Q4 2024 Earnings Summary
- Coterra is achieving significant operational efficiencies and cost reductions, such as reducing Anadarko program costs by 18% to $1,070 per foot and Marcellus costs to a record low of $800 per foot, enhancing capital efficiency and lowering breakeven costs.
- The company sees a constructive natural gas pricing outlook and is prepared to accelerate production in the Marcellus if favorable conditions persist, potentially increasing capital investment and delivering incremental volumes by early 2026.
- Coterra's newly acquired oily Permian assets have "fantastic margins", despite higher per-unit operating costs, contributing positively to the company's overall profitability.
- Increased unit operating expenses (OpEx): Coterra's unit OpEx is moving up significantly year-over-year due to the new Permian assets, which are very oily with low gas-to-oil ratios (GOR), leading to higher per-unit costs on lease operating expenses (LOE). This increase impacts the overall unit cost structure, potentially affecting profitability.
- Limited growth potential in the Marcellus shale: The company acknowledges having about 12 years of inventory in the Marcellus, and future production growth may be constrained. Additionally, as development shifts towards the Upper Marcellus, which has lower productivity compared to the Lower Marcellus, this could impact overall production levels and growth prospects.
- Prioritization of debt repayment over shareholder returns: Coterra plans to repay $1 billion of term loans in 2025, prioritizing debt repayment over share buybacks in the near term. While the buyback program is not on hold, it is expected to be more back-end loaded, which may be less favorable for shareholders seeking immediate returns.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -12.6% (from $1,596M to $1,395M) | Total revenue declined by 12.6% driven by lower revenues in key segments, notably natural gas and oil, and a sharp drop in the “Other” category (-56%), which indicates reduced contribution from non-core sources relative to the previous period. |
Natural Gas | -6.7% (from $553M to $516M) | Natural gas revenue fell by 6.7% likely reflecting lower commodity prices and/or production adjustments compared to Q4 2023, consistent with challenging market conditions impacting the energy sector. |
NGL | +20.8% (from $168M to $203M) | NGL revenue increased by 20.8% driven by higher production volumes or improved pricing, suggesting operational gains and strategic focus in regions like the Permian Basin relative to the prior period. |
Oil | -3.9% (from $742M to $713M) | Oil revenue declined modestly by 3.9% despite robust production, primarily due to lower oil prices, which contrasts with the improved performance seen in NGLs; this indicates that market pricing pressures continue to affect oil margins compared to last year. |
Other | -56% (from $32M to $14M) | The “Other” segment experienced a drastic 56% decline, suggesting that non-core revenue items or ancillary services that contributed previously have either diminished significantly or been discontinued in Q4 2024. |
Operating Income | -43% (from $577M to $326M) | Operating income dropped by 43% as the revenue declines, particularly in natural gas and oil, were compounded by higher operating costs and increased expense pressures, leading to a sharper reduction in profitability compared to the prior period. |
Net Income | -28% (from $416M to $297M) | Net income fell by 28% primarily due to lower operating margins from reduced revenues and elevated cost pressures, reflecting the combined effects of adverse commodity price movements and increased expense levels relative to Q4 2023. |
Basic EPS | -27% (from $0.55 to $0.40) | Basic EPS declined by 27% in line with the 28% drop in net income, indicating that lower profitability was directly passed through to the earnings per share despite any changes in share count, underscoring the impact of the operating challenges. |
Interest Expense | +26% (from $23M to $29M) | Interest expense increased by 26%, which can be tied to higher debt balances and the issuance of new debt at relatively higher interest rates, reflecting a change in the company’s financing profile compared to the previous period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Production | Q1 2025 | no prior guidance | 710 to 770 MBOE per day | no prior guidance |
Oil Production | Q1 2025 | no prior guidance | 152 to 168 MBL per day | no prior guidance |
Natural Gas Production | Q1 2025 | no prior guidance | 2.675 to 2.875 Bcf per day | no prior guidance |
Capital Expenditures | Q1 2025 | no prior guidance | $525 million to $625 million | no prior guidance |
Capital Expenditures | FY 2025 | no prior guidance | $2.1 billion to $2.4 billion | no prior guidance |
Oil Growth Outlook | FY 2025 | no prior guidance | 5% or greater annual oil volume growth | no prior guidance |
Total BOE Growth Outlook | FY 2025 | no prior guidance | 0% to 5% annual growth | no prior guidance |
