Range Resources Corporation (RRC) Earnings Call Transcript

Hello. Welcome to the Range Resources Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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's remarks, there will be a question-and-answer period. At this time, I would like to turn the call over to Mr. Laith Sando, Senior Vice President of Investor Relations at Range Resources. Sir, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining Range's second quarter 2026 earnings call. The speakers on today's call are Dennis Degner, Chief Executive 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 slides on the call this morning. You will also find our 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. We've also posted supplemental tables on our website that include hedging details by month, realized pricing by product along with calculations of EBITDAX, cash margins and other non-GAAP measures. With that, let me turn the call over to Dennis.

Thanks, Laith, and thanks to all of you for joining the call today. Today marks a unique milestone as we reach the midpoint of our multiyear growth plan that was announced early last year. Range's results today continue to showcase the durability of the business as a leading full cycle cost structure, consistent well performance and a differentiated marketing portfolio are delivering significant free cash flow while growing the business. At the same time, we are seeing operational efficiencies [indiscernible] Range as a result of our large [ blocky ] acreage position and talented technical team. This quarter's record operational results support Range's peer-leading drilling and completion costs that will benefit Range shareholders for decades to come. Looking at the results for the second quarter, efficient operations in the field and strong well performance drove production of 2.3 Bcf equivalent per day. Consistent with our previous calls, Range expects production to continue to ratably increase across the remainder of the year, underpinned by gas processing and related infrastructure that is in the early phases of commissioning. This will push production to 2.5 Bcf equivalent per day by year-end and is consistent with our previous guidance and setting us up well for 2027 and strengthening natural gas fundamentals. Capital for the quarter came in at $222 million as we added a second completion crew to begin working through a portion of the drilled uncompleted inventory, we have built up over the previous 24-months. The second quarter also included a spot horizontal rig that was added for a single pad development that will turn to sales later this year. We expect to return to a single horizontal rig and single frac crude operation for the fourth quarter, putting our capital plans right on track with prior guidance. With the activity mentioned earlier, we drilled approximately 190,000 lateral feet during the second quarter. Continuing the operational momentum reported during the prior quarter, the team had 19 days where they drill over a mile in the horizontal, with one of those 24-hour periods exceeding 10,500 feet. This level of operational efficiency advancement continues to reflect the team's ongoing hard work and drive to deliver on Peer-Leading Drilling and completion cost per foot after over 2 decades of activity. Moving to completions. The team achieved the best quarterly performance in Range history utilizing the 2 frac crews I mentioned previously. Combined, the 2 crews completed nearly 1,900 frac stages, including downtime for moving between pad sites, this equates to completing over 10 stages per day per crew or an annualized rate of over 750,000 lateral feet for a single crew. And when looking at our base contracted electric frac fleet, efficiencies were nearly 14 stages per day. Additional completion records by the team for the second quarter included: the most frac stages performed in 1 day for a single crew at 20, and the highest pumping hours in 1 day at 22 hours. To achieve these records, the logistics management team kept pace, ensuring execution remained on track. I'd like to congratulate our team on reaching these levels of operational efficiency while doing so safely. To accommodate this increased completion activity and efficiencies, we have moved a portion of our second half 2026 drilling activity into 2027. This sequencing keeps us right on line with the 2026 and 2027 capital spending and development plans we have discussed previously. Now shifting over to marketing. The ongoing disruption of global energy supply has showcased Americas and Range's ability to respond to ever-changing global supply and demand balances. We believe this period has once again highlighted United States pivotal role in providing energy supply to the world. The ongoing build-out of LNG and NGL infrastructure to supply export markets, has positioned the country to continue to meet this demand going forward, all while providing abundant, affordable energy to American residents as well as commercial and industrial customers. As we expected going into the second quarter, U.S. exports of LNG, ethane and LPG delivered tremendous growth relative to the same time period last year. For natural gas, LNG feed gas in the second quarter averaged over 17 Bcf per day or 17% higher compared to the same time period in 2025. We expect this momentum to be carried forward into 2027 and beyond as additional construction is completed. For Natural Gas Liquids, U.S. waterborne ethane exports were estimated at 658,000 barrels per day for the second quarter, which is up 40% year-on-year and set a record high in June of nearly 750,000 barrels per day. Our propane and butane, waterboard exports reached over 2.6 million barrels per day, which is also up 19% versus the first quarter and 30% higher year-on-year. LPG exports are expected to grow further into 2027 as an additional 360,000 barrels per day of LPG capacity becomes available via 2 new terminals early in the new year. Looking ahead, we expect growing U.S. exports across natural gas, NGLs and crude oil to strengthen domestic market fundamentals and support pricing across the products Range produces. Through the first half of this year, our marketing team has successfully navigated this rapidly evolving global market and capitalize on opportunities to generate incremental cash flow. As we emphasized during our first quarter call, Range's access to international markets for ethane, propane and butane continues to generate differentiated margins for Range's NGLs. Our marketing team capitalized on strong international prices through the flexibility built into our export program, supporting another strong NGL premium of $3.49 per barrel over the Mont Belvieu Index for the second quarter. While international FX have normalized this June, Range still expects to capture premiums to Mont Belvieu in the coming quarters, given our proximity to Europe, and the price structures embedded within our physical sales agreements. As a result, we have improved our full year NGL guidance to $2.50 per barrel over the Mont Belvieu Index. At the same time, we are improving our full year natural gas guidance to $0.35 to $0.40 per Mcf versus Henry Hub, reflecting a strong start to the year. As we enter the second half of our multiyear growth plan, we are excited about how the company is positioned with financial and operational flexibility that allows us to efficiently align production growth with known demand, while generating free cash flow and returning capital to shareholders. We believe our robust inventory and relatively low capital intensity provides Range a differentiated foundation for generating through-cycle returns for our investors. I'll now turn it over to Mark to discuss the financials.

