山脈資源 (RRC) 2020 Q3 法說會逐字稿

Welcome to the Range Resources Third Quarter 2020 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 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 also filed our 10-Q with the SEC. It's available on our 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. As our company and our industry have matured, we are positioning Range to provide more consistent returns for shareholders by improving our cost structure, strengthening our balance sheet, operating safely and efficiently, lowering the capital intensity of our business with the peer-leading maintenance capital and, ultimately, positioning the company to return capital to shareholders.

The third quarter saw continued progress towards this, streamlining our business with the sale of North Louisiana, extending maturities, reducing debt and lowering our full year capital budget as a result of efficient operations and disciplined spending. In addition to providing more consistent returns, we believe the market is also looking for companies to take a more holistic view of what sustainability means. For our industry, we believe that requires environmental leadership.

On the environmental front, the natural gas industry has an advantaged position today and for the foreseeable future as the world moves towards cleaner, more efficient fuels. Within the natural gas industry, Appalachia has an advantage globally as an abundant, low-cost resource with leading environmental standards, and we believe Range is best positioned within Appalachia, as discussed in our most recent sustainability report.

There are several highlights in the report, including our pioneering efforts on water recycling and our class-leading emissions intensity of 0.35 metric tons per million cubic feet equivalent produced, which is best-in-class amongst all E&P companies according to third-party research.

In addition, our target of net 0 emissions by 2025 further separates Range from other independents with respect to environmental targets and objectives. As we strive to achieve this goal, it all starts with efficient operations that reduces our environmental footprint and, importantly, generates higher returns.

I believe Range's peer-leading capital efficiency and maintenance capital is a key differentiator amongst peers. There are several ways that maintenance capital, sustaining CapEx or capital intensity can be measured. As an investor, you could look at enterprise value, and Range is one of the very few companies that spends less than 10% of enterprise value to maintain production.

With maintenance capital in the low $400 million range, including facilities and land, that equates to only 8% of our enterprise value. Another metric that we've discussed in the past is capital spending per unit of production where Range is, again, best-in-class amongst Appalachian peers. This low capital intensity that is unmatched amongst small and mid-cap E&P companies provides us a solid foundation for generating a top-tier free cash flow yield.

Total third quarter spending of $63 million and the reduction of full year capital, while achieving our operational objectives, reflects exactly that. 2020 will be the third consecutive year that Range is able to complete its operational plans for less than budgeted, which reflects the organization-wide focus on efficiencies in our commitment to capital discipline.

Being able to sustainably hold production flat for such a low level of capital is driven by our peer-leading well cost, our sub-20% base decline and the repeatable well results from our sizable core Marcellus inventory. Layered on top of this operational advantage, we have a competitive and improving cost structure. The last 2 quarters have seen cash cost average in the low $1.80s per Mcfe, a substantial improvement from where we were this time last year, a result of laser focus on efficiencies. Mark will elaborate on the costs in a few minutes, but I can say that we'll continue to look for efficiencies across the board as every $0.01 per Mcfe of cost savings generates a durable improvement of $8 million per year in cash flow.

We also have the benefit of a large blocky acreage position that allows for maximizing midstream infrastructure and we will continue to see improvements to our GP&T expense for many years as a result. This is a line item that has already improved by $0.11 per Mcfe thus far in 2020 versus last year's average and $0.18 per Mcfe since the end of 2018. When we pair the unit cost improvements made this year with our low sustaining capital requirements and consider the backdrop of an improved natural gas and NGL pricing, we see Range generating significant free cash flow in 2021 and beyond.

Given that Range has reduced debt by more than $1.1 billion since late 2018, this free cash flow, along with potential asset sales, will put range at our near-term leverage targets in the not-too-distant future as 2021 is expected to be the fourth consecutive year that Range reduces absolute debt. In the meantime, range continues to focus on furthering our leadership position on well cost, improving unit cost to enhance margins, funding our capital program organically and reducing absolute debt.

Before I turn things over to Dennis, I want to reiterate Range's strategy for 2021 and beyond. Range remains committed to sustainable free cash flow, generating corporate-level returns. While 2021 and even 2022 prices have improved considerably for natural gas and NGLs, we believe the forward curve remains below a sustainable long-term price. This is not a market that's incentivizing any growth. Instead, Range will seek to maintain production around current levels and optimize cash flow similar to our capital program this year and use excess cash flow to reduce debt and ultimately return this free cash flow to shareholders.

Over time, we believe Range will stand out among peers as a result of our low sustaining capital requirements, competitive cost structure, marketing strategies and, importantly, our multi-decade core inventory life, which will be critical -- a critical competitive advantage in the years to come as other operators exhaust their core inventories.

