Range Resources Corporation Q2 FY2025 earnings call

["Dennis Degner began by expressing sympathy for those affected by Texas flooding. Range has growth plans through 2027 with demand for natural gas and NGLs growing. In Q2, safe and efficient execution occurred, with all-in capital at $154 million and production of 2.2 Bcf equivalent per day. Drilling and completions set new records, and supply chain agreements supported capital. Marketing saw natural gas inventory decline but LNG feedgas at record highs, LPG exports with favorable pricing, and improved NGL premium guidance. Sustainability efforts included achieving net zero emissions and expanding MIQ certification.", "Mark Scucchi noted the first half of 2025 was successful financially. $53 million in shares were repurchased in Q2, $21 million in dividends paid, and $606 million in senior notes repaid. Capital budget and production guidance were improved, with a strong balance sheet. Expected cash flow generation and changes in the effective tax rate over the next few years were discussed, highlighting Range's strategic advantages in inventory, execution, and marketing."]

In the second quarter, Range Resources achieved strong well performance and efficiency gains, driving free cash flow. Production stood at 2.2 Bcf equivalent per day. The all-in capital for Q2 was $154 million. Year-to-date, $120 million was spent on share repurchases and $43 million on dividends. Natural gas inventory saw a 6% decline with record high LNG feedgas, and LPG was directed to international markets with favorable pricing. The company achieved net zero for combined Scope 1 and 2 greenhouse gas emissions and expanded MIQ certification to cover all Pennsylvania assets with an A grade.

["The high end of capital guidance was lowered to $680 million. Production is expected to be roughly flat in Q3 at 2.2 Bcf equivalent per day and rise to ~2.3 Bcf equivalent per day in Q4. NGL premium guidance was improved. The 3-year outlook includes ~20% growth through 2027 with capital under $700 million per year and production of 2.6 Bcfe per day. Range can maintain 2.6 Bcfe per day production for less than $600 million in annual drilling and completion capital, with free cash flow expected to exceed $2 billion through 2027."]

["Uncertainties in 2026 supply chain and service pricing, and potential oversupply in the basin if other producers lack reliability and inventory quality like Range."]

Q: So Dennis, obviously, a lot of news in your backyard regarding supply agreements. And you've been very vocal about the potential market opportunity. So far, I think you were actually the first to talk about it. But so far, Range hasn't participated. So I wonder if you could offer any line of sight on where you stand on supply deals? And I guess, address perhaps what we're hearing back at least is the biggest worry of the regional market, which is the market gets oversupplied because everyone adds production and ends up killing the regional basis. How do you think about managing the cadence of supply agreements versus adding production?

A: You're right. We were one of the first to make an announcement during this past spring with our relationship and commitment to supply fuel gas into power generation between Imperial Land Development and also Imperial. Understanding from conversations that we've had ongoing with them is that there's been a significant amount of interest for subscribing to that end use that will come out of that facility development. So certainly a very dynamic space right now when you -- as you point out, look at all the announcements made just within the past week or two. So we would expect that to continue to mature and for an end user to step into that commitment that we communicated again this past spring. From a supply standpoint, we think there's the ability for that facility to grow even beyond what's been communicated in prior releases. But for at least as it stands today, we feel pretty confident that something is going to come together here in the near term, that we can talk further about. As I take a step back and think about two things: one, the broader picture of last week and the $90 billion in commitments that have been announced and the 1.5 Bcf a day that others will supply at least here from those announcements, it still represents a really large opportunity set. And I think by the time you get to the end of the decade, it's starting to narrow in on something that's closer to 4 Bcf to 5 Bcf per day opportunity for a lot of the producers in the region. And so when I think about who can supply that gas, it really points pretty heavily toward a producer like Range. And I think it starts with really a couple of components. One, we hear from the end users how important it is to address the 99.999% of reliability. And that comes with not only the inventory quality but the ability to execute on what you say you're going to do. And I hope that both from your lens and from others that are on this call, each quarter rate has just demonstrated a good quality, consistent ability to execute, meet expectations, in many cases, beat from an efficiency standpoint and deliver the supply. Inventory quality has clearly always been a cornerstone of our story as well. And I think that goes without saying when you look at our ability to meet production expectations and guidance again year-over-year. And then lastly, when you look at the diversification of our marketing portfolio and how we can move gas regionally, let's just say, not necessarily always out of basin, but our ability to tap into outlets regionally we think that, that also supports that 99.999% of reliability. So in our mind, it makes a lot of sense to connect with an organization like Range to help supply that future demand. And then I think lastly, we think inventory exhaustion is going to play a part. And we've talked about resource exhaustion in prior discussions with many of you. But ultimately, we think that's going to play a part as you start to get to the end of this decade and get closer to it when you see these power forecasts continuing to ramp up and get stronger and stronger. So when you ask the question about oversupply in the basin, I think ultimately, it's going to come down to the inventory quality, the ability for others to produce into that capacity and it starts to get challenged with other names other than probably Range and a couple of others.

