Q1 2020 Earnings Call
All lines have been placed on mute to prevent any background noise statements made during this conference call. Their nonhistorical facts are forward looking statements such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those in the forward looking statements. After the speaker's remarks, there will be a question and answer period at this time.
I would like to turn the call over to Mr. Laith Sando, Vice President Investor Relations arranged resources. Please go ahead Sir.
Thank you operator.
Morning, everyone and thank you for joining ranges first quarter earnings call.
The speakers on todays call or just been true Chief Executive Officer, Dennis Degner, Chief operating officer, and Mark Skokie, Chief Financial Officer.
Hopefully you've had a chance to review the press release, an updated investor presentation that we posted on our website.
We also filed our 10-Q with the FCC yesterday.
It's available on our website under the investors tab or you can access it using the Fccs Edgar system.
Please note will be referencing certain non-GAAP measures on todays call.
Our press release provides reconciliations of the used to the most comparable GAAP figures.
For additional information, we've posted supplemental tables on our website to assist in the calculation of epidemics cash margins and other non-GAAP measures with that let me turn the call over to Jeff.
Thank you ladies and thanks, everyone for joining us on this morning's call.
Before we review the quarter I would like to thank all of our employees in service providers for their hard work dedication to keep our business plans on track, while ensuring the health and safety of more employees and their families.
In particular, our field employees have continued to deliver each day on our wealth sites or practicing social distancing adhering to CDC guidelines and helping us supply the much she didnt needed energy the world relies on during the crisis.
Natural gas is a critical resource that powers, our everyday lives as well as helps to provide critical electricity to hospitals and clinics.
One step further the NGL toward produce or being used as a feedstock for life saving medical equipment cleaning supplies and medicine.
Ranges culture has always been one to lend to hand roll up or sleeves and help our community earlier. This month range provided more than $100000 to nonprofit organizations supporting those that needed most in our local areas.
On top of this program wrenches donated protective health supplies, Terry or medical providers and technology to multiple school districts for students to be able to participate in remote learning.
These are unique in challenging times in our industry and in the World I believe its during these moments that we really come closer together and grow stronger supporting each other and our local communities.
I, especially want to thank those that are working each day on the front launch of this pandemic as a case for numerous range family members and likely the case for many listening to the call.
We appreciate you taking time to join US today and wish the best for you and your families.
Reflecting on the first quarter range continued to make steady progress on key strategic initiatives.
We improved our cost structure.
Bolstered liquidity operated safely and efficiently and maintain the peer leading base decline in capital efficiency.
The results of these efforts are reflected in our first quarter results and have better position range to navigate a difficult commodity environment.
Looking forward I believe range is very well positioned to benefit from an improving macro for natural gas natural gas liquids.
Looking first at unit cost range as unit cost of improved by 20 cents per Mcf fee since the first quarter of last year.
These cost improvements have resulted from a focused effort define margin enhancing cost reductions across our various line items led by 13 cents improvement in transportation gathering and compression and processing expense and greater than 10% improvements in both DNA and interest expense.
These are lasting improvements at one door through price cycles.
Mark will highlight some of these efforts in more detail.
Just as important as these lasting improvements unit cost or the decisive actions, we've taken to de risk our balance sheet and bolster our liquidity.
Early in the first quarter range refinance 550 million in debt.
Improving our maturity profile.
Later in the quarter the banks reaffirmed their commitments on our credit facility of 2.4 billion solidifying ranges liquidity.
When combined over.
1 billion dollar and successful asset sales completed over the last 18 months, we haven't materially de risk our go forward plans.
We remain focused on continuing this trend of absolute debt reduction through a disciplined capital program that prioritizes free cash flow.
Also remain active in our efforts to monetize additional assets to accelerate or deleveraging in the improving backdrop for natural gas prices should help these ongoing efforts.
Looking at our go forward plans would put together a thoughtful capital program that efficiently develop saw resource delivering it to a diverse set of end markets ranging from Pennsylvania utilities, using clean burning natural gas to international customers are using propane and butane for heating and cooking.
Like we discussed on our call in February we're going to adjust our capital spending plans if near term commodity prices were challenged so in March we announced a reduced capital budget of 430 million.
