Q1 2024 Coterra Energy Inc Earnings Call
Audra: Good morning, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coterra Energy, Inc. first quarter 2024 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
Good morning, My name is Andre and I will be your conference operator today.
Audra: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Dan Guffey, Vice President of Finance, Investor Relations, and Treasurer. Please go ahead.
At this time I would like to welcome everyone to the Cartera Energy, Inc. 's first quarter 2024 earnings conference call.
Today's conference is being recorded.
Andre: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a quick question.
Andre: Question. During this time simply press the Star key followed by the number one on your telephone keypad.
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Andre: At this time I would like to turn the conference over to Dan Guffey, Vice President of Finance Investor Relations and Treasurer. Please go ahead.
Daniel Dennis Guffey: Good morning, and thank you for joining Coterra Energy's first quarter 2024 earnings conference call. Today's prepared remarks will include an overview from Tom Jordan, Chairman, CEO, and President, Shane Young, Executive Vice President and CFO, and Blake Sirgo, Senior Vice President of Operations. Following our prepared remarks, we will take your questions during our Q&A session. As a reminder, on today's call, we will make forward-looking statements based on our current expectations. Additionally, some of our comments will reference non-GAAP financial measures.
Audra: Thank you Audra.
Daniel Dennis Guffey: Good morning, and thank you for joining <unk> Energy's first quarter 2024 earnings Conference call. Today's prepared remarks will include an overview from Tom Jorden, Chairman CEO and President Shane Young Executive Vice President and CFO and Blake <unk> Senior Vice President of operations. Following our prepared remarks, we will take your questions.
During our Q&A session as a reminder, on today's call. We will make forward looking statements based on our current expectations. Additionally, some of our comments will reference non-GAAP financial measures forward looking statements and other disclaimers as well as reconciliations to the most directly comparable GAAP financial measures were provided in our earnings release and <unk>.
Daniel Dennis Guffey: Forward-looking statements and other disclaimers, as well as reconciliations to the most directly comparable GAAP financial measures, were provided in our earnings release and updated investor presentation, both of which can be found on our website.
Daniel Dennis Guffey: <unk> investor presentation, both of which can be found on our website with that I'll turn the call over to Tom.
Thomas E. Jorden: Thank you, Dan, and welcome to all of you who are joining us on the call this morning. We're pleased to report that Coterra had an excellent first quarter. Our total equivalent production for the quarter was 686,000 barrels of oil equivalent per day, which was near the high end of our guidance. Oil production averaged 102.5 thousand barrels of oil per day, which was 3,500 barrels of oil per day above the high end of our guidelines.
Thomas E. Jorden: You, Dan and welcome to all of you for joining us on the call. This morning. We're pleased to report the co chair had an excellent first quarter. Our total equivalent production for the quarter was 686000 barrels of oil equivalent per day, which was near the high end of our guidance.
Thomas E. Jorden: Production averaged 102.5 thousand barrels of oil per day, which was 3500 barrels of oil per day above the high end of our guidance. This would be an oil production was driven by a combination of well performance that exceeded expectations production optimization and timing.
Thomas E. Jorden: This beat in oil production was driven by a combination of well performance that exceeded expectations, production optimization, and timing. Natural gas production averaged 2.96 billion cubic feet a day, which was slightly above the high end of our guidance range. Capital expenditures came in at $450 million, which was below the guidance range.
Thomas E. Jorden: Natural gas production averaged 2.96 billion cubic feet, a day, which was slightly above the high end of our guidance.
Thomas E. Jorden: Capital expenditures came in at $450 million, which was below the guidance range. This was a combination of timing and cost reductions in completions Blake who will provide further detail on this.
Thomas E. Jorden: This was a combination of timing and cost reductions in completion. Blake will provide further detail on this. We have raised our full-year oil guidance while leaving our natural gas guidance unchanged. Shane will provide commentary on this.
Thomas E. Jorden: We have raised our full year oil guidance, while leaving our natural gas guidance unchanged Shane will provide commentary here.
Thomas E. Jorden: As we previously said, our capital guidance for 2024 includes room for adding additional Marcellus activity if our received prices in the Marcellus were to rebound. Of course, any additional activity will be evaluated against other shovel-ready opportunities in our portfolio. Rapid and Severe Commodity Price Swings are a feature of our business. As much as we try to anticipate and predict market movements, there is an inherent humbling unpredictability to them. During Q1, we saw an upward movement in oil coupled with a downward movement in gas.
Thomas E. Jorden: As we previously said our capital guidance for 2024 includes room for adding additional Marcellus activity, if our receive prices in the Marcellus were to rebound of course any additional activity will be evaluated against other shovel ready opportunities in our portfolio.
Thomas E. Jorden: No.
Speaker Change: Rapid and severe commodity price swings are a feature of our business as much as we try to anticipate and predict market movements, there isn't inherent humbling unpredictable each of them.
Speaker Change: During Q1, we saw upward movement in oil coupled with downward movement in gas. Despite these swings revenue at co chair for Q1 2024 came in roughly flat with revenue for Q4 2023.
Thomas E. Jorden: Despite these swings, revenue at Coterra for Q1 2024 came in roughly flat with revenue for Q4 2023. This stability in revenue allows us the luxury of maintaining a consistent level of activity while retaining significant upside exposure to a gas price recovery. We did, however, delay some Marcellus turn-in lines during Q1.
Speaker Change: This stability in revenue allows us the luxury of maintaining a consistent level of activity, while retaining significant upside exposure to oil and gas price recovery.
Speaker Change: We did however delay some Marcellus turned in lines. During Q1, we currently have two pads, comprising 12 wells completed and waiting to be brought online.
Thomas E. Jorden: We currently have two pads comprising 12 wells completed and waiting to be brought online. We have ongoing completion activities and are making the go, no go decision on bringing wells online on a monthly basis. Blake will provide further detail.
Speaker Change: We have ongoing completion activity are and are making the go no go decision on bringing wells online on a monthly basis.
Speaker Change: We will provide further detail on this.
Thomas E. Jorden: In spite of near-term headwinds, we remain wholly optimistic about natural gas. With coming LNG export capacity, near-term power demand, and the evolving discussion about the long-term power demands of AI-driven data center needs, it is hard not to be constructive about the future of natural gas. We watched this conversation closely and have heard forecasts for incremental natural gas demand driven by growing data center consumption that range from 3 bcf per day to 30 plus bcf per day by the year 2030.
Speaker Change: In spite of near term headwinds, we remain wholly optimistic on natural gas with coming LNG export capacity near term power demand and the evolving discussion about the long term power demands of AI driven data center needs. It is hard not to be constructive on the future of Nash.
Speaker Change: Gas, we watch this conversation closely and I've heard forecast for incremental natural gas demand driven by growing data center consumption that range from three Bcf per day to 30, plus Bcf per day by the year 2030.
Speaker Change: We will welcome increased demand anywhere within that range.
Thomas E. Jorden: We will welcome increased demand anywhere within that range. Finally, we are pleased to once again be reporting results that exceed expectations. Our organization is highly focused on operational excellence, costs, safety, emission reduction, and being responsible members of our community. I want to acknowledge the tremendous work and dedication of our entire organization from the field on up. This includes, in addition to field staff and office staff, contractors, and service partners. At Coterra, we continually choose progress over comfort, and our strong culture of optimization, innovation, and financial discipline continues to be an important competitive advantage. With that, I'll turn the call over to Shane.
Speaker Change: Finally, we are pleased to once again be reporting results that exceed expectations. Our organization is highly focused on operational excellence cost safety emission reduction and on being responsible members of our communities I wanted to acknowledge the tremendous work and dedication of our entire organization.
Speaker Change: <unk> from the field on up. This includes in addition to field office staff contractors and service partners Agco.
<unk> Tara, we continually choose progress over comfort and our strong culture of optimization innovation and financial discipline continues to be an important competitive advantage with that I will turn the call over to Shane.
Shannon E. Young: Thank you, Tom, and thank you, everyone, for joining us on today's call. This morning, I'll focus on three areas. First, I will summarize the financial highlights from the first quarter results. Then I'll provide production and capital guidance for the second quarter as well as update our full year 2024 guidance. Finally, I'll provide highlights for our recent bond offering and the progress we're making on our shareholder return program. Turning to our strong performance during the first quarter.
Shannon E. Young: Thank you Tom and thank you everyone for joining us on today's call.
Shannon E. Young: This morning, I'll focus on three areas.
Shannon E. Young: First I will summarize the financial highlights from the first quarter results.
Shannon E. Young: Then I'll provide production and capital guidance for the second quarter as well as update our full year 2024 guide.
Shannon E. Young: Finally, I will provide highlights from our recent bond offering and the progress we're making on our shareholder return program.
Shannon E. Young: First quarter total production averaged 686 MBOE per day, with oil averaging 102.5 MBO per day and natural gas averaging 2.96 BCF per day. Both oil and natural gas production came in above the high end of guidance. Driven by strong well performance and a modest acceleration of Permian-till timing. In the Permian, we brought on 22 wells versus 21 wells at the midpoint of our guide. In contrast, in the Marcellus, we drilled 11 wells below our guidance of 23 wells. I will discuss this further later in my remarks.
Shannon E. Young: Turning to our strong performance during the first quarter.
Shannon E. Young: First quarter total production averaged 686 Boe per day with oil averaging 102, five <unk> per day, and natural gas, averaging $2 96 Bcf per day.
Shannon E. Young: Oil and natural gas production came in above the high end of guidance driven by strong well performance and a modest acceleration of Permian sale timing.
Shannon E. Young: In the Permian, we brought on 22 wells versus 21 wells at the midpoint of our guidance.
Shannon E. Young: In contrast in the Marcellus, we filled 11 wells below our guidance of 23 wells I'll.
Shannon E. Young: I will discuss this further.
Shannon E. Young: Later in my remarks.
Shannon E. Young: During the first quarter, pre-hedge revenues were approximately $1.4 billion, of which 62% were generated by oil and NGL sales. In the quarter, we reported net income of $352 million, or $0.47 per share, and adjusted net income of $383 million, or $0.51 per share. Total unit costs during the quarter, including LOE, transportation, production taxes, and G&A, totaled $8.68 per BOE, near the midpoint of our annual guidance range of $7.45 to $9.55 per BOE. Cash hedge gains during the quarter totaled $26 million.
Shannon E. Young: During the first quarter pre hedged revenues were approximately $1 4 billion.
Shannon E. Young: Of which 62% were generated by oil and NGL sales.
Shannon E. Young: In the quarter, we reported net income of $352 million or <unk> 47 per share and adjusted net income of $383 million or <unk> 51 per share.
Shannon E. Young: Total unit cost during the quarter, including LOE transportation and production taxes and G&A.
Shannon E. Young: $8 68 per Boe.
Shannon E. Young: Near the midpoint of our annual guidance range of $7 45.
Shannon E. Young: $9 55 per Boe.
Cash hedge.
