	)			(6,932	)
Proceeds from the sales of marketable securities held by the deferred compensation plan			14,943				3,155
Net cash used in investing activities			(525,815	)			(385,101	)
Financing activities:
Borrowing on credit facilities			784,000				582,000
Repayment on credit facilities			(943,000	)			(877,000	)
Dividends paid			(19,170	)			(18,843	)
Issuance of common stock			5,904				8,368
Issuance of subordinated notes			500,000				285,201
Repayment of subordinated notes			(202,458	)			—
Debt issuance costs			(9,435	)			(6,399	)
Change in cash overdrafts			7,609				(37,690	)
Proceeds from the sales of common stock held by the deferred compensation plan			4,808				6,049
Purchases of common stock held by the deferred compensation plan			—				(247	)
Net cash provided from (used in) financing activities			128,258				(58,561	)
Increase in cash and equivalents			1,311				106
Cash and equivalents at beginning of period			767				753
Cash and equivalents at end of period		$	2,078			$	859

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

RANGE RESOURCES CORPORATION

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
Net (loss) income		$	(8,168	)		$	(29,818	)		$	78,463			$	(37,093	)
Other comprehensive (loss) income:
Realized gain on hedge derivative contract settlements reclassified into earnings from other comprehensive income, net of taxes			(9,602	)			(34,248	)			(21,726	)			(100,070	)
Change in unrealized deferred hedging gains (losses), net of taxes			66,968				(1,218	)			115,293				41,965
Total comprehensive income (loss)		$	49,198			$	(65,284	)		$	172,030			$	(95,198	)

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

RANGE RESOURCES CORPORATION

(1) ORGANIZATION AND NATURE OF BUSINESS

     We are a Fort Worth, Texas-based independent natural gas company engaged in the exploration, development and acquisition of primarily natural gas properties in the Southwestern and the Appalachian regions of the United States. Our objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis. 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.

     Certain reclassifications have been made to the presentation of prior periods to conform to the current year presentation, which includes the reclassification of severance costs associated with the closing of our Houston office from exploration expense ($200,000) and general and administrative expense ($640,000) to termination costs included in the accompanying consolidated statement of operations.

(3) NEW ACCOUNTING STANDARDS

Recently Adopted

     Accounting standards for variable interest entities were amended by the Financial Accounting Standards Board (the “FASB”) in September 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 roll forward of Level 3 activity, and (4) the transfers in and out of Levels 1 and 2. We adopted all aspects of this standard in 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 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 had an effective date of January 1, 2010, and consequently

operating net revenues after January 1, 2010 were a downward adjustments to the selling price. The proceeds we received were placed in a like-kind exchange account and in June 2010 we used a portion of the proceeds to purchase proved and unproved natural gas properties in Virginia. In September 2010, the like-kind exchange account was closed and the balance of these proceeds ($135.0 million) was used to repay amounts outstanding under our bank credit facility.

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 natural gas and oil properties included in our consolidated balance sheets, 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 natural gas and oil properties included in our consolidated balance sheets, 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 and additional leasehold evaluations. We used proceeds from our like-kind exchange account to fund this acquisition (see 2010 Asset Sales above).

(5) INCOME TAXES

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Income tax (benefit) expense		$	(5,902	)		$	(15,261	)		$	49,485			$	(18,960	)
Effective tax rate			(41.9	%)			(33.9	%)			38.7	%			(33.8	%)

     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 and the nine months ended September 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. The three months and the nine months ended September 30, 2010 include a tax benefit for the release of valuation allowances reserved for capital losses. The three months and the nine months ended September 30, 2009 includes additional tax expense to increase valuation allowances.

