Q1 2023 Range Resources Corporation Earnings Call
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 the forward looking statements. After the Speakers' remarks, there will be a question and answer period at this time I would like to turn the call over to Mr. Laith Sando 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.
The speakers on today's call are Jeff Ventura, Chief Executive Officer, Dennis Degner, Chief operating officer at <unk>.
<unk> <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 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'll be referencing certain non-GAAP measures on today's call. Our press release provides reconciliations of these to the most comparable GAAP figures.
We've also posted supplemental tables on our website.
That include realized pricing details byproduct, along with calculations of EBITDAX cash margins and other non-GAAP measures.
With that let me turn the call over to Jeff.
Thanks, Lee and thanks, everyone for joining us on this morning's call.
Range continued to deliver on our key strategic objectives in the first quarter operating safely and efficiently to deliver a production plan that consistently generates free cash flow.
Dennis and Mark will walk through the quarter in a moment further demonstrating the resilience of ranges program and assets even in today's commodity price environment.
As was announced last month after 20 years with range I am retiring and this will be my last earnings call.
I have to say I couldn't be more proud of the work the range team has done to position the company where it is today.
Ranges and the best operational and financial shape in company history, and is poised to generate substantial free cash flow and competitive returns long term given our multi decade inventory efficient operations and access to diversified markets.
For the Marcellus the future's bright as we sit at the very low end of the global cost curve with one of the lowest emissions intensities of any play.
Given the size and potential of the Marcellus and has the ability to help supply the U S and our allies for decades.
I strongly believe the products, we produce are going to remain in high demand as natural gas and natural gas liquids provide products needed for our everyday lives.
Natural gas has many important uses from generating electricity to making plastics, it's a key ingredient in the manufacturer of fertilizer for agriculture.
A key source of industrial heat for making steel and cement and it's used for heating and cooking just to name a few.
Given the importance of the Marcellus and a range of sizeable court position I believe ranges in a desirable position to continue delivering competitive returns and creating sustainable long term value for shareholders.
Before turning it over I'd, just like to say that I'll be forever grateful to the range team for their dedication creativity and hard work.
We pioneered what I believe is the best and largest producing natural gas field in the world and have developed it in a way that we can all be proud of as good citizens of the communities with industry, leading environmental practices.
The discovery of the Marcellus in 2004 was a game changer for energy markets.
This resulted in range, becoming one of the largest natural gas and natural gas liquids producers in our country in the U S becoming by far the largest natural gas producing country in the world.
The positive impacts have been many.
Natural gas prices in the U S are more affordable in Europe , and Asia, which helps direct industry back to the U S creates hundreds of thousands of jobs helps with national security and improves the trade balance.
In addition, the free market substitution of coal with natural gas has been the major driver behind the U S leading the world in Cotwo and emissions reductions.
Thank God for blessing me with an opportunity to be part of the team that not only unlocked it but was also innovative in how to successfully produce and market the vast resources over the last two decades.
I've said this on past calls the team and board we have in place today is the strongest it's ever been.
I look forward to seeing Dennis Mark and the entire range team continue to move the company forward generating significant long term value for shareholders, and making range, even stronger and more resilient.
Thank you to my colleagues and friends.
So proud of what we were able to accomplish as a team I'll now turn it over to Dennis for his remarks.
Thanks, Jeff.
It's an exciting time to be a part of the range.
And I am humbled by the opportunity to lead the company in the years ahead as we remain focused on translating our world class resource base in a long term shareholder value.
Like Jeff said the company is in a great position today, and we aim to continue working to make range even stronger in the future.
In the first quarter range continued to successfully deliver on our stated objectives.
By completing our operational plans safely and with peer leading efficiencies.
Generating free cash flow.
Further strengthening our financial position.
And returning capital to shareholders in the form of share buybacks and a base dividend.
Looking at operations I am pleased to report that our program is off to a solid start and is on track to deliver this year's plan with a continued focus on capital efficient operations safety and environmental performance.
Our front end loaded drilling activity for the year resulted in utilizing two top hole rigs and three horizontal rigs during most of the first quarter.
We will maintain this level of drilling activity through the end of Q2.
Before tapering off in the second half of the year.
Completions activity will remain relatively steady with one frac crew operating through 2023, while the second crew activated later this year.
This drill and complete cadence is consistent with previous year's maintenance level programs.
Which generates turn in lines in our production profile weighted towards the back half of the year.
Capital spend for the first quarter was $152 million, which represents roughly 26% of our 2023 program budget.
This is in line with the level of operational activity conducted during the quarter and puts us firmly on track with our capital guidance of $570 million to $615 million for the year.
Production for the quarter came in at 214 Bcf equivalent per day and was underpinned by consistent field run time and strong well performance.
We expect daily production in the second quarter to be approximately $100 million equivalent lower than Q1, as we've moved up planned annual midstream maintenance and turn in lines are weighted towards the end of the quarter.
<unk> picked up in the second half of the year, making the fourth quarter our highest production.
US on track to deliver our full year production of $2, one two to $2 one six bcf equivalent per day.
And this back half weighted production profile fits well with the current shape of the natural gas curve.
Shifting to operational highlights.
Our drilling team exceeded range prior record for fastest stay drilling in the lateral section and then broke their own record two more times during the quarter.
