The conference call for Coterra Energy's third quarter earnings began with an introduction from the operator, Cheryl. The call was led by Dan Guffey, Vice President of Finance, Planning and Investor Relations, and featured remarks from Tom Jorden, Chairman, CEO and President, Shane Young, Executive Vice President and CFO, and Blake Sirgo, Senior Vice President of Operations. The company exceeded expectations in the third quarter due to strong performance from top assets and excellent operational performance. The company's focus is on delivering exceptional results and this quarter's performance is in line with their core thesis.

Coterra has valuable oil and natural gas assets that allow them to make strategic investments based on changing market conditions. They prioritize maximizing financial productivity and consistent, profitable growth for shareholders. The company approaches problems with perseverance and demands optimal solutions. They engage in exhaustive planning to maximize capital efficiency and maintain flexibility for future changes.

Coterra's strength lies in its planning process and innovative organization. They expect to maintain top-tier results and improve capital efficiency in the next few years. They will provide an updated outlook in February and plan to allocate capital for moderate disciplined growth. Coterra is a unique and competitive company with top assets and diverse revenue. Their goal is to consistently deliver excellent financial and operational results. Shane Young will now take over the call.

The speaker will discuss three main topics in the morning: third quarter 2023 results, production and capital guidance for the fourth quarter, and an update on the shareholder return program. Third quarter production exceeded guidance due to positive well productivity and faster cycle times. Financially, the company reported adjusted net income of $373 million and discretionary cash flow of $796 million. Total cash costs were below guidance and there will be changes to deferred tax guidance in 2022 and 2023.

In the third quarter of 2023, the company's deferred income tax ratio was negatively impacted by a new requirement, leading to a minor impact on discretionary cash flow. The company expects to pay 95% or more of its income tax expense during the current year and estimates that over the next few years, more than 90% of income taxes will be paid in the current year. In the fourth quarter of 2023, the company expects total production to average between 645 and 680 MBOE per day, with increases in oil and natural gas volumes. Production guidance for the full year 2023 has been increased by 5% for BOEs, 7% for oil, and 3% for natural gas. The company expects to generate $3.5 billion in discretionary cash flow, invest $2.1 billion, and generate $1.3 billion in free cash flow. A $0.20 per share base dividend was announced for the third quarter.

Coterra's annual base dividend of $0.80 per share is one of the highest in the industry and the company remains committed to increasing it annually. They have also executed a return program by repurchasing shares and have returned 84% of their free cash flow to shareholders in the third quarter. The company plans to return over 80% of their 2023 free cash flow to shareholders. Since instituting a buyback program in 2022, Coterra has repurchased 7% of their shares for $1.6 billion. The company had a strong third quarter both operationally and financially and expects a strong final quarter to set a solid foundation for the future. The capital expenditures for the third quarter were lower than expected due to delayed infrastructure spending and lower non-operated activity.

The company is reaffirming its capital for 2023 and expects a decrease in costs for 2024 due to lower prices in various categories. They have seen improved efficiency in their operations, thanks to their field staff and have added a seventh rig in the Permian Basin ahead of schedule. They are also implementing new techniques, such as simul-fracking, to further decrease costs. Currently, the company has 10 rigs and 3 frac crews in operation, with the majority of them not under contract for 2024, providing flexibility for the company.

During the third quarter, Coterra's negotiations on contracts are ongoing and a detailed update will be provided in February. CEO Tom Jorden and team are pleased with the company's consistent and profitable growth and believe they are well positioned to achieve their goals. They appreciate the interest in Coterra and look forward to discussing their results in the question-and-answer portion. During the call, Nitin Kumar asks about the company's cash return framework and whether it will evolve in 2024. Jorden responds by stating that they are not interested in getting into an "arms race" of promises and value flexibility. CFO Shane Young adds that the company has a history of returning cash to shareholders and have already returned over 90% of free cash flow this year.

The speaker discusses the percentage of shareholder returns as a percentage of free cash flow, which has averaged over 80% in the past. They also mention their commitment to returning capital to shareholders and their strategy of consistent profitable growth. They do not see a need for industry consolidation and believe in operational excellence. They also mention the recent combination of Cimarex and Cabot and their goal of proving their resilience to viewers.

The company views mergers and acquisitions as an opportunity, but not a necessity. They are cautious about M&A because investing through the drill bit allows for more flexibility. They are open to considering M&A opportunities, but only if they align with their strategic goals and do not disrupt their current momentum. The Windham Row development is their largest row project and they plan to continue with it in 2024.

The company is focused on operational efficiencies and cost savings by concentrating rigs and facilities. They have added an extra rig to get ahead of well preparation for a simultaneous fracking process. The company does not set production goals but focuses on funding projects with strong returns and resilience to commodity price fluctuations.

The speaker discusses the process of deciding how much capital to invest and what projects to fund. They aim to provide better guidance and hit their targets, but they also view outperformance as an opportunity to improve their estimation methods. The next question is about de-risking a large row development project, and the speaker explains that they have learned from previous projects and have built in timing estimates and contingency plans.

