Welcome to the Range Resources Second Quarter 2020 Earnings Conference Call. 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 2nd quarter earnings call. The speakers on today's call are Jeff Ventura, Chief Executive Officer Mark Scucchi, Chief Financial Officer and Dennis Degner, Chief Operating 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 yesterday.
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, Leith, and thanks, everyone, for joining us on this morning's call. We are very pleased with the progress the team made this past quarter, moving the ball forward on multiple fronts and further strengthening Range as a leader amongst natural gas producers. As we'll detail in our upcoming sustainability report, we believe the natural gas industry has an advantaged position today and for the foreseeable future as the world moves towards cleaner, more efficient fuels. And within the natural gas industry, we believe that Appalachia advantaged globally has an abundant, low cost resource with leading environmental standards. Most importantly, we believe that Range, having discovered Dimarcellus, is best positioned within Appalachia for several reasons.
I'll walk through each of them briefly. The first differentiator is Range's peer leading capital efficiency and maintenance capital. Since discovering the Marcellus in 2004, the team has been on the leading edge of well cost and performance per lateral foot, and this year is no exception. As evidenced by our capital spending thus far in 2020, the team is doing a superb job meeting and beating this year's average well cost targets with recent well cost trending below $600 per foot. These outstanding cost controls, paired with Range's well productivity and peer leading base decline, provides us a true maintenance capital requirement that we believe is unmatched in Appalachia.
Secondly, Pennsylvania has some of the best environmental standards
in the world when it
comes to natural gas production. Importantly, Range has been and will continue to be a leader and innovator when it comes to environmental efforts, whether that's our 100% water recycling, our transparent disclosures or the industry leading methane emission targets that we're setting, making Range the sustainable choice for current and future natural gas supply. As the world seeks to reduce emissions, we believe that Range in the U. S. Natural gas industry will play a critical role in reaching global emissions targets.
Lastly, Range has a core inventory that is class leading. Our year end 2019 proved reserves were 18.1 Tcfe or 21 times current annual production and included just 4 42 undeveloped wells or about 5 years' worth of development. In addition to those reserves, we have thousands of additional locations in the Marcellus that will move into proved reserves as they become a part of our 5 year outlook. In addition to that Marcellus resource, we are holding significant future optionality in thousands of low risk Utica and Upper Devonian wells that are being held by our Marcellus development. We believe that as other producers exhaust their core Marcellus inventories and begin developing these other horizons, which are adjacent to our acreage, this value will become more apparent.
Our core area in Southwest Pennsylvania is the only area in the basin where you can stack the core of all three horizons. Understandably, this multi decade, multi horizon inventory does not get much attention today as the market is much more focused on the near term. However, as core exhaustion becomes a growing reality in U. S. Shale plays over time, Range will ultimately stand out amongst peers as a result of our industry leading inventory of core natural gas and liquids wells.
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. I'll quickly highlight our recent progress against a few of these key initiatives. First, yesterday, we announced the sale of our North Louisiana assets for $245,000,000 with the potential for $90,000,000 in additional proceeds depending on commodity prices. Having sold over $1,300,000,000 in assets since 2018, these divestitures show our commitment to a strong balance sheet, while streamlining our activity and enhancing Range's capital efficiency as we focus our capital towards our highest return assets. To that end, additional asset sale processes remain underway.
2nd, our $430,000,000 capital budget for 2020, which was reduced by $90,000,000 in March, approximately aligns with cash flow and spending this year despite a highly challenged commodity environment. When including proceeds from the North Louisiana sale, Range expects to reduce absolute debt again in 2020, marking the 3rd consecutive year of absolute debt reduction, a rare feat in the E and P sector. And third, we continue to see considerable improvements in our unit costs with cash unit costs in the second quarter declining to $1.79 per Mcfe. When compared to the end of 2018, our cash unit costs have improved by a remarkable $0.39 per Mcfe or 18% in just a year and a half. This is primarily the result of efficiently utilizing infrastructure and streamlining operations.
Looking ahead, we expect our cost structure to see continued improvement over time. Most impactful will be the continuing improvements we see in our GP and T expense. GP and T has become a tailwind as we're now benefiting from the significant infrastructure build out that occurred over the last 15 years. Before I turn things over to Mark, I want to reiterate Range's strategy for 2021 beyond. As we've discussed in the past, Range is committed to sustainable free cash flow, generating corporate level returns.
To that end, we do not have any external pressures that would cause us to grow for growth sites. Looking into 2021, we see considerable improvements for the natural gas and NGL macro as a result of activity driven supply declines, particularly in shale oil basins and strengthening global demand for natural gas and NGLs. For this reason, many reputable analysts are now predicting $3 natural gas or higher in 2021. However, while 2021 natural gas futures have improved since their lows in March, forward curves beyond 2021 remain depressed. This is not a market that's incentivizing any growth and Range has no plans to grow and add supply to the market.
