Q2 2024 Coterra Energy Inc Earnings Call

Speaker Change: Hello, good morning, and welcome to the Coterra Energy 2024 earnings call. By this time, all participants are in a listen-only mode until the question-and-answer session at the end of today's conference. I will now turn the call over to Dan Guffey, Vice President in Finance, Investor Relations, and Treasury.

Operator: All participants are in a listen-only mode until the question-and-answer session at the end of today's conference. I will now turn the call over to Dan Guffey, Vice President of Finance, Investor Relations, and Treasury.

Daniel Guffey: Thank you, operator. Good morning, and thank you for joining Coterra Energy's second 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.

Speaker Change: Thank you, Operator. Good morning and thank you for joining Coterra Energy's second 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 Sirgo, Senior Vice President of Operations.

Speaker Change: Following our prepared remarks, we will take your questions during our Q&A session.

Speaker Change: As a reminder, on today's call, we will make forward-looking statements based on our current expectations.

Speaker Change: 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 updated investor presentation.

Daniel Guffey: 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 updated investor presentation, both of which can be found on our website. With that, I'll turn the call over to Tom.

Thomas Jorden: Thank you, Dan, and thank you to all that are joining us this morning. We're pleased to discuss our second quarter results with you this morning. Coterra had an excellent second quarter. We delivered strong financial results and a robust return of capital to our owners. We beat production guidance on all three streams, oil, natural gas, and natural gas liquids, came in on the low end of our capital guidance range, and delivered capital efficiency that demonstrates the quality of our assets and our organization. Shane and Blake will walk you through the details of our quarterly results and updated guidance.

Speaker Change: Both of which can be found on our website. With that, I'll turn the call over to Tom.

Tom: Thank you, Dan. And thank you to all that are joining us this morning. We're pleased to discuss our second quarter results with you this morning.

Tom: Coterra had an excellent second quarter. We delivered strong financial results and a robust return of capital to our owners.

Tom: We beat production guidance on all three streams, oil, natural gas, and natural gas liquids, came in on the low end of our capital guidance range, and delivered capital efficiency that demonstrates the quality of our assets and our organization.

Speaker Change: Shane and Blake will walk you through the details of our quarterly results and updated guidance. I would like to make a few comments regarding our Positioning in the Marketplace, Gas Macro Outlook, and Perspectives on M&A.

Thomas Jorden: I would like to make a few comments regarding our Positioning in the Marketplace, Gas Macro Outlook, and Perspectives on M&A. First, we've never felt better about our portfolio of assets. Coterra is uniquely positioned in the marketplace. Although we saw a 42% drop in realized natural gas prices between Q1 and Q2 2024, our revenue only declined a modest 12%. This financial resiliency affords us the opportunity to make sustained long-term capital allocation decisions without being buffeted by short-term commodity swings.

Speaker Change: First, we've never felt better about our portfolio of assets. Coterra is uniquely positioned in the marketplace.

Speaker Change: Although we saw a 42% drop in realized natural gas prices between Q1 and Q2 2024, our revenue only declined a modest 12%.

Speaker Change: This financial resiliency affords us the opportunity to make sustained, long-term capital allocation decisions without being buffeted by short-term commodity swings.

Thomas Jorden: In a cyclic business, flexibility is the coin of the realm. The combination of our balanced revenue stream, as well as our geographic and geologic diversity, gives us market flexibility. Additionally, our inventory depth and lack of long-term service contracts affords us the luxury to focus solely on the best capital allocation assistance. We can pivot between the Marcellus, the Anadarko, and the Permian as conditions and opportunities warrant.

Speaker Change: In a cyclic business, flexibility is the coin of the realm.

Speaker Change: The combination of our balanced revenue stream, as well as our geographic and geologic diversity, gives us market flexibility.

Speaker Change: Additionally, our inventory depth and lack of long-term service contracts affords us the luxury to focus solely on the best capital allocation decisions. We can pivot between the Marcellus, the Anadarko, and the Permian as conditions and opportunities warrant.

Thomas Jorden: Next, a few thoughts on the gas macro. Simply put, gas markets are oversupplied. After bottoming out near 97 BCF per day in May, U.S. natural gas production has rebounded to over 102 BCF per day. This increase has come primarily from the Marcellus and the Permian, with the Marcellus contributing the lion's share.

Speaker Change: Next, a few thoughts on the gas macro.

Speaker Change: Simply put, gas markets are oversupplied.

Speaker Change: After bottoming out near 97 BCF per day in May, U.S. natural gas production has rebounded to over 102 BCF per day.

Speaker Change: This increase has come primarily from the Marcellus and the Permian, with the Marcellus contributing the lion's share.

Thomas Jorden: Although natural gas power demand has steadily increased over the past four years, largely driven by the retirement of coal-fired generations, a mild winter and inconsistent runtime in LNG facilities have contributed to a near-term oversupply. Northeast storage is trending at or near the five-year max. Although we remain bullish on gas in the long term, near-term supply-demand dynamics are placing downward pressure on natural gas prices and likely will continue to do so throughout the remainder of the injection season. To that end, we have made the decision to curtail production once again in the third quarter. Additionally, we are exploring the option of delaying upcoming Marcellus turn-in lines and curtailing planned drilling and completion activities.

Speaker Change: Although natural gas power demand has steadily increased over the past four years, largely driven by the retirement of coal-fired generation, a mild winter and inconsistent runtime in LNG facilities have contributed to a near-term oversupply.

Speaker Change: Northeast storage is trending at or near the five-year max.

Speaker Change: Although we remain bullish on gas long-term, near-term supply-demand dynamics are placing downward pressure on natural gas prices and likely will continue to do so throughout the remainder of injection season.

Speaker Change: To that end, we have made the decision to curtail production once again in the third quarter. Additionally, we are exploring the option of delaying upcoming Marcellus turn-in lines and curtailing planned drilling and completion activity.

Thomas Jorden: We do not expect any of these decisions to materially impact our 2020 forecast. These curtailments of potential capital changes are tactical responses to a temporary situation. Our capital allocation decisions are not made in response to fluctuations in the near-term strip. They are in response to macro market conditions. We have plans in place to rapidly restore or curtail activity in response to these changing macro conditions.

Speaker Change: We do not expect any of these decisions to materially impact our 2024 cash flow.

Speaker Change: These curtailments and potential capital changes are tactical responses to a temporary situation.

Speaker Change: Our capital allocation decisions are not made in response to fluctuations in the near-term strip, they are in response to macro market conditions.

Speaker Change: We have plans in place to rapidly restore or curtail activity in response to these changing macro conditions.

Thomas Jorden: With increasing LNG exports and growing natural gas power demand, we have a line of sight to a materially better natural gas market. Our industry does not need $5 gas to have a healthy runway. We do, however, need sustainable price support in the mid-threes or better to motivate producers to bring incremental gas to market to meet growing demand. We remain ready and willing to do our part. When natural gas prices recover, and they will recover, Coterra is nicely positioned with significant exposure to the upside. Drilling and completion dollars are far and away the most significant expenditures we make.

Speaker Change: With increasing LNG exports and growing natural gas power demand, we have a line of sight to a materially better natural gas market.

Speaker Change: Our industry does not need $5 gas to have a healthy runway. We do, however, need sustainable price support in the mid-threes or better to motivate producers to bring incremental gas to market to meet growing demand.

Koterra: We remain ready and willing to do our part. When natural gas prices recover, and they will recover, Coterra is nicely positioned with significant exposure to the upside.

Koterra: Drilling and completion dollars are far and away the most significant expenditures we make, rather than just curtailing existing production.

Thomas Jorden: Rather than just curtailing existing production, the biggest impact on Coterra in responding to an oversupplied market will come from delaying or deferring drilling and completion investments. Remember, we do not manage Coterra around production goals. Production is the outcome of sound investment decisions. Our existing production is the consequence of yesterday's capital allocation decision. We believe that it is never wise to make poor investment decisions to maintain or increase production, nor to assign any of our business units a budget that is their fair share of capital. Today's decisions should be based upon today's reality. At current commodity prices, much of the Marcellus does not compete with other opportunities in our portfolio.

Speaker Change: The biggest impact on Coterra in responding to an oversupplied market will come from delaying or deferring drilling and completion investments.

Speaker Change: Remember, we do not manage Coterra around production goals. Production is an outcome of sound investment decisions. Our existing production is the consequence of yesterday's capital allocation decisions.

Speaker Change: We believe that it is never wise to make poor investment decisions to maintain or increase production, nor to assign any of our business units a budget that is their, quote, fair share of capital.

Speaker Change: Today's decisions should be based upon today's reality. At current commodity prices, much of the Marcellus does not compete with other opportunities in our portfolio.

Thomas Jorden: Our core mission is to allocate capital prudently and prioritize our most profitable programs. The most profitable long-term Coterra will best be built by this disciplined capital allocation. We maintain the option to redirect capital to multiple other opportunities within our portfolio or to reduce capital expenditures. We remain focused on per share value creation through the cycle. Now, a few thoughts on M&A.

Speaker Change: Our core mission is to allocate capital prudently and prioritize our most profitable programs.

Speaker Change: The most profitable long-term Coterra will best be built by this disciplined capital allocation.

Speaker Change: We maintain the option to redirect capital to multiple other opportunities within our portfolio or to reduce capital expenditures. We remain focused on per share value creation through the cycles.

Thomas Jorden: Coterra has established a track record of outstanding execution, consistent top-tier financial returns, and disciplined capital allocation among a diverse portfolio of assets. Adding quality assets to our portfolio would play to our strengths, and we have confidence that our organization would manage them exceptionally well. However, quality assets are only half the equation. The assets must come at a reasonable price, including a margin of safety. Buying assets at discount rates that are at or near our cost of capital at high commodity prices can be a recipe for disaster.

Speaker Change: Now, a few thoughts on M&A. Coterra has established a track record of outstanding execution, consistent top-tier financial returns, and disciplined capital allocation among a diverse portfolio of assets.

Speaker Change: Adding quality assets to our portfolio would play to our strengths, and we have confidence that our organization would manage them exceptionally well. However, quality assets are only half the equation. The assets must come at a reasonable price, including a margin of safety.

Speaker Change: Buying assets at discount rates that are at or near our cost of capital at high commodity prices can be a recipe for disaster.

Thomas Jorden: Upswings in commodity prices, new technology, or new geologic zones can save the purchaser, but disaster waits patiently on the other side. It will wait for a significant sustained downdraft in commodity prices and strike with lethal precision. Furthermore, disaster loves deals that are measured on single metrics, such as near-term free cash flow.

Speaker Change: Upswings in commodity prices, new technology, or new geologic zones can save the purchaser, but disaster waits patiently on the other side. It will wait for a significant sustained downdraft in commodity prices and strike with lethal precision.