The speaker discusses their approach to managing "bailout wells" and the flexibility built into the row development. They also mention that all 51 wells in the row will come online next year. In response to a question about reallocated capital, the speaker says they are still analyzing options and that the Demic Township is not a critical factor. The speaker also mentions that they are working on plans for 2024 and the Anadarko, but do not provide specific details.

Tom Jorden, CEO of Anadarko, is asked about the competitiveness of the company going into next year. He responds by saying that they love the Anadarko and it competes well in the market. They have new targets and completion styles, and have had success with repeatability. When asked about future capital spending, Jorden says they will take efficiencies whenever possible and may be able to do the same amount of work for less money next year.

The speaker discusses the positive outcome of $200 million and the company's potential for growth in 2024. They also explain their different strategy for row development in the Permian Basin and the factors that influence it, such as geology and productivity.

The company has decided that co-development of vertical benches is not necessary for most of their assets, and they can develop a single bench in the Wolfcamp without leaving behind resources above or below. This decision is based on factors such as frac barriers, reservoir performance, and timing. The company is confident in their approach and believes it is highly efficient for their infrastructure. The row development also lays the groundwork for future benches, which will drive down costs. However, the cost savings is not the main driver for their development strategy. The company is unable to provide a specific estimate for the savings on subsequent developments, but it is expected to be significant.

David Deckelbaum asks about midstream constraints and how they may affect the company's productivity in the future. Blake Sirgo explains that the company has control over their own midstream systems and has developed multiple outlets and partnerships to ensure reliability. They are also planning ahead for their Marcellus spend for the next year.

Tom Jorden, CEO of Noble Energy, discussed the company's plans for the upcoming year and the potential for cost savings and efficiency gains. They have the ability to adjust production levels in response to changing conditions and are currently on a flattish-Marcellus cadence. Analysts asked about the company's strong realizations in the Marcellus and their plans for next year. Blake Sirgo, COO, stated that they do not anticipate any changes in their portfolio and expect to realize about 85% of NYMEX prices in 2024.

The company's portfolio is anchored to out-of-basin indexes and NYMEX pricing, resulting in consistent management from 2023 to 2024. The cash balance is expected to remain around $1 billion, with the flexibility to support shareholder returns above 100% of free cash flow if prices decline. The company may also use cash to pay off a third quarter maturity next year, but no decisions have been made yet.

The speaker discusses the various options regarding the maturity of the company and mentions that no final decision has been made. They also mention following a topic about potential improvements in recoveries but have not seen evidence of it being field tested. The speaker also talks about the potential co-development of Harkey and the Western spacing units of the Windham Row and mentions the only downside may be the impact on midstream activity.

Tom Jorden, CEO of Coterra Energy, discusses the company's approach to capital allocation and its focus on maximizing shareholder return. He also mentions the potential for co-development with other companies and the strong returns on Harkey wells despite interference with the Wolfcamp layer. Tom states that the company is currently satisfied with its strategy but remains open to adapting to changing conditions.

The speakers in the paragraph agree that the current approach is working well for Coterra. They mention that the company is differentiated from its peers by being able to generate consistent profitable growth in the current price environment. They also discuss potential cost reductions, including a 5% deflation in the total program and additional savings from simul-fracs. They mention that negotiations for rig and frac contracts for 2024 are ongoing and will be updated in February. The next question is about activity in the Anadarko Basin for next year.

The speaker is discussing the potential for increased rig activity in the Anadarko Basin in the medium-term, particularly in relation to the demand for LNG. They mention the need for long-term LNG contracts with higher prices in order to justify increased activity. The Anadarko Basin is well-positioned for this, but the company is still searching for the right deal. They also discuss their hedge book for gas in 2024 and the challenges they may face in inventory carryout from 2023.

The company has added hedges to their book and plans to maintain a 20-25% hedged position. They have also been studying the best development scheme for a drilling spacing unit, which has led to improved performance per lateral foot.

Coterra believes that by using fewer wells, they can still extract the same amount of resource, thanks to their machine learning team. This approach has resulted in better capital efficiency. When asked about the impact of wider spacing on their resource duration, Coterra's CEO Tom Jorden stated that they have factored it into their projections and are always striving for better financial returns. The company has accelerated their plans for a seventh rig in the Permian, which was originally planned for 2024, due to the success of their Windham Row project.

The company is planning a big project and wants to be ahead of schedule. They have contracted a rig early and will be running more equipment next year. They have outpaced expectations and are currently operating at a 5% plus rate. They expect any surprises to be on the upside, but acknowledge that operational interruptions are always a possibility. They promise to deliver what they can.

Charles Meade asks Tom Jorden about the company's outlook for 2024 and their 4Q oil guide, which was stronger than expected. Jorden explains that they have a lot of operational momentum going into 2024 and are working to maintain a smooth production profile with less volatility. He also mentions their 3-year guide of 5% growth in oil and states that they are not prepared to discuss specifics about 2024 on the call.

The operator announces that there will be no more questions and turns the call back over to Tom Jorden for closing remarks. Tom Jorden thanks everyone for joining and expresses his satisfaction with Coterra's excellent results for the third quarter. He also states that they expect consistent performance in the future. The operator then concludes the call and everyone may disconnect.

This summary was generated with AI and may contain some inaccuracies.