Q3 2021 Range Resources Corp Earnings Call

October 27, 2021

Welcome to the right resources third quarter 2021 earnings conference call all lines have been placed on mute to prevent any background noise.

MS 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 those in 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. Laith Sando, Vice President Investor Relations at range Resources. Please go ahead Sir.

Thank you operator.

Morning, everyone. Thank you for joining ranges third quarter earnings call.

Speakers on today's call are Jeff Ventura, Chief Executive Officer, Dennis Degner, Chief operating Officer, and Mark <unk> Chief Financial Officer.

<unk> had a chance to review the press release and updated Investor presentation that we've posted on our website will.

We will be referencing certain slides on the call. This morning.

You'll also find our 10-Q on ranges website under the investors tab.

You can access it using the SEC's Edgar system.

Please note, we will 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.

Thank you Lee and thanks, everyone for joining us on this morning's call.

Range continued to make steady progress in the third quarter 2021 towards our key objectives.

Moving margins through cost controls and competitive marketing strategies.

Generating a free cash flow inorganically, reducing debt and leverage operating safely and efficiently and ultimately positioning the company to return capital to shareholders in the near future as the most efficient natural gas and NGL producer in Appalachia.

I'll touch briefly on these before turning it over to Dennis and Mark to cover in more detail.

Starting with margins margins improved by nearly $1 versus the prior year quarter, driven by higher pricing and unit costs that were in line with expectations.

Strong liquids pricing and an improved natural gas differential drove ranch's pre hedged realized price for the quarter to $4 37 per Mcf.

Which was 36 above Nymex Henry hub price of $4 <unk>.

This premium to Henry hub is a major differentiator for range and as a result of our liquids optionality and diversified marketing portfolio.

Through consistent and efficient operations, coupled with strong prices range generated healthy free cash flow in the third quarter and this is expected to expand materially over the coming quarters at current strip pricing.

In the third quarter range produced $277 million in cash flow and with capital spending coming in at just $96 million range generated strong free cash flow, but again reduce debt outstanding.

Mark will provide more detail shortly but the expansion of range as free cash flow over the coming quarters and years is significant.

At strip pricing free cash flow in 2022 is in excess of $1 billion and with recent improvements to pricing in 2023 and beyond.

We see a high degree of freedom repeat ability and a large free cash flow profile. Despite heavy backwardation in natural gas and Ngls futures curve.

As a result range expects to rapidly approached the leverage targets that we've set in recent years, including a balance sheet that is below one times levered at the end of 2022.

After many years of supply exceeding demand supply for natural gas and Ngls has stabilized over the last 18 months, while demand continues to grow both domestically and internationally.

This has driven storage levels for most commodities from near all time highs just one year ago to near multiyear seasonal lows today.

Continued discipline from producers is prudent and to that end range remains committed to a maintenance level program.

Our key strategic objectives continue to emphasize free cash flow generation and balance sheet strength and ultimately returning capital to shareholders. All of those currently taking priority over growth.

While the market could require some incremental production from top tier Appalachian operators at some point in the future. This would only occur at range. After we've achieved higher priority objectives.

But looking at supply demand fundamentals and at the shape of the futures curve for natural gas and Ngls, we do not believe the market is incentivizing Appalachian producers to grow in the near term.

Looking longer term with too often gets overlooked by the market as the repeatability of drilling programs over longer time horizons.

As we have discussed at length in recent years.

Of course, a major U S. Shale plays are known and limited and the core inventory is not evenly distributed across operators.

That range was the first mover in Appalachia, we were able to secure a large contiguous acreage position approximately one 5 million acres in the core of the Appalachian Basin.

This provides range with an unmatched core inventory life, that's measured in decades.

As other operators exhaust core inventories over the coming years range stands to benefit.

And as Pierre capital efficiencies start to rollover. The average breakeven price should begin to rise while range would still be executing the same consistent development program.

This is all to say we're excited about we're ranges today and equally excited about what the future holds I believe that the development of U S. Shale is one of the most substantial innovations of the last century. It has created millions of direct and indirect jobs across multiple parts of our country and provided reliable clean and very.

Portable energy.

The increased use of natural gas has substantially improved U S emissions over the past decade, and save consumers money in the process.

In addition, natural gas and natural gas liquids provide a critical feedstock for many products, helping to supply the U S manufacturing industry.

With continued investment in pipeline infrastructure and export facilities. The U S has the opportunity to make a positive impact on the world future energy needs through increased LNG and LPG exports.

LPG is not only used as a feedstock for manufacturing internationally, but also supplying LPG to developing nations provides them with cleaner fuels, which helps to improve their quality of life lower emissions and reduce deforestation is roughly half the world's population is living in energy poverty and cooking with wood.

<unk> coal and biomass.

Natural gas and natural gas liquids will continue to play a critical role as the world moves towards cleaner more efficient fuels.

We believe that producers who can most efficiently deliver these products to end markets from a cost and emissions perspective will be the most successful in.

And we believe range is well positioned within that framework.

We remain committed to achieving our absolute emission reduction targets in our 2025 goal of net zero.

Our emissions profile is near best in class amongst producers globally.

So range has both class leading inventory and one of the best Environmental track records in the upstream industry, which positions us well for coming for success in the coming years and decades.

Before turning it over to Dennis and Mark.

I'll, just reiterate that range remains committed to disciplined capital spending.

Over time, we believe range will standout amongst peers as a result of our low sustaining capital.

<unk> cost structure.

Liquids Optionality and importantly, our multi decade core inventory life, which is an increasingly competitive advantage as other operators exhaust their inventories.

We will continue to focus on safe efficient and environmentally sound operations.

Prudent capital allocation and generating sustainable returns to shareholders.

Over to you Dennis.

Thanks, Jeff.

Third quarter, all in capital came in at $96 million with drilling and completion spending totaling approximately $92 million.

Capital spending for the first three quarters of the year totaled $322 million or approximately 76% of our original annual plan.

During our prior calls covering the first and second quarter results.

We touched on the operational and capital efficiencies that drive these results and once again today, we plan to expand on these during our operations update further showing their repeatable and durable nature.

Looking forward.