(6) (LOSS) INCOME PER COMMON SHARE

     Basic net (loss) income per share attributable to common shareholders is computed as (i) net (loss) income (ii) less income allocable to participating securities (iii) divided by weighted average basic shares outstanding. Diluted net (loss) income per share attributable to common shareholders is computed as (i) basic net (loss) income 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 (loss) income to basic net (loss) income attributable to common shareholders and to diluted net (loss) income 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								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator:
Net (loss) income		$	(8,168	)		$	(29,818	)		$	78,463			$	(37,093	)
Less: Basic income allocable to participating securities (a)			—				—				(1,379	)			—
Basic net (loss) income attributable to common shareholders			(8,168	)			(29,818	)			77,084				(37,093	)
Diluted adjustments to income allocable to participating securities (a)			—				—				11				—
Diluted net (loss) income attributable to common shareholders		$	(8,168	)		$	(29,818	)		$	77,095			$	(37,093	)
Denominator:
Weighted average common shares outstanding – basic			157,109				154,653				156,777				154,257
Effect of dilutive securities:
Employee stock options, SARs and stock held in the deferred compensation plan			—				—				1,716				—
Weighted average common shares – diluted			157,109				154,653				158,493				157,257
(Loss) income per common share:
Basic – net (loss) income		$	(0.05	)		$	(0.19	)		$	0.49			$	(0.24	)
Diluted – net (loss) income		$	(0.05	)		$	(0.19	)		$	0.49			$	(0.24	)

     The weighted average common shares – basic amount for the three months ended September 30, 2010 excludes 2.9 million shares of restricted stock compared to 2.8 million shares of restricted stock excluded at September 30, 2009 which are held in our deferred compensation plans (although all restricted stock is issued and outstanding upon grant). Weighted average common shares – basic for the nine months ended September 30, 2010 excludes 2.8 million of shares of restricted stock compared to 2.5 million shares of restricted stock excluded for the nine months ended September 30, 2009. Stock appreciation rights (“SARs”) of 2.0 million for the nine months ended September 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. Due to our net loss from operations for the three months ended September 30, 2010 and the three months and the nine months ended September 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 nine months ended September 30, 2010 and the year ended December 31, 2009 (in thousands):

		September 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			16,948				26,216
Reclassifications based on determination of proved reserves			(24,041	)			(52,849	)
Capitalized exploratory well costs charged to expense			—				(1,938	)
Balance at end of period			11,959				19,052
Less exploratory well costs that have been capitalized for a period of one year or less			(5,834	)			(10,778	)
Capitalized exploratory well costs that have been capitalized for a period greater than one year		$	6,125			$	8,274
Number of projects that have exploratory well costs that have been capitalized for a period greater than one year			4				6

     The $12.0 million of capitalized exploratory well costs at September 30, 2010 was incurred in 2010 ($5.8 million), in 2009 ($4.0 million) and in 2008 ($2.2 million). Of the four 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 September 30, 2010 is shown parenthetically). No interest expense was capitalized during the three months or the nine months ended September 30, 2010 and 2009.

		September 30,				December 31,
		2010				2009
Bank debt (2.3%)		$	165,000			$	324,000
Subordinated debt:
7.375% Senior Subordinated Notes due 2013, net of discount			—				198,362
6.375% Senior Subordinated Notes due 2015			150,000				150,000
7.5% Senior Subordinated Notes due 2016, net of discount			249,671				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			286,589				285,834
6.75% Senior Subordinated Notes due 2020			500,000				—
Total debt		$	1,851,260			$	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 September 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 October 8, 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 with no one bank holding more than 5% 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 September 30, 2010, the outstanding balance under the bank credit facility was $165.0 million and we had $5.4 million of undrawn letters of credit leaving $1.1 billion 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 2.3% for the three months ended September 30, 2010 compared to 2.2% for the three months ended September 30, 2009. The weighted average interest rate on the bank credit facility was 2.2% for the nine months ended September 30, 2010 compared to 2.5% for the nine months ended September 30, 2009. A commitment fee is paid on the undrawn balance based on an annual rate of between 0.375% and 0.50%. At September 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 October 25, 2010, the interest rate (including applicable margin) was 2.2%.