This is greater than a 40% reduction in capital versus 2019, and I believe this operational plan, which holds 2.3 Bcf per day of production flat makes range the most efficient producer in Appalachian.
This level of capital efficiency is made possible because of our low well cost.
That are approaching $600 per foot, but it's also driven by our shallow base decline.
Ranges base decline rate of approximately 20% is lower than our gassy peers and significantly better than most oil producers, which means that range has a smaller wedge of production needs to be replaced each day to hold production flat as evidenced by this year's capital plan.
Importantly, this year's operational programs positions us well heading into 2021, which Dennis will touch on in a minute as we are not relying on significant duck draw downs or sizable prior year Outspends to accomplish our 2020 plans like some other companies appear to be.
Instead or peer leading capital efficiency as sustainable into 2021 and beyond into what we believe will be a better market for natural gas and Ngls.
Ranges sizable core inventory measured in decades provides us the long life repeatability that as a positive differentiator for range.
We believe this will become more evident over time as inventory life in core exhaustion become growing narratives for other operators in Appalachian and and other basins.
Before turning it over to Mark and Dennis I'll reiterate how proud I am of the efforts arrange team has made during these challenging times.
Or employees in the office and in the field have shown a great deal of dedication and innovation and making sure. The company continues to make progress on our key objectives, all while prioritizing the health and safety at one another.
You have made range and even stronger company as a result.
Over to Dennis.
Thanks, Jeff.
Reviewing the first quarter capital spending came in at approximately $131 million.
Or 30% of the planned capital spend while Q1 production closed out at 2.29 Bcf equivalent per day.
This puts us firmly on track with our capital budget of $430 million, while delivering production guidance at maintenance levels, which we announced at the end of March.
The details of our capital plan include $405 million dedicated for drilling and completions activity 20 million for leasing and approximately 5 million for gathering and other support projects.
This keeps us in line with our prior plan to direct 94% of the capital towards drilling and completions related activity.
Our Q1 execution resulted in turning to sales 20 wells from an average horizontally of over 11500 feet.
Looked at a different way, we turned to sales over 230000 feet of lateral footage in the first quarter.
40% of the wells turned to sales were in our dry gas acreage position with the remaining located in or what area.
Continued excellent field run time in our production operations and strong well performance from both new and existing wells across southwest, Pennsylvania.
At firmly positioned us to achieve our 2020 maintenance target of approximately 2.3 Bcf equivalent per day.
While spending $430 million or less.
On the operations front during the first quarter, we drilled 20 wells across our dry and wet acreage with a total horizontal footage of approximately 240000 feet.
Or nearly 12000 feet per well.
This drilling performance represents a 20% increase over last year's per well horizontal linked average.
In Q1 over 50% of our activity was on existing pad sites, which is similar to prior quarters.
And has allowed us to capture operational efficiencies and cost savings.
Lastly, the drilling team achieved a new milestone by successfully drilling our longest horizontal wellbore to date.
This well is located in our dry gas area, where the horizontal length of over 19600 feet and is one of five wells drilled in the quarter for the lateral length greater than 15000 feet.
On the completion side the team completed 28 wells with a total lateral footage of just under 280000 feet.
With an average horizontal length of just under 10000 feet per well.
Overall completion efficiency continues to improve.
With approximately 1400 frac stages completed for the quarter.
Representing a 3% increase the number of stages per crew day.
These incremental improvements translate into less capital required and reduce cycle times.
Water operations, once again exceeded our operational and capital efficiency expectations in the first quarter.
Through increased third party produced water utilization.
The team was able to utilize more third party water produced when compared to the same time period last year as well as posting our most successful month to date by utilizing more than 750000 barrels in March.
As a result, this reduced our completion costs by nearly $2 million for the quarter.
When you look at our strategy of efficient long lateral development.
Utilizing pads with existing infrastructure.
A couple this with creative drilling complete cost reductions.
We generate peer leading well costs and repeatable capital efficiency.
As we've discussed we announced the capital budget of $430 million in March.
Which was a reduction of $90 million from our original 2020 budget.
The framework of this reduction involves scheduling optimization.
Reduced activity and further cost reductions from increased efficiencies in areas such as self sourced frac sand.
