Welcome to the Range Resources Fourth Quarter 2020 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 risks 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.

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 Web site. You will also find our 10-K on Ranger's Web site under the Investor's 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 Web site 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 2020, Range made steady progress on key objectives. We enhanced margins through cost improvements and thoughtful marketing, strengthened our balance sheet by reducing debt for the third consecutive year, completed our 2020 drilling program safely and efficiently and lowered the capital intensity of our business with the peer leading maintenance capital program. Range also continued to advance one key environmental fronts becoming the first North American producer to set a goal of net zero direct emissions. We believe each of these accomplishments show continued progress towards positioning the company to return capital to shareholders. Looking first at margins, we can discuss unit costs. Range reduced cash unit costs by about 10% last year compared to average 2019 costs. 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 change in commodity price. While we made improvements in 2020 on gathering and transportation expenses, LOE and G&A, we remained focused on becoming even more efficient in the years ahead. On the pricing side of the margin equation, I believe our mix of production and delivery of NGLs into the international markets provides Range an unappreciated advantage in terms of pricing. For context, if we look at pricing for 2021 NGLs, we expect an unhedged realized price comfortably above $20 per NGL barrel for Range, approaching $4 per MCF equivalent based on today's strip. Our ability to sell purity NGL products into the international markets paired with improved NGL fundamentals helped support Range’s strong free cash flow and strip pricing. Turning to the balance sheet. Range made significant progress bolstering our financial position over the last…

Thanks, Jeff. As we entered our 2020 program a year ago, our operational focus was clear; deliver a maintenance level production plan anchored by improvements in capital efficiency; and in doing so, align our operational cash flow with annual capital spending. Our 2020 operational cadence, cost control and production levels were consistent with these objectives. And our capital spending below budget for the third consecutive year speaks to the commitment of our team in achieving them. Our operational program was executed while coming in $109 million or 20% below our average capital plan of $520 million set at the beginning of January, and was also $19 million below our revised capital plan of $430 million that was adjusted in March. The program resulted in 67 wells turned to sales for the year, with approximately half of the activity focused in our dry gas acreage position. Maintaining production levels while spending significantly less capital was a notable achievement by our operations, technical and support teams. The initiatives that underpin these results were driven by calculated scheduling adjustments made with a new multidisciplinary asset development software tool; continued improvements to operational efficiencies for both drilling and completions; the use of innovative and emissions reducing technologies, such as using an electric fracturing fleet; and a focus on reducing service costs throughout the year. As we look forward into 2021, our capital spending will be approximately $425 million with 95% of the capital directed towards drilling and completions related activity, which is consistent with last year's budget. Also consistent with prior years, our activity and capital cadence will be weighted towards the first half of the year with approximately 60% of the capital allocated across the first and second quarters, with the remaining 40% covering the second half of the year. The capital plan…

Thank you, Dennis. As we all know, it would be an understatement to simply call 2020 an eventful year. Nevertheless, for Range, it was an extremely constructive eventful year during which the team successfully executed on key financial objectives during some unusual global events. The main themes discussed on the third quarter call continued through year end and into 2021, including cost reduction, debt reduction, improving the debt maturity profile and enhancing liquidity, all of which were achieved while maintaining best in basin capital efficiency and doing so in a responsible, safe manner, one of our core values. Results for the fourth quarter and full year reflect Range's ability to navigate fluid market conditions, maintain focus on shareholder returns and deliver on financial and operating objectives. Starting the financial discussion today, I want to ensure the recently announced accounting corrections are transparent and well understood. In the 10-K, we corrected a deferred tax error reported in the 2020 quarterly statements that was identified while preparing year end financials. This mistake resulted from a misinterpretation of how the CARES Act was modified future utilization of net operating losses. As you know, accounting rules provide a strict framework of how deferred tax assets and liabilities are quantified and the misinterpretation led to incorrect noncash deferred taxes reported. The correction, which we set forth in detail in the 10-K is likewise noncash, and there is no change in the NOL balance Range holds for future use against taxable income. Changes in policies and procedures are already underway to prevent an issue like this from recurring. Moving to financial results. Underlying the financial foundation of any E&P is capital efficiency. Full cycle costs, operating costs plus sustaining CapEx dictate repeatable returns and cash flow. The quality of Range's inventory and low base decline allowed…

Operator, we'll be glad to answer questions.