Thanks, Dennis. With the first half of 2026 behind us, the year is unfolding as a success, both operationally and financially. Our 2026 operational plan is focused on disciplined development of our asset while capturing additional future value from growing demand. This plan was designed to deliver value from both future growth and to deliver returns to shareholders today. So let's dive right into what Range has delivered to shareholders in 2026. In the second quarter, we repurchased $78 million in shares, bringing the first half of the year total to $105 million. We paid $24 million in dividends in the quarter bringing year-to-date total to $47 million. Year-to-date, we've reduced debt by $337 million. In aggregate, this brings year-to-date enterprise value returned to equity holders to $489 million, roughly 5.5% of Range's market cap in just 6-months. Since initiating the share repurchase program, Range has acquired 35.9 million shares, a reduction of nearly 10%. These are tangible results delivered to shareholders through commodity price cycles and indicative of what range can continue to do on a growing scale as natural gas prices respond to rising domestic and international demand. With a strong balance sheet, roughly 0.5 turn levered Range's ability to return capital and pursue investments in the business is not delayed by balance sheet needs but are being carefully evaluated and opportunistically executed. In early 2025, we announced a 3-year plan charting a path of 20% growth in production to approximately 2.6 Bcfe per day in 2027. Further, we estimated that Range can maintain 2.6 Bcfe per day of production for less than $600 million of annual drilling and completion capital or approximately $0.60 per Mcfe. Let's put the resulting cash flow potential in perspective. Exiting this growth plan, averaging 2.6 Bcfe per day using a hypothetical mid-cycle natural gas price of $3.75, free cash flow would exceed $2.5 billion over a 3-year period, approaching 30% of Range's current market cap. Alternatively, cash flow in this scenario could repay all debt and still acquire a significant percentage of Range's shares outstanding. This illustration is a compelling result from any business, especially considering it's a baseline that assumes no further growth. We successfully reached the halfway point of our current multiyear plan and are on track to deliver. But the Range business doesn't stall there. Range is a growth business, growth in cash flow per share, driven by demand pull production growth that improves margins, compounded by a declining share count. With the Marcellus inventory of 30-plus years, this asset can meet higher demand and sustain that production for decades. This is rare in our industry, which can produce more gas over time, but at an increasingly higher cost. From the perspective of a range shareholder, this means Range is a consistent and durable business through commodity price cycles. And from a customer perspective, it means affordable, clean, reliable supply. In summary, Range is in a strong position to continue capitalizing on strategic advantages across several key areas, maintaining superior full-cycle margins through operational efficiency, delivering strong capital returns to shareholders and exploring business opportunities that position us for long-term growth in the evolving energy market. As natural gas market continues to evolve, range will remain nimble, responsive to market signals and focused on creating sustainable value for our shareholders. We're excited about the opportunities ahead and remain confident that our strategy will continue to deliver superior financial and operational performance.

Thanks, Mark. Today's results continue to demonstrate Range's strong operational performance against our stated multiyear plan, consistent free cash flow generation and prudent allocation of that cash flow, balancing returns of capital, balance sheet strength and the optimal development of our world-class asset base. As we review our results, our 2026 and multiyear plan is on track, and years of disciplined planning have placed us in the strongest position in our company history. Having de-risked a high-quality inventory measured in decades and translated that into a business capable of generating significant free cash flow through cycles. With that, let's open the line for questions.