Our activity cadence in the fourth quarter, we will reduce as planned with one horizontal drilling rig and one frac crew operating through year end.

We expect our projected activity, coupled with secured service pricing and repeatable operational efficiencies will place us approximately $10 million below our original all in budget of $425 million.

Even as we start to observe cost pressures for areas, such as steel labor and logistics in the broader market.

Production for the third quarter closed out a $2 one four bcf equivalent per day.

Representing a one 5% increase over the second quarter production and a 3% increase from the beginning of the year.

We anticipate a similar production increase in the fourth quarter, resulting in a midpoint production guide for the year at 2125 Bcf per day, an approximate 1% change to our previous guidance.

Adjustments to our 2021 production are the result of year to date unplanned upsets mainly comprised of third party gathering and transportation outages.

Temporary impacts from force majeure events, resulting from heat storms and power related downtime.

Along with elevated line pressure experienced in a portion of our dry gas operating area.

Despite these factors and their impacts to production.

We remain disciplined and committed to our activity and capital spending plans.

And we remain on track to deliver our operational plans under budget for the fourth consecutive year.

Activity for the third quarter resulted in 12 wells being turned to sales with over 80% of the new wells coming online in the second half of the quarter.

Approximately 75% of the lateral foot each turned to sales during the quarter was in our dry gas acreage position with the remaining turned in line foot each located in our Super Rich area.

Our operational program for the rest of the year will result in adding production from another seven wells in the fourth quarter, which are spread across our liquids rich footprint.

Moving to our operational highlights.

The drilling team continued to operate two dual fuel drilling rigs during the quarter, which resulted in 16 wells drilled located throughout our dry.

Net and Super rich acreage with an average horizontal length of 10600 feet.

The team achieved a 16% increase in lateral footage drilled per day versus the second quarter.

Placing the average horizontal length, so far in 2021 and over 11000 feet.

It's nine lateral successfully drilled greater than 17000 feet.

We've touched on this before but ranges high quality contiguous acreage position, resulting in a program advantage as we returned to pads with existing infrastructure, capturing incremental efficiency gains that have allowed our team to drill our longest laterals.

Capture our highest efficiencies while drilling in the lateral section.

All while maintaining drilling cost well below $200 per lateral foot year to date.

Like the drilling team operational efficiencies are an ongoing focus for the completions team with.

With strong efficiencies by all crews, resulting in an average of seven seven frac stages per day in the third quarter.

23% increase over the same time last year.

As mentioned on prior calls we have been utilizing a contracted electric powered fracturing fleet since late 2019.

Our blocky acreage position allows for the efficient use of clean burning natural gas directly from our field production to power this equipment.

In addition to the operational efficiencies captured this year with the electric fracturing fleet.

Equipment has been the major contributor and substituting over $3 7 million gallons of diesel fuel for range operations year to date.

Further reducing our cost structure by $6 $8 million, while supporting our mission goals.

The water operations team at range continues to outperform targets when it comes to cost savings and efficiency gains with third quarter results continuing this team.

Utilization of third party produced water in Q3 more than doubled in comparison to that of the previous quarter.

To put this into perspective. In addition to ranges owned produced water. The team was able to utilize nearly one 7 million barrels of third party produced water for our completion operations.

This equates to over $4 million in savings for the third quarter alone and helped to exceed our internal water cost savings goal for the year of $10 million.

In addition to the savings attributed to third party produced water ranges water logistics team.

<unk> had two full quarters operating with a digital logistics platform, especially tailored to our operations.

The logistics platform, along with our water hauling partnerships allows for real time monitoring of ranges water demands.

Storage volumes and movements throughout the field.

Not only did this logistics technology aid in achieving the aforementioned savings. It also captured meaningful lease operating expense and capital dollars, while reading out inefficiencies in the field.

Although the use of the software is still in its infancy. We are encouraged by the early time results and expect a positive impact from the integrated optimization that it will provide to the range water logistics and functional teams.

Sure.

It is these type of drill complete and water operations results shared today that drive our ability to come in below our capital guidance for the fourth consecutive year.

Now shifting over to liquids marketing.

The third quarter benefited from price increases across the board for gas Ngls and condensate.

Preliminary reports, a third quarter NGL fundamentals show, a 5% tighter domestic balance quarter on quarter and.

And 21% tighter year over year.

And domestic demand for LPG was estimated 7% higher versus last year, while third quarter LPG exports were up 13%.

As a result, LPG prices ended the quarter at the highest level in over seven years.

But the market price for a range of equivalent Mont belvieu barrel, increasing by approximately $7 50 per barrel to over $33 per barrel during the quarter.

At the end of Q3 propane was trading at 80% of crude on strong domestic fundamentals.

Which are poised to tighten further as we head into the winter.

Ranges LPG exports deliver significant incremental value in the third quarter versus northeast domestic prices.

And the flexibility of our transportation and sales portfolio puts range in a strong position to serve a tight domestic market this coming winter.

Our NGL portfolio of contracts drove an 83 per barrel premium to Mont belvieu for the quarter and ranges absolute pre hedge NGL price increased by $6 14 per barrel quarter on quarter.

For reference each dollar per barrel increase in our NGL barrel price represents approximately $30 million in incremental cash flow for the year.

As we entered the winter months, we see continued strengthening NGL price realizations supporting our updated 2021, NGL guidance range of 1% to $2 per barrel premium relative to the Mont Belvieu index.

For our natural gas marketing efforts.

Positive pricing movement discussed on the prior call further materialized with Q3, Nymex averaging over $4 per btu.

Steady supply coupled with LNG exports above 10 Bcf per day has resulted in natural gas production net of exports well below 2018 levels.

And gas storage levels below the five year average.

This under supplied market, which we have discussed for some time is now starting to improve prices further out the curve.

For the third quarter range reported a Q3 net Q3 natural gas differential of <unk> 35, under Nymex, including basis hedging.

As a result of year to date performance and tighter regional basis into the upcoming winter.

<unk> improved its expected natural gas differential for 2021 to 28 cents below Nymex.

Which implies a fourth quarter differential of approximately 24 below Nymex.

As we look forward to 2022, despite the recent improvements in strip pricing for oil natural gas and natural gas liquids.

