Q4 2024 Coterra Energy Inc Earnings Call
Speaker Change: Senior Vice President of operations, Michael <unk> Senior Vice President of business units is also in the room to answer questions. Following our prepared remarks, we will take your questions. During our Q&A session. As a reminder, on today's call. We will make forward looking statements based on our current expectations. Additionally, some of our comments will reference non.
Speaker Change: 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.
Speaker Change: Thank you Dan and welcome to everyone. Joining us. This morning, we're pleased to discuss our fourth quarter and full year 'twenty 'twenty four results our plans for 2025 and our updated three year outlook.
Speaker Change: First co chair had an excellent fourth quarter, we achieved production levels above the high end of our guidance range for oil and natural gas with capital expenditures coming in near the low end of our guidance.
Speaker Change: We returned 61% of our free cash flow in the fourth quarter through dividends and share buybacks for the full year 2024, we returned 89% of our free cash flow most.
Speaker Change: Most importantly, we generated outstanding results in our capital investments in 2024, achieving financial returns that are robust durable and repeatable I want to commend our entire organization for delivering these exceptional results.
Speaker Change: Our 2025 capital plan aligns with the preliminary guidance, we provided during our November announcement regarding the Franklin Mountain and avant acquisitions in 2025 after folding in the newly acquired Permian assets, we expect to run in a consistent and highly capital efficient program.
Speaker Change: Cross each of our three operating regions.
Speaker Change: As always we maintain flexibility to pivot and reallocate capital as conditions warrant.
Speaker Change: We are closely monitoring gas markets and remain prepared to modestly accelerate our Marcellus program.
Speaker Change: The current positive outlook were to persist through mid year.
Speaker Change: This acceleration could add $50 million to our 2025 capital program, allowing culture to deliver incremental natural gas production volumes by early 2026, and time to capture winter pricing and respond to projected demand increases.
Speaker Change: Though our 'twenty to 'twenty five plan includes significant oil investments. We also have flexibility if oil market sort of wobble.
Speaker Change: Rest assured if we needed to adjust our capital plan during the year, we will do so thoughtfully and explained it thoroughly.
Speaker Change: Flexibility is the coin to the room.
Speaker Change: Regarding the Franklin Mountain at Avant acquisitions, we successfully closed both transactions in late January and are actively integrating these assets to optimize our capital and operational efficiency throughout our Permian operations.
Speaker Change: Want to congratulate our team for successfully completing these transactions.
Speaker Change: Acknowledged the professionalism of the Franklin Mountain at Avant teams during the final stages.
We also updated our three year outlook in yesterday's release.
Speaker Change: Two years ago, we were cautious in releasing our initial three year plan because of our experience in seeing others three year plans evaporate quickly with changing conditions.
Speaker Change: At that time, we communicated that our three year outlook was not a definitive plan, but a guide to what we could achieve under prevailing conditions.
Speaker Change: Since then we are pleased to have delivered and exceeded on our rolling three year projections. Our updated three year outlook released last night physicians co tariff for industry, leading profitable growth capital efficiency and reinvestment rates.
Speaker Change: Together these stem from our outstanding assets high performing organization and commitment to capital discipline.
Speaker Change: Team continues to be laser focused on maximizing return on capital and increasing per share value for our owners.
Shane: With that I will turn the call over to Shane for further details.
Shane: Thank you Tom and thank you everyone for joining us on today's call.
Shane: This morning, I'll focus on four areas.
Shane: First I'll discuss highlights from our fourth quarter and full year 2024 results.
Shane: Then I'll provide for production and capital guidance for the first quarter and full year 2025.
Shane: Next I will provide a new and updated three year production and capital outlook for 2025 through 2027.
Shane: Cooperating our recent acquisitions.
Shane: Finally, I will discuss our shareholder return program and outlook for deleveraging.
Shane: Okay.
Shane: Turning to our strong performance during the fourth quarter.
Shane: During the fourth quarter oil and natural gas production each came in over 3% above the high end of guidance.
Shane: Saw outperformance in new wells that came online in both the Permian as well as our new wells that came online in December and the Marcellus.
Shane: Turn in lines during the quarter were in line with expectations totaling just under 35 net wells with the Permian Anadarko and Marcellus all near the midpoint of guidance.
Shane: Additionally, we brought back all of our curtailed volumes in the Marcellus in early December.
Shane: Pre hedge revenue or over $1 $4 billion with oil being right at 50% of total revenue during the quarter.
Shane: We reported net income of $297 million or <unk> 40 per share and adjusted net income of $358 million or <unk> 49 per share.
Shane: We incurred capital in the fourth quarter were just above the low end of our guidance range with lower than expected outside operated activity as well as lower completion and post completion costs.
Shane: Discretionary cash flow for the quarter was $776 million and free cash flow was $351 million after cash capital expenditures.
Shane: For the full year 2020 for Terra generated outstanding results.
Shane: Total equivalent production beat the high end of our guidance range coming in at 677 Boe per day.
Oil production for the year exceeded the high end of our initial guidance by about 4% growing organically, 13% year over year and natural gas production was in line with the high end of our initial guide.
Shane: This outperformance was driven by a combination of beats on than expected well productivity and to a lesser extent accelerated timing.
Shane: Capital costs were just above the low end of the guidance range coming in at $1 $76 billion.
Shane: Driven by better than expected service costs and lower activity in the Marcellus and Anadarko basins.
Shane: This represents a 16% decrease in capital spending year over year as we continue to see greater capital efficiency across our program.
Shane: Cash operating costs per unit were near our guidance midpoint totaling $8 66 per Boe for the year.
Shane: Looking ahead to 2025.
Shane: We've already made significant progress integrating our newly acquired Permian assets into the <unk> program.
Shane: Both brands both transactions closed in late January and therefore, 2025 results will only reflect a partial month of January production from each of those assets.
Shane: During the first quarter of 2025, we expect total production to average between 710 and 750 <unk> per day oil is expected to be between 134, and 144 <unk> per day and natural gas is expected to be between $2 85, and three Bcf per day.
<unk> investment, we expect incurred capital in the first quarter to be between 525 and $625 million.
