Range Resources Corporation

Welcome to the Range Resources Second Quarter 2022 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's remarks, there will be a question and answer period. At this time, I'd like to turn the call over to Lace Sando, Vice President, Investor Relations at Range Resources. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining Range's second quarter earnings call. The speakers on today's call are Jeff Ventura, Chief Executive Officer, Dennis Degner, Chief Operating Officer, and Mark Skucke, 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 will also find our latest 10Q on Range's website under the Investors tab. or you can access it using the SEC's EDVER 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, Leigh, and thanks, everyone, for joining us on this morning's call. Before discussing the second quarter results, I wanted to spend a few minutes on the broader global energy picture and how we see Appalachia and range within that framework. As we sit here today in the middle of a global energy crisis, we see a world that desperately needs access to ethical, safe, reliable, and abundant fuel sources. Your challenges are a stark reminder that evolving energy policy will need to be thoughtful, prioritizing security, affordability, availability, and environmental responsibility. Within that framework, we believe Appalachia is well suited to play a key role in meeting the world's needs. And from that perspective, it's an exciting time for U.S. natural gas producers. Energy policy will need to be rooted in market realities. If infrastructure projects, namely pipelines and LNG terminals, are not prioritized and given a reasonable regulatory review, then I believe it's simply impossible to meet the growing global demand for reliable, safe, and affordable fuels. Unwarranted delays in permitting adverse policy decisions in a global push for various renewable initiatives have resulted in underinvestment in oil and gas infrastructure over the last few years. This has stifled domestic supply growth, leading to inflated global energy costs. The current situation will not change unless there's support for the necessary infrastructure that would allow for increased supply. Plain and simple. I believe the industry, like range, is ready, willing, and able to assist in providing the much needed growth and supply of clean burning American natural gas to replace coal and also replace supplies of gas from less reliable, hostile countries. As it relates to the broader energy transition, I don't believe it's an either or decision between renewables and natural gas. Rather, it will require an all of the above approach to keep cost and inflation in check and to have energy security. Oil and gas production is inextricably linked to nearly everything in our lives. Food production, medicine, transportation, shelter, manufacturing, heating and cooling, to name a few. As a result, inflated energy costs from a lack of infrastructure becomes an onerous, regressive tax on individuals and families struggling to afford food and shelter. As we look for reliable, safe, and affordable energy, we believe Appalachian natural gas, and range in particular, are well suited to meet the call due to our current cost structure and environmental performance. We believe Appalachian natural gas is a global demand in order for the US to sustainably produce enough natural gas at affordable prices. However, infrastructure approvals and investment are needed before it's possible to meaningfully increase Appalachian supply. Additional infrastructure requires permitting at the federal level, and that process has been incredibly slow or impossible in recent years. Given that our national leaders are looking for supply from other countries, They clearly understand the importance and need for more oil and natural gas globally as we try to fight inflation and provide energy security. Unfortunately, domestic supplies are being stymied by short-sighted energy policy along with permitting delays and cancellations of prior approvals. We really need to ask ourselves as a country if we'd rather have additional energy supply from other countries or would we rather source it from right here in America where we have the highest environmental and safety standards in the world, offer good paying jobs, and provide significant tax revenue at the local, state, and federal level. Specific to Appalachia, we also have the lowest finding cost and emissions intensity of any oil or natural gas field in the world. As Appalachian shale production grew from virtually nothing just 15 years ago to now producing over one-third of the nation's natural gas supplies, It allowed the U.S. to lead the world in lowering CO2 emissions, primarily from the substitution of natural gas for coal and power generation, as natural gas has a 60% lower carbon footprint than coal. The Marcellus and Utica shales in Appalachia are now the largest producing natural gas field in the world, making the U.S. the largest natural gas producing country. This has also resulted in significantly lower natural gas prices in the U.S. compared to Europe and Asia. No doubt Americans are experiencing increased energy costs, but nowhere near the levels being experienced in Europe and the rest of the world. Currently, U.S. natural gas pricing is about 75% lower than prices abroad, making U.S. manufacturing more competitive, helping to keep U.S. utility bills lower than other countries, positively contributing to the U.S. trade balance while generating tax revenues for governments and providing energy security for our country. Despite these meaningful contributions, we believe that much more can and should be done in years ahead to support the increased use of American natural gas both in our country and around the world. We