Q: If I could ask maybe a similar kind of question in a different way. When you think about the potential of 4 Bcf to 5 Bcf a day of in-basin demand over the next several years that could come online. And thinking that Range has got a plan to grow to 2.6 Bcf a day by 2027, what -- I guess, what is your logistical capacity, reasonable logistical capacity, not theoretical, but like how much of that 4 Bcf to 5 Bcf a day, do you think you can contribute? Could Range be say, 1 Bcf a day of that? Or could you be as much as 2 Bcf a day. And this is more so thinking over a longer-range time frame, say, just starting around 5 to 10 years.

A: Scott, I'll try and address that question. I think I'll start with what we've communicated on this 3-year outlook. And I think it's kind of a starter kit of what the business is capable of to grow 20%. So roughly, we're adding 400 million a day over the next -- really, if you think about it, the balance of the next 2 to 3 years. And so I think that's a good snapshot of what we can generate using almost a maintenance level type staff and rig activity in a single frac crew with some spot activity that's sprinkled in throughout the next 24 months. So when you ask what -- how much could we participate in, I think really the -- it's a little bit endless for us because of the inventory and our ability to absorb additional incremental activity within the current program as it sets. We can be nimble because of our ability to move back to pad sites with existing infrastructure for utilization for those ongoing development phases. And so for us, it's really a function of having that line of sight to where that demand is going to take shape and how we could then participate in it. So I hate to be -- I hate to give you a vague answer, but I think we can participate in this space at a very, very large volume because of the team inventory and our ability to be efficient with the utilization of our equipment.

Q: Is there any possibility or would there be any benefit to going ahead and completing some of the lateral footage you guys are accumulating and delaying turning to sales. Just trying to think about the possibility that another spot crew could come in and maybe prepare the setup for 2026 in a way that you could respond to pricing a little bit faster?

A: Yes. Good question, Jake. And I would tell you, one of those spot crews is actually operating as we speak. So maybe in some regards, we're thinking very similarly at this phase of our program. So we're executing one of them as we speak. The other one is going to be a little bit later this year. Some of this activity lines up with our midstream expansions that we have set to commission in the end of Q3, beginning of Q4. And as you heard us say in the prepared remarks today, we think that timing really lines up well with good efficient operations and that supply coming into the market when we start to see the fundamentals further improve going into this winter season. So we think we've got the right timing there. And hopefully, everything will come together as expected.

Q: I just wanted to follow up on the U.S. production numbers. I think there's no doubt there's going to be tremendous amount of demand over the long term, but there's been an investor debate around some of the scraps that we've seen here over the last couple of weeks with production kind of queuing up over 107 on some of the third parties. So I'd be just curious have you been surprised relative to your own modeling about U.S. production? And do you think that there will be price elasticity if near-term gas prices rise to the downturn?

