Jacob Roberts: Thanks. Appreciate the time.
Dennis Degner: Thanks, Jake.
Operator: Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Michael Scialla with Stephens. Your line is open. Please go ahead.
Michael Scialla: Good morning, guys. I just wanted to ask about the decision to spend on some of these other things above the maintenance capital level. Are you really looking for, I guess, the main question is, why now? It’s obviously you’re looking at things in the future, but with gas prices where they are and so many of your competitors trimming budgets, what was the compelling force to spend those dollars today or this year rather?
Dennis Degner: Yeah. Good morning, Michael. I think I’d start this by kind of saying, look, the water infrastructure is, we’ve had a very low, I’ll just say ongoing investment into the water infrastructure, but as an example, it’s been a significant piece of our story that supports our low capital efficiency. So this felt like the right time for us to invest in expanding of that infrastructure as we think about what the future could hold for additional activity, again, as we continue to move back to pads with existing infrastructure, really supports, again, that low cost dollar per foot or dollar per barrel type basis. And quite honestly, it supports recycling of water from other producers, which is a key component for low cost water to our doorstep on location, if you will.
I think the other part from a land perspective, I think, we just talked about it a little bit, but we kind of see some of this as lease management, but also its overall allowing us to extend these laterals and the ability to deliver some of our most capital efficient wells. The additional activity that’s in that bucket, that’s really just not picking up three rigs going down to one at the end of the year and then trying to pick those other two rigs up in January. It’s utilizing existing drilling rigs. We’ve got relationships with these service partners that deliver some of our best efficiencies, which we’ve highlighted this past year. We couldn’t be happier with the direction that we’ve been moving with both the crews, the service partners and our team.
It feels like this is the right time to continue to maintain that momentum as you think about 2025. And look, we can make decisions to make changes based upon what the setup is for 2025, but we’ve got one base frack crew and one drilling rig alone will not supply enough, we’ll just say, wells, to keep that one frack crew busy. So this is a very lean program, something that we’ve reinforced now time and time again. But I think when you look at also some of the investments we’re making now, I guess, the other part would be, this probably in a lot of ways, depending upon how you think about 2025 and 2026, could be lower cost investments at this moment versus what we could see in the future years. And so we feel like it’s a good window, these are low dollars in a grander scheme of the overall value of the program and we think it sets up a really nice story.
I’ll hand it over to Mark real quick.
Mark Scucchi: Sure. I think Dennis obviously just highlighted the key operational reasons and drivers. So just zooming back out to the financial point of view is now an appropriate time to do it. I think the simple answer to the question is, yes. If you look at what the program is, we’re achieving our core objectives to generate free cash flow, fund the maintenance program, strengthen and bolster the balance sheet, return capital to investors and prudently invest in the company. I think we check each of those boxes quite comfortably. So if you look at our reinvestment rate into D&C activity for the year for maintenance program, it’s peer leading. There’s a slide on page seven of our deck that highlights that. If you look over the last couple of years, Range is in the 25% to call it 50% of cash flow for reinvestment and maintenance program, depending on the prevailing price environment.
Industry is at 75% to greater than 100% call on capital to hold their production flat. So for Range, Dennis’s point, this is an opportunity when we think costs are appropriate in advance of what they could be in the coming years as demand eventually does materialize and grow. We can build, again, very modest investments. Just-in-time inventory works fine most of the time, but if you can make very modest investments and have a small inventory of wealth, that’s far more operationally efficient and friendly from a cost perspective and creates that flexibility to repeat something Dennis said earlier for 2025. Do we maintain the inventory? Do we build it or do we have the option of using some of that if for some reason prices remain subdued?
That’s the resilience and the flexibility of the Range story of why we generated cash flow last year and will do so again in 2024, we fully expect.
Michael Scialla: That makes a lot of sense and I appreciate all the detail on that. You mentioned, Dennis, I heard you write it 29,000, and you’re a little over 29,000 for the lateral. You keep pushing these things further and further. I guess as you do that, does the infrastructure there, does that create any infrastructure requirements for the longer laterals, and do you see any, have you had any issues producing these longer laterals over the longer term?
