Q1 2025 Coterra Energy Inc Earnings Call
Kayla: Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time I'd like to welcome everyone to the Coterra Energy first quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise.
Kayla: After the speaker's remarks, there will be a question and an answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star and one. [inaudible]
Kayla: I would now like to turn the call over to Dan Guffey, VP of Finance, Investor Relations and Treasurer, you may begin.
Dan Guffey: Thank you, Kayla. Good morning and thank you for joining Coterra Energy's first quarter 2025 earnings conference call.
Speaker Change: Today's prepared remarks will include an overview from Tom Jordan, Chairman, CEO , and President, Jane Young, Executive Vice President, and CFO .
Speaker Change: and Blake Sirgo, Senior Vice President of Operations. Michael Deshazer, Senior Vice President of Business Units is also in the room. Following our prepared remarks, we will take your questions during our Q&A session.
Speaker Change: As a reminder, on today's call, we will make forward looking statements based on our current expectations. Additionally, some of our comments will reference non-GAB financial measures.
Tom Jorden: Ford Looking Statements and other disclaimers as well as reconciliation to the most directly comparable GAAP financial measures or 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 thank you for all of you who are joining us on this call. Coterra had an excellent first quarter. We delivered oil production near the high end of our guidance and natural gas production that exceeded the high end of our guidance.
Tom Jorden: CapEx came in near the low end of our guidance. Furthermore, we generated excellent financial results, returned a substantial portion of our free cash to our owners and retired $250 million of our term loans.
Tom Jorden: We closed on the Franklin Mountain and Avant acquisitions and immediately launched into the job of integrating these high quality assets into our operations.
Tom Jorden: We are pleased to report that we have identified and captured significant operational efficiencies are bringing these new assets into emissions performance consistent with Coterra standards and have seen well performance on recent flowbacks that exceeds our expectations.
Speaker Change: Shane and Blake will provide more detail on our financial and operational results and outlook.
Speaker Change: We hope that you will note that the opening slide in our updated investor deck discusses who is Coterra and why own Coterra.
Speaker Change: We think that the recent volatility in the commodity markets uncertainty over the impact of tariffs and fears of recessions strengthened the core thesis of why Coterra simply put, we were built for this [inaudible]
Speaker Change: Coterra is an arc, not a party boat. Our diversified revenue, low cost oil and natural gas supply, technology driven organization, economic focus and financial discipline make us tailor made to ride out this storm and thrive in it.
Speaker Change: Slide four in our deck illustrates the resiliency of our cash flow under various oil and natural gas price scenarios.
None of us can predict the future.
Speaker Change: Nonetheless, Coterra is a company that can generate significant free cash flow through the cycles, generate outstanding returns and modest growth with a low reinvestment rate and maintain a pristine balance sheet.
Speaker Change: This is a testament to our organization, our assets, and our culture. Why Coterra? The question answers itself in times like these.
Speaker Change: Commodity down drafts are a part of our business. They do not come pre-labeled with how long they will last, nor how severe they will be. Our experience tells us that in times like these, it is better to err on the side of caution. [inaudible]
Speaker Change: We have more concern regarding the oil outlook rather than the natural gas.
Speaker Change: Consequently, we are modestly pulling back some activity in the Permian Basin and then commandfully adding activity in the Marcellus Shale.
Speaker Change: In aggregate, these moves will reduce our projected 2025 CapEx by $100M $100M.
Speaker Change: We have plans on the shelf to make further moves up or down if we see material changes in our outlook. Our team continues to put tremendous effort into plan iterations and we are ready for a wide range of potential scenarios.
Speaker Change: In particular, the net 100 million reduction in 2025 CAPEX is a combination of 150 million of reductions in the Permian coupled with 50 million of increases in the Marcellas.
Speaker Change: We have contingency plans that would allow us to make additional cuts from the Permian if oil prices continue to weaken.
Speaker Change: We could redeploy to highly profitable gas opportunities, advance debt retirement, pursue opportunistic buybacks, or bank the savings. Shane will comment further on this.
Speaker Change: We have described our approach to capital allocation and planning as the difference between a rifle shot and the guided missile.
Once the trigger is pulled, the rifle shot is unchangeable.
Speaker Change: The guided missile can be adjusted and repositioned along the way.
Speaker Change: In the case of our current macro environment, we not only have a guided missile, but we have a moving and unpredictable target.
Speaker Change: This screams for flexibility, with low cost of supply, oil and natural gas assets, robust drilling returns, few long-term vendor commitments, and a culture that is adaptive, we will guide our way through 2025 and beyond.
Speaker Change: We are committed to debt reduction in 2025, particularly pertaining to the $1 billion term loan that we executed in conjunction with our recent acquisition.
Speaker Change: As we have said, we never lose a moment's sleep worrying about our debt being too low. We have seen our peers go through existential crises during significant down drafts, and we are committed to make sure that Coterra can sail through any storm and emerge stronger because of it.
Speaker Change: Finally, I want to make a few remarks about our recently completed Wyndham Rail Project. To recap, the Wyndham Rail in Fill Project contains 73 total wells, 51 Wolf Camp wells, and 22 Harkey wells.
Speaker Change: Our results on the Wolf Camp wells have been outstanding. While completing the hierarchy wells, however, we notice abnormally high water production on a handful of wells. We have strong evidence to suggest that this is due to behind pipe water flow from shallower zones. [inaudible]
Speaker Change: We have drilled harky wells throughout our assets in New Mexico and Texas, and have only observed this phenomenon in the eastern portion of our Coberson County acreage blocks.
Speaker Change: It is not a reservoir nor a spacing issue. This is also not a co-development or overfill issue. The evidence points to this being a near well-bored mechanical issue. We think that it is fixable and we have well remediation solutions underway.
Speaker Change: we are very encouraged by the results that we have seen thus far.
Speaker Change: While we work through well-bore remediation, we are pausing hierarchy development in this local area. It doesn't make any sense for us to continue to drill and complete hierarchy wells in this immediate area until we are fully satisfied that we have solved the issue.
Speaker Change: We expect to correct the issue during the second quarter and restore these hierarchy wells to production.