We remain committed to maintaining production at current levels with a focus on harvesting cash flow, reducing debt and further strengthening our balance sheet.

As everyone is aware, making a decision to add incremental production involves an estimated nine to 12 month cycle time.

Spud to first sales.

This assumes availability within existing gathering.

<unk> and transportation systems with additional time required infrastructure expansions are needed.

When further considering that a well only recovers approximately 15% of the EUR during the first 12 months.

The remaining 85% receives a price that is much different than near term months.

But setting price and the static model aside we fundamentally don't believe the market is indicating that Appalachian producers need to grow in the near term.

As an outsized increase in activity by large producers will change the market balance for an extended duration.

Like we all experienced over the past few years.

Thinking longer term, we believe that inventory exhaustion and across multiple basins could require a producer.

Like range.

To add activity to keep the market balanced.

But we're just not yet in that type of market and you can expect a maintenance type program for <unk> for next year generating significant free cash flow in 2022.

Before closing out today's updates I'd like to briefly touch on our operational environmental and sustainability efforts.

In the days ahead, we will be publishing an updated corporate sustainability report.

There will be several areas of progress to note in the report ranging from our air monitoring efforts to safety.

But for today I'll leave you with just a few of the highlights.

First we continue to make meaningful progress towards our emissions reduction targets and since 2017, we achieved a 69% reduction in greenhouse gas emissions intensity, along with an 86% reduction in methane emissions intensity.

In addition to this our reported equipment leak emissions were reduced by more than 66% since 2019 as a result of an increased frequency of leak detection inspections.

Or commonly referred to as Eldar surveys.

On top of the emissions reduction from these reports they have also improved the efficiency and safety of our production facilities.

Lastly, as discussed we continue to be a leader in water recycling.

With range recycling of 148% of our produced water and flowback volume last year through our water sharing program.

This program has reduced supply needs from regional freshwater sources and has resulted in more than $30 million of cost savings over the past three years.

We look forward to publishing the upcoming CSR and discussing the report with many of you in the coming months.

As we enter the home stretch of 2021, our third quarter and year to date results continue to demonstrate the repeatable and durable nature of our program.

Further supporting our operational environmental and financial objectives.

I'll now turn it over to Mark to discuss the financials.

Thanks Dennis.

In the third quarter range continued to be intently focused on delivering against our stated objectives.

Cash flow from operations of $276 million before working capital compared to $96 million and capital spending.

Resulting in free cash flow of approximately $180 million.

Significant improvements in free cash flow compared to past periods were driven by a 129% improvement in pre hedged realized prices per unit of production.

The prior year period.

With realized price per unit, reaching $4 37 in the third quarter.

This realized unit price is 36 above Nymex Henry hub, driven by a 109% increase in NGL price per barrel, which reached $34 five.

Before hedges.

Realized NGL price on an mcf basis equates to $5 68.

As Henry hub natural gas prices rose ranges diversified portfolio of transportation capacity and customer contracts also maintained basis differentials such that the total per unit price received by range is a premium to Henry hub.

Hedging results for the industry have understandably been a focus item for investors to assess near term opportunity cost while also looking to future strategy and retained participation and improved prices.

Near term our strategy of reducing risk through an active hedge program remains.

For 2022, we seek to generate very competitive returns on capital employed.

Generation free cash flow directed to absolute debt reduction.

And to be balanced in our risk management, so as to not hedge away improved fundamentals.

Ngls are hedged typically on a rolling three to six month basis, meaning exposure to higher NGL prices is retained.

With improving average hedge price by quarter.

For perspective ranges production mix is approximately 30% liquids, both ngls and condensate.

<unk> quarterly revenue from liquids over the last year has averaged between 40% to 48%.

As a result, the carefully considered cadence and structuring of natural gas hedges seeks to provide predictability of cash flow to reduce debt.

Likewise, the NGL hedging program seeks to manage volatility, but on a short term basis.

Such that when aggregated cash flow risk and reduced leverage our more predictable while at the same time, a meaningful percentage of total revenue continues to participate in global structural changes in supply and demand.

As a result ranges hedge book compares very favorably to the industry, allowing range to capture improved pricing.

Growing cash flow per share, while also accelerating deleveraging, particularly in the next several quarters.

And ultimately cash returns to shareholders.

Cash margins per unit of production expanded by nearly $1 during the third quarter.

Lease operating expenses remained near all time lows at 10 cents per unit on the back of continued efficient Marcellus operations.

Recurring cash G&A expense was approximately $31 million or <unk> 16 per unit roughly in line with the preceding quarter and third quarter last year.

Cash interest expense was roughly $54 million slightly lower than the preceding quarter.

And with reduced debt balances should decline meaningfully in coming quarters.

As we have frequently commented ranges gas processing cost is linked to NGL prices.

Such that gathering process and transportation expense increased during the quarter and resulted in significantly higher NGL margins.

As an example, an increase in revenue of $1 per NGL barrel.

<unk> to approximately one per Mcf and cost.

This structure is unique to range in the Appalachian basin, reducing costs at times of lower prices and driving material margin expansion with rising prices.

For reference when comparing to 2020.

NGL prices have increased by approximately $17 per barrel, increasing pre hedge revenue by approximately $600 million.

And pre hedge cash flow by $500 million.

Year on year, demonstrating the significant margin expansion from rising NGL prices.

Additionally, rising.

Rising commodity prices have improved the value of contingent property divestiture receivables.

Such as the first installment is expected to be maximized with range, receiving $25 million to $30 million.

With the balance of the aggregate $75 million potential payout, becoming more likely based on current prices.

Turning to the balance sheet.

Third quarter cash flow reduce debt by $91 million and in October we expect cash flow will more than fully repay the bank credit facility, bringing year to date debt reduction to an estimated $165 million with significant incremental net debt reduction expected in the fourth quarter.

Forecasted cash flows at strip pricing are expected to exceed debt maturities in coming years and are backstopped by ample liquidity.

There has been substantial improvement in the debt markets and it's evident in the trading levels of ranges bond that both the access to and cost of capital has improved.

Future debt retirement is expected to be funded primarily by organic free cash flow.

We will be cost conscious and effectively managing debt retirement.

Also being mindful of the cost and benefits of potential refinancing activity.