Okay.
Shane: For the full year 2025, we expect incur capital to be between $2, one and $2 4 billion.
Shane: As we increase activity and capital in the Permian basin with the assets of our recent transactions.
Shane: This range is consistent with the 2025 previewed released in November but with a few changes.
Shane: Specifically Permian spending is lower reflecting additional expected cost savings as well as capital synergies on our acquired properties.
While we won't realize all of these in 2025, we expect to achieve run rate synergies on these new assets of roughly $50 million.
Shane: This savings is not some reduced activity, but rather savings unexpected activity relative to costs achieved by the previous operators.
Shane: At the same time, we have added activity and capital in the Marcellus, reflecting improved natural gas fundamentals and a lower cost structure.
Shane: We have the flexibility if warranted.
Shane: To increase our investment later in the year, while staying within our guidance range. This additional capital will allow us to bring on incremental volumes next winter and stabilize our Marcellus production volume levels.
Shane: Also consistent with our 2025 preview we expect total production for the year will averaged seven 770 <unk> per day and oil is expected to be between 150 to 168 mbo per day or 47% higher year over year at the midpoint of oil guidance.
Shane: <unk>.
Shane: Natural gas is expected to be between $2 675, and $2 875 Bcf per day relatively flat year over year at the midpoint.
Shane: This delivered just over one tcf of gas on an annualized basis, providing significant leverage to an improving natural gas market.
Shane: Having only a partial month of January on the new assets impacts full year 2025 production by a little over four <unk> per day relative to the guidance, we previewed in November which assumes which assumed an illustrative January one 2025 closing date.
Shane: Reflecting on our new three year outlook.
Shane: As we have done over the past several years yesterday, we announced our new three year outlook for 2025 through 2027.
We believe there is a robust capital efficient plan that delivers consistent profitable growth for our shareholders.
Shane: We anticipate that we can deliver 5% or greater oil volume growth over this period and zero to 5% per Boe growth by investing between two one and $2 $4 billion of.
Shane: Of capital per year.
Shane: These growth rates include legacy Alterra organic growth in 2025 and include our recent acquisitions for 2026 and 2027.
Shane: This outlook reflects increased capital efficiency and is designed to afford to tear the flexibility to reallocate capital between our business units as market conditions change.
Shane: We believe this outlook is an attractive level of reinvestment and delivered meaningful free cash flow to underpin our shareholder returns and deleveraging goals.
Shane: Okay.
Shane: Turning to shareholder returns and deleveraging.
Shane: Last night, we announced a 22 per share dividend for the fourth quarter, increasing our annual base dividends by 5% to 88 per share.
Shane: This remains one of the highest yielding base dividends in the industry at over 3%.
Shane: Management and the board remain committed to reviewing increases in the base dividend on an annual cadence.
Shane: During 2024, despite soft natural gas prices and their impact on cash flow <unk> continued to execute on its shareholder return program by repurchasing 17 million shares for $464 million at an average price of approximately $26 41.
Shane: In total we returned 89% of free cash flow during the year are $1 $1 billion through repurchases and dividends.
Shane: During 2025, <unk> expects to prioritize deleveraging.
Shane: And under current conditions, we expect to repay our $1 billion of term loans.
Shane: We are focused on quickly getting our leverage back to home around 0.5 times net debt to EBITDA.
Shane: <unk> is committed to maintaining a fortress balance sheet that is strong in all phases of the commodity cycle, enabling us to take advantage of market opportunities and protects our shareholder return goals.
Shane: Assuming our current outlook, we would expect to return, 50% or more of annual free cash flow to shareholders in 2025 with a combination of our healthy base dividend and our share repurchase program.
Shane: In summary, <unk> delivered another exceptional fourth quarter and full year of high quality results, both operationally and financially and across all three business units. We've hit the ground running during the first few months of the year and expect to deliver solid first quarter results and 2025, which should set the foundation for <unk>.
Shane: Full year 2025 and beyond.
Shane: With that I'll hand, the call over to Blake to provide additional color and details on our operations.
Blake: Thanks, Shane as.
As we close out 2024 with another great quarter and lay out our new plan for 2025, we continue our mission of consistent improvement.
Blake: Whether it's our execution in the field the efficiency of our operations or the productivity of our assets. We are striving for consistent improvement on all fronts. This is a shared mission from the Houston office to the wellhead to constantly chase improvement and never settle for the status quo.
Blake: The 2025 plan, we have laid out said several new bars with the most Permian activity, we've ever deployed including a full year of culberson simultaneously a consistent program in the Anadarko and a return to the Marcellus, where we are armed with a new record low cost structure.
Speaker Change: As gene noted our 2024 capital came in on the low end driven by cost reductions and efficiencies while our production came in above the high end, thanks to improved cycle times and strong asset productivity.
Speaker Change: Importantly, co Tera operations executed on several key milestones in 2024.
Speaker Change: We deployed and executed on our first grid powered electric sample Fracs in Culberson County, we partnered with our Frac providers to develop new pumping strategies and automation, which set records in pumping hours across our fleets.
Speaker Change: After years of hard work and careful planning by our Marcellus team, we drilled and completed wells in the demick box, which could rank as one of the best lower Marcellus developments in field history.
Speaker Change: In conjunction with planned gas curtailments, we were able to bring these wells online to full rate in December capturing peak pricing for the winter months.
Speaker Change: We accomplished all this while improving upon our great safety performance in the field.
Speaker Change: Consistent improvement defined 2024, and now becomes the foundation for our 2025 program.
Speaker Change: We entered 2025 and the Permian running three Frac crews and 13 rigs we plan to run three crews all year and reduced to 10 rigs as we bring our efficiencies to bear on our new assets.
Speaker Change: Our 2025 Permian program is forecasted to cost $960 per foot down 6% from 2024.
Speaker Change: This lower cost structure is driven by efficiency gains we made throughout 2024, along with new competitive service contracts.
Speaker Change: When pairing our fully burden, Delaware cost structure of $960 per foot with our strong asset productivity, we're projecting another strong year for capital efficiency in the Permian.