Speaker Change: We believe the Go Forward production forecast for the affected wells is conservative, providing potential
Speaker Change: With this pause on local hierarchy development, we are pivoting to our highly productive Wolf Camp. Ironically, this will increase our capital efficiency. Our full-year production guide remains unchanged with our capital guide decreasing slightly.
Speaker Change: We have never managed our company with short-term production goals. We focus on full-cycle value creation underwritten by sound science, objective data, and tough and disciplined decision-making.
Speaker Change: This was the winning formula for long-term value creation. With that, I'll turn to call over to Shane and Blake to discuss our results and outlook in greater detail.
Speaker Change: Thank you, Tom, and thank you everyone for joining us on this today of this morning's call.
Speaker Change: Today I'd like to cover three topics. First, I'll summarize the highlights of our first quarter financial results.
Speaker Change: Then, I'll provide an update on our guidance, including the second quarter as well as the full year 2025. Finally, I'll provide an update on our balance sheet and cash flow priorities for the remainder of the year.
Turning to our strong performance here in the first quarter. [inaudible]
Speaker Change: The first quarter's performance included just over two months of results from our recently acquired assets from Franklin Mountain and Avant.
Speaker Change: We're pleased with the rapid integration of these assets and their contributions have been in line to slightly better than our expectations.
Speaker Change: During the first quarter, Coterra's oil production came in about 2% above the midpoint of our guidance, with BOE's near and natural gas above the high end of the guidance ranges.
Speaker Change: Net Turn in line, sure in the quarter, we're 37 in the Permian, below the guidance midpoint of 40, and the Marcellus was at zero, as expected.
Speaker Change: Prehead revenues came in at $2 billion, up from $1.4 billion in the fourth quarter of 2024.
Speaker Change: A 45% or 45% of revenues came from natural gas, up significantly from prior quarter due to strong production and a 64% increase in natural gas price realizations.
Speaker Change: Cash operating costs per unit totaled $9.97 per DOE, inclusive of about $0.21 per DOE of non-referring cost related to the transaction.
Speaker Change: Reported net income of $516 million, or $68 per share, and adjusted net income of $608 million, or $80 per share.
Speaker Change: Incured capital expenditures in the first quarter were 4% below the midpoint of our guidance range. We're lower than expected drilling in mid-stream costs.
Speaker Change: discretionary cash flow over the quarter was $1.135 billion, up significantly from $776 million in the prior quarter, and free cash flow was $663 million after cash capital expenditures.
Flaming ahead to the second quarter in full year 2025.
Speaker Change: Second quarter results will reflect a full-quarters contribution from the recent acquisitions.
Speaker Change: During the second quarter of 2025, we expect total production, the average between 710 and 760 MBOE per day.
Speaker Change: Oil is expected to be between 147 and 157, MBO per day, and natural gas expected to be between 2.7 and 2.85 DCF per day.
Speaker Change: These guidance ranges reflect updates in the Culverston Harkie program, including the affirmative review projects as we begin to shift to an additional upper wolf camp development in a Culverston cap.
Speaker Change: The net result of these changes is a reduction in oil production by approximately 5,000 barrels per day in the second quarter relative to our February expectations.
Speaker Change: Despite these second-order changes, we are maintaining the midpoint of our 2025 annual oil production guidance.
Speaker Change: In the second quarter, we expect incurred capital to be between $575 and $650 million.
Speaker Change: which should be the highest quarter for the year as we will have increased stills in all three business units.
Speaker Change: and we evoke the ability and willingness to adapt to changing conditions.
Speaker Change: For the full year 2025, we are optimizing our investment allocation while lowering capital range by $100 million.
Speaker Change: We now expect incurred capital to be between two and $2.3 billion for the year and over 4% reduction from February guidance.
Speaker Change: and many more. Thank you for watching. I'll see you next time.
Speaker Change: Given a continued constructive outlook for natural gas, we are maintaining the second rig in the Marseilles into the second half of 2025.
Speaker Change: As previously noted, this adds $50 million to the 2025 program.
Speaker Change: To choose to keep the second rig working for the full year, this could result in an incremental $50 million added to the program late in 2025, while still staying within our revised guidance range.
Speaker Change: In addition, due to softness and crude pricing, we're slowing development and reducing permeant activity by $150 million.
Speaker Change: Do our investments later in the year that would take total investment towards the lower end of our guidance range.
Thank you so much. Bye-bye. Bye-bye.
Speaker Change: For 2025, we move on lower in capital, we are maintaining our oil midpoint guidance and increasing the midpoint of production guidance for MBOEs in natural gas, which highlights the capital efficiency of our diverse drilling opportunities.
Speaker Change: Simultaneously, we're tightening the range for MVOE's oil and natural gas. MVOE's are now expected to be between 720 and 770 MVOE per day for the year.
Speaker Change: Oil is expected to be between 155 and 165 MVO per day for the year.
with significant increases in each subsequent quarter. [inaudible]
Speaker Change: Natural gas expected to be between 2.725 and 2.875 DCF per day, delivering over 1 TCF gas on an annualized basis and providing significant leverage to higher natural gas prices.
Speaker Change: Having only a partial, full-quarter contribution from the new Permian assets, impacts full-year 2025 production by a little over four, MVOE per day, relative to the transactions that closed on January 1, 2025.
Speaker Change: Thank you for watching. Please like, subscribe, and comment. I'll see you next time.
Speaker Change: In this environment, the benefits of our diverse and balanced commodity mix become increasingly evident.
Speaker Change: On page 4 of the new slide deck we published last night, we illustrate the durability of our free cash flow across multiple commodity price files.
Speaker Change: Coterra's position to thrive and maintain reinvestment rate of around 50% of cash flow in a variety of commodity price scenarios.
and Ranges of Oil to gas price ratios.
Thank you for watching. I'll see you next time.
Speaker Change: Regarding our three-year outlook, we maintain our conviction and our ability to deliver consistent, profitable growth to our shareholders.
Speaker Change: As we've stated before, our deep project inventory can deliver 5% or greater oil volume growth and 0-5% B.O.E. growth over this period by investing between 2.1 and 2.4 billion dollars of capital per year. If we choose to do so, even with the changes to our 2025 that we announced today.
Thank you.
Speaker Change: These growth rates like Legacy Coterra organic growth in 2025 and include our recent acquisitions for 2026 and 2027 growth.