[Operator Instructions] The first question comes from Subash Chandra with Northland Securities.

A question on the asset sales program, if any, given the stronger fundamentals here. Are you going to be more picky about the bids you get and if you can characterize the A&D market currently?

I think the good news for Range is the significant improvement in liquidity in the balance sheet. So therefore, we are in a position of strength of making choices of it, most economic choices on divestitures specifically are economic based. They're not out of a need base to refinance or repay indebtedness. So more directly to your point, the A&D market, there have been a few transactions. You've got some decent comps in the area of what assets are going for, pick your measure, but dollars per flowing, predominantly PDP based valuation. So you do have to take a step back and say, what is most accretive for your shareholders, what contributes the most cash flow, free cash flow to your shares and would you rather be a seller or a buyer in this market. So there's been good interest in some of our noncore areas, but for the time being, I think we're focused on just maximizing cash flow and are in a good position, as I started off with, given where the balance sheet currently is. So we keep a lot of options open to us.

And you just mentioned, I guess, being a buyer. Is that on the table?

We'll consider virtually all options. It's about free cash flow per share, it's about deleveraging, and it's about the strategy going forward for maximizing shareholder value. So again, you just run the economics if it is it better to be a buyer or a seller. And right now, it might tilt towards being a buyer.

And clearly, anything we would do would be in the Appalachian Basin in and amongst us, deleveraging, cash flow accretive, all those things that Mark just mentioned.

And if I could just ask a follow-up on FT. Do you feel differently about holding on to it long term given I think some of the tightness in the market, at least in the fourth quarter of last year?

I think as you look back over the landscape of 2020, it certainly lends itself to making the decisions along the pathway of those expirations rhat make most sense with maximizing our margins and our returns. So earlier on, the FT packages that were acquired associated with our production are going to be more in line with plants that early came on with, let’s just say, early program production growth. So those programs are going to most likely get us to the Gulf. 80% of our production gets out of the Northeast. So we're going to have 50% of it getting out of the Gulf Coast and we're going to have the remainder getting to the Midwest and other markets. So we will look to continue to maximize the portfolio to make sure that it's taking into account cost and also how do we get to premium markets. But those earlier packages that will start to expire will also be some of the more smaller in nature that will also allow us to be strategic as we hold on to them or not. This could certainly lead into a broader basis-type discussion. But as you look back on 2020 and the TETCO capacity that was taken out of service due to some infrastructure offsets along with Cove Point maintenance. As we look forward, there's around 3 to 4 Bcf of demand plus takeaway capacity that's going to be available. Couple that with flat maintenance programs that Range is executing along with many others and a flat production profile, we see this gives us a lot of optionality as we look forward, whether it's how we manage bases or also those FT packages moving forward.

The next question comes from Doug Leggate with Bank of America.

You've obviously made terrific progress in reducing your cost per lateral foot, as you pointed out, the most efficient in the industry. My question is on the sustainability of that, when you look at the quality of the inventory you've laid out, you've talked about locations, but you haven't parsed that into what can be sustained at that level of capital efficiency. So my first question is what proportionately the inventory you have laid out do you think going to be sustained at current capital efficiency [Indiscernible]?

Doug, I'd like to refer you to Slide 15. We put some third party data on the bottom right of that slide. And according to that third party data, there's over 16 years or about 17 years of inventory that generates good returns below through 25 and 40, so it's clearly high quality. In terms of well count, we would agree and of course, we have more of that up there, along with the map on the left. So we've got plenty of locations. So let me turn it over to Dennis to talk a little bit about well cost.