Speaker Change: Our teams have been hard at work integrating our new assets into our Delaware ops machine they.
Speaker Change: They have taken on the new assets and are already finding ways to enhance our efficiencies and returns.
Speaker Change: By optimizing the new assets under one consistent Frac line, we are able to drop multiple rigs without sacrificing any planned frac activity or production. Additionally.
Speaker Change: Additionally, our teams have been hard at work optimizing frac designs pad layouts and directional programs.
Speaker Change: Which when combined with new service contracts reduces 2025, capex by 10% per foot or approximately $50 million compared to the previous programs.
Speaker Change: In Culberson County, we plan to run this time, a frac crew consistently all year as we continue to prosecute our row developments.
Speaker Change: Our initial 57, well development of Wyndham ROE is now complete.
Speaker Change: The completion of Wyndham row represents a significant milestone for kotara in.
Speaker Change: In total we invested $500 million in gross Capex and completed the project ahead of schedule with final costs coming in at $864 per foot, which is $10 per foot lower than we projected.
Speaker Change: These wells have been coming online over the last several months with our first three months of cumulative production exceeding expectations.
We have already begun the next to row developments, the 28, well Barbara ROE and the 62, well bowler row, both of which will co develop the upper Wolfcamp a.
Speaker Change: Culberson County row developments are some of the largest and most efficient projects in the shale patch and you can expect many more from kotara in the coming years.
Speaker Change: Turning to the Anadarko, we are building on the consistent activity over the last few years, which continues to improve our cost structure our.
Speaker Change: Our 2025 program in Anadarko is forecasted to come in at $1070 per foot down 18% from the previous year.
Speaker Change: We are excited to bring on our first three mile developments in the Anadarko and 2025.
Lower cost and a good mix of liquids and gas inventory continues to make our anadarko portfolio and attractive place to invest.
Speaker Change: In August of 2024, when facing depressed in basin pricing, we dropped all rigs in the Marcellus.
Speaker Change: We challenged our Marcellus team to attack, our cost structure and improve our capital efficiency to help us restore activity.
Speaker Change: The teams delivered by providing us with a highly efficient plan in 2025 that is anchored by a record low cost structure of $800 per foot.
Speaker Change: This dramatic reduction in cost structure is anchored by structural changes and includes the reengineering of upcoming projects, which increased our average lateral length by 60% compared to the prior plans.
Speaker Change: This long lateral program combined with lower service costs structurally lowers our breakeven costs and generates a strong 2025 program that we're excited to invest in our.
Speaker Change: Our current plan calls for two rigs starting back up in April as well as distributed frac activity throughout the year.
Speaker Change: We also have on ramps to increase activity throughout 2025 should gas markets continue to firm up.
On the marketing front, we continue to work hard and maximizing our gas sales portfolio.
Speaker Change: A strong winter has pulled down storage below the five year average bolstering the domestic indices, we sell into the.
Speaker Change: The ramp of Gulf Coast LNG has begun with record flows in February we continue to explore potential export deals to add to our existing international portfolio.
Speaker Change: We are seeing new calls on natural gas for power generation in the basins, we operate and we are working with power providers and power consumers to see how <unk> can help generate the electrons they required.
Speaker Change: <unk> is well positioned and poised to take advantage of this expected power demand across our portfolio.
Speaker Change: We are excited to announce a highly capital efficient 2025 plan and three year outlook and you can expect we will continue to see consistent improvement in all facets of our business.
Speaker Change: With that I'll turn it back to Tom for closing remarks. Thank you Shannon Blake, we're pleased with our continued execution in 2024 and expect to deliver on our goals outlined in our plans. We appreciate your interest and look forward to taking your questions.
Speaker Change: We are now opening the floor for a question and answer session I'd like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: We limit your questions to one question and one follow up.
Irene: Your first question comes from Irene <unk>.
Iran: Iran from J P. Morgan Your line is now open.
Speaker Change: Yeah, good morning team.
Speaker Change: My first question is I was wondering if you could discuss.
Speaker Change: Some of the key lessons learned from the Wyndham Roe.
Speaker Change: Including the interplay between the Wolfcamp and the harkey programs.
Speaker Change: And just some of the key learnings from that program as you look forward to a couple of more projects.
Speaker Change: Within Culberson this year, the <unk> Roe and the borrower Roe.
Speaker Change: Yes.
I'll take that one.
Speaker Change: Came on as we had forecast we see excellent reservoir performance. Our actual total production is right on top of our forecast.
Speaker Change: Outstanding results.
Speaker Change: We still have.
Speaker Change: We are in the data collection analyzing mode on the need to either co develop or Overfill later.
Speaker Change: But based on everything we're seeing we're very encouraged and we will continue to co develop where we can but it's still an open question.
Speaker Change: Going to invite Michael the shows or to comment on the accuracy runs our business Sharon's, Michael and any learnings from Wyndham row, Yes. Thank you Tom Arun, we've drilled over 40 harkey wells in Culberson to date and we have 30 more planned this year. So the six that we've co developed on the Wyndham ROE in the 16 that have been overfilled.
Speaker Change: That data is still coming in and like Tom said, we're going to be studying that over the next few months and that will guide our decisions moving forward, but with the current plan being to default to co develop that that's the path forward for <unk>.
Speaker Change: Okay. Thanks for that and my follow up there is some kind of nuances around the 2025 guide we've gotten some questions Ali could.
Speaker Change: Could you talk a little bit about.
Speaker Change: Maybe what's happening.
Speaker Change: <unk> on a sequential basis.
Speaker Change: But the broader comment was that it appears that you're kind of maintain being.
Speaker Change: Your.
Speaker Change: Guidance that you provided in November, but with one less months call. It of production from the acquired assets am I reading into that right is there just something.
Speaker Change: Youre basically maintaining that production guide, but with less days at call. It on the on the acquired assets just wanted to clarify that comment.
Speaker Change: Yes, Ryan this is Blake youre reading that right or.
Blake: Lot of work has gone on since the deal announcement, and we were able to bolster some of the production, which helps overcome that partial month in January so thats, what youre seeing there.
Blake: You also saw on the deck, we were able to pull out quite a bit of dollars in the Permian once our team really got their arms around the asset started driving some cost out of it.
