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Text: 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.
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.
The second quarter of 2021 saw Range make continued steady progress toward our key objectives: improving margins through cost controls, generating free cash flow, operating safely and efficiently and ultimately positioning the company to return capital to shareholders as the most efficient natural gas and NGL producer in Appalachia.
I'll touch briefly on each of these before turning it over to Dennis and Mark to cover in more detail.
Starting with unit cost and margin improvements.
Range's unit costs for the quarter were in line with our expectations.
As NGL prices strengthened during the quarter, processing costs increased as expected as a result of our percent of proceeds contracts, but this was more than offset by the improvement in natural gas liquids prices, resulting in vast improvements in Range's margins and cash flow.
This pricing uplift from liquids reduces ranges breakeven natural gas price and improves margins when compared to producing only dry gas.
In fact, Range's cash margin of approximately $1 per Mcfe for the first half of the year is roughly double where we were last year.
Given the improved fundamental backdrop for NGLs with approximately 65% of our activity in the liquids-rich window this year, Range is very well positioned to continue to benefit.
In the second quarter, Range produced $177 million in cash flow with capital spending coming in at just $120 million for the quarter, Range generated solid free cash flow despite seasonally weak pricing and the second quarter being the high point of capital spending for the year.
The team did an outstanding job leveraging our large contiguous acreage position to complete the operational plan safely and with peer-leading capital efficiency.
Range's blocky acreage position affords us operational advantages on multiple fronts, including water recycling, infrastructure, rig mobilization, long lateral development and e-fleet optimization.
When combined with the dedicated and focused technical team with years of experience in the basin, this equates to class-leading well cost and capital efficiency.
And having delivered operational programs below budget for the last three years, Range remains on track to do the same for the fourth consecutive year in 2021.
Taking this level of efficiency and combining it with strong recoveries, a shallow base decline of under 20%, a sizable inventory and liquids optionality, Range has what we believe is an unmatched foundation for generating sustainable free cash flow for the long term.
This organic free cash flow, supported by thoughtful hedging through the end of this year and into 2022, puts us well on our way toward meeting our balance sheet targets in the near future.
Mark will provide more detail, but at recent strip prices, leverages forecast below two times early next year.
The significant rate of improvement on our balance sheet is a testament to the progress we've made, reducing debt and improving our cost structure in recent years and that reflects the free cash flow potential of the business.
We are excited about where Range is today and equally excited about what the future holds.
Natural gas and natural gas liquids will continue to play a critical role as the world moves toward cleaner, more efficient fuels.
We believe that producers who can most efficiently deliver these products to end markets from a cost and emissions perspective will be the most successful.
And we believe Range is well positioned within that framework.
We remain ahead of schedule in achieving our absolute emissions reduction targets in our 2025 goal of net zero, and our emissions profile is near best-in-class among producers globally.
Importantly, what further differentiate Range from peers is our ability to efficiently deliver clean burning natural gas for an extended period of time given our multi-decade core inventory.
For context, Range's 2021 activity of approximately 60 wells is just a fraction of our 2,000 Marcellus locations with EURs that are greater than two Bcfe per 1,000 foot of lateral.
The average recovery of these thousands of wells is very similar to the wells Range has turned to sales for the last several years, providing Range and unmatched runway of high-quality wells that's measured in decades, A.nd that's before counting other horizons, such as the Utica, Mount Pleasant or Upper Devonian.
This type of runway is not found in most natural gas producers, and we believe Range's position as well as any upstream company to generate competitive returns and free cash flow over the medium and long term.
Before turning it over to Dennis and Mark, I'll just reiterate that Range remains committed to disciplined capital spending.
Over time, we believe Range will stand out among peers as a result of our low sustaining capital, competitive cost structure, liquids optionality and importantly, our multi-decade core inventory life, which is an increasingly competitive advantage as other operators exhaust their core inventories.
We will continue to focus on safe, efficient and environmentally sound operations, prudent capital allocation and generating sustainable returns to our shareholders.
Over to you, Dennis.
As we look back on the second quarter, all-in capital came in at $120 million, with drilling and completion spending of approximately $116 million.
Capital spend for the first half of the year totaled $226 million or approximately 53% of our annual plan.
During our first quarter call, we touched on some of our recent efficiencies driving this capital result, and we'll expand on those during the operations update today.