Senior Subordinated Notes

     In August 2010, we issued $500.0 million aggregate principal amount of 6.75% senior subordinated notes due 2020 (“6.75% Notes”) for net proceeds after underwriting discounts and commissions of $491.3 million. The 6.75% Notes were issued at par. Interest on the 6.75% Notes is payable semi-annually in February and August and is guaranteed by substantially all of our subsidiaries. We may redeem the 6.75% Notes, in whole or in part, at any time on or after August 1, 2015, at redemption prices of 103.375% of the principal amount as of August 1, 2015 declining to 100.0% on August 1, 2018 and thereafter. Before August 1, 2013, we may redeem up to 35% of the original aggregate principal amount of the 6.75% Notes at a redemption price equal to 106.75% 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 6.75% 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. We used $287.1 million of the proceeds to repay outstanding borrowings under our credit facility and $204.2 million to redeem our 7.375% senior subordinated notes due 2013.

     In August 2010, we redeemed our 7.375% senior subordinated notes due 2013 at a redemption price equal to 101.229%. We recorded a loss on extinguishment of debt of $5.4 million including the transaction call premium costs as well as the expensing of related deferred financing cost on the repurchased debt.

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 September 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 September 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 nine months ended September 30, 2010 is as follows (in thousands):

		Nine Months
		Ended
		September 30,
		2010
Beginning of period		$	78,812
Liabilities incurred			1,233
Acquisitions			556
Liabilities settled			(1,646	)
Liabilities sold			(12,891	)
Accretion expense			4,139
Change in estimate			—
End of period		$	70,203

     Accretion expense is recognized as a component of depreciation, depletion and amortization expense on our consolidated statements 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:

		Nine Months				Year
		Ended				Ended
		September 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			940,428				1,384,861
Restricted stock grants			405,127				413,353
Treasury shares issued			7,058				16,573
Shares issued for acreage purchases			380,229				743,737
Ending balance			159,851,779				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. We typically utilize commodity derivative 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. Historically, our derivative activities have consisted of collars and fixed price swaps. In September 2010, we entered into call option derivative contracts under which we sold call options on crude oil in exchange for a cash premium received from the counterparty. At the time of settlement of these monthly call options, if the market price exceeds the fixed price of the call option, we will pay the counterparty such excess and if the market prices settles below the fixed price of the call option, no payment is due from either party. We do not utilize complex derivatives such as swaptions, knockouts or extendable swaps. At September 30, 2010, we had collars covering 209.5 Bcf of gas at weighted average floor and cap prices of $5.55 to $6.56 per mcf and 0.8 million barrels of oil at weighted average floor and cap prices of $70.56 to $81.54 per barrel. At September 30, 2010, we had sold call options for 3.1 million barrels of oil at a weighted average price of $81.77. The fair value of these commodity derivatives, 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 September 30, 2010, was a net unrealized pre-tax gain of $201.0 million. These contracts expire monthly through December 2012. We currently have not entered into any natural gas liquids (“NGLs”) derivative contracts.

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

														Average
Period						Contract Type				Volume Hedged				Hedge Price
		Natural Gas
			2010			Collars				335,000 Mmbtu/day					$5.56-$7.20
			2011			Collars				408,200 Mmbtu/day					$5.56-$6.48
			2012			Collars				80,993 Mmbtu/day					$5.50-$6.25
		Crude Oil
			2010			Collars				1,000 bbls/day					$75.00-$93.75
			2012			Collars				2,000 bbls/day					$70.00-$80.00
			2011			Call options				5,500 bbls/day					$80.00
			2012			Call options				3,000 bbls/day					$85.00

     Every derivative instrument is recorded on our consolidated balance sheets 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”) in the stockholders’ equity section of the accompanying consolidated balance sheets, which is later transferred to natural gas, NGL and oil sales when the underlying physical transaction occurs and the hedging contract is settled. Amounts included in AOCI at September 30, 2010 and December 31, 2009 relate solely to our commodity derivative activities. As of September 30, 2010, an unrealized pre-tax derivative gain of $162.6 million was recorded in AOCI. This gain is expected to be reclassified into earnings as a $27.5 million gain in 2010, a $127.8 million gain in 2011 and a $7.3 million gain in 2012. 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 natural gas, NGL and oil sales in the period the hedged production is sold. Natural gas, NGL and oil sales include $15.6 million of gains in the three months ended September 30, 2010 compared to gains of $54.4 million in the same period of 2009 related to settled hedging transactions. Natural gas, NGL and oil sales include $35.2 million of gains in the nine months ended September 30, 2010 compared to gains of $158.8 million in the nine months ended September 30, 2009 related to settled hedging transactions. Any ineffectiveness associated with these hedge derivatives is included in derivative fair value income (loss) in the accompanying consolidated statements 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 three months ended September 30, 2010 includes ineffective gains (unrealized and realized) of $2.4 million compared to gains of $1.2 million in the same period of 2009. The nine months ended September 30, 2010 includes ineffective gains (unrealized and realized) of $2.0 million compared to gains of $2.7 million in the same period of 2009.