Speaker Change: Disoutlook delivers increasing capital efficiency and is designed to afford Coterra the flexibility to reallocate capital between our business units as market conditions change.
Speaker Change: We believe this outlook has an attractive, repeatable level of reinvestment and generates meaningful free cash flow to underpin both our shareholder returns and our de-leveraging goals.
Speaker Change: Turning to shareholder returns in the ballot sheet. Yesterday we announced a 22 cent for shared dividend for the quarter.
Speaker Change: This remains one of the highest yielding base dividends in the industry at over 3.4 percent, and we remain committed for reviewing increasing the base dividend on our annual cadence.
Thank you.
Speaker Change: During the first quarter, we repaid $250 million of our outstanding term loans that were used as part of the financing of our recent acquisitions.
Speaker Change: We ended the quarter with an undrawn $2 billion credit facility and a cash balance of $186 million for total liquidity of $2.2 billion.
We expect to continue to prioritize the leveraging.
Speaker Change: And in the current environment, we expect to fully repay our billion dollar term loan during 2025.
Speaker Change: As a result, and as previously noted, share repurchases will be back in-weighted in the second half of 2025.
Speaker Change: We're focused on quickly getting our leverage back to home, to around 0.5 times net debt to Eda.
Speaker Change: Coterra is committed to maintaining a fortress talent sheet that is throwing at all phases of the commodity cycles, enables us to take advantage of market opportunities and protects our shareholder return goals.
Speaker Change: In summary, Guterres team delivered a quarter of high-quality results both operationally and financially and across all three business units.
Speaker Change: These results show that we've hit the ground running in 2025.
Speaker Change: For the remainder of the year, we expect strong quarterly oil production increases, substantial free cash flow generation and rapid de-leveraging.
Speaker Change: With that, I'll hand the call over to Blake, provide additional color and details on our operations. Blake? Thanks Shane. The first quarter of 2025 was marked by the integration of our new Delaware assets into our Permian Operations program.
Blake Sirgo: Our teams have been hard at work, applying our best practices to these assets and we are already seeing wins in the field. Our DNC team has been able to lower our dollar per foot by 10% from the previous operators by bringing our program efficiencies to bear.
We now plan to run seven rigs in the second half of 2025 down from our original guidance of 10 rigs. These.
Blake Sirgo: These changes in activity reduced capex in the Permian by $150 million, we maintain significant flexibility across our rig and frac fleets and have additional off ramps available to us throughout the year.
Speaker Change: In Culberson County, we have finished completing our Wyndham ROE harkey wells as Tom mentioned, we have encountered some mechanical issues on Wyndham row, resulting in mixed results for our harkey wells. We have collected data that indicates a lack of adequate cement on certain well bores, which has allowed water from our shallow disposal zone to find.
Blake Sirgo: Its way into portions of the upper bone spring intervals.
Blake Sirgo: This has led to increased water production on roughly half of our harkey wells on Wyndham row and made it difficult for the affected wells to drawdown reservoir pressure and produced the expected oil volume.
Blake Sirgo: We have kicked off a workover program to remediate. These wells in our early results are encouraging.
Blake Sirgo: This remediation campaign will continue over the next several months and we will be closely monitoring the production response from these wells.
Blake Sirgo: While we are working through these remediation efforts, we will focus our row developments on the upper Wolfcamp.
Blake Sirgo: The 51 upper Wolfcamp wells brought on in Wyndham ROE look very strong and continued to meet or exceed expectations. Our Permian teams ability to quickly adjust to the upper Wolfcamp and continue our efficient operations is commendable their great work has allowed us to maintain our full year 2025 oil guide and improve our cash.
Speaker Change: Little efficiency.
Speaker Change: Importantly, we expect the efficiency gains captured on Wyndham ROE will continue on future developments.
Speaker Change: And our next two row developments in Culberson, the Barbara row, and bowler ROE, We will focus on upper Wolfcamp development, which has been the bread and butter of our Culberson project over the last decade.
Speaker Change: We expect no change to spacing or productivity in our Wolfcamp program.
Speaker Change: As you can see in our investor deck by shifting more capital to the upper Wolfcamp, our Permian asset productivity is expected to increase in 2025 and over the next few years.
Speaker Change: Coupling this increased productivity with lower capital spend we are seeing improving capital efficiency.
Speaker Change: Switching to our natural gas assets.
Speaker Change: Tara is happy to be back to work in the Marcellus with two rigs that began drilling in April and the recent completion of our Jeffers Foreign project gas.
Speaker Change: Gas macro conditions in north east storage volumes continue to support our robust 2025, and 2026 strip and as such we are electing to add $50 million to the Marcellus program.
Speaker Change: Should conditions warrant we hold a second on ramp option later this year that could add an incremental $50 million to the program.
Speaker Change: Our Marcellus team continues to improve capital efficiency with our full year 2025, Marcellus dollar per foot expected to come in at $800 per foot or 22% reduction from 2024. This improved cost structure comes on the back of a four mile lateral program as well as reduced D&C service.
Speaker Change: Cost and water transfer costs.
Speaker Change: This plan takes up a frac crew later in 2025 and allows us to complete several great projects just in time for winter 2005 and into 'twenty six.
Speaker Change: In the Anadarko, we are executing on a strong 2025 program with a competitive cost structure and new three mile projects.
Speaker Change: Strong well performance and lower costs paired with a premium local gas market are continuing to make this asset an attractive place for <unk> to invest.
Speaker Change: We are excited to report that we have begun flowing back one of the largest natural gas developments in the Anadarko and expect to discuss results later this year.
Speaker Change: <unk> has an organization asset portfolio and balance sheet that is positioned for success in periods of volatility.
Speaker Change: Our ability to redirect capital and optimized for the current environment is a key strength of the company.
Speaker Change: Our teams remain as focused as ever we are executing on our new assets in the Permian, while improving their capital efficiency, we are reducing and reallocating activity in response to pressures in the crude market and taking advantage of structural natural gas macro tailwind, we will remain nimble and focused on creating long term.
Tom Jorden: Value for our shareholders and with that I'll turn it back to Tom.
Speaker Change: Thank you and we're delighted to take your questions.
Tom Jorden: Okay.
Tom Jorden: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Tom Jorden: Please limit to one question and one follow up question.