I'll now turn it over to Dennis to discuss operations.

Thanks, Jeff. The focus of Range's 2020 operational plan is to deliver a sustainable maintenance program as efficiently as possible and, in doing so, align our annual capital spending with organic cash flow to further reduce debt.

Our third quarter operational cadence, cost control and production levels remain consistent with these objectives. And lowering our capital spending by $15 million for the year speaks to the discipline and commitment of our team to achieve this.

Production for the third quarter closed out at 2.2 Bcf equivalent per day, taking into account completion of the sale of our North Louisiana assets mid-quarter. Contributing to our Q3 production include turning to sales 19 wells during the quarter, with approximately half of the lateral footage located in our dry acreage position. Production field run time exceeded our expectations, along with strong well performance from both new and historical wells across Southwest Pennsylvania. Our operational program for the rest of the year will result in 7 wells turning to sales in the fourth quarter, which puts us on track to achieve 67 turn-in-lines for the year and is consistent with our communicated targets.

During the quarter, a combination of gas storage levels and infrastructure outages across the basin created a challenging price environment for Appalachian natural gas. In response to low prices late in the quarter, Range strategically curtailed up to 210 million cubic feet per day of gross production with curtailments beginning in the second half of September and running through October. Based on significant improvements to price expected in the coming months, these curtailments are expected to be value-accretive as deferred production will receive the benefit of a higher go-forward commodity price.

Throughout the year, managing both production and cash flow has evolved to be much more than a decision whether to produce or curtail. We've maintained the flexibility to react to pricing in multiple portions of our business, from incremental ethane extraction or rejection levels, depending on relative pricing, to the scheduling of field maintenance during seasonally weak portions of the year.

In addition to this, throughout the year, we actively adjust key well turn-in-lines when possible to align with higher commodity prices and achieve better returns on those projects. This methodical approach will carry into the fourth quarter as pricing and margins improve with the winter season. Reflecting the early fourth quarter strategic curtailments, fourth quarter production is forecast at approximately 2.1 Bcf equivalent per day, with full year 2020 production forecast at 2.24 Bcf equivalent per day.

Capital spending for the third quarter was approximately $63 million with our total spend -- capital spend for the first 3 quarters of the year totaling $298 million. This capital spend falls in line with our activity cadence plan for the year. The fourth quarter, we will see adding one horizontal rig in Appalachia and one frac crew late in the quarter, both in line and setting us up for a maintenance-level program for 2021.

Based on our year-to-date activity and current forecast for Q4, our capital spend in 2020 will close out at or below $415 million. This results in us coming in below budget for the third consecutive year, while delivering on a peer-leading capital efficiency.

I'll now shift over and share a few operational highlights for the quarter. On the drilling side and consistent with prior quarters, we've continued our practice of long lateral development and use of existing pads. During the third quarter, the majority of our activity was located on sites with existing production, thus allowing us to capture additional operational and capital efficiencies.

With this strategy we have deployed for several years now, we reutilize existing pad sites, roads and production infrastructure. Couple this with the utilization of an electric fracturing fleet, and we see this reducing our operational cost structure by as much as $25 per foot for those respective pads. This is an asset development advantage for Range that is driven by our large, contiguous, high-quality acreage position, coupled with the creativity of our teams. These types of initiatives make our cost savings and capital efficiency durable, repeatable and enhance project economics, not just on a single well basis, but for the total development of Range's Appalachia acreage position.

Our activity this quarter resulted in drilling wells across our dry, wet and super-rich acreage positions with an average horizontal footage drilled of more than 15,000 feet per well. But drilling long laterals is only one part of the equation. To be successful, we must be repeatable. To support this, 4 additional horizontal wellbores were drilled exceeding 15,000 feet in the quarter with several laterals over 17,000 feet. When you consider our year-to-date drilling results, our average horizontal link has increased over 24% versus last year, while reducing the drilling cost per lateral foot by 11%.

And as a side note that showcases the hard work and dedication of our drilling, geology and support teams, all of our third quarter wells were successfully drilled via remote directional operations to help minimize personnel on site, supporting safe and effective operations. This type of repeatable long lateral drilling performance continues to be a key driver in our ability to deliver unmatched capital efficiency and well costs.

Even while reducing to a single frac crew for the third quarter, operational and capital efficiencies remained strong, with well costs achieved under $600 per foot, including all facilities costs. Through the utilization of third-party produced water, the team was able to efficiently utilize over 1.3 million barrels of third-party water in addition to using 100% of Range's produced water in Southwest PA.

Our efficient water operations model is a repeatable initiative that reduced Range's completion cost by just under $2.8 million for the third quarter, reduced our overall completion cost by more than $8 million year-to-date and resulted in Range reusing 147% of our produced water in 2019, which was highlighted in our recent Corporate Sustainability Report.

