Q1 2022 Range Resources Corp Earnings Call
Welcome to range Resources' first quarter 'twenty two 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 are forward looking statements such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those in the forward looking statements.
The Speakers' remarks, there'll be a question and answer session. At this time I would like to turn the call over to Mr. Lee Sando, Vice President Investor Relations at range Resources. Please go ahead Sir.
Thank you operator.
Good morning, everyone and thank you for joining ranges first 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 may reference certain of those slides on the call. This morning.
You'll 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.
Thanks, Laith and thanks, everyone for joining us on this morning's call.
Before discussing the successful first quarter range had I wanted to spend a few minutes on the global energy challenges that we're all witnessing and working through.
Since our year end call in February commodity prices across the board have moved significantly higher as supply has struggled to meet demand for varying reasons.
<unk> from longer term capital under investment to supply chain issues and infrastructure challenges.
Some of which are driven by policy decisions in the United States and abroad. The.
The Russian invasion of Ukraine has resulted in the tragic loss of life and massive destruction of cities and infrastructure and then there's all sorts. Both some of the flaws in energy policy that has miscalculated or ignored the physical realities of energy market fundamentals, while trying to achieve ambitious longer term environmental goals.
Range pioneered the development of the Marcellus shale over 15 years ago, and it's been an exciting and humbling experience to watch Appalachian shale production from the Marcellus and Utica point Pleasant grow from nothing to now producing over one third of the nation's natural gas supplies, becoming the largest producing natural gas field in the world.
And making the U S. The largest natural gas producer in the world the.
The result is natural gas prices in the U S are significantly lower natural gas prices in Europe and Asia.
Currently U S pricing is about 75% lower than prices abroad, creating a significant number of quality jobs, making U S manufacturing more competitive helping to keep the U S utility bills lower than other countries positively contributing to the U S trade balance generating tax revenues for governments and providing.
Energy security for our country.
In addition, the U S has led the world in lowering <unk> emissions, primarily from the substitution of natural gas for coal and power generation as natural gas has a 60% lower carbon footprint than coal.
Despite this meaningful improvement in emissions by moving from coal to natural gas, we believe that much more can and should be done in the years ahead, both in our country and globally.
As we look forward, we see a world that desperately needs access to ethical safe secure reliable and abundant fuel sources, while at the same time being mindful of and continuing to prioritize the global move towards a lower carbon future.
There is no shortage of independent third party experts that belief Appalachian natural gas and Ngls should be a growing part of that global solution.
We believe that Appalachia will see increased in basin demand and incremental takeaway projects in the years ahead.
However, a more meaningful increase in natural gas supply will require the support from federal state and local governments to provide critical infrastructure in the form of pipelines compression and LNG terminals to get Appalachian natural gas to the end markets that need it.
We believe that the Marcellus and Utica point Pleasant shales have the ability to increase production meaningfully and to be part of the global call on added LNG supplies from the United States, but the industry is currently hindered by a lack of additional infrastructure due to permitting delays policy decisions and rhetoric that discourage us long term.
Capital investment in natural gas and natural gas infrastructure.
So where does that leave range today.
We believe we have positioned the company for success in whatever commodity price and infrastructure scenario, we find ourselves in this year next year and for the foreseeable future.
As the most capital efficient operator, and the largest natural gas field in the world. We believe we sit at the low end of the global cost curve for natural gas.
Importantly range and other Appalachian producers also have an advantaged emissions intensity profile given the prolific nature of the Marcellus.
Robust drilling standards and our focus on operational efficiencies being applied on a daily basis.
Longer term, we see range as being differentiated amongst producers given our operational expertise robust multi decade core inventory and access to markets outside of Appalachia.
I believe the financial and operator operational results of the most recent quarter reflect those advantages as we've made steady progress on our key objectives for 2022.
Enhancing margins through thoughtful marketing hedging and our focus on cost.
<unk>, our drilling program safely within budget and with peer leading capital efficiency bolstered.
Bolstering our balance sheet with absolute debt reduction and returning capital to shareholders.
Operationally range successfully delivered on our first quarter development plans with production coming in slightly better than expected and capital spending of $117 million or approximately 25% of the full year budget, putting us on track with our full year guidance of $460 to $480 million.
This will provide some additional details on the quarter in a minute, but we're off to a great start.
Looking at margins starting with price.
Range delivered a premium natural gas differential in the first quarter.
As we weather daily price volatility with thoughtful marketing and balanced deliveries to multiple end markets.
Range is natural gas liquids production also received a premium to Mont belvieu equivalent price coming in at over $40 per barrel or greater than $6 per Mcf.
Overall range receive $5 63 per Mcf in the first quarter for its aggregate production.
This represents a premium of over 74 cents over Henry hub natural gas prices, something thats unique when compared to pure dry gas producers in Appalachia, the haynesville and other natural gas plays.
As a result, we realized our highest quarterly cash flow per share and free cash flow in company history.
We expect to continue throughout this year.
This record free cash flow is being directed towards absolute debt reduction and capital returns, we announced in February including our base dividend to begin later this year and a $500 million share repurchase program.
We were comfortable making an announcement in February when commodity prices were much lower because of our competitive cost structure and peer leading maintenance capital requirements that provides us a solid foundation for generating truly sustainable free cash flow through the cycles.
The meaningful improvement in commodity prices over the last two months has simply allowed us to accelerate our absolute debt reduction while simultaneously repurchasing shares what we believe is a fraction of the underlying value of the business.
Particularly with long term commodity prices rewriting haier is a call for U S natural gas becomes more evident globally.