Speaker Change: Our first question comes from the line of Doug Leggate with Wolfe Research. Your line is open.
Tom Jorden: Okay.
Doug Leggate: Thanks, everybody. Thanks for taking my questions. So guys, obviously theres a lot of attention on this harkey shale issue, So I think Blake.
Tom Jorden: Given a fairly thorough.
Tom Jorden: Explanation as to what <unk>, just one of them.
Cuda our born this so basically this was a cementing issue.
Speaker Change: It sounds like.
Speaker Change: That sounds like it's temporary it doesn't sound like as good.
Speaker Change: <unk> read through but what does it mean for your view of inventory depth as you think about your.
Speaker Change: Your future development plans.
Speaker Change: My follow up is on the change.
Speaker Change: Obviously the change in activity somewhat transitory I guess.
Speaker Change: Given everything that's going on but you did just lay out a three year plan.
Speaker Change: A couple of months ago.
Speaker Change: That laid out five.
Speaker Change: Plus percent oil growth. So I'm curious how does how does the thinking on that change and the associated capital that goes along with it and I'll leave it there. Thank you.
Tom Jorden: Yeah, Doug I'm going to start it and then Blake I'll add any comments.
Speaker Change: A lot of elements to that question I'll take them in reverse order.
Speaker Change: Our three year plan is intact, we're not seeing any meaningful change to our three year plan.
Speaker Change: I'll also say, we don't think this impacts our long term inventory. We think this is a local mechanical issue that's fully solvable.
Blake Sirgo: We have a couple of remediation steps underway. It's one that as Blake said, we think is associated with some shallow saltwater disposal that is somewhat unique to the eastern.
Speaker Change: Culberson County.
Doug Leggate: But let me just also say Doug.
Speaker Change: Yes.
Speaker Change: A science driven organization and much as I'd love to say, we walk on water, we occasionally have operational problems and when we saw this we said look we need to understand this fully and so we shut this down and while we studied that further we Randall we collect a lot of data, but we said, we really need to understand this before we.
Speaker Change: Move forward with this program, we've got that data in hand, we think we understand the phenomena.
Blake Sirgo: We're going to tell you what we know and tell you what we don't know, but right now we're pretty optimistic that this is a mechanical operation that is solvable with a combination of a revised pipe design and submitting program of Blake you want to comment on that yes, I'll just I'll, just say, Doug coming into Wyndham ROE, we had drilled and completed over <unk>.
Speaker Change: <unk> successful harkey wells in Culberson County.
Speaker Change: Same wellbore designs and see many jobs, we always have we thought were well calibrated.
Speaker Change: Sometimes the oilfields still surprises us and so that's what we're dealing with here it's not a ubiquitous issue. We have several wells performing just fine. Our teams are hard at work solving. This we have other tools in the toolkit, we have different cement jobs, we have different wellbore designs. We're deploying all of those right now and we will figure out the optimal solution.
Speaker Change: And we will fix this and we will move forward.
Speaker Change: Okay guys. Thanks, Thanks for your answers.
And your next question comes from the line of Betty Jang with Barclays. Your line is open.
Betty Jang: Hi, Good morning, Thank you for taking my question.
Speaker Change: I appreciate all the color on harkey earlier, but I do think it's important just to flesh out Sir.
Betty Jang: The potential impact of the future development.
Speaker Change: If you're focusing on the future Ross just on Wolfcamp a.
Betty Jang: Are you going back to the hockey on those roles and does that have any impact on <unk>.
Betty Jang: The mix of wells, if we look out into 2026.
Betty Jang: Yes.
Betty Jang: 2020 as searches.
Betty Jang: A long ways away.
Betty Jang: Our our expectation I'll just say this is that we remediate this issue and we get back to restoring our harkey program as it was before we paused now.
Betty Jang: We've talked in the past that we really think co development is preferable to overfill, but you know the time elapsed between when the Wolfcamp comes on production and when the heartbeat because arm production is a critical variable.
Then as we currently see it we think we will be back to completing and drilling these harkey wells in months not years and that the overfill effect will not be significant so you know.
Blake Sirgo: This is a mechanical issue, but not a strategic issue in terms of how we're going to prosecute we don't think we've lost inventory. We think we've just appropriately paused, while we figure this out and come back with an approach that will allow us to develop these harkey wells prudently and without this water, but Blake you want to comment on that.
Blake Sirgo: Yes, I mean, I would just echo what Tom said there I mean, we think this is a prudent step to adjust our mechanical process on how we construct wallboard seamen well bores whatever the optimal solution is.
Blake Sirgo: In the meantime, we will be executing our upper Wolfcamp program. They have a long history in the upper Wolfcamp and Wyndham ROE has been very strong excellent performance, we expect that to continue and Meanwhile, all our ROE efficiencies are some will fracking our electric crew everything continues as is so from a capital efficient.
Blake Sirgo: These standpoint, it's actually slightly better in the near term just because of the productivity of the upper Wolfcamp, but we are still very focused on solving the harkey.
Blake Sirgo: Getting back to the original program that possible.
<unk>.
Blake Sirgo: I really appreciate that and then just on the production guide.
Blake Sirgo: The full year guidance would imply a fairly big ramp from second quarter, maybe to the mid <unk> 70 level for Q could you just help us.
Blake Sirgo: Get more comfort on that trajectory the timing of the wells and what type of risking is being done within the guide.
Speaker Change: Thanks, Yes, let a J.
Speaker Change: And here I'll speak to that again and so.
Speaker Change: Look I think youre right in these all hold together in terms of the quarterly guidance for the annual guidance et cetera, and we do anticipate seeing substantial sequential step ups in production through the course of the year and if you look at the <unk> guidance that we provided for the second quarter, you'll see it's it's meaningful.
Speaker Change: Up from where we were in the first quarter, which will lead to the very strong third and fourth quarter production.
Nitin Kumar: And your next question comes from the line of Nitin Kumar with Mizuho. Your line is open.
Hi, Good morning, guys. Thanks for taking my question.
Tom Jorden: Tom I wanted to start off a little bit broader.
Tom Jorden: You mentioned in your opening remarks about the rifle shot in the guided missile.
Speaker Change: And one of your peers today have cut activity.