Looking forward, consistent with our activity forecast for the second half of the year, the remainder of our capital spending is expected to taper through year-end, in line with our activity forecast previously communicated and placing us at or below our all-in budget of $425 million.
Production for the quarter closed out at 2.1 Bcf equivalent per day.
Our activity resulted in 25 wells being turned to sales with 75% of the turn-in-line activity landing in the back half of the quarter, setting us up for higher sequential production for the balance of this year.
Looking back at the quarter, I'd like to point out six of our Marcellus wells turned to sales on an existing pad in the heart of our wet gas acreage position.
Initial development and production on this pad occurred in 2016.
Similar to the example we walked through during our first quarter call, we returned to this pad to add additional wells, building upon our prior technical learnings, efficiencies and cost savings.
Initial production rate for three of the new wells placed them at the top of our Marcellus program history, and the pad itself is now Range's top Marcellus pad to date based on average initial production per well.
And lastly, production from this pad was comprised of approximately 50% liquids from an average lateral length of just under 14,000 feet, and aligns with our liquids marketing results we will cover later in this section.
Not only does this provide further evidence of the quality and sustainability of our large contiguous acreage position, but it also demonstrates that even after more than a decade of Marcellus development.
We continue to optimize and enhance well performance through technical and operational innovation.
Looking at some of our operational highlights.
The drilling team operated two dual-fuel horizontal rigs during the second quarter, split between our dry and super-rich acreage footprint.
Average lateral lengths for the wells drilled in Q2 was approximately 12,000 feet with five wells exceeding 16,500 feet.
Similar to updates from prior quarters, we returned to pad sites for a significant portion of our activity in Q2, with approximately 75% of our new wells drilled on pads with existing production.
In addition to maximizing infrastructure utilization.
A combination of longer laterals and returning to existing pads continues to drive efficiency improvements and reduced drilling costs.
As an example, in the first half of 2021, we've seen a 10% reduction in average drilling cost per lateral foot versus full year 2020, which fell below $200 per foot.
It is improvements such as this that further support our year-to-date capital spend and ensuring that we deliver within our capital budget.
On the completion side, the team completed 20 wells with a total lateral footage of more than 225,000 feet with an average horizontal length of approximately 11,300 feet per well, including four wells with lateral lengths exceeding 18,000 feet per well.
These long laterals were turned to sales covering the end of Q2 and beginning of Q3, driving our second half of year production.
Similar to our drilling results, the completions team is capturing continued efficiency gains from longer laterals and cost savings by returning to pads with existing production.
The team successfully executed over 1,100 frac stages in the second quarter, while hydraulic fracturing efficiencies in the first half of the year increased by more than 6% versus the same time period a year ago.
In addition to these efficiency gains, our emissions reduction strategies were advanced by expanding the operations associated with our electric frac fleet to include electric powered pump-down equipment, wireline units, along with other supporting equipment.
The testing of electrification of additional on-site equipment, coupled with our production facility design and pilot program with Project Canary are just a few examples underway to deliver on our broader ESG goals and our emissions target of net zero by 2025.
Water operations once again exceeded our operational and capital efficiency expectations in the second quarter through increased utilization of third-party produced water.
The team was able to efficiently utilize just under one million barrels of third-party water in addition to Range's produced water.
And as a result, completion costs were reduced by over $1.6 million for the second quarter.
The continued success of our water operations, along with the efficiencies captured by the completions team has reduced our overall water costs for the first half of the year by just under $7 million or $15 per foot less in cost.
And it represents a 28% improvement in water costs versus the same time last year.
Water savings can vary each quarter, depending on the location of our operations, but generating these types of cost reductions has become a repeatable part of our program, and it aids in our ability to deliver at or below our 2021 drill and complete cost per foot target of $570 per foot.
Strong field run time continued in the second quarter.
Like the first quarter, unseasonable weather conditions threatened to hamper production with prolonged high ambient temperatures and storm events in June.
But the production and facilities teams worked diligently to keep the field running at a high rate with minimal impact to production or operating expenses.
With the winter behind us, lease operating expenses for the quarter closed out at $0.10 per Mcf equivalent and are projected to remain at a similar level for the remainder of the year.
To complement our operational results, I'd like to provide a quick update on Range's safety performance.
When looking at our key safety metrics year-to-date, we continue to see improvements compared to the same time period a year ago.
With our team's ongoing dedication to hazard identification and training, it has been over a year since our last employee recordable incident.