We have discussed our long term balance sheet target of one to one $5 billion in absolute debt. It now appears that we can achieve this financial objective by early next year at current strip pricing, while simultaneously funding the base dividend and share repurchases.
While range of stock prices move materially higher over the last two years. We believe the buyback program continues to represent a compelling investment of our capital as we still trade at a substantial discount to the underlying value of our reserves and resource base.
What we believe are conservative mid cycle pricing assumptions and development plans.
We run various scenarios and addressing company valuation, we can point to ranges proved reserve valuations at year end 2021, as a proxy for the value of a portion of our inventory at.
At year end 2021 strip pricing the PV 10 of ranges proved reserves was $12 7 billion.
For context after backing out year end net debt balances. This PV 10 equated to approximately $40 per share.
Based on more recent strip pricing that valuation is well north of $60 per share.
And as many of you are aware the SEC definition of proved reserves only allows for five years of development and beyond this five year window range has thousands of additional core Marcellus wells Sims.
Simply put we don't believe this significant resource value is currently reflected in our range of share price presenting range the opportunity to create meaningful long term per share value for our equity holders through our buyback program.
Before turning it over to Mark and Dennis I'll reiterate something I've mentioned on our last call, which is that I truly believe ranges in the best position in the company's history.
As the world continues to move towards cleaner more efficient fuels natural gas and Ngls will be the affordable reliable and abundant supply that helped to power our everyday lives. While also helping billions of others improve their standard of living and reducing their reliance on coal and other more carbon intensive fuels.
We believe Appalachian natural gas and natural gas liquids were well positioned to meet that in current and future demand.
And within Appalachia range will be among those leading the charge on emissions intensity.
Capital efficiency, and transparency, which are all core to generating sustainable long term value for shareholders.
Ranch's de risk a massive inventory of high quality Mark wells in the Marcellus measured in decades, and translated that into a business capable of generating free cash flow through the cycles.
Underpinning this business as a low sustaining capital requirements that range enjoys reflected in our peer leading drill and complete spending per mcf.
Which allows us to weather potential service cost inflation and better than most and generate healthy margins.
At the same time range as balance sheet is in the best shape in company history with rapid improvements continuing in the coming months.
With significantly lower absolute debt range will be even more resilient when we see the next cycle.
That said with favorable fundamentals for natural gas and natural gas liquids today and for the foreseeable future range is well positioned to generate healthy returns on and returns of capital to shareholders I'll now ask Dennis to cover operations.
Thanks, Jeff.
A little over two months ago during our prior earnings call, we kicked off the year by describing our 2022 plan.
With a continued focus on capital efficient operations, along with safety and environmental performance that work hand in glove to achieve our overall objectives. This year.
The results, we will discuss today clearly reflect that our program is off to a solid start and on track to deliver on this year's objectives.
Focusing in on our first quarter operations.
Capital spending came in at $117 million or approximately 25% of the 2022 program budget.
We increased activity throughout the first quarter to a level consisting of three horizontal drilling rigs.
Two top hole rigs utilized to drill the shallower vertical section and two frac crews.
This level of activity is scheduled to continue during the second quarter before tapering off later this year and puts us on track with our capital guidance of $460 million to $480 million for 2022.
This frontloaded activity approach is consistent with the past several years and results in a higher number of wells turned to sales in late Q2 through the second half of this year.
Diving higher second half production and putting us on track for our annual production guide of $2. One two to $2 one six bcf equivalent per day.
In the first quarter production came in at 2.07 Bcf equivalent per day and strong field run time helped offset some of the weather related impacts associated with winter storm blended in early February .
We expect production in the second quarter to be slightly lower than the first quarter average given the planned midstream maintenance, we talked about on our last earnings call.
And to exit Q2 at approximately two five Bcf equivalent per day and as mentioned production is expected to increase further across the second half of the year, putting us on track to deliver our full year production of $2. One two to $2 one six bcf equivalent per day.
Shifting to our operational highlights in Q1, 13 wells were drilled in our dry and wet acreage positions, while returning to pads with existing production on three of the four pad sites.
Of the 13 wells drilled 12 of them were in southwest, Pennsylvania with one in northeast PA.
The Q1 wells had an average lateral length of more than 13200 feet, which is a 13% increase versus the same time period 2021.
This was driven by three wells with lateral lengths that averaged more than 18000 feet.
<unk> them in the top 15 longest laterals and ranges Marcellus program history.
We've touched on the importance of being repeatable on prior calls and drilling long laterals is one of many components to this success factor.
Drilling long laterals provides capital and operational efficiencies, particularly when using existing pads and infrastructure, while at the same time, reducing our overall environmental footprint.
This results in our continued leadership and capital efficiency in Appalachia, whether measured on drilling cost per foot, our maintenance capital per Mcf.
As an example in the face of inflationary cost impacts during the first quarter.
<unk> gains from our long laterals drilled during this timeframe enable the team to reduce drilling costs by 4% on a FERC basis, when compared to the first quarter of 2021.
Four completions 15 wells were completed during the quarter.
Overall the team completed just under a 1000 frac stages, while setting a first quarter completions efficiency record by averaging over $8 five frac stages per day.
During our previous call, we mentioned an emerging step change in our efficiencies and attributed to new surface equipment and procedures.
As an update in February of this year the completions team pumped a record 16 stages in a day with a single Frac crews, while utilizing these new equipment and procedure.
This type of improvement shows the team's creativity and commitment to improving our frac stages per day as we move forward.
Further, reducing our program cycle time and reducing cost.
This is just one of many examples where our teams continually look to implement new technologies and process improvements to achieve our higher operational and capital efficiencies.
Recently, you may have seen an announcement regarding a contract extension for an electric Frac fleet for future range activity.