Instead, Range will seek to maintain current production levels and optimize cash flow similar to our capital program this year and use excess cash flow from higher near term prices to reduce debt. Over time, as we approach our long term balance sheet targets, Range intends to return this free cash flow to shareholders. In summary, in the near term, Range is focused on what is within our control, continuing to drive down costs and debt. However, the incredible store of value embedded in our reserves and resource should not be overlooked. Through disciplined capital allocation, efficient drilling and completions and innovative marketing, we look forward to translating that resource into competitive, sustainable returns for our shareholders.
I'll now turn it over to Mark to discuss the financials.
Thanks, Jeff. The theme of the business for the last 18 months has been cost reduction, both unit costs and capital efficiency, debt reduction, extension of debt maturity profile and expansion of liquidity. These trends continue during the Q2 and we intend to keep delivering on these objectives in coming quarters. As stated on our last call, it is not our strategy to passively wait for improved prices. While we agree with consensus third party research projections of natural gas prices moving materially higher, we continue to execute on strategies strengthening the business and enhancing yesterday, we've taken an additional meaningful step in high grading the portfolio, improving corporate base decline rate, improving maintenance CapEx and improving unit costs while generating gross proceeds of $245,000,000 and an additional potential $90,000,000 contingent on commodity prices, all of which will be applied to debt reduction.
Pro form a for the application of these proceeds, since late 2018, this brings total divestiture proceeds applied to debt reduction to nearly $1,400,000,000 Improvements at Range are not are only partially due to further high grading assets. Our relentless focus on efficiency has improved breakeven costs. This is attributable to operational excellence, driving productivity for every dollar in drilling and completion investment, combined with a meticulous approach to managing corporate overhead. This is evidenced by significant achievements visible in 2nd quarter results. As mentioned a moment ago, we expect unit costs will further improve as a result of focusing on Appalachia.
In addition, a rigorous review of company wide staffing levels has identified areas for reduction that when combined with Louisiana personnel departing as a result of the sale will constitute a reduction in force of more than 100 people or 17%. When these steps are complete, Range will have reduced headcount by roughly 36% since the beginning of 2019, resulting in durable improvements in G and A and lease operating costs. These difficult but necessary steps as part of our overall operating and corporate cost management efforts have created a new leading breakeven cost in Southwest Appalachia. Breakeven meaning cash costs plus maintenance CapEx per unit of production. Our strategic decisions over the last 2 years have been focused on reducing risk, mainly deleveraging 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 derisked. That portfolio also includes the diversified set of customers and pricing points paired with a consistent but data driven hedge program. We believe steps taken thus far represent material progress in positioning Range as a more resilient business and primed to participate in expected improvements in both natural gas and natural gas liquids pricing. Let's focus on details of second quarter results for a moment as they demonstrate Range's ability to deliver on financial and operating objectives.
Range's continued industry leading operating efficiency delivered planned production within budgeted capital spending. Drilling and completion capital cost incurred for the quarter was approximately $99,000,000 consistent with the planned cadence of this year's annual budget. Turning to cash unit costs, Progress on material cost improvements continued as 2nd quarter cash unit costs declined to $1.79 down 14% or $0.29 year over year. Compared to the Q4 of 2018, when the last of our natural gas firm transportation came online, this quarter improved by $0.39 This marks 6 consecutive quarters of declining unit costs delivering on our stated commitment. Lease operating expense decreased by $0.05 from the Q2 last year due to a host of items including the sale of higher cost legacy assets and reduced workover activity.
Gathering, processing, transport declined $0.15 from the same quarter prior year as we actively manage the midstream portfolio, fully utilizing capacity from Southwest Pennsylvania, allowing select contracts to expire, negotiating releases of other capacity and realizing savings from lower processing costs as a result of reduced NGL prices. Relentless focus on being a lean organization generated cash G and A savings of $0.05 per unit year over year, equating to $10,000,000 in absolute cash savings in the quarter due to reduced compensation expense and overhead items. Interest expense decreased by $0.02 per unit compared to the Q2 of last year on lower debt balances. In total, the Q2 is better than the low end of annual guidance for unit costs. As described previously, over time, we expect a downward trend in cash unit costs to continue, driven by improvements in GP and T as certain contracts see reduced rates over time based on existing contract terms and others where we have the option to release capacity at expiration or extend based on netbacks.
