The operator, Regina, welcomes everyone to the Coterra Energy Fourth Quarter 2023 Earnings Conference Call and introduces the speakers, including Tom Jorden, Shane Young, and Blake Sirgo. Dan Guffey, Vice President of Finance, Planning, and Investor Relations, reminds listeners that the call will include forward-looking statements and non-GAAP financial measures. Tom Jorden notes that Coterra had a strong fourth quarter, with Shane Young providing specific details and mentioning that the company exceeded its guidance for oil, natural gas, and Boe, but stayed below its capital guide.

In 2023, the company saw growth in Boe and oil volumes, generated good returns, and made progress on emissions reduction. For 2024, they plan to invest 60% of projected cash flow, with a focus on the Permian and Anadarko Basins and a reduction in Marcellus investments. The company has learned to be disciplined and patient in commodity cycles and will not base their capital program on future strip prices. They remain optimistic about the gas macro, but will wait for a recovery before fully participating.

Coterra expects a 6% decrease in natural gas volume in the Marcellus in 2024, but has a contingency plan to accelerate the program if there is a recovery in natural gas. They will focus on their inventory in the Anadarko and Permian, which have excellent returns. The company also provided an update on their three-year outlook, with an average annual CapEx of $1.75 billion to $1.95 billion and expected low-single digit growth in Boe and 5%+ growth in oil. This plan demonstrates their confidence in their ability to maintain operational excellence. The company acknowledges their field organization for their dedication and commitment to safety.

The Coterra brand is known for operational excellence, technology and innovation, and adaptability. They strive for a strong balance sheet and continuous progress. Shane Young discussed highlights from the fourth quarter and full year 2023, production and capital guidance for 2024, a new three-year outlook, and their shareholder return program and debt maturity. The fourth quarter had strong production and revenues, with net income of $416 million or $0.55 per share and adjusted net income of $387 million or $0.52 per share.

In the fourth quarter of 2023, Coterra's total cash costs were in line with their annual guidance and they had a cash hedge gain of $46 million. They also had strong production results, with total equivalent production exceeding their initial guidance. Looking ahead to 2024, they expect production to average between 660 MBoe per day and 690 MBoe per day, with oil production being between 95 MBoe per day and 99 MBoe per day. They also anticipate lower capital costs for 2024 compared to 2023.

In 2024, the company plans to increase capital allocation in the Permian and Anadarko Basins and decrease it in the Marcellus. Production is expected to increase for oil and decrease for natural gas. The company has announced a new three-year outlook for 2024-2026, with a goal of 5% oil volume growth and 0%-5% Boe growth by investing $1.75 billion to $1.95 billion per year. This plan also aims to deliver free cash flow and increase shareholder returns, as evidenced by the 5% increase in annual base dividend announced for the fourth quarter.

In 2023, Coterra continued to prioritize returning value to shareholders by repurchasing 17 million shares and returning 77% of free cash flow. They also have a 2024 maturity coming up, but with low leverage and $2.5 billion in liquidity, they have options for refinancing. The company had a strong fourth quarter, with accrued capital expenditures coming in below guidance due to efficiency gains and reduced infrastructure spending. Overall, they finished the year at their midpoint of total CapEx.

Coterra has achieved 10 straight quarters of delivering on their oil guidance thanks to their operations teams' focus on operational excellence. They are constantly looking for ways to improve and are not afraid to try new ideas. In 2024, they plan to turn in line 75 to 90 wells in the Permian, with a lower cost per foot compared to the previous year. They are also taking advantage of their large assets in the Permian to bring economies of scale and are implementing new technologies to further reduce costs. In the Marcellus, they have also worked to lower their cost structure through increased efficiencies.

The company is pushing new limits on lateral linkage and minimizing D&C spend by adjusting their activities in response to changing macro conditions. They are currently running two rigs and one frac crew in the Anadarko Basin and expect to continue yielding strong returns. Their focus on operational excellence has resulted in a strong year and they plan to seek out incremental efficiencies in 2024. The company is now open for questions and the first one is about their capital allocation, specifically their decision to cut activity in the Marcellus and allocate more capital to the Anadarko Basin, which is typically thought of as a gas basin. The CEO thanks the caller for their question.

