Q3 2024 Coterra Energy Inc Earnings Call
Good morning, My name is Andre and I will be your conference operator today.
At this time I would like to welcome everyone to the Cartera energy third quarter 2024 earnings Conference call.
Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
Speaker Change: At this time I would like to turn the conference over to Dan Guffey, Vice President of Finance Investor Relations and Treasurer. Please go ahead.
Dan Guffey: Thank you operator, good morning, and thank you for joining <unk> Energy's third quarter 2024 earnings Conference call. Today's prepared remarks will include an overview from Tom Jorden, Chairman CEO and President Shane Young Executive Vice President and CFO, and Blake <unk> Senior Vice President of operations.
Dan Guffey: 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 current expectations. Additionally, some of our comments will reference non-GAAP financial measures forward looking statements and other disclaimers as well as reconciliations to the most directly comparable.
Speaker Change: 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.
Tom Jorden: Thank you Dan and welcome to all of you who are joining our call. This morning as you saw from our release last night co chair had an excellent third quarter, our volumes for oil gas and barrel of oil equivalent came in above the high end of our guidance with capital coming in below the low end of our guidance range. Furthermore, we raised our.
Tom Jorden: Production guidance and lowered our capital guidance for the full year.
Tom Jorden: We expect 2024 to be our third consecutive year of delivering differentiated organic oil growth.
This was made possible by our asset quality and growing capital efficiency, which are related to one another Shane and Blake will walk you through our financial and operational results in some detail.
Tom Jorden: Blake will also give you an update on our Wyndham row project in Culberson County.
Tom Jorden: In a nutshell our results have been outstanding and we expect similar projects to be a part of our program for many years to come slide 13 of our earnings presentation lists a few upcoming culberson projects for future years.
Our Wyndham ROE has confirmed what we have stated all along these projects are well calibrated and highly predictable.
Tom Jorden: Although we're not prepared to be granular on 2025 plans as you would expect we hold significant optionality and flexibility.
Tom Jorden: As an example, if we were to continue Simon King of Culberson County through 2025, it would increase our capital efficiency and result in an ongoing cadence of regular quarterly oil growth, we could achieve this within our framework of capital discipline and a concern.
Tom Jorden: <unk> reinvestment rate. We're also pleased to highlight some of our recent new Mexico results in our earnings presentation more to come on that from Blake.
Tom Jorden: Although we remain constructive on natural gas markets current prices have not recovered to the extent that would justify incremental drilling and completion activity in the Marcellus. We currently have no drilling or completion activity on our Marcellus assets. Additionally, we continue to curtail and shut in volumes.
Tom Jorden: And we'll do so until we see materially better spot natural gas prices in the northeast.
Tom Jorden: 2025 promises to deliver a more constructive natural gas market. The combination of growing LNG exports increased electrical generation demand and the prospect of winter weather suggest a tighter supply demand picture for natural gas in 2025 and beyond.
In the meantime, we have other assets that are generating superior returns on our investments and we have pivoted to them in 'twenty to 'twenty four.
You May also notice that we have recently entered into a handful of LNG sales agreements as illustrated by slide five in our earnings presentation. These agreements are the results of our multiyear effort to further diversify our natural gas marketing portfolio by gaining price exposure to international markets.
Tom Jorden: We are continuing to explore further opportunities along these lines Blake will provide details on this.
Tom Jorden: As we have repeatedly said, we manage our company by disciplined capital allocation not by production goals.
Tom Jorden: We have the luxury of doing so because we have top tier oil and natural gas assets with a low cost of supply.
Tom Jorden: These assets coupled with our operational capabilities can consistently deliver leading edge returns on low corporate reinvestment rates through the cycles.
Tom Jorden: Slide six which provides a snapshot of our inventory shows that we can do this for many many years to come.
Tom Jorden: The robustness of our assets under Reits are shareholder friendly return of capital program and our fortress balance sheet.
Tom Jorden: Our approach to the business, so simple build a top tier operational team of top tier subsurface team develop a portfolio of top tier assets that offer geographic and commodity diversity.
Tom Jorden: Let data value creation and sound financial analysis guide capital allocation decisions through it all maintain a relentless focus on continuous improvement our co tera its progress overcome Ford.
Tom Jorden: That simple and we live by it.
Speaker Change: With that I will turn the call over to Shane.
Shane Young: Thank you Tom and thank you everyone for making time to join us on today's call.
Shane Young: This morning, I'll focus on three areas.
Shane Young: First I'll summarize the financial highlights of our third quarter results, including where we finished the quarter from a credit and liquidity perspective.
Shane Young: Then I'll provide production and capital guidance for the fourth quarter as well as provide an update for the full year 2024 guide finally, I'll provide highlights our continued progress on our shareholder return program.
Shane Young: Okay.
Shane Young: Turning to our strong performance during the third quarter.
Third quarter total production averaged 669 M D O E per day with oil averaging $112 three M. B O per day, and natural gas, averaging 268 Bcf per day.
Shane Young: All three came in slightly above the high end of guidance driven by timing of operated and non operated volumes as well as strong well performance.
Shane Young: In the Permian, we brought online 24 net wells near the high end of our 15 to 25 net well guidance.
Shane Young: This includes 16 net bone spring wells across Lea and Eddy counties, and eight net Wyndham real wells in Culberson County.
Shane Young: In the Anadarko, we brought online five net wells in our liquids rich up dip area.
In the Marcellus we brought online seven net wells in mid September.
Shane Young: Yeah.
Shane Young: During the third quarter pre hedge revenues were approximately $1 3 billion of.
Shane Young: Of which 75% were generated by oil and NGL sales.
