Q3 2025 Coterra Energy Inc Earnings Call
Speaker #2: Thank you for standing by . At this time I would like to welcome everyone to today's Coterra Energy Inc. Third Quarter 2020 Earnings Call .
Speaker #2: All lines have been placed on mute to prevent any background noise . After the speakers remarks , there will be a question and answer session .
Speaker #2: If you'd like to ask a question during this time , simply press star , followed by the number one on your telephone keypad .
Speaker #2: And if you'd like to withdraw your question , press star one again . Thank you . I would now like to turn the call over to Dan , Vice president of Finance , Investor Relations , and Treasurer Dan .
Speaker #3: Thank you, Greg. Good morning, and thank you for joining Coterra Energy Inc. for the third quarter 2025 earnings conference call. Today's prepared remarks will include an overview from Thomas Jorden, Chairman and CEO, and President Shannon Young, Executive Vice President and CFO, along with Michael Deshazer, Executive Vice President of Operations.
Speaker #3: Blake Sirgo executive 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 .
Speaker #3: As a reminder , on today's call , we will make forward looking statements based on our current expectations . Additionally , some of our comments will reference non-GAAP financial measures .
Speaker #3: 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 .
Speaker #3: With that , I'll turn the call over to Tom . Thank you , Dan , and thank you to all who are listening .
Speaker #3: This morning , Koczera had a strong third quarter and is on track to deliver on the ambitious annual goals that we set for ourselves for the full year 2025 .
Speaker #3: Furthermore , we released a soft guide to our coming three year plan update that shows that we remain committed to a long term path of consistency , profitable growth , and value creation for shareholders .
Speaker #3: I want to give a shout out to our field and office personnel who have worked valiantly to deliver results . As promised , and to do so safely with environmental integrity and with the relentless focus on maximizing full cycle returns .
Speaker #3: We could not be prouder of our organization and their commitment to excellence . We delivered on all fronts during the third quarter . Our volumes on gas , oil and barrel of oil equivalent came in above the midpoint of our guidance .
Speaker #3: We delivered outstanding returns on invested capital with great capital efficiency . The integration of the Lee County assets that we acquired early in the year has gone well , and we are realizing significant uplifts in asset performance , cost reductions and future inventory .
Speaker #3: Michael Deshazer will provide further details here . We plan to deliver a comprehensive , updated three year outlook with our fourth quarter release in February .
Speaker #3: Last night , however , we provided an early look into 2026 , which demonstrates our multiyear commitment to growing revenue , cash flow , free cash flow , and profitability .
Speaker #3: As we see it today . We expect capital to be modestly down year over year while still achieving consistent , profitable growth . Our low breakevens and deep inventory , coupled with our balanced revenue between gas and oil assets , provides the opportunity to deliver through the cycles and maintain a degree of consistency that differentiates us .
Speaker #3: We view our future entirely through a lens of increasing shareholder value , and we best achieve this by consistently making smart full cycle investments through the commodity swings .
Speaker #3: I do want to emphasize that we are providing a soft guide for 2026 , and final decisions are a work in progress . We are watching markets carefully .
Speaker #3: Oil markets have a lot of moving pieces . These include the timing and impact of Russian sanctions . The situation in Venezuela , Chinese and Indian behavior , and global economic robustness .
Speaker #3: While we have the projects and wherewithal to further increase our oil growth , if warranted , we are remaining disciplined and not chasing growth in the current environment .
Speaker #3: Although capital may modestly flex up or down each year , our sole goal is to consistently grow our profitability and maximize our free cash flow .
Speaker #3: We are living in rapidly changing times . The increase in LNG exports and growing electricity demand is constructive for the medium and long term outlook for natural gas .
Speaker #3: We are prepared to be patient and not front run demand increases . Our marketing group is heavily engaged in discussions with counterparties seeking new natural gas supply arrangements to further diversify our portfolio , which already has committed 200,000,000 cubic feet a day to recently announced LNG deals .
Speaker #3: 350,000,000 cubic feet per day to Cove Point LNG , 50,000,000 cubic feet per day . Power Permian power deal with CPV and our 320,000,000 cubic feet per day of natural gas supply deals to local power plants within the Marcellus .
Speaker #3: While these deals total approximately 30% of gas production , the team continues to bring fresh ideas to the table to further improve and diversify our portfolio .
Speaker #3: Our marketing team has a mandate to generate value, not press releases. We are confident that patience is prudent and that the future of natural gas will provide tremendous opportunities for Terra.
Speaker #3: There is a lot happening under the hood . We are also watching Oil markets carefully . As I said . The swing between optimism and pessimism .
Speaker #3: Here is remarkable . A tiny change in facts can drive huge swings in emotion . Coceira has a deep inventory of oil assets , with one of the lowest break even portfolios in our sector .
Speaker #3: Our bias is steady as she goes without wild , reactive swings . Before I turn the call over to Shane , you will note that Michael Deshazer will be delivering the operational summary today .
Speaker #3: Blake Sirgo is with us and will undoubtedly have the opportunity for comments . We recently switched the portfolios of Blake and Michael , with Blake assuming oversight over our business units and Michael taking on our operational and marketing portfolios .
Speaker #3: This change was entirely driven by a desire to build redundancy in our skill sets and build broader depth of expertise on the executive team .
Speaker #3: We have a highly collaborative executive team that by design , is broadly familiar with all aspects of our business . This change will further increase our flexibility , bring fresh eyes on critical issues and provide an ability for both Michael and Blake to enlarge their impact every now and then .
Speaker #3: It is good to repot the plant . Finally , we know that many of you have seen the letter that Kimmeridge released this morning .
Speaker #3: Although we think that it contains some factual errors , we have great respect for many of the thought pieces that the Kimmeridge team has produced over the years and have had constructive engagement with them in the past .
Speaker #3: We are disappointed that they have chosen to release a public letter without reaching out to us . Nonetheless , we are open to suggestions that can improve kotera and as always , we will listen carefully .