In addition to the cost reductions captured through our water operations, directly sourcing sand for completions continues to add to our savings and accounts for more than $3.5 million captured year-to-date. As we've reduced activity in line with our maintenance program, these creative initiatives are delivering long-term, durable capital efficiency gains and are keeping Range in a leading position as we continue to reset the bar for lowest well cost per foot in Appalachia.

Lease operating expense saw similar savings in the third quarter with LOE coming in at less than $0.10 per Mcfe, which was the lowest in Range's history. This was driven by reductions in work-over expenses, cost removal associated with legacy assets no longer in the portfolio and strong production field run time that was mentioned earlier. Similar to our drill and complete savings, we see our lease operating expense equally durable and repeatable.

On the natural gas marketing front, as cooler weather approaches, the storm season starts to weaken and infrastructure returns to service. We see optimism in gas prices moving forward. LNG feed gas is poised to reach near to full utilization by the end of the year after falling below 3 Bcf per day earlier in the third quarter, further supporting a return to normal operation and an improvement in pricing as we complete 2020 and plan for 2021.

And lastly, as we've touched on in our prior calls, we believe a sustained mover in the forward curve for natural gas is needed to incentivize activity from gas basins to offset both depleting storage levels and associated gas declines. On the liquids side, preliminary reports of third quarter U.S. domestic NGL demand were flat quarter-on-quarter, while international demand continues to impress as September year-to-date propane exports are up 5% versus the same period last year.

U.S. NGL supply was reported to have increased by 7% versus the third quarter of 2019. However, this supply growth was driven entirely by increased ethane recovery that was needed to satisfy robust chemical demand. The remainder of the NGL barrel actually saw a decrease in year-on-year supply as associated NGL production remain challenged and industry spending is better aligned with cash flow.

Globally, trends are similar, with estimates of third quarter supply of propane and butane down 5% year-on-year, while demand was flat. As a result of these tightening global balances, Range continues to see healthy NGL export premiums at Marcus Hook relative to the Mont Belvieu index.

Looking ahead, we expect U.S. NGL balances will continue to tighten with ongoing declines in U.S. C3+ prediction -- production facing both increasing domestic demand and additional exports. New ethylene capacity and new ethane export capacity will add to domestic ethane demand, pushing PADD 3 to full ethane recovery and requiring ethane prices to increase to levels that support incremental ethane recovery from basins further from the Gulf Coast.

With respect to propane and butane, the onset of winter will boost domestic demand just as new LPG export capacity becomes operational. Global LPG balances are expected to tighten by more than 10% between now and the first quarter of 2021. The strengthening domestic and international fundamentals set the stage for stronger propane and butane prices moving into 2021. In this environment, Range expects its NGL marketing portfolio to create opportunities to maximize value, optimizing sales in both domestic and international markets, further supporting a continued premium differential to Mont Belvieu. And for context, a simple $1 per barrel increase in our realized NGL price generates over $30 million in additional cash flow per year for Range.

Turning briefly to condensate. Production was lower quarter-on-quarter due to the sale of North Louisiana and lower activity in the super-rich area during 2020. Condensate prices have trended with crude, improving by almost 50% since the end of June. Consequently, Range experienced a sharp increase in condensate price realizations during the quarter. We expect condensate price differentials to WTI to tighten in the fourth quarter and into early 2021 as regional production continues to decline, while demand for transportation fuels continues to recover.

Before closing out the operations and marketing section, I'd like to share a few highlights on our safety and environmental performance. Similar to prior quarters, our team's commitment to the safety and wellbeing of those working on a Range location has continued to produce meaningful results throughout the year.

By empowering our workforce, promoting safety-focused dialogue and enhancing supervisory engagement, our total recordable incident rate dropped to 0.42 unit of measure, along with capturing a third consecutive year of incident reductions amongst our contractor workforce. Similar to the safety results seen on a Range location, our preventable vehicle incident rate continues to show improvements by falling below 2 incidents per million miles, both key milestones as we strive for improved safety performance with each operation.

And in line with our safety efforts, Range's environmental performance continues to see similar improvements with a reduced -- reduction in reportable spills compared to the same time period just 1 year ago. Our third quarter results reflect our ability to build upon the momentum from prior quarters, especially as it pertains to the advancements in our safety and environmental performance and improvements in cost reductions. This is generating Range's peer-leading capital efficiency while maintaining existing production levels and is a trend we'll further build upon through the fourth quarter and through 2021.

I'll now hand it over to Mark to discuss the financials. Mark?

