Conterra Energy Q3 2024 Earnings Call Summary

Management Comments

1) Historical and Forecast Production Levels for Natural Gas

• Q3 natural gas production averaged 2.68 BCF/day.

• Q4 guidance for natural gas: 2.53–2.66 BCF/day.

• Full-year 2024 guidance slightly increased from prior figures, with focus on the Permian Basin for efficiency improvements.

2) Production Curtailments / Shut-Ins

• "We currently have no drilling or completion activity on our Marcellus assets… we continue to curtail and shut in volumes" due to low prices in the Northeast.

• Marcellus curtailments projected for November: 340,000 MMBtu/day gross and 288,000 MMBtu/day net.

3) TIL and DUC Wells

• "We brought online seven net wells in mid-September."

• "In the Permian, we brought online 24 net wells" near guidance’s high end.

• Windham Row project (Permian): ahead of schedule with promising initial production.

4) Hedging Strategy / Break-even Production Costs

• Hedging: Coterra targets 20–50% hedged on gas/oil in the next 12 months, using financial and physical contracts.

• Cost Efficiency: Oil projects remain viable with oil prices as low as $50/barrel, supporting returns even in challenging markets.

5) Rig and Frac Crew Numbers

• 8 drilling rigs and 2 frac crews currently running in the Permian.

• Frac efficiency: transition from Simul-frac to Zipper-frac in some projects, with savings estimated at $25 per foot if fully implemented.

6) Energy Infrastructure Projects (LNG, Pipelines)

• New LNG contracts: 200,000 MMBtu/day for European and Asian markets starting in 2027/2028.

• Matterhorn pipeline online, expected to alleviate some Waha pricing constraints but not a full solution.

7) Market Activity / State of the Market

• Positive outlook on natural gas markets for 2025 due to projected LNG demand growth, increased power generation, and potential winter weather impacts.

• "Constructive on oil markets" with potential capital shifts if gas prices recover.

Q&A Highlights

1) Production and Cost Efficiencies

• "Two-thirds of operational improvements from faster drilling; one-third from productivity gains."

• Leading-edge costs: $860 per foot in Culberson County for row development projects.

• Simul-frac benefits confirmed, potentially saving $30 million annually in drilling costs.

2) Future Rig and Frac Activity

• Rig availability: Coterra's Marcellus on-ramps allow quick return if prices improve, while new frac projects could increase output.

• "On-ramps and off-ramps" flexibility based on market signals for the Marcellus region.

3) New LNG and Market Exposure

• LNG contracts provide international exposure tied to JKM, TTF, and NBP indexes, adding flexibility and diversification.

• Anticipated improvement from new LNG contracts not expected to impact until 2027/2028.

4) Capital Efficiency Improvements

• Expected reductions in total well cost per foot, especially in the Delaware Basin.

• Additional efficiencies anticipated in New Mexico’s Bone Spring and Wolfcamp projects due to co-mingling and well density.

5) Market Position and Flexibility

• Potential capital deployment contingent on return of capital and oil market stability.

• Coterra remains cautious on production growth, preferring a capital-efficient, low-cost model to manage downturns.

Key Figures / Dates

• Q3 Production: 2.68 BCF/day gas, 112.3 MBOE/day oil.

• Q4 Production Guidance: 2.53–2.66 BCF/day gas, 106–110 MBOE/day oil.

• LNG Contracts: 200,000 MMBtu/day starting 2027/2028.

• Windham Row Completion: Expected full completion and results by Q1 2025.

• Curtailed Volumes: 340,000 MMBtu/day gross, 288,000 MMBtu/day net for November.