Shannon E. Young: Cash hedge gains during the quarter totaled $26 million.
Shannon E. Young: Incurred capital expenditures in the first quarter totaled $450 million, just below the low end of our guide. Lower-than-expected capital expenditures were driven primarily by timing, and we are maintaining our full year capital guide. Discretionary cash flow was $797 million, and free cash flow was $340 million after cash capital expenditures of $457 million.
Shannon E. Young: Incurred capital expenditures in the first quarter totaled $450 million just below the low end of our guidance range.
Shannon E. Young: Lower than expected capital was driven primarily by timing.
Shannon E. Young: We are maintaining our full year capital guidance.
Shannon E. Young: Discretionary cash flow was $797 million and free cash flow was $340 million after cash capital expenditures of $457 million.
Shannon E. Young: Looking ahead to the remainder of 2024, during the second quarter of 2024, we expect total production to average between 625 and 655 NBOE per day, oil to be between 103 and 107 MBO per day, and natural gas to be between 2.6 and 2.7 BCF per day. In other words, we expect oil to be up approximately 2.5% quarter over quarter on continued strong execution. Regarding investment, we would expect total incurred capital during the second quarter to be between $470 and $550 million. As a result of low natural gas prices, we have chosen to defer the turn in line of two separate Marcellus projects totaling 12 wells.
Shannon E. Young: Looking ahead to the remainder of 2024.
Shannon E. Young: During the second quarter of 2024, we expect total production to average between 625 and 655 Boe per day.
Shannon E. Young: Oil to be between 103, and 107 Mcf per day.
Shannon E. Young: And natural gas to be between $2 six and two seven Bcf per day.
Shannon E. Young: In other words, we expect oil to be up approximately two 5% quarter over quarter on continued strong execution.
Shannon E. Young: Regarding investment we would expect total incurred capital during the second quarter to be between 470 and $550 million.
Shannon E. Young: As a result of low natural gas prices, we have chosen to defer the turn in line of key separate Marcellus projects totaling 12 wells.
Shannon E. Young: Based on current in-basin pricing, we don't anticipate bringing any projects online into Marcellus during the second quarter, resulting in lower gas volumes quarter over quarter before flattening in the second half of the year. Yesterday, we increased our full-year 2024 oil production guidance range by 2.5 MBO per day to between 102 and 107 MBO per day for the year, or up approximately 2.5% from our initial guide in February. There's no change to our full year 2024 BOE and natural gas production guide.
Shannon E. Young: Based on current in basin pricing pricing, we don't anticipate bringing any projects online in the Marcellus during the second quarter.
Shannon E. Young: <unk> and lower gas volumes quarter over quarter before flattening in the second half of the year.
Shannon E. Young: Yesterday, we increased our full year 2024 oil production guidance range by two and a half mbo per day to between 102 and 107 <unk> per day for the year or up approximately two 5% from our initial guide in February.
Shannon E. Young: There is no change to our full year, 2024, Boe and natural gas production guidance. Similarly.
Shannon E. Young: Similarly, there are no changes to our unit cost guidance or turn in line well counts for the year. For the full year 2024, we are reiterating our incurred capital guidance of between $1.75 and $1.95 billion, which is 12% lower at the midpoint than our 2023 capital spend. As previously discussed, our 2024 program will modestly increase capital allocation to the liquids-rich Hermion and Anadarko Basins while decreasing capital by more than 50% in the Marcellus year over year.
Shannon E. Young: Similarly, there are no changes to our unit cost guidance or turning well turn in line well counts for the year.
Shannon E. Young: For the full year 2024, we are reiterating our incurred capital guidance to between $1 75, and $1 95 billion.
Shannon E. Young: Which is 12% lower at the midpoint than our 2023 capital spent.
Shannon E. Young: As previously discussed our 2024 program will modestly increased capital allocation to the liquids rich Permian and Anadarko basins, while decreasing capital by more than 50% in the Marcellus year over year.
Shannon E. Young: Moving on to shareholder returns, as previously announced, during the first quarter, we successfully issued Coterra's inaugural bond offering of $500 million of senior notes, carrying a coupon of 5.6% and a maturity of 2034. We were pleased with the timing of the transaction and the reception of the Coterra story in the marketplace. We intend to use the proceeds of this offering, along with cash on hand, to retire a $575 million 2024 notes at maturity during the third quarter. Until maturity, we have invested the proceeds and time deposits at a similar interest rate to the coupon of the note.
Shannon E. Young: Moving on to shareholder returns.
Shannon E. Young: As previously announced during the first quarter, we successfully issued <unk> inaugural bond offering of $500 million of senior notes bearing a coupon of five 6% and our maturity to 2034.
Shannon E. Young: We were pleased with the timing of the transaction and the reception of the <unk> story in the market.
We intend to use the proceeds of this offering along with cash on hand to retire our $575 million 2024 notes at maturity during the third quarter.
Shannon E. Young: Until the maturity, we have invested the proceeds and time deposits at a similar interest rate to the coupon of the notes.
Shannon E. Young: Coterra continues to maintain its low leverage profile with a ratio of 0.3 times at the end of the first quarter. Our target leverage ratio remains below one times, even at lower price scenarios. This refinancing allowed us to extend our maturity profile, maintain a high liquidity position, and affords us modest leveraging while maintaining a robust shareholder return program through 2024. During the first quarter, Coterra continued to execute on its shareholder return program by repurchasing 5.6 million shares for $150 million at an average price of $26.94 per share.
Shannon E. Young: So tahira continues to maintain its low leverage profile with a ratio of 0.3 times at the end of the first quarter.
Shannon E. Young: Our target leverage ratio remains below one times, even at lower price scenarios.
Shannon E. Young: This refinancing allowed us to extend our maturity profile.
We maintain a high liquidity position and.
Shannon E. Young: And affords us modest deleveraging, while maintaining a robust shareholder return program in 2024.
Shannon E. Young: During the first quarter. So it's Eric continued to execute execute on its shareholder return program by repurchasing five 6 million shares for $150 million at an average price of $26 94 per share.
Blake A. Sirgo: In total, we returned $308 million to shareholders during the quarter, or over 90% of free cash flow. We remain committed to our strategy of returning 50% or more of annual free cash flow to shareholders through a combination of our HealthyBase Dividend and our Share Repurchase Program. Last night, we also announced a $0.21 per share base dividend for the first quarter. This remains one of the highest-yielding base dividends of our peers at approximately 3%.
Shannon E. Young: In total we returned $308 million to shareholders during the quarter or over 90% of free cash flow.
Shannon E. Young: We remain committed to our strategy of returning 50% or more of annual free cash flow to shareholders through a combination of our healthy base dividend and our share repurchase program.
Shannon E. Young: Okay.
Shannon E. Young: Last night, we also announced a 21 per share base dividend for the first quarter, maintaining our annual base dividend at <unk> 84 per share.
Shannon E. Young: This remains one of the highest yielding base dividends of our peers at approximately 3%.
Blake A. Sirgo: Management and the board remain committed to responsibly increasing the base dividend on an annual basis. In summary, the team delivered another quarter of high-quality results in the field, which resulted in another successful quarter financially. Our business has significant operating momentum, and we are poised for a strong 2024 and are on track to meet or exceed the differentiated three-year outlook we provided in February. With that, I'll hand the call over to Blake to provide details on our operations. Blake
Shannon E. Young: Management and the board remain committed to responsibly, increasing the base dividend on an annual cadence.
Shannon E. Young: In summary.
Shannon E. Young: The team delivered another quarter of high quality results in the field, which resulted in another successful quarter financially.
Shannon E. Young: Our business has significant operating momentum and we are poised for a strong 2024 and are on track to meet or exceed the differentiated three year outlook. We provided in February.
Shannon E. Young: With that I will hand, the call over to Blake provide details on our operations.
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Blake A. Sirgo: Thanks, Shane. This morning, I will discuss our capital expenditures and provide an operational update. First quarter accrued capital expenditures totaled $450 million, coming in just below the low end of our guidance. Our strong execution in the field continued in Q1, with our oil production coming in at 102.5 thousand barrels of oil per day, above the high end of our guidance. We are seeing continued completion gains in the Permian, led by reduced transition times on our diesel crews, as well as strong initial performance from our electric simulfrac crew in Culberson County.
Blake: Thanks, Jean this morning, I will discuss our capital expenditures and provide an operational update.
Blake: First quarter accrued capital expenditures totaled $450 million coming in just below the low end of our guidance.
Blake: Our strong execution in the field continued in Q1 with our oil production coming in at $102 5000 barrels of oil per day above the high end of our guidance.
Blake: We are seeing continued completion gains in the Permian led by reduced transition times on our diesel crew as well as strong initial performance from our electric simulcast crew in Culberson County.
Blake A. Sirgo: During the first quarter, our two Permian crews and one Anadarko crew hit all-time highs in efficiency, with record pumping hours per month. These efficiencies are coupled with new contracts that ensure when we gain efficiencies, it is realized in our dollar per foot and not just in our cycle. We are currently running two frac crews and eight drilling rigs in the Permian. We continue to benefit from operational efficiencies, including cost savings on electrification, leveraging existing facilities and infrastructure, as well as improved cycle times. Faster cycle times drive more footage in the year, also contributing to a lower dollar per foot.
Blake: During the first quarter or two Permian crews and one Anadarko crew at all time highs in efficiency with record pumping hours per month.
These efficiencies are coupled with new contracts that ensure when we gain efficiencies. It is realized in our dollar per foot and not just in our cycle times.
Blake: We are currently running two frac crews and eight drilling rigs in the Permian, we continue to benefit from operational efficiencies, including cost savings on electrification leveraging existing facilities and infrastructure as well as improved cycle times.
Blake: Mr cycle times drives more footage in the year also contributing to lower dollar per foot as.
Blake A. Sirgo: As a result, we estimate our permian cost around $10.75 per foot, roughly 8% below our $20.23 per foot. Our Wyndham Row project is off and running, with 34 wells now drilled and our simulfrac operations underway. Our electric simulfrac crew is powered directly off our Coterra-owned grid, with no generation in the field required.
Blake: As a result, we estimate our Permian cost around $2 75 per foot roughly 8% below our $2023 per foot.
Blake: Our Wyndham row project is often running with 34 wells now drilled in our thermal frac operations underway, our electric <unk> Frac crew is powered directly off Arco Terra owned grid with no generation in the field required.
Blake A. Sirgo: We are seeing encouraging initial performance from our simulfrac crew, with an increase of 1,000 completed feet per day versus our normal zipper performance, with a decreased cost of $25 per foot. When we combine our simulfrac efficiencies with the current cost spread between diesel and grid power, we are realizing a total cost savings of $75 per foot compared to current diesel-powered zipper operations. One update to the Wyndham Row project is the addition of three Harkey wells to the western part of the row, bringing the project total to 54 wells.
Blake: We are seeing encouraging initial performance from our simulcast crew with an increase of 1000 completed feet per day versus our normal zipper performance with a decreased cost of $25 per foot.
