Q3 2020 Range Resources Corp Earnings Call
Welcome to the range resources third quarter 2020 earnings conference call.
All lines have been placed on me to prevent any background noise statements made during this conference call that are not historical facts are forward looking statements such statements are subject to risks and uncertainties, which could cause actual results to differ materially from.
It was in the forward looking statements.
After the speakers remarks, there will be a question and answer period.
At this time I would like to turn the call over to Mr., Li Sando, Vice President Investor Relations at range Resources. Please go ahead Sir.
Thank you operator.
Morning, everyone and thank you for joining Rangers third quarter earnings call speak.
The speakers on todays call are Jeff and true Chief Executive Officer, Dennis Degner, Chief operating Officer, and Merck 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, it's available on our website under the investors tab or.
Or you can access it using the Fccs Edgar system.
Please note, we'll be referencing certain non-GAAP measures on today's call.
Our press release provides reconciliations of these to the most comparable GAAP figures.
For additional information, we've posted supplemental tables on our website.
To assist in the calculation of EBITDAX cash margins and other non-GAAP measures.
With that let me turn the call over to Jeff.
Thanks, Lee and thanks, everyone for joining us on this morning's call.
As a company in our industry has matured we are positioning range to provide more consistent returns for shareholders by improving our cost structure strengthening our balance sheet operating safely and efficiently lowering the capital intensity of our business with a pure leading maintenance capital.
Ultimately positioning the company to return capital to shareholders.
The third quarter saw continued progress towards this streamlining our business with the sale of North Louisiana extend.
Extending maturities, reducing debt and lowering our full year capital budget as a result of efficient operations and disciplined spending.
In addition to providing more consistent returns we believe the market is also looking for companies to take a more holistic view of what sustainability means.
For our industry, we believe that requires environmental leadership.
On the environmental front, the natural gas industry has an advantage position today and for the foreseeable future as the world moves towards cleaner more efficient fuels.
Within the natural gas industry Appalachian has an advantage globally, that's an abundant low cost resource with meeting environmental standards and we believe range is best positioned within Appalachian as discussed in our most recent sustainability report.
There are several highlights in the report, including our pioneering efforts on water recycling and our class leading emissions intensity <unk> 0.35 metric tons per million cubic feet equivalent produced which is best in class amongst all the BNP companies. According to third party research.
In addition, our target of net zero emissions by 2025 brothers separates ranged from other independents with respect to environmental targets and objectives.
As we strive to achieve this goal it all starts with efficient operations that reduces our environmental footprint in importantly generates higher returns.
I believe ranges peer leading capital efficiency and maintenance capital is a key differentiator amongst peers.
There are several ways that maintenance capital sustaining capex, where capital intensity can be measured.
As an investor you could look at enterprise value and range is one of the very few companies that spends less than 10% of enterprise value to maintain production.
With maintenance capital in the low 400 million dollar range, including facilities and land that equates to only 8% of our enterprise value.
Another metric that we've discussed in the past as capital spending per unit of production ranges again best in class amongst Appalachian peers.
This low capital intensity that is unmatched amongst small and mid cap S&P companies provides us a solid foundation for generating a top tier free cash flow yield.
Total third quarter spending of 63 million in the reduction of full year capital, while achieving our operational objectives reflects exactly that.
2020 will be the third consecutive year that range is able to complete its operational plans for less than budgeted.
Which reflects the organization wide focus on efficiencies in our commitment to capital discipline.
Being able to sustainably hold production flat for such a low level of capital is driven by our peer leading well costs or sub 20% base decline.
And the repeatable well results from more sizable core Marcellus inventory.
Layered on top of this operational advantage, we have a competitive in improving cost structure.
The last two quarters have seen cash costs averaged in the low dollar eightys per Mcf <unk>, a substantial improvement from where we were this time last year, a result of laser focus on efficiencies Mark.
Mark will elaborate on the costs in a few minutes, but I can say that we'll continue to look for efficiencies across the board as every penny per mcf fee of cost savings generates adorable improvement of $8 million per year in cash flow.
We also have the benefit of a large block the acreage position that allows for maximizing midstream infrastructure and we will continue to see improvements to our GP into expense for many years as a result.
This is a line item that has already improved by 11 cents per Mcf fee. Thus far in 2020 versus last year's average and 18 cents per Mcf fee since the end of 2018.
When we pair the unit cost improvements made this year with our low sustaining capital requirements and consider the backdrop of improved natural gas and NGL pricing, we see range generating significant free cash flow in 2021 and beyond.
Given that range has reduced debt by more than 1.1 billion. Since late 2018. This free cash flow along with potential asset sales will put range at or near term leverage targets in the not too distant future. As 2021 is expected to be the fourth consecutive year that range reduces absolute debt.
In the meantime range continues to focus on furthering our leadership position on well costs improve.