remain confident that we'll see many more opportunities over time for Appalachian natural gas. So where does that leave range today? We believe that we'll position the company for success in whatever infrastructure scenario we find ourselves in this year next year and for the foreseeable future. As the most capital efficient operator in the largest natural gas field in the world, we believe we sit on the low end of the global cost curve for natural gas. Importantly, Range and other Appalachian producers have advantaged emissions intensity profiles given the prolific nature of the Marcellus, robust environmental standards, and a focus on operational efficiencies being applied on a daily basis. Looking longer term, We see range as being differentiated amongst producers given our operational expertise, fast, multi-decade core inventory, and our access to natural gas and NGO markets outside of Appalachia. The financial and operational results of the most recent quarter reflect those advantages as we made steady progress on our key objectives for 2022, completing our drilling program safely, within budget, and with peer-leading capital efficiency. enhancing margins through thoughtful marketing and a focus on cost, bolstering our balance sheet with further absolute debt reduction and returning capital to shareholders. Operationally, range successfully delivered on our second quarter development plans with production coming in slightly better than expected. In first half 2022, capital spending of $244 million, or approximately 52% of the full year budget, putting us on track within our full year guidance. Dennis and Mark will provide some additional details on the quarter in a minute, but the team has done an outstanding job operating safely and controlling costs. Looking at margins, starting with pricing, thoughtful marketing and deliveries to multiple end markets resulted in strong prices for the first half of the year and have allowed us to improve our corporate natural gas differential, despite meaningfully higher Henry Hub index prices. Range's natural gas liquid production also received a premium to the Mont Bellevue equivalent price, coming in at over $42 per barrel or greater than $7 per MCFE. Overall, Range received $7.18 per MCFE in the second quarter for its aggregate production. As a result, we realized the highest quarterly cash flow per share and free cash flow in company history. This free cash flow is being directed towards the absolute debt reduction in capital returns we announced in February, including a base dividend that began later this year and a $500 million share repurchase program. Continued strength in commodity prices has further de-risked our absolute debt targets, allowing us to repurchase shares at a steep discount to what we believe is the underlying value of the business. This is particularly the case as long-term natural gas prices have re-rated from sub-$3 to over $4 per MMBTU, as the call for U.S. natural gas becomes more evident globally. This re-rating of long-term prices is particularly beneficial to companies like Range, with multi-decade core inventory life, though we don't believe it's recognized in the current equity market, which seems overly fixated on near-term trading multiples rather than the true underlying asset value. We have discussed our long-term balance sheet target of $1 to $1.5 billion in absolute debt, We expect we can achieve this financial objective early next year at current strip pricing while simultaneously funding the base dividend and share repurchases. We believe the share buyback program continues to represent a compelling investment of our capital as we still traded a substantial discount to the underlying value of the reserves in our resource base under what we believe are conservative mid-cycle pricing assumptions and development plans. While we run various scenarios in assessing company valuation, we can point to Range's SEC approved reserve valuation at year end 2021 as a proxy for the value of a portion of our inventory. At recent strip pricing, that value was well north of $60 per share. And as many of you are aware, the SEC definition of approved reserves only allows for five years of development. And beyond this five-year window, Range has thousands of additional core Marcellus wells. Beyond that, we have what many consider to be core Utica and upper Devonian as well. Simply put, we do not believe this significant resource value is currently reflected in range of share price, presenting us 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 reiterate something I've mentioned on our past calls and remains true today, which is I truly believe range is in the best position in the company's history. As the world moves towards cleaner, more efficient fuels, natural gas and NGLs will continue to be the reliable, abundant, and affordable supply that helps power our everyday lives while also helping billions of others improve their standard of living while reducing the reliance on coal 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, we expect range to be a leader in emissions intensity, capital efficiency, and transparency, which are all core to generating sustainable long-term value for our 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 the low sustaining capital requirement that Range enjoys, reflected in our peer-leading DNC spending per MCFE, which allows us to weather service cost inflation better than others while also supporting healthy margins. At the same time, Range's 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 whenever we see the next cycle, and with favorable fundamentals for natural gas and natural gas liquids, Range is well-positioned to generate healthy returns on and returns of capital to shareholders. And I'll ask Dennis to cover operations.