Coterra Energy Inc. Q1 FY2024 earnings call

Key Points

• Tom Jorden noted excellent first quarter performance with oil and natural gas production above guidance, and capital expenditures below guidance. He raised full year oil guidance while keeping natural gas guidance unchanged.
• Shane Young summarized financial highlights, provided Q2 production and capital guidance, and updated full year 2024 guidance, including a raised oil production range. He also discussed the bond offering and shareholder return program.
• Blake Sirgo discussed capital expenditures, operational efficiencies in the Permian (e.g., completion gains, simul-frac operations), Marcellus deferrals of well turn-in-lines due to low gas prices, and Anadarko operations with strong activity and efficiencies.

Total equivalent production for the first quarter was 686,000 barrels of oil equivalent per day, near the high end of guidance. Oil production averaged 102,500 barrels of oil per day, 3,500 barrels above the high end of guidance. Natural gas production averaged 2.96 billion cubic feet per day, slightly above the high end of guidance. Capital expenditures came in at $450 million, below the guidance range. Revenue for Q1 2024 was roughly flat with revenue for Q4 2023. Oil production contributed 62% of prehedge revenues totaling approximately $1.4 billion.

Forward-Looking Statements

• Raised full year 2024 oil production guidance range by 2.5 MBo per day to 102-107 MBo per day. Natural gas guidance remains unchanged.
• Full year 2024 incurred capital guidance is between $1.75 billion and $1.95 billion, 12% lower at the midpoint than 2023 spend.
• Successfully issued $500 million in senior notes to refinance debt and used proceeds for share repurchases, returning 90% of free cash flow to shareholders in Q1.

Risks Discussed

• Commodity price swings, which are inherent in the business and can impact production and revenue decisions.
• Low natural gas prices affecting Marcellus well turn-in-lines and production volumes.
• Uncertainty in market conditions impacting the timing of bringing Marcellus wells online.

Q: Nitin Kumar asked about Marcellus well deferrals, market conditions, and the rest of the year's program.

A: Thomas Jorden responded that they are monitoring received prices, particularly Leidy index, and making go/no-go decisions month-to-month, with plans to bring wells online in July but dependent on market conditions.

Q: Arun Jayaram inquired about cash return philosophy and stock valuation.

A: Shannon Young stated they consider valuation, liquidity, and free cash flow, with the stock being a compelling valuation, and they returned 90% of free cash flow in Q1.

Q: Neil Mehta asked about M&A and portfolio consolidation.

A: Thomas Jorden and Shannon Young mentioned being actively engaged in evaluating assets, focusing on financials and strategic fit, with a preference for assets that enhance operational excellence and capital allocation.

Q: Betty Jiang asked about the 3-year outlook and efficiency gains.

A: Thomas Jorden and Blake Sirgo noted their outlooks are aggressive but based on line of sight to gains, with the organization being innovative and expecting continued progress.