Welcome to the Range Resources Fourth Quarter and Year End 2019 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 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, Vice President, Investor Relations at Range Resources. Please go ahead, sir. Mr. Laith 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 year end earnings call. Speakers on today’s call are Jeff Ventura, Chief Executive Officer; Dennis Degner, Chief Operating Officer; and Mark Scucchi, 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 also filed our 10-K with the SEC yesterday, it’s available on our website under the Investors tab, or you can access it using the SEC’s EDGAR system. Please note that 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 Laith and thanks everyone for joining us on this morning's call. Looking back at 2019, Range made steady progress on key strategic objectives, improving our cost structure, executing multiple creative assets sales, reducing debt, bolstering liquidity, and completing our 2019 drilling program safely and under our original budget. Looking at unit costs first, Range was able to reduce cash unit costs by 12%, over the course of 2019. Mark will touch on the improvements in more detail, but it's important to point out that these unit cost reductions drive lasting enhancements to margins and cash flow that don't require a change in commodity price. While we made significant improvements across the Board in 2019, on GP&T, LOE, G&A, and interest expense, we remain focused on becoming even more efficient in the years ahead. Operationally, the team continues to innovate and reduce normalized well costs. As a result of thoughtful planning, efficient operations, and a laser focus on capital discipline, the team was able to deliver the 2019 operational plan for $28 million less than originally budgeted. This is the second consecutive year Range has achieved these types of savings, spending less than budgeted, which is a reflection of our commitment to discipline capital spending. Range has been a leader in well cost per foot amongst Appalachian producers, since discovering the Marcellus. As Dennis will discuss the operational plan that was laid out for 2020 shows that we're continuing to find ways to become even more efficient with our wealth costs approaching $600 per lateral foot, which is the best amongst our peers. Range's class leading D&C costs, coupled with our shallow base decline, and our substantial core inventory, all come together to support a very low in sustainable maintenance capital. Range's based decline entering 2020 was approximately 20%, allowing…

Thanks, Jeff. Capital spending for the fourth quarter came in at approximately $152 million with our capital spend for the year totaling $728 million. This includes $667 million for drilling and completions, $57 million on acreage and $4 million for gathering and other support activity. Our actual spend was $28 million below our capital plan set at the beginning of 2019 and is a direct result of the operational and – upon Range's operational efficiencies, implement innovative technologies such as an electric fracturing fleet and reduced service costs in the current environment. Similar to our message one year ago, the initiatives that underpinned our capital underspend in 2019 are primarily attributed to the continued success of our water recycling program. Improved drilling and completion efficiencies and service cost reductions. I'll go into more detail on these items in just a few minutes. Last year our message was clear. We expect capital spending at or below budget to be the rule not the exception and the team delivered yet again. Production for the fourth quarter came in above 2.34 Bcf equivalent per day, putting us firmly at the upper end of our Q4 production guidance. This generated annual production of approximately 2.28 Bcf equivalent per day, 4% higher than 2018. Our annual production was comprised of 30% liquids and includes the production impact of asset sales executed during the year. Continued excellent field run time of our operations and strong well performance from both new and existing wells across Southwest PA helped us deliver on our production plan to round out the year. As we look forward into 2020, our capital budget has been set at $520 million with our activity focused on the Appalachia, Marcellus program. We have earmarked 94% of the capital to be directed towards drilling and completions-related…

