Q2 2023 Coterra Energy Inc Earnings Call

Speaker 1: so that we can pivot if macro commodity conditions change. In long-term planning, we think of total cotera capital. And within that framework, capital will flow from basin to basin as conditions warrant. We have a firm conviction that production is an outcome, not a primary driver.

World commodity conditions change.

And long term planning, we think of total core tier capital and within that framework capital will flow from basin to basin as conditions warrant.

We have a firm conviction that production is an outcome not a primary driver.

Speaker 1: Consistent annual progress is our goal. And if smart project architecture leads to quarterly fluctuations,

Consistent annual progress as our goal.

And if smart project architecture leads to quarterly fluctuations.

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Speaker 1: We'll have some large projects in 2023 and beyond driven by our goal of achieving the best returns over the long haul.

We will have some large projects in 2023 and beyond driven by our goal of achieving the best returns over the long haul we do.

Speaker 1: We don't get distracted by quarterly fluctuations as projects come online.

Don't get distracted by quarterly fluctuations as projects come online.

Speaker 1: Although we like production beats, our commitment is to invest before results that can withstand commodity swing.

Although we like production beats, our commitment is to invest for results that can withstand commodity swings.

Speaker 1: These principles are in our corporate DNA.

These principles are in our corporate DNA.

Speaker 1: As we look ahead into 2024, we have options and flexibility. For example, we can drop capital in the Marcellus by more than $200 million versus 2023 and still hold the region's production flat over multiple years.

As we look ahead into 2024, we have options and flexibility for.

For example, we can.

Can drop capital in the Marcellus by more than $200 million versus 2023, and still hold the region's production flat over multiple years.

Speaker 1: We have the option to redirect the capital or to simply invest at a slower tape.

We have the option to redirect the capital or just simply invest at a slower cadence.

Speaker 1: We also retain the ability to restore activity if the gas macro were to significantly recover. Although we're confident in our ability to deliver on our updated three-year outlook, as shown on slide five of our investor deck, we have a wide range of options on total capital and allocation.

We also retain the ability to restore activity if the gas macro we are just significantly recover.

Although we are confident in our ability to deliver on our updated three year outlook as shown on slide five of our investor deck, we have a wide range of options on total capital and allocation.

Speaker 1: The outstanding quality and durability of our assets, the flexibility of our capital allocation, our organizational capacity, and our consistent execution are what differentiates Koterra. As always, we prefer to speak about results rather than promises.

Outstanding quality and durability of our assets.

Flexibility of our capital allocation, our organizational capacity and our consistent execution are what differentiates <unk> as always we prefer to speak about results rather than promises.

Speaker 1: Before I turn the call over to Shane, I want to welcome him to Cotera. Shane will be a key player in our team for many years to come. We are absolutely delighted that his join the team. He will make us better.

Before I turn the call over to Shane I wanted to welcome him to Coke Tara <unk>.

<unk> will be a key player in our team for many years to come.

We're absolutely delighted that he has joined the team.

Will make us better.

Speaker 1: Welcoming scene is a bit bittersweet, for it's on the heels of Scott Schroeder's decision to retire.

Welcoming scene is Peters bittersweet for it's on the heels of Scott's Schroders decision to retire.

Speaker 1: Today will be Scott's last quarterly conference call. Scott's career is one.

They will be Scott's last quarterly conference call Scott.

Scott's careers, one for the record books.

Speaker 1: With Cabot, Scott was instrumental in building one of the finest companies in our sector and a defining success for the shale era.

With Cabot Scott was instrumental in building one of the finest companies in our sector and are defining success for the shale era.

Speaker 1: Scott's vision and wisdom were key to the formation of Koterra, and he has become a trusted advisor and dear friend to us all. We will miss Scott and wish him a fruitful and satisfying retirement. He leaves with our deep gratitude. With that...

Scott's vision and wisdom were key to the formation of a co terror and he has to become a trusted advisor and dear friend to us all.

We will Miss Scott and wish him a fruitful and satisfying retirement he leaves with our deep gratitude.

With that I will turn the call over to Shane.

Thank you Tom.

Speaker 2: Thank you, Tom. It is a pleasure to be on today's call. This morning, I will discuss our second quarter, 2023 results.

It is a pleasure to be on today's call.

This morning, I will discuss our second quarter 2023 results.

Speaker 2: by details on our shelter return program and update our activity outlook and guidance for the third quarter and for the full year.

Details on our shareholder return program and update our activity outlook and guidance for the third quarter and for the full year.

During the second quarter total production volumes averaged 665 MB Bo per day natural gas volumes grew to $2 nine Bcf per day and oil averaged 95, eight <unk> per day, which is a new high watermark for cordero.

Speaker 2: During the second quarter, total production volumes averaged 655 MBOE per day. After gas volumes grew to 2.9 DCF per day. And oil averaged 95.8 MBO per day, which is a new high watermark for cut.

Speaker 2: In fact, all three production streams came in well above the high end of guide.

In fact, all three production streams came in well above the high end of guidance.

Speaker 2: Our operations teams in all three regions executed nicely, which drove DOE production up 5% sequentially.

Our operations teams in all three regions executed nicely, which drove <unk> production up 5% sequentially.

Speaker 2: The strong performance was driven primarily by positive well productivity and improved operational acogenicity.

Strong performance was driven primarily by positive well productivity and improved operational efficiencies.

Speaker 2: Turn in lines during the quarter totaled 39 net wells within our guidance of 36 to 45 wells.

Turn in lines during the quarter totaled 39 net wells within our guidance of 36 to <unk> 45 wells.

Speaker 2: Production growth during the period was more than offset by commodity price declines, which were down 30% quarter over quarter on a BOE basis.

Production growth during the period was more than offset by commodity price declines, which were down 30% quarter over quarter on a Boe basis.

Speaker 2: driving net income and cash flow lower relative to the first quarter.

<unk> net income and cash flow lower relative to the first quarter.

Speaker 2: Zotero reported net income of $209 million and discretionary cash flow of $705 million during the quarter.

So Terry reported net income of $209 million and discretionary cash flow of $705 million during the quarter.

Speaker 2: These results are inclusive of realized cash hedge gains of $84 million.

These results are inclusive of realized cash hedge gains of $84 million.

Speaker 2: Second quarter accrued capital expenditures totaled $537 million within our guidance of $510 to $570 million. And free cash flow was $113 million after cash capital expenditures, which totaled $592 million.

Second quarter accrued capital expenditures totaled $537 million within our guidance of $510 million to $570 million and free cash flow was $113 million after cash capital expenditures, which totaled $592 million.

Speaker 1: Based on strip prices, cash flow and free cash flow are projected to increase during the back half of 2023, and the company expects greater than 55% of its 2023 revenue to come from oil and NGL sales.

Based on strip prices cash flow and free cash flow are projected to increase during the back half of 2023, and the company expects greater than 55% of its 2023 revenue to come from oil and NGL sales.

Yeah.

Turning to return of capital.

Speaker 1: Yesterday, we announced a 20 cent per share base dividend for the second quarter.

Yesterday, we announced a <unk> 20 per share base dividend for the second quarter.

Speaker 1: Our annual base dividend of 80 cents per share remains one of the highest yielding base dividends in the industry at nearly 3% based on recent trading.

Our annual base dividend of <unk> 80 per share remains one of the highest yielding base dividends in the industry at nearly 3% based on recent trading levels.

Speaker 1: management and the board remain committed to responsibly increasing the base dividend on an annual case.

Management and the board remain committed to responsibly, increasing the base dividend on an annual cadence.

Speaker 1: During the second quarter, despite relatively lower commodity prices and cash flow, Zotero continued to execute its return program by repurchasing 2.4 million shares for $57 million at an average price of $23.55 per share.

During the second quarter, despite relatively lower commodity prices and cash flow <unk> continued to execute its return program by repurchasing two 4 million shares for $57 million at an average price of $23 55 per share.

Speaker 1: In total, we returned 184% of free cash flow during the quarter.

In total we returned 184% of free cash flow during the quarter.

Speaker 1: The company's large cash balance afforded us the luxury to return capital in excess of our quarterly free cash flow and continue to buy our shares counter-cyclically at a attractive price.

The company's large cash balance afforded balance afforded us the luxury to return capital in excess of our quarterly free cash flow and continue to buy our shares counter cyclically at attractive prices.

Based on results year to date, <unk> returned $628 million to shareholders or 94% of free cash flow via our base dividend and share repurchases.

Speaker 1: Based on results here today, Cocares returns $628 million to shareholders, or 94% to free cash flow. VR based dividend and share reperto-

We are reiterating our annual commitment to return, 50% plus of free cash flow to shareholders.