[Operator Instructions] Our first question comes from the line of Jacob Roberts with TPH & Company.

Dennis, I wanted to start on the lateral feet -- DUC lateral feet backlog. I think you had 0.5 million feet entrance this year. And given some of the, frankly, pretty impressive efficiency gains you guys have seen on the completion side to start this year. Where are those balances today? And how you think about flowing that down for lack of a better term, over the course of 2026 and 2027. Has that changed at all?

Thanks for the question and for joining us. I think when we take us back and we start to look at the dynamics of the program over the remaining 18 months, you're right, the efficiencies have really allowed us to pull a little bit of that DUC inventory forward. But when you think about '26 and '27, the plan was really to utilize the 400,000 lateral feet that essentially we had built up over the prior couple of years, over the balance of '26 and '27. We're still on track for that. So we're a few wells ahead. I think just a kind of a high level of estimation, it has allowed us to pull down a little bit of our drilling needs here, and then we'll toggle that to a little bit drilling activity next year, all within the same capital that we've communicated as a part of our materials and guidance. So think about it in some ways, a little bit of a dynamic that's a little bit different than where we were under the Maintenance Plus-type program where we had a consistent 2-rig program and we had maybe completions that was kind of oscillating as we build inventory. Now we're on the other side of that. And so we're able to have our completions activity remain more consistent. The efficiencies are allowing us in a great way to pull some activity forward, but we're going to then oscillate some of that drilling activity, all while optimizing that DUC inventory that's needed while staying on track with our program as we then start to produce and fill the new infrastructure that's in process of being commissioned. So great place to be in, and we're excited about the team's accomplishments.

Perfect. And -- when we think about this longer term, but I'm talking about growth. And so when we think about what the company looks like exiting 2027 as you guys have laid out the growth plans, we'd agree that your inventory would include you in a subset of operators that can participate in what the industry broadly sees as growth in the 2028 time frame you guys laid out on Slide 20 there, the different avenues you might take. So I'm curious, not only from your perspective about the pace of growth that [indiscernible] might contemplate to meet this demand, but really how you view the industry and being able to respond to this in the Northeast, let's say, over the next 5 years?

Yes. As we start to think about 2028 and beyond. The position that we're in we really have the ability to continue to grow at a similar -- I won't say identical, but a similar growth rate that you're seeing right now with a very similar capital investment, all of the similar resources of drilling and completions activity and with the same team. So if you look at what we've been able to accomplish with efficiencies and also just the ability to move back to pad sites with existing infrastructure, for incremental phases of development, it's allowed us to really be nimble and react more quickly, I think, to the ability to grow. So when we think about '28 and beyond, I think we will have the ability to grow similarly to what you're seeing now with a very similar capital investment, again, team resources and -- but it's going to start with a home for that production. And as you point out in Slide 20, we're awfully encouraged by what we're seeing with the incremental few Bcf that we've added to the in-basin high side case with takeaway and also in-basin demand for power and data centers. But as we see that further materialize, we feel like we'll be able to step right into that, just again, given our nimbleness in the program our large blocky acreage position. And then on top of it, just the depth of inventory we have in the Marcellus. So I think that will be rare compared to maybe some others that will have the ability to do so. But again, it's going to start with having a home for that production.

Our next question comes from the line of Doug Leggate with Wolfe Research.

Mark and Dennis, I guess one of your peers last night put out a very detailed a synopsis of all the potential growth data centers and so on, quite material, especially in the Appalachia area. So my question is, where do you see Range positioned to compete on some of those supply agreements? Because obviously, we've talked about this before, but your balance sheet is pristine, but yet you still have a sub-investment grade credit rating. I'm wondering if that's an issue. And any kind of line of sight you could provide that? That's my first question. My follow-up is 2027 is right around the corner. You laid out the 3-year plan. What's next as it relates to capital and growth aspirations? I'll leave it there.

This is Mark. Maybe I'll start with the balance sheet and just some of Ranges past accomplishments and deals to help frame what our balance sheet allows us to do as compared to what others do. So our balance sheet mix are higher than our investment-grade peers, meaning stronger, meaning lower leverage, gaining higher liquidity all proportion to our business. We have had 15-plus year international export deals on the liquid side. We've done 5, 5-plus-year deals with Japanese utilities on the LNG side and have cycled through multiples of those. We've already announced a 10-year deal in the Midwest to a power plant. So I will tell you that in our commercial discussions, the balance sheet and credit rating has never been a topic of discussion. Now that rating and achieving that rating will come as a byproduct and at the appropriate time for the business to enable Range to continue to execute commercially and maximize the value of its inventory, whereas we're not handcuffed in operating the business by ever-changing guidelines from the rating agencies. It will be important and potentially useful at some point. But I think if you look at even the spread to our bonds today at just over 100 basis points to the index, we're trading at investment-grade models. So the market has seen through that and our customers do as well. That is not to say we're by any means opposed to it. It will come, and we'll get there. But for the time being, certainly, not a need to have, and the team is already meeting with success on the commercial side.