Managing debt maturities over the last two years has as expected temporarily increased interest expense.

However, this avoided much higher cost forms of capital that allowed range to retain per share exposure to growing free cash flow and a substantially improved natural gas and natural gas liquid environment.

Further improving the balance sheet remains a principal objective.

At current commodity prices forecasted forecasts indicate leverage debt to EBITDAX in the low two times area.

At year end 2021, and in the mid one times area achievable in early 2022.

Tangible shareholder value accretion is first being driven by using free cash flow to reduce absolute debt.

As target leverage levels are achieved potentially as early as the first half of next year. The discussion of ranges return of capital framework becomes a logical next step and a balanced macro environment.

The third quarter and year to date results are demonstrating the value generation ability of ranges portfolio and business.

It is a byproduct of hard work by a cohesive team focused on enhancing per share exposure to what we believe is the largest portfolio of quality inventory in Appalachia.

We seek to continue this trend with disciplined value creation for our shareholders.

Jeff back to you.

Operator, we'll be happy to answer your questions.

Thank you Mr. Vishal the question and answer session will now begin.

If you would like to ask a question. Please indicate by pressing the star Keith in one.

If you're on 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.

My first question is from Josh Silverstein with Wolfe Research.

Hey, good morning, guys.

A little bit before about the ability to shift some capital around can you talk about what youre thinking for this environment right. Now obviously, we're in a high gas price environment, but also NGL price environment, how much flexibility do you have within the.

The program right now.

See what winter, maybe too, but how much flexibility do you guys have to shift to capitalize.

Yes, good morning, Josh This is Dennis.

We maintain a what I'd say is a reasonable level of flexibility in the program and part of Thats because of the consistent track record, we've had with moving back into pad sites with existing production.

Certainly allows us the ability to move into whether it's the liquids side of our our portfolio or move over to the dry gas assets and have further development. So we think.

As a planning exercise, we always leave a fair bit of of Optionality in the program. So that allows us to to react appropriately but also see this we certainly make it a goal to put together what we think is our best plan for an upcoming program year. When you look through the slide deck. The economics are incredibly competitive across all.

All three areas of the field that we have designated.

So it allows us not only to have that flexibility, but also to capitalize on let's just say movements in the liquids market, which you certainly heard Alan touch on in the past. So we leave a fair bit of flexibility, we like how it shapes up for a program that again moving back into those pads with existing production really allows us that flexibility.

Alright, and then how much incremental capacity does range has to continue supporting liquids growth.

Given the infrastructure and then the firm transport in the export capacity that you guys have.

Further can can that really get too.

Then.

<unk> locally next year Theres shows ethylene cracker coming in and just wanted to see if you have any direct sales into them.

Sure Josh I'll start and then I'll kick over to Alan.

We think high level, we really see that there is there is an option for additional not only gathering but also processing capacity. We will just say kind of right. There in our backyard associated with our producing assets are part of that we feel is going to come with other core exhaustion and quality of inventory starting to.

Expire for maybe some of the regional producers, we feel like we're poised with two thirds of our inventory being in that liquids rich portion of our assets really sets us up nicely to be able to take advantage of the producing into that space.

From a let's just say NGL export Optionality standpoint.

I'll turn it over to Alan but before I do we have always lift the optionality for us to both put barrels on not only pipe, but also on rail depending upon where we can get our molecules to most premium markets. So in some cases that very well could be getting it to a shell cracker type facility in some cases, it's clearly getting it on a waterborne export.

Whereas if you look at this year about 80% of our propane and butane butane is actually getting over to a ship and heading to a foreign.

Price points, so, but then I'm going to turn it over to Alan.

Josh This is Alan.

So on the ethane in particular as Dennis was saying, we do have a lot of flexibility.

We're fortunate in the standpoint that we've got a really unique position.

With production out of Houston, and a major Phil Nadeau Harmon Creek.

And we can get into all four ethane takeaway pipeline.

So given all of that and the flexibility we have within our program.

We're in a pretty unique position, where we can take advantage of ethane opportunities.

We optimize around that flexibility on almost a daily basis.

And I think that shows up in our relative premium to the market index on ethane.

I would just add in given our long core inventory and there's a slide in there on slide 15, we can do that for a long long time as others exhaust theirs.

Great. Thanks, guys.

Thanks, Josh.

Our next question is from Doug Leggate of Bank of America.

Hey, guys. Good morning, I Hope you can all hear me okay.

Good morning.

Jeff I wanted to I want to hit on the.

Maintenance program.

The thing that really jumps out to us when we think about your investment case relative to your peers.

Does the depth of the inventory so when you talk about multiple decades of.

Inventory, you'd obviously token that sustaining level.

Is that how we should think about your base business model was the primary objective holding flat and not just for one year, but for multiple years. So that's kind of my first question.

Second question is what are the implications therefore on the underlying decline rate on the sustaining capital that goes along with that because presumably both of those declines.

Over time, if you stick to that maintenance level I'll leave it there. Thanks.

Yes.

Yes, we think that is a differentiator again on slide 15, having the longest core inventory.

And also important is we have the lowest base decline rate if anybody in the basin. So.

Which leads to less maintenance capital but.

Yes, clearly we're going to be at maintenance.

Next year and when we have been we have a little bit of flexibility to be.

At maintenance long term or to the extent the market indications whatever whatever be the back end of the curve comes up is not so macro data that we would have the option to increase at low single digit growth. If we wanted to.

So we can keep it maintenance and generate significant free cash flow for a long long time.

And again, we have.

A great operations team that has a class leading cost to drilling complete and.

So I think we're in a good shape under either program, but clearly youre going to be looking at maintenance for next year for sure.

To be clear the Capex guide dropped a little bit this year and are you addressed in your prepared remarks regarding the.

The activity in the fourth quarter, but im really focused on the $4 25, you talked about OLED capital I think your decline rates high high teens currently.

If you stick to that program, where do those two numbers trend I guess is my question.

I do actually have a follow up if I may.

Yes.

The decline rate with time, and a maintenance program should shallow so the 19% with become even lower.

In terms of.

Capital Dennis you want to hit a little bit on the capital program.