The cost structure we see is very, very durable and repeatable and a lot of it comes down to what we see is a couple of key drivers, and one is going to be the efficiencies that we've captured year-over-year. No doubt, we talk about it every single quarter, whether it's drilling our fastest days in the lateral by our drilling team or whether it's drilling our longest laterals. 2020 saw us in some regards have a repeatable drilling efficiency in the lateral from a, let's just say, footage per day. But really what we saw is we were able to repeatably and successfully drill longer laterals, reducing our cost per foot by an additional 12%. So that was an incremental bolt on versus prior years. Completion side continues to chip away and completion efficiencies, we saw our crew pumping efficiency go up 10%. Part of that was due to the efficiencies associated with both of our providers, but also pretty heavily contributed by our electric fracturing fleet in 2020. So team continue to do good work there. And the other part is water savings. We hit three records in 2020 for Range on cost per barrel, amount of barrels that were handled and also reduction in some of our trucking logistics from a freshwater perspective and all of that just translates into a reduction in cost. So part of the reason we see this being durable going forward is because we see us building upon that but also the last component is we continue to look at new technology. A part of what helped us in 2020 was a scheduling tool that we put together. It's collaborative. It allows multidisciplinary team input, very quick responsive type communications, allows the team to make real time choices around how we look at capital allocation, what wells we drill and how we keep the gathering system fully utilized. Couple that with water logistics software that we have now deployed that will help us further reduce any wasted time, understand our water movements in the field, and it really turns into additional cost savings. And then lastly, it really all starts with our team. We can have some of the best tools in the world, but it really starts with the creativity of our teams and their ability to continue to drive innovative solutions. So we're very optimistic. When you look back on Slide 9 and you see what our cost track record has been just the past two years, you could look farther back and we'd have a similar story. We expect to see similar cost reductions and improvements as we go forward in the years ahead on the inventory that Jeff touched on.

I'm just going to say, having a big blocky position in the core area with a high quality team being able to go back to existing pads with that team, we can do that for a long, long time.

My follow-up is on the breakeven. Because obviously, as you move given this kind of ex through sustaining capital mode, the free cash flow to help us calibrate that, it looks like your fixed cash costs are somewhere around $1.87 to $1.99, interest would be another $0.35. So I guess that [Indiscernible] sustaining cap will be about another $0.30, I guess, on a [Indiscernible] basis and then finally, you've got the basis differential. That gets us to about 2.50 to 2.60. I'm just curious if you can tell us what you think you're sustaining breakeven gas price is so we can calibrate our free cash flow?

I think you're right in where we stand today. I think the important factors to consider is how that trends in 2022, '23 and shortly thereafter. So one important thing to note is what our realized prices look like. There is, of course, a basis differential for gas but with the NGLs, one really important thing to look at is what's the uplift. I mean if you just look at current NGL prices for calendar '21, you're talking $23 a barrel, which equates to $4 in Mcfe. So there's a positive realized differential there when you're looking at units of production on an equivalent basis. So one factor there at the top line. As you move down the cost structure, we've talked about it quite a bit, but there are built in contractual savings on gathering processing transport. There's some detail given in the press release. But just through 2025, you have substantial savings. You're looking at $70 million incrementally and then another $100 million total savings on unit costs. Thereafter, we have options, as Dennis just mentioned, about whether or not it's economics will let additional long haul transport go or whether our margins are best retaining that. So again, options to further reduce that. As we just move down the line items of the unit costs, interest expense -- I mean, if we just look at cash flow, using the example you gave, the pricing and the breakeven cost, is the same as the simple math I gave during the scripted portion. If you use that and look at what cash flow does just over the next couple of years, that's also illustrated in the new deck on Slide 14, you're looking at roughly -- again, this is illustrative math, you're looking at close to $700 million in debt reduction over two years. Well, let's just make the math simple and assume 5% coupon, that's $35 million in savings just over the two years, $0.04 improvement. That's ongoing, that's continuous, this is compounding, growing cash flow, reducing unit costs. So I think as a starting point, we would agree with where you're at. But the trend line, I think, in terms of each of these unit costs is contractually built in and a positive feedback.