And we've chosen to reallocate some of that to the Marcellus to get activity going there. So that's really what's going on.
Blake: <unk> on a sequential basis, it's just really some noise from the acquisitions on closing time and production, but also some till timing going on normal quarter over quarter type stuff that kind of sometimes it's a little lumpier than we like but activity wise its smooth and straight just like it always is.
Blake: Great. Thanks, a lot.
Speaker Change: Your next question comes from Neil Mehta from Goldman Sachs. Your line is now open.
Blake: Yes.
Neil Mehta: Tom chain team that does a couple of gas related questions in the Marcellus it looks like youre going to be restarting.
Blake: Two rigs in April and so.
Neil Mehta: Just can you walk through your thought process.
Blake: What's changed from November.
Blake: And.
Blake: Can you talk about potentially increasing capital here in the Marcellus in the second half.
Blake: If conditions warrant can you talk about what are the mouse milestones and goals post youre watching to say the market is giving you a signal.
Blake: To accelerate that activity.
Blake: Yeah.
Blake: Well, it's pretty simple the returns we're seeing in our program are now competitive at our current price outlook.
Blake: <unk> had a nice winner and we continue to light candles for increasing cold storage is looking much more positive.
Blake: The situation in Europe is looking interesting from a storage standpoint, we have ex LNG as is.
Blake: Like I said opening up so even though in many.
Blake: Many ways. The stars are aligning for constructive pricing throughout 2025, and enter 2026, but you know.
Blake: We don't want our program on hold so we're not going to make any decisions. We don't have to make if we see by by spring mid spring that these things are coming to pass will shell storage ins, we're prepared to either hold our current core steady or pick up the pace a little bit but.
Blake: Yes.
Blake: Very constructive outlook and we'd like to see that hold.
Neil Mehta: Neil it's all driven by the fundamentals and the economics.
Neil Mehta: Tom outlined there, but again just to put it in perspective quickly. This increase in activity is from zero to some activity. This is not.
Neil Mehta: <unk> characterize this as a leaning into a gas market as much as just restarting activity based on current fundamentals and economics.
Neil Mehta: Okay, that's great and then.
Neil Mehta: You talk about.
Neil Mehta: The 5% growth for oil on an organic basis.
Neil Mehta: And less of that on a Boe basis, and so you.
Neil Mehta: <unk> been active in the.
Neil Mehta: The A&D market here over the last five years. This what's your perspective post <unk>.
Neil Mehta: Franklin Mountain some of the other.
Speaker Change: Steve do you feel like you have.
Neil Mehta: <unk>.
Neil Mehta: Enough to say grace over or do you expect to continue to be active.
Neil Mehta: From an acquisition perspective on the go forward.
Neil Mehta: Well, we never target acquisition strategically.
Neil Mehta: Or tactically.
Neil Mehta: We don't intend to be a habit of being a serial acquirer, we wanted to be opportunistic when we see things that make sense for our organization for our asset mix and most importantly for our owners and that means we acquire them at a reasonable entry price.
Neil Mehta: Frankly, I'm out of the Nevada assets checked all those boxes and they were available and we were really really glad to pull both of those into our portfolio.
Speaker Change: We're already seeing as Blake said, some operational advantages to having those as we've seen that in through the overall program.
Speaker Change: And look if we had the opportunity to do that again, we would both but only if the opportunity to check all those boxes were not out there shopping at any point in time were.
Speaker Change: I think on a really nice inventory and we're not interested in diluting any of our value and the interest in getting bigger.
Speaker Change: Yes, it's all about entry cost and an organization that can exploit what you have so you know we're also looking at organic generation and leasing we've got a couple of things underway, none of which were prepared to talk about but things where the entry cost is attractive and there is a little different risk profile, but for.
Speaker Change: It's about creating value and we will create value in every direction we can.
Speaker Change: Tom.
Speaker Change: Your next question comes from <unk> Kumar from Mizuho. Your line is now open.
Kumar: Good morning, Tom Shane and team.
Speaker Change: Follow up on the gas side to start with you highlighted some really strong momentum in terms of capital efficiencies in the Marcellus but.
Speaker Change: Even including the potential 15 million of exploration.
Speaker Change: Later this year you are still well below what you describe as your maintenance spend of about $450 million, So and you're only doing about 10 to 15 wells, which is sort of what you did last year. So when do you expect.
Speaker Change: To get to sort of a run rate in the Marcellus, where you're holding somewhere about two bcf a day flat.
Yes.
Speaker Change: Shane made the key point and that is we shut all of our activity down in 2024 and that was the right answer and.
Speaker Change: Don't have time in this call to go into in great detail, but not every operator is able to do that because over the last year or two we put a lot of effort into water handling in the Marcellus and put co chair of owners in a position, where we had complete flexibility there.
Speaker Change: And so as we restart the program the restart what it really does is arrest that decline because.
Speaker Change: You have zero activity in shale reservoirs, we all know they're high decline and really puts us on a trajectory of growth you mentioned that two bcf per day target in the Marcellus we'd be back on our way to that in mid to late 'twenty six near the 2007.
Speaker Change: It would involve returning to something thats above that maintenance capital and you quoted but look we're ready to go there or not depending on conditions, but the conditions today tell US you know these are great investments that can be for capital lists to arrest that decline and have some incremental volumes ready for.
Speaker Change: For winter pricing mix next winter.
Speaker Change: And then one other point.
Speaker Change: Take your point on sort of capital versus maintenance capital, but keep in mind the team as they sort of reengineer the plan up in the Marcellus significantly extended the lateral length of these so if you look at the sales in the 2025 plan, which we can outline the links a little better on page 21 of the deck we posted.
Speaker Change: Last night, Youll see there meaningfully longer than the historical averages.
Speaker Change: Great. Thanks for the detail there.
Shane: Shane speaking of the.
Speaker Change: The deck I noticed slide 19, you talk a little bit about your power and midstream infrastructure in the Permian.
Speaker Change: Some of your peers and partners have talked about power generation and supplying power for data centers.
