Ranger Oil Corporation

Good morning, everyone, and welcome to the Ranger Royal third quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to the management team for the conference call. Please go ahead.

Thank you, and good morning, everyone. I am Clay Janssen, Director of Investor Relations for Ranger Oil Corporation. We are pleased today to discuss our third quarter 2021 operational and financial results and recent accomplishments. With me today, Darren Hinke, our President, Chief Executive Officer, and Director of Also joining us and available for our Q&A session are Rusty Kelly, our Senior Vice President, Chief Financial Officer, and Treasurer, and Julia Gwaltney, our Senior Vice President of Development. Before we begin, I would note that today we will discuss certain non-GAAP measures. Definitions and reconciliations of these measures to the most comparable GAAP measure are provided in the company's third quarter earnings presentation and press release that can be found at www.rangeroil.com. Our comments today will also contain forward-looking statements within the meaning of the federal securities law. These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the risk factors in the company's most recent annual report on Form 10-K, and quarterly reports on Form 10Q. So with that, I'll hand it over to Darren to discuss our results and recent events. Darren? Thank you, Clay.

We appreciate everyone joining today's call. The last several months marked an incredible period of positive transformation for the company. I'm so very proud of the many accomplishments our team made in such a short period. In just over four months, we closed our highly accretive Lone Star acquisition. We strengthened our balance sheet and liquidity with our unsecured notes offering. We outperformed the midpoint of our third quarter guidance for both production and capital and generated $29 million of free cash flow, our eighth consecutive quarter. We set numerous internal operational and efficiency records and we rebranded the company to Ranger Oil. As mentioned, many strategic, financial, and operational advancements have already been achieved this year. I'm even more excited about what the future holds for Ranger Oil. I believe the positive momentum generated to date will continue next year and beyond. While our disciplined investment strategy continues with the two-rig drilling program, Next year, we will drill approximately 25% more lateral footage versus this year, yielding a highly capital-efficient program for 2022 that should generate mid to high single-digit production growth year over year. With this disciplined capital program and operational efficiencies coupled with the current commodity price environment, we expect the company's EBITDAX and free cash flow profile to materially accelerate in 2022, with current projections significantly exceeding $200 million of free cash flow next year, resulting in a leverage ratio of one times or less being achieved in the first half of next year. As we approach this goal, All potential options for accretive uses of free cash flow that maintain our strong balance sheet will be investigated for the benefit of our shareholders. Lastly, we continue to see a significant opportunity for ongoing basin consolidation and seek to be a leader in this area. Numerous subscale operators in the basin create a robust set of potential acquisition candidates. As such, we look forward to evaluating additional targeted acquisitions that will further reduce per unit costs, expand margins, enhance returns, and increase financial strength and market relevance. However, all targeted acquisitions would need to demonstrate substantial shareholder accretion along with maintaining our strong balance sheet. As in the past, our strategy continues to remain squarely focused on long-term shareholder accretion, rigorous capital discipline, balance sheet strength, robust cash-on-cash returns, and an unwavering commitment to operating in an environmentally and socially responsible manner. Finally, I wish to express my gratitude and admiration of the entire Ranger team for their continued hard work and dedication. Without their efforts, this transformation would not have been possible. So with that, we will open up the call to questions. Operator?

Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and then one on your touchtone telephones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from Charles Mead from Johnson Rice. Please go ahead with your question.

Good morning, Darren, to you and your whole team there. Morning, Charles. I want to follow up on something you noted in your press release about legacy Ranger volumes being flat, 3Q to 4Q, and I think it was to work on some infield compression and things of that nature. Can you give us an idea, is that something that you're going to wrap up in 4Q? Is that going to be the kind of thing that extends into early 22 and beyond? And what do you expect to see as the payoff for all that work?

Yeah, good question. So we do anticipate that we'll be wrapping up those compression upgrades and other facility upgrades in the fourth quarter, really setting ourselves up for, you know, a great 2022. So we'll be lowering line pressures and adding to our gas lift system so we'll have more gas lift gas available for the wells that we've already drilled and then future wells.

Got it. So that should lead to higher oil rates down the line once the work is done, if I'm understanding correctly. Exactly. Got it. And then specific to 4Q, because I want to try to – I guess, dial in as much as I can to expectations for what you're going to look like in 4Q as a baseline for how 22 is going to start out. Can you give a sense for what your completion schedule is going to look like in 4Q and how that breaks out across Legacy Ranger versus the Lone Star assets? And really what I'm looking for is how the – how the oil-gas mix might shift in 4Q and the implications for 22?

Yeah, so completion schedule in the fourth quarter, we'll be running a consistent frac crew through almost all of the fourth quarter. And all of the work going on in the fourth quarter, both drilling and completion, will be on the legacy Penn, Virginia assets. So we're tearing apart the Lone Star inventory and getting those wells in the queue, and we'll start drilling on those assets next year. But everything in the fourth quarter will be legacy in Virginia, drilling and completion.