Thank you, Dennis. As mentioned on previous calls, our strategic priorities or guiding principles are to fund investments in the business from cash flow to further strengthen the financial position and to protect and grow margins through continuous cost management and innovative sales agreements. Collectively executing on these principles, we believe can create significant sustainable stockholder value. First, let's discuss significant strides taken reinforcing Range's financial foundation. We've been decisive and early to monetize assets as the first among public peers to sell royalty interest and non-core acreage for $1.1 billion. Scale and cost advantage asset base supported a $400 million increase in commitments under the bank credit facility during the fourth quarter. And in January, we were prepared and moved quickly to issue unsecured bonds raising $550 million in capital to refinance nearer term maturities. In the aggregate, this totals over $2 billion in capital brought into the business over the last 15 months, reducing debt by 22%, expanding liquidity by $1.2 billion, and extending the debt maturity profile. Questions are common in this market about the workings of a reserve-based lending facility -- and the certainty of current bank commitments. We have consistently made conservative elections to set Range's borrowing base and commitment levels well below the calculated value according to reserve-based lending methodology. At the last redetermination date, the maximum calculated borrowing base under RBL methodology was approximately $4 billion. This compares to the $2.4 billion in commitments. We will soon have our annual redetermination. And using the latest price assumptions from lenders, we continue to see substantial cushion above both Range's $3 billion borrowing base and its $2.4 billion in commitments. Consequently, we are confident in the durability of Range's liquidity position. We believe Range's debt reduction, refinancing and expanded liquidity, creates a long runway. Several…

Operator, we'll be happy to take questions.

Thank you. Mr. Ventura. The question-and-answer session will now begin. [Operator Instructions] Your first question comes from the line of Arun Jayaram with JPMorgan. Your line is open.

Yes, good morning. My first question involves the capital allocation in 2020 versus 2019. As you mentioned in your prepared comments, you're now allocating 51% of the capital to the dry gas assets in Southwest PA versus 36% last year and it does reflect lower capital allocation to the super rigs. So just wondering if you could talk about the year-over-year changes in that higher capital allocation to dry gas just given the weakness we were seeing in gas prices?

Yes, good morning, Arun. This is Dennis. As we look at the plan, really year-in and year-out, it's important that we look at a host of variables on how we consider capital allocation. And one of those being where we have room in the existing gathering system and our ability to fully utilize that and keep our unit costs low. Part of Q3 and Q4 of last year really involved 65% and 73% of our turn-in lines were really in wet and super-rich. So we're now getting an opportunity today to harvest those volumes as a part of the plan that we're toward the second half of last year. That's critical and key when you think about just the development process as a whole. But as we look towards the 2020 program, there will be 20 -- 50% of the program be in the dry gas and that is to also utilize some gathering that was -- a project that was starting to be put in place toward the middle of 2019 is in further developing. So again we'll fully utilize that and look to keep our unit costs low. Lastly we always keep some flexibility in the plan with our ability to move back into existing pads, so that when we do see commodity prices change, we always allow for some flexibility so that we can move back into those pad sites and take advantage of market condition changes. But we don't tend to also try and overcorrect on the steering with our program because we also know it's key to stay focused on multiple metrics.

Great. And I just wondering, if perhaps you could elaborate a little bit more on the Mariner East 2 capacity. It is -- you mentioned it is driving up your GP&T costs. But could you comment on what you expect is the offset in terms of the NGL price.

Yeah, sure Arun. This is Mark. I'll start and then hand it over to Alan Engberg our Vice President of NGL Marketing. So I think the first key point to understand is the accounting behind this. It's really geography in the income statement. As I tried to describe in the scripted portion of the call, the current sales arrangement is net price, meaning we are paid a price that is after the cost of transport by rail that is carried by the buyer. When this capacity comes online, it is something that Range can control and optimize. So in essence it's a check that we're cutting, it shows up in the gathering processing transport line item. But we receive a higher price. So net-net, this is a cost saving and margin enhancement because moving NGLs by pipe is cheaper than moving it by rail. So Alan would you add to that?

Yeah. I would just add to that that the overall attractiveness of access to the international markets is really a differentiator for Range. We're one of only two independent E&Ps in the country that can directly access the export markets. The premiums that we've been seeing at the dock have improved considerably during 2019 and it continue to improve actually. We saw premiums. If I go back to fourth quarter of 2018, they were rougher $0.055 at the export docks. By the third quarter of 2019, they were at $0. 07. By the fourth -- in the world today in the larger macro environment, the year-to-date premiums has actually published by one of the price reporters in the U.S. here. The year-to-date premiums are actually at $0.15 per gallon. So overall we've guided higher in our NGL realizations for 2020, because we expect to do much better with continued growth and expansion in our export program.