Speaker 1: We are reiterating our annual commitment to return 50% plus of free cash flow to shareholders.

When taking into account recent strip prices.

Speaker 1: buyback activity completed to date and our base dividend, we expect to return well in excess of 50% of 2023 free cash.

Buyback activity completed to date and our base dividend, we expect to return well in excess of 50% of 2023 free cash flow.

Speaker 1: Lastly, I'll discuss refinements to our 2023 guidance and activity outlook.

Lastly, I'll discuss refinements to our 2023 guidance and activity outlook.

First on capital.

We are reiterating the company's 2023 crude capital estimate of two to $2 2 billion.

Speaker 1: We are reiterating from the company's 2023 crude capital estimate of 2 to 2.2 billion dollars.

While we are currently trending 1% to 2% above the midpoint of our guidance range, we're seeing clear signs of future cost softening on big ticket items, such as rigs steel and Frac crews.

Speaker 1: While we are currently trending 1 to 2% above the midpoint of our guidance range, we are seeing clear signs of future costs softening on big ticket items such as rigs, steel, and frac-

Speaker 1: Other cost categories, including labor and surface rentals, have been more sticky and flat to modestly up.

Other cost categories, including labor and surface rentals have been more sticky and flat to modestly up.

Speaker 1: Based on leading edge service costs, coupled with the timing of our contract repriced.

Based on leading edge service cost coupled with the timing of our contract repricing.

Speaker 1: Our best estimate based on information we have today is that we will see a 2024 dollar per foot decrease of approximately 5% as compared to 2023.

Our best estimate based on information we have today is that we will see a $2024 per foot decreased of approximately 5% as compared to 2023.

We retain a substantial amount of flexibility for 2024 capital program in all three basins and plan on detailing our program early next year as per our customary annual guidance release.

Speaker 1: We retain a substantial amount of flexibility for our 2024 capital program in all three basins and plan on detailing our program early next year as per our customary annual guidance release.

Onto production guidance.

Speaker 1: We're increasing our full year oil guidance by 3% at the midpoint to 91 to 94 MBO per day.

We are increasing our full year oil guidance by 3% at the midpoint to 91% to 94 Mbo per day.

Speaker 1: driven primarily by strong weld performance in both the Permian and the Anadarko bases.

Driven primarily by strong well performance in both the Permian and Anadarko basins.

Speaker 1: We are increasing our natural gas and BOE guidance 2% at the midpoint on the back of solid well performance in the Marcellus.

We are increasing our natural gas and BOE guidance, 2% at the midpoint on the back of solid well performance in the Marcellus.

Speaker 1: For the third quarter, we estimate production will average 640 MBOE per day, natural gas to average 2.8 BCF per day, and oil to average 89.5 MBO per day.

For the third quarter, we estimate production will average 640 <unk> per day natural gas to averaged two eight bcf per day and oil to average $89 five mbo per day.

Speaker 1: The sequential production decline is solely related to timing and was previously forecasted internal.

The sequential production decline is solely related to timing and was previously forecasted internally.

Speaker 1: As implied by our full year guidance, we expect to see a return to growth in the fourth quarter.

As implied by our full year guidance, we expect to see a return to growth in the fourth quarter.

In our Investor presentation, we iterate reiterated our three year outlook, which assumes the company achieves a three year oil CAGR of 5%.

Speaker 1: In our investor presentation, we reiterated our three-year outlook, which assumes the company achieves a three-year oil kegger of 5%.

Speaker 1: BOE and natural gas Kager of 0 to 5%, the capital and activity that is flat to down relative to 2023 level.

And natural gas CAGR of zero to 5% with capital and activity that is flat to down relative to 2023 levels.

Speaker 1: One update in our presentation was a change in our oil kegger out

One update and a presentation was a change in our oil CAGR outlook.

Speaker 1: We now expect our three-year CAGR to be greater than 5%

We now expect our three year CAGR to be greater than 5%.

Speaker 1: This change is primarily driven by the observed strong well performance in 2023.

This change is primarily driven by the observed strong well performance in 2023 to date.

We have yet to finalize 2020 for capital investment allocation by region.

Speaker 1: We have yet to finalize 2024 capital investment allocation by region and retain significant optionality. We will continue-

And retained significant optionality.

We will continue to allocate capital to its most productive use.

Based on recent strip and our outlook, our 2023 discretionary cash flow guidance is 335 billion down from $3 6 billion in May.

Speaker 1: Based on recent strip and our outlook, our 2023 discretionary cash flow guidance is $3.35 billion, down from $3.6 billion in May. The decrease in cash flow is driven primarily by lower natural gas and NGL realization.

The decrease in cash flow is driven primarily by lower natural gas and NGL realizations.

The 2023 free cash flow is now estimated to be $1 billion to $4 billion.

Speaker 1: The 2023 free cash flow is now estimated to be $1.24 billion.

Speaker 1: down from 1.58 billion, which is due to lower discretionary cash flow and higher projected cash capex, which includes the cash impact of forecasted changes in AP at year end. Starting to a few business unit updates.

<unk> from 158 billion, which was due to lower discretionary cash flow and higher projected cash capex, which includes the cash impact of forecasted changes in AP at year end.

Turning to a few business unit updates.

The Marcellus delivered strong well performance during the quarter production.

Speaker 1: Production increased 9% sequentially, driving total company natural gas volumes 2% above the high end of GAI.

Increased nine 9% sequentially driving total company natural gas volumes, 2% above the high end of guidance.

Speaker 1: As previously communicated, we recently dropped Marcelo's activity to two rigs and one crew.

As previously communicated we recently dropped Marcellus activity to two rigs and one crew.

Speaker 1: If this level of activity holds in 2024 and 2025, Marcella's capital could decline by at least $200 million per year while holding production relatively flat.

If this level of activity holds in 2024 and 2025.

Marcellus capital could decline by at least $200 million per year, while holding production relatively flat.

Speaker 1: In the Anadarko, our last two projects, which both came online in the second half of 2022, to outperform.

In the Anadarko or last two projects, which both came online in the second half of 2020 to continue to outperform.

Speaker 1: We are currently fracking the 7-well evidence development, which is expected to come online during the fourth quarter.

We are currently fracking the seven well evidence development, which is expected to come online during the fourth quarter.

Speaker 1: We are running one rig in the region during the back half of the year, which will provide nice momentum heading into 2020.

We are running one rig in the region during the back half of the year, which provide nice momentum heading into 2024.

Yeah.

Speaker 1: In the Permian, we're currently running six rigs and three frack crews, one of which will be utilized as a spot crew.

In the Permian, we're currently running six rigs and three Frac crews, one of which will be utilized as a spot crude.

Permian turn in lines are trending to the high end of our annual guidance, largely due to operational efficiencies, including improving drilling and frac feet per day.

Speaker 1: Permian turn-in lines are trending to the high end of our annual guide, largely due to operational efficiencies, including improving drilling and frack feet per day.

Speaker 1: The incremental wells are expected to come online late in the fourth quarter and contribute minimally to 2023 annual volumes.

The incremental wells are expected to come online late in the fourth quarter and contribute minimally to 2023 annual volumes.

Lastly, I'll touch on unit costs.

Speaker 1: Cash costs, including LOE, workover, transportation, production taxes, and GNA, totaled $8.27 per BOE during the second quarter, down from approximately $8.90 in the first quarter.

Cash costs, including LOE.

Workover transportation production taxes, and G&A totaled $8 27 per Boe during the second quarter down from approximately $8 90.

In the first quarter.

Speaker 1: This was well within our annual range of $7.30 to $9.40 per B.O.E.

This was well within our annual range of $7 30 to $9 40 per Boe.

One note on deferred tax guidance.

Speaker 1: utilizing the bulk of our NOLs in the high-coma-b price environment during 2022, we expect deferred taxes to range between 10 and 20% of income tax expense in 2023.

Utilizing the bulk of our Nols and the high commodity price environment. During 2022, we expect deferred taxes to range between 10, and 20% of income tax expense in 2023.

Speaker 1: In summary, despite commodity headwinds during the quarter, momentum for Koterra continues.

In summary, despite commodity headwinds during the quarter momentum for <unk> continues.

This is supported by strong operational execution, which led to production beat for the quarter and the need to raise our annual production guidance range.

Speaker 1: supported by strong operational execution, which led production beats for the quarter, and the need to raise our annual production guidance range.

Speaker 1: The company remains well positioned to meet or exceed our 2023 as well as our 2023 to 2025 targets.

The company remains well positioned to meet or exceed our 2023 as well as our 2023 to 2025 targets.