Reduced fuel costs associated with our electric Frac fleet and expanded water recycling.
The blueprint of our activity for the year is front end loaded with approximately 60% of the capital projected to be spent across the first and second quarters.
Turning line totals were reduced for the year to 67 under the revised capital plan, while maintaining over 300000 feet of lateral inventory for a 2021 program.
For context. This is approximately 90% of the footage carried into 2020 and lines up perfectly with our current thoughts on maintaining a similar program in 2021.
With our 2020 capital program, we will maintain operations with one drilling rig and one frac crew through year end.
And are well positioned to continue maintenance operations throughout 2021 if needed.
In associated drill and complete capital similar to 2020.
All while maximizing the utilization of existing infrastructure.
Between scheduling optimization capital and operational efficiencies along with a low base decline.
We have a clear line of sight to deliver on our peer leading drill and complete capital target of $610 per foot, while meeting our production goal of 2.3 Bcf equivalent per day.
On the marketing front.
Rages liquids business continue to expand on premiums relative to Mont Belvieu with first quarter, NGL realizations, averaging $1.30 cents per barrel premium.
Our portfolio of domestic and international ethane contracts performed very well during the quarter and generated a significant uplift relative to Mont belvieu, while propane and butane markets benefited from an increase in Marcus hook export premiums.
As the quarter progressed.
Propane fundamentals improve despite a warmer than average winter.
The improvements were driven by decreasing domestic propane production, which fell over 400000 barrels per day.
Or 17% from the started the year.
Given the historic reduction in us drilling activity.
And refinery utilization that will be experienced this year.
We expect reductions in NGL supply to accelerate as the year continues into 2021.
We are already seeing the results of the tighter market in the northeast with propane barrels bid at a much higher differential to Mont Belvieu that at this time last year.
International demand for our propane and butane has remained strong in the second quarter on significantly reduce global refinery supply and expectations of decrease supply from OPEC producers as the year progresses.
Range, we'll continue to benefit from strong export realizations. This year with our 15000 barrels per day increase through the Mariner East two pipeline export dock capacity that became operational April 1st 2020.
Condensate sales and pricing were strong during the first quarter.
However, cobot 19 related gasoline and jet fuel demand lost began to affect markets as we entered the second quarter.
While we anticipate some second quarter weakness in condensate pricing.
Ranges diverse portfolio of condensate counterparties with sales contracted on monthly quarterly and annual basis as shielded the majority of our production from the spot market.
Range continues to expect annual condensate differentials to be in the WT minus seven to eight dollar window.
And we have a strong diabetes hedge protection in the form of swaps that mitigate lower movements in price.
For the second half of the year, we expect prices to improve for condensate as demand recovers fall the trajectory of decreasing supply accelerates.
On the natural gas side, which is approximately 70% of ranges production.
We reported a differential of 12 cents under non mix during the quarter.
Including basis aging.
Our transportation portfolio gives us access to premium winter markets for the natural gas in Midwest and the northeast.
And while in 11% warmer than normal winter cause those markets to be weaker than normal our basis hedging activity captured a good portion of the higher prices from last november's early cold weather.
As a result range remains on track with this differential guidance of 20% to 26 cents for the year.
Looking ahead recently, we have seen some improvement in overall prices.
As natural gas demand is holding up much better than oil.
Due in part to the role it plays in power generation across the United States.
Lower 48 natural gas production has clearly started to decline.
We expect to see a more substantial decline in the coming months.
In large part driven by what is happening in the oil basins.
The good news is that oil prices are creating a structural shift in the supply curve of natural gas in the U.S.
Associated gas has grown three to four bcf per year over the prior two years.
And that portion of supplies sit to decline over the current oil price environment.
We see this is a bright light for natural gas as we approach the second half of 2020, and especially as we look into 2021.
Before closing out the operations and marketing section I'd like to spend a moment on safety.
In addition to the highlights we've shared today regarding efficiency gains and cost reductions similar advancements were seen when looking at our safety performance in the first quarter.
The overall results showcased a significant improvement in our safety metrics in Q1 versus the same time period last year.
In addition to reducing Worksite Recordables. We also saw similar improvement in vehicle safety metrics versus the same time period a year ago.
