Capital Allocation to Anadarko Basin
Q: Why increase activity in the Anadarko Basin despite it being seen as a gas basin?
A: Management views the Anadarko Basin as a tremendous opportunity with outstanding returns. Despite perceptions, they increased allocation to let their team continue activity after demonstrating repeatability and strong projects in 2023. They are reallocating a little under $300 million between the Permian and Anadarko to capitalize on these opportunities and anticipate increased outside-operated activity as peers also expand there. -

Marcellus Activity and Gas Prices
Q: At what gas price does Marcellus activity increase?
A: The company would like to see gas prices close to or above $3 per MMBtu before significantly ramping up activity in the Marcellus. Additionally, they consider the oil-to-gas ratio, aiming for a sustained ratio of around 20:1. They are optimistic about reaching these levels with the market reset from LNG exports. -

Gas Market Outlook
Q: How do you view the gas market setup this year?
A: Management acknowledges the challenging gas market due to high storage levels and resilient production exceeding expectations. While some industry discipline is evident, it's unclear if it's sufficient. They remain cautious on gas, reflecting this in their 2024 planning and balance sheet management, but are prepared to react when the market turns. -

Return of Capital Strategy
Q: Why increase the base dividend instead of buying back more shares?
A: While they remained active in share buybacks, management was cautious due to uncertain winter weather impacting gas prices, resulting in a cash balance of around $1 billion. This positions them well to be more aggressive with buybacks in a potentially soft gas market in 2024. They increased the base dividend by 5%, maintaining a commitment to responsibly raise it annually while ensuring they deliver over 50% of free cash flow to shareholders each year. -

Well Productivity Expectations
Q: What is the well productivity outlook for 2024?
A: Management expects 2024 well productivity in the Delaware Basin to be very similar to 2023, with potential upside due to allocations. They anticipate another strong year within their established performance range, noting that their Permian program rotates across assets to deliver consistent results over multi-year periods. - -

Cost Efficiencies in Anadarko Basin
Q: Can you improve the cost structure in the Anadarko Basin?
A: Management believes there is room to enhance efficiencies in the Anadarko Basin by applying learnings from other areas. While the basin is deeper with higher pressure, consistent drilling activity in 2023 led to cost reductions. They've already leveraged pad efficiencies and are open to enlarging projects to achieve economies of scale. -

Service Cost Savings Potential
Q: Do you expect additional service cost savings beyond 5%?
A: Management hopes to achieve further service cost savings beyond the estimated 5% deflation, especially in the Marcellus. They strategically entered 2024 with minimal long-term contracts to capitalize on market opportunities while maintaining relationships with premium service providers who share their safety culture and drive for excellence. -

Marcellus Inventory Management
Q: Has your Marcellus inventory strategy changed?
A: The company's approach to Marcellus inventory hasn't changed. While there's reduced inventory in the Lower Marcellus, they will continue drilling there for many years. Current focus on the Lower Marcellus is due to available capacity in their gathering system and newly accessible areas. Lower investment levels have extended their inventory life beyond the previously estimated 3 to 6 years. -

Row Development Projects
Q: Will you continue large-scale row development projects annually?
A: Management expects to undertake a row project almost every year. These projects involve developing multiple standard drilling units in a sequence to maximize efficiencies. Their teams carefully plan to mitigate execution risks, and they've integrated learnings to enhance operational efficiency, such as owning water infrastructure to ensure ample supply without building produced water pits. -

Assumptions Behind Growth Outlook
Q: Does your growth outlook assume efficiency gains or cost reductions?
A: The growth outlook does not incorporate anticipated future efficiency gains or cost reductions. Management bases forecasts on their most recent operational efficiencies, stress-tested to ensure they're part of the program, and pushes teams to continually improve without baking unachieved advancements into projections. - -

Potential Capital Reallocation with Improved Gas Prices
Q: How would higher gas prices affect capital allocation?
A: If the gas market improves significantly, management would consider reallocating capital to the Marcellus or potentially increasing overall CapEx within their investment fairway of 40% to 70% of cash flow. They plan to react to changing conditions but do not include such adjustments in their current outlook. - -

Marcellus Production Decline and Future Growth
Q: Why is Marcellus production declining, and will it rebound?
A: The decline in Marcellus production is due to current capital allocation reflecting gas market conditions. Management has contingency plans to increase activity if gas prices recover as hoped. Projects have multi-year cycles, and current activities set up future production increases, so annual snapshots may not fully capture the long-term outlook. - -

M&A Strategy and Consolidation Views
Q: What are your thoughts on potential M&A activities?
A: Management evaluates potential combinations by assessing if owning a share of the combined company adds more value than a share of Coterra alone. While they remain curious about consolidation opportunities, the bar for any M&A activity is very high, and they've not encountered any opportunities they've regretted missing. -