Thanks, Dennis. As discussed so far on this call, themes of the business continue to be cost reduction, debt reduction, managing the debt maturity profile and enhancing our liquidity. These trends continued during the third quarter, situating Range well for what appear to be encouraging market signs for natural gas and NGLs in the fourth quarter and the coming year.

During the third quarter, Range was busy on all fronts, raising proceeds by closing asset sales, launching another divestiture marketing process, improving unit costs in several lasting ways, improving the capital structure by refinancing bonds and maintaining liquidity with the reaffirmation of the credit facility. These accomplishments were possible due to the focus and dedication of the Range team.

Starting with the net change in debt. Cash proceeds and net results for the quarter reduced debt outstanding by $136 million compared to last quarter. There were a number of transactions in this quarter that had both immediate and lasting effects, strengthening Range's business. First, we closed on the North Louisiana sale for net proceeds, after closing adjustments, of approximately $220 million, with the difference received as production revenue and the time after the effective date of the sale.

As discussed last quarter, we retained certain North Louisiana midstream obligations. Using a portion of proceeds, $28.5 million, we prepaid and reduced the retained liability of midstream obligations. The GAAP accounting valuation of future costs through the year 2030 was recorded during the quarter totaling approximately $480 million. The actual payment obligation retained by Range may be reduced through incremental development to the asset and, given publicly stated objectives of the Terryville acquirer, we believe this will ultimately be the case. Additionally, the contingent proceeds payable to Range of up to $90 million represents upside linked to commodity prices, the majority to natural gas, which makes us optimistic about the ultimate value.

With these transactions closed, Range has lower debt, will benefit from lasting, lower gathering, processing and transportation costs, lower lease operating costs and benefit from improved capital efficiency through reduced base decline and lower maintenance CapEx.

The balance of proceeds from the Louisiana sale, combined with proceeds from the $300 million bond offering, funded a $500 million tender offer for nearer-term maturities. These successful transactions, together with refinancing and open market bond repurchase transactions earlier this year, have reduced the balance of notes due through 2024 by almost $1.2 billion while maintaining liquidity under the credit facility of approximately $1.4 billion.

Consistently strong operational performance is evident in financial results for the quarter, particularly in capital spending and lease operating costs. Capital spending during the third quarter was targeted and efficient, with capital costs incurred totaling $63 million and a total of $298 million for the 9 months year-to-date, representing materially better-than-budget performance by the team.

It is worth noting that 2020 should be the third consecutive year we close out the capital investment program with better-than-planned expenditures, in addition to being the third consecutive year in which Range reduces debt, demonstrating our sharp focus on capital discipline and improving the balance sheet.

Cash unit costs improved by an aggregate $0.18 or 9% compared to the third quarter last year, declining to a total $1.84 per unit, driven primarily by reduced gathering, processing and transport as well as lower lease operating costs. Savings in these line items are due to the sale of higher-cost properties and continued efficient utilization of our gathering and transportation portfolio.

Compared to the preceding quarter, total cash unit costs were up $0.05 or 2.8%, of which $0.03 relates to GP&T, largely due to the return to service of certain natural gas transportation, as well as improving pricing for NGLs quarter-over-quarter given percent of proceeds, processing contracts and $0.02 in G&A due largely to timing of certain annual data and service renewals as well as onetime increased legal and miscellaneous costs during a transaction-heavy quarter.

We believe total unit cost levels achieved over the last 6 months total, meaning capital spending and fully loaded cash unit costs, represent a leading breakeven cost in Southwest Appalachia and we continue to look for ways to lower costs further. In total, the third quarter remains at the low end of annual guidance for unit costs. These structural improvements with the closure of sizable divestiture and its related costs behind us, we expect to maintain and continue to improve cash unit costs.

As noted on prior calls, one element expected to drive improvements in unit costs, specifically GP&T, is the contractual feature of reduced gathering rates over time based on existing advantageous contract terms and other transport contracts, where we have the option to release capacity at exploration or extend based on economics.

While I'm pleased with our progress, it remains a top priority to further reduce debt, further derisking Range's business. Looking ahead, our promising 2021 economics of the business for Range and its investors are poised to rebalance with significant free cash flow generation targeted. Let's make the math simple using reported numbers to illustrate the potential of Range's business.

Cash unit costs over the last 2 quarters averaged $1.82 per unit, add to that maintenance capital to arrive at real full cycle economics. If we simply take this year's $415 million capital spend, divided by annual production of a little over 800 Bcfe, you get approximately $0.50. That totals $2.32 per unit. As an example, assume $3 realized price, and you have $0.68 per unit of free cash flow or greater than $0.5 billion for the year in free cash flow for debt reduction.

