Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Range Resources Corp (RRC, Financial) successfully executed its second-quarter plan, maintaining operational improvements and generating free cash flow.
- The company boasts low capital intensity, driven by class-leading drilling and completion costs, shallow base decline, and a talented team.
- Liquids revenue provided a significant uplift to natural gas prices, with NGL price realizations offering a substantial premium relative to Henry Hub natural gas.
- Range Resources Corp (RRC) has a vast inventory of derisked high-quality Marcellus wells, enabling long-term growth in free cash flow per share.
- The company has a flexible transportation portfolio that allows access to premium export markets, enhancing NGL price realizations.
Negative Points
- Second-quarter liquids production was slightly lower than Q1 due to a delayed propane cargo.
- The company faces potential challenges with natural gas pricing if LNG facilities experience delays.
- There is ongoing uncertainty in the regulatory environment, which could impact future operations and expansions.
- Range Resources Corp (RRC) has significant bond maturities in the next three to five years, requiring careful balance sheet management.
- The company’s ability to maintain or improve cost efficiencies may be challenged by fluctuating commodity prices and service costs.
Q & A Highlights
Q: Congratulations on the quarter. Mark, I'd like to come back on some stuff you were saying there at the very end. Some of the opportunities you listed to, let's call it, enhanced margins, improved returns, et cetera. If we were to think about those in terms of magnitude of what they can do for you, but also sort of the timeline of achievability. How would that list of opportunities shake out?
A: Yes. It's a good question, and it's a broad question just because of the breadth of opportunity Range has ahead of it. I think Dennis and I both have touched on various ways in which we can continue to drive down our cash unit cost structure as well as the capital efficiency. You've seen the team be very efficient on direct operating costs, LOE continued mindful execution out in the field. Water handling is a topic we consistently discussed, which touches on both improvements in LOE and our capital efficiency. So that's a day-to-day exercise by the team in the field, but it's also some modest capital investments. As you know, that was part of our capital allocation process for this year, something we hadn't done in any size or consequence for roughly a decade. That blocked-up nature of our acreage position is really a lot of efficient handling and use of that infrastructure and expanding that this year became timely, and with what we expect to be about a one year or better payback on that investment, it should pay back many years into the future. As you work your way down, the cost structure, I think, GP&T being a larger line item, it's clearly an area of focus. That's a focus for cost, but I think more importantly, it's about margins. It's about maintaining and enhancing that portfolio of sales outlets we have. So today, it's a great outlet moving 80% of our gas out of the basin. But over time, we think that Range will continue to have the opportunity to sell its molecules into strong end markets, be it today with our existing production profile or when the market calls for it, and there's incremental production. We think that we will have the ability to move those molecules to strong end markets as well, be it natural gas or natural gas liquids. And then on the capital front, again, the common topics that come to mind are extending lateral lengths, which again, you've seen us allocate a little bit of capital to the land to be able to do that as well as just efficiently running crews this year, running two rigs and one frac crew, for example, is all it takes for Range to execute this program this year, the steady efficient maintenance program and potentially running those for a full 12 months to generate very modest growth into next year, given the inventory that we've built up over the last few years. So all those factors together plan to not just one specific area of improvement but whittling down across the cost structure and the capital efficiency.
Q: And then the other question I had more sort of what is the tripwire or whatever. But as you think about setting up your hedging for 2025, I mean, obviously, you're 35% there. But if we think about getting kind of equivalent to this year, is that something that's going to be episodic? Or is there a price level you'd feel more comfortable with? Or as you think about the macro potentially 25 and a little better supply-demand balance across the country do you want to be more patient on hedging? How are you thinking about that?
A: Yes, I'll start with we feel very good about where the 2025 book stands today. Just backing up to the philosophy, we're running an enterprise a going concern, 30-plus years of drilling inventory. So this is about managing risk in the business prudently while not hedging away the upside in the cash flow. So to that end, the philosophy is to try to cover the fixed cost to maintain steady operations, picking up and dropping crews and things is extremely inefficient and costly. So having more stable predictability of that cash flow, we think, adds a lot of value. So with that in mind, how do you shape 2025. Well, we feel like the book was designed to do that at the prices we were able to lock in. It's also shaped based on the fundamentals as we see them unfolding over the next 12 and 18 months. LNG in service is clearly a focus in the headlines. Some facilities are early, and some facilities may be delayed. So as we see those opportunities becoming reality late this year and early next year, the incremental positions that were added are really front-end loaded the first half of 2025 and they're in the form of collars, so that we can provide some downside protection while retaining positive exposure to improved gas prices in the first half of the year. So that's really how we think about next year.
Q: Dennis and Mark, you both mentioned you see the improving natural gas fundamentals moving forward and your '24 production guidance is moving to the high end of the Range. If that doesn't play out, just curious what changed to your plans, you're contemplating? Or do you feel like with the natural gas liquids revenues that you're really not the company that would need to adjust your plans, be it curtailing production or delaying any more turn-in lines?
A: Michael, I'll start by really maybe reiterating a bit of the approach that we communicated for this year's program. And we're at a very lean what we would call base level type activity level and program for '24, which we think is kind of a base level way of thinking about the business on the go-forward there or what we'll call it somewhat maintenance plus. So the two rigs flat plus the one base frac crew. And so it's generating that $35 million to -- $30 million to $45 million of in-process inventory this year, very similar to last year. And so to answer your question, as we start to think about 2025, we wanted to set ourselves up with flexibility and really good options. And so by setting it up that way, we have the ability to take some of that inventory and reshape our production profile for 2025. And ultimately, we know that will have an impact for '26 in the go forward. But if we also see further delays in LNG facilities or anything else that puts commodities at risk, we could consider how to use that inventory differently. But I think when we look at the capital program for this year, at that $620 million to $670 million level, I mean, clearly, there are going to be some aspects like the water infrastructure that Mark touched on just a few moments ago that are going to be more onetime one-off capital investments in nature once a decade, if you will. But really, that's a decent way of thinking about our program and then the ability to toggle and use that inventory based upon what we see from a commodity standpoint. There's a lot of reasons to believe that this is going to look better, I think, in 2025, though. There's too many demand components that you can point to. And I think power is clearly one of them. And even when you just look at the incremental $1.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
