Houston-based Coterra Energy Inc. is shifting its near-term capital spending in the Lower 48 to focus on oil and liquids-rich plays, but optionality is still in play to take advantage of a “structural change in the natural gas macro” later this year, CEO Tom Jorden said.
During the first quarter conference call, Jorden said caution is the watchword because the market can quickly change “as LNG exports grow and electricity demand increases.”
Coterra works in the Marcellus Shale, as well as the Anadarko and Permian basins. The company earlier this year had indicated it would throttle back activity in the Marcellus. Until the gas macro improves, the oily Permian is likely to draw the most attention.
“Our capital guidance for 2024 includes room for adding additional Marcellus activity if our received prices in the Marcellus were to rebound,” Jorden said. “Of course, any additional activity will be evaluated against other shovel-ready opportunities in our portfolio.
“Rapid and severe commodity price swings are a feature of our business. As much as we try to anticipate and predict market movements, there is an inherent humbling unpredictability to them.”
Gas Wells In July?
Coterra delayed “some Marcellus turn-in lines,” i.e. TILs, until at least July.
“We currently have two pads comprising 12 wells completed and waiting to be brought online,” Jorden said. “We have ongoing completion activity and are making the ‘go, no-go’ decision on bringing wells online on a monthly basis…“
During the question-and-answer session, Jorden was asked what gas price was needed to ramp up Marcellus activity.
Although the plan is to begin tying wells to sales in July, “we're not going to be driven by our model. We'll be driven by the way the terrain looks on the ground. I want to say that there's two issues when you ask ‘what price?’
“There's the price for when we bring wells online, which results in the price of when we would increase our investments…Our capital program has room for a ramp-up. And if we were to do that, we'd really see a strong rebound in our volumes going into 2025 and 2026. And that's a whole different price comparison.”
‘Hostile Near-Term Environment’
All in all, though, the management team is “really constructive on natural gas,” the CEO said. “But look, we're in a real hostile near-term environment. And we think just moderating these TILs is the way to go. We're also going to look and see what others do. There's a lot of gas and a lot of players doing what we're doing.”
Before the gas wells are brought online, “we're going to be thoughtful and look at the market conditions. And if there's a flood of gas coming online, that may impact our decision.”
Revenue, which remained stable sequentially in the first quarter, “allows us the luxury of maintaining a consistent level of activity, while retaining significant upside exposure to a gas price recovery,” the CEO said.
Jorden pointed to the new liquefied natural gas export capacity within a year’s time. In addition, “near-term power demand, and the evolving discussion about the long-term power demands” of artificial intelligence-driven data center needs mean it is hard not to be constructive on the future of natural gas.
“We watch this conversation closely and have heard forecasts for incremental natural gas demand driven by growing data center consumption that ranges from 3 Bcf/d to 30 Bcf/d-plus by the year 2030.
“We will welcome increased demand anywhere within that range.”
Jorden was asked how Coterra could allocate its natural gas capital based on the data center growth. Would it be in the Anadarko or the Marcellus?
“Well, I wouldn't have to think very hard,” he said. “We'd go where the best economics are. We have tremendous gas resources in both basins. And Anadarko has natural gas liquids, which really provides an economic boost. But the Marcellus has an amazingly low cost of supply and we produce pure methane, which we just have to compress” to put into the system.
“If some of the promise comes through on the increased need for natural gas and electricity generation, you'd probably see us increase activity in both basins,” Jorden said. Coterra also would likely “seek creative long-term contracts that might give us exposure to electricity pricing.”
More Permian Rigs
Coterra was running 12 active rigs on average during the first quarter, up two from a year ago. Eight rigs were working in the Permian versus six in 1Q2023. Two rigs each were active in the Marcellus and Anadarko. A year ago, there were three active rigs in the Marcellus and one working the Anadarko.
Total production was 686,000 boe/d in 1Q2024, near the high end of guidance.
“Oil and natural gas production came in above the high end of guidance, driven by strong well performance and a modest acceleration” in the timing of TILs in the Permian, CFO Shane Young said. “In the Permian, we brought on 22 wells versus 21 wells at the midpoint of our guidance. In contrast, in the Marcellus, we TIL’d 11 wells, below our guidance of 23 wells.”
Overall natural gas output averaged 2.96 Bcf/d, exceeding guidance of 2.85-2.95 Bcf/d. Marcellus volumes rose year/year to 2.30 Bcf/d from 2.10 Bcf/d. Permian gas production averaged 487 MMcf/d from 427 MMcf/d, with Anadarko declining to 161 MMcf/d from 194 MMcf/d.
Including hedges, Coterra’s average realized gas price was $2.10/Mcf in 1Q2024 from $3.72 in 1Q2023. For the Marcellus gas, the realized price averaged $2.20, versus $3.71. Permian gas fetched an average $1.02 from the year-ago realized price of $1.40. Anadarko gas averaged $2.10 in 1Q2024, compared with $3.14 in the year-ago quarter.
Second quarter production is expected to average 625,000-655,000 boe/d. Natural gas output is forecast to average 2.6-2.7 Bcf/d, with oil production of 103,000-107,000 b/d.
Net income was $352 million (47 cents/share) in 1Q2024, versus $677 million (88 cents) in the year-ago period. Operating revenue fell to $1.43 billion from $1.78 billion.