Speaker #3: Consider ideas and be thoughtful in our response . With that , I will turn the call over to Shane for a financial summary .
Speaker #4: Thank you Tom , and thank you everyone for joining us on this morning's call . Today , I'd like to cover three topics .
Speaker #4: First , I will quickly summarize a few key takeaways from our strong third quarter financial results . Then I'll provide our fourth quarter guidance and update to our full year 2025 guidance .
Speaker #4: Finally, I'll provide comments on our balance sheet and cash flow priorities for the remainder of the year. Turning to our performance during the quarter, performance in all three business units exceeded expectations during the third quarter.
Speaker #4: Gutierrez oil , Natural Gas and BOE production each came in approximately 2.5% above the midpoint of our guidance . Additionally , NGL production was strong , posting an all time high for Katerra at around 136 Mmboe per day in the Permian .
Speaker #4: We had 38 net turn in line during the quarter , just below the low end of our guidance range . While the Anadarko and Marcellus had net turn in lines of six and four , respectively , in line with expectations .
Speaker #4: We continue to expect TILs in all areas to be within our annual guidance ranges , with the Permian being near the high end of the range .
Speaker #4: Pre hedge oil and gas revenues came in at $1.7 billion , with 57% of revenues coming from oil production . This is up sequentially from 52% in the prior quarter , and was driven by a substantial uptick in oil volumes of 11,300 barrels per day , an increase of above 7% above our second quarter levels .
Speaker #4: The Permian team continues to drive outstanding incremental production results . Cash operating costs totaled $9.81 per boe , up 5% quarter over quarter due to production mix and higher workover activity , which we expect to moderate during the fourth quarter .
Speaker #4: Incurred capital in the third quarter were near the midpoint at $658 million . Discretionary cash flow for the quarter was $1.15 billion , and free cash flow was $533 million .
Speaker #4: After cash capital expenditures . Both of these figures benefited from negative current taxes for the quarter related to recent changes in US tax law .
Speaker #4: In summary , our strong third quarter results show continued improvement in capital efficiency as production exceeded expectations and capital remains on track . We continue to run a consistent and highly efficient activity cadence , which we expect will continue to generate strong full cycle returns in the current price environment .
Speaker #4: Looking ahead to the fourth quarter and the full year 2025 . During the fourth quarter of 2025 , oil production is expected to be 175 Nvo per day at the midpoint , an increase of over 8000 barrels per day or another 5% increase quarter over quarter .
Speaker #4: We expect total production to average between 770 and 810 boe per day in natural gas , to be between 2.78 and 2.93 BCF per day .
Speaker #4: We expect capital for the quarter to be around $530 million , significantly below the third quarter results . As we wrapped up frac activity in the Anadarko late in the third quarter .
Speaker #4: For full year 2025 , we are increasing annual BOE per day production guidance to 777 at the midpoint , a 5% increase from our initial guidance in February .
Speaker #4: We are maintaining the oil guidance midpoint at 160 Mboe per day , while tightening the guidance range . Oil volumes from our acquired assets have been in line to slightly better than expected .
Speaker #4: Our legacy assets oil volumes are expected to deliver a high single digit percentage growth rate year over year . This is similar to the rate of growth we have delivered during the prior three years on natural gas .
Speaker #4: We are increasing the midpoint of our volume range to 2.95 BCF per day , an increase of over 6% from our initial full year guidance in February .
Speaker #4: As previously indicated , we expect capital for the year to be approximately $2.3 billion . Just above the midpoint of our initial guidance range .
Speaker #4: In February . As we have maintained , the second Marcellus rig into the second half of the year , our annual expense guidance ranges remain unchanged and we expect to be near the midpoint of the aggregate expense range for the full year .
Speaker #4: With regard to our three-year outlook provided in February, we remain highly confident in our ability to deliver results within those ranges.
Speaker #4: From 2025 through 2027, this outlook is underpinned by a low reinvestment rate and improving capital efficiency, and it delivers attractive long-term value creation for our shareholders.
Speaker #4: While we are not prepared to provide specific 2026 guidance at current snapshot suggests that capital should be down modestly year over year while still maintaining production parameters laid out in our three year guide we released in February .
Speaker #4: At the same time , our low Breakevens low leverage and operational flexibility coupled with our hedge book have kotara well positioned in the event of high commodity price volatility .
Speaker #4: In 2026 . Turning to shareholder returns in the balance sheet for the third quarter , we announced a dividend of $0.22 per share .
Speaker #4: This is one of the highest yielding dividends in the industry , at over 3.5% . And demonstrates our confidence in the long term durability , depth and quality of our future inventory and free cash flow .
Speaker #4: Additionally , during the third quarter , we repaid $250 million of outstanding term loans that were used as part of the financing of our acquisitions .
Speaker #4: Earlier this year , bringing our total term loan paydown to $600 million through the third quarter of 2025 . In October , based on the progress we have made in retiring our term loans and the trading levels of our shares , we re-initiated our share buyback program .
Speaker #4: While we continue to make progress on our debt retirement goals during the fourth quarter, we'll be opportunistic in purchasing our shares. We ended the quarter with an undrawn $2 billion credit facility and a cash balance of $98 million, for total liquidity of $2.1 billion.
Speaker #4: As of September 30th , we had total debt outstanding of $3.9 billion , down from 4.5 billion at the closing of the acquisitions in January .
Speaker #4: We are making meaningful , meaningful progress in executing on our priority of getting our leverage back to around 0.5 times net debt to EBITDA .
Speaker #4: Qatar remains committed to maintaining a top tier fortress balance sheet that is strong in all phases of the commodity cycle . We believe this enables us to take advantage of market opportunities while protecting our shareholder return goals .
Speaker #4: In summary , Cotera team delivered another quarter of high quality results across all three business units . We continue to enhance capital efficiency through higher productivity and lower cost per foot completed our consistent activity has continued to deliver meaningful oil production growth throughout the year , while raising the bar on both natural gas and BOE production in 2025 .