Dennis Degner: Yeah. We’ve actually seen good repeatable performance out of the wells, no issues on the operational front from a — I’ll just say the ability to complete these wells. Also, production facilities at the surface haven’t, we’ve upgraded some of our design over the course of time, but what we haven’t done, Michael, is tried to design them for peak production. So, we keep the infrastructure fully utilized and we basically keep our cost structure as low as possible by doing so. So, I think, we have the ability to continue to do this for quite a while, so it’s pretty encouraging the way we’ve set up the design. So, it keeps us from basically spending, I think, too much money inefficiently on the facility design by trying to reach that peak performance out of the gates, knowing that, whether it’s in the months that follow, we’re going to basically be well within the limitations of that equipment.
Michael Scialla: Thank you. Appreciate the answers.
Dennis Degner: Thanks, Michael.
Operator: Thank you. And one moment as we move on to our next question. And our next question comes from the line of Leo Mariani with ROTH MKM. Your line is open. Please go ahead.
Leo Mariani: Hi, guys. I want to just hit on a couple of the numbers here. I appreciate some of the detail on the taxes. I think that’s always helpful for the analyst community, but just to kind of maybe dumb that down a little bit for me here. Did I hear that you guys are maybe expecting around 80% shield on your cash taxes on the federal level in 2024?
Mark Scucchi: In 2024, I think, you’re going to be better than that. We’ll defer taxes. The first layer of the federal NOL, call it, $160 million, lets you offset 100% of your pre-tax income and you still have the annual deductions for that year and then there’s the next layer that allows you to offset up to 80% of taxable income. So in 2024 at the federal level, I would expect minimal taxes. The effective tax rate probably looks quite similar to where we were in 2023, and for the next couple years, you might slowly, as you move into that second layer of NOLs, where you’re shielding or deferring taxes on 80% of your income, you would still have several years to work through, a couple more years in any event, 2026 and probably into 2027, to dramatically reduce taxes before you start to see any material sort of uptick.
Leo Mariani: Okay. That’s nice to hear for sure. And I just wanted to follow up a little bit on what you guys were saying on kind of cadence of capital in production. Appreciate you giving that first quarter production number. It sounds like it’s down about 5% versus the prior quarter. You did mention that you are looking at potentially deferring some turning lines with the weaker gas prices here. I’m not sure if that’s a factor in the first quarter or maybe it’s just fewer turning lines here and perhaps some maintenance. And then just on the CapEx side, you did say it was a little more front-end weighted. So, any help on that? It should be like 55% in the first half, just trying to get a little sense of the cadence on the production and the CapEx here in the near-term?
Mark Scucchi: So I think a good way to think about our production is it’s going to feel very consistent in, I’ll say, a normal profile to what we delivered actually last year. So you might see that character move a little bit where our low point is going to be more, I think, looking like Q1 instead of last year, it was more Q2, but if you look quarter-over-quarter, the profile is very consistent. And so having the one frac crew, again, as we’re kind of churning through our turning lines, you’re going to start to see that production profile then start to manifest itself through Q2, Q3, and Q4, and with the peak being clearly in Q4 as we get ready to walk into the winter of 2024 and 2025. But it’ll be real consistent with the profile that we’ve delivered the last couple of years. It’ll look kind of business as usual for us.
Leo Mariani: Okay. No. That’s helpful. And then just any comment on the capital? I know it’s front-end weighted, but is it significantly front-end weighted or maybe just a little bit, because I know you guys are talking about some of that extra capital, which might happen late in the year this year?
Mark Scucchi: Yeah. I would expect the capital to look, again, real similar to last year. All-in-all, service cost on a quarter-over-quarter basis, service costs really have moved down a little. So you would expect to see, I’ll just say, mid-to-low single-digit relief in that front. But as you look through the year, our quarter-over-quarter capital reporting from 2023 should look pretty similar.
Leo Mariani: Okay. Thanks, guys.
Mark Scucchi: Thanks, Leo.
Dennis Degner: Thank you.
Operator: Thank you. We are nearing the end of today’s conference. We will go to the line of Noel Parks with Tuohy Brothers. Your line is open. Please go ahead.