Improving unit costs to enhance margins funding, our capital program organically and reducing absolute debt.
Before I turn things over to Dennis I want to reiterate range and strategy for 2021 and beyond.
Range remains committed to sustainable free cash flow generating corporate level returns.
Well 2021, and even 2022 prices have improved considerably for natural gas and Ngls. We believe the forward curve remains below a sustainable long term price.
This is not a market that's incentivizing any growth.
Instead range will seek to maintain production around current levels and optimize cash flow similar to our capital program. This year and use excess cash flow to reduce debt and ultimately return this free cash flow to shareholders.
Overtime, we believe range will stand out among peers as a result of our low sustaining capital requirements competitive cost structure marketing strategies, and importantly, our multi decade core inventory life, which will be critical.
A critical competitive advantage in the years to come as other operators exhaust their core inventories.
Now I'll turn it over to Dennis to discuss operations.
Thanks, Jeff.
The focus of ranges 2020 operational plan is to deliver a sustainable maintenance program as efficiently as possible.
And in doing so align our annual capital spending with organic cash flow to further reduce debt.
Our third quarter operational cadence cost control and production levels remain consistent with these objectives.
And lowering our capital spending by $15 million for the year speaks to the discipline and commitment of our team to achieve this.
Production for the third quarter closed out at 2.2 Bcf equivalent per day.
Taking into account completion to the sale of our north Louisiana assets mid quarter.
Contributing to our Q3 production include turning to sales 19 wells during the quarter.
With approximately half of the lateral foot is located in our dry acreage position.
Production field runtime exceeded our expectations, along with strong well performance from both new and historical wells across southwest, Pennsylvania.
Our operational program for the rest of the year or result in seven wells turning to sales in the fourth quarter, which puts us on track to achieve 67 turned in lines for the year.
And is consistent with our communicated targets.
During the quarter.
Combination of gas storage levels and infrastructure outages across the basin created a challenging price environment for Appalachian natural gas.
In response to low prices late in the quarter range strategically curtailed up to 210 million cubic feet per day of gross production.
With curtailments beginning in the second half of September and running through October.
Based on significant improvements to price expected in the coming months. These curtailments are expected to be value accretive as deferred production will receive the benefit of a higher go forward commodity price.
Throughout the year, managing both production and cash flow has evolved to be much more than a decision whether to produce or curtail.
We've maintained the flexibility to react to pricing in multiple portions of our business for.
From incremental ethane extraction or rejection levels, depending on relative pricing to.
To the scheduling of field maintenance during seasonally weak portions of the year.
In addition to this throughout the year, we actively adjust key will turn in lines when possible to align with higher commodity prices and achieve better returns on those projects.
This methodical approach will carry into the fourth quarter as pricing and margins improved with the winter season.
Reflecting the early fourth quarter strategic curtailments fourth quarter production is forecast at approximately 2.1 Bcf equivalent per day with full year 2020 production forecast at 2.24 Bcf equivalent per day.
Capital spending for the third quarter was approximately $63 million with our total spend our capital spend for the first three quarters of the year totaling $298 million.
This capital spend falls in line with our activity cadence plan for the year.
The fourth quarter, we will see adding one horizontal rig in Appalachian one frac crew late in the quarter, both in line and setting us up for a maintenance level program for 2021.
Based on our year to date activity incurred and forecast for Q4, our capital spending 2020 will close out at or below $415 million.
This results in us coming in below budget for the third consecutive year.
While delivering on a peer leading capital efficiency.
I will now shift over to share a few operational highlights for the quarter.
On the drilling side and consistent with prior quarters.
We continued our practice of long lateral development and use of existing pads.
During the third quarter. The majority of our activity was located on sites with existing production.
Thus, allowing us to capture additional operational and capital efficiencies.
With this strategy we have deployed for several years now we will utilize existing pad sites roads and production infrastructure.
Couple this with the utilization of an electric fracturing fleet and we see this reducing our operational cost structure by as much as $25 per foot for those respective pets.
This is an asset development advantage for range that is driven by our large contiguous high quality acreage position.
Coupled with the creativity of our teams.
These types of initiatives make our cost savings and capital efficiency durable repeatable enhance project economics.
Just on a single well basis, but for the total development of ranges Appalachian acreage position.
Our activity this quarter resulted in drilling wells across our dry wet and super rich acreage positions with an average horizontal footage drilled of more than 15000 feet per well.
The drilling long laterals is only one part of the equation.
To be successful we must be repeatable.
To support this four additional horizontal wellbores were drilled exceeding 15000 feet in the quarter with several laterals over 17000 feet.
When you consider our year to date drilling results. Our average horizontal length has increased over 24% versus last year, while reducing the drilling cost per lateral foot by 11%.
And as a side note that showcases the hard work and dedication of our drilling geology and support teams.