Speaker Change: Furthermore, Disaster loves deals that are measured on single metrics, such as near-term free cash flow.

Thomas Jorden: We have seen this movie play out repeatedly in our industry. This is not a commentary on any particular deal but a reflection on lessons learned through the years. Coterra has a deep and diverse inventory, significant and sufficient scale, and a pristine balance sheet that we will defend vigorously. We would love to add assets to our portfolio, but they must offer a combination of quality and value. We are willing to be patient, disciplined, and counter-sick. We are also willing to be long.

Speaker Change: We have seen this movie play out repeatedly in our industry. This is not a commentary on any particular deal, but a reflection on lessons learned through the years.

Coterra: Coterra has a deep and diverse inventory, significant and sufficient scale, and a pristine balance sheet that we will defend vigorously.

Speaker Change: We would love to add assets to our portfolio, but they must offer a combination of quality and value. We are willing to be patient, disciplined, and counter-cyclical. We are also willing to be lonely.

Thomas Jorden: Last night, we also released our 2024 sustainability report. We hope that you will find it to be a readable, fact-based discussion of the tremendous progress we have made, as well as the ongoing challenges we face. We remain committed to operational excellence, with emissions reduction as a central tenant. Our organization is focused on this mission from the field of the C-suite. We are deeply proud of this commitment and of the progress that we have made.

Coterra: Finally, last night, we also released our 2024 Sustainability Report.

Coterra: We hope that you will find it to be a readable, fact-based discussion of the tremendous progress we have made, as well as the ongoing challenges we face.

Coterra: We remain committed to operational excellence.

Coterra: with Emissions Reduction as a Central Tenant. Our organization is focused on this mission from the field of the C-suite.

Thomas Jorden: We strive for an authentic voice when discussing these topics. And we hope you will find that our sustainability report reflects that. With that, I will turn the call over to Shane and Blake, who will provide detail on our quarterly results and outlook. But first, let's hear from Shane.

Speaker Change: We are deeply proud of this commitment and of the progress that we have delivered. We strive for an authentic voice when discussing these topics, and we hope you will find that our sustainability report reflects this.

Coterra: With that, I will turn the call over to Shane and Blake, who will provide detail on our quarterly results and outlook. First, let's hear from Shane.

Shane Young: Thank you, Tom, and thank you, everyone, for joining us on today's call. This morning, I'll focus my comments on three areas. First, I will summarize the financial highlights from our second quarter results. Then I will provide production and capital guidance for the third quarter as well as an update on the full year 2024 guidance. Finally, I'll provide highlights from the progress of our shareholder returns program.

Shane: Thank you, Tom. And thank you, everyone, for joining us on today's call.

Shane: This morning, I will focus my comments on three areas.

Shane: First, I will summarize the financial highlights from our second quarter results.

Shane: Then I'll provide production and capital guidance for the third quarter, as well as an update of the full year 2024 guide.

Coterra: Finally, I'll provide highlights from the progress of our shareholder returns program.

Shane Young: Turning to our strong performance during the second quarter. Second quarter total production averaged 669 MBOE per day, with oil averaging 107.2 MBO per day and natural gas averaging 2.78 BCF per day. Oil, natural gas, and VOE production each came in just above the high end of guidance, driven by a combination of a modest acceleration of timing and strong well performance.

Coterra: Turning to our strong performance during the second quarter.

Coterra: Second quarter total production averaged 669 MBOE per day, with oil averaging 107.2 MBOE per day and natural gas averaging 2.78 BCF per day.

Coterra: Oil, natural gas, and BOE production each came in just above the high end of guidance.

Coterra: Driven by a combination of a modest acceleration of timing and strong well performance.

Shane Young: In the Permian, we brought online 23 net wells during the quarter, in line with our 23 net well midpoint guide. In the Marcellus, we brought online the 12 previously deferred wells for a few days in June to dewater the development, but they contributed negligible volumes during the quarter, approximately 18 million cubic feet per day, or less than 0.1% of the second quarter gas volume. The higher than expected gas production in the quarter was primarily due to strong base production and outperformance of wells turned in line during the first quarter. We also turned in line 15, Netwells, and the Anadarko region, just above the high end of our guidance range.

Coterra: In the Permian, we brought online 23 net wells during the quarter, in line with our 23 net well midpoint guidance.

Coterra: In the Marcellus, we brought online the 12 previously deferred wells for a few days in June .

Coterra: to de-water the development.

Coterra: But they contributed negligible volumes during the quarter, approximately 18 million cubic feet per day, or less than 0.1% of second quarter gas volumes.

Coterra: The higher-than-expected gas production in the quarter was primarily due to strong base production and outperformance of wells turned in line during the first quarter.

Coterra: We also turned in line 15 net wells in the Anadarko region.

Coterra: just above the high end of our guidance range.

Shane Young: During the second quarter, pre-hedge revenues were approximately $1.3 billion, of which 75% was generated by oil and NGL sales. We reported net income $220 million, or $0.30 per share, and adjusted net income $272 million, or $0.37 per share. Total unit costs during the quarter, including LOE, transportation, production taxes, and G&A, totaled $8.35 per BOE, near the midpoint of our annual guidance range of $7.45 to $9.55 per VOE.

Coterra: During the second quarter, pre-hedge revenues were approximately $1.3 billion, of which 75% was generated by oil and NGL sales.

Coterra: We reported net income of $220 million, or $0.30 per share, and adjusted net income of $272 million, or $0.37 per share.

Coterra: Total unit costs during the quarter including LOE, transportation, production taxes, and G&A totaled $8.35 per BOE.

Coterra: near the midpoint of our annual guidance range of $7.45 to $9.55 per VOE.

Shane Young: Cash hedge gains during the quarter totaled $36 million. Incurred capital expenditures in the second quarter were $477 million, near the low end of our guidance. Lower-than-expected capital was driven primarily by timing, and we are maintaining our full-year capital guide. Discretionary cash flow was $725 million, and free cash flow was $246 million after tax capital expenditures of $479 million. Our credit and liquidity ended the quarter very well positioned. Cash and short-term investments stood at $1.32 billion. 575 million of which will be used for retired notes coming due this September. After this debt retirement, total debt will stand at approximately $2.07 billion.

Coterra: Cash hedge gains during the quarter totaled $36 million.

Coterra: Incurred capital expenditures in the second quarter were $477 million.

Coterra: near the low end of our guidance range.

Coterra: Lower-than-expected capital was driven primarily by timing, and we are maintaining our full-year capital guidance.

Coterra: Discretionary cash flow was $725 million and free cash flow was $246 million after cash capital expenditures of $479 million.

Coterra: Our credit and liquidity ended the quarter very well positioned.

Coterra: Cash and short-term investments stood at $1.32 billion, $575 million of which will be used to retire notes coming due this September .

Coterra: After this debt retirement, total debt will stand at approximately $2.07 billion.

Shane Young: Looking ahead to the remainder of 2020, and during the third quarter of 2024, we expect total production to average between 620 and 650 MVOE per day, oil to be between 107 and 111 MBO per day, and natural gas to be between 2.5 and 2.63 BCF per day. Continued strong execution and well performance is expected to drive oil volume growth of approximately 2% quarter over quarter. Third quarter gas production will be impacted by our plan to curtail approximately 275 million cubic feet per day net in the Marcellus for August and September due to low expected in-basin prices.

Coterra: Looking ahead to the remainder of 2024.

Coterra: During the third quarter of 2024, we expect total production to average between 620 and 650 MVOE per day.

Coterra: Oil to be between 107 and 111 MBO per day, and natural gas to be between 2.5 and 2.63 BCF per day.

Coterra: Continued strong execution and well performance is expected to drive oil volume growth of approximately 2% quarter over quarter.

Coterra: Third quarter gas production will be impacted by our plan to curtail approximately 275 million cubic feet per day net in the Marcellus for August and September due to low expected in-basin pricing.

Shane Young: This will drive a decline in natural gas volumes quarter over quarter but not have a material impact on our cash flow. We will continue to monitor gas fundamentals closely and retain the optionality to respond to market signals on a month-to-month basis. Regarding investments, we expect total incurred capital during the third quarter to be between $450 and $530 million.

Coterra: This will drive a decline in natural gas volumes quarter over quarter, but not have a material impact on our cash flow.

Coterra: We will continue to monitor gas fundamentals closely and retain the optionality to respond to market signals on a month-to-month basis.

Coterra: Regarding investments, we expect total incurred capital during the third quarter to be between $450 and $530 million.

Shane Young: Turning to full year guidance, Yesterday, we increased our 2024 oil production guidance range to be between 105.5 and 108.5 MBO per day for the year, up approximately 2.4% from our May guidance. Despite the shut-ins, we are maintaining our full-year 2024 natural gas production guidance at the, Lastly, we're increasing our 2024 BOE guidance by 5 MBOE per day at the midpoint from May. During the full year 2024, we are reiterating our incurred capital guidance to be between $1.75 and $1.95 billion, which is 12% lower at the midpoint than our 2023 capital. As previously Finally, there are no changes to our 2024 per BOE cost guide.

Coterra: Turning to full year guidance. Yesterday, we increased our 2024 oil production guidance range to be between 105.5 and 108.5 MBO per day for the year, up approximately 2.4% from our May guidance.

Coterra: Despite the shut-ins, we are maintaining our full year 2024 natural gas production guidance at the midpoint.

Coterra: Lastly, we are increasing our 2024 BOE guidance by 5 MBOE per day at the midpoint from May.

Coterra: During the full year 2024, we are reiterating our incurred capital guidance to be between $1.75 and $1.95 billion.

Coterra: which is 12% lower at the midpoint than our 2023 capital spend.

Coterra: As previously discussed, our 2024 program modestly increases capital allocation to the liquids-rich Permian and Anadarko Basins, while decreasing capital by more than 50% in the Marcellus year-over-year.

Coterra: Finally, there are no changes to our 2024 per BOE cost guidance.

Shane Young: Moving on to shareholder return. Last night, we announced a 21 cent per share base dividend for the second quarter, or annualized at 84 cents per share. This remains one of the highest-yielding base dividends of our peers at over 3%. Also, during the quarter, Coterra continued to execute on its shareholder return program by repurchasing 5 million shares for $140 million at an average price of approximately $27.72 per share. In total, we returned $295 million to shareholders during the quarter, for 120% of free cash.

Coterra: Moving the shareholder returns.

Coterra: Last night, we announced a $0.21 per share base dividend for the second quarter, or annualized at $0.84 per share.

Coterra: This remains one of the highest yielding base dividends of our peers at over three percent.

Coterra: Also during the quarter, Coterra continued to execute on its shareholder return program by repurchasing 5 million shares for $140 million at an average price of approximately $27.72 per share.