Noel Parks: Hi. Good morning. Just had a couple things. You were touching on the service cost cycle just now, and I wonder if you — this last cycle of inflation was pretty unusual with kind of everybody coming back online after COVID. And so I just wonder kind of where we have some operators talking about slowing their rig activity, rig and frac activity. Do you have any sense of where we are or might be headed in the service cost cycle? Are we headed back to, say, 2019 levels, do you think? Just any thoughts you have on that.
Dennis Degner: Yeah. Good morning, Noel. I think I would start off by saying it’s early and it’s tough to kind of frame, I think, at this point what the math and the calculus could really look like. I do think that you’ve probably heard me say this in the past when service costs have come up and I do think that this environment that we’re in could look and feel a little different than past cycles where you have traditionally, let’s say, commodity prices up, service costs up, commodity prices down, service costs down. I think it’ll be a blend of those and I think we’ve already seen that through the balance of 2023 where we’ve seen relief in areas like tubular goods, as an example, and maybe some of the other consumables that we’ve had or that we utilize in some services, but as you would imagine, on the electric fracturing fleet side, those fleets are in very high utilization.
So it’s certainly created its unique demand, if you will. So drilling rigs, we’ve all coalesced to kind of a similar super spec rig configuration where we’re all drilling along laterals across multiple basins and so that’s provided, even though some rigs will certainly could come out of the mix based upon some of the recent reporting, I would expect there to be some relief potentially there. But it’s got to play out with some other rigs that potentially drop out of the mix in the next three months to six months. I think we look at last year as a trend. It took a while for us to see some relief and it probably came more at the mid-year point than it did in Q1. So could see some relief, but I think it’s still early and know that as you look at our capital efficiency numbers and really just the overall cost per foot values that we’ve reported in the past, because of our strong relationships in history with our service providers and our service partners, know that we’ll look to basically take opportunities when we can to work together, reduce costs, because we know at some point in time it will probably go the other way.
Noel Parks: Got it. And I just was thinking about the commodity price environment and weak winter weather and a weak heating season is a movie we have seen before. And we’re still pretty much everyone focused on the uptick, or I should say, the step up in demand that we’re going to see the next couple of years with LNG capacity. It kind of seems like we have the speeding trains headed to each other where you have seasonality having its traditional effect this year. But we know that, there’s a big ramp up of demand coming. Do you think we are we kind of getting to the last years or the last innings of having things be so heavily impacted by winter weather as far as demand? Because it just seems like at some point, and I don’t know if it’s really in the strip yet, at some point, these factors kind of have to collide, it seems to me. So any thoughts you have on that would be great?
Dennis Degner: Yeah. A good question is something we talk about, as you can imagine, pretty frequently here in the shop. And I think, we basically have highlighted something on slide 19 we think is worth kind of pointing out. I think when you start to think about LNG demand that’s going to be coming online through the balance of the between now and 2028, when you look at ResCoM Industrial [ph], you look at exports to Mexico remain really resilient. You start to factor all of that in and plus power burn what we saw last year. In my mind, a little bit of an underappreciated story on the repeatability of that as you start to see at times underperformance by some of the other alternative power sources. So when you start to factor all of that in, we really see that you’ve got to get to 126 BCF, 125 BCF of overall demand by 2028, and where we stand today, there’s a significant delta there.
And so LNG is going to play a role in this, but LNG is not going to be the only factor as you start to consider demand growth on the go forward. We think infrastructure is going to need to play a really key part to this and so whether it’s advancing permit reform or other conversations around utilization and brownfield expansions, it’s going to be key to meet some of this growing demand and I haven’t even touched on coal retirements and other sources. When you look at some of the infrastructure that’s going in from a manufacturing standpoint is associated with some of the chip development and other processes. So we kind of see there’s a real opportunity for us to continue to move toward trading like a global commodity and less being influenced by weather alone.
Noel Parks: Great. Thanks a lot.
Dennis Degner: Thank you, Noel.
Operator: Thank you. This concludes today’s question-and-answer session. And I’d like to turn the call back to Mr. Degner for his concluding remarks.
Dennis Degner: I’d like to thank everyone for joining us on the call this morning and walking through the results from Q4 and the plan that we have ahead. If you have any questions, feel free to follow up with our Investor Relations team. We’ll see you in the next quarter. Thank you.
Operator: Thank you for participating in today’s conference. You may now disconnect.
