Coterra Energy Inc Q1 2025 Earnings Call Transcript

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

Question: Doug Leggate - Wolfe Research - Analyst : Thanks, everybody. Thanks for taking my questions. So guys, obviously, there's a lot of attention on this Harkey shale issue. So I think, Blake, you've given a fairly thorough explanation as to what happened, but I just want to put a bow on this. So basically, this was a cementing issue. It sounds like -- that sounds like it's temporary. It doesn't sound like it's getting any read through, but what does it mean for your view of inventory debts as you think about your future development plans. My follow-up is on the change. Obviously, the change in activity is somewhat transitory, I guess, given everything that's going on. But you did just lay out a 3-year plan a couple of months ago, that laid out sort of 5-plus percent oil growth. So I'm curious how does the thinking on that change and the associated capital that goes along with it? And I'll leave it there. Thank you.

Question: Doug Leggate - Wolfe Research - Analyst : Thanks for your answers.

Question: Betty Ging - Barclays - Analyst : Hi, good morning. Thank you for taking my question. I appreciate all the color on Harkey earlier. But I do think it's important just to flesh out sort of the potential impact to the future development. So if you're focusing on the future roles just on Wolfcamp, are you going back to the huge on those roads? And does that have any impact on the mix of wells if we look out into 2026?

Question: Betty Ging - Barclays - Analyst : I really appreciate that. And then just on the production guide, the full year guidance will imply a fairly big ramp from second quarter, maybe to the mid-170s level in 4Q. Could you just help us get more comfort on that trajectory, the timing of the wells and what type of risking is being done within that guide? Thanks.

Question: Nitin Kumar - Mizuho Securities - Analyst : Hi, good morning, guys. Thanks for taking my question. Tom, I want to start off a little bit broader. You mentioned in your opening remarks about the rifle shot and the guided missile. You and one of your peers today have cut activity in response to the current uncertainty. The current administration ran on an agenda of drill baby drill. So I'm just trying to understand, from your perspective, how long do you think this weak environment could continue between the demand that has been destroyed a little bit and then the supply that's coming on.

Question: Nitin Kumar - Mizuho Securities - Analyst : I just want to --

Question: Nitin Kumar - Mizuho Securities - Analyst : Great. And then, thanks for taking a shot that. I know it's a difficult question. My second question is around cash returns and maybe Shane can take it, but you've talked about returning at least 50% or more of free cash flow. Obviously, buybacks were second half weighted. You talked a little bit about the balance sheet. If commodity prices do weaken from here, how do you prioritize between buybacks and debt reduction?

Question: Arun Jayaram - JPMorgan Chase & Co - Analyst : Yes, good morning. I just wanted to get an update on the Barbero, and how does the issues that you've experienced on the Harkey program impact the development program there. I believe the original plan was to do 20 Wolfcamp wells and 8 Harkey wells. What is the status of perhaps of those 8 ARC those in the original plan?

Question: Arun Jayaram - JPMorgan Chase & Co - Analyst : Got it. That's helpful. And just maybe just a thought on how does the reduction in your rig count in the Permian. How is that impacting your thoughts on the 3-year program. Obviously, as Betty mentioned, the second half run rate for oil will be higher just given the shift to the Wolfcamp from the Harkey. But how is that help us square away the reduction in CapEx on the Permian and just maintaining that 3-year program.

Question: Neil Mehta - Goldman Sachs - Analyst : Yes. Thanks for all the color here. Tom, we've talked a lot about oil today. Just curious on your perspective on natural gas, you are taking -- starting 2 rigs here in the Marcellus. Maybe talk about what your priorities are for the Marcellus plan for the balance of the year and how that ties into your macro view for gas?

Question: Neil Mehta - Goldman Sachs - Analyst : And then Tom, I mean, it's been a couple of years now, but there has been discussion points about the depth natural gas portfolio as you've drilled out a lot of Northeast PA, maybe you can respond to that viewpoint about depth of inventory. Do you feel like you have the organic position that you want here now that you've done the Frankly Mountain deal on the oil side, does it make sense to think about gas M&A? Just your perspective in addressing that debate that's out there.

Question: David Deckelbaum - TD Cowen - Analyst : Thanks for taking my questions, guys. Maybe just -- I wanted a clarification on just the ramp in the second half of the year with the Wolfcamp wells coming online. Does the guidance presume that, that 5,000 barrel a day impact in the second quarter from the Harkey wells, does that come back as a 5,000 barrel a day contribution into 3 and 4Q?

