Coterra Energy Inc. Q2 FY2024 earnings call

• Portfolio Positioning: Coterra's portfolio is uniquely positioned with a balanced revenue stream, geographic and geologic diversity, allowing flexibility. Despite a 42% drop in natural gas prices, revenue only declined 12%.
• Gas Macro Outlook: Gas markets are oversupplied. U.S. natural gas production has rebounded. Coterra has curtailed production in the third quarter, exploring delaying Marcellus turn-in lines and drilling/completion activity, with no material impact on 2024 cash flow.
• M&A Thoughts: Coterra looks to add quality assets at reasonable prices, leveraging its execution, financial returns, and capital allocation discipline.
• Financial Highlights (Shane): Second quarter production beat guidance, pre-hedge revenues strong, net income and adjusted net income positive. Capital expenditures near low end of guidance. Full-year 2024 guidance: Oil production range increased, natural gas production guidance maintained, BOE guidance increased, capital guidance $1.75B-$1.95B.
• Operational Highlights (Blake): Permian had 23 net wells online, Marcellus had 12 deferred wells with negligible volume, Anadarko had 15 net wells turned in line. Efficiency gains in Permian with drilling and fracking rigs, cost savings in Culberson County with simul-frac, Marcellus and Anadarko seeing operational improvements.

In the second quarter, Coterra's total production averaged 669 MBoepd. Oil averaged 107.2 MBopd, natural gas 2.78 Bcf per day. Pre-hedge revenues were approximately $1.3 billion, with 75% generated by oil and NGL sales. Net income was $220 million or $0.30 per share, and adjusted net income was $272 million or $0.37 per share. Total unit cost during the quarter, including various expenses, totaled $8.35 per BOE. Capital expenditures in the second quarter were $477 million. Discretionary cash flow was $725 million, and free cash flow was $246 million. Cash and short-term investments stood at $1.32 billion at the end of the quarter.

• Third Quarter 2024: Total production expected to average 620-650 MBoepd, oil 107.0-111.0 MBopd, natural gas 2.5-2.63 Bcf per day. Capital expenditures expected between $450M and $530M.
• Full-Year 2024: Increased oil production guidance range to 105.5-108.5 MBopd, maintained natural gas production guidance, increased BOE guidance by 5 MBoepd at midpoint, capital guidance $1.75B-$1.95B. Shareholder returns: $0.21 per share base dividend, repurchased 5 million shares for $140 million.

• Natural gas oversupply leading to price downward pressure and production curtailments.
• Risk of overpaying for M&A assets, which could lead to poor financial outcomes if not at reasonable prices with a margin of safety.

Q: Nitin Kumar from Mizuho asked about learnings from Windham Row and cost savings, and Tom and Blake responded about operational learnings and cost savings in the Permian.

A: Tom and Blake discussed that Windham Row reaffirmed operational ability, and cost savings in the Permian are at the higher end of the 5%-15% range.

Q: Arun Jayaram from JP Morgan asked about updated thoughts on the three-year outlook and well mix in the second half. Tom and Blake responded about the three-year guide and well mix considerations.

A: Tom said they update the three-year guide annually, and Blake discussed well mix and planning considerations in the Permian.

Q: Neal Dingmann from Truist Securities asked about operational flexibility and Anadarko acreage. Tom responded about operational flexibility and Anadarko acreage considerations.

A: Tom discussed the ability to redirect capital and Anadarko acreage potential.

Q: John Abbott from Wolfe Research asked about cash tax rate and Marcellus base performance. Shane and Blake responded about cash tax rate and Marcellus base performance.

A: Shane talked about cash tax payer status, and Blake discussed Marcellus base performance factors.

Q: Kalei Akamine from Bank of America asked about Permian oil guidance and efficiency. Blake responded about Permian oil guidance and efficiency gains.

A: Blake discussed efficiency gains in the Permian and their impact on guidance.

Q: David Deckelbaum from TD Cohen asked about Harkey wells and Marcellus curtailments. Tom and Blake responded about Harkey wells and Marcellus curtailment specifics.

A: Tom and Blake discussed Harkey wells status and Marcellus curtailment details.

Q: Michael Scialla from Stephens Inc. asked about Windham Row and Harkey co-development. Tom and Blake responded about Windham Row uniqueness and Harkey co-development.

A: Blake and Tom discussed Windham Row uniqueness and Harkey co-development considerations.

Q: Matt Portillo from TPH asked about Anadarko program and Marcellus curtailment potential. Tom and Blake responded about Anadarko program and Marcellus curtailment potential.

A: Tom and Blake discussed Anadarko program possibilities and Marcellus curtailment potential.

Q: Kevin McCurdy from Pickering Energy Partners asked about Marcellus turn-in lines and Anadarko acceleration. Tom and Blake responded about Marcellus turn-in lines and Anadarko acceleration.

A: Tom and Blake discussed Marcellus turn-in line learnings and Anadarko acceleration factors.