The winter months present seasonal challenges, but when comparing this years Q1 results to the same time period over the last four years. This was our best safety performance we've seen.
These results reflect the continued commitment by our employees to deploy safe work practices day in and day out.
All while ensuring that safety is an integral part of the range culture.
Lastly, I wanted to bring you up to date on ranges operations during the presence of Cobot 19.
Due to the incident management training range has conducted over the past several years, we were prepared to respond to covert 19.
In an organized and systematic manner.
A team comprised of range leaders began monitoring information regarding the virus early in Q1.
And when the situation warranted.
Determine the necessary actions to take and communicated with our employees.
Our mission was clear.
Protecting Hilton safety of our range team and continue our operations.
Like many we're working remotely when possible.
Practicing proper social distancing and contenting, our business in line with local state and federal guidance.
Due to the commitment by our range team to operate safely. We are proud to announce that we have not had one single reported positive case of cobot 19, with our employee workforce.
We remain dedicated to the health and safety of our team along with our business objectives as the country progresses towards the recovery.
In closing the first quarter results clearly reflect our operations are off to a strong start for the year.
Delivering on our production and capital plans, all while generating peer leading drilling complete cost.
Coupled with our strongest safety performance yet.
I'll now turn it over to Mark.
Thanks Dennis.
Like Jeff and Dennis mentioned in the midst of a pandemic affecting nearly every aspect of daily life I'm proud to state that as a corporation prioritizing employee community health, we remain fully capable and focused on shareholder value.
In terms of preserving and enhancing shareholder value over the past two years, the steps ranges taken to reduce debt enhanced liquidity extend maturities reduce operating and capital costs have collectively positioned range as well as possible to pass through this business cycle.
In fact, the steps range took proactively to reduce debt by $1 billion expand its credit facility refinanced bonds.
And receive free if our bank commitments and borrowing base at existing levels serve as important stepping stones for range to benefit from what appears to be an accelerated rebalancing of natural gas and natural gas liquids supply and demand and resulting better prices.
Looking back on the first quarter, let's start at the bottom line free cash flow.
Range with cash flow positive before refinancing costs and returns of capital to shareholders.
After all cash flows including debt issuance costs share repurchases and working capital.
Debt increased a modest $19 million.
This was driven by $23 million in share repurchases during the first quarter.
Which represents a very carefully considered deployment of capital.
On a cumulative basis, we've repurchased approximately 10 million shares for $29.9 million through April.
Equating to an average share price of less than $3.
Protecting ranges core asset through bolstering the balance sheet remains the priority.
During the first quarter the disconnect between intrinsic value and the share price presented an opportunity to create long term value.
To reiterate and evidence our priority.
The $1.1 billion in recent asset sale proceeds less than 10% of those proceeds were earmarked for the share repurchase plan.
To date, we have used roughly 30% if that approved amount or said differently, 3% of the proceeds have gone to share repurchases with 97% going to debt reduction in order to secure and enhance shareholder value.
Another important factor to keep in mind is the per share ownership of production and resource potential.
After selling 3.5% royalty interest, we have repurchased roughly 4% of shares outstanding with a small portion of the proceeds.
Offsetting the per share ownership of sold resource potential.
We will continue to be thoughtful and deliberate and our use of liquidity under the share repurchase program.
On the topic of balance sheet maintenance during our last earnings call I commented that ranges assets provided substantial cushion to the borrowing base and committed amount under the reserve based credit facility.
During the quarter, we announced the formal reaffirmation of both a $3 billion borrowing base and 2.4 billion dollar in commitments.
Demonstrating a high level of asset coverage, the resiliency of ranges reserves and the value of ranges diverse marketing arrangements.
Turn out via the highly mechanical reserve based lending process, despite a challenging commodity price environment with price decks as low as the market has seen at a very long time.
With that important step complete.
Range ended the quarter with $1.5 billion and available liquidity under the facility.
Providing substantial capacity if needed to address near term headwinds and again if need be to serve as a backstop for near term maturities.
Our stated goal is to reduce absolute debt.
And just taken advantage of the dislocation in capital markets repurchasing a cumulative $347 million in bond principal through April.
Realizing $46 million in debt reduction.