Shane Young: In the quarter, we reported net income of $252 million or 34 cents per share and adjusted net income of $233 million or <unk> 32 per share.
Shane Young: Total unit costs during the quarter, including LOE.
Shane Young: Transportation production taxes, and G&A totaled $8 73 per Boe near.
Shane Young: Near the midpoint of our annual guidance range of $7 45.
Shane Young: The $9 55 per Boe.
Shane Young: Cash hedge gains during the quarter totaled $28 million.
Shane Young: Ah.
Shane Young: Capital expenditures in the third quarter were $418 million below the low end of our guidance range as we spent less on midstream infrastructure in S. W. D capital.
Shane Young: And also made the decision early in the quarter to drop our Marcellus rig.
Shane Young: We had originally planned to have the rig running through year end.
Shane Young: Discretionary cash flow for the quarter was $670 million and free cash flow was $277 million after cash capital expenditures of $393 million.
Shane Young: Okay.
Shane Young: We ended the third quarter very well positioned from a balance sheet perspective, having 0.3 times net debt to LTM EBITDA ratio.
Shane Young: And approximately $2 $8 billion of liquidity after retiring a 575 million.
Shane Young: Dollar debt maturity during September.
Shane Young: Okay.
Shane Young: Looking ahead to the remainder of 2024.
Shane Young: During the fourth quarter of 2024, we expect total production to average between 630 and 660 <unk> Boe per day.
Shane Young: Oil to be between 106, and 110 NGL per day, and natural gas to be between 253 and $2 six six Bcf per day.
Shane Young: In other words, we expect oil volumes be down approximately 4% quarter over quarter as part of the natural cadence of our operations.
Shane Young: This is the product of a combination of til timing during the fourth quarter <unk>.
Shane Young: Completing a portion of the Wyndham ROE that was not simulcast <unk>.
Shane Young: As well as having limited frac activity in the Anadarko during the fourth quarter.
Shane Young: Given our curtailed volumes, we expect natural gas to be down approximately 3% quarter over quarter.
Shane Young: We continue to monitor gas fundamentals maintain the optionality to respond to signals on a month to month basis.
Shane Young: Regarding investment we expect total capital expenditures for the fourth quarter to be between 410 and $500 million.
Shane Young: Okay.
Shane Young: Yesterday, we increased our full year 2024 oil production guidance range to between 107, and 108 MB Mbo per day for the year.
Shane Young: Proximately half a percent at the midpoint from our August guidance and up 5% from our original guidance released in February.
Shane Young: We also tightened our full year 2004, Boe and natural gas production guidance ranges, both up 1% at the midpoint from the August Scott.
Shane Young: Based on where we see the full year today, we are lowering our capital guide by $100 million at the high end and $50 million at the midpoint.
Shane Young: The 175 to $1 $85 billion for 2024.
Shane Young: This is 14% lower at the midpoint than our 2023 capital spend.
Shane Young: This change along with increased production reflects continued meaningful improvement in <unk> capital efficiency.
Shane Young: Our 2024 program now modestly increased capital allocation to the liquids rich Permian and Anadarko basins, while decreasing capital by approximately 65% in the Marcellus year over year.
Shane Young: Moving on to shareholder returns.
Shane Young: During the third quarter, we continued to see attractive value on our own shares and repurchased four 3 million shares for $111 million at an average price of $45 15 per share.
Shane Young: Last night, we also announced a 21 per share base dividend for the third quarter, which annualized is to <unk> 84 per share for the year.
This remains one of the highest yielding base dividends of our peer group at over 3%.
Shane Young: In total we returned $265 million to shareholders during the quarter or 96% 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 healthy base dividend and our share repurchase program.
Shane Young: Year to date, we have returned 100% of free cash flow to our shareholders.
Shane Young: In summary, the third quarter again delivered excellent operational and financial results.
Our fourth quarter activity schedule will position us for a strong start heading into 2025, where we maintain significant flexibility with regard to capital allocation.
Speaker Change: With that I'll hand, the call over to Blake.
Blake: Thanks Shane.
Blake: Third quarter was another active quarter Ecoterra. This morning, I plan to cover our new LNG agreements Permian activity and cost update along with overviews of Marcellus and Anadarko activity.
Blake: This quarter Kotara executed 200000, and then Btu per day of LNG sales commitments split evenly between European and Asian markets with first sales in 2027 and 2028.
Blake: These agreements represent almost two years of work by our marketing teams to survey the LNG landscape and find deals that best enhance our portfolio.
Blake: These commitments are netback sales deals directly linked to JK M. T T F and N V. P indexes and we will be sourced from co Terra gas in the Permian Anadarko in Marcellus.
Blake: The gas sold under these agreements has no derisk as our Counterparties are currently lifting cargoes from existing and operating facilities, along the U S Gulf Coast.
Blake: Lastly, these deals are with strong established Counterparties Deco Terra is excited to partner with for many years to come.
Blake: When we combine these agreements with our existing LNG deal at Cove point co Taro will have over half a bcf of gas per day on the water starting in 2028.
Blake: This is another step for <unk> as we continue to leverage our multi basin gas portfolio to maximize premium pricing and diversify our future revenues.
Blake: In the Permian, we are currently running eight drilling rigs in two frac crews and our ops team posted another quarter of outstanding results. While our operated production came in where we expected with our increased efficiencies. We did see a nice bump in our Permian non operated production with several projects coming in sooner than expected.
Blake: <unk>, leading to a beat above our high end of guidance.
Speaker Change: As Shay noted due to the planned transition from simulcast act to zipper Frac for a portion of Wyndham row during Q3 and limited limited Anadarko Frac activity, we are forecasting a reduction in volumes for Q4. However.
