Here's why Range Resources is spending less than half of what it did on drilling in 2018

By Paul J. Gough – Reporter, Pittsburgh Business Times

Range Resources Corp., mirroring the larger Appalachian natural gas industry, plans to spend about the same amount of money on drilling and hydraulic fracturing this year as it did in 2020 — less than half what it spent as late as 2018.

Gone in the regional natural gas industry are the days of growth for growth’s sake, as spending discipline, sluggish pricing and demand, and Wall Street sentiment has replaced it with a focus on free cash flow and producing just enough natural gas to keep current levels of production. Range Resources (NYSE: RRC) plans $425 million in capital expenditures in 2021, all but $25 million in drilling and completions. That’s 59 wells in southwestern Pennsylvania, down from 67 completed in 2020.

This year and last year are a long way from the halcyon days of the Marcellus and Utica shale play. Range spent $1.27 billion on capital in 2017 and $910 million in 2018 before cutting it to $728 million in 2019. Range spent $411 million on capital projects in 2020, $109 million more than it originally planned before the pandemic.

Two factors are at play: Not only does Range not have to drill as much as it used to to keep its production level, but also efficiencies and reductions continue to make it cheaper for the company to drill compared to previous years. Range’s average cost per foot of well to drill is under $600, which is purportedly the lowest among its peers in the basin.

This was the third year in a row that Range has come in under even the lower budget due to innovation and efficiencies during the year, CEO Jeff Ventura said Wednesday during the company’s fourth quarter earnings call.

“(It’s) a reflection of our cost leadership and disciplined capital spending,” Ventura said.At the well pad, the efficiencies include using natural gas as fuel for drilling rigs instead of diesel — which saved not only $4.5 million last year but also reduced truck traffic and emissions — as well as its electric frac fleet, water reuse and drilling longer wells.

Range also saves money by drilling new wells at existing pads, which already have roads and pads built as well as gathering lines. Two-thirds of the wells that Range turns in line are on existing pads, which saves on infrastructure building.

“It becomes a fundamental and repeatable part of our program year in and year out,” said COO Dennis Degner.

Not that it has any shortage of new sites to drill. Range has proved reserves of natural gas of $8.6 billion at $2.75 per million BTU. There are thousands of potential wells that Range can choose from in its inventory, well after other drillers will exhaust theirs, Ventura said.

“Range will remain well positioned with multiple decades of inventory,” he said.