On an annualized basis this equates to approximately $10 million interest expense savings.
Despite creating a long runway it is not our strategy to passively wait for improved crisis.
It would appear a re rating has begun.
Nevertheless, asset sales remain high priority and progress is being made on multiple fronts.
Results for the first quarter reflect ranges focus and ability to deliver on financial and operating objectives, Despite choppy market conditions.
Consistent with prior periods.
Operating efficiency and our close attention to capital discipline delivered planned production with capital spending in line with budget and continuing to drive down unit costs.
Capital costs incurred for the quarter was approximately $130 million.
In line with the planned cadence this year's annual budget.
Turning to cash unit costs.
In the fourth quarter last year, we drove total cash unit costs below $2 per Mcf fee.
And in the first quarter range maintained that competitive level at all in cash costs of $1.93 per unit of production.
Lease operating expense decreased by one cents from the first quarter last year from a host of items, including the sale of higher cost legacy assets.
Ed water handling among other items.
Gathering processing transport declined three cents from the preceding quarter and 13 cents from the same quarter prior year.
As we efficiently manage the midstream portfolio with full utilization in southwest Pennsylvania.
Certain capacity contracts allow to expire.
Savings from lower processing costs as a result of reduced NGL prices.
Cash DNA savings of $3 million year over year is due to reduced compensation expense as a result of a leaner organization.
The slight increase compared to the preceding quarter is due to timing of certain annual subscriptions and data services that are paid in the first quarter.
Interest expense decreased by three cents per unit compared to the first quarter last year on lower debt balances.
And up three cents from the fourth quarter of last year on higher coupon costs of the recent refinancing.
In total the first quarter is better than the low end of annual guidance for unit costs.
Overtime, we expect the downward trend and cash unit cost to continue driven by improvements in GP NT certain contracts expire and other see reduced rates over time.
As well as expected improvements in Gionee and interest expense.
In the first quarter, we recorded non cash impairment charges, reducing book value of assets in north, Louisiana based on market indications of value.
There were no impairments of the Marcellus.
The first step in a gap proved property impairments test is to compare undiscounted future net revenue to book value.
At quarter end strip pricing for the Marcellus future net revenue exceeds book value by greater than $18 billion or greater than 500% providing substantial cushion.
While globally, we're experiencing unprecedented events, we believe that the value of ranges business and its contribution to the U.S. and global supply chain are clear.
We've made steady consistent progress operationally and financially to secure and enhance that value.
We continue work on incremental steps to further strengthen the companys financial position.
Steps taken steps plan and ranges 2020 outlook, we believe place the company and a good spot what appears to be a re rating of the natural gas industry.
In summary range delivered again on its operating and financial plans has created significant running room for supply and demand to rebalance prices.
Recast the cost structure to enhance resilience for a low price environment.
And continues to work meaningful transactions with the goal of extending these trends.
Jeff back to you.
Operator, we are happy to take questions.
Thank you Mr. Ventura the question and answer session. We'll now begin if you would like to ask a question. Please indicate by pressing the star then one if you are on the speakerphone. Please pick up your handset before asking your question. If you would like to withdraw. Your question you may do so by pressing the bounty once again.
Please press star one to ask a question.
The first question is from Jane gross Sanco from Stifel. Your line is now open.
Good morning, and thanks for taking my questions.
Your next question.
Yeah. So the first question is on TG MP savings, maybe you could provide some color where those savings that coming from and how sustainable. They are on the going forward basis and find that did that trajectory for the remainder of the year for TTM B.
Good morning, James Mark I'll take that so as we've discussed.
Over the last year, so and I think you really begin to see in the reported numbers. There are components of our gathering processing transport costs that are being optimized and have a long term trend.
Gliding downwards, so recall that the total unit cost for gathering processing transport. It has been running roughly a third third third third processing cost a third long haul transport in the third gathering.
The processing component remember will fluctuate with the price of natural gas so you'll see some savings as we run through periods like now, but you'll also see.
Continued savings as the marketing team does an outstanding job optimizing and fully utilizing our transportation as we are currently able to do out of southwest Pennsylvania.