The extension was signed during the first quarter for the latest generation equipment configuration for deployment in Q4 of this year.
The new fleet has a considerably smaller footprints, which will improve operations as we continue our strategy of returning to pads with existing production.
Key component in our development plan.
This fleet will also play a role in ranges continued ESG efforts by minimizing emissions, all while generating power from clean burning natural gas from rages assets.
We look forward to continuing our partnership and collaboration with our service partners to achieve our mutual long term goals.
Water operations continue to capture savings from our water recycling program during the first quarter.
In excess of 1 million barrels of third party produced water was utilized which reduced overall completion costs for the quarter by nearly $3 million.
The water logistics software deployed a year ago allowed range to plan for reduced water tank levels in the field prior to winter storms and prevented unnecessary impacts to production.
Cross departmental communication adaptive scheduling and technology focused cost reduction efforts allowed range production to continue to flow uninterrupted and continue the trend from 2021, which saw range generate $13 million in water savings across the year.
Again further demonstrating the durable and repeatable nature of our operational and capital efficiencies.
One of the many advantages of having a large blocky acreage position.
And lastly lease operating expense for the first quarter finished at just under <unk> 11 per Mcf equivalent.
With winter operations, putting us at the high end of guidance as expected.
Before moving to marketing I would like to briefly touch on service costs.
We continue to monitor changes to the global and domestic supply chains, making adjustments as needed.
Although we've seen commodity cost increases in areas, such as fuel steel and sand, we have mitigated our exposure where possible taking proactive steps such as securing our 2022 tubular goods and by entering into the previously discussed Frac fleet contract extension, which will commence on November one.
We will continue to watch the supply chain landscape and adjust our plan as necessary.
I do think it's worth providing some context to the inflation discussion, though as ranges low base decline and peer leading well cost serve as a hedge against service cost inflation.
For context, our maintenance capital program of $460 to $480 million for 2022 works out to approximately <unk> 60 per Mcf of production.
This is the lowest in Appalachia and has a fraction of what youll find in higher cost higher decline basins, such as the Haynesville.
So to the extent that there are inflationary pressures that continue beyond this year range.
Range is well positioned to manage through it it should be advantaged versus other E&P companies.
Shifting over to marketing.
Exports from the U S were strong in the first quarter and were estimated to be 27% above the five year average while domestic demand was 17% higher year on year.
Together these fundamentals helped push Mont belvieu ethane prices, 29% higher through the first quarter.
This backdrop, coupled with ranges diverse portfolio of NGL contracts drove a <unk> 74 per barrel premium to Mont belvieu for the quarter and range is absolute pre hedge NGL price increased to more than $40 per barrel.
Additional domestic ethane demand such as the shell cracker in Appalachia is expected to come online this summer while existing facilities will restart following maintenance.
This growing demand is expected to support ethane price versus natural gas.
Domestic propane inventory is at historic low levels, which coupled with several periods of cold weather boosted Mont belvieu propane prices nearly 28% during the first quarter.
<unk> price performance was similar rising 21% across the quarter on strong domestic demand for gasoline blending plus export demand that was 70000 barrels per day or 28% above the five year average level.
Looking ahead to the balance of 2022 range expect strong demand for U S LPG exports to European and Mediterranean markets as customers in those regions look to diversify their supply.
Range is well positioned to meet this demand using our export capacity at the Marcus Hook terminal near Philadelphia.
The ongoing strength in export demand will present, a challenge to domestic buyers as they work to refill storage levels from historically low levels supporting Mont Belvieu pricing through the summer is setting up for another bullish winner for the 2022 2023 season.
This continued strengthening of NGL outlook and price realizations further supports our 2022 NGL guidance range of zero to $2 per barrel premium relative to the Mont Belvieu index.
For our natural gas marketing efforts in Q1 range reported a natural gas premium of <unk> above nymex, including basis hedges and a 17% differential improvement versus the first quarter of 2021.
Underpinning ranges realized natural gas price of $4 92.
With stable production levels across Appalachia.
Exports from LNG, reaching 13 Bcf per day.
Mexican exports exceeding six Bcf per day and winter heating degree days within 2% of the 10 year average.
This resulted in below average storage levels Q1 daily pricing near $5 per Btu and record cash margins for the company.
Before turning it over to Mark I'd like to briefly touch on our environmental and safety performance.
For 2021 range as greenhouse gas emissions equated to approximately <unk> <unk> equivalent per Mcf equivalent.
A level within 10% of the prior year and placing range at the low end of emissions intensity on a global basis.
Looking at water recycling range once again recycled over 100% of our produced water, while utilizing production water from other operations in the area.
And for safety, we continue to see training and hazard identification pay dividends with no range employee Osha incident in the past six months and only one in the past two years.
We look forward to sharing more details on these as well as other accomplishments in our upcoming corporate sustainability report slated for release this summer.
In summary, our operations and marketing updates today continue to reflect our dedication to efficient operations.
Capital discipline and deployment of new technology to deliver on our most capital efficient program.
We look forward to future updates on these key areas in the future quarters ahead.
I'll now turn it over to Mark to discuss the financials.
Thanks Dennis.
In the first quarter the range team delivered on stated objectives pursuing our mission to realize the value of ranges World class World scale asset base.
Paired with a balance sheet fit for purpose to consistently deliver value to shareholders over a multi decade inventory life.
It was a busy quarter with substantial progress across much of the business.
Cash flow from operations reached $489 million.
Which funded net debt reduction of approximately $250 million after early debt redemption costs.
<unk> expenditures of roughly a $117 million and re initiation of our share repurchase program acquiring 600000 shares in the month of March.