Year-to-date, this contributed to a total workforce recordable incident rate in line with last year, which was Range's best safety performance in the program history, and benchmarks in the top quartile for safety performance among our peer group.
Now shifting over to marketing.
Echoing the theme from our last call, market prices strengthened during the quarter for both NGLs and condensate with Mont Belvieu propane prices ending the quarter at its highest level in almost three years.
Demand for both NGLs and condensate continues to increase with supply remaining stable.
As a result of these tightening fundamentals and the corresponding improvement in prices throughout the quarter, Range's NGL price was $27.92 per barrel, a $2.24 premium to Mont Belvieu.
This represents a record for the highest premium to Mont Belvieu in company history, and the highest quarterly NGL price in absolute terms since 2014.
A key driver for the higher premium in the quarter was the new and diverse LPG export strategy that allowed Range to optimize its sales portfolio through increased flexibility in product placement and sales timing.
Due to the timing of Range's LPG exports, the second quarter average NGL barrel was heavier than normal, meaning that it included a higher propane and heavier component percentage than prior quarters.
During the second half of this year, we expect strong fundamentals to result in higher absolute prices for domestic propane and butane, which should compress our premiums of U.S. LPG exports.
Coupled with a lighter barrel from export timing and seasonality in domestic sales, we expect lower premiums to Mont Belvieu but improving overall NGL price realizations.
Range's premium NGL differential remains an expected positive $0.50 to $2 per barrel for the full year, showing the benefit of our diversified NGL portfolio and access to international markets.
On the condensate side, realized price for the second quarter was $57.60, a differential of $8.36 per barrel.
As expected, the condensate differential to WTI narrowed slightly quarter-over-quarter and is expected to stabilize near this level for the rest of the year.
As we previously discussed, condensate values are primarily supported by continued recovery in demand for transportation fuels as business and personal travel around the world continues to increase to prepandemic levels.
As we enter the second half of the year and continue into 2022, the value of Range's entire liquids portfolio is strongly supported by both domestic and international fundamentals.
-- and Range is uniquely positioned to maximize value in this constructive environment.
Similar to our results and view for liquids, positive movement is the theme of the day for natural gas.
During our Q1 call, several signs pointed toward the potential of an under supplied market.
With operators administering capital and production discipline this year, ongoing strength in LNG exports at 11 Bcf per day and overall storage levels running below the five year average, an undersupplied market has materialized, further impacting 2021 pricing and movement in the forward curve above $3 for 2022.
As we look at the second quarter, Range reported a Q2 natural gas differential of $0.39 under NYMEX, including basis hedging.
Looking ahead, we see potential for additional positive improvements for natural gas pricing and basis with regional storage levels behind the five year average.
As we reach the midyear point for the 2021 program, our second quarter and year-to-date results showcase some of our best milestones to date for the program by looking at our environmental and safety performance, operational efficiencies, cost and well results.
We will build on these operational results during the second half of the year while delivering our best program yet.
During first quarter comments, I started by saying efficient operations, delivering planned production, combined with margin-enhancing expense management drove free cash flow.
In other words, delivering on stated objectives, which is Range's fundamental strategy and something the team successfully executed again during the second quarter.
Reliably efficient operations again delivered planned production.
Our relentless focus on expenditures that drive cash flow in addition to diversity in sales points for natural gas, natural gas liquids and condensate resulted in cash flow from operations of $177 million before working capital compared to $120 million in capital spending.
Significant improvements in free cash flow compared to past periods were driven by a 100% improvement in pre-hedge realized prices per unit of production versus the prior year period, with realized price per unit reaching $3.25 in the second quarter.
This realized price per unit is $0.41 above NYMEX Henry Hub, driven by a 118% increase in NGL price per barrel, which reached $27.92 pre-hedge.
Realized NGL price on an Mcfe basis equates to $4.65 and condensate realizations equate to $9.60 per Mcfe, hence, the realized premium to Henry Hub.
Additionally, Range's NGL prices exceeded a Mont Belvieu equivalent NGL barrel by $2.24 due to our unique portfolio of domestic and international sales contracts.
Realizing the benefit of higher commodity prices during Q2 was possible in part due to a thoughtful approach to hedging.
We maintained our strategy of reducing risk through an active hedge program.
However, hedging too early before prices reached levels estimated as sufficient to support industry maintenance capital could have resulted in the loss of significant revenue.
