Ranger Oil Corp (ROCC) 2022 Q1 法說會逐字稿

Good morning, and welcome to the Ranger Oil First Quarter 2022 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Rusty Kelley, Chief Financial Officer. Please go ahead.

Thank you, and good morning, everybody. We're pleased today to discuss our 2022 first quarter operational and financial results, our recent bolt-on transactions and other recent accomplishments. With me today is our President, CEO and Director, Darrin Henke, and our Senior Vice President and Chief Operating Officer, Julia Gwaltney.

Before we begin, please note that we will discuss certain non-GAAP measures. Definitions and reconciliations of these measures to the most comparable GAAP measures are provided in the company's first quarter earnings presentation and news release that can be found at rangeroil.com. Our comments today will contain forward-looking statements within the meaning of federal securities laws.

These statements are subject to a number of risks and uncertainties that could cause actual results to be materially different from those forward-looking statements, including those identified in the risk factors of our annual report on Form 10-K and quarterly reports on Form 10-Q. So with that, I'll hand it over to Darrin to discuss our recent results and events. Darrin?

Thanks, Rusty, and good morning, everyone. By now, I hope you've had a chance to review yesterday's release. Julia, Rusty and I are eager to address your questions. Before doing so, I wanted to take a moment to reflect on our recent accomplishments and our confidence in the opportunities that lie ahead for Ranger.

This 18 short months ago, we began a journey to fundamentally transform Ranger into an industry leader. We started by clearly establishing our risk-adjusted, returns-focused strategy. This strategy was designed to provide flexibility to deliver results for our shareholders through multiple vehicles, including disciplined capital investments and a strong balance sheet, operational expertise that allows for a robust through-the-cycle returns, a solid framework for returning cash to our shareholders and timely acquisitions at the right valuation.

By any measure, we have made significant progress, and our year-to-date results have only accelerated our path to creating differential value for our shareholders. Let's review the highlights.

First, we are high-grading and deepening our portfolio behind a series of accretive transactions, the latest of which we announced on Tuesday, which fit perfectly with our existing acreage and will grow our position by greater than 10%. At today's prices and activity levels and assuming the closing of the recently announced transactions, we have approximately 20 years of high-margin inventory across more than 155,000 net acres in the prolific Eagle Ford Shale, effectively doubling our inventory since year-end 2020.

Our acreage is advantaged due to its high oil cut, existing infrastructure and close proximity to premium Gulf Coast markets, yielding the highest EBITDAX margin over the last 2 years of any publicly traded U.S. independent in our business. Should WTI decrease to $50 per barrel, we would still have approximately 14 years of drilling inventory at today's activity level.

We are extremely excited about our recently announced bolt-on transactions. With 19 miles of shared lease lines, the new assets fit hand in glove with our existing portfolio and will provide significant synergies with our current development program. The transactions add nearly 28,000 completable lateral footage within offset or stranded acreage where we can extend lateral lengths of wells already in our inventory, including adding an expected 7,000 completable lateral footage to our 2022 drilling program.

The substantial operational synergies we expect to recognize mitigate the need for additional rigs and services, further strengthening returns. We plan to fund the recent transactions from free cash generated in the first quarter. This organic funding would not have been possible without the significant improvements to our balance sheet, our disciplined approach to capital allocation and enviable operational execution. We achieved a leverage ratio below 1x earlier this year and plan to maintain our formidable balance sheet moving forward as we view it as foundational to the strength of our company.

Lastly, our robust balance sheet and free cash flow profile have allowed us to establish an extremely competitive framework to return cash to our shareholders. Our Board of Directors recently authorized a $100 million share buyback program, and we plan to initiate a dividend program in the third quarter. Our commitment to these 2 efforts illustrates our confidence in what we believe our capital program can deliver and the sustainability of our returns-focused business.

Our strong first quarter performance is just the beginning of what you can expect to see from our company. In the quarter, we delivered free cash flow of $65 million which is approximately 60% of the free cash flow we generated in all of 2021. We also achieved the upper end of our quarterly production guidance with oil sales of 27,000 barrels per day and total sales of 37,800 barrels of oil equivalent per day. Importantly, our disciplined capital spending approach saw our drilling and completion expenditures fall below the midpoint of our quarterly guidance.

As we look towards the rest of the year, we expect to see notable cost savings and improved cycle times from our shift to larger pads and longer laterals. Second quarter average sales are anticipated to show slight growth over the first quarter and we have a significant amount of ongoing activity that is expected to begin the turn-in line process in the back half of the quarter.

With our larger pads and longer laterals yielding higher initial production and shallower declines, we anticipate sales will significantly grow throughout the year, enhancing our already robust free cash flow forecast. Our performance to date and confidence in the deliverability of our future wells allows us to raise the midpoint of our 2022 production guidance while importantly, maintaining our existing capital expenditure guidance. Additional details on our guidance can be found in the release.