Program looking forward into next year, you bet, Doug I know, you've probably seen it but I'll reference slide number eight in our slide deck. It's a it's a good example of shifting from we'll call. It the spreadsheet exercise of capital required under current cost.

Type.

Scenarios.

Two then shifting over to what does it look like when you start to move into real life development. So that gets you from the $350 million to closer to the 425, which is what we've been communicating throughout the year.

We expect to see some inflationary effects I mean, we're seeing them now.

We're seeing them in areas like labor steel and some other materials.

The positive news is that the team just continues to find creative ways to look for additional efficiency gains we tried to touch on some of those in the prepared remarks today.

Both from water savings to the drilling team really hitting a homerun and adding additional footage drilled in the lateral by 16% versus just the prior quarter. So those all turned into real dollars for us that we can turn back to the end of the year. When you look at them on a quarter by quarter basis.

May be smaller, but by the time you do get to the end of the year, it's it's allowing us to communicate that capital reduction for this year as we look forward.

I think a reasonable bandwidth is $4 25 to something thats higher depending upon what we harvest through this inflationary effect, we're in the throes of our.

Our bid process right now that we go through every fall.

Though difficult to communicate what we're anticipating to see for a maintenance capital guide today, we will provide more color and clarity on that in our next call in February.

No that wherever we land through that when you look over the past four years, we're now in our fourth year in a row coming in under our capital guide delivering on our plans and leading our peer group from a capital efficiency standpoint, and we don't tend to give up that position.

Doug This is mark I wanted I would like to echo.

As we think about what the valuation implications are of your question.

What we're talking about when we are any investors looking at range and a simple maintenance mode as you're evaluating the company.

Doing evaluation in a bond like or an annuity like fashion such that Youre building, what is I might argue a floor to the evaluation.

So by doing that.

We may not.

Get all of the value baked into that type of model for the contract with declines in <unk> costs.

There is certainly inflation considerations in this market as Dennis pointed out, but there's also optionality you get and the rising commodity prices and a free option on the industry's finite inventory that may at some point lead to market share growth for range or at some point when the market dictates the growth so using the maintenance capital case of maintenance.

Mode.

There is some efficiency in a declining base decline, but in essence, when I step back and look at how that frames and does it capture the entire valuation of ranges multi decade inventory I think it provides a good reference at a floor level.

At which point you still getting optionality on price and duration of ranges inventory, that's kind of not comparable to peers.

As you know Marc is exactly how we think about your valuation I've taken up enough time. So thanks. Thanks, so much guys.

Thank you Doug.

Our next question is from Michael <unk> with Stifel.

Hey, good morning, guys.

Just.

I wanted to get some further thoughts on hedging Mark you talked about protecting some of the cash flow without hedging away. The upside you did add some hedges it looks like you've got about 60% of your gas production hedged for next year now are you comfortable with that level as gas prices continue to rise here or plan to add more and maybe thoughts on <unk>.

Further out into 'twenty three.

Yes, it's a fair question I think stepping back just to talk a little bit further about what the objective is I think our objective for the end goal is highlighted on the slide deck on slide 14.

When we look at that slide and the iterations over the course of this year early this year, we were talking about strip pricing in hopes of being substantially below three times levered at the end of 2021.

A quarter or two ago, we said, we thought we'd be at mid teens to well.

I will now strip pricing.

Along with our incremental hedges, we're talking low two times and fast forward into 2023 strip pricing, including our hedges you're potentially sub one times levered. So our objective has always been again to generate that value take that enterprise value and shifted over to the equity holder and just reduce risk.

Reducing the absolute debt level, you create additional flexibility in the hedging program such that the historical trend of hedging between 70% to 80% may or may not represent the best plan going forward you would certainly have choice.

Reducing some of that hedge profile to participate directly in commodity prices again, we studied the markets. We studied supply demand fundamentals.

And.

What that indicates for realized prices, but our objective here reduce absolute debt that as I mentioned in the opening remarks also positions range.

<unk> at which we achieve our target leverage levels to.

<unk> announced a framework for returns of capital so.

Getting back to your very specific question on what is our target percentage hedged for 2022 2023, I don't think were going to give a specific number I think.

With these strip prices generating and getting us to our target levels. It would make sense to continue to move slowly to continue to use structures like callers to continue to retain upside exposure I'd point out that the additional positions that were added particularly for 2022 were well above four.

So it's our goal to hang on to that upside not hedged away just for 'twenty three again youre reduced absolute debt you have greater Optionality. We will continue to study fundamentals, it's about returning value to shareholders.

And I would just add in about 45% of our revenue coming from Ngls team.

Remember that in the in the Ngls are very likely hedged and were very constructive with NGL pricing is and will be.

Very good.

Dennis you talked about some of the delays and weather issues that impacted production.

And your fourth quarter guide I, just want to see if you can provide any additional detail there and do you expect any of those issues that have any kind of lingering impacts on next year.

Yes, we really don't Michael.

I think the way we would phrase this is.

Very seasonal short term in nature.

And some of that say if you look back over the balance of the summer we saw some of our.

Warmer than normal average temperatures in Appalachia and no doubt resulted into some effects from time to time on run time for equipment.

We saw translate itself through our production. We also had some storms come through the area and those also created some impact. So we expect this to be more short lived and be back to business as usual here in the quarters ahead.

Thank you guys.

Thank you Michael.

Our next question is from David <unk> of Cowen.

Thanks for taking my questions Hey, guys.

Sure. Thank you.

I just have to just one given the increases in pricing.

And your your view that you're going to be potentially sub one times levered as to pricing next year.

And the emphasis on having this long inventory life has that changed how you think about.

Potential core noncore asset dispositions should we should we generally think that there isn't necessarily an endeavor that bring forward that value by selling other packages at this point.

Yes. This is mark I'll start with that.

At this stage, we are very happy with the inventory and the infrastructure in the business and the contracts that are overlaid on top of that there is optionality across the play with good infrastructure and we are left with a high quality inventory. So that is a very good thing I think that's a distinguishing hallmark that allows a bit more predictable.

Alrighty.

And more confident modeling an evaluation of the company. So at this point the motivations behind selling.

Inventory do you need capital can you harvest some additional value incrementally.

Paul that forward.

