Q3 2022 Results Conference Call
October 25, 2022 9:00 AM ET
Laith Sando - Head of IR
Jeff Ventura - Chief Executive Officer
Dennis Degner - Chief Operating Officer
Mark Scucchi - Chief Financial Officer
Alan Farquharson - Senior Vice President of Reservoir Engineering and Economics
Conference Call Participants
Scott Hanold - RBC Capital Markets
Doug Leggate - Bank of America
Jake Roberts - Tudor, Pickering, Holt
Noel Parks - Tuohy Brothers Investment Research
Umang Chaudhry - Goldman Sachs
Welcome to the Range Resources Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Statements made during this conference call that are not historical facts are forward-looking statements. Such statements are subject to 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 third quarter 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've posted on our website. We may reference certain of those slides on the call this morning. You will also find our latest 10-Q 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 delivered a successful third quarter and realized record free cash flow and cash flow per share, both the highest in company's history. We're returning this free cash flow to shareholders through various means.
Last week, the Range Board authorized a significant $1 billion increase to the company's share repurchase program. In September, we paid $0.08 per share in quarterly dividends, and we're rapidly approaching our long-term debt targets, which we expect to hit early next year at current strip pricing while simultaneously funding the base dividend and additional share repurchases.
Year-to-date, Range has invested over $300 million in share repurchases or approximately 4.5% of shares outstanding, acquiring our own production and reserves of what we believe are very attractive and accretive levels. As of today, Range has approximately 242 million shares outstanding and $1.2 billion of availability on our updated share repurchase program.
The buyback program represents a compelling investment of our capital as we traded a substantial discount to the underlying value of our reserves and resource base. While we run various NAV scenarios and assessing company valuation, we can point to Range's proved reserve valuation that's well north of $60 per share as a proxy for the value of a portion of our inventory. And as many of you are aware, the SEC definition of proved reserves only allows for 5 years of development. And beyond this 5-year window, Range has thousands of additional core Marcellus wells.
Beyond that, we have what many consider to be core Utica and Upper Devonian as well. Simply put, we do not believe the significant resource value is reflected in Range's share price, presenting the opportunity to create meaningful long-term per share value for equity holders through our buyback program. Before covering the quarterly results, I want to spend a couple of minutes on the global energy picture and how we see Appalachia and Range within that framework.
As we continue to witness a global energy crisis, it's apparent that the world desperately needs access to abundant safe, reliable and ethical fuel sources. Families in Europe are facing real challenges that may not be solved this winter and that remain a stark reminder that evolving energy policy will need to be thoughtful, prioritizing security, affordability, availability and reliability. Similarly, regions in the United States are not insulated from these challenges, as large population centers on the East Coast in New England could be faced with limited supplies this winter due to a lack of pipeline infrastructure.
As the U.S. and the world looks for a reliable, safe and affordable long-term energy solutions, we believe Appalachian natural gas and particularly Range is well suited to meet the call due to our inventory depth, competitive full cycle cost structure and environmental performance. When considering the expected increase in demand for U.S. natural gas in coming years, we believe that increased Appalachian supplies will be critical. But in order for that to happen in a meaningful way, additional infrastructure namely pipelines and LNG offtake is necessary.
Permitting delays and cancellations of critical infrastructure projects have obviously been a challenge, resulting in inflated energy costs in the U.S. and abroad. But in the long run, we believe that common sense policy and economics will win the day and allow this great resource to provide life-sustaining fuel to the people who need it. We shouldn't forget or look past the fact that the United States has led the world in lowering CO2 emissions, primarily from the substitution of natural gas for coal in power generation, as natural gas has a 60% lower carbon footprint than coal.
This was led by the growth of the Marcellus and Utica Shales in Appalachia that grew from nothing about a dozen years ago, to what is now the largest producing natural gas field in the world, making the U.S. the largest producing country in the world. This reduced American energy cost significantly when compared to Europe and Asia. No doubt, Americans are experiencing increased energy cost today, but nowhere near the levels being experienced in Europe and the rest of the world.
Currently, U.S. natural gas pricing is about 75% lower than prices abroad making U.S. manufacturing more competitive, helping to keep the U.S. utility bills lower than other countries, positively contributing to the U.S. trade balance while generating tax revenues for government and providing energy security for our country.
Despite these meaningful contributions, we believe that much more can and should be done to support the continued and increased use of American natural gas, both in our country and abroad. With some of the lowest finding costs and emissions intensity of any natural gas field in the world, Appalachian natural gas is the long-term answer. Within that energy picture, we see ranges being differentiated amongst producers given our operational expertise, vast multi-decade core inventory and our access to a diverse set of natural gas and NGL markets, both domestic and international. The financial and operational results in the first 9 months of this year reflect many of these advantages as we made steady progress on our key objectives for 2022.
Completing our drilling program safely with peer-leading capital efficiency, enhancing margins through thoughtful marketing and a focus on cost, bolstering our balance sheet with absolute debt reduction and returning capital to shareholders.
Looking at the quarter, Range successfully delivered on our third quarter development plans and capital spending remains on track with the high end of our original full year guidance of $460 million to $480 million for completing the 2022 operational plan. Dennis will provide some additional details on the quarter in a minute, but the team has done an outstanding job operating safely and efficiently while controlling costs.
Looking at margins, starting with pricing. Range's portfolio of multiple end markets resulted in strong natural gas prices for the first 9 months of the year and have allowed us to once again improve our corporate natural gas differential despite meaningfully higher Henry Hub index prices. Range's natural gas liquids production also had strong pricing of over $35 barrel, up 4% from last year's third quarter.
Overall, Range received $7.31 per Mcfe in the third quarter for its aggregate production. As a result, we realized free cash flow and cash flow per share that was the highest in company history. Before turning it over to Mark and Dennis, I'll reiterate something I've mentioned on past calls and remains true today, which is I truly believe Range is in the best position in the company's history. As the world continues to move towards cleaner, more efficient fuels, natural gas and NGLs will continue to be the reliable, abundant and affordable supply that helps power our everyday lives while also providing the opportunity to help billions of others improve their standard of living while reducing the reliance on coal and other more carbon-intensive fuels.
We believe Appalachian natural gas and natural gas liquids are well positioned to help meet that current and future demand. And within Appalachia, we expect Range to be a leader in capital efficiency, emissions intensity and transparency, which are all core to generating sustainable long-term value for shareholders.
I'll now ask Dennis to cover operations.
Thanks, Jeff. Third quarter capital came in at $138 million, with drilling and completion spending totaling approximately $134 million. Capital spending for the first three quarters of the year totaled $382 million or approximately 80% of our annual plan. As communicated last quarter, we expect to complete our 2022 activity plan in line with the upper end of our original capital guidance of approximately $480 million. Production for the third quarter came in at 2.13 Bcf equivalent per day, adding an average of approximately 60 million cubic feet per day versus the prior quarter. Unplanned third-party midstream maintenance that impacted the third and fourth quarter will place us at the low end of our annual guidance range of 2.12 Bcf to 2.16 Bcf per day for the year. Despite these maintenance impacts, production is currently running approximately 2.2 Bcf equivalent per day....