Blake: However, I am pleased to report that Wyndham ROE is ahead of schedule below cost and initial production results look strong we look forward to sharing our final Wyndham real update next quarter. When all 57 wells are online.
Blake: While Wyndham ROE has been a critical project for Kotara in 2020 for the rest of the Permian portfolio has also had a banner year.
Blake: Our drilling and completion operations in our new Mexico Bone Spring program is having a great year with our drilling feet per day up 26% and frac pumping hours up 23% compared to a year ago.
Blake: This has been accomplished by focusing on increasing our wells per pad and lateral links as well as the new zipper frac initiatives focused on reducing transition times between stages.
Blake: This competitive cost structure is paired with some strong well results we are seeing in our new Mexico program.
Blake: <unk> had great success in our Wolfcamp program in New Mexico going back to 2010, we are still learning new things as we expand our developments across the liquids rich strat column available to us and our new Mexico assets are.
Blake: Our recent result, we are highlighting is our dose at keys project in Lea County, where we brought on two first bone spring wells at four wells per section and are seeing initial per well results comparable to the upper wolfcamp.
Blake: This result, along with several great second bone spring sand results in the county are underscoring the value, we see across our new Mexico position.
Blake: Turning to Permian costs in 2023, our Permian average well cost was $200 per foot drill.
Blake: Driven by efficiency gains and moderately lower service costs over the last year or 2020 for Permian dollar per foot is expected to be $10 50 per foot down 12% year over year as.
Blake: As we look forward, our leading edge costs are below $1000 per foot, 5% to 10% lower than 2024.
Blake: We define leading edge as current market rates and efficiencies with no projected deflation or further performance gains.
Blake: As a reminder, when we share our full year total well cost dollar per foot, we are including our all in cost which include drilling completion facilities and flowback. These are actual costs based on frac in date and not type curves, which directly reflect the capital spent on each.
Blake: Project, while we are proud of our cost performance and always looking to do more with less cost is not the sole driving metric ecoterra.
Blake: Our goal is not just to be low cost it has to generate maximum value.
Blake: Total return on investment is the only lens, we use a co chair and.
In cooperation with our machine learning team, our reservoir engineers, iterate, Frac design, and well spacing to maximize the capital efficiency and net present value of every development.
Blake: As you can see on page 14 of our newly released deck. The results of this rigorous analysis is the combination of competitive cost and top tier productivity in the Delaware Basin.
Blake: One component of our fully burdened reported well costs are facilities, which are constantly evolving to ensure compliance with an ever changing regulatory landscape, our new tankless battery designs comprise all our greenfield in most of our brownfield battery projects. This new design eliminates.
Over 90% of the emission devices compared to a standard tank battery and greatly reduces the risk of fugitive emissions.
Blake: So terra has been implementing this design over the last five years and today almost 60% of our Permian oil production is flowing through tankless facilities.
Blake: Innovations like this are part of our unwavering standards of operational excellence to ensure we are responsibly developing our assets in and around the communities where we operate.
Speaker Change: In the Marcellus as a response to severely depressed pricing in the northeast markets. We are currently at zero drilling or Frac activity.
Blake: Going to zero activity would not be possible without our Marcellus operations team developing new and creative methods to transport and dispose of produced water without relying on continuous frac activity.
Blake: This thoughtful water strategy is what has allowed us to obtain the full capital flexibility, we prize and our multi basin portfolio.
Blake: And has allowed for improved capital efficiency across the <unk> platform.
Our first round of lower Marcellus projects and the Demick Township are complete with strong execution from our drilling and completion teams. We look forward to bringing these wells online in the coming months pending an improvement in northeast gas pricing.
Blake: We are continuing our month to month curtailment in the Marcellus with a planned 340000 M N Btu per day gross and 288000, the amended Btu per day net shut in for the month of November.
Blake: This volume represents a part of our sales portfolio tied directly to northeast local pricing.
Blake: We will continue to monitor pricing and make our curtailment decision one month at a time.
Blake: We remain constructive on long term gas markets, however, until demand catches up with plentiful pent up supply you can expect <unk> to continue to leverage its multi basin multi commodity portfolio and continue to be disciplined allocators of capital with a focus on full cycle returns.
Blake: In the Anadarko, we continue to run one rig and completed five wells in the third quarter.
Blake: Operational consistency is paying off in the Anadarko with several strong projects coming online in 2020 for.
Blake: Keeping a rig running and stacking together completion activity has allowed us to gain efficiency and minimize well problems. Despite natural gas headwinds the liquids production in the Anadarko revenue stream is buoyed well economics and returns.
Lastly, I'd like to commend our operating teams in all three business units as they continue the trend of excellent execution and set us up for a great 2025.
Tom Jorden: With that I'll turn it back to Tom. Thank you Shannon Blake as you can see we've got a great momentum behind us and with that we'd be delighted to take your questions.
Blake: Yeah.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in we would like to ask a question. Please press star one on your telephone keypad you raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: We will take our first question from Doug Leggate at Wolfe Research.
Doug Leggate: Thank you good morning, everyone.
Doug Leggate: Gosh, Tom in your prepared remarks, it was quite intriguing to hear you say, if we decided to continue with Simon Frank our capital efficiency will improve materially in $2025 two quarters in your market a little bit why would you not continue to simultaneously in 2025.
Tom Jorden: Well, we do have a portfolio of Doug I would say that is a great question and we're asking that of ourselves.
Tom Jorden: I will answer that saying, we're watching the oil markets, we're very constructive on oil markets, but you know we're also wanting to have contingency plans in place if we see recovery in gas markets.
Tom Jorden: So if we had to make the call today, which we do not but if we had to make the call today, that's what we do.
Tom Jorden: We have the program teed up ready to go and.
