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 risks 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. 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 2021 Earnings Call. The 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 posted on our website. We may reference certain slides on the call this morning. You'll also find our 10-K on Range's 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, Laith, 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 over the last couple of years by establishing a base dividend and a new $0.5 billion 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 and ignoring the underlying value of the massive resource that we have. When considering the various potential uses for Range'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. Range's base dividend and share repurchases are supported by the targeted hedge program we've implemented. Importantly, you'll note that Range'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,…

Thanks, Jeff. Drilling and completion activity for the fourth quarter went as expected, with expenditures for Q4 totaling $83.7 million. In addition to our D&C capital spend, $8.6 million was directed towards leasehold retention, gathering systems and other corporate items to round out the quarter. This resulted in a total capital spend in 2021 of $414 million or approximately $11 million below our original guidance of $425 million set at the beginning of the year. Coming in below budget was achieved while executing the full 2021 program and even pulling an additional pad into late December that wasn't originally planned for in 2021. This was achieved through the continued focus on innovative operational efficiencies that translated into capital savings allowing us to do more, all while spending less capital. I'll spend time in the operations sector and covering these highlights in more detail in just a moment. As we look forward into 2022, our capital budget has been set at $460 million to $480 million. This capital range consists of approximately 93% allocated towards drilling and completions-related activity with the remaining balance directed to leasing and support functions. Consistent with the past several years, activity and associated capital spending will be front-loaded in the first half of the year with more than 60% of the capital spend coming throughout the first and second quarters. The program will consist of 3 horizontal rigs and 2 frac crews to start the year, tapering off to 1 horizontal rig and 1 frac crew by year-end. A small year-over-year capital increase was factored into 2022 with the majority of the increase related to inflationary impacts on service and material cost. Despite the inflationary cost increases, Range’s strategic long-term fixed pricing agreements on certain services, coupled with a collaborative approach with our vendors and suppliers…

Thanks, Dennis. While the word is overused, transformational is how I would describe 2021 for Range. Our stated mission has been to realize the value of Range's world-class and scale asset base. And to pair that asset, with a world-class balance sheet to reduce risk, reduce the cost of capital and make the financial foundation of this company fit for purpose to consistently deliver that value to shareholders over a multi-decade inventory life. So what is a world-class balance sheet for Range? We've been focused on absolute debt reduction for several years. And as of year-end 2021, we have reduced debt net of cash by approximately $1.5 billion since mid-2018. We believe that a prudent and competitive debt level for the company going forward will be in the $1 billion to $1.5 billion area, which is achievable at strip pricing in 2023. This range of debt balances is consistent with the debt to EBITDAX targets described in last year's proxy. That target level of debt, we believe, provides a financial foundation that will enable Range to be both resilient and opportunistic through commodity price cycles. As noted on prior calls, clear line of sight to target debt levels, enables the next conversation around a return of capital framework. A return of capital framework is not a standalone commitment. It is an integral part of our capital allocation strategy. We've been firm in describing our waterfall for use of cash flow. First, maintenance CapEx in order to utilize infrastructure and maximize margin; second, debt reduction towards target debt levels; third, return of capital to shareholders; and fourth, growth CapEx when appropriate. It's important to note that this hierarchy entails flexibility to allocate based on highest overall returns to the company and its shareholders. With Range's leading full-cycle costs, margins are strong,…

Operator, we'll be happy to answer questions.

. Our first question comes from Scott Hanold with RBC Capital Markets.

Yes. The capital return program to investors, could you give a little color on, as you look at the buyback at this point, certainly, very attractive based on your current stock price. But like how -- I guess, how aggressive are you going to get on that buyback right now as you look at doing that along with debt reduction? And then if you can couple in with that, just a little bit of a view on how you think about any kind of structure around the cash returns back to shareholders going forward as well?

Mark, do you want to lay out our plan and strategy for us?