Model I don't think Thats, a significant driver in value for range.

At the time being I would say any divestiture initiative will not be a priority.

I appreciate that and then my follow up would just be just around pricing and I think Jeff you alluded to some optionality in the future to maybe grow.

Single digits when the market warrants.

As we think about going into next year Youre, obviously focused on maintenance mode free cash generation in the event that we get into winter and then targeting first quarter of next year there is.

Hyper volatility in pricing or price spikes is it fair to assume that there really isn't much that range would do.

To respond to near term price actions such as field level.

Choke management solutions things like that.

Got it I think we've been pretty clear.

For next year.

Maintenance and it's important we've talked about it a few times we think.

Core exhaustion or inventory core inventory isn't evenly distributed it's one like Mark said one of the distinguishing features a range that we can do that for a long time.

Very long time, very predictable, but that creates a lot of value to the extent you see core exhaustion from other people and we can fill that long long term, we get a chance to maybe capture a little bit of market share, but again we're.

So longer term thing we're focused on.

We're excited about next year's plan generating well in excess of $1 billion of free cash flow driving leverage down to below one times.

Yes, certainly didn't see that this is Dennis one thing I'll just kind of retouch on is we we look at it also as you know when will we see production arrived when we do.

We had the discussion around growth and clearly as you start to plan and consider your options. It is about a nine to 12 months on average cycle time type decision by the time you get.

Permits your wells identified <unk> got room in the gathering system and then you turn that into executable well just save molecules that will turn the sales meter.

First 15% of that EUR is going to get captured in the first 12 months, but after that when you look at the backwardation in the curve. It's something we have to really take into consideration and if thats. The exposure that we wanted to put put forward in the program at this time so.

It's multi pronged as we evaluate this for sure.

Thanks for the clarity there. Thank you guys.

Thank you.

Our next question comes from Neil Mehta of Goldman Sachs.

Thanks, guys and good morning, I want you to take some time to walk through how youre thinking about the NGL price outlook on a more structural medium term basis.

The bullish drivers that have led us to this price point here sustain themselves and walk us through the individual products, particularly propane and ethane and how youre seeing the balances.

Yes, good morning, Neil I'll start here, and then I'll hand over to Alan but I think as we look forward. There's a lot of reasons to be optimistic about NGL pricing and Alan will dive into a few of the deeper clearly the deeper details, but part of it is when you look at where supply and demand have really been over the balance.

Over the last few years.

With operators administering capital discipline over the balance of the last year year and a half clearly that's taken some supply and supply growth out of the conversation, especially as you start to think about the contribution of <unk>.

Associated gas NGL type contributions as well all throughout that exports have really remained strong.

With the Arb remaining open so with our Optionality that we touched on a little bit earlier for us to either keep molecules on the NGL side, either domestically through pipe and rail or get them on a waterborne export. It's continued to create a balance that we've been able to take advantage of and then I think lastly, when you look at the <unk>.

<unk> demand that continues to.

Get commissioned whether it's infrastructure or really just also as Jeff touched on in his prepared remarks prepared remarks, it's really getting these this energy source to other countries that really need it.

So I'm going to hand that over to Alan because but we remain really optimistic looking forward about ongoing NGL prices.

Thanks, Dennis and Neil This is Alan.

I'll touch on ethane and propane and just give you a little bit of flavor.

What demand looks like and the potential upside still is.

On ethane right now ethane going into.

Making ethylene.

On front most competitive feedstock.

So from that standpoint.

Fair amount of margin actually a lot of margin.

That's still available for ethane going into ethylene.

Got just through the end of this year in the U S. Two new facilities that are coming on that are going to add.

Roughly 175000 barrels per day of new demand.

Bay portfolio Olefins, and then the joint venture between Exxonmobil Sabic.

That's coming up we get into next year, you've got roughly.

75000 barrels per day of.

New export demand thats expected to come on as the ore.

Terminal ramps up in supplying satellite petrochemical second cracker in China.

And then between shell, Nova and Dow Dupont <unk> got maybe another 175000 barrels per day of new ethane demand.

The margin right now between for an integrated producer of polyethylene in the U S.

Is about $1 70 per gallon.

So again that just gives you an idea of how much more upside there is for ethane slipping.

Flipping over to propane.

Propane is already out of the steam cracker ethylene steam cracker feedstock portfolio, it's been out of the portfolio globally. Since about July so that demand has disappeared, but theres still a lot of demand from the PVH standpoint.

From ethylene crackers that have to crack propane and butane as well as from the <unk> Com standpoint, and if we look just simply at residential commercial.

Let's say in the U S propane can compete a little bit with heating oil heating oil is at $2 34 per gallon.

I think close of business Monday.

So with propane out of boat.

That leaves.

Over $88.90 of upside.

There if we look at LNG, let's say, whether it's in Europe or in Asia, Let's use Asia for an example, LNG $32 <unk> and Btu.

Our Asian propane is at around $8 50 per tonne that translates to <unk> 50 per M and Btu.

So that leaves upside at $13 50 premium Btu, sorry for all the numbers, but if you convert that that gets you to about 23 per gallon of upside.

On the propane price.

So given the combination of new demand that's coming on plus margin that's still available.

Relative to competing materials, we're still really bullish that theres a lot of upside in these products.

Neel This is mark just to add on one.

Maybe summary comment if I could.

With that level of detail, sometimes it's challenging market to grasp and to model. The NGL component of our producer's revenue stream. So for reference in the appendix. There is a buildup of Mont belvieu pricing by stream. It gives a barrel waiting and so forth at current strip pricing for the fourth quarter, you get to a Mont Belvieu estimated price of $41 50 per barrel that equates to.

Roughly $6 50 per Mcf.

So again prospective on ranges uplift positive pricing above Henry hub and the outstanding margin expansion range is experiencing driving free cash flow.

That's great, but those are really big numbers in those terrific perspective, if I can.

Drill down into the micro here next year. It looks like you guys aren't going to be in a position to talk about capital returns obviously, the big part of the story of this year. It's been about deleveraging next year, you'll have an opportunity to evaluate whether it's dividends or buybacks most likely you've seen some of your peers.

Implement the variable dividend model.