Speaker Change: Out of the Permian you have some capacity is this an area where you are looking at opportunities and maybe give us a lay of the land in terms of <unk>.
Speaker Change: Risks and risks and opportunities there that you are seeing.
Speaker Change: Yeah. Nick this is Blake I'll take that one.
Blake: Short answer is yes, we are we were very much engaged in those discussions.
Blake: The wall Hog gas molecule is very advantageous for power generation and so it has brought in a lot of parties that are interested in not just generating baseload power, but also data center loads and so we're in discussions with all those everything from good old fashion combined cycle plants to behind the meter type power.
Blake: Solutions for data centers.
Blake: It's not the.
Blake: Clearest landscape to understand I think everyone's still trying to figure out exactly what the end state looks like but we have so many molecules in so many places that we're really well positioned to take advantage of some of this in <unk>.
Blake: We'll have some good announcements coming before too long on this.
Blake: Great. We're looking forward to those thanks guys.
Blake: Okay.
Speaker Change: Your next question comes from Neal Dingmann from Jewish Securities. Your line is now.
Neal Dingmann: Hi, Good morning, Thanks for the time guys. My first question just on the continued operational efficiency improvement.
Neal Dingmann: Like in the slide you clearly are demonstrating the upside you're seeing here I'm just wondering maybe for Blake just like.
Speaker Change: Are you seeing this maybe talk about potential further opportunities both in the Permian and then are you expecting the same sort of upside in the Marcellus as well.
Blake: Yeah sure Neal happy to talk about efficiencies anytime.
Blake: When I look back on 24, the three areas that we really focus on and drilling drilled feet per day. These huge projects road drilling, but even outside of our Roes in Culberson County are well, our well counts on our projects are so large now that our rigs just stay camped out minimize modes and.
Blake: We hit a record drilling feet per day across our whole fleet and 24 on the Frac side, our frac efficiencies are up dramatically year over year and that's due to some strategies that we've been working with our Frac partners on that really focus on maximizing all of the available horsepower and minimizing transition times.
Blake: We have transition times now that are averaging close to 20 minutes between stages, which is pretty unheard of from a few years ago and then lastly, you know.
Blake: We're always really focused on well treble its not a matter of if it's a matter of when we took a lot of holes in the ground and things go wrong, sometimes but we have a really rigorous program to deal with well treble and to get out of it as quickly and cost effectively as we can and so those three things are always at play.
Blake: They will continue to be a play throughout 'twenty five something new we're spending a lot of time and energy on not necessarily new but I think is gaining more traction is just our focus on frac design.
Blake: Take your Lee on these bone spring sands and shallower zones across the Mexico that we're prosecuting with the help of our ml models really right sizing our fracs youre seeing.
Blake: Maybe in some cases, we can get the same productivity at a lower cost some of that made up you saw in our synergies on the new assets and that's just a really exciting frontier for us we're going to keep pushing Frac design heart.
Blake: Great details and then just a second and maybe the upcoming return of your Marcellus activity I'm, specifically wondering.
Speaker Change: Will the focus continue to be primarily on lower Marcellus will you be able to co developed several of the areas focused on both the lower and the upper.
Blake: Yes, Neal it's Michael here.
Speaker Change: We will be returning to the box in 2020.
Speaker Change: 25, and over filling with some upper Marcellus wells, but co development is also in the plans for the box as we move forward as well so that we will see increasing amounts of.
Speaker Change: Upper Marcellus as a part of our program and I don't think its a surprise to anyone that thats, a little lower in terms of productivity than they the lower Marcellus, but I think the context is important in the lower Marcellus as some of the best shale rock in the lower 48. So you will see our program move more to the upper overtime, but with lateral length.
Speaker Change: Improving our capital efficiency it will allow us still to hold our production flat at that two Bcf number that we've talked about and I think that's better than a lot of the other gas shale plays that are out there.
I also wanted to add getting that cost structure down is huge for the Marcellus is really a testament to that team.
Speaker Change: Part of why we like to be multi basin. Because every now and then you wanted to send teams back to the drawing board and have other places to take your capital and they went back to the drawing board and they came up with some incredible innovations we mentioned the long laterals well design water handling that cost really mix, both the lower and upper <unk>.
Speaker Change: Much much more attractive to us and they have been.
Speaker Change: 12, or 18 months ago.
Speaker Change: Thanks for the AD. Thanks Neal.
Speaker Change: Okay.
Speaker Change: Your next question comes from David <unk> from TD Cowen. Your line is now open.
Tom Sheehan: Good morning, Tom Sheehan, everyone. Thanks for taking my questions.
Tom I was just curious.
Speaker Change: About the Marcellus program, a little bit more for 'twenty five the lateral lengths are obviously significantly longer this year excuse me, especially in the upper Marcellus.
Speaker Change: Should we think about that as the go forward plan in future years.
Speaker Change: I guess, how did you guys sort of approach that development plan versus perhaps like cannibalize or weighing that as a cannibalization of inventory or is it just a.
Speaker Change: This is just the most optimum kind of PV over Ray.
Speaker Change: Yes.
Speaker Change: Look that's a great question.
Speaker Change: Cannibalization of inventory is that.
Speaker Change: I would just reject that premise.
Speaker Change: Inventory is best exploited in the most capital efficient way. So we don't count sticks, and we don't give ourselves metals for the number of sticks effect. If you can reduce the number of wells you drill and generate higher returns spending lower and generate the same volumes. That's that's the right way to price.
Speaker Change: Future inventory and we've seen that I know your question is on the Marcellus, but you've seen us talk about that in the Permian, where we have examples where we're drilling fewer wells and offset operators and yet cumulative production is equal to our neighbors.
Speaker Change: No.
Speaker Change: Sure.
Speaker Change: We're very much we loved the long laterals. It's also really good for that environment. This was this was not the Permian basin is this is very pristine.
Speaker Change: Rolling Hills Theres, a lot of farms in.
Speaker Change: Dairy operations going on there, we really try to minimize our impact on our community and these lower longer laterals Lotus build fewer pads less capital on hookups. It's just a win win in every direction. You look so we're going to continue to try to find that everywhere we can.