In addition, we expect further improvements in G and A and interest given the higher LOE of those assets as compared to the given the higher LOE of those assets as compared to the Marcellus, associated G and A and interest savings due to debt reduction from the divestiture proceeds. Turning to the balance sheet, we have maintained and improved liquidity while managing the debt maturity profile. 1 year ago, Range had debt maturing in 2021 and 2022 totaling $1,400,000,000 As of the end of this quarter, that amount has been reduced by over $770,000,000 or 54%. Available liquidity at quarter end was approximately $1,400,000,000 The sale of Louisiana has no immediate effect on Range's credit facility. So when you add cash proceeds from the Louisiana sale, pro form a liquidity is over $1,600,000,000 This substantial liquidity well positions range relative to maturities in 2021 of $59,000,000 and in 2022 of $595,000,000 So with that as a summary of where we are today, where are we leading the business tomorrow?
It remains a top priority to reduce debt, further derisking Range's business. During the Q3, with receipt of proceeds from Louisiana, we will repay debt. Contingent Louisiana sales proceeds over the next couple of years will also repay debt. In addition, we have other asset sale processes underway or that we will consider as economics and circumstances warrant. Still looking ahead, we've provided updated unit cost guidance in the earnings release.
Sustained cost improvements are planned with improvements visible in GP and T, G and A, LOE and interest. Each line item benefits from high grading the asset base, reduced staffing levels and continuous focus on identifying new efficiencies. The well defined and we believe achievable objective is to sustain a highly investable business that would be resilient through cycles, return cash flow to shareholders and offer compelling value not only compared to other independent producers, but across industrial sectors. Dennis, over to you.
Thanks, Mark. As we look back on the 2nd quarter, our drilling and completion capital spending for the quarter came in at approximately $99,000,000 with our capital spend for the first half of the year totaling $235,000,000 or approximately 55% of our planned annual spend. As we mentioned on our prior call, our activity for the year is front loaded with 4 drilling rigs reducing to 1 by mid year along with 3 frac crews reducing to 1 over a similar time period. Based on our current activity forecast for the second half of the year, the remaining 45% of our capital spend is expected to be evenly spread across the 3rd 4th quarters, placing us at or below our budget of $430,000,000 Production for the quarter closed out at 2.35 Bcf equivalent per day and aligns with our guidance communicated earlier this year to deliver production at maintenance levels. Contributing to our Q2 production, 21 wells returned to sales during the quarter, with approximately 70% of the lateral footage located in our dry acreage position.
This puts us firmly on track to achieve 67 turn in lines for the year, which we communicated on our prior call. The remaining wells to sales this year should be ratable across Q3 and Q4 and in line with our activity cadence of 1 drilling rig and 1 frac crew. Production field run time continues to exceed our expectations as we see enhanced collaboration efforts between our production operations team and our midstream partners, along with strong well performance from both new and prior wells across Southwest Pennsylvania. Similar to prior quarters, we've continued our practice of long lateral development and use of existing pads. During the Q2, 50% of our drilling activity was located on sites with existing production, thus allowing us to capture additional operational efficiencies and cost savings, primarily through the reutilization of surface facilities and pad sites, gathering and compression infrastructure and the use of an electric fracturing fleet.
Our ability to reutilize existing pads is a competitive advantage as several years of production history show comparable recoveries per foot when returning to existing pads, while the aforementioned cost savings help drive stronger project economics. In the Q2, we drilled wells across our dry, wet and super rich acreage with an average horizontal footage drilled of approximately 13,500 foot
per well.
This drilling performance represents close to a 30% increase over last year's average horizontal length. We see our long lateral development and performance as a key driver in our peer leading capital efficiency. To add to our progress of drilling long laterals, the drilling team added to their record of excellent performance with another successfully drilled Marcellus wellbore that exceeded 19,000 feet. This type of repeatable drilling performance continues to be a key driver in our ability to deliver unmatched capital efficiency and well cost. On the completion side, the team completed 17 wells with a total lateral footage of just under 220,000 feet with an average horizontal length of approximately 13,000 feet per well.
Overall completion efficiency continues to improve, with approximately 1100 frac stages completed for the quarter as the team increased the number of frac stages per crew day by 17% versus the same time period a year ago. Water operations once again exceeded our operational and capital efficiency expectations in the Q2 through increased utilization of 3rd party produced water. The team was able to efficiently utilize just under 1,000,000 barrels of 3rd party water in addition to Range's produced water. As a result, this reduced our completion cost by over $2,000,000 for the Q2 and has reduced our overall completion cost by more than $5,000,000 year to date. In addition to the cost reductions captured through our water operations, more than $1,500,000 in savings has been captured year to date through directly sourcing sand for our completion operations.
We see creative initiatives like this delivering long term durable capital efficiency gains. That will keep Range in a leading position as we continue to reset the bar for lowest well cost per foot in Appalachia, which fell below $600 per foot for the Q2 and includes drilling, completions and facilities cost. Production lease operating expense saw similar savings with the quarter closing out at $0.11 per Mcfe. This was driven by reductions in workover expenses, cost removal associated with legacy assets no longer in the portfolio and lastly, our strong field run time that was mentioned earlier. We project our LOE to be in line with our Q2 reported number as we move forward.
