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01/10 16:01
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call indicates strong operational performance with successful remediation efforts, promising oil growth, and strategic capital allocation. The Q&A reveals confidence in new well designs and shareholder returns, despite some uncertainties in dewatering timelines. The positive aspects, including dividend announcements and successful acquisitions, outweigh potential risks, suggesting a positive stock price movement.
Oil production Coterra's oil production came in 2% above the midpoint of guidance, driven by outperformance in all 3 business units.
Natural gas production Natural gas production was above the high end of the guidance range due to outperformance in all 3 business units.
Pre-hedge oil and gas revenues Revenues came in at $1.7 billion, with 52% of revenues from oil production, a 7% increase in oil contribution quarter-over-quarter due to higher oil volumes.
Cash operating costs Totaled $9.34 per BOE, down 6% quarter-over-quarter on higher volumes.
Net income Reported at $511 million or $0.67 per share, with adjusted net income of $367 million or $0.48 per share.
Capital expenditures $44 million less or 7% below the midpoint of guidance, driven by timing and additional cost savings.
Discretionary cash flow $949 million, with free cash flow at $329 million after cash capital expenditures.
Term loan repayment $100 million repaid during the quarter, bringing total term loan paydown to $350 million in the first half of 2025.
Shareholder returns $191 million returned through base dividend and share repurchases, representing 58% of free cash flow.
Liquidity Ended the quarter with an undrawn $2 billion credit facility and total liquidity of $2.2 billion.
Permian all-in cost Projected at $940 per foot, down 2% from the start of the year and 12% year-over-year, driven by drilling and completion efficiencies and competitive pricing.
Marcellus lateral length Average lateral length of 17,000 feet, contributing to a cost structure of $800 per foot.
Anadarko all-in cost First 3-mile project coming online later this year with an all-in cost of $923 per foot.
Culberson Harkey program: Progress made in addressing localized issues in Windham Harkey flowbacks. Six new Harkey wells brought online in Culberson County are meeting or exceeding expectations.
Marcellus production: 11 wells turned online in December 2024 have been the most productive in Marcellus history, with a peak 30-day rate of 450 million cubic feet per day.
Anadarko program: The Roberts pad achieved a 30-day equivalent IP of 173 million cubic feet per day. First 3-mile project coming online later this year with an all-in cost of $923 per foot.
Gas marketing portfolio: Announced a new power netback deal in the Permian with a 50,000 MMBtu per day long-term sale to Competitive Power Ventures' new Basin Ranch power plant in Texas.
Production performance: Exceeded high-end guidance for natural gas and total barrel of oil equivalent production. Oil production was 2% above midpoint guidance.
Cost efficiency: Permian all-in cost reduced to $940 per foot, down 12% year-over-year. Marcellus cost structure improved to $800 per foot.
Capital allocation: Maintaining consistent activity with 9 rigs in the Permian, 2 in the Marcellus, and 1-2 in the Anadarko. Full-year capital expenditure expected to be $2.3 billion, representing 50% of cash flow.
Shareholder returns: Announced $0.22 per share dividend and repaid $350 million in term loans in the first half of 2025. Plan to fully repay remaining $650 million in term loans by year-end.
Natural Gas Price Weakness: The company has observed a weakening in natural gas prices over the past quarter, which could impact revenue and profitability.
Oil Market Softening: The cessation of OPEC+ curtailments has led to a softening of oil markets, creating potential revenue challenges.
Localized Mechanical Issues in Culberson County: Mechanical issues encountered in the Windham Harkey wells have led to underperformance and may not fully achieve predrill volume expectations, impacting production targets.
Economic and Geopolitical Uncertainty: Uncertainty around tariffs, Middle East conflicts, and other global economic factors could affect operational and financial stability.
Tax Law Changes: Recent U.S. tax law changes are expected to increase the current tax percentage of total tax expense to 70%-90%, potentially impacting cash flow.
Supply Chain and Cost Pressures: While some cost reductions have been achieved, the company remains exposed to potential increases in rig and frac costs, which could affect capital efficiency.
Natural Gas and Oil Production: Coterra expects total production to average between 740 and 790 MBoe per day in Q3 2025. Oil production is projected between 158 and 168 MBoe per day, and natural gas production is expected between 2.75 and 2.9 Bcf per day. For the full year 2025, the company has increased its natural gas volume guidance midpoint by 5% to 2.9 Bcf per day and total production guidance midpoint by 4% to 768 MBoe per day.
Capital Expenditures: Capital expenditures for Q3 2025 are expected to be $650 million at the midpoint, marking the highest quarter for capital spending in 2025. Full-year capital expenditures are projected to be approximately $2.3 billion, maintaining consistent activity across all three business units.
Operational Activity: Coterra plans to maintain 9 rigs in the Permian, 2 rigs in the Marcellus, and 1-2 rigs in the Anadarko through the second half of 2025. This consistent activity positions the company for a highly capital-efficient 2026.
Cost Efficiency: The company is achieving cost reductions, with Permian all-in costs projected at $940 per foot (down 2% from the start of 2025 and 12% year-over-year). Marcellus costs are expected to average $800 per foot, driven by extended lateral lengths.
Free Cash Flow and Shareholder Returns: Coterra expects to generate over $2 billion in free cash flow for 2025. The company plans to fully repay $650 million in term loans during 2025 and prioritize share repurchases in the latter half of the year.
Market Trends and Strategic Positioning: Coterra remains bullish on the long-term prospects of the oil and gas industry. The company anticipates that a decline in Tier 1 inventory across the industry will lead to higher commodity prices, benefiting its diversified portfolio of low-cost assets.
Three-Year Outlook: Coterra plans to update its three-year outlook in February 2026, focusing on steady cash flow, improving capital efficiency, and modest production growth.
Dividend Announcement: Coterra announced a $0.22 per share dividend for the quarter, one of the highest yielding base dividends in the industry at over 3.5%. The company remains committed to reviewing increases to the base dividend on an annual basis.
Share Repurchase: Coterra returned $191 million directly to shareholders through base dividends and share repurchases, representing 58% of its free cash flow. The company expects share repurchase activity to be weighted towards the back half of the year, particularly in light of the current share price.
The earnings call and Q&A indicate strong operational performance and strategic positioning. The company is reducing costs, achieving efficiencies, and maintaining a positive outlook with increased production guidance and shareholder returns. The positive sentiment is reinforced by successful acquisitions and a focus on cash flow and profitability. While some uncertainties exist, such as CapEx adjustments, the overall sentiment is positive, with potential for a stock price increase of 2% to 8% over the next two weeks.
The earnings call indicates strong operational performance with successful remediation efforts, promising oil growth, and strategic capital allocation. The Q&A reveals confidence in new well designs and shareholder returns, despite some uncertainties in dewatering timelines. The positive aspects, including dividend announcements and successful acquisitions, outweigh potential risks, suggesting a positive stock price movement.
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