     Through September 30, 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 natural gas, NGL and oil 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 in derivative fair value income (loss) in the accompanying consolidated statements of operations. During the first nine months of 2010, there were no gains or losses recorded due to the discontinuance of hedge accounting treatment for these derivatives. During the first nine 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 natural gas and oil 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 in derivative fair value income (loss) in the accompanying consolidated statements of operations (for additional information see table below).

     In addition to the collars and call options 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 $2.9 million at September 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 nine months ended September 30, 2010 and 2009 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Hedge ineffectiveness – realized		$	—			$	1,581			$	(352	)		$	3,159
– unrealized			2,389				(386	)			2,400				(483	)
Change in fair value of derivatives that do not qualify for hedge accounting(a)			(18,284	)			(53,323	)			23,885				(83,393	)
Realized gain on settlements – gas(a) (b)			10,179				51,619				17,230				138,361
Realized gain on settlements – oil(a) (b)			—				27				—				7,565
Realized gain on early settlement of oil derivatives(c)			15,697				—				15,697				—
Derivative fair value income (loss)		$	9,981			$	(482	)		$	58,860			$	65,209

     The combined fair value of derivatives included in the accompanying consolidated balance sheets as of September 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. In our accompanying consolidated balance sheets, derivative assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty.

		September 30,				December 31,
		2010				2009
Derivative assets:
Natural gas – collars		$	248,474			$	26,649
– basis swaps			(977	)			(1,063	)
Crude oil – collars			(8,198	)			66
– call options			(39,302	)			—
		$	199,997			$	25,652
Derivative liabilities:
Natural gas – collars		$	—			$	2,020
– basis swaps			(1,957	)			(16,779	)
		$	(1,957	)		$	(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 accompanying consolidated balance sheets (in thousands):

		September 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)		$	228,299			$	—			$	228,299			$	22,062			$	—			$	22,062
		$	228,299			$	—			$	228,299			$	22,062			$	—			$	22,062
Derivatives that do not qualify for hedge accounting:
Collars(1)		$	20,228			$	(8,251	)		$	11,977			$	6,673			$	—			$	6,673
Basis swaps(1)			—				(2,934	)			(2,934	)			65				(17,907	)			(17,842	)
Call options(1)			—				(39,302	)			(39,302	)			—				—				—
		$	20,228			$	(50,487	)		$	(30,259	)		$	6,738			$	(17,907	)		$	(11,169	)

     The effects of our cash flow hedges (or those derivatives that qualify for hedge accounting) on accumulated other comprehensive income (loss) included in our consolidated balance sheets is summarized below (in thousands):

		Three Months Ended September 30,																Nine Months Ended September 30,
										Realized Gain																Realized Gain
		Change in Hedge								Reclassified from AOCI								Change in Hedge								Reclassified from AOCI
		Derivative Fair Value								into Revenue (a)								Derivative Fair Value								into Revenue (a)
		2010				2009				2010				2009				2010				2009				2010				2009
Collars		$	109,651			$	(1,934	)		$	15,616			$	54,362			$	187,594			$	67,386			$	35,171			$	158,842
Income taxes			(42,683	)			716				(6,014	)			(20,114	)			(72,301	)			(25,421	)			(13,445	)			(58,772	)
		$	66,968			$	(1,218	)		$	9,602			$	34,248			$	115,293			$	41,965			$	21,726			$	100,070