Absolutely. So I guess I'll start off with the fact that for Range, this is really just 1 more step in a continuous process. If we rewind to think about the last 4 years, we've mentioned a couple of times during the scripted portion that this is the fourth year in a row for debt reduction. So as we think about what that is, it's a return of capital to the equity, it's a shifting of the value from debt holders and enterprise value to the equity holders. So even rewinding to late 2019, early 2020, we repurchased 10 million shares clearly a very highly value accretive level. So we see the announcement today as a byproduct of where the balance sheet stands having confidence in where we're heading. And the fact that we have clear line of sight, a phrase we've used for a number of quarters into achieving the leverage target. So the other comment I would make is, this is not a binary decision as it relates to capital allocation. It's not an-all or nothing decision. So 100% of free cash flow does not have to go to debt reduction to achieve our targets in the near and medium term. The converse of that is 100% doesn't have to go to a return of capital program to make it a highly competitive program. So with all that, just to help frame describe what we've announced today, if the entire program is used in a 12-month period, you're talking 50-plus percent of free cash flow as strip prices would suggest today. If only half the repurchase program were used, that's still north of 1/3 of free cash flow. Neither of those are guidance numbers. Those are just bookends an example, illustrations of how this program competes with peers. But I think the important thing to note is this is a continuous process. We've announced this next stage. I think the next realization or point to focus on is what we point out on Slide 14 is the excess free cash flow over and above achieving our debt targets and the current program, the current return of capital program. So if you're producing, just ballpark it for ease of math, $1 billion of free cash flow a year on average for the next couple of years, clearly, you could take debt all the way down to zero by 2024. As I mentioned a few moments ago, during the scripted portion, we think $1 billion to $1.5 billion is a prudent level. So clearly, that creates optionality, excess free cash flow for us to allocate to different investments, reinvestments in the business, be it another step in the return of capital program and so on. So in the nearest term, I'd say the program and use of cash flow will be tilted somewhat towards debt reduction. But that said, this program can and will be used and is available to us as the blackout period ends.

Got it. Okay. Okay. So if I'm understanding that right, I mean, obviously, there's going to be sort of that next phase of the shareholder return discussion, and that's obviously post getting to $1 billion to $1.5 billion. Is that right?

We're not announcing anything that formulaic. This is fluid will adapt to commodity prices or will adapt what accelerated deleveraging may look like, macro events that may or not influence the stock price. So that's why it's not hardcoded and that quite that structural just yet, but it will evolve and be continuous and continue to grow over time.

Got it. Okay. And my second question is on your activity plans, you're going to be drilling roughly 9 wells in Northeast Appalachia. Can you just give us a sense of the decision to move up there versus maybe something down -- a little bit increased focus in Southwest App that you may have a bit higher return?

You bet. Scott, this is Dennis. We've always really enjoyed and like that area of our portfolio. And so the rock quality is good. We feel like in the past from a well performance standpoint is competitive with other assets that we have in Southwest PA. As you know, in looking back over the course of time, though, differentials in that area of pre-maintenance level type program certainly presented some different economics though. As you look at where we're at today, it's very competitive with what we're doing in Southwest PA. And so consistent with how we've been efficient and optimized our program in Washington County by returning to pads with existing production, utilizing existing infrastructure it was right for the opportunity for us to move up their drill a couple of pad sites, utilize a gathering system that had plenty of room in it for us to take advantage of and also some pad sites up there. So we see it as very competitive and something we're excited to basically add to our portfolio this year.

Our next question comes from Michael Scialla with Stifel.

Mark, you just pointed that Slide 14, which shows that you could generate free cash flow equal to 70% of your market cap through 2024. I just wanted to understand some of the assumptions that are built in to that forecast. In particular, what kind of inflation are you assuming beyond '22? Any guidance you can give there on cash taxes and differentials that are built into that forecast as well?

Sure. So it's based on roughly strip pricing as laid out for each of those years, '22, '23 and '24. Costs are held basically flat with ‘22. So it does reflect the current inflation that we're seeing. I would point out that from a pricing perspective, given the backwardation in the curves, particularly NGLs, but gas as well. We think this is somewhat conservative. It does reflect cash taxes at the state level, which there are modest cash taxes as reflected in the 2021 financials. You can use, and we will use our NOLs in Pennsylvania to continue to manage and reduce those taxes effectively, but you can't shield 100%. So I think very low single digit, like 1% type effective pretax income level. On the federal income tax level, we have $2.9 billion in NOLs. So that should shield pretax income for a number of years, I would expect that to be well beyond the time frame of these assumptions. So the other assumptions in here are items that are contractually baked in. So as I mentioned, the capital costs are what we're seeing right now for 2022, but we do have declining gathering costs, again contractual where over the next 4, 5 years, by 2025, really, you see greater than $50 million in annual savings, again, just like contractual cost savings. By 2030, it's $100 million in cash savings. Interest expense also declines. We've already executed transactions this year that will save more than $40 million per year in interest. By the end of the year, when we take out the 2022s and in 2023s, you aggregate all of this and look at 2023, interest expense can and should be down by roughly $100 million. So all that is to say this reflects conservative market pricing, combined with contractual savings, there's no assumptions or speculation on trend and pricing beyond that.

