Coterra Energy Inc Q3 2024 Earnings Call Transcript

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

Question: Doug Leggate - Wolfe Research - Analyst : Thank you, good morning, everyone. Gosh, Tom, your prepared remarks, it was quite intriguing to hear you say if we decided to continue with simul-frac, our capital efficiency will improve materially in 2025, just boots in your mouth a little bit. Why would you not continue to simul-frac in 2025? 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 01, 2024 / 1:00PM, CTRA.N - Q3 2024 Coterra Energy Inc Earnings Call

Question: Doug Leggate - Wolfe Research - Analyst : I guess it's a tricky follow-up question, if I may then, Tom, which is really this this broader issue of capital allocation. And I guess you've kind of touched on it with the Marcellus optionality, but your oil production growth is again significantly beating I guess your indicated guidance, your three-year plan, I guess you'll roll out early '25 again. It seems to us that you've got a lot of options to perhaps drop the capital, maintain the original guidance. And I just wonder if you could walk us through what are the puts and takes on how you think about relative capital allocation across the three assets? Because it seems to me your optionality has probably never been better at this point?

Question: Arun Jayaram - JPMorgan - Analyst : Tom and team, I was wondering if you could give us a sense of how your returns from the Harkey shale interval are comparing and competing for capital with the Upper Wolfcamp and perhaps going on in the Permian, just talk a little bit about the implications of the First Bone second Bone results in Lea County and the implications for that?

Question: Arun Jayaram - JPMorgan - Analyst : Fair enough. Tom, Coterra is a large employer community player in the state of New Mexico. I was wondering if you could just talk about some of the regulatory risk that was raised recently around potential setback rules in the New Mexico legislature. I think these are pretty preliminary in nature. But I was wondering if you could talk about your understanding the situation and potential risks to Coterra if you see them?

Question: Nitin Kumar - Mizuho Securities USA LLC - Analyst : In your prepared remarks, you talked a lot about the capital efficiencies that you've seen, obviously, 12% higher oil production for 14% less CapEx. You mentioned faster wells or drilling efficiencies. You mentioned a little bit better productivity and I believe some OBO as well. Could we get a breakout of what are the real drivers of this incremental capital efficiency? And what I'm really trying to get at is how sustainable are these into '25 and beyond?

Question: Nitin Kumar - Mizuho Securities USA LLC - Analyst : Great. I'm going to stick with costs and efficiencies. I imagine it will happen more as the call goes on. I couldn't help but notice that the Culberson County well costs are at $860 per foot, which, if I remember correctly, was the high end of the savings you expected from road development. So I just wanted to see if again, how repeatable is that sort of $860 per foot? And then two, you talked about not being fully committed to simul-frac just yet. If you were not to use simul-frac on a pad or a project, what would be the savings you would lose?

Question: Neal Dingmann - Truist Securities - Analyst : My first question is on your Anadarko Basin specifically, would you say that any of your future plans there, maybe next year, year after are at all limited by the total lease position? And if so, would you all consider bolting on or adding larger patches in order to run a steadier program there?

Question: Neal Dingmann - Truist Securities - Analyst : Okay. That makes sense. And then, Tom, just moving to just sort of broadly production shareholder returns, specifically you'll continue to nicely generate, I'd say, higher growth in the average E&P and continue to pay out a bit higher percent free cash flow than the average E&P. I'm just wondering, do you anticipate future production payout continuing to be a bit higher like this? Or again, is that as you were saying earlier, just sort of predicated on what the environment is next year on both those sides?

Question: Kalei Akamine - BofA Global Research - Analyst : Sorry about that. I was on mute. My first question is on capital efficiency. Slide 19, it's a nice one that shows the breakdown of the Rosay. And the frac operations are a big part of that the leading edge over is simul-frac. So wondering any thoughts on pushing those fracs even harder? Or do you think that would be too disruptive to the program that you guys have built?

Question: Kalei Akamine - BofA Global Research - Analyst : Our understanding is that water access is a big enabler of simul-fracs. Are you set up waterwise to pursue that kind of program?

