Range Resources Corporation

Welcome to the Range Resources fourth quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. Statements made during this conference call that are not historical facts are forward-looking statements. Such statements are subject to risk and uncertainties, which could cause actual results to differ materially from those in the forward-looking statements. After the speaker remarks, there will be a question and answer period. At this time, I would like to turn the call over to Mr. Leigh Sandoe, Vice President of Investor Relations at Range Resources. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining Range's year-end 2021 earnings call. The speakers on today's call are Jeff Ventura, Chief Executive Officer, Dennis Degner, Chief Operating Officer, and Mark Skuki, 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-K 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, Leith, and thanks, everyone, for joining us on this morning's call. Range continued its steady progress on key objectives this past year. In 2021, we enhanced margins through thoughtful marketing, hedging, and a focus on cost, further strengthened our balance sheet with free cash flow, and completed our 2021 drilling program safely, efficiently, and under budget, and advanced our peer-leading capital intensity with the lowest capital spending per MCFE in Appalachia. Today, Range is well-positioned to return capital directly to shareholders in a meaningful way, and we are building on and accelerating the shareholder-friendly initiatives of the last couple of years by establishing a base dividend in a new half-billion-dollar buyback program which was recently announced by the Range Board. Range's dividend, which we expect to begin in the second half of this year, reflects our continued commitment to disciplined capital spending and balance sheet strength, as we intend for the dividend to be sustainable through the cycles. At the same time, our sizable buyback program provides us the opportunity to take advantage of a market that is very focused on the near term in ignoring the underlying value of the massive resource that we have. When considering the various potential uses for Ranger's free cash flow, share repurchases are very attractive, with the compelling, durable free cash flow yield and underlying reserves and resource potential trading at a significant discount. Ranger's base dividend and share repurchases are supported by the targeted hedge program we've implemented. Importantly, you'll note that Ranger's hedge program migrated to using a mix of collars and swaps back in 2020, which has allowed us to capture more of the improvement in natural gas prices than most peers, while simultaneously supporting our key objectives of balance sheet strength and capital returns. Looking forward, as free cash flow reduces absolute debt further, we have added flexibility in the timing, structure, and the amount of hedging required to support our capital plans. Switching gears and looking back at 2021, Range benefited from the steady improvements in commodity prices throughout the year. Our industry is one where businesses can continuously be marked to market based on futures prices, even though it's been well documented that the future strip is a poor predictor of prices. As an example, Range entered 2021 with most estimates of free cash flow around $250 million, and we finished the year generating more than double that number. This not only speaks to bullish market conditions, but the hedging decisions Range made in 2020, in early 2021, that allowed us to capture a good portion of the price movement. Range finished the year with record cash flow in the most recent quarter led by the highest realizations since 2014. I believe our mix of production and delivery of NGLs into the international markets provides Range an underappreciated advantage in terms of pricing. For context, if we look at pricing for 2021 NGLs, they averaged over $30 per barrel. And based on recent strip pricing, 2022 is even higher, approaching $36 per barrel or $6 per MCF equivalent. Disadvantaged liquids production provided range of greater than a 25 percent premium per MCF equivalent versus Henry Hub versus our overall production base in 2021. a distinct advantage over other natural gas producers. Our ability to sell Purity NGL products into the international markets paired with strong NGL fundamentals helps support range's strong free cash flow and margins, and at recent strip pricing, our premium to NYMEX natural gas is expected to be even greater in 2022. Looking at the balance sheet quickly, we continue the trend of lower debt balances. now having reduced net debt by approximately $1.5 billion since mid-2018. Free cash flow accelerates this trend in 2022, potentially driving leverage below one times by the end of this year at strip pricing. For context, at strip pricing, we expect our debt balance at the end of this year to be approximately half of what it was just one year ago, providing durable improvements to full cycle margins and positioning us with added flexibility in capital allocation, hedging, and continued returns to shareholders. Operationally, the team continues to innovate and reduce normalized well costs. As a result of efficient operations, coordinated planning, and a laser focus on capital discipline, the team was able to deliver the 2021 operational plan for $11 million less than our original budget. This is the fourth consecutive year Range has achieved these types of savings, spending less than budgeted, which is a reflection of our disciplined capital spending and cost leadership. Range has been a leader in well-cost per foot amongst Appalachian peers since discovering the Marcellus. As Dennis will discuss, the operational plan that we've laid out for 2022 includes shows a continuation of efficient operations with average all-in-wall costs of approximately $625 per lateral foot, which is the best amongst natural gas peers. Range's class-leading D&C costs, coupled with our shallow base decline and our blocky core inventory, all come together to support a very low and sustainable maintenance capital. Range's base decline is below 20%. allowing for maintenance D&C capital in the mid $400 million range. This low capital intensity that is unmatched amongst D&P companies provides us a solid foundation for generating significant free cash flow and returns to shareholders. Importantly, this maintenance capital figure is sustainable for a couple of important reasons. First, the lateral footage range is drilling, completing, and turning to sales this year, is very similar to what was accomplished the last few years, leaving us well-positioned to continue into 2023 and beyond with peer-leading capital efficiencies. And second, range has a core inventory of wells measured in decades, which provides us a long runaway of consistent, repeatable results in efficient capital deployment. These positive differentiators on sustained capital bear out in reported results. Taking a simple look at relative efficiency using actual D&C capital spent per unit of production, Range has consistently led all Appalachian producers for the last several years, and we expect similar results going forward. As our peers continue to exhaust their core inventories in the years ahead, Range will remain well-positioned with decades of top-tier wells to drill. A portion of the value of our inventory can be found in our year-end reserves report. At year-end 2021 strip pricing, the PV10 of Ranges' approved reserves was $12.7 billion. For context, after backing out year-end net debt balances, this PV10 equates to approximately $40 per share, or approximately twice our current share price. But, as many of you know, the SEC definition of approved reserves only allows for about five years of development. And beyond this five-year window, Range has thousands of additional core Marcellus wells not included. Simply put, we do not believe this significant resource value is currently reflected in Range's share price, presenting Range with the opportunity to create meaningful long-term per share value for equity holders through our buyback program. Before turning it over to Mark and Dennis, I'll just say that I truly believe that Range is 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 the abundant supply that help to power our everyday lives, while also helping billions of others improve their standard of living and reducing their reliance on coal, biomass, and other more carbon-intensive fuels. We believe Appalachian natural gas and natural gas liquids are well-positioned to meet that 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. Range has de-risked a massive inventory of high-quality 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 is a low-sustaining capital requirement that Range enjoys. reflected in our peer-leading D&C spending per MCFE. At the same time, Range's balance sheet is in the best shape in the company's history, with rapid improvements coming over the next few quarters. With significantly lower debt, we'll be even more resilient whenever we see the next downturn. That said, with favorable fundamentals for natural gas and NGL 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.