Blake: When we combine our Sam will frac efficiencies with the current cost spread between diesel and grid power.
Blake: We're realizing the total cost savings of $75 per foot compared to current diesel powered zipper operations.
Blake: One update to the Wyndham Row project is the addition of three <unk> wells to the western part of the row, bringing the project total to 54 wells.
Blake A. Sirgo: Recent tests in our Culverson asset have shown a possible benefit to co-developing the Upper Wolf Camp with our Harky Shale Landing. This observation is different than what we've seen with our other Harky projects across the basin, and these three new co-developed wells will help us further understand the interaction between these zones. Due to strong execution on the project so far, we were able to fit these three new wells into our existing schedule without incurring additional facility or infrastructure costs. As previously discussed, we expect to execute large road developments for many years to come in Culverson County.
Blake: <unk> test in our Culberson asset have shown a possible benefit to co developing the upper wolfcamp with our harkey shale landings. This observation is different than what we've seen with our other harkey projects across the basin and these three new co developed wells will help us further understand the interaction between these zones.
Blake: I do.
Blake: Due to strong execution on the projects. So far we were able to fit these three new wells to our existing schedule without incurring additional facility or infrastructure costs.
Blake: As previously discussed we expect to execute large row developments for many years to come in Culberson County, our Permian team continues to build momentum and is off to a strong start in 2024.
Blake A. Sirgo: Our Permian team continues to build momentum and is off to a strong start in 2024. In the Marcellus, we are currently running one rig and one reduced frac crew. Our focus in the Marcellus continues to be decelerating activity and reducing costs as near-term gas markets remain challenging. Our Marcellus program is buoyed by our long-term sales portfolio, which contains multiple indices and price floors, which come into play at lower NYMEX prices.
Blake: In the Marcellus we are currently running one rig and one reduce frac crew our focus in the Marcellus continues to be decelerating activity and reducing costs as near term gas markets remain challenging.
Blake: Our Marcellus program is buoyed by our long term sales portfolio, which contains multiple indices in price wars, which come into play at lower Nymex pricing.
Blake A. Sirgo: We currently have two paths, consisting of 12 wells in total, that we are delaying turning in lines. Each incremental molecule we bring on receives in-basin pricing compared to the rest of our portfolio. Therefore, we are choosing to delay these tills until we see stronger local prices. We have also chosen to delay a portion of our wellhead compression program into 2025 so as not to accelerate volumes into a weakened market.
Blake: We currently have two pads consisting of 12 wells in total that we are delaying turn in lines.
Blake: Each incremental molecule, we bring on received in basin pricing compared to the rest of our portfolio.
Blake: Therefore, we are choosing to delay these sales until we see stronger local pricing.
Blake: We have also chosen to delay a portion of our wellhead compression program into 2025, so as not to accelerate volumes into a weakened market.
Blake A. Sirgo: Our teams are focused on reducing costs in the field and looking for ways to optimize our capital spend. As we have discussed, our Marcellus Business Unit has several strong projects that are teed up and ready to execute later in the year should macro conditions warrant it. In Anadarko, we are currently running two rigs and one frack crew. We're in the middle of a large block of completion, with three projects being fracked over the first half of 2024.
Blake: Our teams are focused on reducing costs in the field and looking for ways to optimize our capital spend.
Blake: As we have discussed our Marcellus business unit has several strong projects that are teed up and ready to execute later in the year should macro conditions warrant.
Blake: In the Anadarko, we are currently running two rigs and one Frac crew. We are in the middle of a large block of completion activity with three projects being fracked over the first half of 2024.
Blake A. Sirgo: These projects are focused on liquids-rich portions of our asset, which maintain strong economics in the current gas environment. Our consistent activity in Anadarko is starting to bear fruit, as we have seen our drilled feet per day increase 15% year over year, as well as an increase of 10% in pumping hours per day compared to a year ago. Our Anadarko team continues to compete for capital, and the returns across the basin remain strong.
Blake: These projects are focused on liquids rich portions of our asset which maintained strong economics in the current gas environment.
Blake: Our consistent activity in the Anadarko is starting to bear fruit as we have seen our drilled feet per day increased 15% year over year as well as an increase of 10% and pumping hours per day compared to a year ago.
Blake: Our Anadarko team continues to compete for capital and the returns across the basin remains strong.
Blake A. Sirgo: Our operating teams at Coterra are firing on all cylinders. We continue to make positive strides across all areas of operations, including new initiatives that are materially reducing well trouble costs, minimizing production downtime, beating our emissions targets, improving our cycle times, and gaining new efficiency. Our field operations are the heartbeat of our company, and they continue to fuel our momentum. And with that, I'll turn it back to Tom. Thank you.
Blake: Our operating teams that could tear are firing on all cylinders, we continue to make positive strides across all areas of operations, including new initiatives that are materially reducing well troubled costs minimizing production downtime, leading our emissions targets improving our cycle times.
Blake: And gaining new efficiencies our field operations are the heartbeat of our company and they continue to fuel our momentum and with that I'll turn it back to Tom. Thank you Shannon Blake, we're pleased with our continued execution and momentum as we March through 2024, we appreciate your interest in coach Tara and look forward to discuss.
Thomas E. Jorden: Thank you, Shane and Blake. We're pleased with our continued execution and momentum as we march through 2024. We appreciate your interest in Coterra and look forward to discussing our results and outlook. As always, we like talking about results more than future promises, and we're always pleased to deliver them. With that, we'll turn it over to questions.
Thomas E. Jorden: <unk>, our results and outlook as always we like talking about results for the future promises and we're always pleased to deliver them with that I will turn it over to questions.
Audra: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question. We'll take our first question from Nitin Kumar at Mizzou Ho.
Thomas E. Jorden: Thank you we will now begin the question and answer session. If you have dialed in I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.
Thomas E. Jorden: We ask that you. Please limit yourself to one question and one follow up to allow everyone an opportunity to ask a question.
Thomas E. Jorden: We will take our first question from Neel Kumar at Mizuho.
Nitin Kumar: Hey, good morning, Tom and Shane. Congratulations on the great results.
Hey, good morning, Tom and Shane Congrats on the great results.
Thomas E. Jorden: Tom, I want to start off in the Marcellus, and you know, you deferred 12 completed wells for later in the year. The plan still calls for about 29 wells to be put online. Could you maybe talk us through how or what the market conditions are? Is there a specific price? Or is there a supply or demand equation that you're looking at to one, bring on the 12 wells? And two, how would you think about the rest of the program for the year?
Nitin Kumar: Tom I want to start off in the Marcellus and.
Nitin Kumar: You've deferred 12 completed wells for later in the year. The plans still calls for about 29 wells. We put online could you maybe talk us through how are what are the market conditions is there a specific price or is there.
Nitin Kumar: Supply or demand.
Nitin Kumar: <unk> that youre looking at to one bring on the 12 wells and two.
Nitin Kumar: How would you think about the rest of the program for the year.
Thomas E. Jorden: Thank you, Nitin. Well, first, I'm going to say if there's a specific price or a complex formula, nobody has shared that with me yet, but we're, you know, we're looking at our received price, and quite frankly, you know, we sell them to indices. LIDY is the one that we typically point to, and when it's, you know, I would say when it's sub $1.50, we really look at that, and we say, okay, what's the outlook for that?
Speaker Change: Thank you and we will first I'm going to say, if there's a specific price or a complex formula Melbourne and shared that with me yet, but we're we're looking at our received price and quite frankly, we sell in the indices Leidy is the one that we typically point to and I will say when it's sub one.
Speaker Change: 50, we really look at that and we say, okay. What's the what's the outlook for that.
Thomas E. Jorden: And, you know, we do have transportation and LOE that comes off of that. And, you know, I wouldn't say there's a particular price, but I'll say this: we do have a very low cost of supply.
Speaker Change: And we do have transportation anello <unk> that comes off of that and I wouldn't say, there's a particular price then but I'll say this we do have a very low cost of supply, but I think we probably would like to see our net back north of a $1.
Thomas E. Jorden: But I think we probably would like to see our net back north of a dollar. And, so we're watching that we're making it, as I said in my remarks, we're making that on a month to month go, no go basis. We are currently bringing additional wells online in July.
Speaker Change: And so we're watching that we're making as I said in my remarks, we're making there.
Speaker Change: Month to month go no go basis.
Speaker Change: We our current model has us.
Speaker Change: Bring bring additional wells online in July whether we do that or not we're optimistic but we're not going to be driven by our model will be driven by the way the trend looks on the ground.
Thomas E. Jorden: You know, whether we do that or not, we're optimistic, but we're not going to be driven by our model; we'll be driven by the way the terrain looks on the ground. Um, you know, I want to say that there are two issues when you ask what price. There is the price for when we bring wells online, but there is also the price of when we increase our investment. Now, as I said, our capital program has room for a ramp-up, and if we were to do that, we would really see a strong rebound in our volumes going into 2025 and 2026. And, you know, that's a whole different price comparison.
Speaker Change: I want to say that there is two issues when you asked what price they're surprised for when we bring wells online for the results of the price of where we would increase our investments there as I said.
Speaker Change: Said, our capital program has room for a ramp up and if we were to do that we really see a strong rebound in our volumes going into 2025, and 26 and that's a whole different price comparison, but as I said, we're really constructive on natural gas, but look where the.
Thomas E. Jorden: But, you know, as I said, we're really constructive on natural gas. But look, we're in a really hostile near-term environment. And we think just moderating these turning lines is the way to go. We're also going to look and see what others do. You know, there's a lot of gas, a lot of players doing what we're doing. And when we bring these wells online, we're going to be thoughtful and look at the market conditions. And if there's a flood of gas coming online, that may impact our decision.
Speaker Change: A real hospital near term environment, and we think just moderating. These turn in lines are still way to go. We're also going to look to see what other stereo theres lot of gas volume players doing what we're doing and when we bring these wells online we're going to be thoughtful and look at the market conditions.
Speaker Change: If there's a flood of gas coming online that may impact our decision.
Nitin Kumar: Great. Thanks for that insight, Tom. And I appreciate that.
Speaker Change: Great.
Speaker Change: Thanks for that insight that Tom and I appreciate that.
Speaker Change: I want to shift to the Permian and talk about the Wyndham Roe.
Nitin Kumar: I want to shift to the Permian and talk about Wyndham Row. Could you maybe talk a little bit about what you have seen? Obviously, adding a few wells in the Harki is a positive, but what are you seeing and what are some of the lessons learned? And if you can walk us through the 5 to 15% cost reduction that you're seeing, if I think about a billion dollars spent in the Permian this year, could we look at something which is 10% less capital spent in the Permian for the same result down the road? Yeah,
Speaker Change: Could you maybe talk a little bit about what have you seen of this key adding a few wells into harkey.
Speaker Change: That is a positive but what are you seeing and what are some of the lessons learned and if.