As we entered the year, it was key that we not only communicate the framework of our capital and production plans, but also areas of focus that would underpin achieving our objectives. As we look back on our operational successes during the first half of twenty twenty, we can attribute several of our achievements to our commitment to 3 areas: 1, efficiency improvements across our operations 2, diligent cost management and 3, advancements in technology. We've already touched briefly on efficiencies and cost savings today. And now I'd like to discuss our dedication and use of new technology. Technology impacts our operations in many facets, both in the field and in the office.
One example that we have shared on previous calls is our use of an all electric fracturing fleet. As long time users of dual fuel drilling rigs and frac crews, the step to an electric fracturing fleet was a natural progression with multiple benefits. During the first half of twenty twenty, our successful utilization of this electric fracturing fleet displaced approximately 2,500,000 gallons of diesel fuel and saved more than $1,500,000 over 17 wells, all while significantly reducing our emissions and noise levels where we operate. Range's large contiguous acreage position and utilization of pads with existing production makes us advantage to this technology, along with the benefits it produces. We will continue operations with this equipment, further capturing these benefits and savings going forward.
On the engineering side, early this year, our planning team implemented a well lifecycle management and resource scheduling application. Through this effort, the hundreds of tasks across our teams, which were necessary to take a well from a concept on a map to a producing well were mapped out and digitized. The associated software package allows us to enhance cross department collaboration, provides transparency and workflows, improves data quality, assists us in identifying and resolving challenges and helps us make faster and more informed decisions, ensuring on time and on budget wells. Additionally, this application has streamlined our ability to construct and evaluate scenarios to help ensure we meet and exceed our business objectives. Upon implementation of this enhanced digital workflow and its associated processes, we immediately identified areas for production uplift along with opportunities for scheduling optimization, further supporting our efforts to reduce capital this year while maintaining our production guide.
These are real examples of technology impacting our business and providing operational, production and capital spending enhancements to our 2020 plan. Our culture is one of continuous improvement for both our operations and technical teams. Combine this with our repeatable, efficient long lateral development, utilization of pads with existing infrastructure, creative drill and complete cost reductions, and we see this generating peer leading well cost and durable capital efficiency. On the marketing front, during the quarter, Range sold additional natural gas volume in Appalachia, following a pipeline outage in early May affecting a portion of Range's transportation that takes natural gas to the Gulf Coast. The event had a minor impact to differentials during the quarter and was mostly offset by lower gas transportation expense.
This is a good example of the benefits related to our diverse transportation portfolio. When unplanned events in specific markets occur, the overall impact remains minimal. Domestic U. S. Natural gas production declined significantly during the quarter, led by associated gas shut ins and legacy basin declines in response to the price of both oil and natural gas.
Range expects recently announced activity reductions to weigh on U. S. Production levels in the second half of twenty twenty and especially into the upcoming winter season, more than offsetting the return of shut in production, all while LNG exports recover from current levels. We believe that a sustained move higher in the forward curve for natural gas is needed to incentivize activity from dry gas basins to avoid low storage levels for next year. As previously disclosed, entering 2nd quarter, demand for gasoline and jet fuel were directly impacted by COVID-nineteen related reductions in vehicle and air travel.
From a volumetric perspective, Braze's 2nd quarter liquid sales went unaffected as our marketing team found domestic and international outlets for our production. The abrupt change in demand put temporary pressure on condensate pricing during the quarter. However, the Northeast condensate market has since rebounded and we began to see improvements in condensate pricing during the month of June. We expect Q2 to be the trough in condensate pricing for 2020 and see significant improvements going into the second half of the year. Range experienced healthy NGL demand during the Q2 as a result of its strong and diverse customer basis exposure to resilient domestic and global chemical demand.
Demand for U. S. NGLs was up an estimated 3% year over year. And as a result, the call on NGLs exported from the East and Gulf Coast has remained resilient. At the same time, total U.
S. NGL supply, including imports, is estimated to have decreased 5% as refineries reduced throughput and shale production declined. This tightening in the domestic supply demand balance led to a swift recovery in NGL prices during the quarter. Range took full advantage of these strengthening fundamentals and the resulting improvement in prices via its strategic access to domestic and international liquid markets. As the team has typically done, Range was also able to capture the value of an improved ethane premium to Appalachian Natural Gas by recovering incremental ethane during the quarter.