During the quarter 13 wells were drilled that average daily horizontal footages greater than a mile per day.
By comparison only four wells achieved this level of efficiency in all of last year.
These records along with other strong days drilling in the lateral drove a 42% increase in the average daily horizontal footage drilled per rig.
The drilling team also successfully added three wells to the top 10 longest laterals drilled for range with all three laterals exceeding 18800 feet.
After drilling over 500 wells in the Marcellus. This is the type of incremental improvement that has become a cornerstone of our program supporting our peer leading capital efficiency.
Completions placed just over 600 frac stages on three pads located across our dry wet and super rich areas, while utilizing our contracted electric Frac fleet.
Efficiencies remained in line with prior quarters, but the team averaging eight stages per day, while varying completion designs based on well mix.
Completion efficiencies continue to improve in late Q1 and into Q2 by averaging in excess of nine stages per day.
As a byproduct of pad currently being completed as fitting a new standard for our overall operational efficiencies and is projected to be one of our most efficient pads enrages history.
We look forward to providing more details on a future call.
On the last call, we provided some context on inflation and how ranges low base decline and peer leading well cost serve as a hedge against service cost inflation.
Year to date in 2023, we have seen the price of rigs and pumping crews start to show signs of receding slightly.
Next generation pumping crews continue to be in high demand.
But the availability of traditional spot crews and drilling rigs has increased.
Additionally, commodities and raw materials like tubular goods and sand are also starting to show signs of increased availability.
It is possible this could translate into slight one off savings later this year.
With broader savings more likely to occur in 2024.
Range remains in a leadership position on capital intensity, given our low base decline strong well productivity and our blocky acreage position, which lends itself to efficient operations and peer leading well costs.
Shifting over to marketing and looking at the NGL macro.
U S. LPG exports set an all time monthly record of $2 1 million barrels per day in March.
Driving a quarterly record of over $1 9 million barrels per day.
This level of export activity represents an increase of approximately 19% above the same time period last year.
Keeping domestic propane stocks within the five year range, despite the unusually warm winter.
Looking ahead to the balance of 2023 range expects continued growth in the demand for U S. LPG exports in order to satisfy ongoing strong demand in European and Mediterranean markets.
As well as PVH demand in China that continues to recover with the addition of new capacity and due to the loosening of zero equivalent policies.
Ranges diverse NGL marketing agreements drove $1 63 per barrel premium to Mont belvieu for the quarter.
With an absolute NGL price of $27 60 per barrel.
In our NGL pricing equated to $4 60 per Mcf equivalent, which was $1 14 said premium to the average Henry hub natural gas price.
Liquids Optionality is a key differentiator and our resilient free cash flow versus other natural gas producers.
It just becomes more evident when natural gas prices are challenged like they have been to start 2023.
The ongoing strength in the NGL outlook and price realizations support our 2023 NGL guidance range of $1 per barrel discount to $1 per barrel premium relative to the Mont Belvieu index.
For our natural gas in Q1 range reported a natural gas differential of 14th below Nymex, including basis hedges with our realized natural gas price closing out at $3 58 per Mcf.
Freeport LNG returning to full service and early signals of rig activity reductions should help storage levels normalized as we worked through ejection season and look towards next winter.
And lastly, our team's strong safety and environmental culture was on display as we look back on both last year and Q1's performance.
Starting from an already low level, we continue to see further improvements in our safety performance in the field, while capturing emissions reduction as a result of initiatives discussed on prior calls.
We look forward to sharing more details on these accomplishments and our upcoming corporate sustainability report slated for release this summer.
In summary, this year's program is off to a solid start and this is an exciting time to be a part of range and our industry.
Our low capital intensity.
Liquids Optionality and our leading hedge program all come together to provide range one of the lowest breakeven amongst natural gas producers.
I believe the resilience of <unk> business is being demonstrated in today's challenging price environment. As we are still delivering on stated objectives and generating free cash flow.
I look forward to our future calls together as we continue to demonstrate our dedication to safe efficient operations and consistently generating competitive returns to shareholders.
I'll now turn it over to Mark to discuss the financials.
Thanks Dennis.
The first quarter was successful operationally and financially with solid execution across the business.
Cash flow from operations totaled $475 million.
Funding net debt reduction of approximately $250 million.
Capital expenditures of roughly $152 million the.
The first quarter dividend as well as 400000 shares repurchased.
Two objectives, helping drive value or a durable balance sheet and competitive shareholder returns. These are not mutually exclusive.
Are integral parts of our overall capital allocation strategy.
We've consistently described a waterfall of our cash flow reinvestment.
Maintenance capex in order to utilize infrastructure and maximize margins.
Second debt reduction towards target debt levels.
Third return of capital to shareholders.
And fourth growth Capex when appropriate.
It is important to note that this waterfall entails flexibility to allocate based on highest overall returns to the company and its shareholders.
With ranges, leading full cycle costs margins are resilient generating free cash flow, even at reduced commodity prices that support risk adjusted returns driven capital allocation.
We've been focused on absolute debt reduction for several years and as of quarter end, we have reduced debt net of cash by nearly $2 5 billion.
Since it peaked in 2018.
Debt reduction achieved to date places us close to entering our target range of one to one 5 billion net debt.