Speaker Change: If you can walk us through the 5% to 15% cost reduction.
Speaker Change: That you are seeing if I think about $1 billion spend in the Permian This year could.
Speaker Change: Could we could we look at something which is 10% less capital spend in the Permian for the same result down the road.
Thomas E. Jorden: I'm going to hit the harky and let Blake look at the cost reduction. Our general observation in a lot of our Delaware program is that in our assets, our observation has been that whether we... exploit these reservoirs one layer at a time or not, we don't really see any incremental recovery out of a drilling spacing unit. So doing them in stages allows us to really take full advantage of our infrastructure because we can stage volumes in and not have to build facilities for the absolute peak production because these wells do decline.
Speaker Change: Yes, I'm going to I'm going to hit the harkey, let Blake look cost reduction.
Speaker Change: Our general observation and a lot of our Delaware program is that.
Speaker Change: Our assets our observation has been that whether we.
Exploit these reservoirs one layer at a time or not that we don't really see any incremental recovery out of a drilling spacing unit. So doing them in stages allows us to really take full advantage of our infrastructure because we can stage volumes in and not have to build facilities for the app.
Thomas E. Jorden: And if you build your facilities for absolute peak production, you find that they're very early in their life underutilized. Well, we did on another project in Culberson County where things are a little different. It's on the western side of the basin, a little lower pressure.
Speaker Change: Salute peak production because these wells do decline and if you build your facilities for absolute peak production you find that there are very early in the life.
Speaker Change: Underutilized, while we did on another project in Culberson County, where things are a little different it's on the western side of the basin little lower pressure, we did see a lot of experiment, we did over the last year or two that.
Thomas E. Jorden: We did see in an experiment we did over the last year or two that, Co-developing the harky and the wolf camp at the same time versus waiting 12 to 18 months and coming back with the harky, I'd say 12 to 24 months. We did see what we think is an incremental boost in recovery. We're not concluding that, but we prudently added a row of harky, a few harky wells. And I'll say this, while we continue to learn, I think on new projects, you're going to see that Culberson County is probably our default option as we continue to learn. And, you know, we're not chiseling out final conclusions in granite here.
Speaker Change: Co developing the heart in the Wolfcamp at the same time versus waiting.
Speaker Change: <unk> months to 18 months and coming back with the Harkey I'd say 12 to 24 months. We did see what we think is an incremental boost in recovery, we're not concluding that but we prudently added the ROA heartbeat, a few harkey wells and I'll say this while we continue to learn I think on new.
Speaker Change: <unk> youre going to see that in Culberson County is probably our fault option as we continue to learn.
Speaker Change: Chiseling and granted final conclusions here.
Speaker Change: Yes.
Blake A. Sirgo: Yeah, I'll take the cost question. When we talk about Wyndham Row and SimulFrac, the SimulFrac is going very well. I mean, right out of the gate, their performance has been strong. We were hoping we would see, you know, at least $20 per foot. To date, we've seen about $25.
Speaker Change: Yes, I'll take the cost question, when we talk about Wyndham row, and some will be.
Speaker Change: The summer.
Speaker Change: <unk> is going very well right out of the gates that performance has been strong we were hoping we would see at least $20 per foot to date, we've seen about 25.
Speaker Change: <unk>.
Speaker Change: There's room for that to go even further but we're early in the game there we're watching it very close as far as how we can expand these learnings we're only Sam will fracking 27 wells in the Permian This year as part of Wyndham ROE, but with these with this initial success our Permian team is looking hard at how we could exploit this across our.
Blake A. Sirgo: And, you know, there's room for that to go even further. But we're early in the game there. We're watching it very closely. As far as how we can expand these learnings, you know, we're only simulfracking 27 wells in the Permian this year as part of Wyndham Row, but with this initial success, our Permian team is looking hard at how we could exploit this across our whole drilling program. You know, I wouldn't take that and slap a 10% cost change on the whole program because you got to have just the right number of wells per pad to make simulfrac really cost effective, but our teams are looking at that now, and we're excited to see where it goes.
Speaker Change: Hole drilling program.
Speaker Change: And then take that and slap a 10% cost change on the whole program because you got to have just the right number of wells per pad to make some will frac really cost effective but our teams are looking at the island, we're excited to see where it goes.
Nitin Kumar: Great. Thanks for the coverage, guys.
Speaker Change: Great. Thanks for the color guys.
Arun Jayaram: We'll go next to Arun Jayaram at J.P. Morgan.
Speaker Change: We'll go next to Arun Jairam at J P. Morgan.
Arun Jayaram: Yeah, good morning. My first question is on cash return. You return
Yeah. Good morning. My first question is on cash return.
Arun Jayaram: You returned 90% of free cash flow this quarter, but I wanted to get maybe some broader thoughts on just the overall philosophy given your views on the valuation of the stock.
Arun Jayaram: You recently issued.
Arun Jayaram: $500 million of notes to.
Arun Jayaram: To help refund the payment of the 575 million.
Arun Jayaram: $1 billion maturity later this year.
Arun Jayaram: How did cash return Tom attractiveness of the valuation of the stock play into that decision.
Arun Jayaram: You have about $1 billion of net cash on the balance sheet today, excluding that recent notes issue. How do we think about the minimum cash balance and perhaps thoughts on leaning in the balance on the balance sheet. In addition to free cash flow to buyback the stock.
Arun Jayaram: Yeah, I'm gonna let Shane handle that one.
Arun Jayaram: Yes.
Arun Jayaram: Ill now on Arun I appreciate the question.
Speaker Change: I'll take it look.
Arun: We look at a variety of things we think about the return program then the pace and look you've touched on many of them.
Arun: First and foremost we look at valuation and we believe our stock is a compelling valuation.
Arun: And if so then we're going to be inclined.
Arun: To do more there and the second is liquidity.
Arun: Where does liquidity said you know what our target is and where we're sitting above our target as of the end of the first quarter and then the third is the free cash flow of the business.
Arun: Any given period and Theres other things, but I think if we triangulate around those is helpful. As we are getting into late last year, we were.
Arun: We're having a discussion around here about how to handle the 2020 for maturity and we looked at a variety of scenarios. We had good cash on hand and liquidity. So that was one option is to do cash we had.
Arun: And as we got into early for the early part of this year. The market began to really improve the FERC for new issuances of debt and Thats been an option for us and that ended up being generally speaking the path. We took so we will be repaying $575 million of debt. Later this year are largely with the proceeds of the 500 million.
Arun: New issue and a little bit of cash on hand, but that really clarify that question for us is to.
Arun: So what kind of impact that maturity can have on our liquidity and once it did.
With a combination of free cash flow and attractive stock price you saw us lean into the share buyback program in the first quarter.
Shannon E. Young: Great. And Shane, what do you view as the minimum cash you'd like to keep on the balance sheet?
Speaker Change: Great and what do you view is the minimum cash you'd like to keep on the balance sheet.
Shannon E. Young: You know, we've gone as low as 600 million over the last, we call it, you know, seven, eight quarters. And again, I think that probably, as low as we go, we target a billion; we've been as high as 1.4. You know, and I think you'll continue to see us live somewhere in that range. It's a wide range. But but I think you'll continue to see us reside within that range. So we're in, yeah, it's...
Speaker Change: We've gone.
Speaker Change: As low as $600 million over the last call it seven eight quarters.
And again I think thats probably.
Speaker Change: As lowest Vigo, we target 1 billion, we've been as high as $1 four.
Speaker Change: And I think you'll continue to see us live somewhere in that range, it's a broad range.
Speaker Change: But but I think youll continue to see us.
Speaker Change: Reside within that range so arun.
Thomas E. Jorden: So Arun, you know, if I could just add some color, you know, we have relaxed a little bit on our billion dollar number on cash on the balance sheet. We have plenty of liquidity. Our buyback is really because we see value in our stock, quite frankly. We look at net asset value, and we think our stock is a really prudent buy. And then, as far as our overall leverage is concerned, I don't think anybody's going to accuse Coterra of being over-leveraged.
Speaker Change: And then my husband's savings.
Speaker Change: If I could just add some color we have relaxed a little bit our $1 billion number on cash on the balance sheet, we have plenty of liquidity.
Speaker Change: Our buyback is really.
Speaker Change: Because we see value in our stock quite frankly, we look at net asset value and we think our stock is it really occurred by and then as far as our overall leverage I don't think anybody who has been accused for terra being over levered.
Thomas E. Jorden: You know, you've heard me say before, I'll never lose a minute of sleep worrying about how low our debt is. I know that somehow violates financial theory, good balance sheet management, but when you live in a cyclic commodity business, you find that people that read those business school textbooks on financial theory end up filing them away with their bankruptcy papers, and we're going to run Coterra for the long run.
Speaker Change: As you've heard me say before I'll never lose a minute sleep worrying about how low our debt is.
Speaker Change: No thats somehow BIOLASE financial theory.
Speaker Change: Good balance sheet management, but when you live in a cyclic commodity business you find that.
Speaker Change: People that read those business school textbooks on financial theory ended up filing them away with their bankruptcy papers.
Speaker Change: We're going to merge co chair for the long run.
Arun Jayaram: Yep, it's a sleep well at night balance sheet. My follow-up question is just maybe for Blake, your Marcellus well cost is guided down to 950 a foot in the second half versus 1200 a foot in the first half. Talk to us about that, the decline, and what's a good go-forward run rate.
Speaker Change: Yes, but to sleep well at night balance sheet.
Speaker Change: My follow up is just maybe for Blake as your Marcellus well costs.
Speaker Change: <unk> guided down to $9 50, a foot in the second half versus 200 foot in the first half.
Speaker Change: Talk to us about that the decline in what's a good go forward run rate.
Blake A. Sirgo: The decline is really just driven by the wealth that we're bringing in that part of the year. We have some great, really long laterals that are in there, and they trend on a lower dollar per foot. Run rates, kind of hard to pin down exactly one.
Blake: The decline is really just driven by the well said that we're bringing on that part of the year. We have some great really long laterals that are in there.
Blake: Trend on a lower dollar per foot.
Blake: Run rates kind of kind of hard to pin down exactly one it depends if you are talking upper Marcellus lower Marcellus I think it can be.
Blake A. Sirgo: It depends if you're talking upper Marcellus or lower Marcellus. I think it could be, you know, anywhere from $1,000 to $1,200 per foot. It's probably going to float in there. Lateral length could drive that a little lower.
Blake: Anywhere from 1000 to $200 per foot is probably going to flow in there.
Blake: <unk> could drive that a little lower.
Speaker Change: Great. Thanks, a lot.
Neal David Dingmann: We'll move next to Neal Mehta at Goldman Sachs.
Speaker Change: We'll move next to Neil Mehta at Goldman Sachs.
Neal David Dingmann: Yeah, good morning, Tom and team, a really great quarter. The first question I had was just, we've seen so much consolidation across the landscape, the energy landscape, and certainly you guys did your large deal a couple years ago, but we just love your perspective on, you know, the role of Coterra in future consolidation. Where do you see bid and ask, and do you see any gaps in the portfolio?