Speaker #4: We expect to generate substantial free cash flow of around $2 billion . In approximately 60% increase over 2024 , benefiting from both higher natural gas realizations and higher oil volumes from our acquired assets .
Speaker #4: While we continue to prioritize deleveraging , we see significant value in Cotera at current share prices and are approaching buybacks opportunistically . In summary , Cotera has never been stronger or better positioned .
Speaker #4: With that , I will hand the call over to Michael to provide additional color and detail on our operations .
Speaker #3: Thank you .
Speaker #5: Shane . Today I will talk about our third quarter operational results and outlook will provide a business unit update , including the successful integration and upside to our Franklin Mountain and Avant acquisitions .
Speaker #5: And I will briefly touch on our marketing efforts . The third quarter was another well quarter , and we carried this operational momentum into the fourth quarter .
Speaker #5: On the activity front , we have a consistent nine rig , three crew program working in the Permian , one rig and one crew in the Marcellus and one rig in the Anadarko .
Speaker #5: We expect to maintain this activity level during the fourth quarter . To reiterate what Shane touched on earlier . Looking ahead to 2026 , we expect 2026 capital to be down modestly year over year while still achieving the production ranges laid out in our 2025 through 2027 three year outlook .
Speaker #5: While we are focused on consistent operations through the commodity cycles , we are maintaining maximum operational flexibility with no rigs or frack crews on long term contracts .
Speaker #5: We expect to provide a comprehensive 2026 guidance and an updated three year outlook in February . The integration of our Franklin Mountain and Avant assets is complete , and our teams continue to outperform our expectations for synergies on these assets .
Speaker #5: I would like to spend a few minutes discussing our progress when we announced the acquisitions , there were many wells that were in various stages of development , and we made estimates of their productivity for our evaluation and for our full year production guidance .
Speaker #5: In November 2024 , we announced a 2025 production estimate for the assets of 40 to 50,000 barrels of oil per day , assuming a full year contribution .
Speaker #5: When we updated our production guidance on our February call after the actual closed dates in late January , of the assets were known , we maintained our annual production guidance because we liked how the assets were performing .
Speaker #5: I am pleased to report that we continue to perform in line to above our production expectation for the acquired assets , giving us further confidence that there is upside relative to what was underpinned , what underpinned the acquisition .
Speaker #5: On the capital side of the acquisition , we have realized a 10% reduction in our total well cost as measured in dollars per foot by applying our best practices at scale across the assets , a few of the efficiencies I would like to point out are optimized and standardized .
Speaker #5: Hole size and casing designs , which have reduced our drilling times from 15 to 13 days for a standard two mile lateral . And on the completion front , we have seen the implementing our proven stimulation designs that have been evaluated across the basin and tailored for each landing zone , as well as our scale in the Permian has allowed us to reduce service costs .
Speaker #5: In addition to capital savings , we now have line of sight to significant operating cost synergies . We have already reduced the inherited lease operating expense by approximately 5% , or $8 million per year .
Speaker #5: These savings have been seen across most services , but the biggest savings are related to on pad sour gas treating and electric generation .
Speaker #5: For example , at our Eagle Central tank battery , we acquired a facility that treated sour gas to then be burned in gas turbines to generate power for our field .
Speaker #5: Working with our marketing team , we accelerated a residue gas connection to the site that allowed us to remove the gas treating equipment and allow the turbines to burn clean , low BTU gas , increasing reliability and saving over $2.5 million per year in expenses .
Speaker #5: There are many more projects like this one , and we are currently projecting an additional $20 million per year in net operating cost savings related to on pad sour treatment .
Speaker #5: Taking our projected total Loe savings on the acquired assets to 15% as they go forward . Run rate . In addition , we believe that the biggest future savings could come from using microgrids instead of wellsite generators to power our assets .
Speaker #5: We are in the final stages of planning for up to three microgrids across our northern Delaware Basin assets . We think that these projects will have the potential to reduce our current power costs by 50% , saving an additional $25 million a year .
Speaker #5: But as the asset and our power demand in the area grows , the projected savings will grow as well . To nearly $50 million per year .
Speaker #5: This is all while we continue to work with our utility power providers to bring more grid power into the Permian Basin . Now that we have integrated the assets , we expect not only to demonstrate capital and expense reduction , but also productivity enhancements as we pursue a development plan focused on maximizing capital efficiency .
Speaker #5: Our subsurface teams have continued to delineate multiple landing zones , and this work has given us confidence that we have 10% more inventory as measured by net lateral footage , than we estimated when acquiring the assets .
Speaker #5: Furthermore , our increased scale in the northern Delaware Basin has enabled us to make many value added trades and small scale acquisitions . We expect our team to prudently add valuable inventory as we continue to develop our highly profitable and low cost resources in the Permian Basin .
Speaker #5: Moving on to the Marcellus business Unit , this quarter , we drilled a new four mile lateral from spud to rig release in under nine days , averaging 2400ft per day .
Speaker #5: This sets a new high water mark for Cotera . In fact , it's becoming common for many of our recent wells to eclipse 2000ft per day .
Speaker #5: This type of performance and longer laterals reaching over 20,000ft have driven drilling costs down 24% year over year , with these efficiencies , we no longer need two rigs to maintain production in our Marcellus asset .
Speaker #5: Our maintenance activity level . Over the next few years would require 1 to 2 rigs , so we will manage our rig count to not build excessive duct backlog while we hold the option to grow our Marcellus natural gas volumes .
Speaker #5: We are committed to being patient and expect to hold our production volumes relatively flat until additional demand materializes and the strip solidifies . Should we have a cold winter and prices increase into 26 , we will fully participate from our approximately two BCF a day of production in the northeast and expect to generate substantial free cash flow from our Marcellus region .
Speaker #5: In the Anadarko business unit , we brought online our last project of the year during the third quarter . The five three mile Hufnagel Wells .
