The paragraph is a transcript from Coterra Energy's third quarter 2024 earnings conference call. The call was introduced by Audra, the conference operator, and Dan Guffey, the Vice President of Finance, Investor Relations, and Treasurer. Dan handed the call over to Tom Jorden, the Chairman, CEO, and President of Coterra Energy. Tom highlighted that the company had a strong third quarter, with production volumes exceeding expectations and capital spending coming in under budget. Coterra also increased its production guidance and decreased its capital guidance for the entire year. The company anticipates 2024 to be its third consecutive year of significant organic oil growth.

The paragraph discusses the company's strong financial and operational results, highlighting projects like Windham Row in Culberson County that demonstrate high capital efficiency and predictability. It emphasizes potential growth through continued simul-fracking, maintaining capital discipline, and flexible planning. While the natural gas market hasn't recovered enough to justify new activities in the Marcellus assets, the company anticipates a more favorable market in 2025 due to factors like LNG exports and increased demand. Meanwhile, they focus on other high-return investments, particularly in New Mexico, for 2024.

The paragraph discusses recent LNG sales agreements made by the company to diversify its natural gas marketing portfolio and gain international market exposure. The company focuses on disciplined capital allocation rather than production goals due to its top-tier oil and gas assets with low supply costs, which enable high returns on low reinvestment rates. The strategy for long-term success is based on building strong operational and subsurface teams and using data-driven decisions for capital allocation while emphasizing continuous improvement. The speaker then hands over to Shane Young, who will highlight the financial results of the third quarter, credit and liquidity positions, and provide production and capital guidance for the fourth quarter and the full year 2024.

In the third quarter, the company exceeded production guidance, averaging 669 MBoepd, with oil and natural gas output slightly above expectations. In the Permian region, 24 net wells were brought online, while five net wells were activated in the Anadarko and seven in the Marcellus. Pre-hedge revenues reached $1.3 billion, primarily from oil and NGL sales, resulting in a net income of $252 million. Total unit costs were $8.73 per BOE, within the annual guidance range. Cash hedge gains were $28 million. Capital expenditures were $418 million, below guidance due to reduced spending on midstream infrastructure and dropping a Marcellus rig. Discretionary cash flow was $670 million, with a free cash flow of $277 million after cash capital expenditures.

The company concluded the third quarter with strong financials, maintaining a low net debt to EBITDA ratio and substantial liquidity after retiring a significant debt. Looking into the fourth quarter of 2024, they anticipate production levels of oil and natural gas to decrease slightly due to operational timing and reduced frac activity. Despite curtailed production, they have increased their full-year oil production guidance slightly and tightened overall production estimates. Additionally, they anticipate lower capital expenditures for 2024 compared to 2023, highlighting improved capital efficiency.

The paragraph outlines the financial and operational activities of the company in the third quarter of 2024. The company modestly increased capital allocation to the Permian and Anadarko basins while reducing it by 65% in the Marcellus. During the quarter, they repurchased 4.3 million shares for $111 million and announced a $0.21 per share dividend, totaling a $265 million return to shareholders, or 96% of free cash flow. Year-to-date, they returned all free cash flow to shareholders, aligning with their strategy of returning 50% or more annually. The company is well-positioned for 2025. Additionally, Blake Sirgo discusses new LNG agreements, including 200,000 MMBtu per day sales commitments for European and Asian markets starting in 2027-2028, sourced from their Permian, Anadarko, and Marcellus gas.

The paragraph discusses Coterra's gas sales agreements, emphasizing that there is no FID risk as the gas is sourced from existing U.S. Gulf Coast facilities. With these deals and an LNG contract at Cove Point, Coterra expects to ship over half a Bcf of gas per day by 2028, boosting revenue diversification. The company reports strong Permian Basin operations, with better-than-expected production results in both operated and non-operated projects. Despite anticipating lower Q4 volumes due to a transition in fracking techniques, Coterra highlights successful cost-efficient progress on the Windham Row project. The overall Permian portfolio, including the New Mexico Bone Spring program, has seen significant improvements in drilling and completion efficiency, with increased wells per pad and reduced transition times due to a new zipper-frac initiative.

The paragraph discusses Coterra's success in its New Mexico program, highlighting the positive well results from their Wolfcamp initiatives and the Dos Equis project in Lea County. It emphasizes the company's competitive cost structure, noting a reduction in Permian well costs due to efficiency gains. The goal is to continue driving costs down while maximizing value and return on investment. Coterra uses advanced techniques, including collaboration with a machine learning team and reservoir engineers, to optimize well design and spacing for improved capital efficiency and net present value.

The paragraph highlights Coterra's efforts to maintain competitive costs and high productivity in the Delaware Basin, primarily through their innovation in tankless battery designs that significantly reduce emissions. In the Marcellus region, due to low market prices, Coterra has ceased drilling and fracturing activities, aided by creative water management strategies, allowing for greater capital flexibility and efficiency. The company has completed its initial Lower Marcellus projects and plans to bring them online when gas prices improve, while continuing to curtail production with specific shut-in volumes set for November.