Speaker Change: I appreciate that and I guess I just wanted to clarify just the remarks.
Speaker Change: As a lot of this Marcellus activity appears to be more back half weighted.
Speaker Change: I guess, how much of that.
Speaker Change: Sort of overall budget should we think of as being kind of contingent on continued strength in the gas curve.
Speaker Change: Well, we said in our opening remarks.
Speaker Change: The midpoint is not contingent the midpoint says you know, what we're probably going to get to lay.
Speaker Change: Placement activity down midyear.
Speaker Change: But if we were to continue as a pace they would.
Speaker Change: It add about $50 million to our capital program and look you know when we get there and make that decision I think it'll be obvious because we're all going to be watching strength in gas markets. It's just still there've been times when that strengthening gas market has been a mirage and we have the ability.
Speaker Change: <unk> not commit and that's kind of we're going to take that luxury to the very last day.
Okay.
Appreciate the color John.
Speaker Change: Sure.
Speaker Change: Your next question comes from Derrick Whitfield from Texas Capital. Your line is now open.
Derrick Whitfield: Good morning, and thanks for taking my questions.
I wanted to focus on the gas market with my first question regarding the three year outlook. There's clearly a lot of optionality built into your growth outlook and volume returning activity to the Marcellus and highlight the potential to further add activity. It would seem the macro environment. We're seeing now is perhaps the most constructive on what we've seen in well over a decade.
Derrick Whitfield: We understand that there is a.
Derrick Whitfield: Capital tension between the Permian and gas assets would you expect both Anadarko and Marcellus to return to growth over the next three years at the gas market plays out as the strip indicates.
Florida I hope so.
Derrick Whitfield: I mean, that's what.
Derrick Whitfield: That's why we have these assets.
Derrick Whitfield: It's just fascinating to see the components of our cash flow ebb and flow with couponing markets, but one consistency is our overall cash flow and our ability to maintain consistent programs across our platform.
Derrick Whitfield: I'll, let Blake comment on this but we just we love the competition between different parts of our portfolio, we love the tough decisions that puts upon us.
Derrick Whitfield: And we love the way our teams fight for capital by trying to become more and more efficient yes.
Derrick Whitfield: Yes.
Tom Sheehan: I would just echo Tom that would that would be great problem to have if we had a record gas prices to drive these basins, but I always think it's important to reiterate we're not targeting targeting growth. We're targeting returns that's what underlies our capital allocation program. If we saw sustained gas prices, which elevated those returns naturally capital would flow.
Derrick Whitfield: They're in.
Derrick Whitfield: The result might be gas growth, but it is a very dynamic gas market that were a part of now we don't just worry about winter anymore. We watch LNG flows everyday we watch trains we launched the power demand story very closely.
Derrick Whitfield: And now we're watching international pricing because they can move Henry hub, so they're much more dynamic market than it used to be and we position ourselves to be ready to take advantage of it if and when and plays out.
Derrick Whitfield: I think it's also important to add that the price ratios Matt.
Derrick Whitfield: A matter as well, it's not just the gas price itself, but we're allocating capital across all three business units and so we're watching closely how those economics change in terms of Permian, our Marcellus and Anadarko Alan.
Derrick Whitfield: Allocations based on the relative oil and gas stream. So.
Derrick Whitfield: That's an important component to also think about.
Derrick Whitfield: Makes sense and going back to slide 19 for my follow up.
Derrick Whitfield: There's been a lot of discussion on downstream partnerships to support the build out of data centers as you guys had highlighted.
Speaker Change: Could you, perhaps speak to where those conversations are for you and what basins and what role you would like to play in that arena more broadly.
Derrick Whitfield: Yes.
Derrick Whitfield: I'd say the Permian is probably the one we are spending the most time on although we have we have inbounds in the Anadarko.
Derrick Whitfield: Marcellus is well, it's really that Walt.
Derrick Whitfield: <unk> gas molecules, which seems to be attracting a lot of it.
Derrick Whitfield: The power providers, but like I mentioned earlier commercially this is still very unchartered waters.
Derrick Whitfield: Trying to find long term commercial deals and anchor gas supplies is a difficult task.
Derrick Whitfield: So I still see a lot of room for negotiation in this space.
Derrick Whitfield: We'll see how it plays out.
Derrick Whitfield: I might remind the listener we already have a fair amount of power pricing in our Marcellus gas portfolio.
And we are working on bolstering that we'd like to see a little more power pricing in our natural gas delivery absolutely.
Derrick Whitfield: Thanks, Hey, guys.
Derrick Whitfield: Okay.
Speaker Change: Your next question comes from Josh Silverstein from UBS Financial your line is now open.
Josh Silverstein: Thanks, guys just stick out on the gas theme.
Josh Silverstein: If you did want to ramp gas volumes further could you do it in the Marcellus or is that tapped out from a capacity standpoint, and you'd have to start adding capex to the Anadarko.
Josh Silverstein: I mean as far as takeaway no. It's not it's not capped out were down quite a bit from our all time highs and so is the northeast in general volumes are down so there's there's rooms and those types to grow <unk>.
Josh Silverstein: Generally the more volumes, we stack on we're getting into a little more expensive ft, but that has to be accounted for in our drilling decisions. That's all taken taken into our incremental decisions. So, but yes, we could grow volumes.
Speaker Change: Got it and then Shane you.
Josh Silverstein: You mentioned the $1 billion of debt reduction for this year.
Josh Silverstein: Is the buyback on hold until that is complete or we do some some buybacks. During this process as well and then ramp the buyback after the $1 billion is achieved.
Speaker Change: Yes, Thanks, Josh.
Speaker Change: Buyback buybacks not on hold but we are going to prioritize debt repayment. So if you think about it over the course of the year and we sort of laid out some illustrative free cash flow scenarios and a few of the pages there.
Speaker Change: And some of which sort of leaves room for both buybacks and term loan repayment and like the current environment that we're in but even in that case I would expect.
Speaker Change: To see that the buyback more backend loaded in the term loan pay down more front end loaded just as we go through the year, but but not necessarily at the it's not turned off I will tell you that we would certainly look to be opportunistic and and we'd still have a still do have a buyback program. So it's not turned off or paying down our term loans.