Speaker #5: These new wells , combined with our Roberts project from Q2 , continue to drive strong region performance that has exceeded our expectations . Turning to marketing , our team continues to be active in the hunt for more deals and partnerships that can deliver flow assurance and price uplift for our products across our diverse portfolio .
Speaker #5: As Blake mentioned last quarter, the long-term gas sale to CFPB's New Basin Ranch Power Plant in Reeves County, Texas, was the latest in a line of deals that our company has a history of delivering.
Speaker #5: As Tom mentioned , our moxie and Lackawanna Power deals in the Marcellus were put in place ten years ago and have provided value well and above an end price .
Speaker #5: We will continue to find opportunities to improve the netback of our product and increase the value to our shareholders . A strength of our sales portfolio is as significant diversification , but we are not satisfied and will continue to optimize the teams in all three of our regions are firing on all cylinders and have remained focused on solid execution , making decisions to maximize full cycle returns and creating value for shareholders .
Speaker #5: With that , I'll turn the call back over to the operator for Q&A .
Speaker #2: Thanks , Michael . And at this time , I would like to remind everyone , in order to ask a question , press star .
Speaker #2: Then the number one on your telephone keypad . Once again , star one in the interest of time , we ask that you please limit your questions to one primary and one follow up question .
Speaker #2: Thank you in advance and we will pause just a moment to compile the Q&A roster . All right . Looks like our first question today comes from the line of Doug Leggate with Wolfe Research .
Speaker #2: Doug , please go ahead .
Speaker #6: Good morning everyone . Tom , as always , you're very gracious to hit the £800 gorilla right in the head with the comments around the Cambridge letter .
Speaker #6: So I wonder if I could just ask you to elaborate on your perspective this morning . The I guess the way I would phrase it is that when you look at the gas levered enps , particularly your larger peers , ect .
Speaker #6: And expand and compare your relative performance , it almost seems like you've been kind of orphaned by the mix of your portfolio and the I guess , the basis of the Cambridge letter is you're better as a standalone , pure play in the Delaware , and let someone else take care of the gas .
Speaker #6: That would go 180 degrees against what you tried to build. How would you respond to that?
Speaker #3: Well , first off , Doug , I don't want to get into a lot of discussion about the Cambridge letter . That's that's for another time .
Speaker #3: But , you know , I we spoken openly . You know , we really believe co-chair is a premier outfit . And we like Sears traded a premier multiple .
Speaker #3: But if you look at the trading over the last year , you'll find we've at the top of the stack of oil companies and at lower level of gas companies , and , you know , we think we're seeing benefits of being a multi basin , multi commodity company .
Speaker #3: But you know , I just think it would be inappropriate for me to get into any more than that though .
Speaker #6: Okay . I understand and I appreciate you taking a stab at it . My follow up is on operational question and it's really related to what what you saw in your lo this quarter .
Speaker #6: Obviously, it's still elevated, but you also beat on your oil guidance. So my question is, is this related to the workovers and the Harkey?
Speaker #6: Should we continue to expect your oil production to move up and then ultimately your low to move down as those workovers , you know , flow through the system ?
Speaker #5: Yes , Doug , this is Michael . Yeah . The low for the quarter was up a little bit . We have transitioned out of the Harkey remediation program that we talked about last quarter , and we have moved workover rigs into Lee County , where we do have some higher working interests .
Speaker #5: But overall , we do expect our low costs , especially the workover costs to to decrease as we head into Q4 .
Speaker #4: Yeah . Doug Shane here , just yeah , we do expect that that number to settle for the year within range on the low and expect to be probably in the middle in terms of total cash cost of where we are as well .
Speaker #4: But Michael hit on really well , sort of the the reason why it looked touch up in the third quarter .
Speaker #2: All right . Thanks for the questions Doug . And our next questions come from the line of Betty Jang with Barclays . Betty , please go ahead .
Speaker #7: Good morning . Thank you for taking my question . I want to ask about the cash return strategy . Just because we would agree that the stock does look discounted in our view as well .
Speaker #7: Shane , last quarter you talked about really focusing on debt reduction and and then this quarter Katara is starting the buyback program again .
Speaker #7: How do you think about the allocation of your excess free cash flow between debt reduction and buyback going forward ? Is there a reason not to think we can get back to that 100% return level into next year ?
Speaker #4: Yes . Shane here , thanks for the question . And as you noted , you know , year to date we prioritized deleveraging or paying off the term loans .
Speaker #4: And so you know , that's why we leaned in really hard in the third quarter on that . It's interesting . You know when you're at , you know , sort of the last bit of the repayment , you know , you're feeling a little different than when you're at the first bit of the repayment and the ability to sort of feather in both some buyback activity and continued deleveraging is just much more palatable at these states .
Speaker #4: So as we as we talked about , you know , we reinitiated the , the program . And this month and sorry , last , last month and and expect it will continue to be opportunistic , particularly where where prices have been over the course of the last 4 to 6 weeks .
Speaker #4: In terms of the future levels that we get to look , I would only say look at our look at our past . And in 2024 , we returned roughly 94% of free cash flow through the mix of dividend and buybacks .
Speaker #4: And in the year before that , I think we were around 75% . So in 2023 and look and that is that's a place we strive to get back to .
Speaker #4: And think we're well on our way to being there , you know . Is that exactly what it looks like in 2026 ? You know we're not going to pin ourselves in .
Speaker #4: But but I think we'll have a robust return to capital program in 2026 .
Speaker #7: That's great . Thank you for that . And my follow up is on the overall activity in the Permian . If we look at the the Delaware versus your initial expectations .
Speaker #7: Production is the guidance is unchanged . While you're now completing wells toward the upper end of the guidance range . I'm just wondering , relative to your internal expectations , how's the production profile on the Wells tracked versus your initial guide ?
Speaker #7: And with activity now towards the high end , does that change your views on how the shape of 2026 should shake out ? Thanks .