The article discusses Coterra's strategic approach to managing its sales portfolio linked to Northeast Local pricing. The company is monitoring pricing and making monthly curtailment decisions while maintaining a positive long-term outlook on gas markets. In the Anadarko region, Coterra is operating one rig and completed five wells in the third quarter, resulting in operational efficiencies and strong project development for 2024. Despite challenges in natural gas markets, liquids production contributes positively to returns. The company commends its operational teams and expects strong momentum through 2025. Tom Jorden, responding to a question, discusses the potential for continued use of simul-frac technology to enhance capital efficiency, emphasizing their positive outlook on oil markets.

The paragraph discusses a company's approach to capital allocation and planning amid fluctuating gas markets. Tom Jorden explains that while they aim to remain flexible until making firm decisions, they are prepared to act if necessary. Doug Leggate questions their capital allocation strategy, noting the company's strong oil production growth and suggesting they could reduce capital expenditure while maintaining guidance. Jorden outlines their process, starting with cash flow estimates based on commodity prices and activity, followed by investment decisions to ensure return of capital. They aim to invest 40% to 70% of their returns, generally leaning towards the lower end, and also prepare for severe market downturns to stay ahead of their cost of capital.

The paragraph discusses a company's strategy regarding oil pricing and capital returns, stating that they can sustain attractive returns even if oil prices drop to $50 or lower. Doug Leggate queries this plan, and Arun Jayaram from JPMorgan transitions the focus to the performance of the Harkey Shale interval compared to the upper Wolfcamp in the Permian Basin. Tom Jorden responds, noting that while the Harkey is excellent, it's slightly less favorable than the upper Wolfcamp, but both offer high returns. He mentions strong results from other areas above the Harkey. Jayaram then inquires about the regulatory risks regarding potential setback rules in New Mexico, referencing Coterra's role as a major employer and community player in the state.

The paragraph features a discussion led by Tom Jorden about potential risks to the energy company Coterra related to legislative discussions in New Mexico, emphasizing that recent media concerns about setback rules were exaggerated and unlikely to be enforced imminently. Jorden describes New Mexico as having a strict but fair regulatory environment, acknowledging sporadic political discussions but downplaying their immediate impact on the industry. Following this, Nitin Kumar from Mizuho asks about the drivers behind Coterra’s increased capital efficiency and how sustainable these efficiencies might be in the future. Tom Jorden hands over for further details, with a preliminary comment, to Blake to elaborate further.

The paragraph discusses Coterra's strong operational performance, attributing it to efficient field operations and a stable balance sheet, which prevent the loss of efficiencies. Blake Sirgo explains that Coterra's productivity improvements for 2024 are mainly due to faster operations, accounting for two-thirds of their success, with the rest coming from productivity gains. The company's focus is on continuous operational excellence, pushing for constant improvement despite expected limitations. This attitude is believed to drive further achievements beyond 2024. Tom Jorden notes that the balance of their success factors was more evenly split in the previous year.

The paragraph discusses the cost savings and efficiencies achieved through the use of simul-fracturing in well operations. Nitin Kumar questions the repeatability of achieving costs of $860 per foot in Culberson County, citing road development savings. Tom Jorden notes that not using simul-frac could result in a loss of $30 million annually, while Blake Sirgo confirms that the current savings are at the high end of expectations and could be repeated in future developments. If they revert to traditional zipper fracking, they would lose about $25 per foot in savings. The company plans to release its 2025 strategy next quarter but isn't ready to discuss specifics yet.

In the paragraph, Neal Dingmann from Truist Securities inquires about the company's plans for the Anadarko Basin, questioning whether future plans might be limited by their current lease position and if they'd consider expanding. Tom Jorden responds that they have a substantial inventory for their current investment rate, but they would consider acquiring more assets if they offer competitive capital returns. Neal then shifts the focus to production and shareholder returns, noting the company’s higher growth and payouts compared to average Exploration and Production (E&P) companies. Shane Young explains their strategic approach to buybacks and shareholder returns, emphasizing a commitment to a base payout of over 50%, with additional buybacks evaluated based on intrinsic value and free cash flow projections over the upcoming quarters.

The paragraph revolves around a conversation about capital efficiency and the potential for further optimizing frac operations, specifically through simul-frac techniques. Kalei Akamine from Bank of America inquires about the possibility of enhancing simul-frac operations and the potential disruptions it might cause to the existing program. Blake Sirgo responds by highlighting the considerations involved in simul-frac operations, particularly in the Delaware Basin, where deep assets and high pumping pressures are present. He emphasizes the need to balance cost savings with projected downtime and cautions that pursuing simul-frac too aggressively could inadvertently increase costs. Sirgo concludes by stating that while simul-frac has shown cost savings in Culberson County, the company remains open to evaluating new methods if they promise genuine savings.