Mont Belvieu propane and normal butane prices increased roughly 60% from March 31 to June 30. And while international netbacks are not where they were to start the year, premiums at Marcus Hook have remained stable at a few cents above the Mont Belvieu Index. Range increased its access to waterborne exports via Mariner East and Marcus Hook during the Q2 and expects to continue benefits from the flexibility of our transportation portfolio that allows access to multiple domestic and international liquids markets. As we enter the second half of the year and continue into 2021, we see NGL and condensate fundamentals continuing to strengthen as supply declines due to a reduction in drilling and completions for the industry, while demand continues to recover. This should create a very supportive environment for stronger NGL and condensate prices.
Before closing out the operations and marketing section, I'd like to touch on a few highlights regarding our safety and environmental performance. When looking at our key safety metrics year to date, we continue to see improvements compared to the same time period a year ago. With our team's dedication to hazard identification and training, our total recordable incident rate has dropped to 0.44 per unit of measurement and should benchmark in the top quartile for safety performance among our peer group. In addition to this, our vehicle monitoring system and training continues to show positive results by reducing our preventable vehicle incident rate by 22% for the 1st 6 months of 2020 compared to the same time period in 2019. Our environmental performance reflects similar positive results, with our operations team capturing 0 reportable spills in June and an overall 50% reduction year to date versus last year.
We will have additional positive environmental and safety results to share in our upcoming corporate sustainability report that is slated for release in the next month or so. Before handing it back over to Jeff, I'd like to express our thanks to our women and men in the organization for their continued hard work and dedication while managing through a pandemic. The 2nd quarter results clearly reflect our operations are on track to deliver on our production and capital plans with peer leading drill and complete costs, all while operating with our strongest safety and environmental performance yet. Jeff, back to you.
Operator, we are happy to take questions.
Thank you, Mr. Ventura. The question and answer session will now begin.
Our first question comes from the line of Josh Silverstein with Wolfe Research. Your line is open. Please go ahead.
Thanks. Good morning, guys. Just wanted to touch on the asset sales. I'm curious with the bullish outlook for gas prices next year, both on the screen and your internal views. Why not wait a little bit to sell at a higher valuation?
And then separately on the asset sales, what else is being contemplated? I know you guys have the royalty transactions that you've executed already, but are there other just straight up producing assets that you're looking to get rid of as of right now?
Yes. Let me start and then Mark can pile on. As to your first question, why now versus waiting, we are constructive prices. But I think the key thing is, I think taking action and moving on, it helps us hit our values now. We're constructive, but who knows what will happen a year from now?
Who would have predicted the things we're going through now a year ago? But if you look at it, the company and the way we're positioned at this point, we've got excellent cost structure, wells that are best in class, at least 600 per foot. Our maintenance capital, because our base decline is lower now and with the well costs, we've got best in class, we think in the Appalachian maintenance capital, we're reducing debt with it. So these are things we know that are going to happen versus rolling the dice and betting on to come. Significant unit cost improvement, and Mark is going to go through that.
And then again, post Louisiana, we have improved unit cost, better leverage, better liquidity, lower debt, improved base decline and maintenance capital. And we think, therefore, looking forward, improved free cash flow and yields, return on yields. But Mark, why don't you add to that?
Sure. So to add just a couple of things and then to answer your second question as far as what else may be in line. First, I think Jeff touched on it really. It's about the application of proceeds. It's about derisking the existing massive portfolio of the Marcellus and reducing cost structure, which inherently creates incremental value.
I think the other piece of it is the way the deal was structured. There is a contingent payment of additional proceeds of up to $90,000,000 based on a combination of natural gas, natural gas liquid and oil price. And at current strip prices, a significant portion of that is in the money right now. So while you could attempt to time the market better, we feel like the immediacy of the benefits of this combined with a portion of the upside potential from this contract is very beneficial for Range today. As far as what else may be in the hopper, it's kind of what we've talked about before.
Dialogues do continue. We have options to look at around Lycoming. That remains a quality asset with a low base decline rate, good production, a good starter kit or bolt on for a variety of different buyers with whom we have discussions. And then as far as looking at the overall range of options we have in front of us, just consider the depth and breadth of the portfolio, Looking at 500,000 acres of stacked pay acreage in Southwest Pennsylvania, depending on economics and opportunity and needs, we have the ability to continue looking at either having off pieces of acreage or other structures to create additional value. I think the main punch line here is not only what we've set our targets are, but what we've done and what we've delivered and what we fully expect to be our 3rd year in a row of declining debt.
And with free cash flow generating plan going forward, this puts us in very good position. And the Louisiana asset sale just helped us take one more step on that path.
Thanks for that comprehensive answer. The follow-up question would be just on the comments on the GP and T costs. I know you guys are producing above the minimum ourselves commitments right now. What's the significance of the savings? Like how big is the magnitude here?
And is the view internally that you guys wouldn't need to renew the capacity or is it that you renew at a lower rate going forward as the commitments roll off?