     The effects of our non-hedge derivatives (or those derivatives that do not qualify for hedge accounting) and the ineffective portion of our hedge derivatives included in our consolidated statements of operations is summarized below (in thousands):

		Three Months Ended September 30,
		Gain (Loss) Recognized in								Gain Recognized in								Derivative Fair Value
		Income (Non-hedge Derivatives)								Income (Ineffective Portion)								Income (Loss)
		2010				2009				2010				2009				2010				2009
Swaps		$	—			$	6,540			$	—			$	—			$	—			$	6,540
Collars			12,559				4,976				2,389				1,195				14,948				6,171
Call options			(3,823	)			—				—				—				(3,823	)			—
Basis swaps			(1,144	)			(13,193	)			—				—				(1,144	)			(13,193	)
Total		$	7,592			$	(1,677	)		$	2,389			$	1,195			$	9,981			$	(482	)

		Nine Months Ended September 30,
		Gain (Loss) Recognized in								Gain Recognized in								Derivative Fair Value
		Income (Non-hedge Derivatives)								Income (Ineffective Portion)								Income (Loss)
		2010				2009				2010				2009				2010				2009
Swaps		$	—			$	60,098			$	—			$	—			$	—			$	60,098
Collars			60,998				29,846				2,048				2,676				63,046				32,522
Call options			(3,823	)			—				—				—				(3,823	)			—
Basis swaps			(363	)			(27,411	)			—				—				(363	)			(27,411	)
Total		$	56,812			$	62,533			$	2,048			$	2,676			$	58,860			$	65,209

(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 September 30, 2010 Using:
		Quoted Prices in				Significant								Total
		Active Markets				Other				Significant				Carrying
		for Identical				Observable				Unobservable				Value as of
		Assets				Inputs				Inputs				September 30,
		(Level 1)				(Level 2)				(Level 3)				2010
Trading securities held in our deferred compensation plans		$	47,509			$	—			$	—			$	47,509
Derivatives — collars			—				240,276				—				240,276
— call options			—				(39,302	)			—				(39,302	)
— basis swaps			—				(2,934	)			—				(2,934	)

     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 September 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 in other assets in our accompanying consolidated balance sheets. 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 in deferred compensation plan expense in our consolidated statements of operations. For the three months ended September 30, 2010, interest and dividends were $44,000 and mark-to-market was a gain of $3.5 million. For the three months ended September 30, 2009, interest and dividends were $45,000 and mark-to-market was a gain of $5.7 million. For the nine months ended September 30, 2010, interest and dividends were $118,000 and mark-to-market was a gain of $8.2 million. For the nine months ended September 30, 2009, interest and dividends were $138,000 and mark-to-market was a gain of $9.1 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 (in thousands).

		Three Months Ended September 30,																Nine Months Ended September 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			$	—			$	—
Equity investments		$	—			$	—			$	—			$	—			$	—			$	—			$	10,665			$	2,950

     In first quarter 2010, we recorded natural gas and oil 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. 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. In the prior year, the fair value of our equity investments was measured using an income approach based upon internal estimates of business activity levels, prices and discount rate, which are level 3 inputs. Based on the analyses, we determined our equity investment was not recoverable and recorded an impairment.

Fair Values-Reported

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

		September 30, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Assets:
Commodity collars, call options and basis swaps		$	199,997			$	199,997			$	25,652			$	25,652
Marketable securities(a)			47,509				47,509				43,554				43,554
Liabilities:
Commodity collars, call options and basis swaps			(1,957	)			(1,957	)			(14,759	)			(14,759	)
Long-term debt(b)			(1,851,260	)			(2,269,390	)			(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 deemed necessary to limit risk of loss. Our allowance for uncollectible receivables was $1.4 million at September 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 September 30, 2010, these contracts consist of collars, call options 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 September 30, 2010, our net derivative payable includes a payable to J. Aron & Company of $316,000. 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			1,389,636				46.10
Exercised			(1,623,939	)			19.20
Expired/forfeited			(94,212	)			46.73
Outstanding on September 30, 2010			6,826,197			$	37.06

     The weighted average fair value of a SAR to purchase one share of common stock granted during 2010 was $17.02. The fair value of each 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 6.8 million stock option/SARs outstanding at September 30, 2010, 785,000 are stock options and 6.0 million are SARs.