Speaker #4: Hey , Betty . Shane here , I'll take a stab at that . I mean , we don't comment specifically on till timing within quarters , but we do give how many pills we expect for the quarters and you'll note the third quarter and second quarter we were below , you know , kind of at the low end of where we thought we'd be to maybe a slightly below .
Speaker #4: There . And so that pushed some activity into the fourth quarter . But yeah , I think productivity from , from the tools that have come online have been , you know , as expected or , you know , in some cases maybe a touch better .
Speaker #4: But yeah , as we get into next year , I think Tom was , was noted on the last call that that look , you know , we you know , we'll exit the the year at 1.75 in the fourth quarter .
Speaker #4: And the expectation shouldn't be that we sort of maintain at that level throughout that , that quite possible , as you've seen in the past , based on the timing of TILs that we end up with a little leg lower and then begin to build from there .
Speaker #3: Yeah . Betty , I would just add to that , that so much of this is timing , as Shane said , and working interest changes .
Speaker #3: So there's just a lot of moving parts . But you know , we're seeing very , very solid really returns . And performance out of all of our assets .
Speaker #3: And particularly in the new assets we acquired earlier this year , they're coming on strong . There's just no question in our mind as we reflect back on the last year , we'll exit the year a much stronger company than we entered the year .
Speaker #3: And we are able to do that because of our balanced portfolio , our multi revenue contribution to that balance and our strong and fortress balance sheet .
Speaker #3: So we're absolutely exiting the year a stronger , better company .
Speaker #2: All righty . Thank you for the question Betty . And our next question comes from the line of Arun Jayaram with J.P. Morgan .
Speaker #2: Arun , please go ahead .
Speaker #8: Yeah . Team I wanted to see if you could provide any kind of overall commentary on your thoughts on CapEx reduction next year .
Speaker #8: You mentioned that you think you'll be done moderately , but maybe help us fill in the pieces of the drivers of that , you know , perhaps relative to your soft guide of delivering 5% year over year oil growth .
Speaker #3: Yeah , I'll start that . And somebody else may want to comment . You know , we're seeing good asset performance . And as we look ahead to the oil markets we're kind of watching what happens .
Speaker #3: I mean , I think that one can make a constructive observation about the strip , but some of that is underpinned by cartel discipline , if you will .
Speaker #3: And geopolitical factors . I think , you know , in , in balance , if you lean back , you say the world is fairly oversupplied .
Speaker #3: If everybody supplied at their full capacity . And so we want to be prudent . I mean , part of part of our ability to lower our capital is driven by our asset performance .
Speaker #3: We can deliver on our three year plan , guide handily , we do have the option to increase capital . As I said in my opening remarks and step that old growth up .
Speaker #3: But , you know , we really do think about in terms of cash flow and profitability rather than volumes . And , you know , one of the best ways , if you have price support in your commodity , the best way to grow your cash flow and free cash flow is to see some volume growth .
Speaker #3: But , you know , we're we're watching the markets thoughtfully .
Speaker #4: Yeah . I mean , the only thing I would say is , in addition to that , is , look , you know , nothing's set in 2026 yet .
Speaker #4: We've got a lot of flexibility as we see it today . We'd be modestly down . But I think you're going to see us when we come out in February deliver a highly capital efficient plan that generates a substantial amount of free cash flow .
Speaker #4: As I noted in my earlier comments , cash flow this year was up 60% over 2023 on on the back of higher oil volumes from from the acquired assets , as well as higher natural gas price realizations .
Speaker #4: The two of those contributed , and it's a really powerful combination .
Speaker #8: Got it . And then maybe my follow up , you highlighted some parts of the Franklin Avant acquisitions that closed in one . Q maybe exceeding your expectations .
Speaker #8: Can you talk about , you know , some of the things that you're seeing ? Post , you know , your review of those acquisition economics and maybe a little bit more insights on the ground game that you've done ?
Speaker #8: I think you're investing a little bit about 86 million in which is driving a leasehold , little bit more of a inventory improvement .
Speaker #8: There .
Speaker #9: Yeah . Arun , this is Blake . Happy to take that one . You know , frankly our teams have done what we hope they do .
Speaker #9: They've taken this asset and they've made it a lot better . Our subsurface teams are delineating . So we're finding new zones that we didn't account for when we underwrote it .
Speaker #9: And we're adding net footage across the asset base . Our DNC teams are attacking the program with all of our large efficiencies we built over the years .
Speaker #9: We're driving down dollar per foot and our production and midstream teams are attacking OpEx , and they're dropping that as well . So we're really just seeing those efficiencies across the board .
Speaker #9: They're really starting to add up . And this is a great , great add to our portfolio .
Speaker #2: Alrighty . Thank you for the question . And our next question comes from the line of Neil Mehta with Goldman Sachs . Neil , please go ahead .
Speaker #10: Yeah . Thanks so much . A couple questions here , Tom . But first , you know , just to expand on your initial comments , I guess , you know , one of the questions we get from investors , even beyond the letter this morning is , you know , what's the value of operating as a multi basin portfolio versus being a pure play .
Speaker #10: And and so I just maybe spend some time now that's been a couple of years . You've had Cabot under your portfolio . What are some examples of the tangible upsides or synergies that you get from diversification .
Speaker #10: Obviously the commodity is one of it , but one of them , but I'm sure there's others .
Speaker #3: Yeah , we're going to need a longer call for that question . You know , one of the advantages is it may seem even though we're a broad industry , there tend to be regional pockets .
Speaker #3: And a lot of companies are single basin . And so techniques and and operational efficiencies tend to be cloistered until they get understood and widely spread .
Speaker #3: And you saw that in our history over and over , you know , one , one example is the industry had gone to plug and perf completions while there were still basins that were doing slotted liners way after other areas had abandoned that .
Speaker #3: You saw that with many completion techniques . And we're actually I'll just say , speaking for Kotara , there's a reason why we're recognized as a great operator in every basin we're in .
Speaker #3: And that's because we're a multi basin company . We can take best practices from play to play , and make our programs better .