Tom Jorden: We're just kind of.
Tom Jorden: Yes.
Tom Jorden: We really like to maintain flexibility up until that point, where we have to make a rock solid commitment and steering the ship.
Speaker Change: I guess, it's a tricky tricky follow up question. If I May then Tom which is really this this broader issue of capital allocation I guess, you've kind of touched on it with the Marcellus optionality, but but your oil production growth is again significantly beating.
Speaker Change: I guess you indicated guidance your three year plan I guess you rollout early 'twenty five again.
Speaker Change: It seems to us that you've got a lot of options to perhaps drop the capital maintain the original guidance and I just wonder if you could walk us through the <unk>.
Speaker Change: What are the puts and takes on how you're thinking about relative capital allocation across these three assets and it seems to me your Optionality has probably never been better at this point.
Speaker Change: Well Doug.
Doug Leggate: Just repeat what you have heard US say first thing we do top line just make an estimate of what our cash flow will be given a forecast of commodity prices and activity and results and it's an iterative process and then we decide how much we want to invest and work we want to maintain our return of capital commitment. So we're you know typically.
Doug Leggate: Lee in that 40% to 70% ban we've been on the low end of that and probably will be on the low end of that lower end of that and.
Doug Leggate: And then we calculate what our best returns are and we see what our production will be we will also look at severe downside pricing and make sure that if we were to see the chromium prices, we would still get well in advance of our cost to capital and with our cost structure and asset performance and capital efficiency. We're currently is situational.
Doug Leggate: We can drive that oil price down.
Doug Leggate: $50, some and many of our projects sub 50, and we would still get a return on capital it looks attractive to us.
Doug Leggate: So growth is an output and our check against do we want to do that or throttle back forward throttle. Further is really based upon that draconian downside if were well above our cost of capital and we feel confident about that at the most draconian downside pricing and were within.
Doug Leggate: Our capital return and cash flow reinvestment rate that we think maintains that discipline.
Doug Leggate: We let the ship sale.
Tom Jorden: Okay tricky one to answer Tom I'll I'll leave it there, but thank you. Thank you for giving us a good virgo. Thank you okay.
Speaker Change: We'll move next to Arun <unk>.
Speaker Change: Jairam and J P. Morgan.
Speaker Change: Yes, good morning.
Arun: Tom and team I was wondering if if if you could give us a sense of.
Speaker Change: How are your returns from the Harkey shale.
Speaker Change: Interval are are comparing.
Speaker Change: And competing for capital with the upper Upper Wolfcamp.
Speaker Change: And perhaps.
Going on in the Permian just talk all about little bit about the implications of the first phone second bone Ah results in Lea County, and the implications for that.
Speaker Change: Yes.
Speaker Change: Look a basin wide and of course, averaging is always difficult and base of why we would say the harkey.
Speaker Change: Is outstanding but slightly less in the upper wolfcamp.
Speaker Change: M D.
Speaker Change: It depends where you are but that's the answer and then we're also seeing some as we said some really nice results from that section above the harkey second bone first bone.
Speaker Change: In particular areas of the basin so.
Speaker Change: Look it's a.
It's just a question of a plus plus a plus or a.
Speaker Change: These are all a grade returns and delighted to have him.
Speaker Change: Okay.
Speaker Change: Fair enough.
Speaker Change: Tom.
Tom Jorden: Co chairs of large employer.
Tom Jorden: Community player in the state of New Mexico I was wondering if you could just talk about.
Tom Jorden: Some of the regulatory.
Speaker Change: Risks that was raised recently around potential setback rules and the new Mexico Legislature I think there's been a pretty preliminary in nature and I was wondering if you could talk about your understanding situation and potential risks to katara.
Speaker Change: If you see them.
Speaker Change: Yes, I mean in a nutshell I think that story was very overblown.
Speaker Change: Yes, Theres always legislative studies, there's always committee discussions going on.
Speaker Change: We don't expect the setback issues that were in the media a week ago to be.
Speaker Change: Materially implemented.
Speaker Change: New Mexico, 50% of the state revenue or just about 50% comes from oil and gas revenue and a setback rule like that would be very damaging to the state revenue.
Speaker Change: That said, we think new Mexico is very responsible regulatory environment, they hold our feet to the fire both on emissions and environmental compliance.
Speaker Change: New Mexico is not the easiest place to operate but I'll say this it's a fair regulatory environment with really tough standards.
Speaker Change: But from time to time, you're going to have these things.
Speaker Change: Crop up in any democracy.
Speaker Change: Good Lord look at some of the.
Speaker Change: If you go back three or four months of some of the proposals that have been made in the national media and the political campaign and we all know they're just talk we don't we don't think that the setback rule is a serious restore industry at this time.
Speaker Change: Okay.
Speaker Change: Thanks, Tom I'll turn it back.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Next we'll go to 19 Kumar at Mizuho.
Kumar: Hi, Good morning, Tom and team Thanks for taking my questions.
Kumar: In your prepared remarks.
Kumar: You talked a lot about the capital efficiencies that you've seen obviously, 12% higher oil production for.
Kumar: For 14% of this capex.
Kumar: You mentioned faster wells, our drilling efficiencies, you mentioned, a little bit better productivity and I believe some OBO as well.
Kumar: Could we get a breakout of <unk>.
What are the real drivers of this incremental capital efficiency.
Kumar: And what I'm really trying to get at is how sustainable are these into 'twenty five and beyond.
Speaker Change: Yes, I'm going to turn it over to Blake, but I want to make one comment for Blake jumps in.
Speaker Change: Part of our outperformance on the oil volumes is because of our efficiency of operations.