Restricted Stock Grants

     During the first nine months of 2010, 392,000 shares of restricted stock (or non-vested shares) were issued to employees at an average price of $45.85 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 nine months of 2009, we issued 539,000 shares of restricted stock as compensation to employees at an average price of $37.83 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 $16.0 million in the first nine months of 2010 compared to $13.1 million in the nine month period ended September 30, 2009. As of September 30, 2010, unrecognized compensation cost related to restricted stock awards was $27.8 million, which is expected to be recognized over the weighted average period of two years. Substantially all of our restricted stock grants are held in our deferred compensation plans. All restricted stock awards held in our deferred compensation plans are classified as a liability award and remeasured at fair value each reporting period. This mark-to-market is included in deferred compensation plan expense in our accompanying consolidated statements 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 September 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			412,859				45.83
Vested			(335,088	)			46.84
Forfeited			(18,499	)			46.04
Non-vested shares outstanding at September 30, 2010			686,461			$	45.16

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. 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 statements of operations. The assets of the Rabbi Trust, other than Range common stock, are invested in marketable securities and reported at market value in other assets in the accompanying consolidated balance sheets. Changes in the market value of the marketable securities are charged or credited to deferred compensation plan expense each quarter. The deferred compensation liability included in our consolidated balance sheets 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 $5.3 million in the three months ended September 30, 2010 compared to expense of $16.4 million in the same period of 2009. We recorded non-cash, mark-to-market income related to our deferred compensation plan of $25.2 million in the first nine months of 2010 compared to mark-to-market expense of $29.6 million in the first nine months of 2009.

(14) SUPPLEMENTAL CASH FLOW INFORMATION

		Nine Months Ended
		September 30,
		2010				2009
		(in thousands)
Non-cash investing and financing activities included:
Asset retirement costs capitalized (removed), net		$	1,229			$	(3,373	)
Unproved property purchased with stock(a)		$	20,000			$	20,548
Net cash provided from operating activities included:
Interest paid		$	74,732			$	66,556
Income taxes refunded		$	(807	)		$	(493	)

(15) COMMITMENTS AND CONTINGENCIES

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)

		September 30,				December 31,
		2010				2009
		(in thousands)
Natural gas and oil properties:
Properties subject to depletion		$	5,921,282			$	5,534,204
Unproved properties			826,979				774,503
Total			6,748,261				6,308,707
Accumulated depreciation, depletion and amortization			(1,553,257	)			(1,409,888	)
Net capitalized costs		$	5,195,004			$	4,898,819

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

		Nine Months				Year
		Ended				Ended
		September 30,				December 31,
		2010				2009
		(in thousands)
Acquisitions:
Unproved leasehold		$	2,646			$	—
Proved properties			132,338				—
Asset retirement obligations			556				—
Acreage purchases(b)			114,734				176,867
Development			552,895				497,702
Exploration:
Drilling			28,932				57,121
Expense			41,113				42,082
Stock-based compensation expense			3,231				4,817
Gas gathering facilities			17,055				29,524
Subtotal			893,500				808,113
Asset retirement obligations			1,229				6,131
Total costs incurred		$	894,729			$	814,244

(18) OFFICE CLOSING AND EXIT ACTIVITIES

     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 in our accompanying consolidated statement of operations. As part of their severance agreement, our Ohio employees’ vesting of SARs and restricted stock grants was accelerated, increasing 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 which is reflected in termination costs in our accompanying consolidated statements of operations of which $840,000 was recorded in third quarter 2009. 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 the accompanying consolidated balance sheets as of September 30, 2010 (in thousands):

Balance at December 31, 2009		$	1,568
Accrued one-time termination costs			5,138
Payments			(5,388	)
Balance at September 30, 2010		$	1,318

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 as filed with our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed with the SEC on July 27, 2010.

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 natural gas, NGL and oil revenue, natural gas and oil properties, stock-based compensation, derivative financial instruments, asset retirement obligations and deferred income taxes.