Speaker Change: Yes.
Neil Mehta: Really great quarter.
Neil Mehta: The first question I had was just that we've seen so much consolidation across the across the landscape energy landscape and certainly you guys did your large deal a couple of years ago, but would just love your perspective on the role of Kotara in future consolidation, where do you see bid and asking do you see any gaps in the <unk>.
Neil Mehta: Portfolio.
Thomas E. Jorden: Yeah, I'll tie it up and let Shane comment on the fact that we haven't announced the transaction. As you've heard me say before, it shouldn't be misinterpreted that we're not active in the space. We're evaluating a lot of assets; we're looking at how they may fit into our portfolio and really evaluating them against what we think the market demands for those assets. And I'll just flat out say, as we've recently reviewed the landscape of deals, there's probably only one or two that we say, oh, we might have liked to have had that. But you know, those were just small bolt-ons.
Speaker Change: Yeah, I'll tee, it up and let Shane comment yes.
Shannon E. Young: The fact that we haven't.
Shannon E. Young: Now the transaction as you've heard me say before shouldnt be misinterpreted that we're not active in the space. We're evaluating a lot of assets. We're looking at how they may fit into our portfolio and really.
Evaluating against.
What we think the market demand for those assets and I'll, just slight I would say as we've recently reviewed the landscape of deals.
Shannon E. Young: There is probably only one or two that we say, we monitor lifestyle add that but those were small bolt ons.
I think we feel pretty good about as we review the decisions we made on that but we look at everything and we.
Thomas E. Jorden: I think we feel pretty good about it as we review the decisions we made on that. But we look at everything. And we, you know, we have a lot of confidence in our operation team, and we'd love to find more assets for them to say grace over. And we're going to remain curious and active about that. But I just don't want it to be misinterpreted that we're sleeping in on the sidelines. We are actively engaged and have made tactical decisions about both firms. Shane, do you want to comment on that?
Shannon E. Young: We have a lot of confidence that our operation team and we'd love to find more assets for them to say grace over and we're going to remain curious with active on that but I just don't want that to be misinterpreted that were sleeping room on the sidelines. We are actively engaged as I've made tactical decisions.
Speaker Change: Both firms, saying do you want to comment on the yes, I'll just add on a couple of things wholeheartedly agree. The team has been executing incredibly well and we'd love nothing more than to have an opportunity to put more.
Shannon E. Young: Yeah, I'll just add on a couple of things. I wholeheartedly agree. The team has been executing incredibly well, and we'd love nothing more than to have an opportunity to put more assets and opportunities under their stewardship. And we think it helps in terms of execution in the field. We think it also plays into our strengths of capital allocation. I think, you know, the bar has been and remains very high. But I think if we were to find something that had the right strategic fit, the right valuation parameters, and left balance sheets in good shape, you know, that'd be something we'd be highly interested in.
Speaker Change: Assets, an opportunity under their stewardship, and we think it helps in terms of execution in the field. We think it also plays into our strengths of capital allocation I think.
Speaker Change: The bar has been and remains there.
Speaker Change: Very high end, but I think if we were to find something that has the right strategic fit.
Speaker Change: The right valuation parameters and unless the balance sheet.
Speaker Change: In good shape, there would be something we'd be highly interested.
Neal David Dingmann: And the follow-up on M&A is, you know, you've been commodity agnostic; is that the way you think about M&A as well? You're less focused on the product type and more focused on what's the best fit, just perspective on oil versus gas and consolidation? Yes, I think so.
Speaker Change: And a follow up also on M&A.
Speaker Change: You have been commodity agnostic it seems dawson and focus more on where you can generate the highest return is that the way you think about M&A as well we are less focused on the product type and more focused on.
Speaker Change: What's the best fit perspective on oil versus gas consolidation.
Thomas E. Jorden: Yes, I think our first lens is always financial on everything we do. Now, all else being equal, things are never equal, and you know, you get structural changes in the markets both for oil and natural gas. I would say, all else being equal, we'd probably add a little more oil to our portfolio. But you know, check back with me six months from now on that. I mean, we really have a history of [inaudible]. I would say in our DNA, we have a fundamental indifference to that, but not to say we're not also interested in a balance. We want a balance of our revenues.
Speaker Change: Yes.
Speaker Change: I think our first lens is always financial on everything we do now.
Speaker Change: All else being equal things are never equal.
Speaker Change: You get structural changes in the markets both for oil and natural gas I would say all else being equal, we probably add a little more oils of our portfolio.
Speaker Change: But check back with me six months from now on that I mean, we really have a history of.
Speaker Change: Feedback that if we focus on sound financials, we focus on asset quality, if we focus on.
Speaker Change: The amount of windage, we have between our price file and our cost of supply that's the right focus on whether it's gas oil or Ngls.
Speaker Change: I would say.
Speaker Change: Our DNA, we have a fundamental of this indifference to that.
Speaker Change: But it's not to say were not also.
Speaker Change: Interested in a balanced and we've completely we want a balance of our revenue mix.
Speaker Change: Thanks Sam.
Betty Jiang: We'll go next to Betty Jiang at Barclays.
Speaker Change: We'll go next to Betty Jang of Barclays.
Betty Jiang: Good morning. I want to ask you about the three-year outlook. You have beaten 2024, and that's flowing into better 2025 and 2026 numbers, which is great to see. With all the efficiency gains that you're talking about, is it fair to think that they would just continue to translate into a better outlook over the entire three-year period, and that you would just be delivering that five-plus type of growth for maybe two more years?
Betty Jang: Good morning.
Betty Jang: Okay.
Betty Jang: Once you asked about the three year outlook.
Betty Jang: Yes.
Betty Jang: 2024, and Thats flowing into a better 2025, and 26 members, which is great to see.
Betty Jang: With all the efficiency gains that you are talking about is it fair to think that they would just continue to translate into better outlook over that entire three year period and that you'll just be delivering that five plus type of growth.
Betty Jang: Or maybe fine tune lower capex.
Thomas E. Jorden: You know, I'll tee it up, and I want Blake to comment. I think sometimes people give us credit for being better modelers than we are. We really do try to come up with outlooks that are aggressive and what we think we can achieve. We do not model in future cost reductions or future efficiencies unless we have a line of sight.
Speaker Change: Ill tee, it up and I won't comment.
Speaker Change: I think sometimes people give us credit for being better modelers than we are.
Speaker Change: We really do try to come out with outlooks outlooks that are aggressive.
Speaker Change: What we think we can achieve we do not model in future cost reductions or future efficiencies unless we have line of sight to them and.
Blake A. Sirgo: And that's kind of, I have to kind of apologize for that because we are an innovative organization. We wake up every morning, and we say, we've been highly successful, and we're worried sick about it. Because we never want success to get in the way of progress. You know, we, you've heard us talk about progress versus comfort. So, you know, I'll tell you with great humility that when we laid out our three-year plan in February.
Speaker Change: And thats kind of I have to kind of apologize for that because we are an innovative organization, we wake up every morning, and we say.
Speaker Change: <unk> been highly successful and were worried sick over because we never want success to get in our way of progress you've heard us talk about progress versus comfort.
Speaker Change: So.
Speaker Change: Ill tell you with great humility, then when we laid out our three year plan in February.
Blake A. Sirgo: We were going to say zero, you know, 5% oil growth. And we had a debate internally as to whether we should say five plus, and that plus was hotly debated. And we said, no, let's put the plus sign in because we might beat that. And here, you know, in the last two years, we've had 10% oil growth. Now it's not that we're sandbagging our model. It's that our organization is really innovative.
Speaker Change: We were going to say zero, 5% oil growth and we had a debate internally as to whether we say five plus and that plus was hotly debated and we said no let's put the plus sign in <unk>.
Speaker Change: Joseph.
Speaker Change: We might beat that in here last three years, we've had 10% oil growth.
Speaker Change: It's not that we're sandbagging or model is set our organization.
Blake A. Sirgo: But we'd rather talk about results than promise things that we can't solidly look you in the eye and say we will deliver. So in some sense, it's a cultural issue. We're a results-driven company. And if we end up under-promising, we'd rather have that than over-promising. Yeah.
Speaker Change: Is really innovative but we can't.
Speaker Change: We'd rather we'd rather talk about results than promise things that we can't solidly looking at it and say we will deliver it so in some sense. It's it's.
Cultural issue, where our results were driven company.
Speaker Change: If we if we end up under promising we'd rather have that than over promise.
Betty Jiang: Yeah, Betty, I would just say, as I said in my earlier remarks, we still have strong conviction in the outlook that we put out in February. So 5% plus oil growth, 0 to 5% BOE, and gas growth, all at $1.75 to $1.95 billion of annual capital. I think the results that we delivered in the first quarter, you know, only, you know, give us further conviction around that outlook. So we're still excited about it, and we believe we'll be able to deliver it.
Yes.
I would just say as I said in my earlier remarks, we still have strong conviction in the outlook that we put out in February so, 5% plus oil growth zero to 5% Doa and gas growth all at $1 75 to $1 95.
Speaker Change: $1 billion of annual capital I think the results that we delivered in the first quarter only only gives us further conviction around that outlook. So we're still excited about it and.
Speaker Change: Believe we will be able to deliver us like you're assuming about the future.
Blake A. Sirgo: Blake, do you want to say anything about future efficiencies? I would just echo what Tom said.
Speaker Change: I would just echo what Tom said, we don't we don't bake in any efficiency gains in our three year outlook. What we're doing today is what we show, but as Tom said the expectation here is that we get better every single year, we have a culture of operational excellence that means what we did yesterday will not.
Blake A. Sirgo: We don't bake in any efficiency gains in our three-year outlook. What we're doing today is what we show. But, as Tom said, the expectation here is that we get better every year. We have a culture of operational excellence. That means what we did yesterday will not cut it for today, and our teams are constantly looking for ways to reduce our cost structure. Efficiency is expected. Now, there are lots of other things that affect costs. You know, what's the market going to do? How many rigs are running? How many crews are running?
Speaker Change: Got it for today and our teams are constantly looking for ways to drive our cost structure.
Speaker Change: Efficiencies are expected.
Speaker Change: Now theres lots of other things that affect cost what's the market going to do how many rigs are running how many crews are running theres lots of things around our cost structure. We don't control. So we don't bake in anything we don't bake in inflation, we don't bake in deflation, we don't bake in further efficiency gains when we put out a guide it's the way we see the world today.
Blake A. Sirgo: There are lots of things around our cost structure we don't control. So we don't bake in anything. We don't bake in inflation. We don't bake in deflation. We don't bake in further efficiency gains. When we put out a guide, it's the way we see the world.
Betty Jiang: That's great. And definitely, it definitely can see the operational momentum across the board. And that's not an issue at all from a culture perspective.
Speaker Change: That's great and.
Speaker Change: It definitely can see the operational momentum across the board.