With current leverage of zero eight times debt to EBITDAX and close proximity to our debt targets. We believe the company is in great shape to continue value creation on a stable financial base throughout business cycles.
Taking a closer look at first quarter results.
Cash flow from operations of $475 million.
It was driven by planned production levels, achieving strong pre hedged realized prices of $3 82 per Mcf.
This realized unit price is 36 above Nymex Henry hub.
Driven by ranges diverse sales outlets for natural gas.
Combined with a pricing uplift from natural gas liquids and condensate.
During the first quarter range of the NGL price realized was approximately $28 per barrel or $4 60 on an <unk> basis.
<unk> diversified portfolio of transportation capacity and customer contracts supported differential such that the total per unit price received by range remains a premium to Henry hub natural gas.
Hedged cash margins per unit of production remained strong at $2 <unk>.
Ranges margins benefit from thoughtful hedging and continued focus on cost and efficiency.
Total cash unit costs improved by 16 versus the prior year.
The change compared to the prior year, primarily relates to savings in processing costs, which are linked to NGL prices.
With variations in the other line items related to labor cost inflation or the timing of planned workover projects.
Cash interest expense declined by $14 million for the quarter compared to Q1 last year on reduced debt balances.
Awaiting to eight per Mcf savings.
These improvements more than offset slightly higher LOE.
As mild weather allowed the team to pull some workover activity into the first quarter that would typically have been completed in Q2 and Q3.
Ranges right sized hedging program supported realized prices for the first quarter with $32 million and realized Nymex hedging gains.
Looking forward range is natural gas is approximately 55% hedged at $3 50.
For the balance of 2023, providing.
Providing further support to range of free cash flow profile.
Cash balances of $228 million at quarter end combined with future free cash flow and an undrawn revolving credit facility.
Provide ample liquidity to efficiently operate our business and execute efficient debt retirement.
Successful first quarter results combined with a positive industry backdrop for range going forward support our confidence in the return of capital program discussed on previous calls.
We believe a stable reliable fixed cash dividend is appropriate at this time and in this market.
While remaining opportunistic in our share repurchases with capacity available totaling $1 1 billion.
Alongside our primary objective of reaching targeted debt levels.
We will remain flexible and adapt to market conditions project returns and prudent reinvestment.
Registry for a long time has been about innovation translated into reality through dedicated teamwork.
Hard work focus and swift, but precise adjustments to our business plan without varying from our core objectives for demonstrating the value of ranges portfolio and business.
This focus and dedication will continue as radio business is in the best shape in company history, and primed for impending demand growth domestically and internationally for natural gas and natural gas liquids.
With a strong financial foundation, and 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 take questions.
Thank you Mr. Ventura the question and answer session will now begin if you would like to ask a question. Please indicate by pressing the star key than one one.
You are on Speakerphone, please pick up your handset before asking your question.
<unk> would like to withdraw your question you may do so by pressing the pound key once again. Please press star one wanted to ask a question.
One moment for our first question.
Yes.
And our first question will come from Michael <unk> of Stephens Dot Com. Your line is open.
Hey, good morning, everybody just want to offer my congratulations on a great career.
Not too many folks can.
<unk> claims.
Taking a big hand in a huge discovery Marcellus congrats and Dennis Congrats to you on your promotion well deserved.
Wanted to ask.
Comments kind of you to say that and much appreciated.
Absolutely.
I wanted to ask on the decision to put the cash on the balance sheet.
Mark you talked about the priorities for the use of cash you said there is some flexibility around those.
Maybe just your thoughts there on obviously, yet gas prices collapsed this winter.
But you did buy back a lot of shares 100 million work last year.
Any commentary on the decision to put the cash on the balance sheet for now.
Sure. Good morning, Michael I think there's a couple of factors in play there is no we're always evaluating the risk and returns.
That waterfall capital allocation simplistic description, we use but since inception, we bought back more than 14 million shares last year $400 million.
This year, obviously just in the first quarter, you've got the typical blackout period around your earnings preparation season, you had the announcement.
Jeff's retirement.
Succession planning and Youre also in a choppy and commodity price environment. So as we worked through the first few months of the year and just evaluated the priorities as well as the tremendous opportunities. We had we were comfortable.
Holding that cash and the optionality that creates as we sit here looking forward, we're close proximity to our debt targets.
We have a couple of hundred million dollars in cash on the balance sheet, we have net debt of approaching our target levels. So we like having that flexibility as we see this year unfolding.
Okay.
Very good.
Dennis You mentioned, you see storage moving back to normal this summer.
I wanted to see if you could offer a little bit more detail on that I know you guys are asked every quarter, but your.
Macro views <unk> been pretty good on the.
The gas macro how do you see that playing out what drives the.
The move back to normal on storage.
Storage levels and.
How does that I guess.
Tie into your thoughts on again on the priorities for cash.
Yes, good morning, Michael I think as we take a step back and we think about the gas macro both.
Near term and in the years that follow.
Some of our thoughts are clearly you're starting to see more and more it's kind of shifted from posturing actually seeing it translate into the numbers for on the supply side, you're starting to see some rig activity start to reduce.
Started starting to seeing that over the balance of the last few months. If you look at Appalachia as an example, we've many of US have been under a especially raise we are now on the third year of a maintenance level program, where we're keeping the gathering system and a high level of utilization and really keeping our cost structure and operations as efficiently.
