The conference call for Caterra Energy, Inc.'s First Quarter 2024 Earnings is being led by Dan Guffey, Vice President of Finance, Investor Relations and Treasurer. He introduces the speakers for the call, including Tom Jorden, Chairman, CEO and President, Shane Young, Executive Vice President and CFO, and Blake Sirgo, Senior Vice President of Operations. The company had a successful first quarter with high production levels, and they will be discussing forward-looking statements and non-GAAP financial measures during the call.

Coterra saw a beat in oil production due to well performance, production optimization, and timing. Natural gas production was slightly above guidance, and capital expenditures were below the guidance range due to timing and cost reductions. The company has raised its oil guidance for the year and is considering additional Marcellus activity if prices rebound. Despite commodity price swings, revenue remained stable and the company is optimistic about the future of natural gas. Some Marcellus turn-in-lines were delayed, but there is ongoing completion activity and decisions are being made monthly on bringing wells online.

The conversation regarding the forecasted increase in natural gas demand is being closely monitored by the organization. They are pleased with their results and acknowledge the hard work and dedication of their team. The speaker then provides financial highlights, production and capital guidance, and updates on their shareholder return program. The first quarter saw strong performance with production above the high end of guidance. The Permian saw an increase in wells, while the Marcellus saw a decrease.

During the first quarter, the company generated approximately $1.4 billion in pre-hedge revenues, with 62% coming from oil and NGL sales. Net income for the quarter was $352 million, with adjusted net income at $383 million. Total unit costs were $8.68 per BOE, within the annual guidance range. Cash hedge gains were $26 million and capital expenditures were $450 million. For the second quarter, the company expects total production to average between 625 and 655 MBoe per day, with oil up 2.5% quarter-over-quarter. Total incurred capital is expected to be between $470 million and $550 million. Due to low natural gas prices, two Marcellus projects will be deferred, resulting in lower gas volumes for the quarter. The company has increased its full-year oil production guidance by 2.5 MBO per day.

Coterra's full-year 2024 BOE and natural gas production guidance remains unchanged, as well as their unit cost guidance and turn-in-line well counts. They also reiterate their incurred capital guidance and plan to modestly increase capital allocation to the Permian and Anadarko Basins while decreasing it in the Marcellus. Coterra successfully issued a $500 million bond offering and plans to use the proceeds to retire their 2024 notes. They maintain a low leverage profile and target a leverage ratio below 1x. In the first quarter, they repurchased 5.6 million shares for $150 million and returned a total of $308 million to shareholders, representing over 90% of their free cash flow.

The company is committed to returning 50% of annual free cash flow to shareholders through dividends and share repurchases. They have announced a base dividend of $0.21 per share for the first quarter and plan to increase it annually. The company had a successful first quarter financially and is on track to meet or exceed their three-year outlook. In terms of operations, they spent $450 million on capital expenditures and saw strong execution in the field, with oil production exceeding guidance. They have also achieved record efficiencies in their Permian and Anadarko operations and are currently running two frac crews and eight drilling rigs in the Permian.

The company is benefiting from operational efficiencies, resulting in lower costs and faster cycle times. The Windham Row project is progressing well, with 34 wells drilled and simul-frac operations underway. The use of electric simul-frac crews is reducing costs by $25 per foot and taking advantage of the cost spread between diesel and grid power for a total savings of $75 per foot. Three new Harkey wells have been added to the project, and co-development of the Upper Wolfcamp with the Harkey Shale is showing promising results. The company expects to continue large-scale development in Culberson County for many years. In the Marcellus, one rig and one reduced frac crew are currently in operation.

The company's focus in the Marcellus region is on reducing costs and decelerating activity due to challenging gas markets. They have delayed turn-in lines and a portion of their well head compression program to avoid accelerating volumes into a weak market. However, they have several strong projects ready to execute later in the year if market conditions improve. In the Anadarko region, the company is currently running two rigs and one frac crew and is seeing positive results from their consistent activity. Their operating teams are making strides in reducing costs, minimizing downtime, and improving efficiency.

The company's field operations are doing well and driving their success. The CEO, Thomas Jorden, is pleased with their progress and is looking forward to discussing future results. There were 12 completed wells deferred in the Marcellus due to market conditions, and the company is monitoring prices before making a decision on when to bring them online. They want to see a netback of over $1 before proceeding.

The company is optimistic about bringing additional wells online in July, but will not be solely driven by their model. They are looking at both the price of bringing wells online and the price of increasing investments. They are constructive on Natural Gas, but are being cautious due to the current market conditions. In the Permian, the company has seen positive results from adding a few wells in the Harkey and has achieved a 5% to 15% cost reduction. They are considering reducing capital spend in the Permian by 10% for the same results.

The company has found success in staging production in order to maximize infrastructure usage and has seen an increase in recovery by co-developing the Harkey and Wolfcamp formations at the same time. The simul-frac technique has also been successful, with initial cost savings of $25 per foot. The company is looking to expand this technique to the rest of their drilling program.

Arun Jayaram from JPMorgan asks about the company's philosophy on cash return and how it plays into their recent decision to issue $500 million in notes. Shane Young explains that they consider valuation, liquidity, and free cash flow when making these decisions, and they ultimately decided to issue debt to handle a 2024 maturity.