Blake: And one of the one of the things that codeshare with our balance sheet and our stable cash flow. We have the luxury to have very stable field operations and if we were to throttle back it would lead to loss of efficiencies and actually cost us something so.
Whether it's running assemble frac crew full time.
Blake: Our current operational cadence.
Blake: We have this organization of operations at a point, where our oil growth is really a function of cost savings through our efficiencies, but both Blake I'm, a I'm going to turn it over to you.
Speaker Change: Yeah. Thanks, Nik, it's a really good question and it's a.
Speaker Change: To be honest, it's not always super easy to decompose because like Tom said, we focus on operational consistency constantly improving our performance going faster all the time, but we do look back on all of these things and that's really how we ground truth. Our results if I really had to take 24 and look at it in a nutshell the day.
Speaker Change: I'd say about two thirds of our beats are coming from timing, so going faster, but we do have some nice productivity beats coming as well and thats really the other third and so we tried to bucket those.
That way your other question just how long can this go on where we're always asking that question.
Speaker Change: Our standard Ecoterra is operational excellence, we want to be the best at everything we do which means what we're doing today is not good enough and so our teams are constantly challenged to find new ways.
Speaker Change: It always feels like Theres not a lot of meat left on the bone, but if you told me a year ago, we'd be here today I would have offset that our teams keep finding ways to push the envelope.
I won't be surprised if they find more than 25 and then we were asked that question around this time last year as we had sort of continued to up the guidance for the year and last year. The answer was really closer to 50 50 between the two.
Speaker Change: My sense is this year with final frac and with the increase in pump hours and the team has been able to achieve that thats whats really skewed that and weighted into that two third one third that Blake talks about in terms of outperformance in 2024.
Speaker Change: Great. Thanks, Thanks for all the detail guys.
Speaker Change: I'm going to stick with.
Speaker Change: Costs and efficiencies.
Speaker Change: Imagine it'll happen more cargoes on.
Speaker Change: Couldn't help but noticed that the culberson county, well costs are at $860 per foot, which if I remember correctly was the.
Speaker Change: What was the high end of the savings you expected from road development. So so just wanted to see if you know.
Speaker Change: Again, how repeatable is that sort of $860 per foot and then to you.
Speaker Change: You talked about not being fully committed to two simulcast just yet if you were not to use similar frac on a pad or a project what would be the.
Speaker Change: Savings you would lose.
Speaker Change: All of that.
Speaker Change: About $30 million, a year give or take it would cost us to not settle for Eric and I wanted to be clear on what we said, we're not prepared to be granular on 2025 plans.
Speaker Change: Adult refused that with anything other than literally what that means when we'll release, our 2025 plan our next quarter.
Speaker Change: But Blake why don't you.
Blake: I think you read into that well and then I would say we are comfortable saying we're at the high end of our projected savings on Wyndham ROE, It's gone really really well.
Blake: And so the forecasted costs go forward in Culberson, if we chose to pursue that type of program. We've laid out other row developments, we see coming you would see that costs being repeated over and over and so that's really the tie between those two things as far as you know what if we went back to zipper fracking and Cobra.
Blake: And what could that look like we'd.
Blake: We'd lose at least $25 per foot. That's our simulcast gains. There's also a few other gains in infrastructure and facilities that would back off of that.
Blake: But that's probably about as close as I can get right now.
Speaker Change: Okay. Thanks for the detail guys.
Blake: Yes.
Speaker Change: We'll move next to Neal Dingmann at <unk> Securities.
Neal Dingmann: Hi, Good morning, all thanks for the time guys. My first question is on the Anadarko Basin specifically.
Neal Dingmann: You say that in and your future plans there.
Neal Dingmann: Maybe next year year after or at all limited by the total lease position. If so would you all consider bolting on or adding larger packages in order to run a steadier program there.
Neal Dingmann: Well.
Speaker Change: Neil at our current rate of investment, we've got a deep and long inventory near historical basin.
Speaker Change: But to your to your real question, Yes, if we could acquire additional assets near identical or bolt on capacity and they competed.
Speaker Change: For capital with our existing inventory in some reasonable timeframe, we would definitely consider that.
Okay that makes sense and then Tom just moving to just sort of broadly production shareholder returns specifically you all continue to do nicely generate.
I'd say higher growth than the average E&P and continue to pay out a bit higher percent free cash flow than the average E&P I'm. Just wondering do you anticipate future production payout continuing to be a bit higher like this or again is that as you were saying earlier just sort of predicated on what the environment is next year on both of those sides.
Speaker Change: Neil I'll, maybe start off on that a little bit.
Speaker Change: When we think about buybacks.
Speaker Change: And then shareholder returns in aggregates is starting with a base of 50% plus so that we hold dear.
Speaker Change: Beyond that as we think about buybacks theres really two things what are the other options outside of buyback and with regards to the buyback I think we.
Speaker Change: We've talked about focusing on three things one.
Speaker Change: What's the intrinsic value and is that attractive and.
Very clearly by our actions, we believe that to be the case and have all year.
Speaker Change: Two what is the free cash flow profile looks like not just next quarter, but really over the next three or four quarters and does that support an active buyback program and then three what's our liquidity position and do we have enough liquidity and as we talked about earlier in the year. We came into this year with about $1 billion of cash and <unk>.
Speaker Change: We've been pulling that down a little bit slowly leaning in to the buyback program yesterday were around $8 40, but.
Speaker Change: But that still gives us more leverage and ability to to lean in if we want to.
And potentially go down as low as the $5 billion area.
That makes sense thanks, guys.
Speaker Change: We'll move next to Caitlin <unk> at bank of.
Speaker Change: America.
Caitlin: And clearly Akamai. Your line is open you may have noticed sorry, sorry about that was on mute. Good morning, guys. Thanks for getting me on.