Question: Kalei Akamine - BofA Global Research - Analyst : My second question is about LNG. Our understanding is that your new contract or a synthetic arrangement, which isn't that familiar to us. Can you kind of help illustrate how the netbacks are going to work? For example, is it JKM less some kind of fixed cost does the buyer have the FTE on the pipelines, I think we're all looking for a way to value this?

Question: Kalei Akamine - BofA Global Research - Analyst : Yes. Okay. And maybe just turn to gas hedging strategy. You guys added a bit to your hedges here in the quarter, but just a little bit, can you just discuss how you're thinking about hedging on the gas side in the current environment? Obviously, the big debate around where gas prices go next year. I'm just curious about your updated thoughts on hedging in the current environment?

Question: Matt Portillo - TUDOR PICKERING & CO. SEC - Analyst : Two high-level questions for me. Maybe first, starting off in the Permian. In Q3, you had very strong gas volume growth quarter-over-quarter. Just curious if you might be able to expand a bit behind the drivers on that. And then as we look forward with Mateborne online, are you expecting any additional gas uplift in the coming quarters or because of your flow assurance, you had very little gas constraints year-to-date?

Question: Matt Portillo - TUDOR PICKERING & CO. SEC - Analyst : Perfect. And then maybe turning to the Marcellus. Just curious if you might be able to comment on as we kind of think about the Q4 time frame, the wells you've got endemic, the 11 wells. When you bring those on, is the plan to dewater them and then shut them back in to kind of push the volumes into 2025. And I guess, specific to '25, with the lack of drilling and completion activity at the moment, how should we think about the time from which you pick up a rig to when we might see a volume impact if you do decide to pick back up activity next year?

Question: Leo Mariani - Roth MKM - Analyst : I just wanted to ask a follow-up on the discussion around capital efficiency here. So obviously, your has been coming down here in '24, which is certainly a nice trend to see and your volumes have gone up. So I know you have kind of a three-year outlook out there, which presumably you'll update early next year. But should we be thinking at this point in time that the CapEx and the the three-year outlook is biased to the lower end based on the efficiencies. I assume a lot of these are going to be recurring over the next few years?

Question: Leo Mariani - Roth MKM - Analyst : Okay. That's helpful to for sure. And then I just wanted to get a little bit more thorough thought on M&A strategy. Obviously, the balance sheet is in terrific shape. At this point in time, you just paid off another chunk of debt here. So as you're kind of thinking about allocating capital in terms of your free cash flow, how much does kind of M&A sort of to play into that? Are you still looking at kind of a number of deals out there. You did mention the Mid-Con deal could be possible. But do you think that there's other maybe deals also in the brand that could fit for you folks over time? And are you still kind of seeing a lot of deal flow?

Question: Charles Meade - Johnson Rice & Company - Analyst : Yes. Tom, Shane & Blake and the rest of Coterra team there. Blake, I want to go back, I believe it was your comments talking about how you're managing the Marcellus, and I want to explore that a little bit more as a way to try to understand a bit better how you guys are going to approach the optionality you have for more gas volumes or more gas activity. When I look at your 3Q results, it looks at least on the surface, it seems a little bit at odds to have seven TILs in 3Q. But then you go back into a curtailment. But I think an earlier questioner said maybe you brought those online just to you order and shut them back in. Can you tell us how and I know you made the point that you look at it on a month-to-month basis, but the sequencing of how whether it's TILs rigs, completion crews about how you would exercise your optionality if you chose to?

Question: Charles Meade - Johnson Rice & Company - Analyst : Got it. That is helpful, particularly the compression projects. And then the follow-up, going back to the Delaware, and you guys seem pretty pleased with your Lee County Bone brings results. Can you give us a sense of the size of the road projects that you would choose to there versus your 57 well Windham Row project that you're working on right now?

Question: Paul Cheng - Scotiabank GBM - Analyst : I just want to clarify a little bit. When you're talking about the LNG sales contracts, do you have the flexibility that not delivering your own physical molecule and instead buy from the market and just ship it or that the franchise is a (inaudible) sales and so you don't have that flexibility?

Question: Paul Cheng - Scotiabank GBM - Analyst : Okay. And that for Waha, just curious that what you guys think we will Metehan be sufficient to really get the Waha gas price normal is it? I mean, even after the startup, we still see me Waha gas pricing in the red. So just curious that, I mean, what do you guys have in mind?