Finally.

I would also like to congratulate Scott Schroeder for all our successes over his 28 year career at Cabot and fits era.

Speaker 1: I would also like to congratulate Scott Schroeder for all his successes over his 28 year career at Cabot and Cozera.

Speaker 1: He's been instrumental to creating a bright future at Koterra that we enjoy today.

He has been instrumental in creating a bright future and co chair that we enjoy today.

Speaker 1: I'd like to personally thank him for all his efforts and the support he has provided me over the past month. With that, I'll turn...

I'd like to personally thank him for all his efforts and the support he has provided me over the past month.

With that I'll turn the call back to the operator for Q&A.

To ask a question. Please press star one please limit yourself to one question and one follow up. Your first question is from Nick and Qunar of Mizuho Securities. Please go ahead. Your line is open.

Speaker 3: question, please press star 1. Please limit yourself to one question and one follow-up.

Speaker 3: Our first question is from Nick Kunar of Mizzou Hoe Securities. Please go ahead. Your line is up.

Okay.

Speaker 4: Great, thanks for taking my questions and first of all, congratulations Scott on your retirement and congratulations on the new role.

Great. Thanks for taking my questions and first of all congratulations Scott on your retirement and congrats Shane on the new role.

Speaker 4: I want to start by unpacking the guide for third quarter a little bit. In your prepared remarks, you emphasized that the beat in the second quarter came from improved productivity, but you're looking for about 7% decline in oil. Could you just walk us through maybe the cadence of completion for the rest of the year and just kind of what leads to this guide? Thank you.

I wanted to start by unpacking.

Congrats I wanted to start by Unpacking the guide for third quarter, a little bit in your prepared remarks, you emphasized that the beat in the second quarter came from improved productivity, which you are looking for about 7% decline in oil, but could you just walk us through maybe the cadence of completions for the rest of the.

A year and just kind of what leads to this guide.

Yes.

It's completely project timing and when projects come on.

Speaker 5: Completely project timing and when projects come on. We're in the process of bringing online what we call our Mint Julep row, which is

We're in the process of bringing online what we call our mint julep row.

Which is.

23 wells.

Speaker 5: And so the timing of when those come on as we complete that row is strongly driving our production cadence.

And so the timing of when those come on as we complete that ROE is strongly driving our production cadence.

Speaker 5: We've got a project, a Red Hills asset in New Mexico that will come on over the third and fourth quarter.

We've got a.

So those projects are rolled Red hills asset in new Mexico that will come on over the third and fourth quarter.

Speaker 5: You know, we also in the second quarter had a nice, pleasant surprise with the overperformance of a three mile project. Or wells in Reese County, it's completely project timing. Our productivity is surprising us significantly to the upside. And as Shane said in his remarks, this was part of our plan. This is not surprised us. paths. Door. Guys, look

We also in the second quarter had a nice pleasant surprise with the over performance of a remodel project.

Our wells in Reeves County, it's completely project timing, our productivity is surprising us significantly to the upside and as Shane said in his remarks. This was part of our plan. This was a surprise to us.

Or is it a concern.

Speaker 4: Thanks for the answer Tom. I guess as my follow up I want to touch a little bit upon the cash return. You know we saw you against a tough commodity tape dip into the cash balance a bit and return. I think it was 185% of the cash though. Could you talk a little bit about how do you see?

Got it thanks for the answer Tom I guess as my follow up I wanted to touch a little bit upon the cash return we saw U.

Against a tough commodity paid dip into the cash balance a bit and return I think it was 185% of free cash flow could you talk a little bit about how do you see.

Speaker 4: You have, I think, 840 million at the end of the quarter. How do you balance between maintaining some cash, being counter cyclical in your buybacks, and how you're looking at it sort of longer term? Yeah.

You have I think $840 million at the end of the quarter, how do you balance between maintaining some cash being counter cyclical and your buybacks and how youre looking at it sort of longer term.

Yes.

Thank you I'll take that.

Speaker 1: Listen, you know, I'd say on the return of capital program, first of all, the company looks at it from a full year program cycle and focusing on quarter to quarter, certainly make decisions. But I think we try to keep a vision of the totality of it in mind.

Listen, let's say on the return of capital program first of all the company looks at it from a full year program cycle and focusing on quarter to quarter, certainly make decisions, but I think we're trying to keep the vision of the totality of it in mind.

Speaker 1: You know, if you look back over time, we've maintained a cash balance over the last six quarters. This is high, almost a billion a half, it's low, it's in the 600 million. I think that's arranged. The company is comfortable operating with it. And from there, I think as we make individual decisions quarter to quarter, we're gonna look at what is the free cash flow, what is the outlook for the coming period, and what's our internal look at the value of the shares that are trading in the marketplace. All laborplaces in general have to offer products of litter box for affordained debt A??? audited...

If you look back over time, we've maintained our cash balance over the last six quarters as high as almost 1 billion app as low as in the 600 million. So I think thats a range. The company is comfortable operating within and from there I think as we make individual decisions quarter to quarter, we're going to look at what is the free cash flow.

What is the outlook for the coming period and what's our internal look at at the value of the shares that are trading in the marketplace.

Alright, great. Thanks, guys.

Speaker 3: Our next question is from Aruna Jaram of JPMorgan Chase. Please go ahead. Your line is open.

Your next question is from Arun Jairam of Jpmorgan Chase. Please go ahead. Your line is open.

Speaker 4: Yeah, good morning gentlemen. I wanted to get some more details on the slight change.

Yes, good morning, gentlemen.

Wanted to get some more details on the.

The slight change.

Speaker 4: in your three year outlook, now you're highlighting the potential to drive annual oil growth above 5%, which was 5% below before that. What is driving that in a slight change? And does that contemplate the potential reinvestment of $200 million, call it from the Marcellas to your two other oil place?

And your three year outlook now youre, highlighting the potential to drive.

Oil growth above, 5%, which is 5% below the before that.

What's driving that slight change and does that contemplate the potential reinvestment of $200 million call. It from the Marcellus.

To your two other oil place.

Yes, yes.

Well productivity is.

Speaker 5: driving that change clearly and simply. And no, there's no assumption of reallocation in that three-year plan.

Driving that change.

And at some point.

No.

There is no a subset of reallocation in that three year plan.

Speaker 4: understood, Tom. And what would, you know, as you, you and your team look at the 2024 outlook, you know, just looking at strip pricing today, would you say that there's a better than 50% chance that you do decide to reallocate that, just given your inventory depth and the Delaware basin?

Understood, Tom and what would you.

You and your team look at the 2020 for outlook.

Just looking at strip pricing today.

Would you say that there's a better than 50% chance that you do decide to reallocate that just given your inventory depth in the Delaware Basin.

No I would not say.

Right.

Yes.

Speaker 4: Okay, all right, Tom, I just wanted to get your thoughts on that, but for now, seems like that 200 million dollars you haven't made a decision on it. Fair enough? That's correct.

Okay Alright.

Alright, Tom I, just wanted to get your thoughts on that but for now things like that $200 million you haven't made a decision on it fair enough.

That's correct. Thanks Ryan.

Okay.

Your next question is from <unk> <unk> of Goldman Sachs. Please go ahead. Your line is open.

Speaker 3: Your next question is from Umong Choudry of Goldman Sachs. Please go ahead, your line.

Speaker 6: Hi, good morning and thank you for taking my questions. And also congratulations, Scott, for your retirement. We will miss you. And Shane, congratulations. Look forward to working with you.

Hi, good morning, and thank you for taking my questions.

And also congratulation Scott for your time, and we will Miss you and Shin Congratulations to look forward to working with you.

Let me.

Speaker 6: Let me start with the cost-iflation point. I appreciate all the details which you provide on slide 12. You mentioned that some of your contracts are staggered, so you might not realize the full benefit in 2024. Can you remind us the percentage of your overall KPX, which will be exposed to those cost savings? And then to be sure this is not incorporated in your three-year outlook.

Thank you let me start with the cost deflation point appreciate all the details that you provided on slide two of.

You mentioned that some of your contracts are staggered so you might not realize the full benefit in Greene County, Florida.

Can you remind us.

Cengage off your overall, capex, which will be exposed to this cost savings and then Toby showed this is not incorporated in your clear outlook.

Oh, Yes. This is Blake I'll take that one.

Speaker 7: You know, really what we're trying to show on slide 12 is how our cost structure is and it's not moving throughout 23. so when we built the budget, we had some strong indications that are leading cost indicators were coming down.

Really what we're trying to show on slide 12 is how our cost structure is and is not moving throughout 'twenty. Three so when we built the budget. We had some strong indications that our leading cost indicators were coming down and most of those will come to fruition. So you can see with our mid year re pricings.