Yes. I think there's a couple of questions there. I think Dennis and I can take that one together. I'll start off with just the guide and the trend of cost. I think if you've got the Investor Relations presentation handy, Slide 14 is a good reference.
What that slide shows is the trend in unit costs over time going from something near $2 to obviously this quarter and the second half of this year, midpoint of guidance in the low to mid-160s range. And then if you look forward to the potential unit cost structure here, assuming 0 growth, you still see savings driving us down to the 150, low 150 range. That is in large part, as you can see in that chart, allowed and permitted by the GP and T savings, which see declines to potentially the mid-120s type
range, dollars 1.20 to $1.25
As a reminder, it's a function of the existing contractual terms and the nature of those contracts. So in big round numbers, you're talking about a third processing, a third gathering and a third long haul transport. The long haul transport is fixed, although as we've disclosed this quarter and are continuously doing, the marketing team does a great job of always trying to optimize that capacity, use it, sell it off, negotiating amendments as possible. The third of processing, obviously, that's a function of NGL prices and will fluctuate, but that's right way risk. That's a good setup for range.
The gathering portion has a cost recovery mechanism that really for pieces of it, you're entering into that phase where over time for the next decade annually pieces of that begin to fall out, which not only drive savings through 2024, but can continue thereafter and continue that trend downward. So as far as our strategy for long haul transport, I'll turn that over to Dennis.
Yes. Good morning, Josh. We see our portfolio as being very well right sized with what our production plans are today and also as we think about maintenance capital moving forward. Being an early mover in the Marcellus really allowed us some advantages to layer in multiple outlets to make our portfolio diverse. Thus, we touched on it during the prepared remarks, allowing us to either sell in basin, move to other markets even when there's upsets that exist.
We're exceeding the utilization of our Feet long haul today. We see that as being again in line with what our plans are. And as some of these portions of our transport start to reach expiration, we have good flexibility across those different packages to either renew, extend, not extend. And we see this aligning well as you think about where the program could go in the next couple of years. Jeff touched on it earlier, but with our long dated inventory, we see decent traction for in basin sales opportunities to materialize, allowing us some flexibility to then further look at, again, as we've always said, try and get our molecules to premium markets.
Okay. Thanks, guys.
Thank you. And our next question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is open. Please go ahead.
Good morning. Good morning. First question I wanted to ask was about the $28,500,000 that Range dedicating to reducing the midstream commitments as relative to the North Louisiana sale. I was just wondering if this had any effect on the total duration of that commitment and perhaps how long that commitment remains if you can disclose that?
Sure, Jeff. So I guess just as a backdrop for the midstream capacity in Louisiana, a portion of that capacity, the used portion goes with the asset and the unused comes to range. So first of all, the existing contract was bifurcated. And the portion that was retained, we have entered into amendments to that agreement that adjusted both the shape of that obligation and the length and term of that obligation. So the final valuation work and all of that will be done in the Q3 as well as estimating potential future savings incremental to those things, incremental to the size of the obligation and the turn of the obligation, but also savings potential from incremental activity there.
So that $28,500,000 upfront payment was just beneficial to Range and to the amendment in terms of reducing that overall obligation. They were sellers well spent in reducing the size of that.
Okay, right. Yes, I appreciate that. And my follow-up is to ask about the $600 per foot average cost savings. Just a couple of quick ones on that. One, I was wondering to what extent the 50% of activity returning to the legacy pads benefited that cost?
Yes, Jeffrey, this is Dennis. What I would tell you is that kind of year in and year out, we've been seeing a return to pads with existing production activity cadence of somewhere between the 30% to 50% range. It's higher in some years, lower in others. So there are savings there to capture. They do find their way to go clearly into the total cost per foot.
Really, what I'd like to say though is the 3 biggest drivers for us though are really around our efficiencies we've seen through the first half of the year. Touched on it briefly, but seeing a 17% increase in our number of frac stages per crew day through the second quarter is also consistent with positive results we saw in the Q1 as well. So our crews have done really well. The teams have worked really hard to make sure that we're as or more efficient, and that translates into lower cost for us. The second thing was our water recycling
program.
When you look at basically the savings that we touched on in the Q2 for using 3rd party water, that's only one aspect of it. The other savings we capture is efficiently bringing source water into the field from our own operations. And we've seen that cost significantly reduce as well. So those are the 2 big drivers. And then thirdly is further, let's just say, cost savings on the service side.
We've seen those continue to soften slightly as companies look to strategically align with us for not only the balance of the year, but also as we look into 2020.
I would
just add to what Dennis is saying. The fact that we have a big blocky position really enhances what we're able to do. So it's that the footprint is key.