All of our third quarter wells were successfully drilled via remote directional operations to help minimize personnel on site supporting safe and effective operations.
This type of repeatable long lateral drilling performance continues to be a key driver in our ability to deliver unmatched capital efficiency and well costs.
Even while reducing to a single Frac crew for the third quarter.
Operational and capital efficiencies remained strong with well cost achieved under $600 per foot, including all facilities costs.
Through the utilization of third party produced water. The team was able to efficiently utilize over 1.3 million barrels of third party water. In addition to using a 100% of ranges produced water in southwest PA.
Our efficient water operations model is a repeatable initiative.
Reduced ranges completion costs by just under $2.8 million for the third quarter.
Reduced our overall completion costs by more than $8 million year to date.
And resulted in range reusing a 147% of our produced water in 2019, which was highlighted in our recent corporate sustainability report.
In addition to the cost reductions captured through our water operations directly sourcing sand for completions continues to add to our savings and accounts for more than $3.5 million captured year to date.
As we reduced activity in line with our maintenance program. These creative initiatives are delivering long term durable capital efficiency gains and are keeping range in a leading position as we continue to reset the bar for lowest well cost per foot in Appalachian.
Lease operating expense saw similar savings in the third quarter with L. OE coming in at less than 10 cents per mcf feet.
Which was the lowest in ranges history.
This was driven by reductions in Workover expenses cost removal associated with legacy assets no longer in the portfolio.
Strong production field runtime that was mentioned earlier.
Similar to our drill and complete savings, we see our lease operating expense equally durable and repeatable.
On the natural gas marketing front.
As cooler weather approaches.
The storm season starts to weaken.
And infrastructure returns to service.
We see optimism in gas prices moving forward.
LNG feed gas is poised to reach near to full utilization by the end of the year after falling below three Bcf per day earlier in the third quarter.
Further supporting a return to normal operation and an improvement in pricing as we complete 2020 and plan for 2021.
And lastly, as we've touched on in our prior calls we believe a sustain mover in the forward curve for natural gas is needed to incentivize activity from gas basins to offset both depleting storage levels and associated gas declines.
On the liquid side.
Preliminary reports of third quarter us domestic NGL demand were flat quarter on quarter.
While international demand continues to impress a september year to date propane exports are up 5% versus the same period last year.
US NGL supply was reported to have increased by 7% versus the third quarter of 2019.
However, the supply growth was driven entirely by increased ethane recovery that was needed to satisfy robust chemical demand.
The remainder of the NGL barrel actually saw a decrease in year on year supply.
As associated NGL production remained challenged industry spending is better aligned with cash flow.
Globally trends are similar but.
But the estimates a third quarter supply of propane and butane down 5% year on year, while demand was flat.
As a result of these tightening global balances Rage continues to see healthy NGL export premiums at Marcus Hook relative to the Mont Belvieu index.
Looking ahead, we expect us NGL balances will continue to tighten.
With ongoing declines in U.S. C plus prediction production facing both increasing domestic demand and additional exports.
New ethylene capacity and new ethane export capacity will add to domestic ethane demand pushing pad three to full ethane recovery and requiring ethane prices to increase to levels that support incremental ethane recovery for basins further from the Gulf Coast.
With respect to propane and butane the onset of winter will boost domestic demand just as new LPG export capacity becomes operational.
Global LPG balances are expected to tighten by more than 10% between now and the first quarter of 2021.
The strengthening domestic and international fundamental set the stage for stronger propane and butane prices move in to 2021.
In this environment range expects its NGL marketing portfolio to create opportunities to maximize value optimizing sales in both domestic and international markets.
Further supporting a continued premium differential to Mont belvieu.
And for context, a simple one dollar per barrel increase in our realized NGL price generates over $30 million in additional cash flow per year for range.
Turning briefly to condensate.
Production was lower quarter on quarter due to the sale of North, Louisiana and lower activity in the Super Rich area during 2020.
Condensate prices have trended with crude improving by almost 50% since the end of June.
Consequently range experienced a sharp increase in condensate price realizations during the quarter.
We expect condensate price differentials to W.T.I. to tighten in the fourth quarter and into early 2021 as regional production continues to decline while.
While demand for transportation fuels continues to recover.
Before closing out the operations and marketing section I would like to share a few highlights on our safety and environmental performance.
Similar to prior quarters, our team's commitment to the safety and well being of those working on a range location has continued to produce meaningful results throughout the year.
By empowering our workforce promoting safety focus dialogue.
And enhancing supervisory engagement.
Our total recordable incident rate dropped to <unk> 0.42 unit of measure.
Along with capturing a third consecutive year of incident reductions amongst our contractor workforce.
Similar to the safety results seen on a range location are preventable vehicle incident rate continues to show improvement by falling below two incidents per million miles.
Both key milestones as we strive for improved safety performance with each operation.