Speaker Change: Got it thanks guys.
Speaker Change: Next question comes from Scott Gruber from Citigroup. Your line is now open.
Scott Gruber: Yes, good morning, I wanted to come back to the growth capital allocation, just given the macro backdrop.
Scott Gruber: So if gas does stay constructive, let's say, it's $4 along the curve and oils kind of flattish at 70.
Speaker Change: How would you allocate gross dollars between the Marcellus and the Anadarko in that environment.
Speaker Change: Well, it's not complicated it's absolutely going to be on return on investment and what we think generates the best financial outcome.
Speaker Change: So it's always a horse trade.
Speaker Change: We have outstanding gas assets, then Darko and those who assets also have natural gas liquids, so depending on where that pricing falls.
Speaker Change: Of returns can be competitive so it's all about competition and.
Speaker Change: With current with current gas prices current forecast and current outlook.
Speaker Change: <unk> Marcellus dry gas is competing nicely.
Speaker Change: Okay.
Speaker Change: Got it got it.
Speaker Change: And then turning to development costs.
Speaker Change: And looking at across your Delaware position in Culberson, obviously leads the pack with the row development and all the infrastructure you have.
Speaker Change: In place there with your partner.
Speaker Change: But as Lee County becomes a bigger percentage of your activity can you talk about the path to close the cost gap.
Speaker Change: As you think about that three year plan, yes can we see that cost gap closed materially.
Oh I sure hope we continue to see a closed materially that's what our teams are hard at work at as we've talked about before culberson is pretty unique.
Speaker Change: We own and we own and operate four consecutive townships and all the infrastructure inside of it. So it gives us tremendous flexibility in how we build capitally efficient programs, but we think we've created the bones of that with these new assets. We just brought in and we've built a large block.
Speaker Change: There are some existing <unk>.
Speaker Change: Marketing contracts and things like that they were working through now to try to optimize long term, but there are some midstream assets that we now own and control that we're looking at very closely also.
Speaker Change: Power is a big story in that part of the World. We're looking very closely at power what kind of power are going to need over the next several years and how we might be able to get a jump on that and expanded so yes I have no delusions. Our goal is to use our same economies of scale in Lea County that we've used in culberson over the years.
Speaker Change: I appreciate the color. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from Kelly.
Speaker Change: From Bank of America. Your line is now open.
Speaker Change: Hey, good morning, guys, Tom Saine Blake.
Speaker Change: For my first question can you talk about your unit Opex guide it seems to be moving up meaningfully year over year, just want to understand what's driving that is that the new Permian assets and if so do you see a pathway here to grind it down.
Speaker Change: Yes, sure. This is blake having to take that yes.
Speaker Change: A lot of it is the new assets. So the assets are very oily.
Speaker Change: Low GOR, so higher per unit costs on LOE, but also a fantastic margins.
Speaker Change: So that's impacting our overall unit cost and then now just the way the mix works at COSE here with these new assets more boe's from oil.
Speaker Change: Compared to our Boe's from gas in Marcellus and Anadarko, it's tilting that per unit cost.
Speaker Change: Got it that makes sense Blake on your oil guide for 2025 132 to 168 at the high end appears to imply Permian oil jumping significantly in the second half of this year.
Speaker Change: Thoughts on where Permian oil can exit the year.
Speaker Change: No not not really going to quote an exit rate for 2025.
Speaker Change: Steady and up to the right consistent consistent growth as what these programs generate steady activity is really.
Whats running all year long.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Your next question comes from Matt <unk> from D. Ph. Your line is now open.
Speaker Change: Good morning, all just circling back around on the gas assets, Tom I think two quarters ago, you talked about the upper Marcellus thresholds from a return perspective needing kind of a mid threes hurdle to allocate capital to the asset obviously strips well above that today, but I was just curious from a.
Speaker Change: Longer term perspective, with the increased lateral length and the lower well costs that you guys have been able to achieve where do you think that new threshold is for the upper Marcellus specifically.
Speaker Change: Yes, Matt I think I would still call it mid threes.
Speaker Change: We're watching those gas markets carefully we really like some of the force that creep up into that profile, but it's.
Speaker Change: As I've talked in the past, it's not just about our projected return at current prices. It's also about what could happen if that price were to fall and how much resiliency do you have in your program.
Speaker Change: We were looking at our Permian program recently.
Speaker Change: We can take that received price in the Permian.
Speaker Change: If it were to fall to $40 oil and stay there forever or 2024 program fully burdened with all overhead.
Speaker Change: <unk> generates a return well in excess of our cost of capital.
Speaker Change: And so that's that's our we like that that's resilience that means you can make investments and you can have high degree of confidence that the cycles and price file will not turn those investments south on you and so it's not just pricing in the gas markets. Its resiliency and Thats why were looking at increasing demand we're looking at increasing.
LNG exports, we're looking at what's happening not only domestically, but globally, we're looking at our new energy team in Washington, and some of the changes that they are bringing to the floor and we are very optimistic about our structural reset that increases the resiliency of gas investments.
Speaker Change: Great and then just as a follow up for the Marcellus from one of the prior questions with the two rigs that you guys have running starting in April if you were to hold those in place is there any color you might be able to provide in terms of how many wells you could drill for the remainder of this year and then any incremental color you might be.
Speaker Change: I'm going to provide on the split between the upper and lower Marcellus program for that drilling program. This year.
Speaker Change: Yeah, Matt we're just not prepared to provide that kind of guidance around our future pivot point and not don't mean to Dodge that it's just we have about five pivot points we've modeled in.
Speaker Change: Just.
Speaker Change: Thats just more detail than I think would be productive.
Speaker Change: Understood. Thanks.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We will be moving on our next question comes from John Abbott from Wolfe Research. Your line is now open.
Speaker Change: Good morning, and thank you for taking our questions I'm on for Doug Leggate.
Speaker Change: Maybe just a couple of quick ones here.
Speaker Change: You just did the acquisitions.
Speaker Change: Any thought on the impact to future cash taxes at this point in time.