Speaker Change: That's not an issue at all.
Speaker Change: And Michael to your perspective.
Betty Jiang: My follow-up question is about the HEAR-QI. I think in your slide deck, you mentioned that you would go back to the HEAR-QI on the Wyndham role in Phase 2 within the next 12 months. Just wondering, is there any incremental savings that you can extract from that second phase HEAR-QI from shared facilities or anything along that line that you can extract on the cost side? And then, Tom, you mentioned that you saw some benefit from co-development. So what could that mean for the HEAR-QI role development? Thanks. Yeah, this is Blake. I'll take that one.
Speaker Change: On May <unk>.
Michael: My follow up I want to ask about the harkey Inger.
Michael: In your slide deck, you mentioned that you will go back to the heart on the Wyndham brawl in phase two.
Michael: In the next 12 months, just wondering is there any incremental savings that you can.
Michael: You can extract from that second phase harkey fragrance shared facilities or anything along that line that that you can.
Michael: On the cost side, and then secondarily, Tom you mentioned that you saw some benefit from call development. So.
Michael: What does that what could that mean.
Michael: Harkey pad hockey raw development. Thanks.
Blake A. Sirgo: Yeah, this is Blake. I'll take that one. There are cost efficiencies when we come back. The biggest ones are our pads are built, our facilities are built. You know, this is why historically we like if we can develop benches separately. You can let a bench decline in volume, and come right back in at another bench for very little incremental cost.
Michael: Yes. This is Blake I'll take that one.
Blake: There are cost efficiencies when we come back the biggest ones are our pads or build our facilities are built. This is why historically, we like if we can develop inches separately you can let a bench decline in volume come right back in at another bench for very little incremental cost. So we will enjoy some of those cost.
Blake A. Sirgo: So we will enjoy some of those cost savings when we come back from Harky. Possible co-developed benefits, that's really what we're interested in learning about. You know, we've just seen some results lately that say the performance of the Harky is better when we co-develop with the Upper Wolf Camp versus Overfill. We're interested in learning more about that, but as Tom said, until we do, we're leaning in. We're going where the data takes us, and we'll see what these next round of co-developed wells tell us.
Blake: Savings when we come back from the Harkey.
Blake: Possible co developed benefits, that's really what we're interested in learning about.
Blake: We've just seen some results lately that says the performance of the Harkey is better when we co develop with the upper Wolfcamp versus Overfill and we're interested in learning more about that but.
Blake: But as Tom said until we do we're leaning in we're going where the data takes us and.
Blake: We'll see what these next round of co developed wells tell us.
Speaker Change: Great. Thank you.
David Adam Deckelbaum: We'll move next to David Deckelbaum with T.D. Cowan.
Speaker Change: We'll move next to David <unk> with TD Cowen.
David Adam Deckelbaum: Morning, Tom and team. Thanks for taking my questions. I wanted to ask maybe a little bit of just a cost-benefit analysis. You guys have been beating production now steadily. Largely on what appears to be cycle times and just finding ways to do things faster in the field, which is quite commendable. I think you guys have articulated the benefits of cost savings on things like Wyndham Row and that 10% range. As you get better with some of the smaller projects, how do you think about that balance versus larger project savings? Or should we think that even with some of the faster accomplishments that you've achieved with smaller developments, you would be able to exponentially improve upon that as you get to larger developments?
David: Good morning, Tom and team Thanks for taking my questions.
I wanted to ask maybe a little bit of just a cost benefit analysis.
David: You have been beating production now steadily.
David: Largely on what appears to be cycle times, and just finding ways to do things faster in the field, which is quite commendable I think you guys have articulated the benefits of cost savings on things like the Wyndham ROE in the 10% range.
As you get better with some of the smaller projects.
David: How do you think about that balance versus larger projects savings or should we think that even with some of the faster accomplishments that you've achieved with smaller developments that you would be able to exponentially improve upon that as you get to larger developments.
Blake A. Sirgo: Yeah, Dave, this is Blake. I'll take that one.
David: Yes, David This is Blake I'll take that one.
Blake: It's an important to iterate cost as an output of our decision, making and so well while lower cost really helped drive some of our economics. We are focused on total returns of our projects and the highest PDI and so if that ends up being a three well project in Lea County versus a <unk>.
Blake A. Sirgo: You know, I think it's important to iterate. Cost is an output of our decision making. And so, while lower costs really help drive some of our economics, we're focused on total returns on our projects and the highest PBI. And so, if that ends up being a three-well project in Lee County versus a 54-well project in Culverson County, we go where the PBIs tell us to go. And obviously, continued cost gains really help. Cycle times also help. But it doesn't drive where the rigs go. What really drives it is full economic analysis. And that's what we lean into.
Blake: 54, well project in Culberson County, we go where the Pvs tell us to go and.
Blake: Obviously continued cost gains really help cycle times really help but it doesn't drive where the rigs go what really drives us that full economic analysis and thats, what we lean into.
Thomas E. Jorden: You know, an example of that, I love what Blake said, cost isn't a first-order driver. You know, from now on again, we'll have a project either underway or soon to be underway, and our teams, through additional scientific analysis, will propose spending more on completions on a project, and it drives the cost up, but we always look at the incremental benefit financially and make the best decision we can. You know, we learned, we all learned early on that you can't make yourself rich; you have to create value.
Blake: An example of that level of Blake said cost is up first order driver.
Blake: Now again, we will have a project either underway or soon to be underway and our teams through additional science analysis will proposed spending more on completions on a project and it drives the cost up but we always look at the incremental benefit financially and.
Blake: To make the best decision with Tan.
Blake: Yes.
Blake: We've learned we all learned early on that you can save yourself rich you have to create value.
David Adam Deckelbaum: Appreciate the color on that. Maybe just pivoting to the Marcellus, you know, similar line of questioning on just how you thought through deferring completion activity versus curtailing existing production and keeping up with the completion cadence if there is a, you know, sort of the inefficiency of drilling programs and frac crews that gets lost in that process or how you guys approach that sort of thought, you know, train.
Speaker Change: Okay I appreciate the color on that.
Speaker Change: Maybe just pivoting to the Marcellus the similar line of questioning on just how you thought through that.
Speaker Change: Deferring completion activity versus curtailing existing production and keeping up with the completion cadence if there is.
Speaker Change: Sort of the inefficiency.
Speaker Change: Drilling programs in Frac crews that gets lost in that process or.
Speaker Change: How you guys approach that sort of quality.
Speaker Change: Train.
Blake A. Sirgo: Sure, this is Blake. I'll take that one. Yes, it absolutely is a trade-off. You're spot on. Our preference is to run a frat crew continuously. We know that's when we get our best efficiencies. But once again, it's back to that investment case and the economics of the project.
Speaker Change: Sure. This is Mike I'll take that one.
Mike: Yes, it absolutely is a tradeoff youre spot on our our preference is to run a frac crew continuously we know that's when we get our best efficiencies, but once again, it's back to that investment case, and what are the economics of the project and while that might give us better efficiencies given where gas prices are we just can't have.
Blake A. Sirgo: And while that might give us better efficiencies, given where gas prices are, we just can't have that level of investment in the Marcellus right now. We need to slow down. We need to throttle down. And so that does usually mean giving up a little bit of efficiency, but that's still the prudent capital decision to make. And that's why we're doing it.
Mike: That level of investment in the Marcellus right now we need to slow down we need to throttle down and so that does mean, usually giving up a little bit of efficiency.
Mike: But that's still the prudent capital decision to make and that's why we're doing it.
Thomas E. Jorden: You know, I want to give a little different spin on the answer here, David. You know, the Marcellus is a great operating area, and we are very constructive about natural gas prices. But I'm also going to tell you that, as you know, we've reentered a part of the field that hasn't seen drilling for some time, and we're very pleased to be doing that. And this gets to my being a responsible operator in the communities we operate in. You know, Susquehanna County, 20 years ago, was one of the poorest counties in Pennsylvania. Now, because of resource development there, that county is thriving.
Speaker Change: Yeah, I'll, let me give a little different spin on the answer here David.
Speaker Change: The Marcellus is a great operating area and we are very constructive about natural gas prices, but I'm also going to tell you that as you know we've reentered the part of the field that hasnt seen drilling over time.
Speaker Change: We're very pleased to be doing that and this fiscus Dubai being responsible operator communities we operate.
Speaker Change: <unk> hundred County, 20 years ago was one of the poorest counties in Pennsylvania, and because of the resource development. There that count is thriving and there is a whole group of landowners to have participated in that because we've been had an area. We are excluded drilling yet.
David Adam Deckelbaum: And there's a whole group of landowners that have participated in that because we've had an area where we were precluded from drilling yet. And so we want to be really thoughtful before we just defer completions there. And you know, we're going to continue to have an ongoing activity. Not that we're going to be financially reckless, because we won't, but our impact on the community is part of our decision.
Speaker Change: So we wanted to be really thoughtful before we just the FERC completions there and.
Speaker Change: We're going to continue to have ongoing activity and not that we're going to be financially reckless because we won't but our impact on the community as part of our decision making.
Thomas E. Jorden: Thanks, Tom. Thanks, Blake.
Speaker Change: Thanks, Tom Thanks Blake.
Speaker Change: Okay.
Scott Andrew Gruber: Now we'll go to our next question from Scott Gruber at Citigroup.
Speaker Change: We'll go to our next question from Scott Gruber at Citigroup.
Thomas E. Jorden: Yes, good morning. Tom, long-dated gas futures have been moving higher on all the data center growth excitement. How would you think about capital allocation between Anadarko and the Marcellus if the forward curve is right? In the $350 to $400 range, you know, late $25, $26, and oil is still healthy, you know, in the $70s. What would you think about that allocation?
Scott Andrew Gruber: Yes, good morning.
Scott Andrew Gruber: Hum.
Scott Andrew Gruber: These guests have been moving higher on all of our data center growth and excitement.
Scott Andrew Gruber: How would you think about capital allocation between Anadarko and the Marcellus with the forward curve is right.
Scott Andrew Gruber: And the $3 50 to four range late 'twenty, five 'twenty, six and oil still healthy call. It in the seventies, Yeah, how would you think about that allocation.
Thomas E. Jorden: Well, I wouldn't have to think very hard. I'd look at the incremental economics, and we'd go where the best economics are. You know, we have tremendous gas resources in both basins. The and, and you know, they're anadarko has in natural gas liquids, which really provides an economic boost. But Marcellus has an amazingly low cost of supply, and we produce pure methane, which we just have to compress and put into an interstate line or a pipeline.
Well I wouldn't have to think very hard I'd look at the incremental economics, and we'd go where the best economics are.
Scott Andrew Gruber: We have a tremendous gas resources in both basins.
Scott Andrew Gruber: And their view.
Scott Andrew Gruber: Anadarko has in natural gas liquids, which really provides an economic boost but the Marcellus has amazingly low cost of supply and we produce pure methane, which we just since compression put into their state lines, so or our pipeline.