And in line with our safety efforts ranges environmental performance continues to see similar improvements with a reduced reduction in reportable spills compared to the same time period, just one year ago.
Our third quarter results reflect our ability to build upon the momentum from prior quarters, especially as it pertains to the advancements in our safety and environmental performance.
And improvements and cost reductions.
This is generating ranges peer leading capital efficiency, while maintaining existing production levels.
And is a trend will further build upon through the fourth quarter and through 2021.
Ill now hand, it over to Mark to discuss the financials Mark.
Mark.
Thanks Dennis.
As discussed so far on this call themes of the business continue to be cost reduction debt reduction.
Managing the debt maturity profile and enhancing our liquidity.
These trends continued during the third quarter situating range, well for what appear to be encouraging market signs for natural gas and Ngls in the fourth quarter and the coming year.
During the third quarter range was busy on all fronts raising proceeds by closing asset sales loss.
Launching another divestiture marketing process, improving unit costs, and several lasting ways, improving the capital structure by refinancing bonds and maintaining liquidity with the reaffirmation of the credit facility.
These accomplishments were possible due to the focus and dedication of the range team.
Starting with the net change in debt cash proceeds and net results for the quarter reduced debt outstanding by $136 million compared to last quarter.
There were a number of transactions in this quarter that had both immediate and lasting effects strengthening ranges business.
First we closed on the North Louisiana sale for net proceeds after closing adjustments of approximately $220 million.
With the difference received as production revenue and the time after the effective date of the sale.
As discussed last quarter, we retained certain north Louisiana midstream obligations.
Using a portion of proceeds 28, and a half million dollars, we prepaid and reduced the retained liability of midstream obligations.
The GAAP accounting valuation of future costs through the year 2030 was recorded during the quarter totaling approximately $480 million.
The actual payment obligation retained by range may be reduced through incremental development of the asset and given publicly stated objectives of the Terryville acquirer. We believe this will ultimately be the case.
Additionally, the contingent proceeds payable to range of up to $90 million represents upside linked to commodity prices.
The majority to natural gas, which makes us optimistic about the ultimate value.
With these transactions close range has lower debt.
Well benefit from lasting lower gathering processing and transportation costs.
Lower lease operating costs and benefit from improved capital efficiency through reduced base decline and lower maintenance capex.
The balance the proceeds from the Louisiana sale combined with proceeds from a $300 million bond offerings funded a $500 million tender offer for near term maturities.
These successful transactions together with refinancing open market bond repurchase transactions earlier this year.
We have reduced the balance of notes due through 2024 by almost $1.2 billion.
While maintaining liquidity under the credit facility of approximately $1.4 billion.
Consistently strong operational performance is evident and financial results for the quarter, particularly in capital spending and lease operating costs.
Capital spending during the third quarter was targeted and efficient with capital cost incurred totaling $63 million and a total of $298 million for the nine months year to date.
Representing materially better than budget performance by the team.
It is worth noting that 2020 should be the third consecutive year, we close out the capital investment program with better than planned expenditures. In addition to being the third consecutive year in which range reduces debt debt.
Demonstrating our sharp focus on capital discipline and improving the balance sheet.
Cash unit costs improved by an aggregate 18 cents.
9% compared to the third quarter last year.
Declining to a total $1.84 per unit.
Driven primarily by reduced gathering processing transport as well as lower lease operating costs.
Savings in these line items are due to the sale of higher cost property and continued efficient utilization of our gathering and transportation portfolio.
Compared to the preceding quarter total cash unit costs were up five cents or 2.8%.
Of which three cents relates to GPG largely due to the return to service of certain natural gas transportation.
As well as improving pricing for ngls quarter over quarter given percent of proceeds processing contracts.
And two cents in DNA due largely to timing of certain annual data and service renewals as well as onetime increased legal and miscellaneous costs during a transaction heavy quarter.
We believe total unit cost levels achieved over the last six months total, meaning capital spending and fully loaded cash unit costs.
Represent a leading breakeven cost in southwest Appalachian and we continue to look for ways to lower costs further.
Until the third quarter remains at the low end of annual guidance for unit costs.
These structural improvements with the closure of a sizable divestiture and its related costs behind us we expect to maintain and continue to improve cash unit costs.
As noted on prior calls.
One element expected to drive improvements in unit costs, specifically GP anti.
The contractual feature of reduced gathering rates overtime based on existing advantageous contract terms and other transport contracts, where we have the option to release capacity at expiration or extend based on economics.
While I'm pleased with our progress.
It remains a top priority to further reduce debt.
Further de risking ranges business.
Looking ahead are promising 2021.
Economics of the business for range and its investors are poised to rebalance with significant free cash flow generation targeted.
Let's make the math simple using reported numbers to illustrate the potential of ranges business.
Cash unit costs over the last two quarters averaged one dollar and 82 cents per unit.
Add to that maintenance capital to arrive at real full cycle economics.