Do you have any initial reactions to that do you think that makes sense.

In your business model as well.

And have you gotten any investor feedback on that thus far.

Yes, we certainly listen and discuss all of these types of matters in the business with our investors trying to understand what is most valued in desirable from them. There is obviously different impacts on different portfolios, depending on their personal tax.

Jurisdictions, and so forth so taking a step back there are a range as you point out with our leverage heading into target zones. It would be a logical next step for us to announce perhaps next year with that framework might look like I think the programs that the industry has spoken of in general terms makes sense I mean, this is a commodity and capital.

Capital intensive business there is cyclicality to it so a modest base dividend makes sense a variable component makes sense I think the variable component.

From a mathematical perspective auto have flexibility again commodity prices move around the capital investment can move around.

Some framework around it should give comfort to investors, but that said, it's also a mathematical exercise of whether it should be share repurchases or incremental dividend and what is most valued by investors, but I would also add that.

We view it as we have been returning capital to investors for quite some time with absolute debt reduction of one three.

$3 billion.

Today basically since the peak in late 2018 with the repurchase of 10 million shares.

This has been a commitment.

This is the strategy of the business for some time, so there may be further iterations.

Announced a framework and coming.

Coming quarters whenever the time may be but suffice it to say that has been our focus to date.

Thanks team.

Thank you.

We are nearing the end of today's conference we will go to <unk> for a final question.

Yes, good morning.

First question is for Dennis I was just trying to.

Think about your 2021.

2022.

Dennis any sense of how much footage.

That range is executing this year with the 60, well bores versus I think you did 67 last year.

Trying to get a sense of.

Footage this year versus last year and what this could mean for 2022, assuming a maintenance type program.

Yes, good morning Arun.

I think it's fair to from an assumption standpoint, our average lateral length that we target from a planning perspective.

Is around 10000 feet. So as you think about translating that back.

From a a well count perspective, theres always going to be a little variability there you've no doubt seen our numbers continue to increase our lateral footage basis, but it should be really similar when you think about how how much will both drill complete and turn in line for 2022 on a maintenance type level program and it's one of the reasons why we.

Talked about similar capital levels, given the current cost assumptions minus any inflationary effects, so similar capital efficiency.

It really should be a similar program all the way.

Fair enough.

And then just as my follow up you touched on some of the inflationary pressures the industry as a whole is kind of seeing.

Dennis have you yet begun the tendering process I know that that range is focused on some of the more ESG friendly.

<unk> and drilling equipment. So I'm just wondering if you could give us a sense of how those leading edge conversations are.

For for your fracking and drilling needs for 2022.

Well it certainly yes, we are in the throes of that process and difficult to share the results today, because we're still in the process of harvesting those in evaluating the numbers. So too early to share with those details will look like at this time.

But what we are seeing is that service providers that have historically wanted to align with range that we have good partnerships with they want to continue to do so because of our efficiency models, which we know that helps keep.

Let's just say their side of the ledger in the right direction. It also keeps our cost low because we capture those costs through efficiency gains and other measures. So we're optimistic about what we're going to capture but we are seeing some deflationary effects come our way.

Great. Thanks, a lot.

Thank you.

Thank you. This concludes today's answer session I'd like to turn the call back over to Mr. <unk> for closing remarks.

We just appreciate everybody taking time to listen to our call and ask questions. This morning, Please feel free to follow up with our team afterwards. Thank you.

Thank you for your participation in today's conference you may disconnect at this time.

Okay.

[music].

Sure.

Yes.

[music].

Welcome to the right resources third quarter 2021 earnings conference call all lines have been placed on mute 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 those in forward looking statements.

Thank you operator.

Good morning, everyone. Thank you for joining ranges third quarter earnings call.

On today's call are Jeff Ventura, Chief Executive Officer, Dennis Degner, Chief operating Officer, and Mark <unk> Chief Financial Officer.

Hopefully you've had a chance to review the press release and updated Investor presentation that we've posted on our website.

We'll be referencing certain slides on the call. This morning.

You will also find our 10-Q on ranges website under the investors tab or you can access it using the SEC's 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.

Thank you Lee and thanks, everyone for joining us on this morning's call.

<unk> continued to make steady progress in the third quarter 2021 towards our key objectives improve.

Improving margins through cost controls and competitive marketing strategies Jenna.

Generating free cash flow inorganically, reducing debt and leverage operating safely and efficiently and ultimately positioning the company to return capital to shareholders in the near future as the most efficient natural gas and NGL producer in Appalachia.

I'll touch briefly on these before turning it over to Dennis and Mark to cover in more detail.

Starting with margins margins improved by nearly $1 versus the prior year quarter, driven by higher pricing and unit costs that were in line with expectations.

Strong liquids pricing and an improved natural gas differential drove ranges pre hedged realized price for the quarter to $4 37 per Mcf.

Which was 36 cents above Nymex Henry hub price of $4 <unk>.

This premium to Henry hub is a major differentiator for range and as a result of our liquids optionality and diversified marketing portfolio.

In the third quarter range produced $277 million in cash flow and with capital spending coming in at just $96 million range generated strong free cash flow, but again reduce debt outstanding.

Mark will provide more detail shortly but the expansion of range as free cash flow over the coming quarters and years is significant.

At strip pricing free cash flow in 2022 is in excess of $1 billion.

And with recent improvements to pricing in 2023 and beyond we see a high degree of freedom repeatability and a large free cash flow profile. Despite heavy backwardation in natural gas and Ngls futures curve.

As a result range expects to rapidly approached the leverage targets that we have set in recent years, including a balance sheet that is below one times levered at the end of 2022.

After many years of supply exceeding demand supply for natural gas and Ngls has stabilized over the last 18 months, while demand continues to grow both domestically and internationally.

This has driven storage levels for most commodities from near all time highs just one year ago to near multiyear seasonal lows today.

<unk> discipline from producers is prudent and to that end range remains committed to a maintenance level program.

While the market could require some incremental production from top tier Appalachian operators at some point in the future. This would only occur at range. After we have achieved higher priority objectives, but looking at supply demand fundamentals and at the shape of the futures curve for natural gas and Ngls, we do not believe the market is incentivizing Appalachian producers to.