And I'll just follow-up by asking and it sounds like there's going to be some yes here. Do you expect these cost reductions to remain largely sustainable even if we get that 2021 nat gas price improvement that's been referenced today? Thanks.
Yes, absolutely. We feel really good about being able to maintain these. And by and large, because there's such a significant portion of them that are based upon what Jeff pointed out, our blocky acres position, the ability to move back into existing pads and then maintaining or further improving the efficiencies that we've built upon really quarter over quarter over the last several years. So we see this as really durable for us and hope to continue to push further below $600 per foot.
Thank you. And our next question comes from the line of Kashy Harrison with Simmons Energy. Your line is open. Please go ahead.
Good morning and thank you for taking my questions.
Good morning.
Yes. So maybe first off, a question for Jeff. Looking at Appalachia longer term, it feels at least it feels as if to us that the ability to earn excess corporate returns is probably going to be driven by consolidation and less just less corporate overhead in general as the industry matures. You talked a little bit in the opening in the prepared remarks about Range having an enviable core inventory depth. But as you know, the balance sheet still needs some work.
And so I guess I was just wondering if you could maybe give us an update on where your thought process is on consolidation and how you see Range playing a role within that team over time?
Yes. Let me start and Mark can pile on to my comments. I think there are several things. One, I think if you look at Range standalone, we do have an enviable position and that we believe and I think it's demonstratable that we have the best inventory out there with the longest life, coupled with stack pay. Importantly, when you look at our cost per foot that other people were targeting, the other targeting range.
So we've been ahead of the class in terms of growing complete and capital efficiency and You're right, costs are critical. So we've been laser focused on reducing all unit costs. If you look at our press release, we intentionally broke them out 1 by 1. So you can see we're making really progress in every single aspects of unit cost. And like Mark said, in terms of G and A also, it's always painful to do, but significant headcount reduction coupled with laser focus on all those different aspects.
So I think there's the Appalachian Basin, I would say, relative to the Permian Basin and other areas is relatively consolidated. But with time, I expect that it will consolidate further. People talk about there's roughly 30 drilling rigs operated by however many companies, 20 companies or whatever. But I think when you look at that acreage, then you have to consider the quality. A lot of that, it really becomes apparent that you have Tier 1, 2, 3 or core Tier 1, 2, 3, however you want to define it.
We put some slides in our deck that are a little bit different. If you slip to Slide 9, we have Tier 1 and Tier 2, and we won't tell you who those are, though it's pretty easy to look at it. And you can see that when you look at the results going from 2017 and 2019 deterioration and these are what you would consider leading peers. So I think it's important to consider acreage quality, cost structure, balance sheet, a number of things when you go forward. So I think Range is well positioned, but we're very open to whatever is best for our shareholders.
So Mark, do you want to add on to that?
Yes. I think you've hit on all the key topics there. I would just add that the way we think about corporate returns is best measured in free cash flow and that with the revised cost structure that ranges clearly there, whether it's the second half of this year into 2021. At current strip prices, we think the significant progress made to date in terms of absolute debt reduction, this year being the 3rd year in a row for absolute debt reduction has significantly derisked our inventory and reduced our cost structure. Combine that with the savings on LOE, G and A and other line items and then couple that with pure leading maintenance or sustainable CapEx.
All in, we think that's a pure leading Southwest Appalachia breakeven cost. So Range, we think, is poised to deliver competitive returns, both within the sector and as you compare against other peers for a very long period of time.
Great. And thank you for that color. And I guess as my follow-up, maybe a question for Dennis. You've talked a little bit
a
dollars per foot. It seems as if guidance implies what costs in the mid-five 100s. I was wondering if you could maybe give us a little bit more specificity on that sub-six hundred estimate that you put out there today. And then just given the evolution of the portfolio, evolution of base declines, just wondering if you could provide a leading edge estimate on how you think about maintenance CapEx for Appalachia entering 2021?
You bet. I'll go ahead and start on the cost piece and reshare some of that with Mark or Jeff on the maintenance capital side. As we think about cost as we go into the second half of the year, we're already currently at 1 drilling rig and 1 frac crew. And so the capital efficiency that we're seeing associated with our operations is very much in line with what we saw through the first half of the year. So we're encouraged that we'll continue this, I'll just say, capital savings drumbeat for the remainder of 2020.
We're seeing our efficiencies on the completion side be as strong as we ever have. Certainly tried to touch on that earlier with the 17% improvement in our frac efficiencies. Like I said, the crews have really done well. We see the similar type performance on our drilling rig side. Our drilling performance continues to exceed our expectations.
And then also, really it goes across not only from the D and C side, but also to LOE with us hitting $0.11 for the quarter. As we think about 2021, it's difficult right now to see service costs moving in a positive direction. There's going to be no doubt further alignment, I think, between, I'd say, efficient operators and service providers who we're wanting to partner for the long haul. We're already seeing some of that dialogue with our current service provider base, good strong partners with us. So as we think about cost for 2021, we see that it's durable.