Caitlin: My first question is on capital efficiency Slide 19 is a nice one that shows the breakdown of the gross savings and the Frac operations are a big part of that the leading edge. However is try more frac. So wondering if any thoughts on pushing those fracs, even harder or do you think that would be too disruptive to the program.
Caitlin: As adults.
Speaker Change: No that's a good question Kelly.
Speaker Change: I can tell you we look at everything we're not scared of triangle frac or anything.
As we've talked about before.
Speaker Change: Most of our assets in the Delaware basin are pretty deep and pretty high pumping pressures and so there's a real balance between these simulcast <unk> and triangle fracs in really understanding your projected downtime versus your cost savings and you have to walk into that very carefully.
Speaker Change: You can think you are saving money, but really youre, just going faster potentially at an even higher cost and so we're always studying those things we.
Speaker Change: We think we've got some will frac in a really good position in Culberson County, we've demonstrated the cost savings and we know what those are go forward, but we will always look at anything if we think it's really going to save money.
Speaker Change: Our understanding is that water access.
Speaker Change: Big Enabler of triangle Fracs are you set up water wise to pursue that kind of program.
Speaker Change: Yes in Culberson, and Reeves County, we control our <unk> systems completely and these are on demand live systems, we can deliver water anytime anywhere.
So control our power grids and so we're we were able to deploy all of the horsepower we need to move that water around so that would not be an issue.
Speaker Change: Thanks for that my second question. My second question is about LNG. Our understanding is that your new contract our synthetic arrangement, which isn't that familiar to us can you kind of help illustrate how the net backs are going to work. For example is it Jackie and lesson kind of fixed cost at the buyer have the FTE on the pipelines.
Speaker Change: We're all looking for a way to value this.
Speaker Change: Yes, Kelly I wish I wish I could disclose those things to you.
Speaker Change: We've kind of put out as much as we can on these deals what I'll, what I'll say at a high level. These are physical gas sales directly tied from our wellhead to these foreign indexes.
Speaker Change: Path, we're taking for each one is different on how we're getting there.
Speaker Change: Our focus though was to minimize variability as much as possible. So we're really just rising and falling with these four foreign indexes and we achieved that on all of these deals and they are true netback sales deals.
Speaker Change: Awesome, Thanks for the comments.
Speaker Change: We'll go next to Scott Gruber at Citi.
Speaker Change: Okay.
Speaker Change: Maybe I'll.
Scott Gruber: I'll try that.
Scott Gruber: The same question a little different way.
Scott Gruber: Karim.
Speaker Change: Global gas prices would you be able to say how your gas realizations would.
Speaker Change: Improve.
Speaker Change: If these contracts are enforced today.
Speaker Change: Unfortunately, I can't quote that I can tell you I wish they were enforced today.
Speaker Change: Okay.
Speaker Change: Gotcha.
Speaker Change: And then maybe to turn to.
Speaker Change: Gas hedging strategy, you guys added a bit to your hedges.
Speaker Change: Here in the quarter, but just a little bit.
Speaker Change: Discuss how youre thinking about hedging on the gas side in the current environment, obviously, a big debate around what gas prices do next year.
Speaker Change: Curious about your updated thoughts on Wall Street.
Speaker Change: Hedging in the current environment.
Speaker Change: Yeah, absolutely and start off with some comments probably apply broadly around hedging as we generally try to be 20% to 25% at the low end up to 50% at the high end.
Speaker Change: In terms of the hedge position for the next 12 months and then we make sort of begin to layer and even beyond that.
Speaker Change: With some small volumes as we as we build up and that's where we sit today really on both commodities on gas in particular.
Speaker Change: I would say, we've got a little bit of a of a blended strategy of financial hedges that you see that or roughly 15% of the portfolio's expected production today, but at the same time Blake and his marketing team.
Speaker Change: Constant lay out thinking about physical hedge.
Speaker Change: Hedges as well direct deals with end users and the trade houses and other parties and so and that represents.
<unk> another 15% of our volumes so in combination.
Speaker Change: As we sit today you see is kind of hovering around 30% for the next 12 months, maybe 12 months plus a little bit.
Speaker Change: 2026.
Speaker Change: Well I appreciate the color. Thank you.
We'll go next to Matt Portillo at T. P H.
Speaker Change: Good morning, Tom and team.
Matt Portillo: High level questions for me, maybe first starting off in the Permian and Q3, you had very strong gas volume growth quarter over quarter. So just curious if you might be able to expand a bit behind the drivers on that and then as we look forward with Matterhorn online are you expecting any additional gas uplift in the coming quarters.
Matt Portillo: Or because of your flow assurance, you had very little gasoline strength year to date.
Blake: Yes, Matt This is Blake I'll take that one.
Blake: Permian Q3 gas through is really the only story there is some surprises and <unk> to the upside not a little stronger gas production than we were thinking from some some wells.
Blake: No real operational overprint going on there as far as flow assurance and Matterhorn coming online we've had flow assurance. This whole time, that's number one for our marketing team we flow the Mcf first in <unk>.
Blake: Prices second so it hasn't been a flow assurance concern, but we do have a piece of our portfolio that is settled at wahoo and so if nothing else. We're excited to maybe get a little something north of zero would be great.
Speaker Change: Perfect and then maybe turning to the Marcellus just curious if you might be able to comment on as we kind of think about the Q4 timeframe the wells you've got in <unk>.
Speaker Change: 11 wells when you bring those on as the plan to dewater them and then shut them back end to kind of push the volumes into 2025, and I guess specific to <unk> 25, with the lack of drilling and completion activity at the moment, how should we think about the time from which you pick up a rig to when we might see a volume impact at <unk>.