You also have what our first mover advantage is that are coming to fruition. At this point those are contracts that reach the maturity and renewal options that are our options to choose or to not I'd like to extend so you have the benefit this quarter and quarters in years going ahead.
Where we can allow contracts to expire.
Obligations in Nbcs roll off as we saw with some processing capacity this quarter.
Right way risk on the processing costs of Ngls fluctuate, but cost goes up and down and then on the gathering side as we talked about on prior calls a component of that cost structure has a capital recovery element to it and small portions of that we've just begun to rollouts over time, you'll consider you will continue to see that trend down and as far as art.
Since for the year I'll refer to the the annual guidance, we provided as well as the glide slope within the investor presentation.
Long term trend here that this is a year over year downward trend. We think we can continue to achieve.
That's perfect.
The second question is on the NGL and condensate pricing and maybe you guys can talk a little bit what you're seeing this quarter and how it compares to that.
Thank you.
Yes.
Although this is Dennis good morning, as we start to two we tried to tackle some of this during the prepared remarks, but we're pretty comfortable at this point that we're seeing the ability to both move the barrels and also captured prices that are our premiums relative to Mont belvieu. So as we think about our condensate production real.
The represents 2% of the total production stack in the profile for good with 70% being on the natural gas side, the 20% really on the NGL barrel component. So what we've seen is as it represents a small portion of our business. We've been very successful keeping the better was placed in saving up any concern.
At this point around impacts to production.
We have quality hedges in place also that help us with this discussion so as we think about us being 90% hedged with Debussy, good BTI crude prices over $58 a barrel. It really helps us as we think about the the long haul.
We know that theres going to be recovery just around the corner, we're starting to no doubt C and feel in here about what that recovery could look like but in the months ahead, we feel that we're well positioned especially on the condensate side.
On the NGL component, we really see still good strong demand when it comes to Char propane barrels and also the other is yield string is well on the heavier side as you look at our C. Plus we have multiple arrangements in place to be able to continue to have those barrels mood and again it represents a small component of the old.
Overall barreled itself so.
As we look for the rest of the year, we have a high degree of confidence that will both be able to move the barrels keeper production flowing and also be able to attain prices due to our.
Really our data should be able to get to premium markets.
I think there.
Going again, just the they NGL guy that we have out there that's a premium above 50 cents to one dollar.
Got it and the final question if I may.
Maybe you guys can provide some preliminary thoughts on 20 to 21 and a flat production outlook is still at proppant.
Well, let me just started a high level in say really we've been clear about our philosophy and strategy with the goal of really generating free cash flow per share in real corporate returns. So.
We have a lot of flexibility we have the because we fulfilled all of our pipeline commitments and there's a slide in the back that shows that slide 23, we have a lot of flexibility so.
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I think we're in good shape position, which should be going into a better natural gas and NGL more but mark you want to go into that or yes, I think you're going to highlight there that we have the flexibility, so economics and cash flow warranted and driving corporate returns and free cash flow yield will dictate the outcome of our reinvestment program.
From organic cash flow. So we remain flexible and have a latitude to do that.
That's perfect. Thank you so much.
Thank you.
Thank you all our next question comes from the line of Brad Heffern from RBC capital markets. Your line is now open.
Hey, good morning, everyone.
Just a follow up on the asset sale comments you guys have made.
You called out the potential improvement then the gas macro longer term, but obviously, we're still in the very uncertain economic environment right now so I'm curious if you.
Seen an increase or decrease in the interest level and that's your comments or your confidence around.
Getting additional deals done.
Sort of Penn some sort of economic recovery or if it's something that gets in the near term.
Sure Brad I'll get the comments at a fairly high level, it's certainly our preference to deliver the results rather than.
Try to dropbox around the equation and then strive to strive to hit that so we do have a number of efforts.
Underwent we have been encouraged by the level of interest and the dialogue.
As you can see we have a strong motivation to decrease absolute debt again can reference the proxy and the board and our.
Targets, what we're trying to achieve this year and our philosophy of driving corporate values. So with that I'd just highlight the fact that we'd have a lot of.
Optionality, we have processes formally underway and active discussions underway that are making progress.
Okay. Thank you and then just as far as the use of any cash than might be coming in.
I appreciate the comments earlier on the call about the repurchase program can you just talk about.