Thomas E. Jorden: And so we would look at the economics. I think if some of the promise comes through on the increased need for natural gas and electricity generation, you'd probably see us increase activity in both basins and also seek creative long-term contracts that give us exposure to electricity prices. Would you like to comment on that? Yeah.
And so we would look at the at the Economics I think if we were if some of the promise comes through on that.
Scott Andrew Gruber: The increased need for natural gas and electricity generation, you'd probably see us and increased activity in both patients and also seek.
Scott Andrew Gruber: Creative long term contracts give us exposure to electricity pricing.
Speaker Change: You want to comment on that yes sure.
Shannon E. Young: Sure. I mean, we're all learning this AI power demand story together, and there's a lot of unknowns, but there's a lot of excitement. The power generation that's going to be required is huge, and lots of it looks like it's going to come from the East Coast.
Speaker Change: We're all we're all learning this AI power demand story together and there is there is a lot of unknowns, but theres a lot of excitement to the power Gen. That's going to be required is huge.
Speaker Change: Lots of it looks like it's going to come on the East coast Thats very proximal to our asset there is a lot of existing pipes. There that we can easily get our gas to those markets.
Speaker Change: And we're very interested and we're talking to a lot of these folks directly trying to understand their business and their needs and we will be ready to participate.
Shannon E. Young: That's very proximal to our asset. There are a lot of existing pipes there that we can easily get our gas to those markets. And we're very interested. We're talking to a lot of these folks directly, trying to understand their business and their needs. And we will be ready to participate.
Scott Andrew Gruber: That's exciting. We'll, we'll wait for the word.
Speaker Change: It's exciting.
Speaker Change: Word.
Speaker Change: And then just turning back to Wyndham Roe.
Wyndham Roe: Just curious you mentioned doing Simon.
Wyndham Roe: Half the wells, what's the limitation.
Wyndham Roe: There are not doing all of the wells is it comfort with the technique or pad configuration of our scheduling the frac crews.
Wyndham Roe: Color on the limitation there if there is any upside to doing it on more than half.
Scott Andrew Gruber: And then just turning back to Wyndham Row, just curious, you mentioned doing simulfrac on half the wells; what's the limitation there? Why not do it on all the wells? Is it, you know, comfort with the technique or pad configuration or scheduling the frack crews? Just some color on the limitations there and if there's any upside to doing it on more than one well.
Wyndham Roe: Yes, Scott this is Blake I'll take that so that's a great question and I think it's something that gets missed sometimes in some old Frac is you really have to have an optimal pad with a lot of wellheads.
Blake: On one pad to optimize the cost savings there as there is sometimes where you might sign will frac and save no money because as Simon for our cruise just basically two frac crews smashed together. So you are paying a lot of money for that crew to be there the efficiencies come when you have a lot of wells on one pad and just to lay out.
Blake: Of these drill spacing units doesn't always give us enough wells per pad to use.
Blake: Frac optimally so it's back to that whole cycle analysis. The goal is not to sign will frac everything the goal is to make the most economic wells and so we were only chasing it where it makes sense.
Speaker Change: Well I appreciate the color. Thank you.
Speaker Change: Our next question comes from Neal Dingmann at true.
Blake A. Sirgo: Yeah, Scott. It's Blake. I'll take that.
Neal David Dingmann: Good morning, Tom Thanks for the time My first question comes for you to Blake maybe on inventory specifically looking at slide five you had an interesting comment that I think makes a lot of sense and that's you all suggest that the total fluctuate based on things like well spacing cost cadence and the like and I'm just wondering.
Blake A. Sirgo: That's a great question, and I think it's something that gets missed sometimes in SimulFrac is that you really have to have an optimal pad with a lot of wellheads on one pad to optimize the cost savings. There's, there's sometimes where you might SimulFrac and save no money because a SimulFrac crew is just basically two Frac crews smashed together. So you're, you're paying a lot of money for that crew to be there.
Neal David Dingmann: How aggressive or conservative would you considered your estimates versus what you've seen play out in the trends in recent quarters.
Scott Andrew Gruber: The efficiencies come when you have a lot of wells on one pad. And just the layout of these drill spacing units doesn't always give us enough wells per pad to use SimulFrac optimally. So it's back to that whole cycle analysis. The goal is not to drill everything, the goal is to make the most economical wells. And so we're only chasing it where it makes sense.
Neal David Dingmann: Well.
Scott Andrew Gruber: I appreciate the color. Thank you.
Neal David Dingmann: Ill just say.
Speaker Change: We are here.
Speaker Change: Future landing zones that are not modeled net inventory but.
Speaker Change: We want to be very careful with how we talk about inventory and when I say that I mean, we want to we want to deliver what we promise and so we don't throw the kitchen sink in although our inventory today as zones that we didn't have in our inventory a few years ago.
Speaker Change: There are still zones to be tested both shallow and deep.
Speaker Change: Yes, we're pretty optimistic about our ability to extract maximum value out of an acre of land, but the inventory. We published is one that we think we can deliver.
Speaker Change: Very good and then just a second question on capital spend.
Speaker Change: Specifically I noticed what I think now it is about 17% of Capex is directed to the upper Marcellus is this a result of just productivity that you highlight on slide 19 are what's driving the spend in this upper area.
Speaker Change: Well, we have some great upper locations in the field.
Speaker Change: Our tier one uppers really long lateral links competitive economics and so.
Theyre just competing for capital, but also the upper is the future of the asset. So we're we like having activity in the upper we're still learning about it we're still trying to understand our well spacing in our Frac design and it's important we continue projects in that zone.
Speaker Change: Thanks, Paul Thanks, Tom had very helpful.
Neal David Dingmann: Our next question comes from Neal Dingmann at Truist.
Speaker Change: We will go next to Derrick Whitfield at Stifel.
Thomas E. Jorden: Good morning, Tom. Thanks for your time. My first question comes from you or Blake, maybe on inventory specifically. Looking at slide five, you've had an interesting comment that I think makes a lot of sense, and that you all suggest that the total fluctuates based on, you know, things like well spacing, cost, cadence, and the like. And I'm just wondering how aggressive or conservative you would consider your estimates versus what you've seen play out in the trends in recent quarters.
Derrick Lee Whitfield: Good morning, all and thanks for your time.
Thomas E. Jorden: Well, I'll just say we have future landing zones that are not modeled in that inventory, but you know, we want to be very careful with how we talk about inventory. And when I say that, I mean, we want to deliver what we promised. And so we don't throw the kitchen sink in.
Derrick Lee Whitfield: Are their commerce Tom machine.
Derrick Lee Whitfield: A bit of a build on an earlier question.
Derrick Lee Whitfield: If gas prices were to continue to underperform throughout 2024, how would you weigh or evaluate the decision between reallocation of Capex.
Derrick Lee Whitfield: An increased return of capital I suspect your Anadarko and Permian teams would like more capital.
Derrick Lee Whitfield: Yes.
Derrick Lee Whitfield: You're saying that this is the Marcellus.
Derrick Lee Whitfield: Pricing stays kind of in and around where it is like this through through the rest of the year.
Speaker Change: That is correct.
Speaker Change: Yeah, well look here's what I'll say is as we do build in a lot of flexibility into our through our capital planning and couple of Thats really foundational to that a couple of things one.
<unk> plans to accelerate as the market environment changes and things get better and also.
Speaker Change: To decelerate as they.
Deteriorate or in this case stone adult firm up a little bit I think the second element is we don't.
Speaker Change: We don't engage in a lot of long term contract and Thats really what gives us the flexibility to make those adjustments as we can go as we go.
Speaker Change: And I would say, we maintain that flexibility.
Speaker Change: Get to the end of this year and into next year, if thats, what the market signals say and that's what translates through into the economics, we certainly have a great set of.
Neal David Dingmann: Although our inventory today includes zones that we didn't have in our inventory a few years ago, there are still zones to be tested, both shallow and deep. And, you know, we're pretty optimistic about our ability to extract maximum value out of an acre of land. But the inventory we publish is one that we think we can deliver.
Speaker Change: The inventory that we just talked about throughout the portfolio.
Speaker Change: That would have a call on on capital if if prices remain like this for an extended period of time.
Speaker Change: Okay.
Speaker Change: A follow up regarding the deferred turn in lines in the Marcellus how long would you technically be comfortable and deferring the wells before you would be concerned with compromising the effectiveness or integrity of the completion.
Speaker Change: Yes, we've looked at that long and hard and we don't see a degradation in shut in time. There is a there's a history as you go back a decade of fairly significant shut ins.
Speaker Change: Yes, we don't really have a time clock attached to it but.
Speaker Change: We're anticipating turning these wells online later in the year and we're we're our data tells us that those reservoir will not suffer because of it and part of that is because we don't produce much water there and.
So you don't really have.
Speaker Change: The issues that you might have in the other basins.
That makes sense. Thanks for your time.
Speaker Change: We will go next to Leo Mariani Mariani at Ross and km.
Blake A. Sirgo: Very good. And then just a second question on capital spend. Specifically, I noticed that what I think is now about 17% of CapEx is directed to the upper Marcellus. Is this a result of just productivity, as you highlight on slide 19, or what's driving the spend in this upper area?
Leo Paul Mariani: I wanted to just.
Leo Paul Mariani: Diving, a little bit more to add to Capex here I wanted to kind of get a sense on sort of how the numbers are trending <unk> second quarter Capex is going higher we expect capex to kind of come down a little bit in the second half versus the first half is it's kind of second quarter potentially the peak herein.
Leo Paul Mariani: When you talk about flexibility in the program I know you mentioned a couple of times potentially room for more activity is that more just kind of a function of some of the savings you've seen year to date.
Blake A. Sirgo: Well, we have some great upper locations in the field, you know, our tier one uppers, really long lateral links, competitive economics. And so they're just competing for capital. But, you know, also, the upper is the future of the asset. So we're, we like having activity in the upper, we're still learning about it, we're still trying to understand our well spacing and our frac design. And it's important that we continue projects like that. Thanks, Blake.
Speaker Change: Yes Leo.
Neal David Dingmann: Thanks, Blake. Thanks, Thomas. Very helpful.
Leo Paul Mariani: Thanks for the question and looked at a couple of things I would just point to.
Speaker Change: And I put together a great slide new slide in the deck.
Speaker Change: In the appendix 33 that sort of shows where some of the activity is over the course of the year and your point that you just made around does it feel like the second quarter could be a peak capital quarter and then the back half of the year. If you take the residual and divide by two that that may be a lower number than that and thats.
Derrick Lee Whitfield: We'll go next to Derrick Whitfield at Stiefel.
Speaker Change: Bears itself out I think on this page so I don't think.
Speaker Change: I think youre interpreting the data the right way in terms of what the pace would look like for 2024.
Speaker Change: Okay I appreciate that.
Speaker Change: And then just wanted to follow up a little bit on.
Speaker Change: Kind of upper Marcellus.