For 2022, we've continued to be balanced in risk management, so as to not hedge away improved fundamentals.
Such that at quarter end and assuming the election of outstanding swaptions, Range was approximately 40% hedged on natural gas at a floor of $2.80 and with a ceiling of $3.04.
NGLs are typically hedged on a rolling three to six month basis.
Meaning exposure to higher NGL prices in the second half of 2021 was largely retained with improving hedge averages by quarter.
As an example, Range's average swap for condensate production improves by $10 per barrel in the third quarter, while propane, butane and natural gasoline averages all improved by approximately $0.20 per gallon versus second quarter.
This hedge book compares very favorably to the industry, allowing Range to capture improved pricing, growing cash flow per share while also accelerating deleveraging, particularly in the next several quarters.
and ultimately, cash returns to shareholders.
Margin-enhancing focus on unit cost is a constant state of mind at Range.
Lease operating expenses remain near historic lows at $0.10 per unit on the back of consistent efficient Marcellus operations.
Cash G&A expenses increased slightly to $31 million or $0.16 per unit.
The increase stems from two line items.
First, roughly $1.5 million related to legal expenses that should tail off next quarter.
And second, what appears to be a temporary increase in medical costs.
Absent these two transitory items, G&A spending was in line with the preceding quarter.
Cash interest expense was roughly $55 million, flat with the preceding quarter and with reduced debt balances should begin to decline in coming quarters.
Gathering, processing and transportation expense increased, but it is important to keep in mind that this is a positive byproduct of strong NGL prices that resulted in significantly higher NGL margins.
Recall that Range's processing costs are from percent of proceeds contracts such that we pay a percent of NGL revenues as the fee.
Consequently, a fraction of the materially higher prices received for NGLs is paid as a higher processing cost in the quarter.
As discussed previously, an increase in revenue of $1 per NGL barrel equates to approximately $0.01 per Mcfe in cost.
This structure is unique to range in the Appalachian Basin and is a right way risk arrangement that has led to reduced costs for several quarters of lower prices, and now continues to drive material margin expansion.
For reference, since February, Range's forecasted NGL realizations in 2021 have increased by approximately $7 per barrel, potentially resulting in an increase of approximately $250 million in pre-hedge revenue.
Net of price-linked processing costs, forecasted '21 pre hedge cash flow from NGLs has increased by approximately $200 million since February, demonstrating the significant margin expansion from rising NGL prices.
In aggregate, revenue improvements stemming from diverse marketing arrangements, coupled with prudent hedging and thoughtful expense management resulted in cash margin per unit of production expanding to $0.93.
Turning to the balance sheet.
As described last quarter, near-term maturities have been a focus such that we reduced bond maturities through 2024 by almost $1.2 billion, while at the same time, improving liquidity to nearly $2 billion.
During the second quarter, we reduced total debt by $66 million, including all subordinated bonds.
Forecasted cash flows at strip pricing are expected to exceed debt maturities in coming years and are backstopped by ample liquidity.
There has been substantial improvement in the debt markets, and it's evident in the trading levels of Range's bonds that both access to and cost of capital has improved.
Future debt retirement is expected to be funded primarily by organic free cash flow.
We will be cost conscious to effectively manage debt retirement, while also being mindful of the costs and benefits of potential refinancing activity.
Liability management over the last few years has, as expected, temporarily increased interest expense.
However, this avoided much higher cost forms of capital that allowed Range to retain per share exposure to growing free cash flow and a substantially improved natural gas and natural gas liquid environment.
Further improving the balance sheet remains a principal objective.
At current commodity prices, forecast indicates leverage in the mid-1 times area is achievable in the first half of 2022.
Tangible shareholder value accretion is first being driven by using free cash flow to reduce absolute debt, as target leverage levels come into sight, potentially as early as the first half of next year, the discussion of Range's return of capital framework becomes a logical next step in a balanced macro environment.
The second quarter and year-to-date results are a byproduct of relentless work by the entire Range team being focused on enhancing per share exposure to what we believe is the largest portfolio of quality inventory in Appalachia.
To put it concisely, we believe we are delivering on stated objectives.
We seek to continue this trend of disciplined value creation for our shareholders.
Jeff, back to you.
Operator, we'll be happy to answer questions.

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qtrly production averaged 2.10 bcfe per day, about 31% liquids.
remains on track to spend at or below total capital budget of $425 million in 2021.

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