Coterra: In total, we returned $295 million to shareholders during the quarter for 120% of free cash flow.

Shane Young: We remain committed to our strategy of returning 50% or more of our annual free cash flow to shareholders through a combination of our HealthyBase Dividend and our Share Repurchase Program, although in response to low natural gas prices.

Coterra: We remain committed to our strategy of returning 50% or more of our annual free cash flow to shareholders through a combination of our HealthyBase Dividend and our Share Repurchase Program.

Blake Sirgo: We have counter-cyclically increased our buyback during the first six months of 2024 and have returned over 100% of free cash flow. We continue to see our shares as a highly attractive use of capital. In summary, the team delivered another quarter of high-quality results in the field, which resulted in another successful quarter financially for Coterra. Our business carries significant operational momentum into the second half of the year, and we are positioned for a strong finish to 2024. Moreover, we are on track to meet or exceed our differentiated three-year outlook we laid out back in February. With that, I will hand the call over to Blake to provide details on our operations.

Coterra: However, in response to low natural gas prices, we have counter-cyclically increased our buyback during the first six months of 2024 and have returned over 100% of free cash flow.

Coterra: We continue to see our shares as a highly attractive use of capital.

Coterra: In summary, the team delivered another quarter of high-quality results in the field, which resulted in another successful quarter financially for Coterra.

Coterra: Our business carries significant operational momentum into the second half of the year, and we are positioned for a strong finish to 2024.

Coterra: Moreover, we are on track to meet or exceed our differentiated three-year outlook we laid out back in February .

Coterra: With that, I will hand the call over to Blake to provide details on our operations.

Blake Sirgo: Our teams had another strong quarter of execution in the field. We continue to see increases in our pace of operation. We are drilling faster, fracking faster, and our well performance is meeting or exceeding expectations. This is leading to shorter cycle times, which is supporting production beats.

Blake: Thanks, Shane.

Blake: Our team's had another strong quarter of execution in the field. We continue to see increases in our pace of operations. We are drilling faster, fracking faster, and our well performance is meeting or exceeding expectations.

Blake: This is leading to shorter cycle times, which is supporting production beats.

Blake Sirgo: In the Permian, we are currently running eight drilling rigs and two frack crews. Our plan to bring in a spot crew at the end of the year has evaporated due to the high efficiencies we have realized from both our electric crews and diesel crews operating in the basin. Both crews are achieving record pumping hours per day, which is allowing us to do more with less. However, these gains are accelerating modest amounts of capital into the year.

Blake: In the Permian, we are currently running eight drilling rigs and two frat crews.

Blake: Our plan to bring in a spot crew at the end of the year has evaporated due to the high efficiencies we have realized from both our electric crew and diesel crew operating in the basin.

Blake: Both crews are achieving record pumping hours per day, which is allowing us to do more with less.

Blake: However, these gains are accelerating modest amounts of capital into the year.

Blake Sirgo: This capital acceleration is offsetting our cost savings, which is keeping our 2024 capital guide intact. Efficiency gains are also showing up on the cost side of the equation with our $20.24 per foot estimated to come in at $1,065 per foot, which is down 11% from our 2023. This 11% reduction is driven by the combination of year over year cost deflation and the efficiency gains we have to see. In Culverson County, our Wyndham Row project is on track to meet or exceed our plans, both from a timing and cost perspective.

Blake: This capital acceleration is offsetting our cost savings, which is keeping our 2024 Capital Guide intact.

Blake: Efficiency gains are also showing up on the cost side of the equation with our $20.24 per foot estimated to come in at $1,065 per foot, which is down 11% from our 2023 cost.

Blake: This 11% reduction is driven by the combination of year-over-year cost deflation and the efficiency gains we have discussed.

Blake: In Culverson County, our Wyndham Road Project is on track to meet or exceed our plans, both from a timing and cost perspective.

Blake Sirgo: To date, we have 21 wells producing, 25 wells completing, and 11 drilling. Thanks to our drilling team's great performance executing the row, including a new Culverson record of drilling 6,119 feet of lateral in a day, we were able to add three more Harki wells to Wyndham Road.

Blake: To date, we have 21 wells producing, 25 wells completing, and 11 drilling.

Blake: Thanks to our drilling team's great performance executing the row, including a new Culverston record of drilling 6,119 feet of lateral in a day, we were able to add three more Harky Wells to Wyndham Road.

Blake Sirgo: This brings our project well count to 57 wells, including six Harkey wells, which will be co-developed with the Upper Wolf. Additionally, our team has moved a drilling rig to the eastern side of Wyndham Row, where we have begun drilling the 16 remaining parque wells that overlay the Wolfgang River. These wells are expected to come online in early 2025. Wyndham Row and expected future row developments in Culberson are the definition of oil field efficiency on steroids.

Blake: This brings our project well count to 57 wells, including six Harkey wells, which will be co-developed with the Upper Wolf Camp.

Blake: Additionally, our team has moved a drilling rig to the eastern side of the Wyndham Row, where we have begun drilling the 16 remaining Harkey wells that overlay the Wolf Camp.

Blake: These wells are expected to come online in early 2025.

Blake: Wyndham Row and expected future row developments in Culberson are the definition of oil field efficiency on steroids.

Blake Sirgo: The combination of our grid-powered rigs and frack fleet, centralized facilities and infrastructure, and the recent addition of SimulFrax has lowered our Colbertson cost structure by 10 to 15 percent compared to our diesel zipper operations we previously ran in the county. Our simulfract performance on Wyndham Road continues to beat our projections, and we see simulfracking as a new weapon in the holster for Coterra in Culvers

Blake: The combination of our grid-powered rigs and frack fleet, centralized facilities and infrastructure, and the recent addition of SimulFrax have lowered our Colbertson cost structure 10 to 15 percent compared to our diesel zipper operations we previously ran in the county.

Blake: Our simulfrac performance on Wyndham Road continues to beat our projections, and we see simulfracing as a new weapon in the holster for Coterra and Culverson County.

Blake Sirgo: In the Marcellus, we are currently running one drilling rig and one frac. We have begun completions operations on our Reyes pad, which is the first of three Tier 1 lower Marcellus pads we will be completing from now through the end of October. We currently have no committed completion activity after these three. However, we have been watching Northeast gas markets closely and responding to weak gas prices. Last quarter, we delayed 12 tills due to softness in local gas prices.

Blake: In the Marcellus, we are currently running one drilling rig and one frack crew.

Blake: We have begun completions operations on our Reyes pad, which is the first of three Tier 1 lower Marcellus pads we will be completing from now through the end of October .

Blake: We currently have no committed completion activity after these three patents.

Blake: We have been watching Northeast gas markets closely and responding to weak gas prices.

Blake: Last quarter, we delayed 12 tills due to softness in local gas markets.

Blake Sirgo: During the month of July, we brought in those tills. Due to favorable pricing, we were able to secure. Unfortunately, we were not able to obtain attractive pricing in August, so yesterday, we strategically curtailed 325 million cubic feet per day gross and 275 million cubic feet per day net across the. This volume represents the portion of our near-term portfolio exposed to Marcella's invasive prices. We continue to monitor Northeast pricing and will extend this curtailment as warranted on a month-to-month basis. Furthermore, we are prepared to make further cuts as some of our summer sales commitments roll off in the shoulder season.

Blake: During the month of July , we brought on those tills due to favorable pricing we were able to secure.

Blake: Unfortunately, we were not able to obtain attractive pricing in August , so yesterday we strategically curtailed 325 million cubic feet per day gross, 275 million cubic feet per day net across the field.

Blake: This volume represents the portion of our near-term portfolio which is exposed to Marcellus in-basin pricing.

Blake: We continue to monitor Northeast pricing and will extend this curtailment as warranted on a month-to-month basis.

Blake: Furthermore, we are prepared to make further cuts as some of our summer sales commitments roll off in the shoulder season.

Blake Sirgo: As you would expect from us, we will continue to make decisions based on economics and value, not volume. In Anadarko, we are running one drilling rig and recently completed the bulk of our planned 2024 frack activity. Currently, we are flowing back three projects, which are located in liquids-rich portions of our assets. Initial results from these projects look strong, and we look forward to discussing the economics of these projects once we have more production history.

Blake: As you would expect from us, we will continue to make decisions based on economics and value, not volume.

Blake: In the Anadarko, we are running one drilling rig and recently completed the bulk of our planned 2024 frac activity.

Blake: Currently, we are flowing back three projects, which are located in liquids-rich portions of our asset.

Blake: Initial results from these projects look strong, and we look forward to discussing the economics of these projects once we have more production history.

Blake Sirgo: The Anadarko has shown its resiliency in 2024. The program remains competitive despite the headwinds in the natural gas industry. Our proximity to Henry Hub provides us some of the strongest gas realizations in our portfolio. Those realizations, combined with significant liquid contributions from NGLs and condensate, buoy our economics, making the Anadarko an attractive place to invest capital.

Blake: The Anadarko has shown its resiliency in 2024. The program remains competitive despite the headwinds in the natural gas market.

Blake: Our Anadarko Assets Proximity to Henry Hub provides us some of the strongest gas realizations in our portfolio.

Blake: Those realizations combined with significant liquid contributions from NGLs and condensate buoy our economics, making the Anadarko an attractive place to invest capital.

Thomas Jorden: At Coterra, we strive for operational excellence in every part of our business. We believe in safety over production, being good neighbors where we operate, and improving capital efficiency, all of which drives value creation. Our team lives this culture every day. We focus on execution, delivering on what we promised, and never settling for the status quo.

Blake: At Coterra, we strive for operational excellence in every part of our business.

Blake: We believe in safety over production, being good neighbors where we operate, and improving capital efficiency.

Blake: all of which drives value creation.

Blake: Our team lives this culture every day. We focus on execution, delivering on what we promised, and never settling for the status quo.

Thomas Jorden: Thank you, Blake. We now take questions. I'm delighted to hear what's on your mind.

Blake: And with that, I'll turn it back to Tom.

Tom: Thank you, Blake. We now take questions. I'm delighted to hear what's on your mind.

Operator: All right, we will now move into a question and answer session. To ask a question today, please press star followed by the number one on your telephone keypad. That again is star followed by the number one. Our first question comes from the line of Nitin Kumar from Mizuho. Please go ahead.

Speaker Change: All right, we will now move into a question and answer session. To ask a question today, please press star followed by the number one on your telephone keypad.

Blake: That again is star followed by the number one.

Speaker Change: Our first question comes from the line of Nitin Kumar from Mizuho. Please go ahead.

Nitin Kumar: Good morning, Tom and team. Thanks for taking my questions and congrats on a great quarter. Tom, you and Blake gave a pretty comprehensive overview of Wyndham Row. There are two specific questions around that. One, you know, as you have kind of progressed through that project and have increased wells and family frac, any specific learnings that we should expect to be incorporated into your program, not only in row developments but also in your smaller Permian projects going forward or across your other operating assets.