In closing, we have an exceptional team of people at Ranger that are aligned to deliver on our investment thesis. While we know that our operating results are among the very best in the Eagle Ford, we remain laser focused on continuous improvement in everything we do. I'm so proud of our team and all that we have accomplished together and look forward to further demonstrating both the power of our people and the depth and scale of our high-margin portfolio. I will now turn the call back to the operator to lead our Q&A. Operator?

(Operator Instructions) And our first question will come from Neal Dingmann of Truist.

I'm going to hit the -- sorry, I guess, the 2 topic deserves today. First, let's hit on [OSF] inflation logistics. I'm just wondering, you all continue to do a great job of containing inflation. I'm just wondering, maybe, Darrin, can you speak to the plans to continue running the 3 rigs specifically, you all -- maybe you and Rusty could talk about what you all have done ensures you have enough pipe and other products going forward to run this type of expanded plan?

Yes, Neal, thanks for the question. So yes, today, we have 2 rigs running, and we've been running 2 rigs for the first part of the year. We did just contract a third rig and we'll pick that up and we turn into the right the middle of May. And so we talked about having spot rigs on the last call and we've been successful in securing a spot rig for some additional wells down in LaSalle County.

Relative to services, of course, there -- we're all experiencing difficulties with the supply chain. But Ranger has done a great job of securing pipe and services ahead of time, and we have great confidence that we will be able to execute our program this year and get the services that we need to execute that program.

Relative to inflation, we felt like we're seeing a 20% to 25% increase year-over-year. But with our efficiencies that we've been able to implement, including things like drilling longer laterals, switching to 6-inch pipe, which we'll do later this year, which will allow us to lengthen out our stage spacing and become more efficient in our completion design, being able to pump higher rates, things of that nature. We've been able to contain it to more like 10% to 15% on the bottom line. So that's why we were able to reiterate our capital guidance, and we did bump our production guidance slightly.

Great. Good to hear. And then just to follow up on the second, really on shareholder return. You all speak to how you think about share repurchases, would you use this -- would you use upcoming share repurchases, I guess, I'd call it as a backstop if your shares continue to trade at a discount to where our peers or M&A is trading out there? Or how do you view that on a go forward?

Yes. Great question. We really think about 5 pillars that we can use to deploy additional free cash flow. We can do additional debt reduction, share repurchases, we've announced a dividend program that will start in the third quarter, we can do additional capital deployed at the drill bit, the organic drilling. And of course, we can do additional M&A. And we're going to look at those 5 different opportunities and figure out what's most accretive for our shareholders.

Relative to share repurchases, we look at the value of our -- what our shares are trading at relative to the intrinsic value of our company. And when we see opportunities to buy shares at a good price relative to the value of the company, you'll definitely see us out there in the marketplace buying shares.

The next question comes from Charles Meade of Johnson Rice.

Hi, good morning. This is [Michael Furrow] filling in for Charles. Could you provide some further detail on how these 3 acquisitions came together?

Yes. So we have a slide in the deck on Page 6 that specifically shows you a map of the bolt-ons. And we -- for this announcement, we have three transactions that came together to -- that we rolled together. And two of those were a public process and one I would say was a small, marketed process to a limited number of potential buyers.

Great. That's helpful. So sort of just a follow-up on that is our understanding is that there's a lithology change in the Eagle Ford as the acreage extends to the Northeast. So is it proper for us to think about the contiguous acreage required to be in the near-term development plans with the further out acreage as more experimental?

Yes. I think that from a lower Eagle Ford perspective, that's a good synopsis of how we think of the acreage today. Like we do with all the acreages, just like with Lonestar, we bring it into the portfolio and we start tearing it apart technically. And specific to Lonestar, 6 of the 11 wells that we've spud this year are actually on Lonestar acreage. And so I'm sure we'll bring this in, and we'll tear it apart and some of it we're more excited about than the acreage to the far Northeast relative to the Lower Eagle Ford. That being said, looking quickly at the Austin Chalk, we do think that as you head to the Northeast, it appears more attractive. And so some of the acreage could be more attractive in the Austin Chalk and we'll tear it apart technically and figure out what makes sense. But immediately, this year, we will be drilling additional laterals onto this acreage.

The next question comes from Davis Petros of RBC Capital Markets.

Kind of the first one and kind of piggyback off on those 5 kind of potential uses of free cash flow. I mean how should we think about the kind of increasing shareholder returns over time kind of either through growing the base dividend or kind of getting that buyback started, when could we maybe see that start to initiate?