We've been focused on absolute debt reduction for several years and as of quarter end, we have reduced debt net of cash by over $1 7 billion.
Since 2018.
As noted on the year end call, we believe that a prudent and competitive debt level for the company going forward will be in the one to $1 5 billion area.
Which is achievable at strip pricing in early 2023.
With clear line of sight to target debt levels and quarter end net debt to EBITDAX of one six times with rapid additional deleveraging in coming quarters, we're able to execute both debt reduction and our return of capital program.
These two objectives.
Our pristine balance sheet and competitive shareholder returns are not mutually exclusive.
Are integral parts of our overall capital allocation strategy and can be executed in tandem.
We have consistent consistently described a waterfall of our reinvestment of cash flow.
First maintenance Capex in order to utilize infrastructure and maximize margins.
Second debt reduction towards target levels.
Third return of capital to shareholders.
Fourth growth Capex when appropriate.
It is important to note that this hierarchy entailed flexibility to allocate based on highest overall returns to the company and its shareholders.
With ranges, leading full cycle costs margins are strong generating significant free cash flow that will support even greater flexibility in the use of free cash flow focused on risk adjusted returns driven capital allocation.
Taking a closer look at the first quarter results cash flow of $489 million was driven by planned production levels, achieving strong pre hedged realized prices of $5 63 per Mcf.
<unk> to $3 21st quarter last year.
This realized unit price is 74.
<unk> Nymex Henry hub, driven by improved natural gas natural gas liquids and condensate pricing.
During the first quarter NGL price per barrel pre hedge reached just over $40 per barrel or in excess of $6 60.
On an <unk> basis.
Range has diversified portfolio of transportation capacity and customer contracts support of differentials.
Such that the total per unit price received by range remains a premium to Henry hub natural gas and Mont Belvieu Ngls.
Hedged cash margins per unit of production expanded to $2 65.
Up 156% compared to first quarter last year.
<unk> margins benefited from higher prices through a combination of careful hedging and continued focus on cost and efficiency.
The change in total cash unit costs in the first quarter compared to the prior year, primarily relates to processing costs, which are linked to NGL prices with minor variations in other line items offsetting.
While line items, such as LOE and G&A continued near multi year lows further savings in interest expense will result from continued absolute debt reduction and the refinancing transactions completed in the first quarter.
The refinancing transaction executed in January reduces annualized interest expense by greater than $40 million.
Or <unk> and cash flow per share.
With further significant interest savings from retirement of upcoming debt maturities.
Cash balances of $113 million at quarter end combined with continued free cash flow.
And an undrawn revolver revolving credit facility.
<unk> ample liquidity to redeem at par senior notes maturing in 2022 and 2023.
Additional balance sheet enhancements were completed in early April with the execution of a new five year revolving credit agreement.
We elected borrowing base remains at $3 billion.
With lender commitments of $1 5 billion right sizing the facility given ranges expected cash flow cash balances and manageable debt maturity profile.
Successful first quarter results combined with a positive view of opportunities for range going forward.
Further support our confidence in the return of capital program announced on our last call.
We continue to expect to Reinitiate, a cash dividend in the second half of this year at an annualized 32 per share.
Further we have already begun repurchasing shares under the current aggregate $500 million authorization.
We continue to believe the repurchase program as an attractive investment opportunity given the significant gap between the value of ranges inventory and production versus current share price.
PV 10 of proved reserves at recent strip pricing equates to over $60 per share net of debt.
Using proved reserves and this rough valuation ignores the significant incremental value of inventory beyond SEC proved reserves.
We will remain flexible and adapt to market conditions project returns and prudent reinvestment with this expanded repurchase program, providing additional scale to a compelling option for use of free cash flow.
Hard work.
<unk> and Swift, but precise adjustments to our business plan without veering from our core objectives, we're demonstrating the value of ranges portfolio and business.
Patience and diligence allowed early returns of capital to come in the form of debt reduction and share repurchases.
Now continued returns of capital are planned as we work to narrow the gap between share price and intrinsic value per share exposure to what we believe is the largest portfolio of quality inventory in Appalachia.
We seek to continue this trend of disciplined value creation for our shareholders.
Jeff back to you.
Operator, we'll be happy to answer questions.
Thank you Mr. Ventura.
A question and answer session will now begin.
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Once again, please press Star then one to ask a question.
Our first question comes from the line of Josh Silverstein with Wolfe Research. Your line is open.
Hey, thanks.
Hey, guys.
You're at about $2 5 billion of gross debt as of March 31, and based on the forward outlook to be your target to be at $1 $4 5 billion.
Gross debt how are you utilizing the $1 $4 billion of free.
Free cash flow at strip I imagine, you're probably trying to take out the 750 of notes next year, but how do you look at the remainder of that cash balance.
Sure. Good morning, Josh This is mark so youre right strong prices have taken what was very compelling.
Forecasted free cash flow earlier, this year and bumped it by another $1 billion plus over the next couple of years. So with that we can achieve the balance sheet sooner than was previously forecasted so in the near term.
<unk> thousand 20, twos will be redeemed in may at par the 2023 nodes can be redeemed at par in December .
So as we roll forward we.
Are likely I would say to hit the absolute debt levels in early 2023.
Sitting here at one six times leveraged today, clearly within a month or two we're well within the relative leverage ratio, we want to be in but in absolute terms easily based on current strip pricing.
April to achieve absolute debt levels in early 2023, so what that does is it gives us greater flexibility in how we want to use that incremental free cash flow slide 14, we highlight that the we're labeling excess free cash flow optionality around executing our existing return on capital program and potentially the forms that may take into.