<unk>.
It is well placed as possible you started a couple of us to be to get maintenance along with other Appalachian producers rig activity reductions and then toss in more and more of what youre seeing around well performance degradation year over year that is starting to translate into.
Really production profiles as we look back we see this all kind of translating into maybe less of an oversupplied market potentially you could make the argument through the data and part of that comes down to looking at days of supply. If you look at getting it to the end of this injection season.
Upon your outlook, whether its three nine or maybe four Tcf did you start to couple that with many of the points I just laid out coupled with demand thats been coming online over the past several years, both on the industrial side LNG now with Freeport being back up to full capacity not to mention the.
<unk> infrastructure thats going to be coming online in 2024, you start to get to a place of 42 days of supply at the end of the injection season and just for comparison. The five year average is 43 days and we were at 41 days in October of 2022 before we entered the winter so much different commodity price environment today clearly than it was in October .
So you could make the argument maybe it's not quite as oversupplied as what the market would kind of indicate just from a storage level number alone clear.
Clearly on the demand side LNG has its own unique story.
As you look into 2024, there's reason to believe that Golden pass train. One is is could come online midyear and start to play a significant role as we then rolled into.
Injection season for 2020 for which we also think sets everything up.
Pretty positive life so.
For Us we will stay the course from a maintenance level program and we think that plays well when you look at our transportation portfolio of what we can get out of the basin and make us resilient through the cycles here.
Great I appreciate the thoughts yes, thank you very much.
The Q.
One moment for our next question.
Yeah.
Okay.
And our next question will come from Doug Leggate of Bank of America. Your line is open.
Thank you and good morning, everyone, Jeff Let me add my congratulations you have been around for very long time in making some of us feel pretty old. So hope you enjoy the next stage of your.
Javier endeavors.
Thanks, Doug so guys.
I got a couple of questions I guess my first one is for March.
Mark.
Obviously the stocks.
And therefore, the market capitalization moves around quite a bit.
We at least see the equity volume is what's left from enterprise volume minus net debt. So when you see the market failing to recognize a forward curve, which is 50% above a year ago.
There are two things you can do you can buy back shares or you can reduce net debt to force market recognition of value. So my question is.
Why is one to one 5 billion the right number.
In a volatile commodity environment why not go tighter than that.
You've seen some of your oil peers go to net debt zero why not.
That's a fair question, Doug So as we've laid out our debt targets over the last couple of years, we began with what is the most conversational debt metric and easiest for everyone to understand.
Debt to EBITDAX ratio fundamentally we believe the absolute debt numbers whats really important given commodity price fluctuations EBITDA fluctuation that naturally occur in this space either cyclically our seasonally.
So.
Starting with a leverage ratio that investors and we believe a prudent levels, we set out some targets and thinking through commodity price cycle. We said at the depths of the cycle, we want to be at or better than two times and mid cycle, you might think around one five times and at a.
<unk> market, you want to be better than one times leverage those were not hard and fast those were indicative levels, we laid out actually its on a proxy from year before last when you pressure test those levels against a variety of commodity prices both for natural gas oil and Ngls you can get to a one to one 5 billion.
Level at our current production levels. So that's the Genesis of the framework and those levels. They are indications of indicative of what we think creates a solid financial foundation, that's not to say that we can't be opportunistic strong environments and pay that down.
Also by design to have a strong balance sheet to use our balance sheet appropriately.
When opportunities arise, whether that's buying back shares whether that's putting cash on the balance sheet and paying off debt opportunistically. So again those are guidelines just intended to make sure that range from a financial standpoint has the wherewithal to capitalize and monetize this huge inventory we have over the long haul.
Sure.
I guess I'll continue to press on it 5% money.
Wonder if that influences the decision a little bit, but we will take it offline.
My follow up if I may is also an offer obviously my congratulations to Dennis but I wanted to use that as a lead into.
A two part question, if I may and forgive me for this one.
Dennis.
Press release for your announcing your Europe .
Your promotion to CEO I had an interesting comment that talked about what is currently.
Company, So operational area. So I guess my question is a strategic one.
Do you see with the change of.
I don't see a change in leadership.
The retirement of Jeff in your move into that role.
Should we expect any change of strategy.
My.
Part B is.
It's interesting that when something with the run up to the announcement of Jeff's retirement Hopkins, there's speculation that range could have been a target for M&A. So I guess my follow up is positive at any time in the last several years several months I guess, but.
And any consideration that there was there were other strategic alternatives.
It should be or could have been explored for range that might have led to that speculation I'll leave it there. Thank you.
Yes, thanks for the comments and the questions. This morning, Doug.
I'll take a step back and really kind of start with the change of strategy piece and then I'll lead off with your second question.
I think you heard it from from all three of US This morning, and you've probably heard it from us on prior calls, but the company is in the best position it's ever been in the history of the organization. When you when you look across the multi multiple facets that we report on whether it's financial operational safety environmental range continues to really chip away.
Hey, Ed.
Continuous progress and so from our position the company is in a great position to date, we're drilling some of our longest laterals our fastest wells, even after 500 horizontal wells being drilled in the basin.
We're still continuing to make that incremental progress, which we kind of see that generating our highest return wells and being really resilient and durable through the cycles. We've got the best team in the business.