Tom Jorden: In response to the current uncertainty.
Tom Jorden: The current administration route on our agenda of drill baby drill.
Tom Jorden: So I'm just trying to understand.
Tom Jorden: From from your perspective, how long do you think this weak environment could continue.
Tom Jorden: Between the demand that is being destroyed a little bit and then the supply that's coming on.
Tom Jorden: Is that all.
Tom Jorden: Yes, it does.
Tom Jorden: Okay.
Speaker Change: Sure No no no you asked and you know this is this is not just my view, but I think the view of Cartera.
Tom Jorden: I'll just say this.
Speaker Change: Yes.
Speaker Change: A little over 100 days into this their administration than good Lord there's been a tremendous amount of volatility introduced whether we're talking about in the oil markets or tariffs.
Speaker Change: And our relations around the world all of these converge on forecast for oil price.
Speaker Change: The president is trying to do a lot of difficult things upfront and the white houses in a hurry and we have some sympathy for that sense of urgency.
Speaker Change: But I'll just say this.
Speaker Change: I think I think the white house has been fairly consistent that they want low oil prices.
Speaker Change: It is a bit of a turbocharge the economy.
Speaker Change: And we're expecting that to continue.
Speaker Change: We think there's certainly a lot of what's going on with OPEC.
Speaker Change: Is perhaps all tied together in concert with what's happening in the middle East broadly and some of these conflicts and so we are we're prepared for this to last a while.
Speaker Change: You know, we're hopeful that these tariffs get resolved and that.
Speaker Change: The threat of recession is lifted.
Speaker Change: But.
Speaker Change: You know our experience tells us that we can't run a program on hope and we better be prudent and make adjustments accordingly.
Speaker Change: The thing we're very grateful for is that this isn't a situation that shuts our capital program down it just redirects it and we have some really attractive gas opportunities we could pivot to so you know we are battening down the hatches expecting this to last for a while in answer to your question.
Speaker Change: Okay and then.
Speaker Change: And thanks, Thanks for taking a shot at that I know, it's a difficult question.
Speaker Change: My second question is around cash returns and maybe Shane can take it but.
Speaker Change: You've talked about returning at least 50% or more of free cash flow.
Speaker Change: Obviously buybacks were second half weighted you talked a little bit about the balance sheet, if commodity prices do reconfirm here, how do you prioritize between buybacks and debt reduction.
Speaker Change: Yeah No I appreciate the question and we look forward the plan and rolled it out back in February you know, we've talked about sort of the ability to do it all and since then prices come in a little bit and if you look at page 10 in our deck today, when we talk about free cash flow and how much of it is we still have the ability.
Speaker Change: To do it all so to speak but.
Speaker Change: To be really clear in 2025 are a priority as is going to be debt repayment.
Speaker Change: We're going to we're not going to compromise that that doesn't mean that there's not going to be repurchases. We can be opportunistic and we will be back end weighted but if you look at 'twenty 'twenty. Four we returned 90 about 90% of cash flow to shareholders 23, we returned 76% of cash flow to shareholders, while we're able to do that because we had.
Speaker Change: <unk> leverage and we believe that having low leverage as an enabler and we are dead set focus on protecting our long term shareholder return objectives, and we think the best way to do that is to reduce debt.
Ron: Your next question comes from the line of Ron <unk> with J P. Morgan Your line is open.
Speaker Change: Yes, good morning.
Speaker Change: I just wanted to get an update on the Barbara Roe.
Speaker Change: And how does the.
Speaker Change: The issues that you've experienced on the harkey program impact.
Speaker Change: The development program there I believe the original plan was to do two Wolfcamp wells and eight Archie wells what is the status perhaps of those eight <unk> those in the original plan.
Michael DeShazer: Hey, Arun it's Michael.
Arun: Yes, you are correct, we had two wolfcamp wells and eight harkey. We were we have completed two of the harkey wells and there are six additional harkey wells that we're going to duck currently and and we will update you on those as we move forward, but at this point they have been removed from the current Frac schedule and we'll proceed with the Wolfcamp completions.
And I was just going to add on to that.
Speaker Change: Given the state of flows.
Speaker Change: Do come back into the program Theyre going to be highly capital efficient just given that that a portion of that capital has already been put into the ground.
Speaker Change: Got it got it that's helpful.
Speaker Change: And just maybe just a thought on how does.
Speaker Change: The reduction in your rig count in the Permian how is that impacting your thoughts on the three year program. Obviously is Betty mentioned that the second half.
Speaker Change: Run rate for oil will be higher.
Speaker Change: Just given the shift to the Wolfcamp from the harkey, but how does that help us square away the reduction in Capex on the Permian and just maintaining that three year program.
Speaker Change: Yeah.
Speaker Change: So I can take that so far.
Speaker Change: First we've reduced on in the Permian.
Speaker Change: $150 million $120 million D&C. So it's.
Speaker Change: We've gone from 10 to seven in the second half of the year. So it does not alter the overall outlook over the three year window, and we believe within the parameters that we've set out.
Speaker Change: $2, one to $2 $4 billion of capital over the next three years each year over the next three years that we've still got the ability to do 5% plus oil volume growth in zero to 5% growth over that period, even with the changes that we've talked about today to the second half of 2025.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And your next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.
Neil Mehta: Yes, thanks for all the color here, Tom was talking a lot about oil today, just curious on your perspective.
Speaker Change: On natural gas you are taken restarting two rigs here in the Marcellus can you talk about what your priorities are for the Marcellus plan for the balance of the year and how that ties into your macro macro view for gas.
Neil Mehta: Yeah. Thank you for that.
Neil Mehta: Just wanted to remind the listeners that we produce just a hair under three Bcf a day of natural gas. So the increase in natural gas outlook is wonderful, but the increased natural gas prices is a remarkable turbocharged our cash flow and provides the kind of resiliency. We've talked about we are getting back to work in the Marcellus shale we've made.
Neil Mehta: Tremendous progress redesigning our Marcellus program, we've talked about that on past calls, but the net result is a more efficient way to handle water the flexibility to be able to go to zero activity or a full steam ahead longer laterals and it's just been a remarkable redesign that's also.
Neil Mehta: Resulted in much lower cost structure.
Neil Mehta: Go forward I anticipate our Marcellus program to be back to a growth profile.