Great. And then, Dennis, you talked about new completion procedures, improving efficiencies on frac stages per day. Anything more you can say about that? What changes you've made and how confident you are that those efficiency gains are sustainable?

You bet, Michael. Some of the changes we've made is really to our surface layout with our equipment configuration at the wellhead as well, reducing the amount of time that we have between standing of 1 frac stage in the beginning of the next one. So just to put some color around that, when you start trying to shave, let's just say, 5, 10 and 15 minutes in that type of interval, and you do it over 3,650 frac stages, that translates into almost pulling an entire 5- to 6-well pad site into a given program year. So that's the procedures where we're finding and utilizing some different equipment that allows us to be more efficient on location.

Our next question comes from Subhasish Chandra with Benchmark.

So when I think about all these efficiencies you're achieving today, they only get better look towards, say, the back half of this decade certainly, GP&T, some of those derivative contingent obligations and, of course, the balance sheet. This might be a bit of a stretch, but is there any reason that Range couldn't look like they are today with the inventory that you have 100% with the assets that you have a few years from now when you're incrementally gaining hundreds of millions more in OpEx efficiencies? Or is there a reason perhaps to be opportunistic perhaps and look for other pastures.

Let me start, and Dennis and Mark can chime in. But I think you pointed out one of the real advantages we have is our inventory. We believe and feel really confident that we have the largest core inventory in Appalachia, coupled with most capital-efficient team. And given that inventory and the fact that we can continue to do the same thing, but those advantages that are built into the contracts that Mark previously mentioned that are shown on some of the slides point out with time, there's actually improvements to it. So it puts us in a great position of just keeping our head down and executing and generating significant free cash flow, returning free cash flow to investors and be able to do that for a long time. So we'll stay extremely disciplined doing that. And we've talked in the past only if there's something that makes that plan better, which is an extremely high bar, would we do anything different. But Mark, do you want to add to that or Dennis?

Yes. I think the business, as it looks today, Subhas, as you pointed out, could look very similar even after 5, 6, 7, 10 years of activity given the depth of the inventory, combined with these contractual cost savings. Take this excess cash flow, reducing share count, even a maintenance production level produces greater cash flow per share. And by buying back shares, you're still maintaining exposure to that resource potential for locations on a per share basis. So there is still a growth element to the story. Growth in production, perhaps at some point when the market clearly calls for it, the growth in cash flow, growth in value per share is really what we think is so powerful and compelling with the Range story. I think we've touched on all the details behind it. But I think the announcement today really shows we and the Board are putting the company's money towards that effort.

All right. Excellent. And then just on the tax question. So is it NOLs at the federal level of around $3 billion? And I guess not much of a tax shield at the state level. Is that the idea?

So there are intervals of both. So at the federal level, there is about $2.9 billion. And then in Pennsylvania, there's another $861 million in NOLs. In Pennsylvania, you cannot offset 100% of your income, you can offset a large percentage of it in a given year, but not 100%, hence the very low effective tax rate.

Our next question comes from Josh Silverstein with Wolfe Research.

You mentioned kind of no growth in the outlook or growth per share. I am curious how you think about growth with this pipeline cancellations environment that we're in right now, like what happens for Range if we are in an environment where there are no other projects available to export or whether it's nat gas or ethane or propane out of Appalachia?