Great. Thanks a lot.

Thank you.

Brian Singer with Goldman Sachs. Your line is open.

Thank you. Good morning.

Good morning.

Realize that, when you think about your cost structure, not all of it is variable. But given the low gas and NGL price environment, just wanted to get a better sense of how you debate internally, both what price environment you would need to see or sustained price environment for either a further slowing of activity? Or then, is there some point at which at least wells that may be a little bit more marginal within the portfolio should be temporarily shut in?

Well, let me start and then flip it over to Mark. Yes. We're, again, laser-focused on making sure that our program is going to be aligned with cash flow. We have multiple scenarios that we look at and we'll be sensitive to that and reacting enough time to make sure that that occurs. Obviously, the changes that we'll make will focus on wells that have better return versus the forward return. And as Ben has said, we'll look at the unit cost and all the other things to optimize the program. Team does a good job. If you look at the last couple of years, we've adjusted our program; we've come in below budget. We flip over to Mark.

Sure, Brian. I would say there's really two essential elements for Range that come to bear on the question you've asked and that's, first of all, the flexibility we have. The fact that our gathering infrastructure and long-haul transport is fully utilized, gives us a tremendous amount of flexibility. In other words, we're not trying to cover those costs and doing analysis on a sunk cost basis. In fact, we have production above and beyond our take-or-pay contract. So, again, that gives us flexibility in terms of determining the level of activity in the year and/or if you were in an extreme scenario, in evaluating shutting in production, what that would mean in terms of your cost structure. And cost structure is really the second main point I wanted to bring it back to, and that's with cash unit costs fourth quarter of $1.92. That puts us in a very good stead in the environment. For 2020 and beyond, we've shown a consitent track record of driving that down. And I would also note that the preservation and expansion of our margins is critical there. If you look at the gross margin, if you will, as a percentage of revenue, that's been sustained, even the prices have come down, given the fact that we have driven down absolute costs. The third point I would make there is, we evaluate prices and people are looking at natural gas prices. It's important to note that even on an unhedged basis when you look back at Range's realize price per Mcfc. Even unhedged, it was 30 cents above NYMEX for 2019. And if you look back over the last few years, it's anywhere from that $0.20 to -- $0.20 to $0.30. So, again, that gives us a lot of flexibility to adapt to whatever prevailing market prices are.

Great. Thanks. And then my follow up is also on the cost structure, the capital cost structure. You highlighted a number of the initiatives you were taking on in terms of e-fleets and water and I think you mentioned that the e-fleets are reducing your completion costs by about $30 million this year. Is that $30 million built into your capital budget? Or would that be an area where you could potentially spend under your budget? And can you talk within the other initiatives that you mentioned, is that's built in or if there's the potential for either further savings relative to that capital budget that you have?

Yes. Brian, I would say, a significant portion of the cost savings that we're projecting for the year are built into that $610 per foot assessment that we're communicating today. However, the team always continues to move the goalposts, and I could spend a whole another calls worth of time talking about the good work that the team has done. And year-over-year they continue to drive additional water recycling, taking other operators, through a collaborative effort their water, capturing those additional savings. And really on the drilling side, same thing, we see that the efficiencies that we're planning for -- a lot of times the team is exceeding those expectations through the balance of the year. So, from what we're planning for today and what I expect us to have additional savings, certainly wouldn't surprise me because the team just continues to really do a great job and exceed expectations and it's been really the cornerstone of why we've come in under budget, the past two years consistently. So, we would we would hope and expect to see some additional savings come to come to fruition.