Speaker #3: I particular example , I'll give you is and you'll see this hopefully in this upcoming winter because we always light a candle and hope for a bitter cold winter .
Speaker #3: We have made massive advances in winterization in the Permian Basin . We get insights to a lot of our competitors because we have interests in their wells .
Speaker #3: So when these winter storms pass through , we see the degree to which our competitors production is knocked offline and decreased . While Kotara tends to sail through with only a wobble .
Speaker #3: And that's because of the collaboration we've had with our Marcellus team , for whom cold , bitter winters are a regular event and are Permian team , and it has made us such a better operator and really strengthened our ability to to sell product into winter pricing .
Speaker #3: The list goes on and on , but I will just tell you that having collaboration among different play types really enlarges technical thinking around problem solving and has made this a better company .
Speaker #10: Thanks , Tom . And then the follow up is just on scale . I mean , I think in the Permian , Franklin Mountain continued to give you the scale that you need to be competitive against the largest players in places like Permian in , in , in the Marcellus , we've seen a lot of consolidation here .
Speaker #10: Do you feel like you have sufficient scale to to be first quartile in , in the northeast ?
Speaker #4: Yeah , yeah , I'll make a quick comment on that . Look , I do think we have the the scale there . We produce about two B's a day in a in a market up in the northeast itself .
Speaker #4: That's probably closer to to 11 . But you know , and really , you know , one of the things that just kind of building on what Tom said up there , you know , when we negotiate with service providers , when Blake and Michael sit down with them , it's not like we're just negotiating a frack crew for that area .
Speaker #4: And so we have one active crew . You know , we're having a one off negotiation because we have a broader portfolio . We're actually able to drive down costs , get better equipment , get better focus from from the service providers .
Speaker #4: And so in a lot of ways , we have plenty . We have plenty of scale up in the northeast . But frankly , the northeast benefits from the larger scale of katerra .
Speaker #10: Makes a lot of sense . Thanks , guys .
Speaker #2: Thank you Neil . And our next question comes from the line of Scott Gruber at Citigroup . Scott , please go ahead .
Speaker #3: Yes .
Speaker #11: Good morning . I want to come back to your active ground game here . Can you talk your thoughts around running room to lock up your positions and Lionetti counties and the timing of doing so , and the competitive market and and just how important is that , you know , in terms of compressing your cost structure in the northern Delaware down towards Culberson ?
Speaker #11: about
Speaker #11: Or do you think you have kind of good running room to further compress cost on your current acreage position ?
Speaker #9: Yeah . Scott , this is Blake . I'll take that . You know , the Franklin Mountain Haven assets really gave us a great footprint in the northern Delaware .
Speaker #9: And what that's allowed us to do is now have a a foothold in certain areas where we can start doing trades and additional small acquisitions .
Speaker #9: And really , what we're just chasing are the biggest deals we can get our hands on . You know , more wells per section , longer lateral links .
Speaker #9: That's how we drive efficiencies. And so really just building that footprint up there has kind of turbocharged our land efforts. I couldn't be happier with the deals that the team has brought in over the year.
Speaker #9: They're very , very busy . We look at all those with a firm economic lens , but like I said , those capital efficiencies we can bring to bear , they they make a lot of them really attractive to us .
Speaker #11: And what is your color on the 26 budget ? Reflects for trend in , well , cost in the northern Delaware . You know , as you gain more experience on the acreage and and expand the position , does that continue to step down or would that be incremental benefit to the spend in 26 ?
Speaker #11: And does the well mix in Delaware State broadly the same? And in '26, kind of as you see it today.
Speaker #5: Hey Scott , this is Michael . Yeah . We as I mentioned in my prepared remarks , we continue to drive down the capital costs of all the wells in the northern Delaware Basin .
Speaker #5: And so we we expect our teams to continue to work hard every day to try to drive that cost down . We don't have a projection that we're we're ready to discuss here .
Speaker #5: But I did mention a lot of the the same efficiencies that we see across our assets , around consistent drilling rigs and frack fleets and being able to drill longer laterals .
Speaker #5: All of those benefits would be available to us in that northern Delaware basin . And all the trades and blocking of acreage that Blake talked about really helps .
Speaker #5: The bigger these pads are . And the our ability to put more wells into the same facilities really helps us drive down costs on both the production side , the capital side and on our midstream side .
Speaker #2: All right , Scott , thank you for the question . And our next question comes from the line of David Deckelbaum with TD Bank .
Speaker #2: David , please go ahead .
Speaker #12: Thanks for taking my questions , guys . I wanted to ask perhaps for a little bit more color just on the the 26 high level guide of spending kind of sub 2.3 billion .
Speaker #12: How do sort of large projects impact that going into next year or , you know , as we think about this , is is it being driven more by reallocation between basins or the inclusion of more wolfcamp relative to what we saw in 25 ?
Speaker #12: Could you could you add a little bit more color there just on on what's contributing to that trajectory the most ? Or is it just general optimization ?
Speaker #5: Thanks , David . This is Michael . Yes . As I as we discussed earlier , we currently have our operations very steady across the business units and we expect that to extend into 2026 .
Speaker #5: We don't see a lot of dramatic changes from where we're at right now in Q4 . In terms of the way we see the program into 26 .
Speaker #5: I did mention that , you know , our our Marcellus would be between 1 and 2 rigs . So we'll be making those decisions as we look at frac efficiency and drilling efficiency .
Speaker #5: And we were really excited to see the recent results of drilling these longer laterals in the Marcellus has allowed us to to reduce that rig count .
Speaker #5: So we're not exactly focused on the resources around rig and frack as much as we are a consistent program within each of these business units , from a from a capital perspective .
Speaker #3: Yeah , David , I want to just add there that I'll be a broken record , but it is a soft guide , not an announced plan .
Speaker #3: We're still looking at some of our options . I think depending on what happens with commodity markets , though , you are as we look at that soft guide , probably our bias , it would be to maybe slightly increase over what we're telegraphing than decrease .