Speaker 7: And most of those have come to fruition. So you can see with our mid-year re-pricings, we gain ground on rigs, OCTG, frags, sand.

Gained ground on rigs or CTG, frac sand, but it's really the remaining market.

Speaker 7: But it's really the remaining market piece of our cost structure that just hasn't seen the same deflation. So that part's been pretty sticky. It's a bunch of smaller services driven by really underpinned by labor and fuel.

Piece of our cost structure that just hasn't seen the same deflation so.

That part has been pretty sticky, it's a bunch of smaller services driven by really underpinned by labor and fuel and we just haven't seen that deflation. There. So all we're assuming when we do the 5% is that does.

Speaker 7: And we just haven't seen that deflation there. So all we're assuming when we do the 5% is that those leading edge indicators on those services we've called out, maintained for a full year. Whereas this year we only got to realize them for half a year.

Leading edge indicators on those services, we've called out maintained for a full year, whereas this year, we only got to realize them, perhaps a year.

Gotcha that makes sense.

Speaker 6: And then I just wanted to go back to the three-year outlook. I'm trying to understand your earlier comments about maintaining a consistent operational program and some of the recent efficiency gains which you have realized.

And then.

I just wanted to go back to the <unk> outlook.

I'm trying to understand your earlier comments about maintaining a consistent operational program.

Some of the recent efficiency gains, which you have realized.

Speaker 6: What does it mean for your activity plans? Would it mean that you will drill more wells, complete more wells, more productive wells, and how does that change your thoughts around long-term capital spending?

What does it mean for your activity plans would it mean that you will you will drill more wells complete <unk>.

More productive wells and and how does that change your.

Your thoughts around.

Long term capital spending.

Speaker 5: Well, certainly we'll drill more productive wells. And with our operations team, we will achieve an increasing operational efficiencies. You know, we, as we outlined in our deck in the Permian, we have a 51 well project underway. And that's remarkable and offers the opportunity for some great efficiencies.

Well, certainly we'll drill more productive wells.

With our operations team, we will achieve increasing operational efficiencies.

Well, we as we outlined in our deck in the Permian and we have a.

51, well project.

Wei and Thats remarkable and offers the opportunity for some great efficiencies.

Speaker 5: It's going to be stunningly productive.

It's.

It's going to be stunningly productive.

Speaker 5: You know, I'll say as we look at all of our options.

I'll say as we look at all of our options.

Speaker 5: We look to see what's our outlook for commodity prices, how low can the commodity price fall where we would still generate a really nice return on our capital. And you know, there is always a bit of wanting to skate where the puck's going to be on commodity price.

Look to see what's our outlook for commodity prices.

Low kind of commodity price fall, where we would still generate a really nice return of our capital.

And there is always a bit of wanting to skate where the puck is going to be on commodity pricing.

Speaker 5: So, but we're going to be disciplined. We're not going to chase the strip, as I said. But, you know, we'd also like to be consistent.

So, but we're gonna be discipline, we're not going to chase the strip as I said.

But we are select to be consistent.

Speaker 5: that rotation strip works both ways. It means.

Jason to strip works both ways.

Speaker 5: Racing to add activity when prices are high, but also means panicking when prices are low and dropping activity. And that can be horribly destructive to everything we want to accomplish. It can be destructive to your well-productivity, it can be destructive to your operational efficiency, and you can exactly time it wrong.

<unk>.

Anything to add activity when prices are high but it also means panicking when prices are low.

Dropping activity and that can be horribly destructive to everything we want to accomplish it can be destructive tenure well productivity incumbent destructive to your operational efficiency and you can exactly time it wrong.

Speaker 5: So consistency is a luxury that Cotera forwards and we intend to exercise it.

Consistency is a luxury that co Tara forwards.

We intend to exercise.

It makes a lot of sense. Thank you.

Your next question is from Doug Leggate of Bank of America. Please go ahead. Your line is open.

Speaker 3: from Doug Leggett of Bank of America. Please go ahead.

Speaker 8: Thanks, good morning everyone. Let me offer also my thanks and gratitude to Scott for all his help over the years and Shane, I look forward to working with you. Gentlemen, I wonder if I could start with a little housekeeping point as a little subtle observation. I just wonder if it's something worth talking about. If we look at your Permian production mix...

Thanks, Good morning, everyone. Let me offer also in my thanks and.

On gratitude to Sculpsure all his help over the years and she and I look forward to working with you.

Gentlemen, I wonder if I could.

Start with a little housekeeping point is a little subtle observation I just wonder if there's something worth talking about.

We look at your Permian production mix going bike.

Speaker 8: last couple of years. It seems to us, I'll just give you the numbers here, if I go back to late 21, you would have about 35%, 36% natural gas yield. And the last year was 34, first quarter was 32, this quarter is 31%. Is there something going on there, or is it just a function of flush oil production?

Last couple of years it seems to us I'll just give you the numbers here if I go back to late 'twenty, one you're at about 35%, 36% natural gas yield.

End of last year was 34 first quarter was 32. This quarter is 31% is there something going on there or is it just a function of flush oil production.

Hi.

Speaker 5: If there's some overprint of it we're not aware of, I think it's...

Theres some overprint of it we're not aware of I think it is.

Yes.

Speaker 5: Yeah, it may be a function of some of our spacing and getting spacing right so that we're not seeing GOR increases rapidly on some of our developments. But overall, we see...

It may be a function of some of our spacing and getting spacing right. So that we're not St. Joe our increases rapidly on some of our development.

But overall.

We see.

Speaker 5: a fairly consistent analysis of our assets. Blake, you want to comment on that? Yeah, just there. Our program's driven by constantly high grading, and so in the premium, that means our oiliest projects come to the five. So our teams do a great job of that.

A fairly consistent analysis of our assets like you wanted to tell him. Another yes, I'd just say our programs driven by constantly high grading and fill in the Permian that means our oily as projects come to the five so our team is doing a great job of that.

Alright.

Speaker 8: Okay, I just wanted to say something different about what you guys were doing with. Thank you for that. My follow up is really a clarification question on the earlier comment, excuse me, about spending. Shane, you touched on them or Celis, on your activity level, obviously dropped early this year. So.

Okay I just wanted to if there was something different about what you guys are doing with thank you for that my follow up is really a clarification question on the earlier comments excuse me.

<unk> of our spending.

Sure and you touched on the Marcellus.

Your activity level, obviously dropped earlier this year.

So.

Speaker 8: Understanding everything Tom said about accepting the growth as an output, it sounds like you're signaling that for the current level activity, your capex could reasonably be in the 1.9, maybe even lower range. Am I reading that wrong or can you just elaborate a little bit on what you were trying to signal?

Our understanding everything Tom said about.

Accepting the.

The growth is an output it sounds like youre signaling that for the current level of activity.

Your capex could reasonably be in the 109, maybe even lower range am I am I reading that wrong or can you just elaborate a little bit on what you were trying to signal there.

Speaker 1: Yeah, look, I think what I was trying to say is we currently have two rigs running and one crew in the Marcellus. And if we were to maintain that level of activity into the future, that our annual capital would be 200 million lower in the Marcellus area. So I think that's, that was sort of the message that we were trying to deliver based on where activity is today. And that holds you flat in the Marcellus? Yeah.

Yeah look I think what I was trying to say is we currently have two rigs running and one crew in the Marcellus and if we were to maintain that level of activity.

Into the future that our annual capital would be $200 million lower than the Marcellus area. So.

That was sort of the message that we're trying to deliver based on where activity is today.

And that holds you flat than the Marcellus.

<unk> production flat in the Marcellus great. That's what I needed. Thank you guys appreciate the answers.

Your next question is from Michael <unk> of Stephens. Please go ahead. Your line is open.

Speaker 3: Question is from my cold scour of students. Please go ahead. Your line

Speaker 9: Hey, everybody in and I'll offer my congratulations to both Scott and Shane as well. I'm curious if any of your investors are telling you that they don't want to see oil growth of more than 5% over the next few years. Tom, you mentioned the flexibility that you have, but you don't want to be reactionary. What are your thoughts around potentially cutting cap-axe and just told them production flat?

Hey, good morning, everybody and I'll offer my congratulations to both Scott and seeing as well.

I'm curious if any of your investors are telling you that they don't want to see oil growth of more than 5% over the next few years. Tom you mentioned the flexibility that you have but you don't want to be.

Reactionary what are your thoughts around potentially.

Cutting capex and just holding production flat.

Yes, Mike.