Neil Mehta: How aggressively we grow as a function of all the moving parts and we've talked about in this call. But we are we are really encouraged by the economic and reservoir performance of our natural gas assets, both in the Marcellus and in the Anadarko.
Tom Jorden: Okay, and then Tom I mean.
Tom Jorden: It's been a couple of years now, but there has been discussion points about the depth.
Tom Jorden: Natural gas portfolio as you've drilled out a lot of the northeast maybe.
Tom Jorden: Maybe you can respond to that viewpoint about depth of inventory do you feel like you have date or organic position at Q1 here now that you've done that frankly mountain deal on the oil side does it make sense to think about gas M&A, just your perspective and addressing that debate that's out there.
Tom Jorden: Well, we think about that.
Tom Jorden: Throughout our portfolio I mean, if you ask me if we have enough inventory on my answer to that is determined.
Tom Jorden: Determined both decade ago.
Tom Jorden: No.
Tom Jorden: From an exploration of said heart.
Speaker Change: But you know as we as we show on Slide 11, we have about a dozen years of inventory at our current run rate.
Speaker Change: You know that production base that underpins that's inventory with our production base, we're really nicely positioned but you know we're we're.
Speaker Change: I always wanted to be opportunistic whether whether it's oil natural gas or what have you. You know we were built to last and I think we're.
Speaker Change: Yes, we're going to be a survivor here. So so inventories reported to US. We think we're we don't have a problem Saul.
Speaker Change: We're going to be opportunistic and thats not to telegraph that.
Speaker Change: Yes.
Speaker Change: Like I say we.
Speaker Change: We've got really solid plans and there is not a problem to solve there.
Speaker Change: And your next question comes from the line of David Dunkel bomb of TD Cowen Your line is open.
Speaker Change: Thanks for taking the questions guys.
Speaker Change: Maybe just I wanted a clarification on just the ramp in the second half of the year with the Wolfcamp wells coming online.
Speaker Change: The guidance presume that that 5000 barrel a day.
Speaker Change: Impact in the second quarter from the Harkey wells does that come back as.
Speaker Change: As a 5000 barrel a day contribution into three and four Q.
David Dunkel: Yes, David changed here no it doesn't.
David Dunkel: It doesn't assume that it comes back obviously Blake walked through all the things the team is doing to get us to a different outcome, a better outcome than that but the assumption that we're talking about in terms of the substantial sequential step ups that we see in production in the back half of the year.
David Dunkel: It does not at all rely on those as those volumes come back.
David Dunkel: Yes, we've taken are as I've said in her opening remarks, we've taken a very conservative approach.
David Dunkel: We think we're going to bring those volumes back in fact, our current our current plan.
David Dunkel: It's taken them out and we're looking at a fairly significant production growth ramp during the course of the year and were you know.
David Dunkel: We are.
David Dunkel: Confident hopeful and our technical analysis tells us that this problem is fixable in the Florida those volumes are coming back.
Tom Jorden: I appreciate that Tom.
Speaker Change: And then my second question you guys highlighted the flexibility that you have with your asset base.
Speaker Change: <unk> talked about I think the <unk> oil to gas price ratio.
Speaker Change: Currently at strip pricing and you're still seeing sort of the coincident, 50% plowed back in terms of Capex.
Speaker Change: But as you enter in the next couple of years I think you guys reiterated the three year outlook.
Speaker Change: But if you go back to that guided missile analysis analogy of that oil to gas price ratio holds as we enter into next year should we presume that theres more reallocation from oil to gas weighted.
Speaker Change: Assets.
Speaker Change: Well, what's your other presume is that we get up every day and make the best financial decisions in the interest of our shareholders.
Speaker Change: We think it's prudent.
Speaker Change: Yes.
Speaker Change: Hesitant to even use the word three year plan, it's a three year outlook of what we could execute if current conditions were to hold.
Speaker Change: And if current conditions don't hold.
Speaker Change: Think it's our responsibility not just our opportunity with our responsibility to say to our owners that we will readjust as conditions warrant.
Speaker Change: The beauty of it is we have amazing flexibility I mean, when we look across our landscape right now.
Speaker Change: You know we could barrel ahead at $50 oil and continue to invest in our oil assets and the returns are not bad I mean, there are certainly better than if we rewind not too many years ago with anything we were experiencing but you know we're making these steps because we are concerned about.
Speaker Change: Future weakening in the oil prices and so it's a remarkable.
Speaker Change: <unk> to be able to say look.
Speaker Change: We could we could invest in oil we can invest in gas we've got the NGL revenue.
Speaker Change: And everywhere, we look at our portfolio, we have opportunity and not barriers. We're just trying to adjust to the macro condition is we think is appropriate and that's what we're going to continue to do.
Speaker Change: And your next.
Speaker Change: Question comes from the line of Scott Gruber with CD capital. Your line is open.
Speaker Change: Yes.
Speaker Change: Yes, good morning.
Speaker Change: Just wanted to come back.
Speaker Change: The <unk> production.
Speaker Change: You said with this and that remediation youre working to bring those volumes back, but it's not in guidance.
Speaker Change: So what's the reasonable expectation for when those volumes come back if the.
Speaker Change: Remediation work is successful.
Yes.
Speaker Change: We don't have a firm timeline on that just due to the nature of the Workovers. These.
Speaker Change: These workovers will take months, it's a pretty big campaign to work through all the wells are.
Speaker Change: Likely discussed we have multiple things, we're trying to make sure we get good isolation.
Speaker Change: So its months out not weeks out.
Speaker Change: Got it and I. Appreciate you guys are constantly looking to adjust.
Speaker Change: Given changes in prevailing conditions.
Speaker Change: Curious.
Speaker Change: Just about kind of.
Speaker Change: Early thoughts on what would happen to the 26 is if oil falls the curve here in the high Fifty's.
Speaker Change: Andy the endo, maintaining seven active rigs in the Permian.
Speaker Change: To maintain seven kind of what does that mean for Permian pills and 26 in Permian production.
Speaker Change: Yes, let me say that.
Speaker Change: Oil were hovering around 60.
Speaker Change: You said high <unk> low <unk>.
Speaker Change: We we have the opportunity to make investments in our oil assets I mean, it's not like that program has shut down.