Obviously, there are working capital and periodic one-off items that affect this illustrative math, but the example does not take into account the potential impact of the positive uplift from NGLs that Range receives, nor does it factor in additional expected capital and operating cost efficiencies due to business changes made this year and contractually declining costs.

As you can see, with U.S. natural gas production down materially, demand returning and potentially increasing with significant projected growth in LNG exports and much more disciplined drilling activity by the industry expected to be at or around maintenance levels for most operators, Range is positioned to reduce leverage and target cash returns to shareholders in the not-too-distant future. This is achievable because we have taken significant strides, including closing material transactions, all with our eyes on realizing the value of Range's immense inventory for the benefit of its shareholders.

Our strategic actions over the last 2 years have been focused on reducing risk while maintaining and enhancing the intrinsic value of the asset base. We believe Range holds the largest portfolio of quality inventory in Appalachia. Exposure to that inventory on a per-share basis has been preserved and enhanced by our strategic actions this year. That portfolio also includes a diversified set of customers and pricing points paired with a consistent and data-driven hedge program. We believe steps taken represent material progress in positioning Range as a more resilient business and primed to participate in improvements in both natural gas and natural gas liquids pricing.

On the topic of hedging, you will note that we added positions for 2021 during the third quarter into rising natural gas prices. This was a balanced approach to risk management and participation in rising prices. For over a decade, we have a steady practice of hedging a significant portion, over 70% of natural gas production. While we have a glide path or a common range in which we add positions over the course of the year, based on clear data indicating prices needed to rise to balance the market, we intentionally moved at a cautious pace in adding positions.

Today, we have a hedge book that lets Range participate in 2021's higher prices through higher hedge strike prices than peers, through our remaining unhedged production as well as through our unique natural gas price linked ethane sales. In addition, we have the contingent receivable for the Terryville sale, the majority of which is tied to natural gas prices through 2023. We will exercise the same prudence in hedging production going forward to protect the business while benefiting from what we believe to be a structural change in the natural gas market that requires pricing in 2022 and beyond to rise in order for supply to meet demand.

The well-defined and, we believe, achievable objective that all of us at Range work toward daily is to sustain a highly investable business that will be resilient through cycles, return cash flow to shareholders and offer compelling value, not only compared to other independent producers, but across industrial sectors.

Jeff, back to you.

Operator, we're happy to take questions.

(Operator Instructions) The first question is from John (sic) [Josh] Silverstein of Wolfe Research.

Just on the subject of -- just keeping on the subject of the hedges, you just talked about that. You mentioned that it was strategic hedging in there, but it looks like you guys pretty aggressively added hedges this go-around, given the rising price environment. I'm just wondering why you did it throughout the course of the year as opposed to maybe the summer months more aggressively rather than the winter?

Josh, this is Mark. I'll lead off on this one. So as I mentioned during the scripted portion, we have kind of a glide path, a ratable rate at which we add hedges over the course of the year. It's not programmatic. It's not just we're adding hedges blindly. We do a lot of data analytics. There is data-driven decision-making involved in the program. We intend to hedge a significant portion every year. That's the underlying premise to protect the balance sheet and protect the business. But there is judgment based off of the data that we see.

If we look back earlier in the year in the shape of the curve and the levels in the forward curve on natural gas, it was simply at levels that for the industry was unsustainable. And as we've seen, you've seen responses by producers, what looks to be rational behavior with maintenance capital now becoming the common theme and the rational decision-making by producers.

So with that, as prices began to re-rate into levels that Range can thrive in, we began to add more hedges just out of prudent risk management. So with that, we just exercised some judgment based off the data and moved a little bit more slowly than we might have in prior years. And we'll continue to take that approach to protect the balance sheet, but also to retain exposure to what looks to be the continuing improvement and structural re-rating in the price curve going forward.

Got it. Okay. And then you did, on the hedging side, leave yourself open on the ethane and propane side. I'm guessing maybe you're maybe a little bit more structurally bullish there. Could you just walk through some of the supply/demand fundamentals that you've seen there? Why not hedge into the current price environment?

Yes. This is Alan Engberg. I'm the VP of Liquids Marketing. So I'll start off just on addressing your question about the fundamentals. So with -- we'll start with ethane. The current fundamentals are actually quite strong on ethane. We're looking at roughly -- or close to being fully recovered in terms of the ethane that's available in the Permian and in PADD 3. We have new demand that's actually coming online over the rest of this year and into next year. That's really going to force the recovery of ethane out of basins that are outside of the major demand center in the U.S. Gulf Coast. So that's actually going to move the price floor up on ethane and we see that actually as being pretty much inevitable.