We like what we're capturing on an efficiency standpoint. And we think that as we look into getting farther below, let's just say that $600,000,000 mark or $600 per foot mark, it's really going to rely upon building upon multiple aspects and it won't be just service cost, it won't be just efficiencies, it will be implementation of technology like we talked about with our planning and resource tools. And I'll off road for 2 seconds here. If we talk oftenly about keeping our gathering system full and at a high utilization, as a part of this planning process, we're also needing to accurately hydraulically model our pipes and also understand where our constraints are as well as we ever have and understand the impacts of debottlenecking. So when we think about planning, it's moving from sticks on a map to something that's a lot more complex to capture those additional efficiencies.
So we see that translating into the next level of driving further below $600 per foot. So if you
want to put a couple of numbers to that, just I think the math that we lay out on Slide 11 is a good model, not only for Range, but a tool set to compare across the industry to get a pretty solid apples to apples comparison based on reported data. So for Range, looking at our current estimated decline rate of roughly 19%, you could back into an estimated D and C maintenance or sustainable CapEx number of about $385,000,000 Now there's obviously timing implications and weather and so forth. So that's moving from the spreadsheet into reality that would put you today at about $440,000,000 But after the Louisiana sale, you're going to drop another $30,000,000 $35,000,000 out of that. So potential sustaining CapEx in the low $400,000,000 range.
Great. Thank you for that update.
Thank you. And our last question is going to come from the line of Brad Heffern with RBC Capital Markets. Your line is open. Please go ahead.
Yes, thanks. Good morning, everyone. So a question on hedging strategy. So obviously, you've talked about your bullishness on the outlook for gas and NGLs. How do you think about the opportunity that the futures curve presents in 2021 at anywhere between $2.60 $3 across the year versus your desire to retain some of the upside?
Yes, that's a good question. This is Mark. I'll start and then we can all chime in. So Range has had a pretty consistent track record for more than a decade in terms of what we do to derisk our cash flow, protect the balance sheet and maintain steady operations, protect shareholder value. But there's a fair way within which we operate.
Generally speaking, by the time we enter a calendar year, we want to be 60% to 80% hedged. But the nature and the timing of those hedges as to when we add them is based off of data, based off of our observations of drilling, based on type curves by basin that we model based on breakeven costs by basin that we model and based on projected demand as published by new facilities expansion, expansions of LNG, the margins to export and so forth. So we try to combine the supply and demand to get a sense of where we think the market is going to go. And that gives us the ability to exercise some flexibility in terms of the timing and the structure of the hedges that we put in place. So the primary objective is still to protect the
balance sheet and protect
the shareholder value and the value of the inventory. But we've intentionally been a little bit on the lighter end of the range of hedging for 2021. We've also used some collars to make sure we're protecting the balance sheet, but hanging on to that upside exposure, which we believe is very likely, given the breakeven cost for the industry as a whole and the demand that's returning, both on the natural gas and the natural gas liquids side. So, we're certainly pleased to see reality setting into the forward curve a little bit, the fundamentals being better reflected, and we think that will continue to play out as producers, economics and the need for cash is evident to simply sustain production much less meet expected growth in the coming year 2 3. So we'll continue to add hedges.
We'll continue to operate within our bandwidth of historical practice, but being mindful of hanging on to some of the upside exposure with structuring timing of those hedges.
Okay, got it. And then going back to the Terryville transportation, the 28.5, I was just curious if are we going to see something continue to flow through GP and T for those commitments? And then is the 28.5 percent, is that the bulk of the commitment that's been paid down? Or is there any sort of like NPV that you could give on what that would be?
So the present value of the obligations will be recorded in the Q3 and then that liability will just accrete off over the remaining term of the obligations would extend for about 2029. So you'll just see that roll off off the balance sheet over time. The $28,500,000 is let's call it a prepayment, but a favorable prepayment for Range to reduce that amount. In terms of giving you a dollar estimate, as I mentioned, there's multiple components here of the amendment to the contract. So that valuation work is being nailed down and refined right now.
But to give you some expectation of the upper end of what that is, I'd reference the disclosure in the 10 Q that this past quarter's deficiency payment was about $18,000,000 So again, this isn't anything new. This is a cost that's been in our gathering, processing and transport for many quarters. So this is just improved by splitting the contract, moving capacity with the asset and then amending the retained portion over time.
Okay. Thank you.
Thank you. And this does conclude our question and answer session. And I would like to turn the conference back over to Mr. Jeff Ventura for any further remarks.
I just want to thank everybody for taking time to listen to our call and to ask questions this morning, and please feel free to follow-up with additional questions. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.