The next question comes from Brian Singer with Goldman Sachs.

You discussed the long inventory that well exceeds your proved reserves. And I wondered from a gas perspective, what your outlook is for the ability for industry to stimulate demand within the region? And then how you think about the cost benefit around that time lag as you await the region to -- and maybe this is similar words to what you need Range's growth down the road versus the opportunities to monetize via further divestitures?

We'll probably all tally in with different comments. But one, you've seen natural gas replaced coal as coal continues to get retired. If there's a slide, I think, in the deck, somewhere that talks about gas at one point being two third -- coal being about two thirds the power back, now it's in the low 20s. I think given the advantages of gas, being so much cleaner and of course, part of that will be renewables, but gas has been capturing about two thirds of that, I think, with time. So coal will continue to decline and that will happen within the region. Ultimately, in some cases, a nuclear replacement coupled with growth in just in basin power generation. So there's good opportunities there to grow. Also in the deck we talk about, as a country, LNG exports also continuing to grow and we think that will grow significantly with time. You really have the same situation globally in the country. You got still a lot of coal being burned internationally in places like China and elsewhere that ultimately, I think natural gas will take that market as well. And we've got information in the deck that we think having a long life core inventory is key, and we see others exhausting that core inventory. In some cases, in a relatively short time frame within Appalachia, on Slide 15, again, bottom right, it shows some of the peers having core inventory of two years to five years. So having that core inventory, I think, will put us in a good place. As Mark mentioned earlier, we're always open to whatever is best for our shareholders and optimizing the value of the inventory depending on what opportunities are available. Mark, Dennis, you want to add to it?

Real quickly. I think in addition to Jeff's comments, I mean, we currently have clear line of sight on Shell's cracker facility as being local demand infrastructure development and that getting into service here in the the near future. PGT is another name that clearly, they're an organization that is looking to build some infrastructure for local demand as well. When you look at the pipe takeaway capacity that's been developed not only for the natural gas side, but also on the liquids side to get to Marcus Hook, it really starts to create an advantage for Range based upon our contiguous acreage position. And we like the ability of how that ties back to our, not only our future development of the inventory Jeff touched on, but also the NGL realization capture that we're going to be able to see in the future. And then to add to the LNG discussion, we're also seeing some some discussions take place about potential future LNG development that could take place on the East Coast. Again, thinking about logistics out of Marcus Hook in that region starts to make not only Range advantage, but also plus adding to that energy stack where we can contribute in a positive way. So a pretty constructive outlook.

And then my follow-up, Mark, I thought I heard you use the phrase return cash to shareholders as a goal. And I wondered if you could add any more color on what your thresholds would be from either a leverage credit rating or other perspective where you would consider that and what the mechanisms would be to consider?

So our stated long term objective of running the business is substantially below 2 times. So as we approach that, we are at a position where we can articulate more clearly and more definitively what that framework looks like, what's the reinvestment rate of cash flow, what is the form of returns of capital to shareholders, be it a dividend, be it a variable dividend, be it share repurchases, what's the most economic and appropriate return of that capital. So as we approach sub 2 times leverage, as we approach and then hopefully gain and sustain an investment grade balance sheet, you'll see that, hopefully, in advance more clearly articulated, we'll be able to share what those targets are. In the shorter term, what you're going to see is the Board's expectation consistent with what I just articulated and explained how they've outlined Range's strategy being sub 2 times leverage in the form of new compensation targets, long term performance share targets of well below 2 times. You'll see that fully disclosed in the proxy. So as we get a little bit closer and again, I'll refer back to Slide 14, just articulating how quickly Range can get to that 2 and even sub 2 times just through current prevailing market prices, could be near the end of 2022. So sometimes in advance of that, we could further go into detail there.