Speaker 5: We've got a wide range of investors, as you can imagine. We have differing voices. You know, quite frankly, we have some investors that tell us that if anybody's earned the right to grow, it's this team. We have other investors that feel different.

We've got a wide range of investors.

As you can imagine.

We have different voices.

But quite frankly, we have some investors that tell us that if anybody has earned the right to grow this team.

We have other investors that are feel differently.

Speaker 5: We always enjoy conversations with our investors and getting feedback, and we'll certainly be doing that on the heels of this call.

We always enjoy conversations with our investors and getting feedback and we'll certainly be doing that on the heels of this call.

But I think.

Speaker 5: The investors that I think resonate with our story are looking for consistency. And they're not buying Cotera to just ride a wave up or down. They want to see some progress. And you know, that's what we're here to do.

Yes.

Investors that I think Chris.

Resonate with our story are looking for consistency and Theyre not buying co terra to just right away or up or down they want to see some progress.

Yes, that's what we're here to do.

Speaker 9: Makes sense, Tom, you mentioned that Culberson row 51 well.

Makes sense.

Tom you mentioned that Culberson ROE 51, well.

Speaker 9: project seems like an exceptionally large group of wells there can give a bit more color on where the potential savings where those come in and maybe the timing of getting those wells.

Project seems like an exceptionally large.

Group of wells, there can you give a bit more color on what are the potential savings where do those come in and maybe the timing of getting those wells online.

Speaker 5: Yeah, I'll start it out and I'll let Blake take it home. But you know, this is, this is exactly what our share area is needing. We can take advantage of infrastructure. We can take advantage of.

Yes.

<unk> started out and I'll, let Blake take at all but this.

This is this is exactly.

Our shale era is meeting.

We can take advantage of infrastructure can take advantage of operational efficiencies, we can take advantage of certainly our electrification.

Speaker 5: and take advantage of certainly our electrification.

Speaker 5: And we can take advantage of minimizing any kind of parent child interference.

And we can take advantage of minimizing any kind of parent child interference. When you can stage a wells coming online in a way that matches the reservoir.

Speaker 5: We can stage the wells coming online in the way that manages the reservoir. It's just really everything that the last decade has led up to in terms of taking advantage of our own technical innovations. Like you want to say anything? Yeah, sure.

It's just really everything that the last decade has led up to in terms of taking advantage of our own technical innovations Blake you want to say anything yes sure.

Speaker 7: You know, I know the headline reads 51 well project, but I think it's important to share how our ops teams look at it. What we're really doing is taking six distinct drill spacing units and prosecuting them in one consistent row.

I know the headline reads 51, well project, but I think it's important to share how our ops teams look at it.

Doing is taking six distinct drill spacing units and prosecuting them in one consistent Roe.

Speaker 7: So no big changes on wealth perception or completion design. This is all about concentrating activity to maximize efficiency. So all those things Tom said, and we're cutting down on MOBE.

So no no big changes on wells per section or completion design. This is all about concentrating activity to maximize efficiency.

All those things Tom said, we're cutting down on Moebs, where parking frac crews, where they can get the most pump hours per day, we're centralizing and commingling facilities and infrastructure. When you bring all that together all those efficiencies really add up and so as we model this project or dollar per foot coming in about 8%.

Speaker 7: parking for our careers where they can get the most pump hours per day, we're centralizing and comming facilities and infrastructure. When you bring all that together, all those efficiencies really add up. So as we model this project, our dollar per foot's coming in about 8% lower than our current covers.

Lower than our current Culberson average so that's just the power of all of that what our Permian team is really doing is executing inefficiencies on a grand scale.

Speaker 7: So that's just the power of all that. What our Permian team's really doing is executing efficiencies on a grand scale.

Sure.

Speaker 5: But y'all also add, we'll be bringing those wells online as we go. It's not a...

But I'll also add we'll be bringing those wells on line as we go it's not a.

Speaker 5: situation where we wait to bring 51 wells online when the last one's completed. We staged them online continuously as we're continuing to drill and complete.

Situation, where we wait to bring 51 wells online with last once completed we stage them online continuously as we're continuing to drill and complete.

That's helpful. Thank you.

Speaker 3: The next question is from Neil Dingman of Truist Securities. Please go ahead, your line is...

Your next question is from Neal Dingmann of true with Securities. Please go ahead. Your line is open.

Hi, good morning, Thanks for the time Scott. Thanks for everything has been great work with you. My question first is on the Oss Scott specifically could you guys. Just talk maybe we hear a lot about cost deflation, though TCG to all those things, but I'm just wondering Tom maybe more or less how you all think about spot versus long term contracts I know you've in the past had some opinions how.

Speaker 10: Morning thanks for the time Scott. Thanks for everything's been great work with you my question first is on the OFS cost

Speaker 10: You guys just talked maybe, you know, we hear a lot about cost deflacing OTCG and all those things, but I'm just wondering Tom, maybe more or less how you all think about spot versus long term contracts. I know you in the past had some opinions, how you think about the two and is there a big pricing difference between the two today?

You think about the two and is there a big pricing difference between the two today.

Well it depends on the particular item Youre speaking of.

Speaker 5: Well, it depends on the particular item you're speaking of. We, you know, it also depends on what you mean by long term contract. If we have a program that we know we're going to execute even going out a year, what we'll typically do is look at what portion of that we're willing to lock.

Yes Allison.

It also depends on what you mean by long term contract.

We have a program that we know we're going to execute even going out a year, where we will typically do is look at what portion of that were willing to lock in so.

Speaker 5: So, as you know, we really try to avoid long-term commitments because it limits our flexibility. But for example,

As you know, we really try to avoid long term commitments because it limits our flexibility but for example.

<unk>.

Speaker 5: We'll look if we have six rigs running in the Permian, we may look at a downside commodity case and say, okay, we know for sure that we will have three rigs running. So we may have three of them on a one year contract and three of them on month to month.

Well look if we have six rigs running in the Permian. We may look at the downside commodity case and say, okay. We know for sure that we will have three rigs running so we may have three of them on a one year contract and three of them on a month to month and so we really try to balance.

Speaker 5: So we really try to balance the value of the commitment against the value of the flexible, the blank you wanna say anything about that. I think you nailed it. It's all about the value proposition. You know, not a year ago, we were signing contracts to hopefully keep inflation from rising. Today we're looking at contracts where we can see deflation if we entered into a longer term deal.

Value of the commitment against the value of the flexibility for Blake you want to say anything about that I think you nailed it it's all about the value proposition not not a year ago, we were signing contracts to hopefully keep inflation from rising.

Today, we're looking at contracts, where we can see deflation if we entered into longer term deals and so we just have to balance those things because they can reduce our flexibility and that's what we're on the downside cases.

Speaker 7: So we just have to balance those things because they can reduce our flexibility and that's what we run to downside.

Speaker 10: No, great, great color. And then if I could just on the last one, maybe a little bit on what Mike was just asking you just on that 51 well pad does seem like great opportunity. Anything you can say on just details around where that is and just how you'll tackle that one.

No great great color and then if I could just add the last one.

Maybe a little bit.

But Mike was just ask you just on that 51, well pad does seem like great opportunity.

You can say on just details around where that is and just how you would tackle that one.

Speaker 5: Well, it's in Colberton County. It's been sort of the South Central Colberton County on the eastern side. We call it the

Well, it's in Culberson County, it since sort of the south Central Culberson County on the eastern side.

We call it the.

Speaker 5: Clindam Row, named after our landowners out there, but it's in a great area. It's well defined. We've got a lot of calibration. It's a good reservoir, good pressure, good oil. It's ready to roll.

Wyndham Roe.

Named after our land owners out there, but I.

It's been a great area, it's well defined and we've got a lot of calibration.

Good reservoir good pressure good oil I mean, it's it's.

It's ready to roll.

Perfect. It look forward to that one thanks guys.

Your next question is from Derrick Whitfield of Stifel. Please go ahead. Your line is open.

Speaker 3: Derek Whitfield of FIFO. Please go ahead, your line is open. Good morning and congrats.

Good morning, and congrats to both Scott and chain as well.

Speaker 5: Tom, with regard to your Q2 production B, you know, to better than expected well performance and cycle cons in your prepare remarks, given the degree of your albeit in the amount of times you've referenced well productivity in this call, could you speak to the new designs or landing zones tested or specifically which contributed to better than expected well product?

Tom with regard to your Q2 production be you noted better than expected well performance and cycle times in your prepared remarks, given the degree of your will be in the amount of times, you've referenced well productivity in this call could you speak to the new designs are landing zones tested more specifically, which contributed to better than expected well productivity.