Yes. So the buyback was authorized a couple of weeks ago. We had a press release in April on that. And the -- we go into an open period next week. So I think you'll see if the marketplace is right, we will -- you'll see immediately that we'll be in the share buyback market. In the dividends, we'll start in the third quarter into the third quarter.

And it may be a little early since that you have to initiate, but is there kind of a way that you're thinking about that maybe longer term, either on a targeted payout or kind of a level of free cash flow, anything like that or kind of too early to say?

I think we'll balance it with the 5 pillars that I have talked about previously, and we'll look at the -- what's the best -- most accretive uses of the free cash and head that direction. It's great that we have 5 different options and that we're in a wonderful place relative to the strength of our balance sheet.

Got it. Okay. Makes sense. And then one last one, talking about kind of that last pillar for free cash flow. I would love to hear kind of your updated thoughts on the M&A market. Kind of those recently announced 3 bolt-ons made a lot of strategic sense. I'd love to see or love to hear what other opportunities you're seeing out in the basin as well as kind of how you're thinking about future M&A going forward now that you have kind of 2 decades plus of inventory.

Yes. So relative to the number of opportunities as we look forward, it's probably a stronger number of opportunities coming to market in the Eagle Ford that we've seen in quite a period of time. And our goal is to focus on the Eagle Ford, and we intend to look at all those opportunities, it's relative to having 20 years of inventory, when we look at purchasing something, just like these bolt-ons, we were able to buy them at a discount to PDP, PV-10 and so it just makes -- it makes a ton of sense. It's very accretive for our shareholders, and we love transactions like that, and we'll think there'll be -- we definitely think there'll be more opportunities similar going forward, both small ones like we're seeing here and large material ones and they just have to make sense relative to our inventory and [the bid], as I said earlier, it's got to be done at the right price at an accretive valuation.

And can you remind us, is there kind of a max target size on a deal kind of the bolt-ons easily funded within cash flow, but kind of those bigger deals? Is there something that may be too big to take on?

You know what we've talked about publicly when we're looking at larger opportunities and using both cash and equity. We want to keep our -- we've worked hard to get our leverage ratio below 1x. And what we've publicly talked about is not having that leverage ratio go above 1.5x in this commodity price environment when we look at potential opportunities on the M&A front.

(Operator Instructions) And our next question will come from Nicholas Pope of Seaport Research.

Kind of on the same topic of M&A, which seems to be of interest today, the -- on the flip side of everything, you look at these would seem to be more noncore right now positions for you in that northern and southern areas that you got via Lonestar. I was kind of curious how you were thinking about those kind of smaller acreage positions and maybe is there a decision point or any work that you all are doing to kind of decide, is that something that you want to keep in the portfolio? Or is that something that you could divest? I guess what is the thinking on those 2 assets? And maybe what are you all working on kind of towards that end right now?

Yes. So we continue to really tear apart technically all the assets that we picked up from Lonestar and others and where do they make sense in our portfolio, how do they make sense from a rate of return standpoint, profitability as well as a scale standpoint. And there are some areas that I think we are -- we need to expand the scale and we're working to do that where we can. And ultimately, if we can expand the scale on a few of our stranded assets, I could see those. We'd look for trade to be first and foremost ways that we can trade those assets for other assets that would help us with our scale. But at this point, it's still really tearing things apart and don't have anything that we're planning on divesting at this point.

Got it. That makes sense. And you kind of mentioned kind of Austin Chalk potential on some of the newly acquired acreage. Is there any plan right now on kind of targeting the Chalk at some point this year? Or is that a longer-term goal?

Yes. We don't have Austin Chalk plans specifically on the drill schedule today. We do have an offset operator that's going to -- that's just permitted or in the process of permitting an Austin Chalk well directly offsetting our central acreage in Gonzales, and so it will be fun to keep an eye on that.

And so I look at it as early adopters. We have such a deep inventory of Lower Eagle Ford, low-risk, high-return opportunities, 20 years of inventory. We don't really have to spend or risk dollars proving up the Austin Chalk. We can really allow the operators around us that are not blessed with the same depth of inventory, let them prove up the Austin Chalk, and we can be early adopters there.

This concludes our question-and-answer session. I would like to turn the conference back over to Darrin Henke for any closing remarks.

Thank you, operator. In less than 2 years, we've extended our inventory to 20 years, building a basin-leading high-margin portfolio with the scale to deliver. We have strengthened our balance sheet, reducing our leverage to below 1x. We've improved the efficiency of our operations through longer laterals and optimized completions, ultimately delivering the highest margins in the industry.

Simply put, Ranger has the talented employees, the scale, high-margin inventory, formidable balance sheet, operational expertise and capital discipline to deliver sustainable risk-adjusted returns for years to come, and we're just getting started. We look forward to updating you on our continued progression. Thank you for joining our call this morning. Have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.