Got it. That's helpful. Thank you, Darren.

You bet. Thank you.

And our next question comes from Neil Dingman from SunTrust. Please go ahead with your question.

Yes, morning, guys. Just had a question, was looking now, I mean, I've really liked the slides and looking at slide 10 now that shows all the sticks in that central area. My question now, I guess, Darren, for you, now that, you know, you've been there a while, you've obviously drilled up quite a bit of this, is now, you know, I guess the confidence fully that you've, you know, you've delineated this now from the upper, you know, let's say the Fayette area all the way down to Lavaca, and if so, Maybe just talk a bit about how the economics might vary or maybe they don't vary between these. Are you just seeing a lot of commerciality there?

We do see, Neil, a lot of tremendous commerciality across the entire legacy of the central area position. This year we've drilled some wells in the Emerald Wells early in the year in the up-dip part. of the acreage and those wells are performing very strong, very, very good returns and we're laying out a great program in that area for really long laterals as we look to the future. All through the central part of the field, we've had really strong well results and then also up on the northeast part of the field where we've picked up significant Lone Star and Rocky Creek Resources acreage earlier this year, really filled in some puzzle pieces and again, very strong well results. in that part of the field as well. So really just, you know, confirmation of our tremendous inventory that we have here at Ranger Oil.

And then, you know, obviously notable, the efficiencies you continue to get with the two-rig program. Can you just discuss a bit, you know, again, the latest on that? I think the last you've talked about, maybe 25% type efficiencies. And if so, you know, when you and Rusty think about that, I know you don't have a full 22 plan out, but will most of that efficiency just, you'll continue, I guess what I'm getting at is, will you see that through just more production upside with the same type of spend, or would you be able to cut the spend? How do you guys think about taking advantage of that efficiency?

Yeah, so what we've talked about is drilling with the same two rigs that we ran this year. Next year we'll drill about 25% more total lateral footage with those wells. And so reducing, you know, that'll help us keep our costs in check from a dollar per lateral foot basis that we complete. The production standpoint, you know, we're going to grow production year over year, mid to high single digits. That's really an outcome of the program. You know, what we're really trying to do, Neil, is design a very efficient program that we can execute with excellence, maintaining the two-rig program and also a continuous frac crew. And we'll bring in an occasional second frac crew as needed.

Very good. Thank you all. Thank you.

Once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. Our next question comes from Nicholas Pope from Seaport Global. Please go ahead with your question.

Good morning, Tim. How are you doing?

Doing well.

Thank you. I was hoping you could expand a little bit, and I know it's still fairly early, but, you know, out of that kind of central core area where there's a lot of overlapping assets with the Lone Star additions, When you look at the acreage, kind of the further north and the further southwest, I guess what are the plans, what's the timeline that y'all are looking at to really attack the stuff that's really out of that central area, and what have y'all been able to see so far in those areas?

Yeah, so we have a slide in the deck where we show some synergies of the merger. And one of those, it's on page 15, actually, of the deck. You know, we're going to attack, if you look at the map on page 15, you can see where some Lone Star acreage fits perfectly, and this is in the central area, fits perfectly into the legacy Penn Virginia acreage. And we'll be able to drill longer laterals when we combine all that acreage position. So we're going to start developing in that area early next year. And so there's some great synergies in the central area where the Lone Star acreage fits very well with our legacy acreage and allows us to drill longer laterals and we'll have a more efficient program, and we're going to get after that acreage right away.

And is there any plan at this point when you look at the stuff that's in LaSalle and Brazos County at this point? I mean, where do we stand with those, the stuff that's a little further afield?

Yeah, so we're studying those areas and really understanding the inventory. Some of those areas, we need probably a little more acreage for critical mass. We're looking at ways to extend our lateral links by picking up additional acreage in those areas, looking at trades, things of that nature. Some of the acreage may ultimately not be core for us, and we'll look at that. doing what's best for our shareholders with that acreage as well if it ends up not being core in the program. But the majority of the acreage fits in really well within our inventory, and we will develop it as it makes sense as we go down the line, drilling our very best, highest return wells first on down.

Yeah, I appreciate it. Thanks for the time.

Yeah, thank you.

And ladies and gentlemen, at this time, we'll be ending today's question and answer session. I'd like to turn the floor back over to Darren Hinke for any closing remarks.

Thanks, everyone, for participating on the call today. You know, we've had a serious step change in operating and financial performance. We've transformed the balance sheet, that eight consecutive quarters of free cash flow, and we've begun initiation, you know, initiating and executing on our basin consolidation strategy. So thanks for participating and look forward to talking to you in the future.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.