Nitin Kumar: Good morning, Tom and team. Thanks for taking my questions and congrats on a great quarter.

Nitin Kumar: Tom, you and Blake gave a pretty comprehensive overview of Wyndham Row. Two specific questions around that, one, you know, as you have kind of progressed through that project and have increased wells and simulfrac, any specific learnings that we should expect to be incorporated into your program, not only in row developments but also in your smaller Permian projects going forward or across your other operating assets.

Nitin Kumar: And then I just wanted to check, I think Blake said 10 to 15 percent cost savings, whereas the slides still say 5 to 15. So maybe you could understand what this project did for your costs in the Permian.

Speaker Change: And then I just wanted to check, I think Blake said 10 to 15% cost savings, whereas the slides still say 5 to 15, so just maybe understanding what has this project done for your costs in the Permian.

Thomas Jorden: Yeah, and then I'm going to let Blake handle that.

Blake Sirgo: Yeah, Nitin, really, what we've seen in Wyndham Row is that our simulfrac performance is meeting or exceeding our projections, and that was a real question mark for us coming into it. Transition times on a simulfrac crew is something we've never done before, and so we were all hoping we could hit the same efficiency we've seen in our zipper transition times, and we've been able to do that and bring that forward, and so that's why we're increasing the number of wells that we're simulfracing on Wyndham Row.

Speaker Change: Yeah, and then I'm going to let Blake handle that. Yeah.

Blake: Yeah, and the, you know, really what we've seen in Wyndham Row is our simulfrac performance is meeting or exceeding our projections, and that was a real question mark for us coming into it. Transition times on a simulfrac crew is something we have never done before, and so.

Nitin Kumar: We were all hoping we can hit the same efficiency we've seen in our zipper transition times.

Blake: And we've been able to do that and bring that forward. And so that's why we're increasing the amount of wells that we're simulfracking on Wyndham Row. I do see this as something that we will use quite often in Culverson County specifically because we have the contiguous acreage.

Blake Sirgo: I do see this as something that we will use quite often in Culverson County, specifically because we have the contiguous acreage, and we have the high well count per pad that really makes simulfrac work. As far as the other parts of the basin, we're absolutely looking at it. There is an economy of scale that you really want to achieve with the simulfrac crew. You need to be able to line up a whole lot of wells and have a big chunk of activity to tackle, and so we're looking where we can to use this even more.

Nitin Kumar: We have the high well count per pad that really makes SimulFrac work.

Nitin Kumar: As far as the other parts of the basin, we're absolutely looking at it. There is an economy of scale that you really want to get with a simulfract crew. You need to be able to line up a whole lot of wells and have a big chunk of activity to tackle. And so we're looking where we can.

Blake Sirgo: And on cost savings, is it really trending to the higher end of that 5 to 15% range?

Nitin Kumar: to use this even more.

Speaker Change: And on the cost savings, is it really turning to the higher end of that 5 to 15 percent range?

Blake Sirgo: Yeah, specifically when we're talking about Wyndham Rose savings, and it's a good market for future Roses, we are trending to the higher end of that range, and that's why I quoted 10 to 15.

Speaker Change: Yeah, for the, specifically when we're talking about the Wyndham Rose savings and it's a good, it's a good market for future Rose, we are trending to the higher end of that range and that's why I quoted 10 to 15.

Thomas Jorden: You know, Nitin, if I could just close the gap here, you said, "What did we learn? You know, when we marched off on this project, we had a lot of questions. It started out being a 51-well project, and, you know, we all have memories of projects in our industry that were maybe over-drilled, perhaps under-promised, and under-delivered. And we said at the outset that, no, this is very well calibrated. And I sit here this morning; I'm looking at a production plot; we're obviously not sharing that, but I'm looking at a production plot of 19 wells that are online.

Nitin Kumar: You know, Nitin, if I could just close the gap here.

Nitin Kumar: You said what did we learn? You know, when we marched off on this project, we got a lot of questions. It started out being a 51-well project.

Speaker Change: You know, we all have memories of projects in our industry that were over-drilled, perhaps under-promised and under-delivered, and we said at the outset that, no, this is very well calibrated. This is just an operational demonstration of what we've already proven to ourselves.

Thomas Jorden: We have over half the wells completed in our initial 51 well bank. You know, it's really, if there's anything, it's reaffirmed our operational ability to get this done. It's reaffirmed the calibration we brought into it, reaffirmed the reservoir quality, and we are really pleased, and it's reaffirmed our commitment to do these kind of projects.

Nitin Kumar: And I sit here this morning, I'm looking at a production plot, we're obviously not sharing that, but I'm looking at a production plot of the 19 wells that are online. We have over half the wells completed in our initial 51 well bank.

Nitin Kumar: You know, it's really...

Nitin Kumar: If there's anything, it's reaffirmed our operational ability to get this done, it's reaffirmed our calibration we brought into it, reaffirmed the reservoir quality, and we are really pleased, and it's reaffirmed our commitment to do these kind of projects.

Nitin Kumar: And it's really helped you guys deliver some strong results. For my second question, and I hope I'm not extending my welcome here, you know, Tom, you're trending above 100% cash return or free cash flow this year. You've said in the past, you don't want to get in an arms race.

Speaker Change: Yeah, and it's really helped you guys deliver some strong results. For my second question, and I hope I'm not extending my welcome here, you know, Tom, you're trending above 100% cash return or free cash flow this year. You've said in the past you don't want to get in an arms race. How should we think about the rest of the year? Obviously, based on your other comments, gas macro is likely to be weak. Coterra is positioned well in terms of free cash flow. So maybe just for the rest of the year, could we expect you to be closer to that 100% for the rest of the year, or do we go, you know, slide down a little bit because your minimum is 50?

Thomas Jorden: How should we think about the rest of the year? Obviously, based on your other comments, gas macro is likely to be weak. Coterra is positioned well in terms of free cash flow.

Thomas Jorden: So maybe just for the rest of the year, could we expect you to be closer to that 100% for the rest of the year? Or do we go, you know, slide down a little bit because your minimum is 50?

Thomas Jorden: We're not going to pre-telegraph any activity, but I'll always answer the question philosophically, and then you can connect the dots. We remain opportunistic. We don't like to box ourselves in with rules. That's why we didn't want to enter an arms race. I think when people make rules like that, they do themselves a disservice.

Tom: We're not going to pre-telegraph any activity, but I'll always answer the question philosophically and then you can connect the dots.

Speaker Change: We remain opportunistic. We don't like to box ourselves in with rules. That's why we didn't want to enter an arms race. I think when people make rules like that, they do themselves a disservice.

Thomas Jorden: We're going to be opportunistic. And right now, we look everywhere, whether it's assets, or what have you. We look for market disconnects. Are there things where the market's not seeing the value? And can we swoop in and take advantage of that? And our buyback is squarely in our sights on that. Jane, do you want to say anything? Yeah.

Nitin Kumar: We're going to be opportunistic, and right now we look everywhere, whether it's assets,

Speaker Change: or what have you. We look for market disconnects. Are there things where the market's not seeing the value and can we swoop in and take advantage of that? And our buyback is squarely in our sights on that.

Shane Young: Yeah, Nitin, hey, I would just add, you know, we're trending, as you said, kind of at or slightly above 100% in the first six months of the year. It's interesting, if you just look at our base dividend and assume no more buybacks for the rest of the year, it gets us to about 68, almost 70% of return for the full year. And again, we're not going to pre-guide anything for the third quarter or the balance of the year. But I would say we continue to see our shares as a very attractive opportunity that we'll consider continuing to talk about, and, you know, we're likely to continue to be active in that market.

Nitin Kumar: Jay, do you want to say anything? Yeah, Nitin, hey, I would just add, you know, we're trending, as you said, kind of at or slightly above 100% in the first six months of the year.

Jay: It's interesting. If you just look at our base dividend and assume no more buybacks for the rest of the year, it gets us to about 68, almost 70 percent of return for the full year. And again, we're not going to pre-guide anything for the third quarter or the balance of the year, but I would say we continue to see our shares as a very attractive opportunity.

Nitin Kumar: that we'll continue to talk about and are likely to continue to be active in that market.

Nitin Kumar: Great. Thanks for the call, guys.

Operator: Our next question comes from the line of Arun Jayaram from J.P. Morgan. Please go ahead.

Speaker Change: Great. Thanks for the call, guys.

Speaker Change: Our next question comes from the line of Arun Jayaram from J.P. Morgan. Please go ahead.

Arun Jayaram: Yeah, good morning, gentlemen, Tom and the team. Tom, I wanted to get you maybe your updated thoughts on the three year outlook. Shane mentioned that you've obviously raised your 2024 oil guide by a couple percent. If we go back to your previous three-year outlook, it contemplated 110,000 barrels of oil in 2025 and 115 in 2026. Yet your third quarter guide at the midpoints is 109, so you're almost effectively at the 2025 number.

Arun Jayaram: Good morning, gentlemen, Tom and team. Tom, I wanted to get you...

Arun Jayaram: Maybe your updated thoughts on the three-year outlook. Shane mentioned that you've obviously raised your 2024 oil guide by a couple percent.

Speaker Change: If we go back to your previous three-year outlook, it contemplated 110,000 barrels of oil in 2025 and 115 in 2026.

Arun Jayaram: So wanted to see if you could just talk about qualitatively how your views on that have evolved. You obviously have a new chart in the slide deck. And I guess the side question is, do we use the 5% growth number on the Revised Higher 2024 Outlook?

Speaker Change: Yet your third quarter guide at the midpoint is 109, so you're almost effectively at the 2025 number. So I wanted to see if you could just talk about qualitatively how your views on that have evolved. You obviously have a new...

Speaker Change: a chart in the slide deck and I guess the by side question is

Speaker Change: Do we use the 5%?

Speaker Change: Growth number on the revised HIRE 2024 outlook. Sorry, that was a little messy, but that was the main point, was just do we stack the growth rate on a HIRE 2024?

Thomas Jorden: Well, look, we're going to update our three-year guide once a year. We're not going to be updating our three-year guide on an ongoing basis. But, you know, it's not a three-year plan. It's a three-year guide.

Speaker Change: Well, look, we're going to update our three-year guide once a year. We're not going to be updating our three-year guide on an ongoing basis. But, you know, it's not a three-year plan, it's a three-year guide. And this was an argument we had internally when we decided to release it.

Thomas Jorden: And this was an argument we had internally when we decided to release it. It's a snapshot of what we think our assets and our organization could deliver based on current conditions. It's not a capital plan that we have committed to in the coming years. It's a real plan backed with real locations, real opportunities, and real results. But it's also an organic beast.