I would just -- I would reference what Dennis is saying, we -- the team continues to get better and move the goalpost. So, last year I think a lot of our peers were targeting, Range cost to drill and complete per foot at -- whatever it was 750 or whatever and they're still striving to hit that yet. What we did is moved it further down to approximately 600 per foot. So, -- and I have great faith in the team that they'll continue to find ways to lead the pack. We put a new slide in our deck, its slide 11, and its -- looks at -- we talked about pure leading capital efficiency. Whether you look at it on well cost per lateral foot and I think importantly, the new part at the bottom where you look at total drilling complete capital per Mcfe added, and we put it in there over the last three years or three year average and last year, Range was best in the entire basin and great results across three years. So, great faith the team will do that and also like Mark said that we have flexibility and being able to alter the budget as needed.

Thank you.

Thank you.

Jane Trotsenko with Stifel. Your line is open.

Good morning and thanks for taking my questions.

Good morning.

The first is -- yes, on asset sales and royalties, if you can comment on how the market for this assets looks like today, that -- than let's say compared to a year ago s?

Sure. As I described earlier, we have multiple active processes underway. We've spoken of Northeast Pennsylvania before, the Lycoming County asset, there's discussions ongoing there. We have obviously had success in monetizing a small portion of our inventory and resource potential in Southwest Pennsylvania, half million acres of stack pay potential there, 1.1 billion in proceeds out of the royalty. But given the scale of that asset, it clearly represents future potential. And then obviously an asset that has not garnered its fair share of capital within our portfolio becomes an active candidate. So, we do have a process and data room open on North Louisiana. So, there are multiple dialogues across multiple assets and projects. And I think I would look back on Range's track record of being able to deliver on divestitures over the last number of years as an indicator of what we intend to do.

Would you generally characterize that there is like more interest for royalties rather than assets?

I would not characterize it that way. It depends on the asset base and the location. There are different buyers for different assets. Some operators in a given area may want a bolt-on, just to add production to their given area, that's efficient. If you're in the Gulf Coast, that one's adjacent to petrochemical demand and LNG offtake. So, that has appealing interest of both domestic and international players. So, it depends on the asset and the location you're talking about as to who the interested parties may be.

Okay, got it. And then the second question, so the revolver discussion that you had in the prepared remarks was very helpful and thank you for that. I have a question regarding the near-term maturities and to what extent it would be possible to put them, maybe a portion of that on the revolver and if it's even an option?

Yes. It is an option. As we disclosed, I think beginning in Q2, we had begun repurchasing nearer term maturities on the open market. And we will continue to do that carefully. So, that is definitely an option, and we have substantial liquidity to deal with near-term maturities, combined that refinancing we did early this year, pushing maturities out, and expanding the credit facility last fall. And then lastly, and most importantly, the fact that we see substantial cushion to the current borrowing base at current prices and assumptions by the lenders. We feel like we're in great shape as it comes to the debt maturity profile.

Okay. Got it. Thank you so much.

Thank you.

Jeffrey Campbell with Tuohy Brothers. Your line is open.

Good morning. My first question is, there's been a lot of really interesting discussion about cost reduction, and a lot of specifics. I just wanted to kind of back up and ask what portion of this leading cost per barrel, a lateral foot cost surrounds returning to your portfolio's 200 pads as opposed to the other items that you discussed?

Yeah, Jeffrey. This is Dennis. Year-in and year-out I've kind of tried to touch on it during the call this morning, but this year's activity will represent about 50% of it will be going back to pads with existing production. But if you were to look back over the past several years, it can be as much as 50% on a year-in, year-out basis. So we look at our cost savings, are there – are the cost savings we're capturing due to this? Absolutely. But what we see though is, is that there's a fair bit of durability in the cost savings that we're capturing this year that are repeatable year-in, year-out and that's just, just one of them. The other is, clearly, the team being creative and looking at sourcing sand directly for completions operations. That's an initiative that may not necessarily be new to the E&P space. However, we feel like patience has kind of paid off for us in that regard, because of where the market is from – from a profit standpoint. We see there – there being a fair bit of durability then, and that going into 2021 and beyond. So, as we start to stack-up electric fracturing fleets. The technology, the drilling teams deploying, moving back into existing pads, we see there's a fair bit of durability in capturing these costs savings not only this year, but also in the years to come.