Grow in the near term.

Given that range was the first mover in Appalachia, where we're able to secure a large contiguous acreage position approximately one 5 million acres in the core of the Appalachian Basin. This.

This provides range with an unmatched core inventory life, that's measured in decades.

As other operators exhaust core inventories over the coming years range stands to benefit.

And as Pierre capital efficiencies start to rollover. The average breakeven price should begin to rise while range would still be executing the same consistent development program.

This is all to say, we're excited about where ranges today and equally excited about what the future holds I believe that the development of U S. Shale is one of the most substantial innovations of the last century. It is creating millions of direct and indirect jobs across multiple parts of our country and provided reliable clean and very.

Portable energy.

The increased use of natural gas has substantially improved U S emissions over the past decade, and save consumers money in the process.

In addition, natural gas and natural gas liquids provide a critical feedstock for many products, helping to supply the U S manufacturing industry.

LPG is not only used as a feedstock for manufacturing internationally, but also supplying LPG to developing nations provides them with cleaner fuels, which helps to improve their quality of life lower emissions and reduce deforestation as roughly half the world's population is living in energy poverty and cooking with wood.

Coal and biomass.

Natural gas and natural gas liquids will continue to play a critical role as the world moves towards cleaner more efficient fuels.

We believe that producers who can most efficiently deliver these products to end markets from a cost and emissions perspective will be the most successful.

And we believe range is well positioned within that framework.

We remain committed to achieving our absolute emission reduction targets in our 2025 goal of net zero.

And our emissions profile is near best in class amongst producers globally.

So range has both a class leading inventory and one of the best Environmental track records in the upstream industry, which positions us well for coming for success in the coming years and decades.

Before turning it over to Dennis and Mark.

I'll, just reiterate that range remains committed to disciplined capital spending.

Overtime, we believe range will stand out amongst peers as a result of our low sustaining capital.

Imperative cost structure.

Liquids Optionality and importantly, our multi decade core inventory life, which is an increasingly competitive advantage as other operators exhaust their inventories.

We will continue to focus on safe efficient and environmentally sound operations.

Prudent capital allocation and generating sustainable returns to shareholders.

Over to you Dennis.

Thanks, Jeff.

Third quarter, all in capital came in at $96 million with drilling and completion spending totaling approximately $92 million.

Capital spending for the first three quarters of the year totaled $322 million.

Approximately 76% of our original annual plan.

During our prior calls covering the first and second quarter results, we touched on the operational and capital efficiencies that drive these results and once again today, we plan to expand on these during our operations update further showing their repeatable and durable nature.

Looking forward.

Our activity cadence in the fourth quarter will reduce as planned with one horizontal drilling rig and one frac crew operating through year end.

Even as we start to observe cost pressures for areas, such as steel labor and logistics in the broader market.

Yes.

Production for the third quarter closed out a $2 one four bcf equivalent per day.

Representing a one 5% increase over the second quarter production and a 3% increase from the beginning of the year.

We anticipate a similar production increase in the fourth quarter, resulting in a midpoint production guide for the year of 2125 Bcf per day, an approximate 1% change to our previous guidance.

Adjustments to our 2021 production are the result of year to date unplanned upsets.

<unk> comprised of third party gathering and transportation outages Tim.

Temporary impacts from force majeure events, resulting from heat storms and power related downtime.

Long with elevated line pressure experienced in a portion of our dry gas operating area.

Despite these factors and their impacts to production.

We remain disciplined and committed to our activity and capital spending plans.

And we remain on track to deliver our operational plans under budget for the fourth consecutive year.

Activity for the third quarter resulted in 12 wells being turned to sales with over 80% of the new wells coming online in the second half of the quarter.

Approximately 75% of the lateral foot each turned to sales during the quarter was in our dry gas acreage position with the remaining turned in line footage located in our Super Rich area.

Our operational program for the rest of the year will result in adding production from another seven wells in the fourth quarter, which are spread across our liquids rich footprint.

Moving to our operational highlights.

Drilling team continued to operate two dual fuel drilling rigs during the quarter, which resulted in 16 wells drilled located throughout our dry.

Wet and Super rich acreage with an average horizontal length of 10600 feet.

The team achieved a 16% increase in lateral footage drilled per day versus the second quarter play.

Placing the average horizontal length, so far in 2021 and over 11000 feet.

With nine lateral successfully drilled greater than 17000 feet.

We've touched on this before but ranges high quality contiguous acreage position results in our program advantage as we returned to pads with existing infrastructure, capturing incremental efficiency gains that have allowed our team to drill our longest laterals and capture our highest efficiencies while drilling in the lateral section.

All while maintaining drilling cost well below $200 per lateral foot year to date.

Like the drilling team operational efficiencies are an ongoing focus for the completions team.

With strong efficiencies by all crews, resulting in an average of seven seven frac stages per day in the third quarter.

At 23% increase over the same time last year.

As mentioned on prior calls we have been utilizing a contracted electric powered fracturing fleet since late 2019.

Our blocky acreage position allows for the efficient use of clean burning natural gas directly from our field production to power this equipment.

In addition to the operational efficiencies captured this year with the electric fracturing fleet. This equipment has been the major contributor and substituting over $3 7 million gallons of diesel fuel for range operations year to date.

Further reducing our cost structure by $6 $8 million, while supporting our emission goals.

The water operations team at range continues to outperform targets when it comes to cost savings and efficiency gains with third quarter results continuing this team.

Utilization of third party produced water in Q3 more than doubled in comparison to that of the previous quarter.

To put this into perspective. In addition to ranges owned produced water. The team was able to utilize nearly $1 7 million barrels of third party produced water for our completion operations.

This equates to over $4 million in savings for the third quarter alone and helped to exceed our internal water cost savings goal for the year of $10 million.

In addition to the savings attributed to third party produced water ranges water logistics team has now had two full quarters operating with a digital logistics platform, especially tailored to our operations.

The logistics platform, along with our water hauling partnerships allows for real time monitoring of ranges water demands.

<unk> volumes and movements throughout the field.

Not only did this logistics technology aid in achieving the aforementioned savings. It also captured meaningful lease operating expense and capital dollars, while rooting out inefficiencies in the field.