Thomas Jorden: And as we outperform, we're not necessarily going to say, oh, my God, we're ahead of ourselves on a three-year plan. We have to pull back in the coming years. That would be, I think, foolish on our part. So I know I'm not directly answering your question, Arun, but it's, if we end up blowing through a plan that we released in February, you're just going to have to forgive us for that.

Speaker Change: It's it's a snapshot of what we think our assets and our organization could deliver based on current conditions

Speaker Change: It's not a capital plan that we have committed to in the out years, it's a real plan backed with real locations, real opportunities, and real results.

Speaker Change: But, it's also an organic beast, and as we outperform...

Speaker Change: We're not necessarily going to say, oh my God, we're ahead of ourselves on our three-year plan and we have to pull back in the out years. That would be, I think, foolish on our part.

Speaker Change: So, I know I'm not directly answering your question, Arun, but if we end up blowing through a plan that we released in February , you're just going to have to forgive us for that.

Shane Young: Yeah, as I said in my comments, you know, I think we're well positioned to meet or exceed the plan that we laid out at the beginning of the year.

Speaker Change: Yeah, as I said in my comments, you know, I think we're well positioned to meet or exceed the plan that we looked at at the beginning of the year.

Thomas Jorden: You know, we look at our returns, you know, obviously, you all, I hope, are really tired of hearing us say this, and we're going to continue to tire you out on this. We don't manage by production goals. What we look at, we look at the world oil markets, we look at U.S. supply, we look at all of that, but mostly, we look at the return on our investment, and we say, how low can that oil price fall before we're at or near our cost of capital? And our cost of supply; we have very low-cost assets. We are really delivering robust returns that can stand a lot of price fluctuation.

Speaker Change: You know, we look at our returns, you know, obviously you all, I hope, are really tired of hearing us say this, and we're going to continue to tire you out on this.

Speaker Change: We don't manage by production goals. What we look at, look, we look at the world oil markets, we look at U.S. supply, we look at all of that, but mostly we look at the return on our investment and we say, how low can that oil price fall?

Speaker Change: before we're at or near our cost of capital. And our cost of supply, we have very low cost assets. We are really delivering robust returns that can stand a lot of price fluctuation.

Shane Young: So, Arun, the only other point I'd make is, look, one thing we sort of learned over the first half of this year is we've continued to sort of push on capital efficiency and sort of what we deliver per dollar that we spend out there, and that wasn't necessarily baked in to that plan when we rolled it out in February. We won't roll out another one until the next February, but we've certainly been continuing to incrementally improve capital efficiency since the time we put that plan – or from the time we put that outlook out.

Speaker Change: So, Arun, the only other point I'd make is, look, one thing we sort of learned over the first half of this year is we've continued to sort of...

Speaker Change: Push on capital efficiency, and sort of what we deliver per dollar that we spend out there, and that wasn't necessarily where we are today, isn't necessarily baked into that plan when we rolled it out in February . We won't roll out another one until the next February , but we've certainly been continuing to incrementally improve on capital efficiency from the time we put that plan or from the time we put that outlook out.

Arun Jayaram: Great. And just maybe a follow-up on the 2024 program. Tom and team, you've designed this year to be kind of fairly balanced between your assets in Texas and New Mexico. But as we think about the well mix, about 60% of your first half, 2024 program, was concentrated in Culberson and Reeves. But as we look at the activity, the second half is going to be a little bit more New Mexico and Lee County.

Speaker Change: Great. And just maybe a follow-up on the 2024 program. Tom and team, you've designed this year to be kind of

Speaker Change: Fairly balanced between your assets in Texas and New Mexico, but as we think about the well mix, about 60% of your first half, 24,

Speaker Change: Program was concentrated in Culberson.

Speaker Change: and Reeves.

Speaker Change: But as we look at the activity, the second half is going to be a little bit more New Mexico and Lee County, so I know all your rock is good, but are you going to be drilling, call it higher quality rock, just given how strong some of the acreage is in southern Lee County as we think about it on a

Arun Jayaram: So I know all your rock is good, but are you going to be drilling, call it higher quality rock, just given how strong some of the acreage is in southern Lee County as we think about on a second half versus first half basis? And maybe you could talk about some of the projects in southern Lee that you plan to execute on.

Speaker Change: You know second half versus first half basis So and maybe you could talk about some of the projects and suddenly that you're you're you plan to execute on

Blake Sirgo: Yeah, Arun, this is Blake. I'll take that one.

Speaker Change: Yeah, Arun, this is Blake. I'll take that one.

Blake: I wish I could say we strategically put Stronger Rock throughout the year, but that's not really how we plan it. We have a lot of governors on our program. Obviously, Wyndham Rose, you know, a big concentrated project that demands a certain amount of CapEx.

Thomas Jorden: I wish I could say we strategically put Stronger Rock throughout the year, but that's not really how we plan it. We have a lot of governors on our program. Obviously, Wyndham Rose, you know, a big concentrated project that demands a certain amount of CapEx. New Mexico is governed by a lot of things.

Blake Sirgo: Chicken season is a big one. And so we're coming out of chicken season, so we'll increase DNC activity, but also third-party infrastructure. We have to get very far ahead of that and make sure we can execute those projects. And so it's just falling out where it is more of a planning cycle, not any strategic initiative there.

Speaker Change: New Mexico is governed by a lot of things. Chicken season is a big one, and so we're coming out of chicken season, so we'll increase D&C activity, but also third-party infrastructure. We have to get very far ahead of that and make sure we can execute those projects.

Speaker Change: And so it's just falling out where it is more as a planning cycle, not any strategic initiative there.

Thomas Jorden: And I think most of you know what Blake is referring to, but you know, we have the prairie chicken habitat in New Mexico governed by federal rules that prevent us from operating during daylight or evening hours in certain parts of the basin. It's something we have to manage around. By our observations, the prairie chicken is doing quite well, but we still respect its habitat and live by the regulations governing it.

Blake: And I think most of you know what Blake is referring to, but you know, we have the prairie chicken habitat in New Mexico governed by federal rules that prevent us from operating during daylight or evening hours in certain parts of the basin. It's something we have to manage around.

Speaker Change: You know that by our observation the prairie chicken is doing quite well but we still respect their habitat and live by the regulations governing it.

Arun Jayaram: Thanks for the clarification, Tom. I was getting some input on what chicken season was.

Speaker Change: Thanks for the clarification, Tom. I was getting some incoming on what chicken season was, so appreciate that.

Thomas Jorden: Yeah, they roam free in New Mexico. If they cross the state line, they get barbecued.

Speaker Change: Yeah, they roam free in New Mexico. If they cross the state line, they get barbecued.

Arun Jayaram: Sounds good. My sister-in-law's a vegan. She'll appreciate that. Thanks a lot, Tom. All right. Yeah.

Speaker Change: Sounds good. My sister-in-law's a vegan. She'll appreciate that. Thanks a lot, Tom. All right. Yeah.

Operator: Alright, our next question comes from the line of Neal Dingmann from Truist Securities. Please go ahead.

Speaker Change: All right, our next question comes from the line of Neal Dingmann from Truist Securities. Please go ahead.

Neal Dingmann: Morning, guys. A very nice quarter. Tom, my first question is around your operational flexibility. You've all done a really nice job of curtailing gas production and delaying bills when, you know, prices justify it, unlike, you know, many of the pure gas EPs that just seem to continue to operate. And so I'm just wondering what, going forward, what type of gas prices you think are, you know, you and Shane, the gang, satisfactory to become more active? And then, if so, how quickly could you all move once these gas prices rebound?

Neal Dingmann: Morning, guys. Very nice quarter. Tom, my first question is around your operational flexibility. You all did a really nice job of curtailing gas production and delaying tills when, you know, prices justify, unlike, you know, many of the pure

Neal Dingmann: Gas EPs that just seem to continue to operate and so I'm just wondering what going forward what type of gas prices Do you think are you you know you and Shane the gang are satisfactory to become more active and then if so How quickly then could you all move once these gas prices rebound?

Thomas Jorden: Well, I'll take that in reverse order. We can move fairly quickly. We're looking at delaying turn-in lines, so that's almost instantaneous, depending on price response, you know we we would like to see netbacks north of a dollar and you know we do have gathering fees we have transportation fees and so i i would say you know in the lower marcellus we're probably in a pretty good uh drilling window if we're north of three competing with other places in our portfolio um that that's on netback now i'm quoting an imax price there but um you know the upper marcellus i think we'd like to see something in the mid threes uh before it's really in the game And, you know, we do have the luxury, I don't want to comment on other companies, but I understand if all you had was one play, one basin, you're in a bit of a box when things go against you.

Speaker Change: Well, I'll take that in reverse order. We can move fairly quickly. We're looking at delaying turn in lines, so that's almost instantaneous, depending on price response.

Speaker Change: You know, we would like to see netbacks north of a dollar.

Speaker Change: And, you know, we do have gathering fees, we have transportation fees.

Speaker Change: And so I would say, you know, in the lower Marcellus, we're probably in a pretty good drilling window if we're north of three, competing with other places in our portfolio.

Speaker Change: that's on Netback now I'm quoting an IMAX price there but you know the upper Marcellus I think we'd like to see something in the mid threes before it's really in the game

Speaker Change: And, you know, we do have the luxury, I don't want to comment on other companies, but...

Speaker Change: I understand if all you had was one play, one basin, you're in a bit of a box when things go against you.

Thomas Jorden: We've got the luxury of redirecting, and, you know, quite frankly, we have the discipline to redirect, and I hope you heard my opening comments for what they are, and they're our truth statement of how we look at the business. That's the right decision. And, you know, none of us like it.

Speaker Change: We've got the luxury of redirecting, and Leo, quite frankly, we have the discipline to redirect, and I hope you heard my opening comments for what they are, and they're our truth statement of how we look at the business.

Speaker Change: We are not going to, you know, if we have to lay all activity down to zero and our production declines...

Neal Dingmann: But the alternative is to destroy capital or, or, or to be inefficient with our shareholders' capital. And we're going to seek our maximum efficiency and best return. So we're willing to, we're willing to do what it takes.

Leo: That's the right decision and, you know, none of us like it, but the alternative is to destroy capital or to be inefficient with our shareholders' capital.

Speaker Change: And we're going to seek to our maximum efficiency and best returns.

Thomas Jorden: Well said, Tom. And then my second question, just moving over to Anadarka. I know you've recently finished some activity there, and certainly, I think it's slide five that shows you still have a lot of inventory. Just wondering, do you all believe you have ample acreage there for future development? And just wondering if you'd ever consider it.

Speaker Change: So we're willing to, we're willing to do what it takes.