Again, let me start out and then maybe Dennis can chime in on this one. But I think the advantages that Range has is -- again, going back to that core inventory. So we think if you look around the basin and really look around the country, you can see evidence of limited cores. It's not distributed evenly. One of the lessons we have is having a large core. So as others exhaust core inventory, there we can basically take market share or take that space into the system. So that's an advantage we have. But I think you're seeing, if you look into Europe and kind of look and bring some of that home to the United States. Natural gas, I think, is going to play a key role to help with the energy transition. It's abundant fuel large fuel. The United States has a lot of it, and it's 24/7. So I think ultimately, there's a need for gas and those expansions will occur, although I agree with the issues with certain pipelines in the meantime. So to the extent those remain for a while, we can take market share as others exhaust core. But I think you ultimately see projects get completed, whether it's new LNG export facility in the Philadelphia ultimately, that will help with U.S. geopolitical and help with trade balance coupled with, I think, ultimately, although Mountain Valley has been challenged. I think it gets completed and shell cracker should start up this year. So Dennis, do you want to add to that or a comment?

You bet. I'll jump on as well, Jeff here. I think just as a reminder, I'll just take a step back and just reflect on the fact that 80% of our gas gets out of basin when you look at our transportation portfolio. It’s something we put in place a number of years ago in preparation for the cycles, as Mark was touching on earlier in the call. The remaining 20% is really there in basin, but we see opportunities. When you look at averaging out for seasonality and also coupled with local demand, there's about another Bcf almost maybe 2 in ability to basically have additional production to flow into. Again, that's going to be on a seasonal impacted basis throughout the year. I think when you look at where we've been for the past couple of years, you see good discipline for maintenance level programs the past 2, and now you're seeing that materialize for a third year. And somewhere along this pathway, we feel like there's going to be a conversation that starts to further evolve around inventory exhaustion. And you're starting to see that in some of the other parts of the basin. And I think that puts us in a -- as we talked about earlier from a long runway of inventory, it places us in a good position to be able to produce into that capacity into that space in the event we want to consider some different profile other than maintenance in the years ahead. So we really like it. When you think about the impact of LNG and also Mexican exports, it's hard to imagine, but just literally 24 months ago, we were running more like 3 Bcf a day and today we're at 13. In the next couple of years, you'll see that next wave of LNG start to, again, get commissioned further providing to some support there. So anyway, we think we're in a great position when you think about our inventory and where the program is today.

And then just going back to the comments on the buyback, the PV-10. You've had this chart on the PV-10 of the asset base being well over the share price for the, I don't know, the last 5 years or so. Talk about the buyback that you take advantage of that. I want to flip that around and think about offloading some noncore assets with in order to take advantage of the stronger commodity price environment to help accelerate that buyback.

Yes, that's a good question. And I think what you've seen us do is prune the asset base over the last several years to divest and reallocate capital. So we have divested legacy assets lower rates of return, higher costs, less inventory. We focused the inventory today to a point where it's a block out position that facilitates very efficient development, makes water handling more efficient and some of the recycling efforts possible where if you have multiple blocks or a broken part position, it's simply not as efficient and as possible. So at this stage, part of the benefit of the existing gathering system, existing water handling and development plans is the blocked-up nature of the position. So if you were to divest it, would you actually capture the value of that remaining inventory, would you achieve and create value for the position or redeploy that capital somewhere else that is really accretive. I think at this point, we like the position as it stands. We like the development and the infrastructure that we have for production today and for the development horizon going forward. And clearly, there's no driving force to divest of an asset for balance sheet or other motivations.

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

So Mark, I'm going to challenge you a little bit on the buyback announcement. I know you touched on it earlier, but my kind of question is really framed around credit ratings, a high cost of -- weighted average cost of debt that you still have and the opportunity that gives you on the buyback. So think of it as a high discount rate on your free cash flow. How do you think about -- I guess the simple question is, why did you only announce $500 million? I know that sounds a little bit silly perhaps given that you're still paying down debt. But if your free cash flow capacity is that significant, what else are you planning to do with the free cash flow? Is there a bigger debt paydown? And what are the discussions of the credit agencies looked like around your announcement?

So discussions with the credit rating agencies, we make sure to keep them apprised of our plans. There's a regular and good dialogue there. They will operate within their evolving credit standards over time. But clearly, credit risk as perceived as we perceive it, as we evaluate it as investors on the equity side and on the fixed income side as well as the banks evaluate it is really how we're trying to manage that risk. Stepping back to the overall cost. I think as you look at our -- I mean it's a hypothetical example, but you could take net debt to 0 by the end of 2024. I'm not sure that's the most efficient returns from a per share basis. So why did we only announce 500 million? This is, as I mentioned earlier, just 1 more step. It's not that we only announce 500 million, it's just that we announced 500 million today. Clearly, we could use that in short order and expand it. I mean a couple of years ago, when prices -- commodity prices were much lower, we announced a $100 million program. We bought back shares. So I think, Doug, the way I'd position it is this is a blend of continuing to pay down debt while deploying cash and buying back the shares. It's just not formulaic just yet.