Obviously, you've repurchased thus far in a much lower level than where the shares are now well the repurchase program continued to be a priority or should we expect more at the reductions and outstanding principal like the bulk of capital Isnt going to already thanks.
Sure I think you can look at our patterns of behavior, thus far and kind of read into future a bit.
Your striving to maximize value by prudently using liquidity and protecting the value of the organization. So theres value enhancement by buying back shares when there's a dramatic disconnect.
Which we continue to see but the tilting the preference the priority you can see in how we spent the dollar so far so you could expect similar behavior from us going forward. The program is still in place to represent options. The choices, we can deploy that capital in that fashion.
You can see our bias is to protect the organization.
And the totality.
Okay. Thank you.
Thank you if you would like to ask a question. Please indicate by pressing the star key than one if youre in a speakerphone. Please pick up your handset before asking your question. If you would like to withdraw. Your question you may do so by pressing the pound key once again, please press star one to ask a question.
Our next question comes from the line of Greg total from Simmons Energy. Your line is now open.
Hey, gentlemen, thank you for taking the tons more and taking that the question.
So I wanted to first pass what the.
Long term strategy for balancing growth leverage operating leverage to firm transport and then any shareholder returns.
If gas and NGL prices moved meaningfully higher which is currently being indicative of strip.
Yes, again, let me start at a high level in turn at the market. It's the same answer I gave earlier.
We have been very clear or think about our philosophy and strategy at range and what we're trying to accomplish goal is really to generate free cash flow per share in real corporate returns. So.
With that philosophy, we really don't see the meter benefit to return to high growth. So prices are significantly higher we're generating significant free cash flow will first direct after bolstering the balance sheet and then from there.
Look to position to expand cash returns for shareholders.
Yeah.
Yes, I think you know with good trends so far debt reduction in 2018, 2019, we certainly intend to accomplish debt reduction.
This year as we can afford and think about the redeployment reinvestment of free cash flow that philosophy that this is a self funding organization, where we are using organic cash flow to reinvest in the business and generate the highest returns whether it's the drill bit.
Once the balance sheet is where we wanted to be in the target.
Place, where we can always be owner, but opportunistic throughout the cycles generating free cash flow with leverage unacceptable territory whatever the future cycles. Maybe then we can elect REIT reinvestment rate is whether that maintenance capex.
And certainly as we think about the macro we think about core inventory going forward and what the coal on the Appalachian Basin, maybe to meet natural gas demand both domestically and internationally.
And what that necessary price may be ultimately that puts us in a very good place and our perspective, given the depth of our inventory and the choice of how quickly to reinvest or how slow to reinvest again optimize total corporate returns.
Okay, that's great. Thanks.
For the second question here I am curious as to what is.
If I look at slide 14 shows declines and GPN CNL, we continuing through 2024.
So curious is that a ratable move lower each year through that timeframe or is there a specific step down moment that occurs and then if there is this specific stuff down what's driving that thank you.
So it's actually a combination of the too so on the gathering side Theres, a capital recovery component, which as you get to around your 12 or so.
It glides down so if you think back 12 years ago 2008 type timeframe, you were beginning to build out the hub and spoke gathering system in southwest, Pennsylvania. So you're just now at the first anniversary if you will but again them at the earliest development. So it's the smallest piece of the system. So each year as we stepped forward, it's ratable, but on an increasing.
Size component of that system. So it is ratable, but it increases somewhat over the next dozen years.
Over that period of time, you also have options that come up on long haul transport that can drop away. So if you look at slide 23 in the deck the blue.
Created area is the Marcellus take away capacity, which first it shows you we have production greater than 10%.
Our ft requirements of fully utilized and then some giving us optionality, but you can see is this glide down there are some step functions. There when we hit the optional renewal date on long haul takeaway capacity, but at that point in time, we can evaluate the economics and determine whether or not to extend those.
So it's a combination of the do.
Okay perfect. Thank you so much I appreciate it guys.
Thank you.
Thank you. This concludes today's question and answer session I'd now like to turn the call back over to Mr. Ventura for his concluding remarks.
I just want to thank everybody for participating on today's call.
Thank you for your participation in today's conference you may disconnect at this time.
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