Speaker #3: But you know , we have the wherewithal , we have the projects and we have the willingness to step in . We're just watching carefully , and we want to be prudent in how we approach 2026 .
Speaker #12: I appreciate that color , Tom . And maybe , maybe just following up a bit on just the the cadence of the program into the 26 .
Speaker #12: You talked about sort of this 5% oil growth next year and maybe Michael , this one's for you . But the can you just kind of refresh us on how you kind of see the shape of the Delaware progressing throughout the year ?
Speaker #12: After some pretty aggressive growth, what we've seen in the back half of Q3 2025.
Speaker #5: Yeah , we're not prepared to discuss any kind of till timing or that kind of granularity at this point in time .
Speaker #12: All right . I good . Thanks guys .
Speaker #2: Thanks , David . And our next question comes from the line of Matt Portillo with TPH . Matt , please go ahead .
Speaker #13: Good morning Tom and team I wanted to start out on the power opportunity and the Permian . You mentioned the microgrids . That seems like a great opportunity for you all to to cut costs , moving forward .
Speaker #13: I was curious if you might be able to provide a little bit more color around the timing of when those microgrids might come into service, and how many megawatts you're planning on deploying.
Speaker #5: Yeah , Matt , this is Michael . We currently have some smaller scale microgrids that we inherited with the Franklin Mountain and Avant acquisition .
Speaker #5: I discussed in the prepared remarks that that Eagle Central tank battery has turbines located on it that are powering adjacent Leaseholds . So we're already in this business and we're really just looking for opportunities to expand it .
Speaker #5: As you know , the northern Delaware Basin and really the Permian in the on the New Mexico has been very constrained for power for some time .
Speaker #5: And many operators are using small reciprocal engines to generate power on a well site by well site basis. Where we see value is when we can connect multiple leases to a single permanent station that's run off turbines.
Speaker #5: And many operators are using small reciprocal engines to generate power on a well site by well site basis . And where we see value is when we can connect multiple leases to a single permanent station that's run off side decrease in that electrical cost .
Speaker #5: So we're going to continue to expand the current microgrids that we have . And like I mentioned in the remarks , we see opportunities for about three expanded microgrids across our asset .
Speaker #13: Great . And then maybe a follow up on the northeast , it sounds like the soft guide as it stands today at strip , is for relatively flat volumes around that two BCF a day .
Speaker #13: I just want to make sure I heard that correctly , but maybe over the medium term I was . I was hoping you might be able to comment on your updated thoughts around power demand , growth regionally for northeast PA and then any updated thoughts on maybe some of the longer haul infrastructure opportunities , such as Constitution , that had been discussed earlier in the year ?
Speaker #4: Yeah . So I'll start with the second one first , which is , you know , Constitution , some of the other projects that are that are up there and look that , that project , you know , historically has originated out of our acreage and heads up towards the the Iroquois line , about 120 125 , five miles .
Speaker #4: And so , you know , we're something to happen there . Obviously , you know , we would be a logical partner in some regard in that .
Speaker #4: But frankly , until we have better clarity on the other end of that line , in terms of markets and buyers and commitments , you know , that's that's probably one that you know , is going to remain , you know , a little bit challenged .
Speaker #4: Obviously, there are other projects in that part of the world, Nessie, for example, that appear to have a little bit more momentum at this point.
Speaker #4: And we while we wouldn't have the the same direct linkage to it , we would expect that that we would benefit from , from development in that area as well .
Speaker #4: I'm sorry, the first question. The second question is the first part of.
Speaker #13: It just around the regional power demand growth opportunities specific to northeast PA , just how do you see that market emerging and what that might mean ?
Speaker #13: Maybe for the opportunity to add some volumes at some point in the future ? From a production standpoint ?
Speaker #4: Yeah . That's great . So a lot of activity in PA , a lot of announced activity that's preliminary , not necessarily all with definitive agreements , but but intention , which is a good first step .
Speaker #4: I think as well . There's a lot of unannounced activity that is up there right now in terms of dialogues that are going on .
Speaker #4: And Michael and Tom sort of alluded to , you know , our team and being a part of those conversations . And so so we're very excited about the potential up there .
Speaker #4: And we'll continue to work it hard . Some of these projects , whether we're involved or not , take a long period of time to to develop and and get announced .
Speaker #4: For example , you know , again , not in PA but in West Texas , you know , those are discussions that we have been in with CPB .
Speaker #4: You know , for the better part of two years . And so these are just long lead time . Discussions and negotiations that that are ongoing .
Speaker #4: And we have a history of involvement in all of our business units , frankly . And I would expect we'll continue to be active in those dialogues .
Speaker #3: Matt . You know , we have a lot of flexibility in our marketing in Northeast . You know , we're watching carefully the development of these markets .
Speaker #3: You know , we've we've talked about a couple of these pipelines that may offer opportunity for us , but , you know , our marketing team has done a really nice job of developing a weighted average sales price through a whole host of different arrangements .
Speaker #3: As we've discussed , some of that's LNG , some of that's direct power , and some of its direct to industrial users . But you know what we really look at when we ask ourselves about growth is that incremental molecule against the incremental price .
Speaker #3: And although we steady hard with some of our competitors, we have the right time to bring on a lot of incremental volumes at that incremental price.
Speaker #3: We're going to be patient . We think opportunities will come and we'll be prepared to strike , and we have the opportunity to grow those volumes both through increased activity but through some of our existing commitments that roll off , give us more marketing flexibility as we go forward .
Speaker #3: So we're in a pretty nice position . And , you know , we're we're , as I said in my opening remarks , we think patience and prudence is the right position right now .
Speaker #13: Thank you .
Speaker #2: Thanks , Matt . And our next question comes from the line of Kayleigh Cocamine with Bank of America . Kayleigh , please go ahead .
Speaker #14: Hey , good morning guys . I want to start on the Marcellus video with closed about four years ago . And you've made that position better through your operating efficiencies .