Okay. I'm sorry, Mark, my follow-up is going to be on this as well. So what I'm really getting at is that if you think about your decades of inventory, sustainable free cash flow, the discount rate on that is pretty elevated. So you've got a terrific opportunity to buy back your stock before the balance sheet is completely rightsized. So I guess my question is, although you've announced 500 million today, what would you think the pacing of that looks like? In other words, would it be reasonable to expect that you would reload that on a fairly regular basis over the next couple of years if the strip holds pretty much as we see today?

I would expect that we would reload it periodically. And as far as just our overall cost of capital, I think you've seen that tremendously improved just, for example, the refinancing in January, where we took out taking debt down further. So I think you've seen multiple upgrades in the rating agencies, so implied lower cost of capital as rains improved. And I would certainly expect those credit ratings to continue to keep pace with the reductions in debt and improved credit profile going forward.

For what it's worth, I think you're laying out a perfect example of how to exploit that dislocation in value and the growth free cash model is obviously paying dividends. So pardon the pun.

We are nearing the end of today's conference. We will go to Matt Portillo with TPH for our final question.

Just a quick 1 on the common dividend. Great to see that reinstated in the back half of this year. Just curious how we should think about the framework for further progress on growth for the dividend itself and how you think about it in terms of sustainability moving forward? Obviously, that's an important component of your strategy here.

Yes, it's a good question. I think, as I mentioned earlier, I view that as a twofold commitment. It's a cash commitment to return capital. So making the returns from this industry real and put it in investors' pockets. It's something that had been questioned for some time, given the 100% or greater than 100% reinvestment rate of the industry historically. That said, Range is not valued based on its dividend yield. There's clearly a massive disconnect in our opinion, between what the underlying intrinsic value is. So I think a competitive dividend level, a modest dividend level that in line with both peers, but more importantly, in line with the S&P 500 or other indices makes certain investors able to consider given that there is a cash return. I think the growth in that is possible over time. But today, given the value of the shares, our focus would be on that share repurchase program.

Perfect. And then just -- I know you touched a bit on that in the prepared remarks, but curious on kind of the hedging philosophy. Good to see that you guys have locked in some of the commodity curve here in 2023 with natural gas, but just kind of thinking through the moving pieces on a fundamental basis. Should we expect further progress on additional hedging as we step into next year? Or how are you guys thinking about your hedge book at this point as it relates to the forward curve?

We think about it, it's risk reward as we've always done with the balance sheet as more levered. By definition, we needed to higher -- to cover a higher percentage of our revenue, which was the historic range of 60% to 80% of natural gas is hedged into a given calendar year. Having cut debt in half by the end of this year, our ability to be more opportunistic is enhanced. We are simply motivated by being able to protect the balance sheet to fund a steady capital program and support the returns of capital. So what that has meant even over the last couple of years is an evolution on how we execute the program. We've been more patient. We've been a little bit slower to add hedges. We did fewer swaps. We added in collars because we felt like the fundamentals and the data indicated that the SKU was to the upside, there was more upside on the table than the strip was indicating. I think that logic still holds as we look forward to the gas strip. It's particularly the case within NGLs, given how backwardated those prices typically are. So as you look at where we stand today, natural gas 422 is about 2/3 hedged. But keep in mind the contribution of revenue from NGLs and condensate. So we're roughly maybe 50% of revenue is hedged. 2023, the prices reach attractive levels, but we use collars to hang on to what we think is still upside. So it's only about 30%, call of revenue hedged today, approximately assuming a maintenance program. So I think you'll see us be both opportunistic but manage risk, again, to enable a steady cadence to capital programs, protect the balance sheet and support returns of capital, while the returns are being just about every other industry out there.

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 just want to thank everybody for participating on our call this morning, and feel free to follow up with the IR team if you have additional questions. Thank you.

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