So the forward curve right now on ethane, with respect to hedging, was at a level that, in fact, is actually under, what I would call, the price floor based off of a Permian price, which is a WAHA gas plus some T&F. So it just really wasn't all that attractive from a hedging perspective. So our view is that going forward, eventually, the curve is going to catch up with the fundamentals, and it will be much more conducive to hedging at that point.

Similarly, for propane, I would say propane during the summer, people have been looking at the stock levels. They're actually at the high end of the 5-year range. Although if you look at the overall days of supply, they're near the low end of the 5-year range. We actually added during the injection season, which we define for propane April through the end of September, we added about 42 million barrels of stocks, which is well below what we added last year, which is around 49 million barrels.

So the fundamentals for propane actually have been improving. The price as a result is higher, much higher than where it was in the second quarter. It's higher than where it was last year at this time and it's higher on a relative percentage of crude-type basis. But again, we see strong international demand continuing to pull propane and then we've got seasonal demand coming up now. So the overall view is that the forward pricing is going to be better for propane as we move through the rest of the year. And again, we'll provide a better opportunity for hedging.

Yes. And Josh, this is Dennis. Just to bolt on to something Alan is sharing here for -- as we mentioned earlier in the prepared remarks, for every dollar adjustment to our NGL component, we basically see that adding $30 million in extra cash flow for Range in 2021. So we certainly have a view that, that could be certainly accretive for us as we look into 2021 and, as Alan says, once the fundamentals and the pricing starts to align.

Got it. Sorry, maybe just a quick follow-up there. Is there a price on ethane in which you guys start to take whatever you're rejecting out?

You know what, I'll jump in on that one. We look at that on a regular basis. A lot of it has to do with what kind of sales structure it is. Is it FOB? Is it -- does it involve using additional transport? So it's difficult for us to point to an exact price. But certainly, as you heard us talk about curtailments during the remarks this morning, ethane was a compelling story for us to be able to take advantage of opportunities when they do present themselves because of the relative pricing and cash flow opportunity versus natural gas in the quarter.

Our next question comes from Holly Stewart of Scotia Howard Weil.

Maybe just kind of starting off with the curtailment. This is probably one of the first time that we've seen Range talk about curtailments, at least in a fairly material way. So can you just maybe talk about the process? Is this just based on pricing? Or has something changed in your view that made you move to curtailing production?

Holly, this is Dennis. When you look at where, let's just say, pricing has been in-basin over the balance of September and October, it became pretty apparent that there were accretive options for us to basically move some of our production. And rather than maybe just call it curtailing, we really look at it from a production management standpoint. So things that we considered or where we had commitments, we took a look at opportunities to pull maintenance into the quarter that may be later this year when we have improved pricing environment. So we try to structurally look at all of that, plus scheduling adjustments for turn-in-lines that could shift slightly, getting out of some of the, let's just say, lower price environment.

When you start to look at October being sub-$1, and again, using M2 as a bit of a proxy, September being around $1, October being $0.65, November's outlook is now in the $1.65 range. And again, using that as a proxy, you can see where the framework supported us looking at curtailing some of our production where it was also commensurate in line with some potentially reduced cost and other activity.

So October was a key month. We started to see some curtailments toward the end of September as well. But when we saw improved pricing in the daily structure, we certainly took advantage of those opportunities as well. So it certainly wasn't just a flat curtailment. We wanted to look at further supporting our business objectives and the balance sheet, as Mark talked about earlier.

I'd also like to point out that most of our gas goes out of basin, about 80% of our gas goes out of the basin.

Yes. No, that's a good point, Jeff. And then maybe as a follow-on to that, Mark has talked about reducing the firm commitments and as they roll off over time. I think you guys highlighted an $0.11-or-so improvement in the GP&T line just over the last year or so. So maybe balancing those comments with the production shut-ins that you just did, we still have very weak pricing in the basin even as, I guess, weather is kind of rolling in.

So how do you balance the FT rolling off with really the fact that maybe MBT is kind of the last major pipeline that we have with the fact that pricing just remains very weak. Just generally talk about maybe the thought process, if there's a thought to keeping some of this FT as it comes due?

Yes, good series of questions there, Holly. So let me break that down into a couple of pieces. So for range, fortunately, we are fully utilizing our infrastructure. So our long-haul transport, firm transport to the Gulf, to the Midwest and so forth, is fully utilized. We produce, like Jeff said, over 80% is going out of Basin. So there's a portion that's left in basin, which given that full utilization, we had optionality built into our business that allowed us to selectively curtail just to optimize cash flow. And that did not leave unutilized any long-haul transport because we were talking about in-basin sales at that point.