Okay. Thank you for that. And then, regarding North Louisiana, bearing in mind that it sounds like that it's apparently or potentially for sale. Do you have any midstream volume requirements in 2020 that and can you meet them until a sale can close? Just wondering about midstream down there.

So I think we've alluded to before and was disclosed early on at the time of the acquisition, there are commitments on processing volumes. So, those processing volumes are not fully utilized right now, but that cost is already reflected in Range's GP&T line item. So, even though, we are paying for some processing capacity that's not fully utilized, we are still driven the cost from $1.51 in the fourth quarter of last year down to $1.39. So, we did have early this year, a $40 million to $50 million portion of that commitment, roll-off. So that'll be an improved run rate for 2020, and we'll continue to certainly work to optimize that in the context of a potential sale

Okay. Great. I appreciate that color. Thank you.

Thank you.

Thank you.

David Deckelbaum with Cowen. Your line is open.

Good morning, guys. Thanks for the time.

Good morning.

Just expand a little bit more, so I understand that the multiple years of capital efficiency. Being on 50%, your budget on existing pads this year is obviously helping you get those well costs down on a blended basis. If you were just to remain on existing pads, how long could that program sustained for?

Yeah this Alan, Carson let me, let me kind of take that question a little bit. First of all, we've been as Dennis mentioned a little bit ago if you look at our track record over the past several years, we've probably been about 50% of the wells on the pad, probably on average we have over 200 pads out there, and on average we're probably in the five to six wells on an existing pad. So, you know, we built these pads to handle up to 20 wells, so I think the – the runway is very long on our ability to be able to keep that happening. So I think our low costs aren't necessarily reflective of going back on pads for 50% this year. It's been built into the entire cycle. So you can always see we're always building some pads every single year, if you only going back on – on half the walls to be able to get there, so you always have some, some of that opportunity down the road, so eventually you'll be in a situation where you won't be able to – you won't be building any new pads. So costs actually could come down as you think through the longer cycle.

I guess, I'm wondering the market is obviously not particularly robust right now. Why isn't that percentage increasing more as a way of sort of augmenting your margins?

Well I think part of that starts with. I'll go ahead and start with that I think part of that starts with just the way the development plan is set up, you know the permitting process in Pennsylvania is somewhat cumbersome and takes a fair amount of time. So a lot of the pads have already been built, they may have been built in 2019. And as a result, you've now just getting to drill the wells in 2020, so I think you'll see a change over time. And it's just a matter of the way the development plan is put together and just the timing of everything. And of course, you want to be able to efficiently use this gathering system as well.

Comes back to cash flow, where there's room and the gathering system, where you can get that production online to market and where the net back and quickest payback period for those dollars invested are it boils down to the cash flow?

Alan here lastly, but I think a piece of this is it's ever evolving. So when you look at the lateral links and how they've increased over the past, let's just say two to three years, not only for us but for a lot of folks but especially Range, and the efficiencies associated with that we're seeing the opportunity to reduce the number of pad size that we're needing to build and touching on that a little bit with just the average lateral links increasing, the gathering system. So all of this really becomes a very integral piece of the – of the planning process as we think about as Mark touched on efficiently using there the gathering and infrastructure in our processing.

Appreciate that color. Just as my second question. As you look at the landscape right now in Appalachia, you've talked a lot about initiatives that delever through asset sales. You've had a lot of success with non-core asset sales and overriding royalty interest sales. But, on the other side of it I guess when you think about some cost control, as some of your peers look at insolvency, or obviously the market is undergoing a lot of distress. Are you seeing opportunities to renegotiate things with your gathering partners, with your processing partners and do you foresee opportunities to renegotiate with long haul as well?

