Umang Choudhary: Hi, good morning and thank you for taking my questions. My first question was on the NGL macro. Appreciate all the details on your slide deck. Prices have been weak this year, especially for LPG, and you’ve seen a pickup in exports recently, but the freight prices have been high too. So, would love your thoughts around the LPG outlook heading into next year.
Dennis Degner: You bet. Good morning, Umang. I think as we start to think about – I’ll start with propane first. When you think about what we’ve seen, clearly stock levels have been elevated. We’re running around 100 million barrels in inventory levels. That’s clearly on the back of a weaker winter from this past year. And also, maybe a little bit of a slower progression to the chemical markets than what had originally been anticipated. I think if you start to think about 2024, which was the crux of your question, a couple of things I see or we see is underpinning a positive movement going forward, and one is the PDH infrastructure and cracker infrastructure that’s been in the process of being commissioned, seeing improving run rates month over month, but also additional infrastructure that will get commissioned.
So, it’s around 400,000 barrels a day in infrastructure this year, and next year it’s in excess of 400,000. So, you’ve got back-to-back years of what we’ll call incremental needs and in infrastructure that’s going to get commissioned, that’s going to help with this stock level perspective and view. Other side of this equation is, you’ve got really strong exports. If you look at year-to-date values, we’ve seen a range of 1.5 to 1.7 million barrels a day. Average is a little over 1.5 for the year. A few years ago, that would’ve been a peak moment and a record to point to, but now it’s good, strong repeatable performance month in and month out. So, that’s certainly helping with the equation. When you think about days of supply though, and you translate that back to where we’re at today, we’re really 3% below the five-year average.
So, when you think about all the demand component and getting through the winter setup that we have ahead of us, we see stock levels starting to renormalize as you get into through the first half of 2024. Ethane is tighter. Days of supply on that side is around 18 days and storage levels are just below 50 million barrels. And we continue to see strong interest from our traditional counterparties on additional ethane opportunities. And so, we would expect to see some spikes at times in pricing like we’ve seen over the past three to six months. It’s been reflective in how the market has been tightened. We would expect to see some ongoing volatility as we move forward. And of course, once we start to see net gas storage levels get renormalized as well, you would expect to see further improvements in ethane trading then on the back of what’s happening on the gas front as well.
Mark Scucchi: I’ll join in here as well. As we think about the valuation impact of that commentary in the backdrop that creates, today we’re seeing NGL realizations in the 35% type zip code, mid-30 relative to WTI. As we think about a more normalized level that we would fully expect to be well in excess of 40%, what you’re seeing is an embedded option value within Range for that re-rating for the normalization of propane inventories. And while nominally they are high on a days-to-cover basis, like many of the other commodities, they’re not that far off of five-year averages. So, with these high export levels, growth and demand, the speed at which they can recover to normalize levels nominally and actually become tight in reality, really highlights the value of that embedded option of NGLs within the Range story.
Umang Choudhary: Another option which you have is also on growth given your differentiated inventory. Anything you would like to see on local demand or anything you’re seeing on gas marketing which can unlock that potential heading into next year, or in the next few years?
Dennis Degner: Yes, I think when you start to think about the opportunity for growth, and we’ll just say in-basin demand, clearly a shell cracker is a good example of it’s ongoing commissioning, getting to higher run rates over the course of time, and it is working through what we would kind of view as normal greenfield startup type challenges, but also successes in the same breath. So, I think that’s a good example. I think the other part is, is you’ve got coal retirements that are going to be taking place over the balance of the next few years, opportunity for nat gas in Range to backfill those opportunities for power generation. I think if we learned anything this past summer, nat gas really stood strong for that backfill of power generation, adding 2.5 BCF roughly in incremental power generation, and occupying that space when at times wind and others were below forecast.
So, we see those as kind of more in the near term. I think once you start to get past 2024, you really start to have the question of, what additional power generation is going to get put into place from a combined cycle standpoint? I think you’re seeing a lot of dialogue now around the grid reliability, how you expand that. We’re going to have further electrification and bolstering of the grid. That’s going to come with a reliable fuel source, which we think Range and nat gas is going to play a huge role in that. And I think the second thing I would throw out on the future is EV battery, industrial type development, manufacturing, if you start to look at where some of this incremental and future manufacturing and industrial demand is pointing to be constructed, it’s not too far away from some of the transport that Range has in our portfolio that gets us to the Gulf, to the Midwest.
So, again, we really see this as being a bright future for not only nat gas and NGLs, but the role that Range could play in that as you start to see inventory exhaustion by others, and also then underpinned by the quality and runway of inventory that Range has. So, we think it’s a bright future. It’s a multi-variable perspective as you look forward.
Umang Choudhary: Very helpful. Thank you so much.
Operator: And one moment for our next question. Our next question will be coming from Michael Scialla of Stephens. Your line is open.
Michael Scialla: Hi. Good morning, guys. Dennis, you gave some detail on the savings you anticipate for steel and sand, maybe on rig costs as well. It looks like you kept your well costs in your investor deck unchanged from last quarter. Can you say where you think 2024 costs will be relative to 2023? Do some of those savings get offset elsewhere? I know you mentioned the new frac fleet. Is that going to offset those savings, or do you anticipate lower costs next year?
Dennis Degner: Yes, good morning, Michael. I think I would start off by somewhat saying, we’re super early in the process of our RFP rollout that we just deployed here over the last several weeks. So, what I’m sharing with you is kind of some of those early indications in the prepared remarks this morning. I think we’re going to have a lot better view once we get toward the end of the year, we get that process wrapped up, and we start to communicate how that translates into our execution for our plan for 2024. So, I think we’ll have a lot better view at that point. The numbers in the back of the slide deck haven’t changed because ultimately we’re still in the middle of that evaluation of that process. And once we know what our full cost structure will look like, then we’ll have, again, better updates.
You are seeing, in our opinion – I’ll share one final thought. You are starting to see, I think a – maybe costs are going to look differently than the traditional rig count up, service cost up, rig count down, service cost down, across the board. And we tried to share some of that this morning in the prepared remarks, because you’re still seeing a high level of utilization for services as an example, like super-spec drilling rigs and also the electric fracturing fleets. We think that could present some stabilization in that cost structure, maybe even some slight relief, but it’ll be other areas that we may see, again, more relief, whether it’s some of the consumables like tubular goods where we’re seeing that 30% relief for next year and have done a job of securing that, but also in areas like diesel fuel, more stabilization on the frac sand side as well.