So to your point on the firm transportation capacity, we hope we have shown a schedule in prior quarters. As you roll forward through time over the next few years, you do get to the maturity dates, the exploration base, if you will, of capacity. But Range holds the option to extend those. So that represents an option to Range that we simply make the economic call on, is it more economic or the net backs better for Range to retain that and achieve a better sales price at the end point. Or at that point, does there still exist an excess unutilized capacity coming out of the base, and not Range specifically, just talking about the basin in total. Is there still capacity available that we could access on an interruptible basis.

So those will be decisions for each piece of capacity as they come due completely within Range's choice. So it's a really great position to be in where we have the choice, fully utilizing what we have today and then have a series of options. So that represents potential for declining costs over time, but also option to control and improve our margins. One thing I would say, though, is that there is still a declining cost built into the gathering, processing and transport due to the declining gathering costs that run over time.

Yes. Holly, this is Dennis. And just really a quick bolt-on here. When you look at just kind of the numbers of total production in Appalachia today, we see somewhere in the neighborhood of about 32 Bcf. But you look at current takeaway capacity minus MBT plus local demand, there's still around 3 to 4 Bcf of additional, let's just say, room and capacity in totality and that's without the MBT.

When you roll the tape forward for 2021 along with us and others talking about activity of maintenance-type levels, holding production flat, we really see that whether it's a discussion around bases or really just overall takeaway, we see this aligning well with us for the next 12 to 24 months.

Certainly beyond that, harder to predict, but we see this actually lining with us pretty well. Throw in MBT in there, now you've got a couple of more Bcf. Again, we're going to have to see the -- with the backward-dated strip, most likely an improvement in that structure today to support and promote growth that could build that infrastructure.

Yes. No, Mark, good point on the gathering and processing. Maybe just one other question for me and maybe this one is for Jeff. I mean, Jeff, we've seen a lot of M&A. I don't want to say a lot, but you've certainly seen quite a bit of M&A kind of start to pop up. Just curious of your views on maybe what we've seen thus far in the Appalachian Basin and maybe where you could see Range kind of fitting into this consolidation.

Yes. Yes, we've seen in the industry a lot of M&A recently and I think you'll continue to see it. You're seeing certain transactions in Appalachia. That, I think, will continue as an industry down that path which, again, I think is helpful for supply/demand balance and all that type of thing.

So for Range specifically, let me start, we're open to whatever is best for Range's shareholders. But to pop back out again to a high level, obviously, if we're in a commodity business. In a commodity business, you want to be low cost and want to have a large inventory. And in today's environment, I think you really want to have a strong environmental track record and performance. So those are critical. And then if you kind of zoom down the range, I think we're very well positioned.

At Range, we have the best cost of drilling, complete in-basin below $600 per foot. We have the lowest base decline in-basin at less than 20%, lowest maintenance capital and largest Tier 1 inventory. So when you kind of fast forward into 2021 and 2022, I think we generate a very competitive free cash flow yield against other E&P companies. And really, I think it will be competitive against other sectors as well.

And importantly, if you look at our latest CSR report, sustainability report that we put out in August, I think we have -- what we do have, according to third-party data, the lowest emissions of any oil or gas company based on that third-party data. So for Range specifically, again, we're open to whatever is best for shareholders. You'll see us stay very focused. Whatever we do will be in-basin, will be deleveraging and will be free cash flow accretive on a cash flow basis. So that's kind of how we think about it.

Our next question comes from Neal Dingmann of Truist Securities.

Jeff, my first question is for you or Dennis. My question is around that Slide 15. You guys in the past have done a good job and you talked about returning to existing pads. Just wondering -- my question is, definitely, you save on infrastructure there, but are there issues such as the offset frac shut-ins or things that present challenges? Or you basically -- that just goes as part of your plan and you don't -- that's not a big deal.

Yes, I'd say -- well, let me start and I'll -- Dennis and I will kind of tag team this one. But yes, we've been returning to existing pads for a long time. And we have -- and it clearly is helpful from a cost perspective. When you look at the long-term performance of the pads and the wells that we drill in those areas, they're great and there really haven't been any issues for us at all there. So it is a competitive advantage of having a big blocky position and the ability to go back. Of course, it helps with extending laterals and water recycling and all those utilizing all the existing infrastructure.

But let me flip it over to Dennis for more specifics.

Yes, Neal, just to really bolt-on to what Jeff said, we've been doing this for a number of years. And what we haven't seen is some of the challenges that may play in some of the other basins as they start maybe talking about cube development and other creative strategies to try and offset or arrest, let's just say, parent-child relationships. We just really haven't seen that on our side.

And I think a good thing for us to point to is the continual repeatability with our published type curves that we put in our slide deck. And in some cases, we've had positive revisions, especially as it pertains to the super-rich area where we see increases in our well productivity over the course of time as we provide things like landing target and also our completion strategy in each one of the respective areas.