Speaker Change: It's not a question of what the number is it's a question of why the number is.
Speaker Change: Is it is it doesn't move up a little bit because OPEC decided to pause there either.
Speaker Change: Reinstate their curtailments for a quarter and that it could happen again three months down the road does it.
Speaker Change: Or does it happen because this tariff situation is resolved we are back to normal trade relations. The world economy is growing and demand increases.
Speaker Change: There's all kinds of.
Speaker Change: Sure.
Speaker Change: Moving parts here right now, where we're pausing our oil program pausing I'd say, we're relaxing slightly because we're concerned that oil prices could further weakened I hope we're wrong on that but our experience tells us that when you see these events and you see the possibility.
Speaker Change: We prepared for the worst case scenario and that's kind of where we are I hope we're overreacting on several of these issues but.
Speaker Change: That's.
Speaker Change: Union accused of being conservative and that's probably fair.
Speaker Change: Yeah.
Speaker Change: And your next question comes from the line of Josh Silverstein with UBS. Your line is open.
Josh Silverstein: Yeah. Thanks, Good morning, guys, so you're moving some capex over to the Marcellus.
Josh Silverstein: Im wondering if theres any sort of limit to how much more capital you want to put there maybe is there not enough pipeline capacity for volumes to grow or is there some sort of trigger looking forward to continuing to push that additional $50 million over.
Josh Silverstein: No theres really not a significant limit but.
Josh Silverstein: The Constitution pipeline has been in the news lately.
Josh Silverstein: And yes, just wanted to remind our listener that constitution pipeline is originally configured originates in our field in northeast, Pennsylvania and goes into the new England market.
Josh Silverstein: And.
Josh Silverstein: We're watching and participating in that conversation seriously.
Josh Silverstein: And we would if that were to go the expectation is that we would.
Josh Silverstein: Make a commitment to deliver long term volumes into that line and so that's kind of coloring. What we wanted to do at this point in time, we think that issue will resolve itself here in the next few months, but we're we're looking at that as a potential future opportunity for growth in the Marcellus.
Josh Silverstein: Right.
Josh Silverstein: Alright, and then just on the on the pricing side you guys already have some power exposure.
Josh Silverstein: I think it's.
Josh Silverstein: High single digits for the Marcellus.
Josh Silverstein: You guys already have is I'm curious if you can give us kind of a backdrop as to maybe if you would add some more.
Josh Silverstein: A little bit more about what's happening within that power pricing for the Marcellus for you guys.
Blake Sirgo: Yes, Josh this is Blake, we're always looking for more power pricing. There are the two deals we have in Marcellus are excellent deals they've paid very well over time.
Blake Sirgo: They are difficult to replicate and so I think thats really the challenge we've been after.
Blake Sirgo: We are really interested in particularly greenfield projects, where we can capture upfront the long term power strip that we're hoping to get into our gas portfolio.
Blake Sirgo: There are a few opportunities in the Marcellus, but we're looking at quite a few opportunities in the Permian as well.
Blake Sirgo: I think the market is waking up to the disadvantage Wahaha molecule and then it's a great place to generate electrons and so where we're looking at many different ways to participate in that.
Speaker Change: And your next question comes from the line of Kelly <unk> with Bank of America. Your line is open.
Speaker Change: Caller your line is open.
Speaker Change: Sorry, I was on mute.
Speaker Change: It's got a different question on the hockey here kind of looking beyond the water issue, where the walls and long enough to get a read on the productivity and how it compares to the Wolfcamp.
Speaker Change: Yes.
Speaker Change: What we see in the harkey that one of the things that gives us high degree of confidence that this problem is solvable and that it's not on every well. We've got we've got a couple of drilling spacing units that look like they're performing just fine and making the oil volumes that are within a reasonable boundary of expectation. So this yeah, we think the.
Speaker Change: <unk> for long enough you know as I said in my opening remarks.
Speaker Change: We are highly confident that this is not a reservoir issue per se in the Sun a spacing issue, it's not an overfill versus.
Speaker Change: Co development issue, it's a mechanical issue near Wellbore.
Speaker Change: <unk> near Wellbore and that's that's our we have an overwhelming.
Speaker Change: About boundary of evidence, suggesting that.
Speaker Change: But.
Speaker Change: You know, we're a company that's Mr. Refocus on our results and we wanted to see the results of these remediation and we will communicate that along the way.
Speaker Change: Thanks, Tom Fair for the follow up kind of following up on one of the earlier questions. Here. If this is the new program.
Speaker Change: Program is a new template for.
Speaker Change: Can you give us a sense of what the run rate capital and the oil plateau could look like and if oil worthy of decline would you still expect wet gas production to increase.
Speaker Change: Yeah, I'll say, we don't expect oil to declines.
Speaker Change: But.
Speaker Change: If I'm understanding your question properly.
Speaker Change: We see a good runway as our three year plan that outlines of reasonable growth in our assets broadly Shane do you want to do well.
Speaker Change: If I understand the question correctly I think.
Speaker Change: Thank you.
Speaker Change: If we were to stay on this path into the future. We would go well through the end of this decade in terms of the opportunity set that we have that we have there even if it was this path.
Speaker Change: Yes, we're not we're holding to our three year plan as outlined with the changes that we've discussed in this call whether it be really clear with everybody on that we've we've got a very fulsome model that shows that that three year plan is reaffirmed.
Speaker Change: Okay.
Speaker Change: And your next question comes from the line of Matt Portillo with Tpa, which your line is open.
Speaker Change: Good morning, all.
Speaker Change: Tom maybe just a question around maintenance capital given the outlook for the second half of 2025 with production.
Speaker Change: In the mid 170 ish range could you give us an update on what you think you might need to spend to hold oil volumes flat over a multiyear period, just trying to get a sense of your maintenance capital program.
The envelope, Michael I'll take that one.
Speaker Change: Yes.
Speaker Change: Appreciate the question so as we're looking at the current program for 2025 and looking into the out years as we've discussed our three year plan has oil growth. So obviously the capital levels that we're currently at can be shed.
Speaker Change: We can we can remove capital to maintain.
Speaker Change: That oil production.