Speaker Change: To pick back up activity next year.
Speaker Change: Yeah.
Speaker Change: Well first on the <unk>, Yes, we are opening the wells to dewater them that is part of our strategy.
Speaker Change: I think it's important to know when once we've drilled and completed wells the capital spend and we look at every molecule of gas in the Marcellus the same and so we manage the curtailment as a field.
Speaker Change: Most cost effective way to do that is how we look at that we don't really differentiate between pills and base wells. So.
Speaker Change: So we will do what are those and like I said in my script.
Speaker Change: This is a month to month, we're playing this month to month as our.
Speaker Change: Northeast exposure moves up and down we're making decisions on curtailments.
Speaker Change: As far as rig the volume.
Speaker Change: Tom has talented into all of US we have on ramps and offerings. That's how we build our capital program and so we have on ramps in the Marcellus should we should gas prices respond we will be there to take advantage of it.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Leo Mariani at Roth Capital Partners.
Leo Mariani: I just wanted to ask a follow up on the discussion around capital efficiency here. So obviously your capex has been coming down here in.
Leo Mariani: In 24, which is certainly a nice trend to.
Leo Mariani: Seeing your volumes have gone up so I know you have a kind of a three year outlook out there, which presumably you'll update early next year, but should we be thinking at this point in time that the capex in the <unk>.
Speaker Change: The three year outlook is biased to the lower end based on the efficiencies I assume a lot of this is going to be recurring over the next few years.
Blake: Yes, Leo this is Blake I would just answer that with yes. Our the efficiencies. We are realizing are repeatable and we bake them in as we go and so if we updated that same three year guide today, It would look better.
Leo Mariani: But that's also highly dependent on what we choose to do in 2025, and where we're not ready to disclose any of that yet.
Speaker Change: Joe Let me just add to that there are other elements in drilling completion efficiencies, we have midstream investments that we make we have outside operated investments and part of our capital reduction.
Speaker Change: This year was due to laying down our Marcellus activity.
Speaker Change: Meant that we spent less on what we had planned on some water infrastructure to support our drilling programs. So there's a lot of moving parts to this in general, yes, we're achieving greater and greater capital efficiencies.
Speaker Change: You can't always just connect two points and drove straight line in the future.
Speaker Change: Okay.
Speaker Change: Helpful color.
Speaker Change: For sure.
Speaker Change: And then just wanted to get a get a little bit more thorough thought on M&A strategy, obviously, the balance sheets in terrific shape at this point in time, you just paid off.
Speaker Change: Another chunk of debt here, so as you kind of thinking about allocating capital.
In terms of your free cash flow how much this kind of M&A.
Speaker Change: To play into that are you still looking at kind of a number of deals out there yet you did mention.
Speaker Change: Mid con deal could be possible, but.
Speaker Change: Do you think that there's other maybe deals also in the Permian that could fit for you folks over time, and you still kind of seeing a lot of deal flow.
I wanted to just what I said on the Midcon deal was we would consider a smart bolt on.
Speaker Change: Look let me just answer that question abroad contacts us what really caused us to stretch yes, we.
Speaker Change: <unk> talked about it last quarter I spent a fair amount of time my opening remarks talking about our position on value creation and how a lot of M&A as we see it is flying a little too close to the ground.
Speaker Change: So you know the market has been our viewpoint been pretty aggressive market pricing has been fairly.
Speaker Change: Leaned forward.
Speaker Change: Also said we've been active in that marketplace. We've taken shots on goal and we don't have any regrets so I'm going to answer a question you didn't ask because what would cause us to stretch well. If we saw something that we could really build a new focus area on if we're a place that had really high quality rock.
Speaker Change: And in the area, we felt very comfortable from an operating environment that we could do what we do best in terms of build a capital efficient program and that <unk> could become another focus area of ours, we would consider stretching but.
Speaker Change: That's very theoretical I'm, just still wanted to give you an idea of how we think if it's just it's an asset that doesn't really do anything for us.
Speaker Change: We'd have to stick our neck out, we'd probably say no that's not going to fit our pistol.
Speaker Change: Okay. Thank you for the thorough response.
We'll move next to Charles Meade with Johnson Rice.
Yes, good morning, Tom Shane and Blake in the rest of the <unk> team there.
Charles Meade: Blake I wanted to go back I believe it was your comments talking about.
Charles Meade: How youre managing the Marcellus and I wanted to explore that a little bit more as a way to try to.
Charles Meade: Understand a bit better how you guys are going to.
<unk>. The Optionality you have for for more gas volumes are more gas activity.
Charles Meade: When I looked at your <unk> results it looks at least on the surface. It seems a little bit at odds to have seven tools in <unk>, but then you go back into a curtailment, but but I think an earlier questioner said, maybe maybe you brought those online just to dewater and shut her back and can you tell us how and I know you made the point that you look at.
Charles Meade: On a month to month basis, but the sequencing of how you would do.
Charles Meade: With our skills.
Charles Meade: Rigs completion crews are about how you would exercise your optionality if you chose to.
Charles Meade: Yeah.
Speaker Change: Look curtailments make til math hard I get that it's the.
Speaker Change: And this is all operationally driven and we need to dewater, new wells and so we won't hold those back to be part of our curtailment as I said, we look at every molecule once the capital has been sunk in the ground the same and so we're managing these curtailments on a field level month to month and that will include pinching back some new well.
It will include shutting in base production, so how would we respond to an increased gas market.
Obviously, the first is through curtailment lifting curtailments would be the first.
Speaker Change: We have some really great compression programs, we can speed up really quick to increase production that would be another way.