Future, but just to circle back.
This return of capital program and the application of our free cash flow is really just a continuation of what we've been doing largely for the last four or five years in reducing that debt down an aggregate $1 $7 billion or more to date.
We bought back to date $10 million 600000 shares.
<unk>.
Focused on improving our balance sheet, while creating value for shareholders. So in the near term cash flow easily needs debt maturities and gives us a lot of choices on return of capital program.
Got it and just on the buyback as well, obviously, that's a pretty strong kind of 15%, 20% free cash flow yield that strip next year are you thinking about your yield that at that level when thinking about the buyback or are you looking at prices that at a lower level and then comparing that somewhat the socket.
Yes.
Yes, I think we triangulate using a number of different valuations we of course run AAV we look.
Simplistically proved reserves and the value I think that's a decent yardstick or at least a gut check on valuation look at relative value of other investment opportunities just in terms of overall market, but what it comes down to is that given the sheer scale of ranges inventory. There is what we believe to be such a significant gap.
That repurchasing shares is just such a compelling opportunity.
That's the primary focus of the return of capital program.
Thanks for that and then just the follow up there is obviously a lot of focus now to try to get incremental sales volumes into.
International pricing can you just talk about the opportunity for you guys. You said volumes to the Gulf Coast now how are those discussions going and what are the opportunities for you.
Yes, good morning, Josh This is Dennis.
I think when you touched on it but I'll start with our portfolio configuration right now from a net gas standpoint, 80% of our guest gets out of the basin. So of that 50% gets to the Gulf and that we have.
Another 30% that essentially gets to other we'll call it non northeast markets over into the Midwest as an example, so.
For the past several years.
We've tried to take the approach whether it's on a nat gas side and on our age yields which you've heard no doubt Alan and the rest of the team talk about.
Let's get our molecules to premium markets. So that we can enhance our margins as much as possible and has exposure to multiple indices at different contract structures, which I know it.
<unk> talked about from the <unk> perspective, it could be things like being exposed to.
European.
As an example, as to just be looking at a Mont Belvieu alone.
Index.
As we go forward, we fully expect that we're going to continue to have conversations as LNG type infrastructure receipts more and more support hopefully to develop and when you look at I'll pick on LNG, just particularly for one moment.
When you look at the long runway of core inventory that range has where were at on the low cost of being on the low end of the cost curve and also being on the low end of the ambitions curve not only for the U S. But also globally, we feel like that's going to position us well to continue to basically move our guests on our pipes on the pipes that we have.
Places like the Gulf as that infrastructure develops and even in the northeast if we see future LNG facilities come into play there. So we feel like we're well poised for that these are multi decade decisions for this infrastructure to go into the ground.
So we feel like our inventory is going to feed well into that and for those organizations, who are going to want to build out infrastructure, we're going to be looking for a surety of supply. So we will have ongoing conversations in the future we want to get our molecules again to those premium markets. We've been playing in the LNG space for the past several years, we've got some volumes that are already billing.
Those type of infrastructure.
Restructure setups and we'll continue to do so and look for those opportunities going forward.
Great. Thanks, guys.
Thanks, Josh.
Thanks.
Our next question comes from the line of Michael CLO with Stifel. Your line is open.
Yes, good morning, everybody.
Mark.
Excuse me, Jeff you said.
Yes.
You could grow when the market calls for it you got a pretty good handle on.
The macro outlook I'm wondering would you anticipate.
The market will need.
Either more production from rates, specifically or even Appalachia.
And does that get pushed out at all with <unk>.
Higher gas prices.
Or how does that.
Okay.
How does that look right now in terms of when you would anticipate.
Growth from either Appalachia range.
Yes, well I think in terms of on the macro side.
We saw it even in Europe last summer.
With the hard push with Europeans towards wind and solar and the issues. They had last summer and basically needing more down and even if you roll back.
Over the last decade to countries like Germany.
Shutting down post Fukushima shutting down nuclear moving away from coal and pushing in the wind and solar and realizing that had a big need for natural gas and then of course with the tragedy in Ukraine now.
Having.
The source of your supply and ethical source and ensure supply and all those types of things are critical so.
I think really increases the call on gas from the U S for LNG Fortunately the U S.
As I mentioned in the call notes.
With the discovery of the Marcellus Utica point Pleasant has now has the largest cruise and gas field in the world and whereby for the largest <unk>.
You sort of gas globally.
It's not even close so I think there will be a bigger call on U S gas, which will increase demand.
You've seen us.
Again going back to the crisis in Europe and increased call on U S coal and then in the U S listing.
Coal to gas switching away from gas to coal.
Coupled with higher pricing. So all of that I think says more supply more demand for U S gas. Fortunately we're in the basin that has the largest gas field. We've got the largest core inventory. So I think we're in a good position and of course, you've seen the strip now increased price not just the front month, but really for the next decade.
Gas prices move up so we're in a good position as far as range for this year clearly, we're at maintenance capital, which said that and we will stick with that.
Mark talked about the waterfall of capital one maintenance capital to debt reduction three shareholder returns and then but the ability to grow.
When that's called for in that.
When you get into the whole discussion of infrastructure and the timing and all of those things, which we'll consider infrastructure by the way not just in the Marcellus, but youre seeing constraints potentially bump up within a year in the haynesville and even widening basis in the Permian on gas takeaway. So we think we're in a good position the colon U S demand is higher.
We have.
Largest corn inventory good relationships with international customers have contracts, we've been in discussions so I think.
In a good spot.
Is it fair to say given those things you laid out, especially the constraints that.
You're probably not able to.
To really grow.
Grow much.