Speaker Change: Well said, Tom. And then my second question, just moving over to Anadarka, I know I think you really briefly finished some activity there, and certainly I think it's slide five that shows you still have a lot of inventory. Just wondering, do you all believe you have ample acreage there for future development, and just wondering if you would ever consider adding anything to the play?

Thomas Jorden: Well, we, look, we don't think we have ample acreage anywhere. I'm an, my background is exploration.

Thomas Jorden: So, look, we would seek to add assets throughout our portfolio if they create value, and and you know, the problem is, some of the marketplace is just frothy. And when you get into paying very low discount rates for future drilling, that's dangerous territory. And so we would seek places where we think we see value that the market doesn't recognize. And we do that throughout our portfolio.

Speaker Change: So, look, we would seek to add assets throughout our portfolio if they create value, and, you know, the problem is...

Speaker Change: Some of the marketplace is just frothy and and you know when you when you get into paying very low discount rates for future drilling

Speaker Change: That's, that's dangerous territory.

Speaker Change: And so, we would seek places where we think we see value that the market doesn't recognize. And we do that throughout our portfolio.

Operator: Very good. Thank you, Tom. Our next question comes from the line of John Abbott from Wolf Research. Please go ahead.

Speaker Change: Very good. Thank you, Tom.

Speaker Change: Our next question comes from the line of John Abbott from Wolf Research. Please go ahead.

John Abbott: Hey, good morning, and I'm on for Doug Leggett. Tom, it is selection year.

John Abbott: Hey, good morning and I'm on for Doug Leggett.

Speaker Change: Tom, it is selection year.

John Abbott: As you and your team just sort of sit there and plan your business going forward, what are you watching and what do you think you're getting ahead of?

Thomas Jorden: Well, yeah, I don't want to get drawn into politics, but we certainly live in interesting times. We're going to approach this very constructively. I'll say this, I think it would be naive of us to view the outcome of the election as a straight binary good versus bad. I think that the pressures on us will be different depending on the outcome of the election, but there will be pressures on us regardless of who wins the election.

Speaker Change: Well, yeah, I don't want to get drawn into politics, but it's certainly, we live in interesting times.

Speaker Change: We're going to approach this very constructively, you know, I'll say this.

Speaker Change: I think it would be naive of us to view the outcome of the election as a straight binary good versus bad. I think that the pressures on us will be different depending on the outcome of the election, but they'll be pressures on us regardless of who wins the election.

Thomas Jorden: We have great faith that politicians... They campaign on one set of verbiage, and then they get there, and they realize, oh my goodness, we have an economy to manage, and we have employment to manage, and we have geopolitical considerations, energy security, and energy affordability, and reality tends to temper a lot of electioneering.

Speaker Change: We have a we have great faith that politicians

Speaker Change: They campaign on one set of verbiage and then they get there and they realize, oh my goodness, we have an economy to manage and we have employment to manage and we have geopolitical considerations and energy security.

Speaker Change: Affordability, and Reality tends to temper a lot of electioneering.

Thomas Jorden: So, you know, we're, look, we're Americans first, and whoever is in control of our government, we're going to show up as Americans and do our part to make this country strong. I know that may sound trite, but that's the way we view it. We don't think that it's a simple binary choice, quite frankly. I think that, you know, this call probably isn't a detailed opportunity to discuss this, but we're going to have pressure on us regardless of who wins. They'll just come from different places, and we're looking, thinking ahead. We'll be ready. I appreciate it. And the next question is:

Speaker Change: So, you know, we're, look, we're Americans first.

Speaker Change: And whoever is in control of our government, we're going to show up as Americans and do our part to make this country strong. I know that may sound trite, but that's the way we view it. We don't think that it's a simple binary choice, quite frankly. I think that...

Speaker Change: This call probably isn't a detailed opportunity to discuss this, but we're going to have pressure on us regardless of who wins, they'll just come from different places. And we're looking, thinking ahead, we'll be ready.

Shane: Appreciate it. And the next question is maybe for Shane here. So Shane, you are paying higher cash taxes this year and next. How do you kind of sort of think about your long-term cash tax rate?

Shane Young: Yeah. Well, listen, I would say, you know, for the year, we're going to be a full cash tax payer. That's what we anticipate, and that's what the latest quarter sort of showed for us as well. You know, I think a couple of calls ago, we talked about some of the changes in the code and some of the 2017 tax reform roll-off. And first and foremost was the R&D tax credit and the R&D expense deduction process.

Shane: Yeah, well, listen, I would say, you know, for the year, we're going to be a full cash taxpayer. That's what we anticipate. That's what the latest quarter sort of showed for us as well.

Speaker Change: You know, I think a couple of calls ago, we talked about some of the changes in the code and some of the 2017.

Speaker Change: Tax reform roll off and first and foremost was the the R&D tax credit in the R&D expense deduction

Operator: That's probably what moved us from being in that 10 to 20 percent range of deferred down to zero. That will ultimately unwind or normalize as it goes from a full year expense to a five-year straight line. But that's going to take a couple of years to get to that. So I think, longer term, you'll see deferred tax move back up. But in the near term, we're going to be a pretty full cash tax payer.

Shane: That's probably what moved us from being in that 10 to 20 percent range of deferred down to zero. That will ultimately...

Speaker Change: Unwind or normalize as it goes from a full year expense to a five-year straight line But that's going to take a couple of years to get to that. So I think longer term you'll see deferred tax move back up

Speaker Change: But over the near term, we're going to be a pretty full cash taxpayer.

Speaker Change: Appreciate it. Thank you very much for taking our questions. Thanks, John .

Kaylee Akamine: Our next question comes from the line of Kaylee Akamine from Bank of America. Please go ahead. And you may be on mute if you're trying to talk.

Speaker Change: Our next question comes from the line of Kaylee Akamine from Bank of America. Please go ahead.

Speaker Change: [inaudible]

Kaylee Akamine: Sorry guys, I was on mute. Good morning. My first question is on the better performance of the Marcellus base, and I think you mentioned some help from the lower fuel pressures, and given where prices are, that may be a prevailing industry behavior in the second quarter as guys are holding some production back. So wondering if you can help quantify the beat versus your own expectations, and as we start thinking about 25, is there a base level of drilling activity that you'd like to hold to keep that program running efficiently

Speaker Change: And you may be on mute if you're trying to talk.

Kaylee Akamine: Sorry guys, I was on mute. Good morning. My first question is on the better performance of the Marcellus base, and I think you had mentioned some help from the lower fuel pressures, and given where prices are, that may be a prevailing industry behavior in second quarter as guys are holding some production back.

Speaker Change: So, wondering if you can help quantify the BEAT versus your own expectations, and as we start thinking about 25, is there a base level of drilling activity that you'd like to hold to keep that program running efficiently?

Blake Sirgo: Yeah, this is Blake. I'll take that one.

Speaker Change: Yeah, this is Blake. I'll take that one. Um, you know, I don't want to, I don't want to signal to 25, but I'll talk about what we're seeing in 24.

Speaker Change: Yes, we have seen some lower field pressures due to our decreased volumes from holding back tills and that has helped the base production.

Blake Sirgo: You know, I don't want to signal the 25th, but I'll talk about what we're seeing in 24. Yes, we have seen some lower field pressures due to our decreased volumes from holding back tills, and that has helped base production. But we've also had a wellhead compression program that we started a couple years ago in the field, and we're still pretty early on into that, but it's outperforming our expectations as we come into the year. So, the team's really done a phenomenal job optimizing our wellhead program, and frankly, the volumes are just outperforming as we go into 24. A really strong base.

Speaker Change: But we've also had a wellhead compression program that we started a couple of years ago in the field and we're still pretty early on into that, but it's outperforming our expectations as we came into the year.

Speaker Change: The team's really done a phenomenal job optimizing our wellhead program, and frankly the volumes are just outperforming as we go into 24. Really strong base.

Blake Sirgo: You know, the second half of your question, there is not a level of activity where we think we need to hold momentum there. And that says if we were, and we haven't made this decision, but if we were to lay down drilling and completion activity, there's a certain ramp-up to get that back. Now, we'd have deferred turn-in lines so we could respond, but, you know, you've heard me say before that we would do that because we think it's prudent and we would rather miss some of the upside when we're ramping up than fully participate in the downside. And that's going to be our approach. All of our business units have zero-based budgeting. We look at the world fresh, and we make the best decisions we can.

Speaker Change: Yeah, the second half of your question, there is not a level of activity where we think we need to hold momentum there.

Speaker Change: You know, and that says, if we were, and we haven't made this decision, but if we were to lay down drilling and completion activity.

Speaker Change: You know, there's a certain ramp up to get that back. Now, we'd have, we'd have.

Speaker Change: deferred turn in line so we could respond.

Speaker Change: But, you know, you've heard me say before that we would do that because we think it's prudent and we would rather miss some of the upside when we're on-ramping than fully participate in the downside. And that's going to be our approach. All of our business units...

Speaker Change: have zero-based budgeting. We look at the world fresh and we make the best decisions we can.

Kaylee Akamine: Next, maybe I'd like to follow up on the Permian Oil Guidance, which, to our mind, we're looking at the chart on page number seven, and it looks like 26 has been raised from maybe 115 to maybe 120. So as you sort of assess the performance that you saw here in the second quarter across the Permian Well Program, could you help allocate the performance across maybe a couple of items?

Speaker Change: Thanks for that. Next maybe I'd like to follow up on the Permian oil guidance which to our to our mind we're looking at the chart on page number seven and it looks like

Speaker Change: 26 and has been raised from maybe 115 and maybe 120.

Speaker Change: So, as you sort of assess the performance that you saw here in the second quarter across the Permian Well Program,

Kaylee Akamine: We see that the wells are coming on faster, hence the road development. The wells to sales ratio, however, was sort of at the midpoint, and the capex for the entire full corporate program was at the low end. So it seems unclear if the beat was activity-led, efficiency-led, or productivity-led. And as you assess all those things, how does that set up the 25 program? Do we actually see the same amount of activity for less capital?

Speaker Change: Could you help allocate the performance across maybe a couple of items?

Speaker Change: We see that the wells are coming on faster, hence the road development.

Speaker Change: The wealth of sales, however, were sort of at the midpoint, and the capex for the entire full corporate program was at the low end, so it seems unclear if the beat was activity-led, efficiency-led, or productivity-led.

Speaker Change: And as you assess all those things, how does that...

Speaker Change: Set up the 25 program, we actually see the same amount of activity for less capital.

Blake Sirgo: Yeah, this is Blake. I'll take that one.

Speaker Change: Yeah, this is Blake. I'll take that one. The slide on...

Blake: Page 7, I mean it shows a range of...

Blake: where we could land on that guide, but like Tom said earlier, that's a guide. We haven't committed to those plans that would...