In the paragraph, Kalei Akamine and Blake Sirgo discuss the company's water systems in Culberson and Leas County, which are fully controlled and capable of delivering water needed for simul-fracs. They also control their power grids to support these operations. Regarding LNG contracts, Blake Sirgo explains that while he can't disclose specific details, the deals involve physical gas sales directly tied to foreign indexes, aiming to minimize variability and maximize netbacks. Scott Gruber from Citi questions about potential improvements in gas realizations if these contracts were active and inquires about the company's gas hedging strategy, noting a slight increase in their hedges. Tom Jorden responds, regretting they can't provide specific figures.

The paragraph features a discussion about hedging strategies in the gas market amidst uncertainty over future gas prices. Tom Jorden explains that the company aims to maintain a hedge position between 20% to 50% for the next 12 months, with a current strategy sitting at around 30%. This includes a blend of financial hedges covering roughly 15% of expected production and physical hedges via direct deals, also covering about 15%. The conversation then shifts to Matt Portillo asking about strong gas volume growth in the Permian during Q3 and expectations for future growth with the Matterhorn project. Blake Sirgo responds, taking on the query.

The paragraph discusses gas production in the Permian Basin during Q3, highlighting unexpected higher gas-to-oil ratios. The focus remains on maintaining flow assurance, with part of their portfolio settled at Waha Hub, where they hope for improved pricing. In the Marcellus region, the company plans to dewater 11 wells, managing gas production and curtailment based on market conditions. No immediate drilling or completion activities are planned for 2025, but the company is prepared to adjust its capital program with flexible on-ramps and off-ramps as needed.

The paragraph features a discussion between company representatives and analyst Leo Mariani regarding capital efficiency and potential future capital expenditures (CapEx). Mariani notes that the company's CapEx for 2024 is decreasing while production volumes are rising, suggesting improved capital efficiency. Blake Sirgo confirms these efficiencies are repeatable and would positively impact a potential updated 3-year outlook, though specific plans for 2025 have not been disclosed. Tom Jorden adds that while efficiencies in drilling and other investments contribute to reduced capital, they can't easily be projected into the future. Mariani then shifts focus to the company's merger and acquisition (M&A) strategy, noting their strong financial position after a recent debt repayment.

The paragraph features a discussion between Tom Jorden and Leo Mariani about capital allocation, specifically regarding mergers and acquisitions (M&A) in the energy sector. Tom Jorden explains that while the company is open to strategic acquisitions, such as a "smart bolt-on" with the Mid-Con deal, the overarching focus is on value creation. He mentions that the market has been aggressive in pricing and the company has been active but cautious, having no regrets about their decisions. Jorden emphasizes that they would only consider stretching their resources for a high-quality asset in a comfortable operating area that could become a new focus area and is capital-efficient. Otherwise, the company is likely to pass on opportunities that don't meet these criteria.

The paragraph features a discussion between Blake Sirgo and Charles Meade about the management of gas production in the Marcellus region. Sirgo explains the company's strategy of handling production curtailments on a monthly basis, which involves selectively managing new wells and base production. In response to any potential increases in gas market demand, the company plans to first lift curtailments, enhance compression programs, and possibly accelerate drilling and completion activities, as they have projects ready to activate. The focus is on cautious management to avoid fully participating in market down cycles, even if it means missing the initial benefits of a market uptick.

The paragraph discusses a conversation about projects in the Delaware Basin, focusing on the unique Windham Row project in Culberson County, which is a joint development area with Chevron. The conversation highlights the efficient operation due to complete control over infrastructure and midstream in the area. In New Mexico, there are efficiencies achieved through maximizing wells per pad and co-mingling infrastructure. The discussion shifts to a question about LNG sales contracts and their flexibility, but Shane Young indicates he cannot provide specific details about these deals, which are tied to foreign indexes.

In the given discussion, Blake Sirgo acknowledges that the Matterhorn project will aid in addressing Waha gas pricing issues but will not provide a complete solution due to ongoing gas growth in the Permian, which is outpacing oil growth. He emphasizes the need to explore various strategies to enhance pricing, focusing on the management of their Permian portfolio. In response to an inquiry from an analyst at Goldman Sachs about increasing lateral lengths and improving cost efficiency, Blake confirms that they see opportunities for smaller acreage additions in the Permian through frequent trades. He points out that their team is continuously working to secure longer lateral lengths and that they have established a cost per foot based on current efficiencies and market rates.

In the paragraph, Shane Young and Tom Jorden discuss the future demand for natural gas due to increased power needs. Shane predicts that 30% to 40% or more of this demand might be met by natural gas-fired power due to its reliability. Tom agrees, suggesting the percentage could be higher and emphasizes that natural gas is the only viable solution within the needed time frame for dependable power supply. Both see this as positive for natural gas prices. The discussion concludes with a Q&A session.

In the paragraph, Tom Jorden expresses gratitude to the audience for their interest, questions, and support for Coterra. He mentions the company's intention to maintain a strong operational pace, communicate its long-term strategy transparently, and deliver top-tier returns. The operator then concludes the conference call, thanking participants.

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