I think when you look at some of the early on wells that we drilled with the Rins discovery well in the mid two thousands theres. Many of those team members are still with us today and that is difficult to put a dollar value on it because their commitment level is tremendous so youre in a lot of ways youre not going to see a lot of change from range, it's going to be staying the course continuing.
Block and tackle and aspects that were really strong and talented Ed and that is really continuing to develop our assets driller.
Drill our best wells and really generate competitive returns for our shareholders and generating free cash flow through the cycles, we see the world needs are clean burning energy.
We supply and we stand ready to participate in that year end a year out with our program as far as your follow up question.
About any other considerations I think.
Ultimately we are prepared to go it alone again, when you look at the asset base, we have and the quality of the inventory now in our 15th year of a positive reserves revision.
We stand poised to continue to again just continue to chip away at what we do best incrementally improving our well performance efficiencies and other aspects of our business. So no other considerations for Morgan.
Alright, guys well congrats again to both of you guys. Thanks. Thank.
Thank you Doug.
Our next question.
And our next question comes from Bertrand Don's I'm sure. Your line is open.
Good morning team and thanks, Thanks for everything over the years, Jeff and congratulations Dennis.
Kind of piggybacking on Doug's question, I know that debt reduction or buybacks or the current focus but in the future.
Shareholder return program change.
It seems like Youll have the ability to accelerate production when the market bass for it.
Is that what we should expect almost all cash flows to go to or if you ramped your spending levels into a strong gas pricing environment would that be accompanied by a balance of buybacks and dividends.
Yes, that's a fair question I think.
Let me point to our activity levels last year. These elements of our capital allocation are executed in tandem and that can be done to different percentages of different weightings just depending on.
Where we are in progress towards our target debt level, what our expectations of cash flow are going forward.
As well as frankly, the stock price and what the overall market may be there's value there. So.
As we think about what the program can be you've seen us.
Allocates, 75% of cash flow on a quarter to debt reduction and you've seen us allocate.
The majority to share repurchases in a quarter. So you can see that.
Move backwards and forwards again balancing where the balance sheet is where the stock prices where cash flow expectations.
So.
Under the assumption that you are within your debt levels your target debt levels and feel solid about that then it comes down to the fundamental demand for natural gas number four on our list is the growth when appropriate as a recall on gas as our call for range as gas we have the deliverability to our end customers all of which we think is simply a question of when.
Not yet we have capacity <unk>.
Our gas goes down to the Gulf coast surge in Midwest balancing further into the northeast Ngls are delivered <unk>.
Domestically and internationally over 90% of our revenue because of that is effectively outside the basin and we've got great exposure and because of the depth of our inventory we will have the ability to grow either through existing capacity that goes under utilized through growth in basin demand or expansion of existing or new facilities that come online. So there is a great many ways to win.
And our capital allocation will simply adapt to that call on range of supply and the economics of either buying back shares where that incremental growth.
Okay.
That's great color and then.
On the capital allocation side.
The strength in your NGL pricing kind of outperformed street estimate maybe maybe even internal estimate.
Is there are there any plans to switch where your activity levels are to maybe focus on the liquids rich areas versus the dry gas areas and maybe would that be temporary until there is kind of a.
Col. One on gas, where you guys are accelerating and then maybe switched back to dry gas, but just any thoughts there. Thanks.
Yes, thanks for the question.
I think when you look at our program kind of year end, a year out I think which youll find is on a percentage basis, it's pretty common for us to focus somewhere in the neighborhood of say, 30% to 40% of our activity in the dry gas portion of our assets with the remaining will say, 60% to 70% being on the liquid side, both in the wet and the Super Rich.
And this year's program is very consistent with that.
We always leave some optionality in the program for Us to we'll just say optimize the scheduled throughout the year, whether it's an operational efficiency type driver it could be something else that's going on in the market.
Our ability to do that really ties back to our ability to move back into pads with existing production.
Which represents usual year end and year out about 50% plus or minus of our annual activity. So it allows us to be pretty nimble react fairly quickly and again put the best program forward in each given year.
However, what I would tell you is as we don't tend to over correct steering on the car all that much and if you look at where pricing has gone in just over the past.
10 to 12 months from a commodity standpoint, you can quickly see where you could just as they have to be more right or more wrong by making those radical adjustments so far.
Under a maintenance type scenario again, we look to keep the gathering system full and utilized as much as possible at a very high level, which provides another unique variable in this in this multi math problem verbal math problem. If you will so we do allow some flexibility. If you look at this year, we're already heavily weighted on the NGL side, which we think that plays.
Really really well when you look at the NGL pricing that we reported in the first quarter and then of course lastly, with our program being front end loaded from an activity standpoint in the production profile being.
More on the uptick in the second half of the year. We think that also plays well with the commodity curve for the back half of the year and into the winter of 'twenty four.
I appreciate it that's all for me thanks.
Thank you.
One moment for our next question.
Okay.
And our next question will come from Jacob Robert F. T. P. H <unk> company. Your line is open.
Good morning, guys.
Good morning.
To start out with.
Sorry to keep harping on this topic, but has there been any discussion internally about the ideal pace of chewing through the remaining $1 1 billion on repurchases and is there a ticking clock on that number at all.