Speaker #14: So maybe you can start by calling out some key operating wins . And then when you look at the Marcellus landscape , do you think that the application of your best practices could create value through M&A ?
Speaker #9: Yeah , Clay , I'll take that . The the first part , I'll let Shane talk in the really how we have attacked the Marcellus .
Speaker #9: It was it was really fun when we got our hands around the asset because we kind of had a greenfield up in Marcellus bench to go prosecute .
Speaker #9: And , you know , we had over a decade of developing shale basins in Oklahoma , Texas , New Mexico . And we just brought those same skills to bear .
Speaker #9: And so one of one of my favorite maps to look at is the inventory at the time of the acquisition and the inventory now it is a dramatically in lateral length across the asset .
Speaker #9: We've optimized well spacing to increase productivity . And then we've just attacked the entire cost value chain . You know , when we started that asset four years ago , we were still trucking the majority of our frack water .
Speaker #9: I'm really happy to we pipe all our frack water now , and we've just been able to crush cost across the board . And so it's really a lot of those best practices .
Speaker #9: Tom talked about earlier . We learn all these things . The through a lot of grit . And once we learn them , they become institutionalized and we spread them like wildfire .
Speaker #14: The follow up question just on Marcellus inventory , I think you guys are still calling out 12 years of drilling in the slide deck .
Speaker #14: And this year you're doing about 11 wells . Is the inventory math as simple as eight times B ? And would that include any of the delineation work that you guys have done in the .
Speaker #5: So no , the math isn't just the current 2025 till count versus you know , that that that multiple of years . What we're looking at is our three year average for how many wells were drilled .
Speaker #5: And then using that as , as the main the main proxy . We're also converting this into dollars and trying to keep the capital spend that we've had over the last three years as the metric , as we drive down costs , we are able to , you drill more wells in a given period of time and keep that production at a at a given level .
Speaker #5: So for for the same amount of capital , so two two things that are are not as simple as what you described . One is we're looking at three year average , two , we are looking at the capital spend and adjusting for our new go forward costs .
Speaker #2: All right . Thank you for the question . And our next question comes from the line of Derrick Whitfield with Texas Capital . Derrick , please go ahead .
Speaker #15: Thanks . Good morning all and thanks for your time with respect to the shareholder , with respect to the shareholder letter , Tom , I'd like to go a different direction with it and ask for your perspective on how your PVI is compare across the basins .
Speaker #15: While we all have inverse incumbent assessments , our data quality and look assessments are less accurate than yours , particularly on a leading edge basis .
Speaker #3: Well , I think we've we've said publicly that in 2025 , the highest PVI is in our portfolio are coming from our Marcellus project , and we're , you know , very happy to say that .
Speaker #3: And I just want to kind of reinforce comment Blake made in one of the earlier questions we have made that project . Our team in Pittsburgh has made that project so much better .
Speaker #3: We've lowered our costs dramatically . We've gone to longer and longer laterals in many cases . That's four mile laterals that involve fewer pads , fewer intrusion into the community .
Speaker #3: There. And we're seeing historically high well performance. So, I'm very pleased to say that the highest return on our portfolio this year is the Marcellus.
Speaker #15: Great . And then maybe for my follow up , I wanted to focus on gas marketing in the Permian in light of all the recent pipe line announcements that have achieved FID .
Speaker #15: In the flurry of power announcements we're seeing, how are you guys thinking about managing your Waha exposure? And could this amount of incremental egress lead to favorable in-basin exposure if oil prices remain depressed?
Speaker #5: This . Michael , I'll take that question . You know , we we have struggled this in the third quarter with low Waha gas prices .
Speaker #5: I think everyone sees that . And so the long haul pipes are important to to reduce the basis between Waha and and Nim .
Speaker #5: And we're we're a part of all the conversations with the new pipes that are being announced . So we're looking at opportunities to put some of our gas that we can take in kind on those pipes and , and provide ourselves not only the flow assurance that we want , but also that that increase in price at that Timex market .
Speaker #2: All right . Thank you for the question , Derek . And our next question comes from the line of Philip Youngwirth with BMO Capital Markets .
Speaker #2: Philip , please go ahead .
Speaker #16: Thanks . Good morning . One of the come back to some of the major projects in Culberson this year . The Barbaro phase one and the Bolero .
Speaker #16: See if you had any updates or takeaways as far as costs , efficiencies , early time productivity , I think Barbaro was expecting second half wells online , and I know it's early , but valor starting up in the fourth quarter .
Speaker #9: Yeah . Philip , this is Blake . I'll take that . Everything's coming on as expected . Performing well , contributing mightily to the oil beat .
Speaker #9: We just announced for Q3 . Those projects are ramping up throughout the year , and we continue to enjoy the wonderful cost efficiencies in Culberson County .
Speaker #9: All the all the things we've highlighted in many previous decks , it is still the crown jewel of capital efficiency . So performing very well .
Speaker #16: Okay , great . And then we always think of Qatar as cutting edge , willing to implement new technologies . Curious if you've looked at lightweight proppant .
Speaker #16: Something , is it something you'd consider implementing within your Del Delaware development understanding ? Won't be producing this in your own refineries , but but using it more , buying it more through third parties ?
Speaker #5: Yeah . So we have a trial ongoing as a matter of fact , on on light new lightweight proppant . So we don't have any results to share today .
Speaker #5: But that's a technology that we're investigating and we have a lot of hope to to see improve productivity as other operators have discussed .
Speaker #2: All right . Thank you for the question , Philip . And that concludes our Q&A session . So I will now turn the call back over to Tom Jordan for closing remarks .
Speaker #2: Tom .
Speaker #3: Yeah , I just want to again , thank everybody for joining us . We had a great quarter . We've got a bright future .
Speaker #3: And we we really intend to demonstrate the marketplace that the model is resilient through the commodity price swings . And we're going to continue to deliver excellence , as I hope we're known for .
Speaker #3: So, thank you all very much.