If we simply take this year's $415 million capital.
Capital spend.
Divided by annual production of a little over 800 Bcf fee.
You get approximately 50 cents.
That totals $2.32 per unit.
As an example assume $3 realized price and you have 68 cents per unit of free cash flow or greater than half a billion dollars for the year and free cash flow for debt reduction.
Obviously, there are working capital and periodic one off items that affect the illustrated math, but the example does not take into account the potential impact of the positive uplift from Ngls that range receives nor does it factor in additional expected capital and operating cost efficiencies due to business changes made this year.
And contractually declining costs.
As you can see with us natural gas production down materially demand.
Demand returning and.
Potentially increasing with significant projected growth in LNG exports and much more discipline drilling activity by the industry is expected to be at or around maintenance levels for most operators.
Ranges position to reduce leverage and target cash returns to shareholders in the not too distant future.
This is achievable because we have taken significant strides, including closing material transactions all with our eyes on realizing the value of ranges immense inventory for the benefit of its shareholders.
Our strategic actions over the last few years have been focused on reducing risk, while maintaining and enhancing the intrinsic value of the asset base.
We believe range holds the largest portfolio quality inventory in Appalachian.
Exposure to that inventory on a per share basis has been preserved and enhanced by our strategic actions this year.
That portfolio also includes a diversified set of customers and pricing points.
Paired with a consistent and data driven hedge program.
We believe steps taken represent material progress positioning range as a more resilient business and primed to participate in improvements in both natural gas and natural gas liquids pricing.
On the topic of hedging you will note that we added positions for 2021 during the third quarter into rising natural gas prices.
This was a balanced approach to risk management and participation in rising prices.
For over a decade, we have a steady practice of hedging a significant portion over 70% of natural gas production.
While we have a glide path or common range in which we add positions over the course of the year.
Based on clear data, indicating prices need to rise to balance the market.
We intentionally moved at a cautious pace in adding positions.
Today, we have a hedge book that less range participate in 2021 higher prices through higher hedge strike prices than peers through.
Through our remaining unhedged production.
As well as through our unique natural gas price linked ethane sales.
In addition, we have the contingent receivable for the Terryville sale. The majority of which is tied to natural gas prices through 2023.
We will exercise the same prudence in hedging production going forward to protect the business, while benefiting from what we believe to be a structural change in the natural gas market that requires pricing in 2022 and beyond to rise in order for supply to meet demand.
The well defined and we believe achievable objective that all of US at range worked toward daily is to sustain a highly investable business that will be resilient through cycles return cash flow to shareholders and offer compelling value.
Not only compared to other independent producers, but across industrial sectors.
Jeff back to you.
Operator, we're happy to take questions.
Thank you Mr. bin Sir.
Question answer session will now begin.
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Once again, please press star one to ask a question.
The first question is from John Silverstein of Wolfe Research. Your line is open.
Yeah. Thanks, Good morning, guys just good morning, the subject of.
Good morning, just give me on the subject of of the hedges you just talked about that.
You mentioned that it was strategic hedging in there, but it looks like you guys pretty aggressively added hedges. This go around give.
Given the rising price environment.
And just wondering why you did it throughout the course of the year as opposed to maybe the the summer months more aggressively rather than the winter.
Good morning, Josh This is mark I'll.
Ill lead off on this one so that as I mentioned during the.
Scripted portion, we have kind of a glide path a ratable rate at which we add.
Add hedges over the course of the year, it's not.
Programmatic, it's not just wrote adding hedges blend that we do do a lot of data analytics. There is data driven decision, making involved in the program. We intend to hedge a significant portion every year that interline premise to protect the balance sheet protective business, but there is judgment based off of the data that we see.
We look back earlier in the year and the shape of the curve and levels in the forward curve on natural gas. It was simply at levels that for the industry was unsustainable and as we've seen you've seen responses by producers.
What looks to be rational behavior with maintenance capital now, becoming the common theme and the rational decision, making by by producers so with that as prices begin to re rate into levels that.
Range can thrive and we began to add more hedges just out of prudent risk management. So with that we just exercised some judgment based on data and moved a little bit more slowly than we might have in prior years, and we'll continue to take that approach to.
Protect the balance sheet, but also to retain exposure to what looks to be a continuing improvement in structural re rating in the price curve going forward.
Got it Okay and then.
You did on the Hudson said leave yourself open on the ethane and propane side.
Im guessing maybe or maybe a little more structural or is that or can you just walk through some of the.
Demand fundamentals that you are seeing there why not hedge into the current price environment.
Yes. This is Alan Enberg I'm the.
VP of liquids marketing, so I'll start off Justin.
Addressing your question about the fundamentals.
So.
With well, we'll start with ethane.
The.
Our fundamentals are actually quite strong on ethane.
We're looking at roughly or close to being fully recovered in terms of the ethane thats available in the Permian in PADD three.
