Coterra Energy Inc Announces Accretive Permian Basin Acquisitions Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Arun Jayaram - JPMorgan - Analyst : Good morning, Tom. It looks like these deals fit your pistol going back to your conference call. But Tom, you highlighted $2.6 billion of PDP value at a 73 deck. So it looks like you're paying just under $3 million per undeveloped location using the midpoint of the 400 to 550 net well count. I was wondering if you could provide more details on what Coterra has underwritten at the low end of that net well location count versus the upper end and maybe some thoughts on the Lower Wolfcamp and Penn Shale.

Question: David Deckelbaum - TD Cowen - Analyst : Thanks for your time, guys. I was curious, Tom, and congrats on the deal. As you expand the footprint in New Mexico, it looks like the margin on these assets is quite high relative to your own. Can you talk about some of the logistical outlook here, particularly around saltwater disposal and room for egress of water barrels as you look to increase activity here, which has certainly been a choke point on the industry of late?

Question: Nitin Kumar - Mizuho Securities USA, LLC - Analyst : Good morning, Tom and team, and congrats on getting the deal done. I wanted to talk a little bit about synergies and costs here. The way you've laid out the 2025 CapEx plan, it seems like you're not really including much synergies. You've had some success with row development in Culberson and with this more contiguous asset. Just curious if down the road, we could see an application which could help bring down costs here.

Question: Doug Leggate - Wolfe Research, LLC - Analyst : Thanks. Good morning, everyone. Good morning, Tom. You never ceased to surprise us, and congratulations on bolting on what looks like a great asset. My question is really more of a clarification on your comments. You said that you could hold the oil production flat. I'm looking at the cadence of your prospective capital. We've all been discussing what the next three years look like for Coterra. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 13, 2024 / 1:30PM, CTRA.N - Coterra Energy Inc Announces Accretive Permian Basin Acquisitions And I guess my question is, what is the messaging this morning on the production cadence for the combined company now? Are you intending to hold the production flat to the oil production flat? In which case, can you give us a kind of an inventory depth at the low end of that 400 to 550 range? How many years of backlog is that, if you like? So I guess there's a part A and a part B in there.

Question: Neil Mehta - Goldman Sachs - Analyst : Yeah. Congrats, Tom and team. I just had a question about the mix of the business. With this deal, I think more than 50% of the revenue will now come from the oil side of the business. So, Tom, as you think about doing incremental M&A on the gas side versus the oil side, can you talk about how you weigh the two? And was this an intentional balancing of the portfolio from a product mix perspective as well?

Question: Neal Dingmann - Truist Securities Inc - Analyst : Good morning and congrats, Tom. I've got a strategic question. I'm just wondering, what definitely seems like this morning's deal, as you mentioned, checks all the sorts of requirement boxes you and the team have. My question is, I guess, maybe not instead of, but in addition to this, I'm just wondering, have you all considered or did you all consider in front of this maybe potentially looking at a public company instead of these assets? Why I ask, it seems like some of these publicly traded companies that have a fair amount of Permian assets trade almost equally as cheap as this deal today. So I'm just wondering when you ran comparisons, how this deal compared to maybe some of the public assets.

Question: Josh Silverstein - UBS Securities LLC - Analyst : Yeah. Thanks. Good morning, guys. I was just curious on the return on capital profile. You guys have been well above the 50% mark for a little while now. Do you think you drive down closer towards that 50% level for the time being just to delever? And maybe what's the long-term number that you want to hold now? Thanks.

Question: Roger Reed - Wells Fargo Securities, LLC - Analyst : Yeah. Thank you. Good morning. Congrats on the deal here. I just had one question, and this kind of gets to the guidance, the $70 oil, $3 gas, gas in West Texas has been discounted relative to everything else. So I was just wondering in terms of the sensitivity to a lower price -- or is there anything you're putting in the structure of this transaction or adding in the way of hedges to kind of narrow that gap between Waha and Henry Hub?

Question: Kalei Akamine - BofA Global Research - Analyst : Hey, good morning, guys, Tom and team. I'd like to better understand the acquired location count. You guys call out 400 to 550 locations. Can you kind of bridge that with how they've talked about their disclosure? For example, Avant discloses greater than 300 future horizontal wells?

Question: Harry Mateer - Barclays - Analyst : Hi. Good morning. Coterra formally guided to around $2 billion of debt as a comfortable target for the company. And based on your comment about paying down $1 billion, that would imply roughly $3.5 billion of debt as the new target. Is that the right way to think about it? And how does that factor into your decisions about the debt financing mix between bonds and term loans to have some prepayable debt?

Question: Paul Cheng - Scotia Howard Weil - Analyst : Thank you. Good morning, team. Tom, can you share with us that what percent of your legacy Permian production and/or that number of wells this year you're drilling is in the Lea County? And also, that out that the combined pro forma, is there any opportunity that to lengthen the lateral? I mean, 9,500 is not short, but Permian as an average today is over 10,000. So is there any opportunity there to make more of the 3-mile well because of this acquisition? Thank you.

Question: Kevin McCurdy - Pickering Energy Partners - Analyst : Hey, good morning. Just a clarification, not a question for me. What are you guys expecting for the legacy Coterra 2025 program on CapEx and oil production? And has that changed at all? It looks like you changed some of the language in the presentation that 5% to 10% oil growth from 5%-plus previously.

Question: Leo Mariani - Roth Capital Partners, LLC - Analyst : Good morning. I wanted to dive into a couple of the kinds of numbers here. Wanted to see if you guys could comment. Is there any incremental G&A coming from this? I'm assuming not really. What's the impact of LOE? Do these assets have a little higher LOE than what you normally have in the Permian? So maybe that ticks up a little bit? And then are you expecting any cash tax shield at all from the deal? You guys have been kind of a full-cash taxpayer, but maybe this shields some of that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 13, 2024 / 1:30PM, CTRA.N - Coterra Energy Inc Announces Accretive Permian Basin Acquisitions