2023 or is there some possibility of grabbing market share that early.
We will look at that as we get later in the year in lay up 2023.
Even within the basin, it's different whether you're in the northeast part of the Pennsylvania per se versus in the southwest part of the play.
So where we are we're in a better position and there is some takeaway capacity in the southwest Florida deployed currently through coal plant retirements through the shell Cracker will come on that will have a little incremental demand for gas and those types of things.
Coupled with.
The discussion that everybody is focused on MVP is 95% done and there is a big call on it to be complete so we'll see does that get completed in 2023.
Any of those things that takes gas out of the basin creates more space and I think the other thing that you do see is.
The limits to core inventory or tier one inventory not for us but for other people. So that could also create some space and some ability to take market share.
Thanks for that detail and just wanted to follow up on.
Project scenario C, where that stands today and if theres any line of sight of that.
Getting to a premium price for.
Responsibly sourced guests.
That this is this is thanks for the question.
At this point we've been.
<unk> been awfully pleased with the monitoring that we've had really across the program I.
I think we've mentioned in the past we've had four pads that essentially we have gone through the certification process with project Canary.
Continue to investigate other alternatives for monitoring.
And a lot of it so that we make sure that we're continuing to capture data. We know that that is really key to telling our story and further supporting.
Missions numbers like we touched on today in our call notes.
For 2021.
<unk> right now the premium that we've been able to capture has.
More than covered the cost, but as you would imagine.
There is still an emerging market and emerging space so until that market. Let's just say further develops we're continuing to collect data and we're continuing to investigate.
Various certification pathways, what matrices for range and also our Counterparties, we're having a lot of ongoing conversations with between our marketing team and those that were transacting with on a regular basis. So that there is alignment there as well and so I would fully expect to see US continue to play in this space as we move forward.
Further tell our story about our low emissions of where we stand.
Thank you guys.
Thank you.
Our next question comes from the line of Doug Leggate with Bank.
Mark Your line is open.
Good morning. This is John Abbott on for Doug Leggate.
The first question that we have is on your transportation Optionality specifically, we're looking at slide number 11, where you talk about gathering cost declining naturally over time, and then you have optionality with your transportation agreements, we have the option to redo I'll, let them expire.
Any color on those transportation agreements that could potentially expire just given where gas prices commodity prices are at does it make sense to let them expire at this point in time.
Yes, good morning, John This is Dennis.
Michael that first year, Mark may want to chime in but ultimately I think one of the reasons why we've always couched it as a decision point for us to retain.
Renew or release, depending upon what's going on in the marketplace.
As for the Great question, I think what Youre asking here and I think as we look forward and we have conversations around infrastructure you can make the argument that some of the portfolio it would make sense to retain.
But we're going to evaluate each one of those as they get ready to expire from a cost perspective, not only cost, but what markets. They get too clearly if you take our pipeline MVP as an example, it starts to yes and takeaway, but it also changes some of the dynamics that may be pricing at the different end markets that we could see so.
From a diversification standpoint, I'll go back to maybe how we started visiting with Johns. This morning, we will want to have some diversification of our portfolio because we see that is key.
<unk> today, and it's been that way historically, we expect it to be important as we move forward, but to specifically answer your question. When we let those expire I think we will.
No doubt evaluate each one of those as we get close and we'll make the right decision for our program, whether it's more maintenance type activity other pipes get commissioned.
We are looking at some low modest growth type profile.
I appreciate it and then our follow up question is on cash taxes, you updated your long term view and you've suggested eight at least $1 billion of free cash flow per year in 2025 and beyond.
Mark we understand that you have the Nols.
Assuming long term $4 gas at what point do you see yourselves as a full cash taxpayer.
Yes.
Sure so cash taxes, clearly top of mind for everyone. It's a byproduct of higher commodity prices of something the industry Hasnt base for a while but.
Fortunately for range.
With about $2 $9 billion in federal Nols, we are starting from a very strong position. That's that's an asset of deferrals cash taxes for our shareholders.
Frankly with higher prices gets realized sooner than just even a few months ago. I think it is important to note. The composition of that NOL windows are generated alter how they are utilized going forward. So for range of the total $2 $9 billion in federal Nols.
About $1 2 billion of those are able to be used in offset up to a 100% of your taxable income.
After that the remaining.
$1 7 billion or so you are able to offset up to about 80% of your taxable income. It just has to do with regulations and windows Nols generated so what it means is for 'twenty two certainly don't expect.
Cash federal taxes for 2023 in the next few years, you will be able to use that $1 7 billion bucket and offset the vast majority.
I would expect some 80%.
Or more based on that NOL as well as the deductions generated in those years, so suffice it to say that while cash taxes.
<unk>.
In the next couple of years, they will be largely mitigated and pushed out and I think thats a very good relative position compared to peers. We also noted that we've got $867 million Nols at the state level of Pennsylvania. We commented on the year end call that again within the state of Pennsylvania, you can offset up to about 80% of your.
Taxable income very low effective rate think 1% type area for a state level taxes.
I appreciate it mark Thank you for taking our questions.
Thank you.
Yes.
Thank you. Our next question comes from the line of David <unk> with Cowen Your line is open.
Thanks for taking my questions everyone.
I just wanted to ask a follow up on the LNG side.
Right.
As you think about the the world kind of growing you laid out in your slide deck, certainly the demand call it like an incremental.
20 Bcf a day of projects.
In the World where.
Infrastructure isn't necessarily keeping up with that.
Beyond MVP is there a I know others have asked about this today.
Is there a general number that we could think about the incremental capacity that range would have to grow on a million cubic feet a day basis beyond 400, that's coming up for re contract.