A: I would say there's been very few surprises for us as we think about the supply for the year. We anticipated a fairly -- we'll just say flat and stable production response from the deferred deals from last year. I think we expected that to be flat based upon some of the infrastructure being at a high level of utilization. And then eventually, you'd see a decline off of that. We've been going through midstream maintenance season across the industry. And so when you look at whether it's LNG infrastructure or other pipes, compression and other downstream short-term impacts, we're starting to come out of that now at this point in time, all at the same time that we're at the doorstep of seeing Phase II of Plaquemines get commissioned and also start to see ramp up further of Corpus Christi Stage 3 and then later this year, pending further updates, Golden Pass starts to see some feed gas start to go through that facility. So we think there's a lot of reason to believe that we could end the year that somewhere similar or a little bit north of where we're at from a U.S. production standpoint, let's just say, 107 Bcf a day. That wouldn't surprise us at all internally on how we view where activity has been. But again, when you start to look at the dynamics, that's about 4 Bcf a day roughly year-over-year increase in production at that point. We're also going to see about 4 Bcf to 5 Bcf a day in incremental demand take shape between LNG and other aspects. And so exports to Mexico, and that doesn't include Shell Canada. So we feel like there's a balance here that's playing out that's different than just focusing maybe on a storage number and level alone. But if we end up at 3.8 Tcf to 3.9 Tcf, let's just say this fall, that roughly turns out to be about 39 to 40 days from a days of supply standpoint, and that's a good couple of days below where we were last year at that same time. And it's below the 5-year average. So we feel like this all still sets up really well as we kind of start to, as an industry, shift our eyes away from a storage level alone and think more about the demand and days of supply coverage.

Q: It seems like a lot of it's been covered. Maybe get a little bit granular here. Just you all talk about lateral feet as an indicator of expectations where we'll be at the end of the year. Just curious, as you look into the, call it, the first half of '26, second half of '26, how we should think about that lateral foot need, call it, the backlog you need in order to hit some of the growth targets you've laid out? And then the industry has been in such a, call it, almost a stasis mode, right, just maintaining production. You're going to shift here to growth, how do you think about managing that with your service providers and maintaining your efficiency or even continuing to improve it as we've seen. Maybe what are the challenges in delivering on that?

A: That's okay. I think when we start to think about lateral feet requirements for 2026, we've really been quietly building that over the past 24 months and through the balance of this year. Part of that was getting to a place of having some visibility to what the setup could look like. We've been running an efficient 2-rig program with one frac crew. And really, those two drilling rigs have generated a little more inventory than that one frac crew could consume. And so now here we are looking at 2026 with the ability to start utilizing more of that inventory, which should be in excess of 400,000 lateral feet as we think about '26 and '27. So next year, you should see a similar capital requirement that we've communicated up to this point. and you should see the dollars get allocated more heavily on a percentage basis towards the completion side to start working through that inventory, all while a single -- maybe 1 to 1.5 drilling rigs is continuing to kick out some inventory for then 2027 as well. So we feel like there's the right kind of setup. We keep it very efficient. And then by the time you get to the end of that profile, we feel like we can hold production flat, as you heard Mark touch on today, roughly 2.6 Bcf a day with a similar type activity set. But depending upon what materializes, we can also consider some incremental growth beyond that if that's what's required and what the market is calling for. From a service company standpoint, ultimately, we feel like we've got the right service partners in place, really quality service partners. Many of them have been with us for a number of years, dating back to when we drilled some of the early on discovery and delineation wells. So we feel like there's good stability there and we have the ability to ramp into this space instead of using, let's say, a partial crew on the frac side, it's something more like six months or maybe instead of having a partial year with a given top hole rig, maybe it's a full year. So we have that ability to work with them, communicate. We do what we say we're going to do. I think that pays off really well because there's business certainty on their end to then plan around how we're thinking about executing for the next several years. So all in all, we've seen really good partnerships across the board. And I think that's why you see the efficiencies that you do that come out of our program quarter-over-quarter