Yes. And I'll take it from here, Doug. I think you asked a good question is how is Range is going to compete for some of these deals. I think if you look back over the last, we'll just say roughly 12 to 18 months, the build-out of data centers and power demand opportunities in the region have really continued to evolve. And I think it's been a very, very active and busy space. Our marketing team has been incredibly engaged with a lot of the counter-parties that you've seen even major announcements from that could have other producers providing supply into them. Those entities have now had conversations with Range to look for incremental supply as they think of scalability of their facilities, and also how they're looking to diversify, let's just say, operational and commercial risk within their organization. So maybe to dovetail on to what Mark is saying, we're not seeing any flags or questions around Range's ability to participate. I think what it's coming down to is a host of variables and a couple of them being proximity, diversity and also inventory. And when you look at our marketing portfolio, what really brings the phone to ring on our desk a number of times is those three variables and probably most importantly, the last one. The marketing portfolio that we have and the ability to not only produce in-basin, but actually touch infrastructure regionally, we think, is really important as well. Thus, the Ohio announcement that we made earlier this year, I think you could see us participate in other announcements similarly in the future. But again, really busy space. We're optimistic about the future of what this could look like for Range and also the -- as we talked about earlier under the prior call, and I think your secondary follow-up question is, what does it look like beyond 2027? And again, we feel like we're in a really unique position that we will have grown our production by 20% over the balance of a 2-year period, by the time we get to the end of 2027, we feel like we could if we wanted to, to continue that momentum with a very similar capital investment. But even thinking on a, let's just say, a higher, I won't call it blue sky scenario, but let's just say the high-case we feel like instead of running 1.5-type drilling rigs and 1.5-type frac crew programs, you could run a consistent 2-rig program and 2 frac crew program with a very similar capital program you're seeing now and even have a little more growth. And so in the future, with our inventory and our team's ability to continue to also execute, we could see the ability to double the size of the organization's production just in a matter of a few years. So very exciting for us. We're going to continue to engage on the marketing side. But again, I'll just put a pin in it by saying this, these opportunities have to compete with the other options that we have in the portfolio, and we know that they will.

Our next question comes from the line of Michael Scialla with Stephens.

Dennis, you talked about the growing U.S. exports of LPG and ethane, pushing the Mont Belvieu price closer to international prices, but you also increased your -- for your guidance for the premium you expect over Mont Belvieu. So I want to see if you could talk about what you're seeing there, if you expect that premium to last into next year due to some of the deals you've done with European pet chems? Or do you expect the macro to kind of pushed that reversion back into place.

ATL dynamics have been no doubt exciting this year for us, and I think that's probably a consistent theme you probably hear from us and beat one-on-ones and also in earnings calls. I think if you look at where propane stocks are now, clearly, they've been elevated. Ethane, a little bit of a different story. It's been very similar, a little elevated, but very similar to where stock levels were 1 year ago. We've seen ethane pricing improve as you've seen long-haul transport start to go into service out of the Permian and thus change the extraction rejection dynamics clearly out of that basin. As you switch over to LPG, clearly, the expansion of some DUC capacity earlier this year, I'll say, in the spring time frame, that flex capacity that went into service to move 360,000 barrels a day has really reshaped the curve as we think about -- as we entered into build season from an inventory perspective, and to put some color around that, that's reduced the build rate by 57% over last year and 40% versus the 5-year average. So very meaningful numbers. And when you think about what's going on from a global dynamic standpoint right now and the need in some of the global market demand centers, it's really been helpful that out of the Gulf Coast range, the industry as a whole has been able to step up, if you will, and fill some of that global need. As we kind of look forward and look towards the 2030 time frame, you're really seeing on both the ethane and the propane side more demand growth. So propane, for an example, there's going to be approximately 1 million barrels of incremental demand growth that's going to take shape over the next 4 years through 2030. And the DUC capacity is also under construction that would also or is planned that would support that for 950,000 barrels. So it's all what I'd say, hand in glove from an LPG perspective and on the ethane, same story, another 750,000 barrels of incremental demand that should be coming online by the end of the decade, shifts, stock capacity all in line to support that. So we feel like the vehicle is there. And when you look back again to Ranges' inventory and what liquids will represent as we continue to move forward with the [ Repauno ] DUC capacity that we will see go into service in 2027. It really allows us to have a unique dynamic with access to the international market off the East Coast that we continue to expect to see premiums versus the Belvieu Index. But even when we see moments where that may tighten because you see congestion lift out of the Gulf Coast, then absolute price goes on the uptick. And then I think we -- you see Range continue to win in a different way and remain competitive and have that leading gauge. So we'll have [indiscernible] answer this morning, but we're excited about the future of NGLs, and it goes far beyond what we're seeing just in the current dynamics globally.