The speaker believes that the Anadarko basin has great potential and their team has shown repeatability in their projects. They have increased their allocation in the area due to outstanding returns and expect a larger outside operated call on their capital. They are pleased with their allocation decision. When asked about M&A, the speaker says their criteria is simple and they have a lot of organic opportunities.

The speaker discusses potential combinations and the importance of creating value for owners. They mention their curiosity about consolidation in the M&P space and the high bar for opportunities. The next question is about expectations for well productivity in the Delaware Basin, and the speaker explains that their program is a rotation throughout their assets and they expect 2024 to fall within a consistent range. They also anticipate another strong year for productivity.

The operator introduces the next question from an analyst, Kali, who is asking about the company's activity in the Marcellus and Anadarko regions. The analyst is curious about the break-even point for Marcellus and the factors that would lead to a shift in capital allocation. The CEO, Tom Jorden, discusses the company's analysis of price and the oil-to-gas ratio, stating that they would need to see a price close to or above $3 and a sustained ratio of 20 to 1 before shifting capital. When asked about the Anadarko region, Jorden acknowledges the complexity of geology in their portfolio and briefly mentions the team's accomplishments in the region.

The speaker explains that they have tested and calibrated the section, and have a good understanding of the geological challenges. They have shifted their focus to the lower Marcellus and have a longer inventory despite lower investment. This is due to the availability of their gathering system.

The speaker discusses the potential in the lower Marcellus formation and how it will be a significant part of their drilling program for years to come. They also mention their plans for the Permian, including a multiyear 5%+ oil growth outlook and a project similar to Windham Row every year. The projects are carefully planned and involve multiple wells per section, with a focus on efficiency and contingency plans in case of any issues.

The company is using a conservative approach for their first application of simul-frac in Culberson. They expect their electric crew to operate efficiently and have abundant sourcing of sand and water. They also own and operate their SWD system, allowing them to keep water in the pipe and not build produced water pits. They anticipate many more row developments in the future. During the Q&A portion, the company clarifies that their flat span and 0-5% Boe CAGR assumptions do not include future advancements, as they prefer to focus on results rather than promises. They manage their multi-year outlook based on cash flow projections and allocate capital accordingly. The last step in this process is determining the production generated by the allocated capital.

The speaker discusses how their company focuses on operational efficiencies and good capital allocation to drive production. They also mention contingency plans for potential gas price recovery. The speaker is then asked about their return of capital and explains that they were cautious with share buybacks due to uncertainty in the market, but still increased their base dividend.

The company's cash balance has increased to $1 billion, allowing them to be more aggressive with buybacks in a potentially soft gas market in 2024. They also plan to continue increasing their annual dividend by 5%. In terms of their Anadarko operations, they believe there is always room for improvement in efficiency, but it is a different basin than the Permian and they have already seen cost reductions due to consistent drilling activity and improved crew performance.

The speaker discusses the company's plans to take advantage of opportunities for cost savings and economies of scale in their projects. They mention their estimate of 5% deflation in service and material costs and the potential for additional cost savings in the Marcellus. They also highlight their flexibility in capital allocation and their strong vendor partnerships, which allow them to pivot between basins. The speaker also thanks the company for providing a detailed three-year outlook.

Tom Jorden, the CEO of Cimarex Energy, was asked about the company's capital allocation and the potential for a bullish gas market in 2025 and 2026. He stated that the company is not assuming a similar level of allocation in those years, but if there is a significant recovery in the gas market, they may have the flexibility to increase capital. However, this is not currently factored into their outlook as they will react to changing conditions. Another analyst asked about the risk of surprise in associated gas from the Permian and the potential for supply rationalization. Shane Young, a Cimarex executive, responded that the current gas market is challenging and there are no clear signs of supply rationalization at this time.

The speaker discusses the current state of the natural gas market, noting that storage numbers and weather conditions may result in a high spot for the winter. They also mention the resilience of production and the need for discipline in the marketplace. The speaker then talks about their cautious approach to gas and their preparedness for potential changes. They also mention their growth outlook and how they do not factor in efficiency gains. The final question pertains to the Marcellus.

The speaker discusses the decrement in CapEx for 2024 compared to 2023 and explains that this is due to setting up for future projects. They also mention different price assumptions for natural gas and state that they appreciate the interest of the listeners.

The speaker thanks everyone for participating in the conference call and informs them that the call has ended. They also instruct everyone to disconnect from the call.

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