Speaker 11: Well, I don't want to get specific on that. I will say that in the Wolf Camp, there's a mixture of sand and shale landing zones, and we've changed our thinking on how to best exploit those different landing zones. It's a combination of where we land our wells, how we space our wells, but also how we complete those wells. We've learned to do a little different completion, whether we're in a sand or shale.

Well I don't want to get specific on that I will say that in the Wolfcamp. There is a mixture of sand and shale landing zones, and we've changed our thinking on how to best exploit those different landing zones. It's a combination of where we land our wells, how we space our wells, but also.

How we can complete those wells.

We've learned to do a little different completion, whether we're in the sand or the shale.

Speaker 11: I think that we also have a perhaps a slightly different viewpoint and some of our competitors on the impact of what it's called cube drilling or some people call it tank drilling and how to manage that.

I think that we also have a perhaps a.

Slightly different viewpoints and some of our competitors all of the impact.

It's called Q drilling or some people call it tanked drilling and how to manage that.

Okay.

Speaker 11: Really, it's some of a lot of innovations over time. I also want to credit our machine learning team. I know you.

Really it's.

Some of a lot of innovations over time, but I also want to credit our machine learning team.

Speaker 11: You know, a call doesn't go by right on. Say something about machine learning, but it's, it's really been transformative and become a very, very trusted partner with our operations teams in Project Planning. And it's changed our thinking.

On our call doesn't go by write off.

Something about machine learning, but it's really been <unk>.

Its formative.

Kobe very very trusted partner with our operations teams and project planning.

Changed our thinking.

Speaker 11: Some of the ways since parameters in the rack. Blake? Yes.

Some of the ways since parameters that are at play.

Yes, I would.

Speaker 7: Well spacing and frack design are a never-ending topic at Katerra. We debate them constantly and we don't ever settle that the current design is the best. So you're seeing that across the portfolio.

Well spacing and Frac design, or a never ending topic, etc.

<unk> constantly and we don't ever settled at the current design is the best so youre seeing that across the portfolio. This year.

Speaker 5: And for my follow up regarding the four landing zones that you were referencing time just earlier in the bone screen.

And for my follow up regarding the four landing zones that you were referencing Tom just earlier in the bone spring does you're testing there. This year have the potential to impact relative allocation of capital in the Permian over the next three years of results or as you guys expect.

Speaker 5: But as you're testing there this year, have the potential to impact the relative allocation of capital and the permeant over the next three years with results or as you guys,

Speaker 11: I don't think it will impact the relative allocation. We have a lot of projects lined up that it will impact. I mean, as we look out the next three years, I don't, I think it will help us to optimize based on what we learn. We're continuously trying to optimize, but I don't think it would necessarily change our capital allocation. That's great, Keller. Thanks for your time.

I don't think it will impact the relative allocation, we have a lot of projects lined up that it will impact I mean, as we look out the next three years.

I think it will helps us to optimize based on what we learn.

Continuously trying to optimize but I don't think it would necessarily change our capital allocation.

That's great color. Thanks for your time.

Your next question is from Roger read of Wells Fargo. Please go ahead. Your line is open.

Speaker 12: Yeah, thank you. Good morning. Going to come back and hit some of the same, let's call it, capital efficiency productivity questions that have been answered.

Yes. Thank you good morning.

I'm going to come back and hit some of the same let's call. It capital efficiency productivity questions that have been asked but if you step back and look across and you.

Speaker 12: Step back and look across and you do have a...

Do you have.

Speaker 12: different collection of assets and some of the other companies in terms of being a pure play. If you're looking at your productivity and efficiency, not so much where the gains have been, but where do you see the greatest opportunity going forward? Should we be focused on the Permian or is it...

Different collection of assets and some of the other companies in terms of being a pure play if you're looking at your productivity and efficiency not so much where the gains have been but where do you see the greatest opportunity going forward should we be focused on the Permian or is it continuing to be the Marseille.

This year.

Speaker 11: Oh, I think all three are right for increasing productivity. We're very pleased with our antidarko based flow back. It's again, surprising to the upside. Our Marcellus team has done a really, really nice job on a number of fronts. One is just optimizing our delineation. Our slide deck updates some numbers on our upper Marcellus viewpoint and we're seeing some encouraging results there.

Oh, I think all three are ripe for increasing productivity.

Pleased with our Anadarko basin flow back.

Again surprising to the upside.

Our Marcellus team has done a really really nice job on a number of fronts.

One is just optimizing our.

Delineation, our slide deck updates some numbers on our upper Marcellus and your point that we're seeing some encouraging results there.

But there are also doing a really nice job of just some operational improvements and field.

There are a lot of challenges in the Marcellus or the mix of the Marcellus.

Speaker 11: And a lot of challenges are unique. I would say our operating teams across our platform are learning from one another in a lot of that operational optimization, but we really see opportunity everywhere we look.

And a lot of challenges that are unique I would say our operating teams across our platform of learning from one another.

Lot of that operational optimization, but we really see opportunity everywhere, we look.

Speaker 7: Like you want to add to that? Yeah, just saying the Marcellus or our team has done a fantastic job focusing on lateral link over 50% of our program this year exceeds 10,000.

Blake you want to add to that yeah, I'd, just say in the Marcellus our team has done a fantastic job focusing on lateral length over 50% of our program. This year exceeds 10000 feet.

Speaker 7: We actually have a couple wells with total measured depth in excess of 25.

We actually have a couple of wells with total measured depth in excess of 25000 feet. So pretty lifestyle performance, that's really helping drive down our cost per foot.

Speaker 7: So pretty lights out performance that's really helping drive down our cost per foot. In the Permian, you know, it's all about these wells per project, these bigger developments that take advantage of project size. Our average wells per project is up about 23% just over the last two years. We expect that to continue. Okay.

In the Permian, It's all about these wells per project. These bigger developments that take advantage of project size or average wells per project is up about 23% just over the last two years.

That to continue.

Okay. So fair to say scale big contributor in the Permian.

Scale of any of that.

The element or pad okay.

Yes.

Speaker 7: Sorry, go ahead. Any other fish? Are drilling and completion fee per day or up also? Are crews or hit and records on pumping hours per month? Are drilling fee per day is up 14% this year? That's what we expect. That's what we expect.

Sorry go ahead, you have efficiency, our drilling and completion fee per day are up also.

Our crews are hitting records on pumping hours per month, our drilling feet per day is up 14% this year, but that that's what we expect that's what we do every year.

Speaker 1: Okay, appreciate that. And then follow up question, I'm going to apologize for asking two parts within one question, but they go together. So roll with me if you would. The CAPEX looks like it's going to be above the midpoint for 23. It sounds like everything's pointing to 24. I was just hoping you could give us a little...

Okay. I appreciate that and then follow up question I'm going to apologize for asking two parts within one question, but they they go together so.

With me if you would.

The capex it looks like it's going to be above the midpoint for 23, it sounds like everything's pointing go more in 'twenty. Four I was just hoping you could give us a little.

A nugget here or there as to why we should have confidence that our pet.

Speaker 1: a nugget here or there as to, you know, why we should have confidence that a potential outspend

<unk> spend even if only marginal in 'twenty three doesn't carry through 'twenty four.

Yeah, I think that's why we gave.

Speaker 7: Yeah, I think you know that's why we gave slide 12 to kind of give some color on deflation. When we when we built the budget we were taking all the best information we had at the time and if that deflation had rolled through the entire cost structure we'd feel very confident we'd be at the low end of the range but it just hasn't materialized.

Slide 12 to kind of give some color on deflation when we when we built the budget. We were taken all the best information we had at the time and if that deflation had rolled through the entire cost structure, we feel very confident we'd be at the low end of the range, but it just hasn't materialized, we're seeing it on a few leading items, but not through the whole cost structure. So.

Speaker 7: seeing it on a few leading items, but not through the whole cost structure. So when we give the 5% going into 24, all that assumes is the gains we've got so far this year continue and nothing else.

When we give the 5% going into 'twenty for all of that assumes as the gains we've got so far this year continue with nothing else.

Okay, and then could I ask one follow up on the current deflation.

Speaker 1: What what percentage is related to logistics or diesel costs or anything like that? Just noting that.

What percentages related to logistics or diesel costs or anything like that just noting that.

Oil has gone back up to the mid eighties and fuel prices are followed to some extent.

Speaker 7: Yeah, I don't have that exact call out. I can tell you it's not pretty much picked into all our services.

Yeah, I don't I don't have that exact callout I can tell you it's pretty much baked into all of our services.

We'll follow up thank you.

Yeah.

Speaker 3: question is from Kevin McCurdy of Pickering Energy Partners. Please go ahead, your line is...