The company plans to repay $575 million of debt later this year, using proceeds from a new issue and some cash on hand. The impact of this maturity on liquidity is unclear, but the company has a target of keeping $1 billion in cash on the balance sheet. They have relaxed this target and have been as low as $600 million in the past. The company is not concerned about their leverage and is focused on managing for the long run. Marcellus well costs are expected to decline from $1,200 a foot in the first half to $950 a foot in the second half.

The speaker, Tom Jorden, responds to a question about consolidation in the energy industry and the role of Coterra. He mentions that they are actively evaluating assets and looking for opportunities to expand their portfolio. He also mentions that they are confident in their operations team and are actively seeking new assets, but have not found any major opportunities yet.

The company has made strategic decisions to hold firm and is actively engaged in executing its plans. The team is performing well and is looking for opportunities to expand. They prioritize financial considerations and asset quality in their M&A strategy and are open to adding more oil to their portfolio. The company is focused on balancing its revenue mix and has a three-year outlook.

The speaker is discussing the company's recent success and how it will impact their future outlook. They mention that they do not model future cost reductions or efficiencies unless they have line of sight to them. They also state that their organization is innovative and they would rather under promise and over deliver. The other speaker agrees and reiterates their strong conviction in the outlook they provided in February.

The company is expecting 5% growth in oil and 0-5% growth in BOE and gas with a capital of $1.75 billion to $1.95 billion. The first quarter results have given them confidence in this outlook. The company has a culture of operational excellence and is constantly looking for ways to drive efficiencies. They do not bake in any efficiency gains in their three-year outlook, but they expect to get better every year. The company will go back to the Harkey in the next 12 months and there may be potential for cost savings from shared facilities. The company also saw benefits from coal development, which could potentially impact the Harkey road development.

The company has seen cost efficiencies due to the development of benches separately and are interested in learning more about the benefits of co-developed wells. They have been able to beat production by finding ways to do things faster in the field and are focused on total returns and high PVI.

The company's decision on where to drill and complete wells is based on full economic analysis, rather than just cost and cycle times. The example of a project in Lea County versus Culberson County is given. The company's approach is to create value rather than just save money. In the Marcellus, the company is prioritizing economic considerations over efficiency, leading to a slower pace of drilling and completion. The CEO adds a different perspective, emphasizing the importance of making prudent capital decisions.

Tom, the speaker, is positive about the Marcellus operating area and natural gas prices. He mentions reentering a part of the field that hasn't seen drilling, and being a responsible operator in the communities they operate in. He also talks about the success and impact of resource development in Susquehanna County. When asked about capital allocation between Anadarko and the Marcellus, Tom says they will go where the best economics are, considering the low cost of supply and pure methane production in the Marcellus.

The speaker believes that there will be an increase in demand for natural gas and electricity generation, which will lead to increased activity in both basins. They are also seeking long-term contracts to gain exposure to electricity pricing. The company is interested in participating in this market and is talking to potential customers. When it comes to the Windham Row project, the speaker explains that simul-frac is not always the most cost-effective option and it is only used on half of the wells due to limitations in pad layout and efficiency.

The speaker explains that the company's goal is to make the most economic wells and they are only pursuing areas where it makes sense. The questioner asks about the company's inventory and the speaker responds that they are cautious in their estimates and only include areas that they believe they can deliver on. The questioner also asks about the company's capital spend, specifically noting that 70% is from the Upper Marcellus area. The speaker explains that this is due to the productivity and competitiveness of the area, as well as the potential for future growth.

The speaker discusses the importance of continuing projects in a certain zone and mentions plans for flexibility in capital planning in case of changes in market conditions. They also address the possibility of deferring wells in the Marcellus and the potential impact on completion integrity.

Thomas Jorden, the CEO of Range Resources, says that they have not seen any negative impact on shut-in time in their wells. They are planning to turn these wells back on later in the year and do not anticipate any issues due to the low water production in the area. In terms of CapEx, there may be room for more activity in the second half of the year, as shown in a new slide in the Appendix. The second quarter may be the peak for capital spending, with potentially lower spending in the back half of the year. A question is asked about the Upper Marcellus, but it is not mentioned in the response.

In response to a question about the future of their Marcellus activity, Blake Sirgo, the CEO of Coterra Energy, states that the Upper Marcellus will become a larger percentage of their overall activity as they deplete their Lower Marcellus inventory. He also mentions that the Upper Marcellus is a competitive asset and that the company will focus on testing and delineating it. CEO Thomas Jorden adds that the company's asset mix allows them to shift capital based on changes in well performance and price. Charles Meade from Johnson Rice asks about the company's approach to the Marcellus in the second half of the year.

The speaker was asked about turning wells on in July and the potential for curtailment in the Fall due to seasonal changes in demand. The speaker responded by saying that they manage their program like a guided missile rather than a rifle shot and that they typically don't make production decisions based on short-term price fluctuations. They are currently carrying a plan to turn wells on in July, but will make the best business decision based on their model. The speaker emphasized the importance of having low-cost supply and not ramping up production based on changing prices. The Q&A session ended and the speaker thanked everyone for their questions.

The speaker is happy to share the results from the previous night and is looking forward to discussing them again. They thank everyone for participating in the conference call and it has now ended.

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