Speaker Change: As you look out the next couple of years do you see the upper Marcellus becoming kind of.
Speaker Change: Increasing percentage of your overall Marcellus activity is that going to be just kind of driven by.
Speaker Change: Somewhat the depletion of the lower Marcellus inventory stack here.
Speaker Change: Yes Leo.
Leo Paul Mariani: You nailed it.
Leo Paul Mariani: The lower Marcellus has been a wonderful zone and we know all the remaining sticks and we plan on drilling them here in the next few years.
Leo Paul Mariani: The remaining is all the uppers, that's the future of the asset and so as we are to into our lower inventory, you'll see more upper come in each year.
We're really focused on testing and delineating the upper and just proving it out, but yes, depending on capital spend.
Leo Paul Mariani: Upper will be a bigger and bigger portion of our program.
Speaker Change: Okay now that's helpful, but it sounds like the message is you think the upper can be very very competitive with other gas assets as you look at it today.
Speaker Change: Yes, I mean, there is there is there is parts of the field that are super competitive, but I'll just caveat.
Speaker Change: The lower Marcellus in this asset has some of the absolute best rock in all of the lower 48.
Speaker Change: I don't think its going to compete with the cream of the crop lower that's been drilled but there is it's still very competitive in our capital allocation yes.
Speaker Change: Leo.
Speaker Change: Competitive this is our sponsor.
Leo Paul Mariani: Well performance will also price and Thats, a nice thing about co chair of where we said is we really do have an asset mix allows us to shift capital and allocate it based on those.
Leo Paul Mariani: <unk> so.
Leo Paul Mariani: The competitiveness of assets is not static.
Speaker Change: Okay I appreciate it thank you.
Speaker Change: Next we'll go to Charles Meade with Johnson Rice.
Speaker Change: Okay.
Derrick Lee Whitfield: Good morning, all, and thanks for your time. Tom or Shane, so a bit of a build on an earlier question.
Charles Arthur Meade: Good morning, Tom to your team just one question for me and surround the way you guys are going to approach the Marcellus.
Charles Arthur Meade: Sure.
Thomas E. Jorden: If gas prices were to continue to underperform throughout 2024, how would you weigh or evaluate the decision between reallocating of CAPEX and increased return of capital? I suspect your Anadarko and Permian teams would like more capital.
Charles Arthur Meade: In the back half of the year I think I heard you mentioned in your prepared comments that your plan has you guys turning some wells on.
Derrick Lee Whitfield: Yeah, you're saying that Marcellus pricing stays kind of in and around where it is like this through the rest of the year? That is, yes.
Shannon E. Young: Well, look, here's what I say is we do build in a lot of flexibility into our capital planning. And a couple of things that are really foundational to that, a couple of things. One, some plans to accelerate if the market environment changes and things get better, and also, you know, to decelerate if they deteriorate or, in this case, don't firm up a little bit. I think the second element is that we don't engage in a lot of long-term contracting.
Charles Arthur Meade: In July and.
Charles Arthur Meade: As I think about your recent history up in Marcellus a lot of times, we can see a good price.
Charles Arthur Meade: Price bounce in the summer.
Charles Arthur Meade: But then we see another bout of weakness in the fall when.
Charles Arthur Meade: The cooling demand goes away.
Charles Arthur Meade: Is there a scenario where you guys bring some wells on in July and then and then curtail them or kind of your shut him shutter man again in in the fall or is it more along the lines of.
Charles Arthur Meade: Once you guys decided to bring them on you are just going to you're going to you're going to keep them on it.
Charles Arthur Meade: It does that bias you to turn them on later.
Shannon E. Young: And that's really what gives us the flexibility to make those adjustments as we go. And I would say, you know, we maintain that flexibility as we get to the end of this year and the next year, if that's what the market signals say, and that's what translates through to the economy. We certainly have a great set of inventory that we just talked about throughout the portfolio that would have a call on capital if prices remain like this for an extended period of time.
Yes.
Speaker Change: I'll answer your question with the analogy.
Speaker Change: From day.
Day, one the way we manage our program is not a rifle shot guided missile.
Speaker Change: No.
Sitting here and saying, we're going to turn wells on in July.
Speaker Change: Let's talk about a rifle shot we're going to guide that missile every step of the way.
Speaker Change: We typically do manage our production up and down with the near term profile is usually it takes something structural for us to make production decisions around price and that's the luxury of having low cost supply by the way.
Speaker Change: Right now we have a structural issue with low gas prices, which is why we've turned those line and I'll just say that July is what we're carrying in our current model and we're going to make the best business decision.
Speaker Change: Bob will be down so.
Speaker Change: I want to make sure of that but I don't think you'd see us ramp our production up and down with <unk>.
Speaker Change: Changing profile, we just like to get north of a place where with the low cost supply.
Speaker Change: Don't have to worry about it.
Speaker Change: Got it that's helpful. Thank you.
Speaker Change: And that concludes our Q&A session I will now turn the conference back over to Tom Jorden for closing remarks.
Blake A. Sirgo: As a follow-up, regarding the deferred turning lines in the Marcellus, how long would you technically be comfortable deferring the wells before you'd be concerned with compromising the effectiveness or integrity of the completion?
Blake A. Sirgo: You know, we've looked at that long and hard, and we don't see a degradation in shut-in time. There's a history, as you go back a decade, of fairly significant shut-ins.
Blake A. Sirgo: Um, you know, we don't really have a time clock attached to it, but I, we're anticipating turning these wells online later in the year. And our data tells us that those reservoirs will not suffer because of it. And part of that's because, you know, we don't produce much water there. And, um, so, you don't really have the issues that you might have in the other base.
Derrick Lee Whitfield: That makes sense. Thanks for your time.
Leo Paul Mariani: We'll go next to Leo Mariani at Roth MKM.
Leo Paul Mariani: I wanted to just dive in a little bit more to CapEx here. I wanted to kind of get a sense of sort of how the numbers are trending, see how second quarter CapEx is going higher. Do you expect CapEx to kind of come down a little bit in the second half, you know, versus the first half, which is kind of the second quarter, potentially the peak here? And when you talk about, you know, flexibility in the program, I know you mentioned a couple times, potentially room, you know, for more activity, is that more just kind of a function of some of the savings you've seen here today?
Thomas E. Jorden: I just wanted to thank everybody great set of questions. We are very pleased to present the results we presented.
Shannon E. Young: Yeah, Leo, thanks for the question. And look, there's a couple things I would just point out, you know. One, Hannah put together a great slide, a new slide in the deck, in Appendix 33, that sort of shows where some of the activity is over the course of the year. And your point that you just made about, you know, does it feel like the second quarter could be, you know, a peak capital quarter, and then the back half of the year, if you take the residual and divide by two, you know, that may be a lower number than that. And that sort of bears itself out, I think, on this page. So I don't, yeah, I think you're interpreting the data the right way in terms of what the pace could look like for 2024.
Leo Paul Mariani: Okay. I appreciate that.
Leo Paul Mariani: Then I just wanted to follow up a little bit on, you know, upper Marcellus. As you look out, you know, the next couple of years, do you see the upper Marcellus becoming kind of an increasing percentage of your overall Marcellus activity? Or is that going to be just kind of driven by, you know, somewhat the depletion of the lower Marcellus in the inventory stack here?
Blake A. Sirgo: Yeah, Leo, you nailed it. It's, you know, the lower Marcellus has been a wonderful zone, and we know all the remaining sticks, and we plan on drilling them here in the next few years. And the remaining is all the uppers. That's the future of the asset. And so, as we are chewing through our lower inventory, you'll see more uppers come in each year. We're really focused on testing and delineating the uppers and just proving them out. But yeah, depending on capital spend, the latter will be a bigger and bigger portion of our program.
Leo Paul Mariani: Okay, that's helpful, but it sounds like the message is you think the Upper Can be very, very competitive with other gas assets as you look at it today.
Blake A. Sirgo: Yeah, I mean, there's parts of the field that are super competitive, but I'll just caveat the lower Marcellus in this asset is some of the absolute best rock in all of the lower 48. I don't think it's going to compete with the crane with a crop lower that's been drilled, but there's, it's still very competitive in our capital allocation. Yeah, Leo...
Thomas E. Jorden: Yeah, and Leo, competitiveness is always a function of performance but also price. And that's the nice thing about Coterra, where we sit, is we really do have an asset mix that allows us to shift capital and allocate it based on those changes. So, you know, competitiveness of assets is not a static thing.
Thomas E. Jorden: Last night and look forward to repeating that and as I've said many times on this call.
Leo Paul Mariani: Okay, I will appreciate it. Thank you.
Charles Arthur Meade: Next, we'll go to Charles Meade at Johnson Rice.
Thomas E. Jorden: Good morning, Tom. To you and your team, just one question for me, and it's around the way you guys are going to approach the Marcellus in the back half of the year. I think I heard you mention in your prepared comments that your plan has you guys turning some wells on in July, and as I think about recent history up in Marcellus, a lot of times we can see a good price bounce in the summer.
Thomas E. Jorden: And but then we see another bout of weakness in the fall when, you know, when the cooling demand goes away. So is there a scenario where you guys bring some wells on in July and then and then curtail them or, you know, kind of shut them shut them in again in the fall? Or is it more along the lines of, Uh, once you guys decide to bring them on, you're just going to, you're going to... You're going to keep them on, and it does advise you to turn them on later.
Thomas E. Jorden: Yeah, you know, I'll ask you a question with an analogy. We've said from day one that the way we manage our program is not a rifle shot. It's a guided missile. So, you know, sitting here and saying, we're going to turn wells on in July, that's talking about a rifle shot. We're going to guide that missile every step of the way.
Thomas E. Jorden: You know, we typically don't manage our production up and down with the near-term price index. It usually takes something structural for us to make production decisions around price. And that's the luxury of having a low-cost supply, by the way. Right now, we have a structural issue with low gas prices, which is why we've stepped those in line. And I'll just say that July is what we're carrying in our current model, and we're going to make the best business decision we can.
Thomas E. Jorden: Model be damned. So, you know, I want to make sure of that. But I don't think you'd see us... ramp up and down with a change in price. We just like to get north of a place where, with a low cost supply, we don't have to worry about it.
Our talks about results as the conversation we want to have so thank you all very much for your participation score.
Charles Arthur Meade: Got it. That's helpful. Thank you.
Thomas E. Jorden: And that concludes our Q&A session. I will now turn the conference back over to Tom Jorden for closing remarks.
Thomas E. Jorden: Yeah, I just want to thank everybody. A great set of questions.
Thomas E. Jorden: We are very pleased to present the results we presented last night and look forward to repeating that. And as I said many times on this call, talking about results is the conversation we want to have. So thank you all very much for your participation this morning.
Audra: And this concludes today's conference call. Again, thank you for your participation. You may now disconnect.
Speaker Change: And this concludes today's conference call again, Thank you for your participation you may now disconnect.
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