Speaker Change: Then getting back after D&C and we have shovel ready projects ready to go identified the team is waiting for the phone call. So if we if we see those signals, we'll cut them loose and we'll be able to respond but I think it's really important as Tom has said multiple times.
Speaker Change: We're willing to missed the front end of the return to not fully participate in the down cycle and that's really what we're doing right now.
Speaker Change: Got it that is helpful, particularly the up.
Speaker Change: Compression projects and then the follow up going back to the Delaware and you guys seem pretty pleased with your.
Speaker Change: Lee County, a bone Springs results I'm curious could you give us a sense of the size of the of the road projects that that you are you would choose to you there versus the versus your 57.
Speaker Change: Well Wyndham row project that you're working on right now.
Speaker Change: Yes.
Speaker Change: I wish we could duplicate Wyndham Roe across the Delaware Basin, it's really unique in Culberson County.
Speaker Change: That's our joint development area with Chevron, where together we control four contiguous townships we own all the infrastructure and midstream we have complete flexibility to operate at will and that's how we're able to capitalize on those efficiencies. So the roes are really unique to <unk>.
Speaker Change: <unk> I will say in new Mexico, because of all the stacked pay we have in all the benches, we can really maximize wells per pad, we can still get some great efficiencies on co mingling and just sharing infrastructure. So its a little more of a vertical row then it.
Speaker Change: As a horizontal row, but we're seeing a lot of efficiencies just going back and prosecuting benches, frankly and developments we've been after now for almost a decade.
Speaker Change: Got it that's great detail. Thank you.
Speaker Change: Okay.
Speaker Change: And our next question comes from Paul Cheng of Scotia Bank.
Speaker Change: Okay.
Hi, good morning, guys.
Paul Cheng: I just wanted to clarify when you're talking about the LNG sales contracts.
Speaker Change: The flexibility that not a nickname your own visa co molecule and instead buy from the market and just shake it all of that.
Speaker Change: Spontaneous or Keith and close sales and so you don't have that flexibility.
Speaker Change: Yeah. Unfortunately, Paul I can't give that kind of color on these deals you know I'll just I'll just echo again. These are netback sales deals directly tied to the foreign indexes we've listed.
Speaker Change: Okay.
And that four wall Hall that just curious what you guys think we were metal Matterhorn.
Speaker Change: <unk> two when we get the.
Speaker Change: Oaxaca gas price normal lives.
Speaker Change: Even at the start of <unk> metal.
Speaker Change: While hog gas pricing.
Speaker Change: Sure Brad So just curious that I mean, what do you guys have in mind.
Speaker Change: I think it will help for sure but it's by no means the final solution for <unk>.
Speaker Change: Gas growth in the Permian is separating from oil growth, we are seeing higher gas growth year after year, Youre seeing new projects already being announced and moving forward and so.
Speaker Change: Growing gas is going to continue to be a concern for wahaha and we're really focused on just how we manage our Permian portfolio and looking at all options to improve pricing there.
Speaker Change: Next we'll move to <unk> at Goldman Sachs.
Speaker Change: Hi, Good morning, and thank you for taking my question I was just wondering do you see any opportunities for smaller acreage additions second help further increase average lateral lengths across your portfolio and how are you thinking about the outlook for cost per foot an improvement on that front. Thank you.
Speaker Change: Yes, Greg This is Blake, yes, we see opportunities for smaller acreage traditions.
Blake: Frankly like in the Permian and our team there does this all day everyday there is theres lots of blocking and tackling that goes on within the basin is pretty much done in the form of trades.
Blake: Really acreage is the currency of the realm in the Delaware Basin and you have to have some to participate but we're constantly blocking up to get longer lateral lengths. We've put out our go forward cost per foot.
Blake: That we see as it is today going into.
Blake: If we had to <unk> all of these programs right now based on our current cost efficiencies and our current market rates.
Speaker Change: Thank you that's very helpful. And then for our next question I was just wondering if you could speak a bit to your view on the call for natural gas from an increased power demand over time I guess what are your latest thoughts on the incremental activity required from producers to meet this demand.
Shane Young: Yes, Shane here look I'll take that and there's probably a variety of opinions in.
Shane Young: In the room on that below.
Shane Young: We see that as a big driver a big call on gas.
As we look through the rest of this decade when it comes in exactly how big it is the materials that we look at the conversations that we have in study there is a bit of a wide berth of where that could ultimately end up blood.
Shane Young: I think I think there is a feeling that there is probably in the 30 to 40.
Shane Young: So maybe a little greater than 40% of that incremental power demand could ultimately come from natural gas fired power and.
Shane Young: And then it's got to have to be something like that that's got that kind of.
Shane Young: Reliability and dispatch ability. So so we're really excited about it and we can't wait to see it materialize.
Shane Young: And that manifests itself into.
Shane Young: The gas prices.
Shane Young: We study this as well as anybody can and we try to look at viewpoints that don't have economic or ideological vestment and the outcome.
Shane Young: And.
Shane Young: On my call a slightly higher number than chain in terms of the amount of incremental power demand that must come from natural gas.
Shane Young: There is no other solution in the timeframe in which this power will be required and the reliability of it will be required for this power. There is no solution available other than natural gas for the bulk of it so.
Shane Young: Even if you're at the low end of the projection it will be very very constructive for natural gas demand and we don't need much incremental demand to clear our supply.
Shane Young: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: And that concludes our Q&A session I will now turn the conference back over to Tom Jorden for closing remarks.
Tom Jorden: Well I just wanted to thank everybody for your interest your questions and your support of co chair, we intend to continue our operational cadence hopefully come to the market with clear and transparent communication of our long term strategy and continue to be top tier returns and all.
Speaker Change: In all aspects. So thank you very much.
Speaker Change: And this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.