I guess the short answer to the question is no. There is no peso and it will be opportunistic and balance the priorities. So we intentionally have not given out of.
A hard and fast formulaic approach, we have to balance market conditions, and our priorities and returns and cash flows. So that's that's the optionality and the intentional flexibility built into the program.
Fair enough.
And then I was hoping you could speak I think dynamic range solid during this quarter and how you see that shaping up over the year and Dennis you laid out the NGL macro side of things.
Just wondering longer term, how we should be thinking about any potential impact on the premium to Mont Belvieu, maybe in 2024 and beyond.
Okay. Thanks.
Thanks for the question Jacob I'm going to start off and then I'm going to pitch over to Allen to lithium provide some some thoughts as well on this on this question that you've raised I think when you look at the production profile for this year.
Quarter in and quarter out you can expect to see some fluctuations in let's just say the guests that we reported on in that production profile or on the Ngls just depending upon the turned in lines and again that activity cadence, but by and large we would expect our our NGL production to basically be relatively consistent and flat throughout the <unk>.
Of the year and a lot of that goes back to some comments I made earlier were still under a maintenance level program, where again, we're keeping the system at a high level of utilization and maintaining a flat level of production, but from an ethane perspective, I'll turn it over to Alan at this point and let him provide some additional color on the desk and other long term outlook.
Hey, Jacob this Alan Engberg manage.
Manage our liquids business.
I'll actually start talking a little bit to cement the overall premium NGL premium that we've gone through in the first quarter.
I think the guys have said already its been a good start of the year for range.
At a high level the liquids business really is.
A hedge against weak Nat gas prices.
<unk> in general.
Really track crude more than natural gas.
Now ethane in particular does track gas.
But it's also influenced by the rest of the NGL barrels, which tracks much more closely with crude.
And then in particular, the international markets track a lot more with crude so when natural gas is weak.
<unk> the spread between gas and crude widens.
In Ngls tend to outperform.
For range, and particularly we have a lot of flexibility in our system and we did see.
Weak winter weather demand, so we actually flexed to the export markets.
The export market has really performed strongly for us.
If you look at just market reported.
Index values at the export dock relative to the Mount Belvieu Index.
Those averaged for the first quarter around 8% eight five.
Per gallon, which was up about 35% year on year.
So overall our premium.
Benefited from the market dynamics are spread between gas crude as well as our ability to flex to the highest value markets now it is somewhat seasonal.
When we get typically the winter does provide us more opportunities than the summer months. So.
<unk> maintained our guidance at plus or minus $1 for that premium.
Now going to ethane fundamentals in particular.
Yes, it's interesting the ethane price.
Has come off quite a bit from the fourth quarter actually kind of weak in that is really the result of the lower natural gas price, which does pull on on ethane, but also there has been.
Let's say.
Value chain Destocking on the chemical side, which has reduced demand somewhat.
All that said, though the ethane inventories, especially as represented days of supply. So total stance divided by total demand.
Are you still at five year lows. So the market is relatively snug.
<unk>.
Short term LNG outlook that was just released a couple of weeks ago is showing ethane stocks in terms of days of disposition remaining at the bottom of the five year range for the rest of this year and next year.
And in fact, you don't get any lower than where we are right now unless you look back to 2011 on days of disposition, we see operating rates improving already in the chemical industry. During the first quarter. There is domestically about another 250000 barrels per day of ethane demand.
That can still come back and get us back to last july's ethane demand levels.
Yes, there is new demand internationally.
As well as domestically that could add another 200000 barrels per day, so given strong underlying fundamentals a lot of demand coming online that we see we think ethane prices relative to gas are going to improve through the rest of this year and could actually double in value relative to gas.
And again range because of our position being a first mover in the industry having.
Production at the Houston Markwest facility that is the main hub for moving ethane to whether its mount belvieu or moving it to Canada or moving into international markets.
We feel real confident about our ability to continue to extract.
Strong values for ethane in the rest of the NGL barrel through the rest of the year.
Thank you excuse me I appreciate the detail and.
And I guess I'll, just finish by saying congratulations to Jeff and Dennis Best.
Best of luck.
Thank you very much thanks Jacob.
One moment for our next question.
Our next question will come from <unk> Chandra with Benchmark Company. Your line is open.
Thank you <unk> on all the words that here.
For a long and storied career.
As a line item questions.
First I guess on lifting costs I think in.
In the 10-Q kind of cited water hauling costs, just wondering if that is a temporary issue.
We are a structural issue of any kind.
And the abandonment costs, which is not a huge number but if that was specific to any particular part of Europe .
Acreage.
Yes, good morning, Suraj that I'll go ahead and tackle Tegel. These from a water hauling perspective, we have seen some fluctuations that are kind of short term in nature from a cost perspective as you can imagine as.
As demand goes up for let's just say to start a program at the beginning of the year, coupled with winter operations and fuel cost.
Can see some of those being needle movers, if you will at times with our quarterly water hauling costs, we would expect though all of that is still normalize throughout the year and we're on track for our lease operating expense guidance that we provided this past call for 11% to 13.
So all of that is still intact.
From a workovers perspective any.
Any given quarter I think is really tough to assess whether it's a workover that's unique or an abandonment operation because each one has its own unique cost exposure. We did pull several projects forward into Q1 as you can imagine in the northeast, we try and push some of those projects into the middle part of the year.