Question: David Deckelbaum - TD Cowen - Analyst : Appreciate that, Tom. And just my second question, you guys highlighted the flexibility that you have with your asset base and talked about, I think, the 15:1 oil to gas price ratio currently at strip pricing, and you're still seeing sort of the coincident 50% plow back in terms of CapEx. But as you enter in the next couple of years, I think you guys reiterated the 3-year outlook, but if you go back to that guided missile analogy, if that oil to gas price ratio holds as we enter into next year, should we presume that there's more reallocation from oil to guest weighted assets?

Question: Scott Gruber - Citigroup Inc - Analyst : Yes. Good morning. Just wanted to come back to the Harke production you said with the cement remediation you're working to bring those volumes back, but it's not in guidance. So what's the reasonable expectation for when those volumes could come back if the remediation work is successful?

Question: Scott Gruber - Citigroup Inc - Analyst : Got it. And I appreciate you guys are constant looking to adjust given changes in prevailing conditions. But curious just about kind of early thoughts on what would happen to the '26 if oil follows the curve here in the high 50s. Do you end up maintaining 7 active rigs in the Permian? And if you maintain 7, what does that mean for Permian tills in '26 in Permian production?

Question: Josh Silverstein - UBS Financial - Analyst : Yes. Thanks. Good morning, guys. So you're moving some CapEx over to the Marcellus. I'm wondering if there's any sort of limit into how much more capital you want to put there? Maybe is there not enough pipeline capacity for volumes to grow? Or is there some sort of trigger you're looking forward to continue to push that additional $50 million over.

Question: Josh Silverstein - UBS Financial - Analyst : Alright. And then just on the pricing side, you guys already have some power exposure. I think it's high single digits for the Marcellus. Given that you guys already have this, I'm curious if you can give us kind of a backdrop as to maybe if you would add some more a little bit more about what's happening within that power pricing for the Marcellus for you guys?

Question: Kalei Akamine - BofA Global Research - Analyst : Sorry I was on mute. I've got a different question on the Harkey here. kind of looking beyond the water issue, where the wells long enough to get a read on the productivity and how it compares to the Wolfcamp?

Question: Kalei Akamine - BofA Global Research - Analyst : Thanks. For the follow-up, kind of following up on one of the earlier questions here. If this is the new program, if this program is a new template kind of point forward, can you give us a sense of what the run rate capital and the oil plateau could look like. And if oil were to decline, would you still expect wet gas production to increase?

Question: Matt Portillo - Tudor, Pickering, Holt & Co. Securities - Analyst : Good morning, all. Tom, maybe just a question around maintenance capital. Given the outlook for the second half of 2025 with production potentially in the mid 170-ish range. Could you give us an update on what you think you might need to spend to hold oil volumes flat over a multiyear period? Just trying to get a sense of your maintenance capital program.

Question: Matt Portillo - Tudor, Pickering, Holt & Co. Securities - Analyst : It would be for a multiyear period at which you could hold it flat, not just a single 1-year hold.

Question: Matt Portillo - Tudor, Pickering, Holt & Co. Securities - Analyst : Perfect. And then just a follow-up question. I know your programs are extremely flexible. I was curious how you're thinking about the returns in the Anadarko in a strip price environment versus the Permian program? And is there an opportunity heading into 2026 if we stay at strip that you could further high grade your development between the 2 basins?

Question: Derrick Whitefield - Texas Capital - Analyst : Good morning, all, and thanks for your time. A slight twist on David's earlier question referencing slide 4, this forward oil to gas ratio were to persist, would it change your view on the areas and intervals you develop in the Delaware over your 3-year forecast? And I'm primarily thinking of Culberson with this question?

Question: Derrick Whitefield - Texas Capital - Analyst : Great. And as my follow-up, regarding your contingency planning comments in your prepared remarks, what price do you see as the next tipping point in all activity, assuming current service costs, and that's to assume we're going lower in price, clearly. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 06, 2025 / 2:00PM, CTRA.N - Q1 2025 Coterra Energy Inc Earnings Call

Question: Kevin McCurdy - Pickering Energy Partners - Analyst : Hey, good morning. Looking out to the back half of 2025, what is the rate reduction due to your DUC backlog by the end of the year? And do you have to manage that operationally as you enter into 2026?

Question: Kevin McCurdy - Pickering Energy Partners - Analyst : I appreciate that. And as a follow-up, just a clarification on the free cash flow for the remainder of the year, the uses of free cash flow to say. Will you pay off the term loan first and then buy back shares? Or can you do them concurrently. And are we reading it right that the 50% shareholder return is a multiyear goal and you may not get there in 2025. Thank you.