Coterra Energy Inc. Q3 FY2025 earnings call

• Coterra had a strong third quarter with production volumes above guidance midpoint and outstanding returns on invested capital.
• Integration of Lea County assets has gone well, realizing asset performance uplifts, cost reductions, and future inventory increases.
• Operational momentum continued into the fourth quarter with consistent rig and crew programs across business units.
• Franklin Mountain and Avant acquisitions are performing better than expected with realized capital and expense savings, and increased inventory.
• Marcellus business unit saw drilling efficiencies with longer laterals and reduced costs, and Anadarko business unit had strong well performance.

Coterra's oil, natural gas, and BOE production each came in approximately 2.5% above the midpoint of guidance in the third quarter. NGL production was an all-time high at around 136 MBoe per day. Pre-hedge oil and gas revenues were $1.7 billion, with 57% of revenues from oil production. Cash operating costs totaled $9.81 per BOE, up 5% quarter-over-quarter due to production mix and higher workover activity. Incurred capital in the third quarter was near the midpoint at $658 million. Discretionary cash flow for the quarter was $1.15 billion and free cash flow was $533 million after cash capital expenditures.

• For full year 2025, increased annual MBoe per day production guidance to 777 at midpoint, with oil guidance midpoint maintained and natural gas volume range midpoint increased. Capital for the year is expected to be approximately $2.3 billion.
• 2026 capital is expected to be modestly down year-over-year, with a soft guide and a comprehensive 2026 guidance and updated 3-year outlook to be provided in February.

• Oil markets are affected by factors such as timing and impact of Russian sanctions, situation in Venezuela, Chinese and Indian behavior, and global economic robustness.
• Uncertainty in natural gas market development and pipeline infrastructure progress could impact growth opportunities.

Q: Doug Leggate asked about response to Kimmeridge letter and relation of LOE to oil guidance.

A: Thomas Jorden said Coterra is a premier outfit and inappropriate to get into more on Kimmeridge letter; Michael Deshazer said LOE was up due to workovers in Lea County but expected to decrease in Q4.

Q: Betty Jiang asked about cash return strategy and Permian activity.

A: Shannon Young said prioritized debt reduction earlier, reinitiated share buyback program, and productivity from TILs has been as expected or better.

Q: Arun Jayaram asked about CapEx reduction next year and Franklin, Avant acquisitions.

A: Thomas Jorden and Shannon Young discussed prudent approach to CapEx and Franklin, Avant acquisitions exceeding expectations with subsurface and D&C efficiencies.

Q: Neil Mehta asked about value of multi-basin portfolio and scale in Marcellus.

A: Thomas Jorden discussed benefits of multi-basin collaboration and Shannon Young said Coterra has sufficient scale in Marcellus.

Q: Scott Gruber asked about running room in Lea and Eddy counties and '26 budget.

A: Blake Sirgo and Michael Deshazer talked about land efforts and continued cost reduction in Northern Delaware Basin.

Q: David Deckelbaum asked about '26 high-level guide.

A: Michael Deshazer and Thomas Jorden discussed soft guide, flexibility, and general optimization.

Q: Matthew Portillo asked about microgrids in Permian and Northeast power demand.

A: Michael Deshazer and Shannon Young discussed microgrid timing and Northeast power demand growth opportunities.

Q: Kalei Akamine asked about Marcellus operating wins and M&A.

A: Blake Sirgo and Michael Deshazer talked about Marcellus operating efficiencies and inventory math.

Q: Derrick Whitfield asked about PVIs across basins and gas marketing in Permian.

A: Thomas Jorden said Marcellus has highest PVIs and Michael Deshazer talked about managing Waha exposure.

Q: Phillip Jungwirth asked about major projects in Culberson and lightweight proppant.

A: Blake Sirgo said projects are performing well and Michael Deshazer said there's a trial ongoing for lightweight proppant