We have new demand thats actually coming online.
Over the rest of this year and into next year, that's really going to force the recovery of ethane.
Out of basins that are outside of the major demand center in the us Gulf Coast, So thats actually going to move the price floor up on ethane and we see that actually has been pretty much inevitable. So.
So the forward curve right now on ethane with respect to hedging.
Was that a level that in fact is actually under what I would call. The price floor based off of the Permian price, which is a lot gas plus some TNF.
So just really wasn't all that attractive from a hedging perspective, so our views going forward. Eventually the curve is going to catch up with the fundamentals and it will be much more conducive to hedging at that point.
Similarly for propane.
I would say propane during the summer people than looking at the stock levels. They are actually at the high end of the five year range.
Although if you look at the.
Overall days of supply third near the low end of the five year range.
We actually added during the injection season, which we define for propane April through the end of September we added about 42 million barrels of.
Stocks, which is well below what we added last year, which is around 49 million barrels. So the fundamentals for propane actually had been improving.
The price as a result is higher much higher than where it was in the second quarter is higher than where it was last year at this time.
And it's higher on a relative percentage of crude type basis.
But again, we see strong international demand.
Continuing to pull propane and then we've got seasonal demand coming up now so the overall views that the forward pricing is going to be better from propane as as we move through the rest of the year and again, we'll provide a better opportunity for hedge.
Yes and to adjust this is Dennis just to bolt on to something Alan sharing here for as we mentioned earlier in the prepared remarks for every dollar adjustment to our NGL.
Hone and we basically see that adding $30 million in extra cash flow per range. In 2021. So we certainly have a view that that could be.
Certainly accretive for us as we look into 2021 is ounces once the fundamentals and the pricing starts to align.
Sorry, but maybe just a quick follow up there is there a price on ethane in which you guys started to take whatever you're rejecting out.
I'll jump in on that when we look at that on a regular basis a lot of that has to do with what kind of sales structure. It is it is it will be is it does involve using additional transport. So it's difficult for us to point to a an exact price but.
Certainly as you've heard us talk about curtailments during during the remarks. This morning, Ed thing was a compelling story for us to be able to take advantage of opportunities when they do present themselves because of the relative pricing cash flow opportunity versus natural gas in the quarter.
Thanks, guys.
Our next question comes from Holly Stewart of Scotia, Howard Weil. Your line is open.
Good morning, gentlemen.
Good morning.
Maybe just kind of starting off with the curtailment.
This is probably one of the first time that we've seen range talk about curtailment.
Leasing at a fairly material way so can.
Can you just maybe talk about the process is this just.
Based on pricing or is something changed in your view that that made you move to curtailing production.
Yes, good morning, Holly this is Dennis.
When you look at where lets just say.
Pricing has been in basin over the balance of September and October.
It became.
Pretty apparent that there were accretive options for us to basically move some of our production and rather than maybe just call. It curtailing, we really looked at it from a production management standpoint, so things that we considered were.
We had commitments we took a look at opportunities to pull maintenance into the quarter that may be later this year. When we had improved pricing environment. As we tried to structurally look at all that plus scheduling adjustments for turn in lines that could shift slightly eating out of some of the which has a lower price environment. When you start to look it up.
Tobar being sub $1 usually into is a bit of a proxy September being around one dollar October being 65 cents november's outlook is now at $1.65 range using that as a proxy you can see where the framework supported us looking at curtailing some of our production.
Were it was also commensurate lines with some potentially reduce cost and other activity. So October was the key month, we started to see some curtailments toward the end of September as well, but when we saw improved pricing in the daily structure. We certainly took advantage of those opportunities as well. So certainly wasn't just apply curtailment, we want to look at.
Further supporting our business objectives in the balance sheet as Mark talked about earlier I'd also like to.
Went out that the most important gas goes out of base about 80% of our gas goes out of.
Yeah, No. That's a good point, Jeff and then maybe you know as as a follow on to that.
Yes, Mark has talked about reducing the firm commitment.
As they roll off over time, I think you guys highlighted and an 11 cents or so improvement in.
And the GP and key line just over the last year or so so maybe balancing those comments with the production shut ins that you just did.
Yeah, we still have very weak pricing in the basin, even as you know as I guess, whether it's kind of rolling in so how do you how do you balance the SP rolling off.
With really the fact that maybe MVP is kind of the last major pipeline that we have.
With.
With the fact that pricing has remained very weak.
Generally yes talk about maybe the thought process is there any thought to keeping some of this ft as it as it down as it comes due.
Yeah. Good good series of questions. There Holly So let me break that down into a couple pieces. So for range. Fortunately, we are fully utilizing our infrastructure. So our long haul transport firm transport goal to the Midwest and so forth is fully utilized we produce.
Like Jeff said.