Speaker Change: generate that. Really what's driving our capital efficiency needs right now is timing. It's efficiency in the field, going faster on all fronts.

Speaker Change: I'll give you an example. Our diesel zipper crew today completes 40% more footage in a year than it did five years ago.

Speaker Change: That same crew in Q2, it had a month that averaged 21 pumping hours per day.

Speaker Change: And that was with two moose.

Speaker Change: We're just really in a in another step change of pumping efficiency. See the same thing on our electric crew? You combine that with our savings on diesel versus grid power.

Speaker Change: and throw our Simulfrac efficiencies on top of that. We're just really in uncharted territory of efficiency gains that we've seen. And it's increasing our capital efficiency. And as we build our plans out,

Speaker Change: Those things all get incorporated. We build in our actuals and what we've learned, and then we will, as Tom and Shane both said, when we give our next three-year guide, that will be incorporated. The natural question is always, how far can this go?

Blake Sirgo: The slide on page seven, I mean, it shows a range of where we could land on that guide. But like Tom said earlier, that's just a guide. We haven't committed to those plans that would generate that. Really, what's driving our capital efficiency needs right now is, I mean, efficiency in the field, going faster on all fronts. The natural question is always, how far can this go? Our DMC team assures me we can't pump more than 24 hours in a day, but we're going to give it hell.

Speaker Change: Our DMC team assures me we can't pump more than 24 hours in a day, but we're going to give it hell.

Kaylee Akamine: Thanks; I appreciate the comments.

Operator: Alright, our next question comes from the line of David Deckelbaum from TD Cohen. Please go ahead.

Speaker Change: Thanks, I appreciate the comments.

Speaker Change: All right, our next question comes from the line of David Deckelbaum from TD Cohen. Please go ahead.

David Deckelbaum: Morning, everyone. Thanks for taking my questions. David, I wanted to ask you specifically. Hey, how are you?

David Deckelbaum: Morning, everyone. Thanks for taking my questions.

David Dekelbaum: David, I wanted to ask specifically. Hey, how are you? I wanted to just ask specifically about the Harki, which seems to be getting some incrementally positive sentiment right now. Obviously, you've added, you know,

David Deckelbaum: I wanted to just ask specifically about HEARCI, which seems to be getting some incrementally positive sentiment right now. Obviously, you've added some wells to the Harki program. I'm curious what you've observed sort of in the first three that you've completed that's giving you confidence to perhaps come back and do another 12 to 20 and 25 and how we should think about those remaining Harki wells being developed.

Speaker Change: I'm curious what you've observed sort of in the first three that you've completed that's giving you confidence to perhaps come back and do another 12 to 20 and 25 and how we should think about those remaining Harki wells being developed.

David Deckelbaum: Yeah, David, on the Wyndham row, we have not completed any of the Harkey wells yet. We've got some drilling and, you know, we have We, you know, as Blake said, we're coming back and overfilling that row, but we don't have any completed Harky wells on Wyndham yet. Again, you know, we do expect strong performance out of those based on calibration, but we haven't completed any yet.

David Deckelbaum: Yeah, David.

Speaker Change: Yeah, David, on the Wyndham row, we have not completed any of the Harkey wells yet. We've got some drilling and, you know, we have...

Speaker Change: You know, as Blake said, we're coming back and overfilling that row, but we don't have any completed Harky Wells on Wyndham yet. Again, you know, we do expect

Speaker Change: Strong performance out of those based on calibration, but...

David Deckelbaum: I appreciate that. Just on just the Marcellus curtailment. You know, just perhaps curious about how you arrived at the specificity of what you're actually curtailing right now. I know initially you were deferring the tills, and then you brought some of those wells online, I guess, to some extent to dewater, but also, you know, to receive better pricing. How did you arrive at the 275? And would that number presumably expand if we don't see a recovery in the gas markets? Or is that the portion that you believe is not earning a profit? Yeah, David. This is Blake.

Speaker Change: We haven't completed any yet.

Speaker Change: I appreciate that. Just on just the Marcellus curtailments...

Speaker Change: You know, just perhaps curious on how you arrived at the specificity of what you're actually curtailing right now. I know initially you were deferring the tills and then you brought some of those wells online, I guess, to some extent, to dewater, but also, you know, to receive better pricing.

Speaker Change: How did you arrive at the 275? And would that number presumably expand if we don't see a recovery in the gas markets? Or is that the portion that you believe is not earning a margin right now?

Blake Sirgo: It's really what you're hinting at. The way our portfolio works is that our incremental volumes, the ones that sit on top, are sold into the really short-term cash markets in the basin. And so the rest of our portfolio is a diversified portfolio anchored to all kinds of different indexes, whether it's NYMEX or Power or physical deals with great floors in them. And so those netbacks are much higher on the rest of the portfolio.

Blake Sirgo: Yeah, David, this is Blake. I'll take that one.

Blake: Yeah, David, this is Blake. I'll take that one. It's really what you're hinting at. The way our portfolio works is our incremental volumes, the ones that sit on top, are sold into the really short-term cash markets in the basin.

Blake: The rest of our portfolio is a diversified portfolio anchored to all kinds of different indexes, whether it's NYMEX or Power or, you know, physical deals with great floors in them. And so those netbacks are much higher on the rest of the portfolio. This 275 net really represents the part of the portfolio currently exposed to in-basin pricing.

Blake Sirgo: This 275 net really represents the part of the portfolio currently exposed to in-basin pricing. As Tom mentioned, we're kind of looking for north of a dollar; that is, what we would like to receive to bring those volumes back on. We do have other parts of the portfolio that are in summer sales right now, and those will roll off in the shoulder season. And so, if needed, we will have the ability to increase the curtailment. Obviously, we hope it doesn't come to that, but we're ready to do it if it makes sense.

Speaker Change: As Tom mentioned, we're kind of looking for north of a dollar is what we would like to receive to bring those volumes back on.

Tom: We do have other parts of the portfolio that are in summer sales right now. Those will roll off in the shoulder season. And so, if needed, we will have the ability to increase the curtailment. Obviously, we hope it doesn't come to that, but we're ready to do it if it makes sense.

Operator: Alright, our next question comes from the line of Michael Salia from Stevens Inc. Please go ahead.

Speaker Change: Appreciate the color.

Speaker Change: All right, our next question comes from the line of Michael Salia from Stevens Inc. Please go ahead. Thank you.

Michael Salia: Morning, everybody. You've said that you plan to do more of these multi-section developments like Windham Row. I'm wondering if those are limited to Culverson County, or do you have any thoughts about trying to launch those in any of your different operating areas in the Permian?

Michael Salia: Morning, everybody.

Michael Salia: You've said that you plan to do more of these multi-section developments like Windham Row. I wonder if those are limited to Culverson County, or do you have any thoughts about trying to launch those in any of your different operating areas in the Permian?

Blake Sirgo: Yeah, Michael, this is Blake. The giant roads like Wyndham Road, that's really going to be unique to Culbertson County, just because of the acreage position we have to execute. But we chase economies of scale across our entire program, you know; wells per pad is a huge driver for us. You go to New Mexico, where we have multiple benches to exploit, it might be a small acreage footprint, but we can get a lot of wells. And so, a lot of these efficiencies we can carry on to smaller projects, but just not quite at the level we can in Culbertson County, where we can string It's pretty unique to Culbertson. Well, in Culverson County it is.

Speaker Change: Yeah, Michael, this is Blake.

Blake: The giant rows like Wyndham Row, that's really going to be unique to Culbertson County just because of the acreage position we have to execute.

Speaker Change: But, we chase economies of scale off our entire program, you know, wells per pad is a huge driver for us. You go to New Mexico, where we have multiple benches to exploit, it might be a small acreage footprint, but we can get a lot of wells on a pad.

Speaker Change: And so, a lot of these efficiencies we can carry on to smaller projects, but just not quite the level we can in Culbertson County, where we can string together six, seven DSUs and just go camp out, march across, and maximize every one of these little efficiencies. It's pretty unique to Culbertson County.

Thomas Jorden: Well, Culbertson County is unique to the Delaware Basin. When you get up into New Mexico, it's pretty crowded, but Culverson County is a huge contiguous block of acreage that we operate, and so it really provides amazing operational flexibility, not only for configuring drilling projects such as the Wyndham Row, but controlling our own infrastructure, and that would include saltwater disposal, gas gathering and compression, and our electrical grid has had benefits that, quite frankly, we didn't fully anticipate when we made those decisions to control our own destiny there.

Speaker Change: Well, Culbertson County is unique to the Delaware Basin.

Speaker Change: When you get up into New Mexico, it's pretty crowded. But Culverson County is a huge contiguous block of acreage that we operate. And so it really provides amazing operational flexibility, not only for configuring drilling projects.

Speaker Change: such as the Wyndham Row, but controlling our own infrastructure, and that would include saltwater disposal, gas gathering and compression, and our electrical grid, has had benefits that quite frankly we didn't fully anticipate when we made those decisions to control our own destiny there.

Michael Salia: I appreciate that. And I know you mentioned last quarter, looking at Wyndham Row, that you felt like it was better to co-develop the Harki on, I believe, the western portion of that acreage, and I think, Tom, you mentioned lower pressures in that area were part of that. I just wonder if that is, and I understand you haven't completed any of these wells yet, but just want to see if there's any better understanding of the key to where you co-develop and where you have to or where it's better to independently develop the Harki and the upper Wolfgang. Yeah, you know, we don't have it.

Speaker Change: appreciate that and I know you mentioned last quarter looking at Wyndham Row that

Speaker Change: You felt like it was better to co-develop the Harki on, I believe, the western portion of that acreage.

Speaker Change: I think, Tom, you mentioned lower pressures in that area were part of that. I just wonder if that is, and I understand you haven't completed any of these wells yet, but just want to see if there's any better understanding.

Speaker Change: the key there to where you co-develop and where you have to or where it's better to independently develop the Harki on the upper Wolfgang.

Thomas Jorden: Yeah, you know, we don't have rock-solid conclusions, but some of the... Science Experiments that we ran were actually on the eastern side of the row, and we did see a little bit of interference between the harky and wolf camp. Now you know, I said on our last call that even if we ignored this, these harky wells are still very, very attractive opportunities. But we believe that we may have a little better recovery if we co-develop.

Speaker Change: Yeah, you know, we we don't have rock-solid conclusions, but some of the...

Speaker Change: Science experiments that we ran were actually on the eastern side of the row and we did see a little bit of interference between the Harki and Wolf Camp. Now, you know, I said on our last call that even if we ignored this, these Harki Wells still are very, very attractive opportunities.

Speaker Change: But we believe that we may have a little better recovery if we co-develop.