Shane: Maybe that goes to you there Shane.
Shane: Yes, no I appreciate that.
Shane: So yes, a couple of things I'll say, one from a tax perspective, we are still in the middle of sort of booking our allocations. So this will be refined over time and I think as we get into the <unk>.
Shane: Into the first quarter, yes, we will probably have something a little better I would tell you.
Shane: I would guide for an effective tax rate perspective in the 20% to 25% area we.
Shane: We are open sort of be in the middle of that range and then I think we will see some improvement from bringing over all of that basis into into our tax base Ecoterra and again, we're trying to refine our view on exactly what that impact will be but I would say of that effective tax rate. Okay. Good working assumption for.
Shane: The moment would be 90% to 100%.
Shane: On a cash basis.
Shane: Which is a little bit of an improvement from where we were in 2024.
Shane: But that will probably be a good rate to modeling going forward.
Shane: I appreciate it and just quickly for the second question here I mean, we continue to see strong efficiencies here.
Shane: Given that you've given us your updated three year guide when you sort of look at the Permian asset.
Shane: You now have about 15 years of inventory inventory to fund is always better than the back.
Shane: At what point do you think.
Shane: Looking out into the future that you could see a potential change in capital intensity at this point given the efficiencies that you've achieved.
Blake: Yes, John this is Blake I.
Blake: I would say what's interesting is this inventory we're drilling today didn't look as good as it is a few years ago, we are constantly improving our near term inventory through all the different capital efficient things, we've talked about and so we don't really view it as some stark inflection point in the future.
Blake: You will see us migrate to different zones. Besides just the wolfcamp a throughout time, but I'm continually impressed at how our teams find ways to really generate capital efficiencies from these other zones and I would expect that to continue.
Blake: I appreciate it thank you very much for fitting us in.
Speaker Change: Your next question comes from Leo Mariani from Roth.
Speaker Change: Your line is now.
Leo Mariani: Yes, Hi wanted to continue to focus a little bit here on the Marcellus I think you guys made some comments in your prepared remarks here that you guys were able to drill.
Speaker Change: Again for the first time in a while I know that's been kind of opened up a bit there I was hoping you could basically help us out by kind of quantifying.
Speaker Change: Lee kind of how much runway is there an in demand I don't know if you want to talk about it in terms of wells or years, two years to drill with say, a one rig program or something.
Michael: Yeah. This is Michael.
Michael: Like I said earlier, we will be going back into the <unk> box in 2025 and drilling some overfill wells on top of our existing lower so there'll be some upper Marcellus wells will be drilled and we're excited to see those wells come on and then moving into 26 in the out years. There is a the north side of the box is still not developed fully.
Michael: We will be able to come back in with new longer laterals and fewer well bores than we anticipated.
Michael: At our original plan and Thats some of that cost efficiency in dollar per foot savings that we've been talking about is the team. During this period, where there wasn't as much activity really spent a lot of time trying to optimize the developments in the box and make sure that we were able to make them as capital efficient as possible and they were able to reduce the capital.
Michael: Costs in that development development by over $50 million. So, yes, youre going to see continued activity from us in the coming years in the box.
Michael: Okay, and then just to follow up here on the gas side, just wanted to get a high level sense. I know you guys said that you're obviously going to approach this with a little bit of caution has been head fakes on gas over the years, but you're kind of at today's price is call it $4 Henry hub and in $70 Debbie Ti how do the returns compare and you are kind of the traditional Permian.
Michael: Program versus the lower Marcellus today.
Michael: Theyre very comparable and if we had certainly assurance of that.
Michael: Probably pull that lever.
Michael: But they are quite comparable in the range you talked about.
Michael: Thank you.
Michael: Okay.
Paul Cheng: Next question comes from Paul Cheng from Scotiabank. Your line is weather down in Miami. Thank you Ed.
Speaker Change: I'm going to add Paul So then they abate largely in the background.
Tom Sheehan: Tom and gray in.
Paul Cheng: In Marcellus.
Speaker Change: Even if the economic yes good.
Speaker Change: Kevin We saw then you're saying that you have about 12 years of inventory.
Speaker Change: What should we assume with the maximum botox.
Speaker Change: For all of that that payment that you.
Speaker Change: Could you expand on why.
Speaker Change: Yes.
Speaker Change: I'll, just we don't manage our company by production I think we managed by returns.
Speaker Change: And this is one of the things that we're looking at right. Now is what is our market for that gas returned to find new markets trying to bolster our weighted average sales price.
Speaker Change: Yes.
Speaker Change: I don't think you'd see us re.
Speaker Change: Turn to the growth trajectory that we had a decade ago, but very very slow and steady single digit growth is certainly something that.
Speaker Change: Might be an outcome I would say that but look even maintenance capital at <unk> level would be just fine with the right weighted average sales price.
Speaker Change: Great.
Speaker Change: And also that can you give us some idea at that point.
Speaker Change: By quarters.
Speaker Change: House.
Speaker Change: Well coming on stream and also the Capex is going to trend like are they going to be reliable.
Speaker Change: I'd note that etcetera.
Speaker Change: We're going to start to weaken by April but should we assume that subsequently that is just going to be valuable and also how about in the Permian. Thank you.
Speaker Change: Yeah. This is Blake I'm, not really going to give like quarter to quarter guys I would just say.
Speaker Change: Due to the due to the planned in the Marcellus Youll see those two rigs start naturally there's a little lumpiness with getting back to work and just bringing frac activity back.
Speaker Change: But in the Permian, it's really driven by our Frac crews, we run three steady crews and that tends to even out all our growth there.
Speaker Change: Yes.
Speaker Change: Visually give you an idea sort of what the year looks like from an activity standpoint.
Speaker Change: Yes.
Speaker Change: Which should correlate a little bit towards capital overtime.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you I would now like to hand, the call over back to Tom Jorden for final remarks.
Speaker Change: Well. Thank you everybody. We appreciate your questions and we look forward to delivering on all of our plans for 2025 and the out years. Thank you very much.
Speaker Change: Okay.
Speaker Change: Thank you for attending today's conference call you may now disconnect.
Speaker Change: [music].