Over 80% is going out of basin. So there is a portion that is left in basin, which given that full utilization, we had optionality built into our business that allowed us to selectively curtail just optimize cash flow and that did not leave unutilized any long haul transport.
Because we were talking about in basin sales at that point, so to your point on the firm transportation capacity, we hope.
We have shown schedule in prior quarters as you roll forward through time over the next few years do get to the maturity dates the exploration base, if you will of capacity.
Range holds the option to extend those so that represents an option to range that we simply make the economic call or is it more economic or the netbacks better for range to retain that and achieve a better sales price at the endpoint or at that point does theres still exist and X.
Yes, unutilized capacity coming out of the basin not range, specifically just talking about the base and the total is there still.
Capacity available that we could add.
Access on an interoperable basis, so those will be decisions for each piece of capacity as they come due completely within ranges choice. So it's really great position to be in.
Where we have the choice fully utilizing what we have today and then have a series of options. So.
That that represents potential for declining costs over time, but also option to control and improve our margins. One thing I would say, though is that there is still declining cost built into the gathering processing transport due to the declining gathering costs that run overtime.
How we do that it isn't just a really quick bolt on here. When you look at just kind of the numbers of total production in Appalachian today.
We see somewhere in the neighborhood of about 32 Bcf, but you look at current takeaway capacity minus NBP plus local demand theres still around three four bcf of additional let's just say room and.
Capacity.
LT that's without NBP.
Role to take forward for 2021, along with us and others talking about.
TBD of maintenance type levels, holding production flat really see that whether it's a discussion around basis are really just overall takeaway we see this aligns well with us for the next 12 to 24 months certainly beyond that.
Hard to predict but we see this actually Atlantic with us pretty well through NBP in there that you've got a couple of more Bcf again, we're going to have to see the backwardated strip, most likely improvement in that structure today to support and promote growth that could fill that infrastructure.
Yes, no. Thank you Thats, a marco and good point on the on the gathering and processing.
Maybe just one.
Other question for me and maybe this one is for Jeff I mean, Jeff Weve seen.
A lot of M&A I don't want to say.
A lot, but we've certainly seen quite a bit of M&A kind of start to pop up and just curious your views on maybe what we've seen thus far in the Appalachian Basin, and maybe where you could see range kind of sitting into this.
This consolidation.
Yes, we've seen.
In the industry a lot of M&A recently, I think you'll continue to see if you are seeing certain transactions in Appalachian.
I think we will continue as an industry down that path, which again I think is helpful for supply demand balance and and all that type of thing.
So for range specifically when we start we're open to whatever is best for Rangers shareholders, but to pop back out again to a high level.
So obviously, we're in a commodity business in a commodity business you want to be low cost and we have a large inventory and in today's environment. I think you really want to have a strong environmental track record performance. So those are critical and then if you kind of zoom down the range I think we're very well positioned.
Don't range, we have the best cost to drill and complete in basins below $600 per foot. We have the lowest based decline in basin at less than 20% lowest maintenance capital and largest tier one inventory. So when you kind of fast forward into 2021, and 2022, I think we generate very competitive.
Free cash flow yield against other agency companies and really I think it will be competitive against other sectors as well.
And importantly, if you look at our latest CSR report sustainability report that we put out in August I.
I think we have what we do have according to third party data the lowest emissions of any oil or gas company.
Based on that third party data.
So for range specifically no again, we're open to whatever is best for shareholders, you will see us a very.
Very focused whatever we do will be in basin will be de leveraging and we will be.
Free cash flow accretive on a cash flow basis. So that's that's kind of how we think.
Great. Thank you guys.
Thank you.
Our next question comes from Neal Dingmann upstream Securities. Your line is open.
Good morning, Jeff.
Jeff My first question for you or Dennis My question is around that Slide 15, you guys in the past and the good job and you talked about returning to existing pads just wondering Mike.
My question is definitely you save on infrastructure, there, but are there issues such as the offset frac shut ins or things that.
Present challenges are.
You basically.
That just goes part of your plan and you don't that that's not a big deal.
Yes, I'd say, let me start now Dennis and I will kind of tag team. This one but yeah, we've been returning to existing pads for a long time and we have in it and it clearly is helpful from a cost perspective, when you look at the long term performance of the pad and the wells that we drill in those areas.
The third grade.
There really hasn't been any use for us and all that are so it is a competitive advantage of having a big block position and the ability to go back towards that helps with extending laterals water recycling and although utilizing all the existing infrastructure, but let me flip it over to Dennis.
Yes, Neil good morning.
Just a really bolt on to what Jeff said, we've been doing this for a number of years and what we have seen is some of the challenges that may play some of the other basins as they start maybe talking about cute development and other other creative strategies to try and offset or risk, let's just say parent child relationships. We just really haven't seen that on our.
Side, and I think a good thing for us to point to is the continual.