Let me just at a high level I mean.
We're saying 50% of it goes to the Gulf.
So.
50% of.
<unk> six <unk>.
The gas part ignored.
$800 million of debt then you can look at incremental growth beyond that but let me flip it presented.
Yes, David I think maybe I'll take a step back and maybe attack this a little bit differently.
There is no doubt I think we're all seeing as Jeff touched on in his comments. This morning, the benefit of having additional infrastructure that goes into place for.
Energy security both locally.
But also when you think about it globally.
That infrastructure.
As it reaches support.
<unk> built and commissioned in some ways I would say.
Growth really becomes a part of the line of sight, we should see that infrastructure to start to kind of be the realization. If you will but regardless whether range since future growth molecules to an LNG facility or that frees up the ability to put.
And the other local infrastructure as Jeff pointed to like the shell cracker or other outlets. It really provides optionality and back to some of the diversification that we pointed to earlier in some of our comments around pipes expiring or renewing so we see that it's just really good optionality for us much like some regards are our ethane optionality.
When you looked at us having ethane molecules on three of the four main outlets out of the northeast just kind of as it changes. So I don't know that that growth is necessarily going to be the driver in this but we do see it as that infrastructure comes into place provides good optionality and whether we see the best premiums.
Enhancement through the LNG facilities, or we take those molecules and put them into other infrastructure.
We look to further improve our margins by humans.
Just say globally, if you look at commodities like oil or gold.
Commodities kind of like global commodities, except for natural gas so as the natural gas export facilities expand and grow.
U S gas should COVID-19 should raise the price of the USAA asset to trade more like a global commodity.
So we have the access to get to LNG facilities and we're in discussions that we have good relationships with some of the international players, but even even the other U S gas in general I think we've come up is it more like a global commodity.
That's a great point Jeff.
My only follow up would be on <unk>.
Josh asked about this earlier on how the contracting conversations are going.
Do you think that there is sort of a high for fixed price.
That would be coming from demand contracts that would incentivize more offshoring of domestically produced gas that.
Mike might sort of bridge this transition from guests trading as more of a domestic fuel versus a global commodity.
Yes, I think as people bid more for U S gas and again is that.
Arb.
We will decrease with time and compressed.
So the answer is yes.
Thank you guys.
Thank you.
Thank you.
Our next one comes from the line of Ron.
J O'brien with J P. Morgan your line is open.
Yeah. Good morning, I wanted to get some thoughts.
From the team on how you think the Russia, Ukraine, Ukraine conflict will impact <unk>.
NGL export fundamentals.
And then maybe the heavy end of the barrel. So quick thoughts on how you think the conflict in call. It the rerouting of energy supplies.
To Europe could impact NGL fundamentals.
Yeah. Thanks, Arun this is Alan.
I head up our.
Liquids marketing business.
Appreciate the question it's a good question.
The impact I'll start with LPG.
The impact on LPG is.
It's.
It's rather small on a global basis.
Kind of like with gas and crude its big with respect to <unk>.
So imports so Russia exports roughly call it 40000 barrels per day.
LPG to the waterborne markets.
And about 100000 barrels per day.
Overland markets.
So again that represents 140000 barrels per day.
Around 1% of total global LPG demand.
But I'd say.
It's a much bigger portion of Europe's imports.
And as a result of that Europe is going to be tight.
In that tightness.
If you have to replace those barrels the best market to get them from is really from the U S.
We are.
Best situated from a logistics standpoint.
And in particular Marcus Hook.
Where we have our exports are best positioned to supply any shortfall.
<unk>.
In Europe due to Russian sanctions.
That could just that.
140000 barrels per day, or so just put into context, that's roughly equivalent to five extra vlccs per month.
Gulf Coast.
Marcus Hook.
It's a significant amount.
That's a direct impact on LPG, there's some indirect impacts as well.
If we look at just naphtha coming out of Russia.
It is roughly four times more than what the LPG is.
So the naphtha markets are tightening globally.
What that means indirectly for LPG is that the spread between propane and naphtha is going to widen in favor of propane actually becoming more preferred going into flexible ethylene steam crackers.
And that can add a big chunk of demand.
And we're already seeing that starting to happen in Europe .
And then finally.
Shortages of natural gas as we've seen TTS prices are high.
It can.
Obviously go higher.
No.
Any one that can actually put LPG into fuel probably started doing that last fall.
But if there is physical shortages of natural gas.
There's going to be continued creativity people continuing to be motivated to look for other ways to fuel.
LPG, whether it's industrial complex as refineries or just spiking directly into natural gas. So we see a lot of indirect impacts it.
Almost double the call that we previously had on demand growth for LPG globally over the next couple of years.
So what that means for propane right now it's trading down around call. It.
$53, 55% Adobe Ti.
Our view is still that it's going to be 60% to 70% of Ti.
And really it's only lagged recently, because we've just gotten through the winter.
<unk>.
Some of.
The fears of running now to supply this winter kind of eased.
And Thats one thing Steve a little bit also crude itself is just really bullish right now.
So with both propane and crude bullish with crude being much more liquids and propane has been some lag, let's say in the price of propane, but fully expect that.
We will see that relationship.
And that ratio increase in favor of propane.
We go through the rest of the year.
For the last part of your question you asked about ethane and really we don't have a lot of visibility on that I don't think there's really much of an impact except to say indirectly again.
What we're seeing is that the for international crackers that rely on naphtha or heavier feedstocks.
The appetite for something like ethane out of the U S and in particular of Marcus Hook has been.
Really really high just because of the advantaged cracking ethane is so far superior to that of the other feedstocks.