So we see this being very repeatable. We're excited about the cost and capital efficiency -- efficiencies we harvest by moving back into those pad sites, utilizing the existing infrastructure and just overall being able to also minimize our footprint. So really encouraged by the results, and we're not seeing anything that would suggest a degradation in well productivity; if anything, just the opposite, very repeatable.

Got it. And then just my follow-up, just probably for Jeff or Mark, is around your leverage. You're certainly making some notable progress on the paydown. But it looks like leverage is still obviously certainly a bit higher than some of the peers. Could you talk about -- you all have done asset sales, work interest sales, you've been kind of pretty creative on what you've done. I'm just wondering, what are the thoughts sort of in the '21 out there as far as, is it to do more similar type deals like this? Are there other types of transactions that you all kind of consider? I'm just wondering sort of what's on the table to continue to address this in addition to, obviously, the free cash flow.

Sure, Neal. It's a good question. And obviously, something we've been very busy focusing on for 2 years now, reducing total debt, asset sales approaching $1.4 billion. That's down by -- from a peak about $1.2 billion. Just this year, if you add everything else, nearer-term maturities through 2024, down by about $1.2 billion, refinanced or redeemed into longer-term maturities.

So in terms of evaluating what we need to do versus what we would like to do, we have some time. We have some flexibility to make sure we're doing things that are in the best interest of risk management for the balance sheet, but also the best interest of shareholders in preserving that per-share exposure and value to Range's inventory. So all that having been said, it is still our target to get leverage down, continue reducing absolute debt. Long term, the leverage target will be substantially below 2x, much lower than that. That's where we'll get the company to and run.

If we just look at what cash -- what commodity prices can do into next year, there's material deleveraging even in the absence of an additional asset sale. That being said, we'll still continue to explore those, but it again comes down to value. So in summary, for a long-winded answer, I would say that we'll continue to focus on reducing absolute debt and continue working in the fashion that we have for the last 2 years.

We'll go to Brad Heffern of RBC Capital Markets for our final question.

Mark, just a sort of a follow-on to the last one. How do you think about the use of cash, either towards paying down the revolver versus repurchasing debt? Obviously, you've been able to get some of the bonds at a discount, but they're back to trading close to par. So how do you think about increasing liquidity versus maybe making the well maturities a little easier?

Sure. It's a good question. The answer is it's a balance. We have ample liquidity. At quarter end, total liquidity was approximately $1.4 billion under the credit facility. So there is not a need to further expand that. We're going to be an organically funded, free cash flow-generating business. So over time, you would expect the need for Range and for the industry, for that matter, to rely and use these bank credit facilities to decline over time.

So we'll use it as a tool. We'll use it as a tool to redeem bonds at advantageous prices and manage maturities. But we'll also just continue to push maturities out and then pay them down with cash flow and asset sales. So there's not a simple direct formulaic answer for you to that, other than we have ample liquidity. We'll continue to preserve that. And then just balance cash proceeds in terms of applying them to bond maturities as they come up and/or principal under the revolver.

Okay. And then just sort of an administrative question. On the retained transport obligations in the Terryville, can you just talk about how those are going to flow through going forward? Is that something where we're going to see sort of a revaluation of the balance sheet asset on a quarterly basis and it won't flow through the transport line? Or will we see continued transport charges related to that?

Sure. So the liabilities that were retained, just to kind of frame the subject, these are the processing capacity, by and large, unutilized in that region that we've been paying all along since the original acquisition of the Terryville asset. So with the divestiture of Terryville, the utilized portion and some went with that asset. So Range is left with a reduced liability, reduced retained than what we had otherwise. So that was a benefit of the transaction in addition to bringing in cash up front. Add to that the potential and, hopefully, likely potential of further reducing this liability with the development that's expected to occur in that asset.

So to get more direct to your question, the mechanics of that. The present value of that likely liability payment over the next 10 years was recorded in a one-time, I'll call, the lump sum as noncash. The recurring cash flow associated with that, as a consequence, will be a reduction in that liability over time as we pay it and you'll see that flow through in working capital on the cash flow statement. So the income statement impact has been taken in full. You might see some minor adjustments up and down just on variations of development activity. For example, if they accelerate development, potentially see it reduced, but by and large, you will only see that in the cash flow statement going forward.

This concludes today's question-and-answer session. I'd like to turn the call back over to Mr. Ventura for his concluding remarks.

I just want to thank everybody for taking time to participate in the call this morning, and feel free to follow up with additional questions with our team. Thank you.

Thank you for your participation in today's conference. You may now disconnect.