Thomas Jorden: Now you know, we had quite a debate because we don't think we have rock-solid conclusions there, but you know, we said, look, while we're still collecting data, let's change our default option to be co-developing because we certainly don't think that does any harm. And so therein lies our approach. Until we see otherwise, our default option is going to be co-developing where we can. So, we don't expect to see any significant degradation because of the timing of when we're coming back there. And we'll continue to update you as we gather more data and make our conclusions.

Speaker Change: Now, you know, we had quite a debate because we don't think we have rock solid conclusions there. But, you know, we said, look, while we're still collecting data, let's change our default option to be co-developing because we certainly don't think that does any harm.

Speaker Change: And so therein lies our approach. Until we see otherwise, our default option is going to be co-develop where we can.

Speaker Change: So we don't expect to see any significant degradation because of the timing of when we're coming back there and we'll continue to update you as we gather more data and make our conclusions.

Operator: Our next question comes from Matt Portillo from TPH. Please go ahead.

Speaker Change: Our next question comes from Matt Portillo from TPH. Please go ahead.

Matt Portillo: I know it's probably a little bit too early to specifically talk about 2025, but you gave some great color on Marcella's drilling economics, with the lower being in the money at strip, and the upper probably needing a little bit higher prices to justify the drill bit for next year. Just looking at the Anadarko program, it looks like you guys have had some great well results and strong returns. Just curious, is there potentially a scenario here where returns would justify dropping the remaining rig in the Northeast heading into 2025 and picking up a rig or two in Anadarko to target that liquid-rich development program that's driving strong returns for you all?

Matt Portillo: Good morning all.

Matt Portillo: Morning. Morning. I know it's probably a little bit too early to specifically talk about 2025, but you gave some great color.

Matt Portillo: on Marcellus Jolie Economics with the lower being in the money at Strip.

Speaker Change: and the upper probably needing a little bit higher prices to justify the drill bit for next year.

Speaker Change: Just looking at the Anadarko program, it looks like you guys have had some great well results.

Speaker Change: Strong Returns. Just curious, is there potentially a scenario here where returns would justify dropping the remaining rig in the northeast, heading into 2025, and picking up a rig or two in the Anadarko to target that liquid-rich development program that's driving strong returns for you all?

Thomas Jorden: Well Matt, we're not prepared to talk about 25 because we haven't, you know, we just haven't crystallized those plans yet, but I hope it was clear from my opening remarks that my answer is, hypothetically, yes. We would. To the extent that we don't have lease commitments, to the extent that we don't have vendor commitments, or marketing commitments, we would be prepared to pivot capital anywhere to the highest So, yeah, the scenario you laid out would be a possibility amongst many others.

Speaker Change: Well, Matt, we're not prepared to talk about 25 because we haven't, you know, we just haven't crystallized those plans yet.

Matt: But I hope I was clear from my opening remarks that my answer is hypothetically yes, we would

Speaker Change: We, to the extent that we don't have lease commitments, to the extent that we don't have vendor commitments.

Speaker Change: For marketing commitments, we would be prepared to pivot capital anywhere to the highest productive use. So, yeah, the snow you laid out would be a possibility amongst many others.

Matt Portillo: And then just as a follow-up question, as you mentioned, you have some summer contracts rolling off into the shoulder season. Is there any incremental color you might be able to provide in terms of how much you could potentially curtail? I know it's going to be price dependent and kind of market dependent, but just trying to get a sense of how much that magnitude might be able to increase in October and beyond if you guys so decide.

Speaker Change: Perfect. And then just as a follow-up question, as you mentioned, you have some summer contracts rolling off into the shoulder season.

Speaker Change: Is there any incremental color you might be able to provide in terms of how much you could potentially curtail? I know it's going to be price dependent and kind of market dependent, but just trying to get a sense of how much that magnitude might be able to increase in October and beyond if you guys so decided.

Blake Sirgo: Yeah, this is Blake. I can't give you exact volumes that we could increase. You know, obviously, we have a layered portfolio. We haven't been putting in a lot of long-term deals lately, just because of where the markets have been. But all that is considered every time we have anything coming up for expiration, but it'll be more volume. We're not ready to say. Thank you. You're welcome.

Speaker Change: Yeah, this is Blake. I can't give you exact volumes that we could increase.

Speaker Change: you know obviously we have a layered portfolio we haven't been putting in a lot of long-term deals lately just because of where the markets have been but all that is considered every time we have anything coming up for expiration but it'll be more volume we're not ready to say how much

Thomas Jorden: Thank you. You know, Matt, I just want to say one quick thing, make one quick point that I don't want lost on the audience. You know, when we say flexibility is the coin of the realm, that means a lot of things to us. It obviously means quality of assets, ability to have online real calibration of economic results, and willingness to pivot your capital. But all of that is made possible by flexibility in our vendor commitments.

Speaker Change: Thank you. You know Matt, I just want to say one quick, make one quick point that I don't want lost on the audience.

Matt Portillo: You know, when we say flexibility is the coin of the realm, that means a lot of things to us. It obviously means quality of assets.

Speaker Change: Ability to have online real calibration of your economic results, willingness to pivot your capital, but all of that is made possible by flexibility in our vendor commitments.

Thomas Jorden: You know, Blake and his team worked really hard during the past year and the year before it to make sure that we weren't locked down with annual contracts that prevented our flexibility. We have great relationships with our vendors. That wouldn't have been easy with a different vendor set.

Blake: You know, Blake and his team worked really hard during the past year and the year before it to make sure that we weren't locked down with annual contracts that prevented our flexibility.

Speaker Change: We have great relationships with our vendors. That wouldn't have been easy with a different vendor set, but, you know, good relationships mean we trust them, but they also trust us because of how we behave to one another. And so I just cannot tell you how...

Thomas Jorden: But, you know, good relationships mean we trust them, but they also trust us because of how we behave to one another. And so I just cannot tell you how important it is to us that we have vendor relationships that allow us to lay down activities and then pick them up. We're not locked into long-term contracts. And quite frankly, if you look at the landscape, you'll find that that is not universally true, but it's true for Coterra, and we've worked hard to get ourselves in that position. It's a testament to Blake and his team. Thank you. All right, our next question comes from Kevin McCurdy from...

Speaker Change: How important it is to us that we have vendor relationships that allow us to lay down activity and then pick it up. We're not locked into long-term contracts. And quite frankly, if you look at the landscape, you're going to find that that is not universally true.

Speaker Change: But it's true for Coterra and we worked hard to get ourselves in that position. It's a testament to Blake and his team.

Operator: Alright, our next question comes from Kevin MacCurdy from Pickering Energy Partners. Please go ahead. Hey, good morning, team. I think you've hit on the Marcellas plenty, but maybe I'll just try to sneak one more in there. I know that you haven't

Blake: Thank you.

Speaker Change: All right, our next question comes from Kevin MacCurdy from Pickering Energy Partners. Please go ahead.

Kevin MacCurdy: Hey, good morning team. I think you've hit on the Marcellus plenty, but maybe I'll just try to sneak one more in there. I know that you haven't traditionally delayed turn in lines after completion in the Marcellus. Is there anything that you learned from the last batch that would change your thinking heading forward on that?

Kevin MacCurdy: No, nothing that would change our thinking. I will say the last batch did exceed our longest shut-in time that we've ever had in the Marcellus. And so there were some questions going around on the team about, all right, we're kind of in uncharted waters here, what's going to happen? Luckily, the wells look great. When we opened them up, they performed marvelously. We were able to get all the water off of them just like we hoped, and the production results were really strong. So I think if anything, maybe it kind of reinforces our ability to keep wells shut in longer. Great.

Speaker Change: Um, no, nothing that would change our thinking. I will say the last batch, uh,

Speaker Change: did exceed our longest shut-in time that we've ever had in the Marcellus and so there was some

Speaker Change: Some questions going around on the team on, all right, we're kind of in uncharted waters here, what's going to happen?

Blake: Luckily, the wells look great. When we opened them up, they performed wonderfully. We were able to get all the water off of them just like we hoped, and the production results were really strong. So I think, if anything, maybe it kind of reinforces our ability to keep wells shut in longer.

Blake Sirgo: And then touching on Anadarko, I mean, we obviously noticed the positive results this quarter, and that certainly contributed. Was there anything specific that led to the acceleration there and turning lines, or is that just kind of, You know, some of the same cycle times we've been discussing in the Permian? We have one cohesive DNC team at Coterra. No one operates in silos around here, and best practices are chased like wildfire.

Speaker Change: Great, and then touching on the Anadarko, I mean we obviously noticed the positive results this quarter and that certainly contributed to the beat. Was there anything specific that led to the acceleration there and turning lines or is that just kind of cycle times improving?

Speaker Change: You know, some of the same cycle times we've been discussing in the Permian, you know, we have one cohesive DNC team at Coterra. No one operates in silos around here, and best practices, they chase like wildfire.

Blake Sirgo: And so all the same things we're doing in the Permian to improve our cycle times and our efficiencies, that's also going on in the Anadarko and the Marcellus. We just don't talk about it as much because the capital spend is not as high, so you don't see it quite as much. But yes, all the same great things going on with those Permian crews are happening in Anadarko and Marcellus also. You know, that's a hidden benefit of being a multi-basin operator.

Blake: All the same things we're doing in the Permian to improve our cycle times and our efficiencies. That's also going on in the Anadarko and the Marcellus.

Speaker Change: We just don't talk about it as much because the capital spend is not as high, so you don't see it quite as much, but yes, all the same great things going on with those Permian crews. It's happening in Anadarko and Marcellus also.

Blake Sirgo: You know, that's a hidden benefit of being a multi-basin operator and being an operator that has fluid and open communication across our platform so that a good idea in any part of our organization spreads like wildfire. Being a multi-basin operator makes us a better operator in all three basins.

Speaker Change: You know, that's a hidden benefit of being a multi-basin operator and being an operator that has fluid and open communication across our platform, that a good idea in any one part of our organization spreads like wildfire. Being a multi-basin operator makes us a better operator in all three basins.

Thomas Jorden: And we are at the allotted time, so I'll now turn it back over to Tom Jorden for closing remarks.

Speaker Change: Great, appreciate the time.

Speaker Change: And we are at the allotted time, so I'll now turn it back over to Tom Jorden for closing remarks.

Thomas Jorden: Well, I want to thank everybody for joining us. As always, we prefer talking about results rather than undifferentiated future promises, and we intend to work hard to continue to deliver them. So, thank you very much for joining us this morning.

Tom Jorden: Well, I want to thank everybody for joining us. As always, we prefer talking about results than undifferentiated future promises, and we intend to work hard to continue to deliver them. So thank you very much for joining us this morning.

Operator: That concludes today's conference. Have a pleasant day.

Speaker Change: That concludes today's conference. Have a pleasant day.