Range Resources Corp. turned in a poor second quarter financially, but it continued to drive down costs and find more operational efficiencies to put it in a better position for what management said is an improving natural gas market.

“Gas pricing remained challenged during the second quarter,” CEO Jeff Ventura said on Wednesday during a quarterly earnings call. “But pricing has improved since, and there are signs that later this year and in 2017, supply and demand will be more in balance and pricing could significantly improve.”

Ventura agreed with other Appalachian-focused operators already reporting 2Q2016 results, and said U.S. gas production is likely to fall for the remainder of the year with fewer rigs running in gas basins and less associated gas being produced with the decline in oil production. Anticipated power demand, liquefied natural gas and natural gas liquids (NGL) exports, along with increasing demand from Mexico, he said, are bound to lift prices.

Southwestern Energy Co. and Consol Energy Inc. see the outlook improving as well, announcing they will revive their drilling programs (see Shale Daily, July 26; July 22). Range plans to continue running three rigs for the remainder of the year. Stay up to date on 2Q2016 earnings and projections for the remainder of the year with NGI‘s Earnings Call and Coverage sheet.

As the market improves, Range “has the ability to ramp activity with increased cash flow,” Ventura said. He added that, “we have 231 existing pads that we can go back onto to drill additional wells, which increases capital efficiency and decreases the cycle to ramp-up. Given our large footprint in Southwest Pennsylvania, we also have the ability to shift capital to drill in the dry, wet or super-rich areas.”

Range is obtaining permits to drill across all of those areas in anticipation of a rebound, thus far securing 42 for wells on existing pads. The company produced 1.42 Bcfe/d in the second quarter, up from 1.37 Bcfe/d in the year-ago period and from 1.33 Bcfe/d in 1Q2016.

The company announced in May a deal to acquire Memorial Resource Development Corp. (MRD) in an all-stock deal worth $4.4 billion (see Shale Daily, May 16). Management could not discuss the acquisition ahead of a planned closing date in September. Ventura repeated, however, that he believes MRD’s Cotton Valley Sands assets in Northern Louisiana would complement Appalachia and give the company more optionality going forward.

The MRD acquisition is expected to help Range achieve its 10% production growth rate next year, Ventura said. This year’s guidance is 1.410-1.420 Bcfe/d.

To reduce debt and boost its liquidity, Range has completed a series of divestments since last year, starting with the sale of its coalbed methane assets in Virginia and nonoperated properties in Northeast Pennsylvania (see Shale Daily, March 29; Dec. 31, 2015). The company completed the sale of 9,200 net acres in Central Oklahoma’s Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, or STACK, for $77.7 million during the second quarter, leaving it with 19,000 net acres there. CFO Roger Manny said Range’s liquidity “should be sufficient to fund potential cash requirements” for the MRD acquisition.

Management said the company now has the ability to move ethane to Europe, Canada and the Gulf Coast. Additionally, takeaway capacity coming online in Appalachia is expected to send 70% of the company’s volumes to markets outside the basin for better pricing this year, which is expected to increase to 80% in 2017.

The company has begun shipping ethane on Sunoco Logistics Partners LP’s Mariner East pipeline to the Marcus Hook Industrial Complex near Philadelphia for export overseas. More liquids options saw its NGL price realizations, including hedges, increase during the second quarter to $11.57/bbl, compared to $9.97/bbl in the year-ago period.

“As you look into 2017, prices should get better for NGLs as well,” Ventura said. “We expect natural gas prices to get better going forward, but there’s a good story brewing for NGLs. There’s a lot of ethane demand coming online.”

Range cut its year/year unit costs by 8% during the second quarter. It also saw significant increases in the number of stages it completed and the lateral length it drilled, along with a reduction in the cost of those operations. The company also brought online its third deep, dry Utica well in Southwest Pennsylvania and said it has performed better than its other two. Management reiterated, however, that the Utica would remain complementary to the Marcellus (see Shale Daily, Oct. 29, 2015).

Despite the operational gains and an improving outlook, the balance sheet took a hit on low gas prices. Including hedges, Range’s realized price for the quarter was $2.50/Mcfe, compared with $3.07/Mcfe in the year-ago quarter. Cash flow dropped 48% to $82 million. Revenue fell by more than half to $102 million from $245 million.

The company reported a net loss of $225 million (minus $1.35/share), compared with a year-ago net loss of $119 million (minus 71 cents). Earnings included a $163 million hedging loss due to an increase in commodity prices.