Speaker Change: We also have oil growth coming from both the Anadarko and the Permian and most of our plants. So it's important to think about that combination because we're funding in both programs, but in general right now we see our oil growth. We have to think about where are we going to keep the oil production flat at and right now.
Speaker Change: If we look at our our 2025 volume of 160000 barrels a day, if we were to keep that flat, we would be somewhere around one five to $1 6 billion between the Anadarko and the Permian obviously, the Marcellus capital is disconnected from any of that oil growth because it doesn't produce any oil.
Speaker Change: It might be set up for a multiyear period, which you can hold it flat and not just a single one year old that's correct. Yes. So that would be if we were to just go to a maintenance capital for a kind of three year period.
Speaker Change: Perfect and then just a follow up question I know your programs are extremely flexible I was curious how youre thinking about the returns in the Anadarko and a strip price environment versus the Permian program and is there an opportunity heading into 2026, if we stay at strip either EBIT.
Speaker Change: The high grade your development between the two basins.
Speaker Change: Well, we high graded our development all time. So there are yes, we have an opportunity but it.
Speaker Change: It's really a function of that oil gas ratio and also Ngls natural gas liquids.
Speaker Change: We've got some really nice anadarko projects for which.
Speaker Change: The gas and natural gas liquids are combined to make the dominant revenue or so.
Speaker Change: It's function of the oil and gas ratio we've talked about.
When we're down 15 to one and lower it starts getting to be a producer's horse race among all three of our basins.
Speaker Change: And your next question comes from the line of Derrick Whitfield with Texas Capital. Your line is open.
Speaker Change: Good morning, all and thanks for your time.
Speaker Change: Hey.
Speaker Change: Morning, guys.
Speaker Change: Slight twist on David's earlier question referencing slide four if this foreign oil to gas ratio were to persist would it change your view on the areas in intervals developed in the Delaware over your three year forecast and I'm, primarily thinking of Culberson with his question.
Speaker Change: Alright.
Speaker Change: No.
Speaker Change: I don't think it really changes our.
Speaker Change: Where are we going to Delaware all four of our operating areas, Eddie Lee Reeves and Culberson County have have really nice competitive environments now.
Speaker Change: Culberson tends to be a little gas here, which is which actually is good for our operating cost and our productivity.
Speaker Change: But if we had we had a little shorter warhol price that might.
Speaker Change: Does it have an impact but.
Speaker Change: As we look out at the strip I don't think that will really be a significant flex of capital within the Permian.
Speaker Change: Great and as my follow up regarding your contingency planning comments in your prepared remarks.
Speaker Change: What price do you see as the next tipping point in all activity, assuming current service costs and that's kind of affinity we're going lower in price clearly.
Speaker Change: I'd say, we were seriously looking at a price below 50 sooner or tipping point.
Speaker Change: And your next question comes from the line of Kevin Mccarthy with Pickering Energy Partners. Your line is open.
Kevin Mccarthy: Hey, good morning.
Kevin Mccarthy: Looking out to the back half of 2025, what is the rig reduction due to your DUC backlog by the end of the year and do you have to manage that operationally as you enter into 2026.
Kevin Mccarthy: Okay.
Michael DeShazer: Hey, Kevin This is Michael.
Kevin Mccarthy: No we.
Kevin Mccarthy: Move into 2025 with a nice DUC inventory, so even as we're swapping out.
Kevin Mccarthy: Harkey into Wolfcamp, we're not seeing any major issues on our Frac lines, obviously, our rig count is long term related to our Frac fleet count and so dropping down to seven rigs if that were to remain unchanged holding the third frac crew.
Kevin Mccarthy: <unk> would be difficult that is shown in our deck that there might be more spot work late in the year. If if we hold that seven rigs, but that's not a problem for us operationally, we think that there's ample capacity in the frac market right now and so that's not necessarily a driving force for us.
Kevin Mccarthy: Kevin We do a lot of planning and included in those plans as a look at what our DUC inventory looks like both not only in terms of wells, but number of projects number of pads and both of those are really important in terms of operational flexibility and so that's a real important planning.
Kevin Mccarthy: Don't know if you recall and then put our output, but it's an important plant in consideration.
Kevin Mccarthy: And then.
Kevin Mccarthy: In the MDU our JAKKS.
Kevin Mccarthy: Our.
Kevin Mccarthy: Configured often to hit winter pricing.
Kevin Mccarthy: So it's.
Kevin Mccarthy: It's just a point of active consideration wherever we are.
Kevin Mccarthy: Okay.
Kevin Mccarthy: I appreciate that.
Kevin Mccarthy: And as a follow up just a clarification on the free cash flow for the remainder of the year. The uses of free cash I can say.
Speaker Change: Will you pay off the term loan first and then buy back shares or can you do them concurrently and are we reading it right that the 50% shareholder return in some multi year goal and you may not get there in 2025.
Kevin Mccarthy: Thank you.
Kevin Mccarthy: Yes.
Speaker Change: Look just as we've done the last couple of quarters, we can and likely will continue to do both in a parallel way, it's just a what's the waiting.
Speaker Change: Was one front end loaded one backend loaded I don't I don't know that we necessarily have to make a choice one or the other as we go along there are a lot of different considerations that will go into.
Speaker Change: And so the timing and amount of those buybacks, but no we have not shut down the buyback program by by any means we will continue to be opportunistic as we go through the rest of the year, but we'll also be focused on what is the cash flow profile look like for the rest of the year as well and certainly yes. If you look back over time as I said.
Speaker Change: Earlier in response to a question, we've historically done well above 50%.
Speaker Change: They we've been 90% we've been in the mid seventies at various points in time, while we were able to be there we're able to be there because we had low leverage and so we think getting these get into notes pay down early on really helps facilitate stability of shareholder returns.
Speaker Change: For the long term.
Speaker Change: Yes.
Tom Jorden: And I would now like to turn the call back over to Tom Jorden.
Tom Jorden: Yes, I want to thank everybody for a series of great questions.
Tom Jorden: I will just say in closing.
Tom Jorden: Personally I am deeply proud of the way our organization has responded to not only this volatile time, but also this operational issue we're facing.
Tom Jorden: I think we're on the right track, we have a solid plan and we're going to perform.
Speaker Change: Surprised to the upside, but thank you very much for your attention. This morning.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: [music].
Speaker Change: Yes.