Pete ability with our published type curves that we put in our slide deck and in some cases, we've had positive revisions, especially as it pertains to the Super Rich area, where we see increases in our well productivity.
Over the course of time as we refine things like lazy target and also our completion strategy in each one of the respective areas. So we see this being very repeatable, we're excited about the costs and capital efficiency.
Efficiencies, we harvest by moving back into those pad sites utilizing the existing infrastructure and just overall being able to also minimize our footprint. So really encouraged by the results were not see anything that would suggest a degradation in well productivity if anything just the opposite very repeatable.
Got it and then just my follow up just probably for Jeff or Mark.
It's running your leverage you're certainly making notable progress on the on the pay down but it looks like leverage still obviously that certainly a bit higher than some of the peers could you talk about you all have done asset sales work interest sales like you've been kind of pretty creative on on what you've done good I'm just wondered what what what are the thoughts.
Sort of in the 21 out there as far as is it to do more similar type deals like this are there other types of transactions that that you all kind of consider I'm, just wondering sort of what's on the table to continue to address.
This in addition to obviously the free cash flow.
Sure Neal it's good question and obviously something we've been very busy focusing on for two years now reducing total debt asset sales approaching 1.4 billion.
It's down by.
From a peak about $1.2 billion. Just this year, if you add everything up near term maturities through 2024 down by about $1.2 billion refinanced or redeemed.
Into longer term.
Longer term maturities so in terms of evaluating what we need to do versus what we would like to do we have some time, we have some flexibility to make sure. We're doing things that are in the best interest of risk management for the balance sheet, but also in the best interest of shareholders and preserving that per share exposure and value to rain.
Engines inventory so all all that having been said it is still our target to get leverage down continue reducing absolute debt long term leverage target will be substantially below two times much lower than that that's where we'll get the company to and run if we just look at what.
Cash what commodity prices can do in the next year, there's material deleveraging even in the absence of an additional asset sale.
Thanks, Ed will still continue to explore those but again it comes down to value. So.
In summary for a long winded answer I would say that we will continue to focus on reducing absolute debt and continue working in the fashion that we have for the last few years.
Very good thanks bye thank you.
We are nearing the end of today's conference will go to Brad Heffern of RBC capital markets for our final question.
Hi, good morning, everyone. Thanks for taking my questions.
We're not just a sort of a follow on to the last one.
How do you think about the use of cash either towards paying down the revolver versus repurchasing debt, obviously, you've been able to get some of the the bonds at a discount but they are back to trading close to par. So how do you think about increasing liquidity versus maybe making the on the wall maturities or easier.
Sure. It's a good question.
The answer is that the balance we have ample liquidity.
Quarter end total liquidity was approximately $1.4 billion under the credit facility. So there is not a need to further expand that we're going to be inorganically funded free cash flow generating business. So over time.
You would expect the need for range and for the industry for that matter to rely on use these bank credit facilities to decline over time. So we'll use it as a tool we use it as a tool to redeem bonds at advantageous prices and manage maturity, but will also just continue to push maturities out and then pay them down with cash flow and asset sales. So.
There is not a simple direct.
On the Lake answer for you to that other than we have ample liquidity will continue to preserve that and then just balance cash proceeds in terms of applying them to bond maturities as they come up and or principal under the revolver.
Okay. Thanks for that.
And then just sort of administrative question on the retained transport obligations and the terrible can you just talk about how those are going to flow through going forward is that something where we're going to see sort of a revaluation of the balance sheet asset.
You know on a quarterly basis and that it won't flow through the transport line or will we see continued transport charges related to that.
Sure. So the liabilities that were retained just to kind of frame subject. These are the processing capacity by enlarge unutilized in that region that we have been paying all along since the original acquisition of material asset so with the divestiture of.
Terryville the utilized portion anthem went with that asset. So range is left with a reduced liability reduced retained than what we had otherwise so.
So that was a benefit of the transaction in addition to bringing in cash up front.
Add to that the potential and hopefully likely potential further reducing this liability with development that's expected to occur in that asset so.
To get more directly to your question the mechanics of that the present value of that low.
Likely.
Liability payments over the next 10 years was recorded in a one time I'll call. The lump sum as noncash the recurring cash flow associated with that as a consequence will be a reduction in that liability over time as we pay it and you'll see that flow through and working capital and the cash flow statement. So the.
Income statement impact has been taken in full you might see some minor adjustments up and down just on variations of development activity. For example, if they accelerate development potentially see it reduced.
By and large you only see that on the cash flow statement going forward.
Okay perfect. Thank you.
Yes.
Thank you. This concludes today's question and answer session I would like to turn the call back over to Mr. Ventura for his concluding remarks.
I just want to thank everybody for taking time to participate in the call. This morning, and feel free to follow up with additional questions. Thank.
Thank you.
Thank you for your participation in today's conference you may now disconnect.
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