I think just getting a good deed on our situation today is important and then we can consider how renegotiations may play into that going forward. With over a decade of development of the Marcellus and assigning of the earliest gathering processing and transport agreements, you're at the stage where some of those early agreements are already at their option to extend or drop at Range's election. So beginning this year, next year and kind of a steady cadence, thereafter, we have portions of capacity that we can allow to just drop off that do not require renegotiation that's just our option. You also have elements of the cost structure, particularly on the gathering side we've spoken to before, where some of the capital recovery pieces begin to drop out, and the cost do decline over time. So, the glide slope there is in our favor for a long running, steady decline in the cost structure on the gather and processing transport. But I'll let Dennis speak to more detail on renegotiation.

Yeah, I think ultimately I'll kind of step up higher level here for a second. But we are working always on ways to optimize our portfolio, and that doesn't -- that includes all aspects of the gathering, the processing and the transportation side of our business. As Mark indicated being an early mover there are packages that we're seeing, the opportunity to let those expire. And then also be strategic about how we consider renewing or adding transport to our portfolio down the road sometimes. So we like where we're at. We're exceeding our FT commitments today, we're maximizing our portfolio. However, look, our part -- these are our partners as well, and so we're always actively looking for ways that we can renegotiate. We can also look for ways for strategically reducing costs, making sure that we're -- we have the right cost structure for the cycle. As we put in our slide deck, we already had a $0.12 reduction in our GP&T costs over the past 12 months when you look from Q4 2018 to Q4 2019, and we're projecting a similar trajectory in the years ahead, So it'll come -- our cost reductions will come through multiple avenues, one of which could be renegotiations.

Thank you guys.

Thank you.

We are nearing the end of today's conference. We will go to Sameer Panjwani with Tudor, Pickering, Holt for our final question. Your lines open.

Hi, guys, good morning. I wanted to ask on the 2020 outlook. I know there's been some back and forth on this call here. But I guess just to clarify, do you see the current program as free cash flow neutral or positive at current strip, and then can you also quantify the buffer you have in terms of production above your midstream commitments?

So as it relates to the 2020 plan when we roll that out in January, obviously, prices were somewhat higher, and that program was designed to be cash flow neutral positive at strip prices at the time. Again given the prices have come down somewhat, it would require some adjustment to that plan, and as Jeff and Dennis and I have each described our primary motivating factor, kind of, the guiding principle is to self fund the program to be cash flow, neutral cash flow positive throughout the cycle. So there is flexibility and it would be our intent to make adjustments to that plan as need be over the course of this year to make sure that we are self funding that to the maximum extent possible.

Okay. And are you able to quantify that buffer you have in terms of production above the midstream commitments.

So on the FT side, commitments are roughly 1.6, and production about 1.8, so you got a good 10% buffer.

Okay, got it. And then on the asset sale side of things, you mentioned there's a data room open for Louisiana and the Northeast Pennsylvania, assets been on the market for a while. Do you happen to have PV10 values as of the end of 2019 for each of those? And just from a higher level standpoint, when you're kind of marketing these, are you hoping to get some level of undeveloped acreage, kind of, ascribed in the transaction values?

I mean, yes, we have PV10 values, but we're not going to set any markers out there for individual assets or the aggregate asset sale proceeds. So we will just continue to seek to maximize the value, so that it's both deleveraging, enhancing to the cash flow going forward, and just monetize those as quickly as we can.

Okay. Thank you.

Thank you.

Thank you. This concludes today's question-and-answer session. I'd now like to turn the call back over to Mr. Ventura for his concluding remarks.

Yes. I just want to thank everybody for participating on the call and feel free to follow up with additional questions. Thank you.

Thank you for your participation in today's conference. You may disconnect at this time.