Your next question is from Kevin Mccarthy of Pickering Energy Partners. Please go ahead. Your line is open.

Okay.

Speaker 11: Hey, good morning. A question about the trajectory of OpEx this year. The first two quarters were at the higher end of guidance and you didn't change your full year guidance. So that's just a second half of the year would need to be at the lower end.

Hey, good morning.

A question about the trajectory of Opex. This year. The first two quarters are at the higher end of guidance and you didn't change your full year guidance. So that suggests the second half of the year would need to be at the lower end of the range.

Speaker 11: Kind of what are you seeing out there that gives you comfort on the second half of the topic especially given the lower volume.

Kind of what are you seeing out there that gives you comfort in the second half opex, especially given the lower volumes outlook.

Speaker 7: Well, I'd say our LOE is down quarter over quarter, so that's that's.

Well I'd say, our LOE is down quarter over quarter. So that's the big one.

Speaker 7: We expect that to continue throughout the years. We've seen a little pressure in GP&T. That's not unexpected. Most of our portfolio has GPIs that are capped, but we're hitting those caps.

We expect that to continue throughout the years, we've seen a little pressure in G. P&C that's not unexpected.

Most of our portfolio has <unk> that are capped but we're getting those caps this year, but we've modeled that out and as you can see in our forecast where were frontloaded and expect to come in the middle of the range.

Speaker 7: We've modeled that out and as you can see in our full cost we're front loaded and expect to come in.

Speaker 2: Yeah, I would just take sort of a whole plan on cash costs sort of as we highlighted for the quarter, you know, in addition to LOE overall, we're down from 890 a BoE last quarter down to 827 a BoE this quarter. So I think we're it feels like we're trending in the right the right area.

Yes. Thanks.

On cash costs sort of as we highlighted for the quarter.

In addition to low overall were down from $8 90, a Boe.

Last quarter down to <unk> 27 of BOE. This quarter. So I think what it feels like we're trending in the right the right area.

Speaker 2: Okay, and digging into the production guide a little bit, you mentioned that the three mile laterals were out performing your expectations and that you're seeing some improvement to psych...

Okay and digging into the production guide a little bit you mentioned that the three mile laterals. We're outperforming your expectations and that you are seeing some improvement cycle times, just kind of curious how do you risk those two items when calculating your third quarter and fourth quarter guidance.

Speaker 2: I just kind of curious how do you risk those two items when calculating your third quarter and

Speaker 13: Well, based on our experience with long laterals, I mean, you know, long lateral performance is something that we're all still learning. As we went from one mile to two mile horizontal wells, we had to learn what the uplift from one to two is. It's depending on the reservoir, depending on the spacing.

Well based on our experience with long laterals seven years long lateral performance is something that we're all still learning as we went from one mile to two mile.

Horizontal wells.

We had to learn what they uplift from one to two is depending on the reservoir depending on the spacing.

Speaker 13: depending on the nature of the flow back. And, you know, although we have some experience with three mile intervals, we don't have broad experience in any one area. We've got a three mile project in several different areas. This one was in Reese County where the operating environment's so different. And, you know, just quite frankly, the well's surprised the upside. I mean, I wish I had some grand inclusion.

Hey on the nature of the flowback.

And although we have some experience with three mile lateral we don't have broad experience in any one area.

Got it.

Three mile project several different areas as always in Reeves County, where the operating environment, so different and quite frankly, the wells surprised the upside.

I wish I had some grand conclusion.

Speaker 13: But it just they flowed back a little stronger and with a little more uplift over a two mile than we had forecast.

But it just.

Slowed back a little stronger than that with a little more uplift over a two mile than we had forecast.

Speaker 2: Great, thank you for taking my questions. Congratulations on the good production.

Great. Thank you for taking my questions and congratulations on the good production.

Your next question is from Leo Mariani of Roth and Kim. Please go ahead. Your line is open.

Speaker 3: This question is from Leo Mariani of RothMKM. Please go ahead.

Speaker 14: I just wanted to stick with some of the line of questioning here on well productivity. I think that the one that kind of stood out to me was the Marcellus in the second quarter. So...

I just wanted to stick with some of the line of questioning here on well productivity. You mean, I think that the one that kind of stood out to me was the Marcellus and the in the second quarter, so material increase on the production.

Speaker 14: Material increase on the production, you know, 9%.

9% typically I guess I tend to think of the Marcellus is being.

Speaker 14: You know, typically, I guess I kind of think of the Marcellus as being, you know, sort of an older, more mature play where there's probably not a tremendous amount of sort of tweaks and improvements that can sort of be had here. But it certainly looks like maybe that wasn't the case here, you know, in second quarter, and it didn't seem like there was some outsized number of wells that came online, just seems like some.

Sort of an older more mature play where theres probably not.

A tremendous amount of sort of tweaks and improvements they can sort of be had here, but it certainly looks like maybe that wasn't the case here in second quarter and it didn't seem like there was some outsized number of wells that came online it seems like some some outsized production growth. So can you maybe give us a little more color around why that Marcellus is.

Speaker 14: and outside production growth that you may be it was a little more color around why that marcelos is particularly strong in the second quarter well i would say

Really strong in the second quarter.

Well I would say that our.

Speaker 13: Our team is really hitting their stride. We have a fantastic operational team, both in the office and in the field when it comes to the Marcellus. The team has done a lot to manage and understand how parent child affects and really tailor our completions around that, tailor our well spacing. And they've really done a great job in revising our forecast methodology.

Our team is really hitting their stride, where we have a fantastic operational team both in the office and in the field when it comes to the Marcellus.

<unk>.

The team has done a lot to manage and understand.

Parent child effects.

Really tailor our completions around that Taylor, our well spacing.

And they've really done a great job and revising our forecast methodology.

Speaker 13: And, you know, we're forecasting much more accurately.

Ed.

We're forecasting much more accurately.

Speaker 13: that just really big shout out to them across the board. They've got some great project stage, both this year and as we look ahead.

Okay.

And then just really a big shout out to them across the board they've got some great projects stage, both this year and as we look ahead.

Speaker 13: And you know, it's a mixture of lower and upper Marcellus, and they've just made tremendous strides in understanding spacing, understanding completion design, understanding how to manage well-to-well interference.

You know, it's a mixture of lower and upper Marcellus and they've just made tremendous strides in understanding spacing understanding completion design understanding how to manage well the roller ferrets and flowing back prudently.

Speaker 13: and flowing back prudently. I mean, you know, it's just, it's almost everything coming together once. So do as tremendous job.

It's just it's almost everything coming together, what they are doing a tremendous job.

Okay. That's helpful.

Speaker 14: Okay, that's helpful. And just kind of turning to CapEx, you guys said you're probably going to end up being a...

Turning to Capex, you guys said, you're probably going to end up being.

Speaker 14: couple percent over the midpoint here uh... you know when in twenty three uh... i kind of looked at the you know sort of a cruel numbers and maybe you're looking at the cash numbers as you're kind of getting to that that you can kind of you'll let us know that's kind of a cruel versus cash but i think in other case that how

A couple of percent over the midpoint here.

In 'twenty three.

I looked at the sort of accrual numbers and maybe youre looking at the cash numbers as you're kind of getting to that so maybe you could kind of let us know if that's kind of accrual versus cash, but I think in either case, it implies a pretty healthy downturn.

Speaker 14: uh... in in fourth quarter catbacks uh... you know something maybe closer to the the low five hundred some some to make sure i'm reading that right on the capital uh... in the four q you know you guys kind of looking at sort of a cruel or cash when you're talking about kind of where you think you're gonna end up here in twenty three

In fourth quarter Capex.

Something maybe closer to the low 500, so I just want to make sure I'm reading that right on the capital in the <unk>. When do you guys kind of looking at sort of accrual or cash. When you are talking about kind of where you think you're going to end up here in 'twenty three.

Hey, Leo Shane here.

Yes, as it relates to 2023 and the guidance range for the accrual is 2% to 2.2 and what we said is we think we're trending presently at 1% to 2% sort of above the mid point within that range. So that's really in reference to the accrual number.

Speaker 15: Yeah, as it relates to 2023 and the guidance range for the accrual is two to two point two. And what we said is we think we're trending presently at one to two percent sort of above the midpoint within that range. That's really in reference to the accrual number that's out there relative to the cash number. Obviously, the cash number is going to be impacted by timing around AP, you know, between the beginning of the period to the end of the period.

Out there relative to the cash number obviously cash number is going to be impacted by timing around AP.

Between the beginning of the period to the end of the period.