We are near the end of today's conference. We will go to Josh Silverstein of Wolfe Research for our final question.

Over the past few years, your NGL realizations have been improving and this year, you're guiding towards a premium over Mont Belvieu. Is that 1 to 2 premium what you guys are receiving now, or do you think this continues to -- and I think you mentioned before that there is some more upside to this. So I'm wondering if that premium then continues to grow as you're going into '22?

Josh, this is Alan Engberg, Head of our Liquids Business. So I'll try to answer your question here. The NGL market value right now is currently trading over $25 a barrel. That's up $7 a barrel versus the fourth quarter, 39% increase. And just for context, in 2020, our prehedge realization was about $15.43 per barrel. So at the current strip, we're looking at realizations of roughly $23 per barrel for 2021. And again, versus 2020 that's an increase of $7.75 per barrel. So it's a 50% increase, which just on that basis, is about $280 million in additional revenue. Now that's that current strip. And our view is that current strip is actually pretty conservative. And I'll just walk you through an example of why I think that. So propane stocks have declined considerably this season. And I'm talking about the winter season, so the withdrawal starting back on October 1st. We've withdrawn from inventory at a rate that's twice that of last year and significantly over the five year average. Now February, a lot of that is driven by just real good domestic demand that's up considerably versus last year, but also the exports that have been very, very strong. If we look forward, if we continue to export at, let's say, the average rate that we are exporting in the fourth quarter and in January of this year, and I'm not saying in February because February has been a bit of an anomaly because of weather and some other factors. But if we continue to export at the same rate, we're actually going to go into next year's winter season, so October 1st with a big inventory [deficiency]. In fact, we'll be at -- my projection is around 45 million barrels of inventory, and that's only 21 days supply. The market typically wants to have 40 days of supply going into winter or, call it, 80 million barrels of inventory. So to get there, we're going to have to -- some has got to change. And what's going to happen is that the US prices are going to increase relative to where the strip is right now and relative to international pricing, and that's going to lead to some pure reduction in actual exports. I'm calculating around 8 to 10 VLGCs per month that we need to come out of the program to get us to the low end of where we need to be to start next winter, which is around 80 million barrels. So again, this all implies better overall NGL realizations. As Dennis mentioned earlier, we've added to our position at Marcus Hook. We can export more. We expect our premiums relative to Belvieu to continue to be strong. And I think there's very positive tailwinds in place for us from a cash flow basis through the rest of the year.

And then maybe just on the ethane side. I don't think you guys are recovering anything additional this year in guidance. But just wondering what price point or what may trigger you guys to be able to extract a little bit more, or do you think that won't be happening this year?

On the ethane front, Josh, we kind of maintain a course of kind of a middle of the road extraction, somewhere in the 60,000 to 65,000 barrel per day trajectory. We ensure that we're meeting all of our commitments that we have contractual through the program year. But it also leaves us optionality in the event, as Alan was pointing to, we see something constructive that allows us to take advantage of an opportunity, we further add to the cash flow, bottom line, as Mark touched on, and improve our overall realization. So we leave that flexibility in play in having export -- takeaway capacity on three of the four main outlets in the Northeast gives us an opportunity to do so. So we'll look for those opportunities through 2021, just as we have in prior years.

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

Yes, I'd like to conclude with just a really brief summary of the Range story. We have best in class drill and complete costs with the lowest decline rate in the basin, leads to lowest maintenance capital, coupled that with the largest tier one inventory really leads to sustainable free cash flow for many years. We're doing that into a better macro pricing environment we are, and we're focused on being an environmental leader amongst E&P companies. And our compensation framework is aligned with shareholders and our strategic objectives. Thanks, everybody, for participating in the call this morning and feel free to follow up with our team for any additional questions.

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