When the weather is a little bit nicer, but with the mild winter conditions that we had in the first quarter. The team became very proactive to pull some of those projects forward.
We can see some some benefit throughout the year with further production stabilization. So we would expect to see just like when we talk about turn in lines or other operator operational cadence, we would see expect to see some quarter over quarter variance, but everything is still on track for the guy that guidance that we provided this past quarter.
Okay. Thank you for that and then a question on MVP.
It seems like it's warmer than ever.
To get that pipeline operational and we've chatted before on it just curious.
You're I think you've cited indirect benefits.
But do you have an opinion, whether you would expect to see two Bcf a day of fresh gas in the basin or do you think.
We have some large portion of it which features rerouted yes.
Well I think it really good question and I think if you look historically with other projects of that magnitude that were greenfield that were brought into service and commissioned clearly there was more of a ramp to fill type of approach in this particular environment you can make the argument there is probably going to.
More of the production redistribution efforts, where you could see some capacity start to open up on other pipes and you can see then the demand pool for the customers that are going to be on the end of that particular piece of infrastructure. You can see that production then gets shifted off of other infrastructure and directed toward utilization of MVP.
I think we would see it would be it could potentially be a balance of those two.
Okay, great. Thank you guys.
Thank you.
One moment for our next question.
And our next question will come from Paul Diamond of Citi. Your line is open.
Thank you and I would echo.
Commentary here congratulations Jeff.
Well deserved and good luck in the next the.
Next efforts.
Thank you very much I appreciate it.
But just circling back a little bit you talked to touch about.
And you're starting to see some cracks.
<unk> narrative, we've seen over the past years and looking more towards.
Each two and more.
Are we likely 2024.
He can give a bit of color on that as far as the stairs.
Anything particular, you think might go first or just a bit more a bit more detail there.
Yes. Good morning, Paul This is Dennis Yes, I think as you start to it's hard to predict today, where some of that will surface.
We are starting to see signs of we'll call. It one off rig availability or youre starting to see some different openings in the schedule for maybe those spot frac crews that you may need to address like that one off pad or two execution throughout the balance of your year.
I can't say that pricing has really moved all that much at this point you are still seeing.
I think a very high utilization of what we call the specialty equipment Youre your high spec drilling rigs.
Also the.
The electric Frac fleets, where those are clearly very at a very high level of utilization you are starting to see signs of tubular goods showing signs of relief along with one off consumable products like like the Frac sand as an example, so that could translate again into some one off unique savings towards the end of the year, but again.
We think this is going to be if there is whatever savings materialize will then really more or show itself for the balance of 2024.
Whatever comes out of the inflation uptake or relief that we see through the balance of this year and into the years that follow I'll kind of direct you back to our $1 per Mcf incremental component and last year. We were 64 cents in M. When you look at our bet low base decline and just our overall capital efficiency in our call.
Cost structure and this year I mean, clearly even with that with the increases that we've seen from 22 to 23, we're still in the mid 70 <unk> range. So still a fraction of what we would see compared to our peers in other basins. If you will so however, this plays out we do see that we're still going to be it appeared leading position at the end of the day.
Understood. Thanks for the clarity and just one quick follow up I know, we've talked a lot about.
Takeaway constraints in the concern for the in basin growth at least in the near term how do you guys think about the opportunity for more organic growth.
Whether it's through industrial demand or commercial or residential or anything along those lines. How do you guys think about that.
Forward.
Yes, I think if you start to I think we see a couple of options and one when you start to look at some of the M&A activity Thats occurred over the last few years you no doubt have seen also a.
A change in capital allocation potentially for some of those producers to start to direct their activity toward the assets that have been a part of that transaction.
In some regards away from Appalachia, you've also seen some degradation in well performance year over year, which certainly challenges.
Probably those other of those other peers around capital allocation choices that theyre, making.
Those are things that we haven't seen on oriented and so the position that that puts us in it is really to be on the first cut of the fairway to utilize infrastructure that goes underutilized in the future. So we think that places us well with our long runway of inventory. There are some projects that have been identified India.
Visit growth, it's not probably it's not a question of if it's when that call on Appalachia gas takes place and we feel like those have been identified in a way that <unk>.
<unk> could participate down the road in the future, but again for now maintenance is the case and we know we've got the runway and ability to add inventory to the growth conversation when the not only the macro but also the basic fundamentals point in that direction and Youre seeing more conversations around in basin demand source.
As in the future shell Cracker is one of those prime examples where you are taking somewhere in the neighborhood of a.
No.
100000 barrels of ethane in the conversation plus fuel gas that gets you almost to between an excess of a quarter of a b a day just alone in that facility <unk> got combined cycle facilities that have continued to.
<unk> expressed interest in being in that area given the long runway of inventory of supply that a company like range to participate in so we see that there is there is more than just pipes being a part of the solution, but theres going to be in basin demand that has the opportunity to further materialize. So.
Certainly opportunities down the road for sure for growth.
Understood I appreciate the clarity thanks for attending thanks.
Thanks, Paul.
And one moment for our next question.
And our next question will come from Scott Hanold of RBC capital markets. Your line is open.
Yes, Thanks, Jeff Dennis.
Again, my congrats to both of you.