Speaker 2: As it relates to your observation on the fourth quarter, look, you're absolutely right. You know, maybe even a little lower than the numbers you're referencing at the midpoint when you look at it and we feel good about that. We're letting go of some spot crews sort of as we get through the end of this quarter in both the Permian and the Anadarko and that's what's really leading to the lower activity that leads to the lower accrued cap backs.

As it relates to your observation on the fourth quarter.

You're absolutely right.

Maybe even a little lower than the numbers you are referencing.

At the midpoint when you look at it and we feel good about that.

We're letting go of some spot crews sort of as we get through the end of this quarter in both the Permian and the Anadarko and and that's what's really leading to the lower activity that leads to lower accrued capex.

Thank you for the answer.

Your next question is from Paul Cheng of Scotiabank. Please go ahead. Your line is open.

Speaker 3: next question is from Paul Ten of Scorsure Bank. Please go ahead. Your line is open. Thank you.

Thank you good morning.

Speaker 1: Plum, you mentioned that you benefit from the three miles well in the second quarter. Could you give us an idea that how many of the three mile well that you're going to drill for the next day, two or three year program? And also in your permit, overwhelming.

Gentlemen.

Tom You mentioned that you benefit from the three mines.

In the second quarter.

Could you give us an idea that how many of the Fremont that you're going to drill for the next two or three year program and also Ian your Permian awful.

Portfolio.

What percent of your well could have the opportunity to be.

For <unk> that's.

First question.

The second question is talking about larger pad.

Now just size pad that you expect to increase.

Uh huh.

How how are you.

Manage between.

The better economy of scale with larger pads, but also that maybe.

Maybe reducing effects of <unk>.

Gains on learning curve going back into that.

Completion design and everything are.

<unk> Daniel <unk>. Thank you.

Speaker 13: So thank you for those questions. We don't have a tally of our three mile inventory. I will say it's going to be a small part of our program generally. A lot of our lands are already developed or harshed out for two mile wells.

So thank you for those questions. We don't have a tally of our three mile inventory I will say, it's going to be a small part of our program generally.

A lot of our lands are already developed or parsed out for two mile Wells.

Speaker 13: And so three miles are going to be the exception. So forward, I think you might see a project or two. Marcellus probably will have the most three-mile wells of our program just because that upper Marcellus is wide open. And we'll be taking advantage of that fully.

Three miles are going to be the exception go forward.

Thank you might see a project or two.

Our sellers, probably we will have the most three mile wells of our program just because that upper Marcellus is wide open.

We've taken advantage of that fully.

Speaker 13: But Permian, it's going to be a rare.

But Permian is gonna be a rare.

And then as far as your question on the larger project size and the loss of the ability to cycle learnings if I understand your question properly.

Speaker 13: And then, you know, as far as your question on the larger project size, and the loss of the ability to cycle learnings, if I understand your question properly, I, you know, that's

Hi.

Yes.

That is a two edged sword.

Speaker 13: That is a two-edged sword. It also will give us the opportunity to test a lot of things because with a 51...

It also will give us the opportunity to test a lot of things because with a 51 well program you have a lot of opportunity for control and test one of the things that <unk> in our space.

Speaker 13: you have a lot of opportunity for control and tests.

Speaker 13: You know, one of the things that is vexing in our space is if you have an individual small project and you march off and change some parameters, you don't always have that control experiment.

You have an individual small project in your March off and change some parameters. We don't always have that control experiments to compare it to for the 51, well project will have the opportunity to have several subtests within that have good offset control really normalize out some of the.

Speaker 13: So the 51 well project will have the opportunity to have several sub-tests within that, have good offset control, and really normalize out some of the geologic and other attributes that can cloud your conclusion.

Check and other attributes.

Your conclusions so it's a good question.

Speaker 13: So, you know, it's a good question. We think that we're ready for a project this size, and we do really look forward to delivering outstanding results with it.

We think that we are ready for a project of this size.

Do really look forward to delivering outstanding results with it.

Thank you.

Speaker 3: from Noel Parks of Kiwi Brothers. Please go ahead. Your line is open.

Your next question is from Noel Parks of Tuohy Brothers. Please go ahead. Your line is open.

Alright, good morning.

Alright.

Speaker 4: I wondered if you could talk a bit about your thoughts on sort of the risk reward of infrastructure investment going forward from here. And thinking in particular about.

I wondered if you could.

Talk a bit about your thoughts on sort of the risk reward of infrastructure investment going forward from here and I'm thinking in particular about.

Speaker 4: This low we're in with gas prices, oil strengthening, and that makes me think, of course, about the Permian and Associated Gas.

This lower and with gas prices oil strengthening and that makes me think of course about the Permian in associated gas.

Speaker 4: And I thought there's somewhat mixed signals about how that might fare with the LNG uplift on the horizon. And so just between myself's position and what's being in the Permian, just through your thoughts on maybe what infrastructure priorities might look like heading into L.

Theres somewhat mixed signals about how that might fair.

Was the LNG uplift on the horizon.

And.

So just be between myself submission and of course being in the Permian.

Just your thoughts on maybe what infrastructure priorities might look like heading into LNG.

Speaker 7: Yeah, this is Blake, I'll take that one. You know, your first question around Waha, Waha has traditionally been pressured, but we've actually seen it open up quite a bit.

Yes. This is Blake I'll take that one.

Your first question around what's traditionally been pressured but we.

Actually seen it opened up quite a bit this year with the new expansions coming online some of the forecast revisions coming out of the Permian was looking stronger.

Speaker 7: with the new expansions coming online, some of the forecast revisions coming out of the Permian. Waha is looking stronger. And there's plenty of good options there to get Permian gas to LNG. We look at every single one of them. We just haven't found one that works for us yet. Up in the Marcellus, we do have room to grow if we chose to. We know the pipes we can move the gas on. It might come with a little higher cost than we're seeing now, but that's factored into our economics.

And there's plenty of good options there for to get Permian gas to LNG. When we look at every single one of them. We just haven't found one that works for us yet.

In the Marcellus, we do have room to grow if we chose to.

We know the price we can move the gas on it might come with a little higher cost than we're seeing now, but thats factored into our economics.

Speaker 4: Okay, okay, very now. And...

Okay. Okay.

Fair enough.

And.

I wonder.

Speaker 4: As far as what you're seeing in terms of some cost softening on the horizon.

As far as.

What youre seeing in terms of some cost softening on the horizon.

Just wondering are you seeing.

Speaker 4: significant divergence sort of in vendor behavior You know from basin to basin Are in any of your basins are vendors looking sort of more anxious and more proactive about Sort of working on on price with you, or is it fairly you?

Significant divergent sort of vendor behavior.

From basin to basin.

Alright, and any of your basins or our vendors looking sort of more anxious and more proactive.

About the sort of working on price with you or is it fairly uniform.

Speaker 7: Yeah, I think it's fairly uniform. I mean, there's always nuances between basins, but rigs and crews have wheels, and if the arbitrage is big enough, they'll go to another basin. In general, we have great service partners we've been with a long time, and we work together through ups and downs.

Yes. This is Blake.

It's fairly uniform I mean, there's always nuances between basins, but rigs and crews have wheels, and if the arbitrage is digging up they'll go into another basin.

In General we have Great service partners. We then went to a long time, and we work together through ups and downs.

Okay, great. Thanks, a lot.

Speaker 3: There are no further questions at this time. I will now turn the call over to Tom Jordan for a close.

There are no further questions at this time I will now turn the call over to Tom Jorden for closing remarks.

Speaker 13: Well thank you everyone and I'd like to turn the call over to Scott for some closing remarks. Thank you Tom. And thank you.

Well, thank you, everyone and I'd like to turn the call over to Scott for some closing remarks. Thank you Tom and thank you everyone.

Speaker 2: It's been a tremendous ride. I'm extremely proud of what we've put together here. Koteri is a great company and all of you and all the investors are in great hands.

It's been a tremendous ride I am extremely proud of what we've put together here <unk> is a great company and all of you and all the investors who are in great hands.

Speaker 2: It's a unique organization. It was something that people didn't see coming, but I think two years into this.

Unique organization it was something that people didn't see coming but I think two years into this everybody is very happy.

Speaker 2: Everybody's very happy internally and I hope externally that it all came together. I've been tremendously blessed and I thank all of you for your support and trust over the years and rest assured that you're in great hands.

Internally and I hope external you did it all came together I have been tremendously blessed and I. Thank all of you for your support and trust over the years and rest assured that you are in great hands with Shane and the entire <unk> team as you go forward again, thank you for everything.

Speaker 2: with Shane and the entire Koterra team as you go forward. Again, thank you for everything.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

Hmm.

Okay.