So we've seen and Dennis commented on this in his prepared remarks, we've seen ethane exports.
Really.
Hi.
<unk> continued to increase.
Given our forecast for this year with new ethane.
<unk> is coming on the market.
We only see that continuing to increase as we go through the year.
So I hope that answers your question.
No that was great.
And I just had a quick follow up.
Thank you guys.
They have takeaway capacity to move half.
Half of your gas volumes to the Gulf Coast, you mentioned that Youre selling.
400000, and then Btu a day to LNG exporters I'm wondering if you could comment or.
What kind of pricing.
Are you getting relative to those volumes are you getting any sort of premium relative to Henry hub.
And then as you think about potentially looking at.
Call It marketing agreements, maybe long term supply agreements to LNG exporters.
Could you talk about what type of risk would have producer.
Have in periods, where let's let's.
Arguably you signed a 10 year agreement where in periods, where the market may be have a timber.
Apply imbalance.
No prices globally were weak. So I just wanted to talk about what kind of risks does a producer having some of those long term agreements.
Yes. This is Dennis I'll start off with kind of the current that moved to the future and from a current perspective.
The 400, a day that we've referenced that is already.
Tracking in the LNG space.
I think if you were to look across the board historically a lot of those have been based on some kind of we'll call. It natural gas indices and so it's pretty common whether its range of others I think to have a similar structure.
We don't typically as you would imagine disclose with those contract terms look like.
But it is competitive in the portfolio. It's a good way of adding in some diversification to how we look at pricing and getting exposure to different environment is very competitive within the portfolio that we have today as we look at the go forward, though piece.
We're open to those conversations whether its exposure to TGF or.
Something more traditional whether it's it's hub based or something else.
Reference back to something we touched on earlier.
An example, we were the first to export ethane out of the U S and as a part of that along with other.
The deals that we put in place key different exposures to different indices of structures like European asset naphtha. As an example, so we are we're very open to different exposures. We also want to make sure that were aligning the risk with the rest of our program, though and so thats where it clearly.
<unk> input and the rest of the senior management team comes into play as well, we will make sure that that all lines coupled with that diversification. So we've been playing in that space for the past several years, we're open to it but it also has to align with the risk of our organization.
Alright, great. Thanks.
Thank you.
We are nearing the end of todays conference.
Ladies and gentlemen, we are nearing the end of today's call. We will go ahead and.
So Noel parks of Tuohy brothers for our final question.
Yes.
Hi, good morning.
Good morning.
With.
The improvement we've seen in gas prices of course that debt.
Does a lot for free cash flow upside, but I was wondering.
Thanks since the last call.
Two year strip is out about it's up about.
$2 to $2 50 from and I'm, just wondering as far as far as how you look at your inventory and its definition as priorities.
What's the maybe first are our lowest hanging fruit benefit that you get.
From just that that extra.
Price flexibility.
Does it have any implications for geography or for.
Just drilling patterns, given the ability to concentrate more in certain areas because.
The inventory.
Our high return inventory pool sort of expands with.
Sustained higher prices for a while.
Sure. This is Marc I'll I'll kick it off so with ranges footprint.
250, plus pads across southwest, Pennsylvania, existing pads and infrastructure in northeast, Pennsylvania as well.
And our practice over a number of years of adding wells to existing pads as well as building new pads, you've got what ill.
Call. It a very superficial level, our blended average two to an extent of inventory within each program year. So eight years drilling program is not.
<unk> selected each individual well is not necessarily selected become it was economic only at $2 50, So we're going to drill this well with this well was economic at $4. So we're going to drill this well as we look at the program year. It's about the overall return of that program the availability of infrastructure be it the gathering system compression and the ultimate destination and realised.
Price of netback for that production.
No.
The price is certainly beneficial, but it I would say has not significantly altered how we view the the inventory in totality or the drilling program with some 3000 locations in the Marcellus 2000 of which are two bcf per thousand and greater.
That hasnt altered one question Thats come up periodically is are you drilling the Lycoming county in the northeast, Pennsylvania, because prices are up and you're dipping at a different inventory the answer is no.
The returns across all of our wells are highly competitive with the program.
That is drilling those wells is no different than drilling a selected pad in southwest, Pennsylvania, It's a function of available transport gathering and so forth.
The returns on those wells is competitive so long winded to answer your question I would say prices are clearly a positive but it doesn't alter how we view the allocation of capital and well selection.
Great. Thanks, a lot and just my follow up.
Given that you have achieved smaller frac footprint.
Was wondering if that also had any implications operationally in terms of just what you have you can do this harvest offset frac planning and so forth.
Yes.
I would kind of frame the smaller footprint as benefit today more benefit in the future.
Meaning we know that as we return to our pad sites.
As I take a step back we've done around approximately 250 pad sites when you look at as having.
Most to 200, producing wells across the field and kind of do the math.
Somewhere in the neighborhood of around 5% to six kind of an average window of number of wells per pad, but as we move back to those pads with existing infrastructure, our ability to conduct simultaneous operations produce will safely all of that plays a factor in how were forward looking around efficiencies safety.
And really continuing to develop our assets and harvest our reserves so.
Significant benefit in the near term I would say more benefit as we look at the future and we're going back to those pad sites that didnt have 810, or even a few more wells.
Great. Thanks, a lot.
Thanks Noel.
Thank you.
This concludes today's question and answer session I would now like to turn the call back over to Mr. Ventura for his closing remarks.
Just wanted to thank everybody for participating on the call. This morning, and feel free to follow up with any additional questions you might have thank you.
Thank you for your participation in today's conference you May now disconnect everyone have a wonderful day.
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Yes.
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