Maybe first question for you to kind of.
Layer on to that conversation there, but when you think about the market right now it is a little bit.
Lose the gas market and I know there are a lot of folks calling for the need for some gas producers to further reduce activity can you just give us a high level sense. It is there any point, where it makes sense for range to back off on its maintenance plan or is there.
An overriding just kind of efficiency.
Benefit to maintaining maintenance.
Yes, Scott this is Dennis again.
We're very comfortable with the maintenance program that we have laid out I mean again by the time, we get to the mid year point will be down to one drilling rig and one frac crew. So this is what I would say a very comfortable low in position for our program.
Very capital and operationally efficient for us and it allows us to continue to check all the boxes from a lower cost structure perspective high and utilization of the gathering system.
And even through the balance of the last couple of years. When we started to see fluctuation in commodity prices. We didn't growth. Instead, we stayed the course and we did what we said we were going to do remain focused on our balance sheet objectives. So from our perspective, we're we never group that we stayed the course and so.
Again, we will stay at this level until the fundamentals suggest we should do otherwise.
So would there be any consideration to curtail production rather than change your drilling program to curtail during.
Periods of more extreme weakness.
Yes. Good question, it's something we I will say, we evaluate on an as needed basis here within the organization I.
I think at the end of the day, if you look back on the the last time, we had commodity prices in this similar Zip code.
Did demonstrate that we were willing to shut in some of our our guests that basically had commensurate.
Cost reductions associated with it but really for us it's a much more of a complex math problem. If you will than just do we shut in the gas or not because of the liquids component that you have heard Allen, Mark and Jeff and myself touch on today. When you look at the incremental benefit that we see to our realized price because of our overall linked.
<unk> production.
Quarter in and quarter out it generates a nymex plus type exposure for us versus our natural gas wholly exposed peers, who can be more to nymex minus in type environment. So back to I know, we touched on in the prepared remarks, but just this past quarter, we were in excess of $1 over Henry hub in a comparison basis as an example of $1 14.
So for us.
Again maintenance really makes a lot of sense for us utilizing that existing infrastructure.
<unk> NGL exposure that alan's touched on plays a significant part in the overall cash flow that we generate our ngls generally produce about 30% of our over overall production profile, but from a cash flow perspective, it can mean as much as 40% to 45%. So all in all <unk>.
Something that we are are cognizant of.
Study on a regular basis as needed based upon where commodity prices are but ngls carry a lot of weak for us and it's meaningful returns.
Understood. Thanks.
Thank you.
One moment.
And we are nearing the end of today's conference. We will go to Matt <unk> of Goldman Sachs for our final question one moment.
Thank you Jeff.
Jeff. Thank you so much for your leadership and contribution and good luck on your retirement and Dennis Congratulations on a promotion.
Thank you.
My first question was around deflation you talked about seeing some signs of deflation can.
Can you give any more details around that what do you think is the impact to capital spending this year and potentially next year.
Yes, I would I would.
Really point to.
<unk>.
Is it having a very minimal impact to this year's program and I think for a couple of reasons one you have.
Phil trying to see the rig reductions materialize and what that means for where the market is truly headache, and secondly, our program is front end loaded for the year and so the deeper you get into the year. It does take us down to the one rig one frac crew type environment. So by nature of that your your speedometer has been reduced by the time you get to.
For the remaining quarters in the second half of the year at that point, so more materially we see this being an opportunity for 2024, we know that we have a long running history and relationship with many of our service providers and those service partners.
Want to align with companies that are efficient and we will execute a program that they've communicated and everyone's made commitments around so we think that'll be more.
More results will be seen through the 2020 for process and later this year.
Got it that's helpful. Thank you and then going back on that.
Response on option for growth.
I guess anything you would like to see on local demand out on cost basis to get a signal grew more in basin.
Put another way if you think about value, we'd like to grow and how we have gas marketing portfolio will evolve is that any play estimated we'd like to add more end market exposure.
Well good question I think.
I'll take a half a step back on this with newmont.
We would take the same approach that we've had on the Ngls as an example of our current guests portfolio.
<unk> touched on it a few moments ago that 80% of our gas gets out of basin.
Of that overall portfolio of 50% of it gets to the Gulf we already participate in the LNG market.
I think we would continue to look for whether its NGL side or the gas side. What gives the most competitive returns regardless of that end market. We do see the future having more in basin opportunities that's going to take as you would imagine time for further develop.
And put that infrastructure in place, but it also has to compete with our ability to get that gas as an example transported to the Gulf versus being right. There in basin. So we will evaluate all of our options. We've got a really talented marketing team I think if you look over the history of the organization, we've demonstrated through creative structures and being the first producer to put ethane.
Waterborne export time to foreign indices as an example for some of those structures all of that has translated into some of the returns that we talked about today. So the team will remain diligent will continue to evaluate all of our options, but they have to compete amongst what we have is our options of what we have in the current portfolio.
Thank you.
Thank you.
Thank you. This concludes today's question and answer session I would like to turn the call back over to Mr. Ventura for his concluding remarks.
I just wanted to thank everybody for participating on our call today and thanks for all the kind comments for venison eye on our path forward and if you have any questions. Please follow up with the team. Thank you.
And thank you for your participation in today's conference you may now disconnect.