Market Conditions

     Prices for various quantities of natural gas, natural gas liquids (“NGLs”) and oil 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 natural gas and oil for the three and nine months ended September 30, 2010 and 2009. There is no similar published benchmark for NGL prices.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Average NYMEX prices(a)
Natural gas (per mcf)		$	4.42			$	3.41			$	4.61			$	3.93
Oil (per bbl)		$	76.18			$	68.18			$	77.62			$	56.01

Consolidated Results of Operations

Overview

     We are a Fort Worth, Texas-based independent natural gas company, engaged in the exploration, development and acquisition of primarily natural gas properties, mostly in the Southwestern and Appalachian regions of the United States. Our objective is to build stockholder value through consistent growth in reserves and production on a cost-efficient basis.

     During the first nine months of 2010, we completed several important initiatives and achieved several milestones as follows:

	•		recorded our 31st consecutive quarter of sequential production growth;
	•		achieved 12% year-over-year production growth;
	•		daily production now exceeds 500,000 mcfe per day;
	•		direct operating expense per mcfe declined 16% when compared to the prior year;
	•		sold our tight gas sand properties in Ohio for proceeds of $323.0 million;
	•		issued $500.0 million senior subordinated notes for proceeds of $491.3 million;
	•		used a portion of the proceeds received from the issuance of our 6.75% senior subordinated notes due 2020 to redeem all $200.0 million aggregate principal amount of our 7.375% senior subordinated notes due 2013; and
	•		entered into additional commodity derivative contracts for 2010, 2011 and 2012.

Third Quarter Highlights

     Total revenues increased $23.3 million, or 11% for third quarter 2010 over the same period of 2009. The increase includes a $17.4 million increase in natural gas, NGL and oil sales and an increase in derivative fair value income (loss) of $10.4 million. Natural gas, NGL and oil sales vary due to changes in volumes of production sold and realized commodity prices. Due to lower derivative settlements and volatility in commodity prices, realized prices decreased from the same period of the prior year, which was more than offset by an increase in production, including a 136% increase in natural gas liquid production primarily due to increased liquids-rich production in our Appalachia area. For third quarter 2010, production increased 15% from the same period of the prior year while realized prices (including all derivative settlements) declined 22%. We believe natural gas, NGL and oil 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, 2011 and 2012, a sustained lower price environment would result in lower realized prices for unprotected volumes and reduce the prices we can enter into derivative contracts for additional volumes in the future.

     We continue to focus our efforts on improving our operating efficiency. These efforts resulted in 4% lower direct operating expense per mcfe for third 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, along with increasing public relations costs in the Marcellus Shale associated with our efforts to educate the public about the benefits of natural gas.

Natural Gas, NGL and Oil Sales Production and Realized Price Calculation

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

		Three Months Ended																Nine Months Ended
		September 30,																September 30,
		2010				2009				Change				%				2010				2009				Change				%
Gas wellhead		$	129,557			$	97,004			$	32,553				34	%		$	416,250			$	300,646			$	115,604				38	%
Gas hedges realized			15,616				54,122				(38,506	)			(71	%)			35,148				146,594				(111,446	)			(76	%)
Total gas sales			145,173				151,126				(5,953	)			(4	%)			451,398				447,240				4,158				1	%
NGL			43,562				16,887				26,675				158	%			112,061				36,455				75,606				207	%
Oil wellhead			30,825				33,869				(3,044	)			(9	%)			99,622				101,892				(2,270	)			(2	%)
Oil hedges realized			—				240				(240	)			(100	%)			23				12,247				(12,224	)			(100	%)
Total oil sales			30,825				34,109				(3,284	)			(10	%)			99,645				114,139				(14,494	)			13	%
Combined wellhead			203,944				147,760				56,184				38	%			627,933				438,993				188,940				43	%
Combined hedges realized			15,616				54,362				(38,746	)			(71	%)			35,171				158,841				(123,670	)			(78	%)
Total natural gas, NGL and oil sales		$	219,560			$	202,122			$	17,438				9	%		$	663,104			$	597,834			$	65,270				11	%