I appreciate that. I wanted to ask you, it looks like you drilled a Utica well here recently. A little surprised given the high-quality inventory depth of the remaining Marcellus locations you have. I just want to see if you could talk about what you're seeing in the Utica that encourage you to drill that well and what your plans are for that play?

Yes, I'm glad you asked about our Utica well. I think if you look back over the course of time, what you're seeing is Range is going to most likely drill and complete a Utica well about every 3, 4, 5 years. And its to continue to evaluate the subsurface, advance our geological model, just continue to chip away at the learnings for that particular portion of our asset base. 99%, if not 100% of our focus will continue to be on the Marcellus. But with all of the conversations we've already had just this morning about growing demand, optionality and the ability to meet let's say, growing needs for power and energy for the Lower 48. We see that this just adds another wrinkle and opportunity for Range to think about, whether it's years or decades down the road. So wouldn't we have a possibility to see Range again in a few years, drilling it and complete another well but to continue on with that gathering of data and observation and comparing ourselves to what we see as the high watermark and advance that in the future from the Utica perspective. I think simply put, the day we decided to make that a part of our development program, we want to have a similar confidence level with our Utica program that we would that we've conveyed with our Marcellus program. So we'll slowly chip away at it. We're really encouraged by the well results we're seeing right now. It's really early. We're only a couple of months in, but look forward to sharing some of the details in the future.

Our next question comes from the line of Kevin MacCurdy with Pickering Energy Partners.

To follow up on the comments about your liquid [indiscernible] growth to be weighted towards NGLs or gas? Or do you expect kind of a similar liquids mix in 2027 and beyond?

Yes, Kevin, there was a brief moment where you cut out, but I'm going to -- I think I understand the gist of your question. And if I missed something, please circle back to us here. When we think about the production growth over the next -- really through our current multiyear plan, it's weighted pretty similarly to what you've seen us execute in the past where the liquid side of our production profile has been -- and activity has been somewhere around, let's just say, plus or minus 65% to 70%. And then the remaining 30% to 35% would be on the dry gas contribution. That should be and feel very similar going forward as well. It's aligned well with our infrastructure, our inventory, but I will say this, over the course of time, I think you're going to see us evaluate where our activity would be most located to fill future demand growth and what's economically advantaged focusing on margins. But the liquids component will continue to play a strong part of our story going forward. No big divergence from what you've seen us execute in the past.

Great. I appreciate that. And then maybe coming back to your comments on some of the drilling moving from 2025 to 2027. Can you kind of bridge the gap on however you like to describe whether it's turning lines or net lateral footage that you originally planned to drill in 2026 that has moved to 2027. And was that just a capitalization based on drilling wells faster?

So I guess taking a step back to the numbers for 2026. I think just at a very high level, you're talking about a pad site of wells approximately. So we're not talking about a huge number of incremental activity on the DUC inventory versus the TILs. And part of that just comes down to the capital that gets allocated roughly to one side of the the operation versus the other. So pulling down drilling activity allows us to no doubt redistribute that sequencing in capital, but it's also not the bigger part of the overall equation. So think about next year being a minimal -- probably an incremental pad site that we would then think about shifting that capital over to 2027. But as we looked at the DUC inventory by the time we get to the end of '27, I will just say it's only it's not in high demand and high need. It's really setting us up for how we're thinking about capital and activity for 2028.

Our next question comes from the line of Leo Mariani with ROTH.

I was hoping you provide maybe a little bit more color on how you see third quarter production and CapEx trending. Obviously, you spent about 1/3 of your CapEx budget in 2Q. So can you give us a little flavor of how that may change in the next couple of quarters? And you mentioned kind of ramping production nicely and in the second half as you're filling some of the new infrastructure. Could you provide a little bit of color in terms of how you see the growth trajectory there in 3Q and 4Q?