Run Rate Synergies | FY 2025 | no prior guidance | Approximately $50 million | no prior guidance |
Base Dividend | FY 2025 | no prior guidance | Increased by 5% to $0.88 per share annually ($0.22 per share for Q4 2024) | no prior guidance |
Free Cash Flow Return Target | FY 2025 | no prior guidance | 50% or more of annual free cash flow | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 20% to 25% | no prior guidance |
Cash Tax Rate | FY 2025 | no prior guidance | 90% to 100% of the effective tax rate | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Capital Expenditures | Q4 2024 | $410 million to $500 million | $417 million | Met |
Capital Expenditures | FY 2024 | $1.75 billion to $1.85 billion | $1,746 million (sum of $457+ $479+ $393+ $417) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Operational Efficiency and Cost Management | In Q1 2024, the focus was on record Permian efficiencies, reduced transition times, electrification cost savings, and in Q2 2024, the emphasis was on improved drilling and fracing speeds, simul-frac technology, and cost reductions (e.g., lower per‐foot costs, centralized operations). | In Q4 2024, the discussion highlighted a record drilling fee per day, notably improved frac efficiencies with grid-powered electric simul-frac deployments, and significant cost management across multiple basins (Marcellus, Permian, Anadarko). | Consistent emphasis with an increased focus on technology-driven efficiency gains and deeper operational cost improvements. |
Natural Gas Market Dynamics | Q1 2024 mentioned a hostile near-term environment with low gas prices leading to deferred production (delayed TILs) while Q2 2024 pointed to oversupply issues with high production levels and near-maximum storage impacting prices. | Q4 2024 describes a dynamic market influenced by LNG flows, power demand, and international pricing—with a constructive outlook for 2025 and 2026—indicating a shift from the earlier bearish tone. | Shift from bearish to cautious optimism as market influences are now seen as drivers for a more balanced and dynamic pricing environment. |
Marcellus Production Adjustments | Q1 2024 reported deceleration with delayed wells and reduced activity due to weak gas markets and Q2 2024 outlined curtailments, delayed turn-in lines, and tactical production adjustments amid oversupply. | In Q4 2024, the company is planning to restart two rigs in the Marcellus in April 2025, with an incremental capital possibility of $50 million to bring additional volumes online and stabilize production. | Transition from deceleration to reactivation as plans shift toward resuming production and optimizing operations in the Marcellus. |
Capital Allocation Strategy and Financial Flexibility | Q1 2024 emphasized a balanced approach with significant free cash flow returns to shareholders, disciplined share repurchases, and prudent debt refinancing to maintain low leverage. Q2 2024 also focused on reallocating capital according to market conditions and maintaining financial strength as seen in opportunistic buybacks and robust debt management. | In Q4 2024, the company reiterated a consistent, capital-efficient program with a flexible pivot based on market conditions, highlighted plans to repay $1 billion in term loans, and maintained strong shareholder returns (50%+ of free cash flow), underscoring a focus on deleveraging and agile capital allocation. | Consistent discipline with a further aggressive push on debt reduction and flexible, market-responsive capital reallocation. |
Integration of New Assets | Not mentioned in Q1 2024 and was absent in Q2 2024 discussions. | Q4 2024 marked the successful integration of new assets (Franklin Mountain and Avant), leading to operational improvements such as optimized frac designs and cost savings of about 10% per foot (roughly $50 million lower CapEx) in the Permian Basin. | Emerging topic with a significant, positive impact on operations and cost structure, marking a new strategic focus compared to earlier periods. |
Oil Production Growth | Q1 2024 noted moderate oil production outperformance (e.g., production above guidance and a 2.5% guidance increase). Q2 2024 reported modest guidance increases and production levels exceeding targets (around 2.4% increase). | Q4 2024 forecasts a substantial oil production uplift, with production expected to average between 152 to 168 MBO/day—representing a 47% year-over-year increase at the midpoint—driven in part by the integration of new assets and operational improvements. | Acceleration in growth trajectory from modest increases to robust, transformative gains propelled by asset integration and operational excellence. |
Emerging AI-Driven Demand and New Market Opportunities | In Q1 2024, there was optimism around AI-driven demand with discussions on huge power generation needs, potential long-term contracts, and forecasts suggesting incremental demand (up to 30+ Bcf/day) from data centers. Q2 2024 did not mention this topic. | Q4 2024 is exploring opportunities in the Permian for combined cycle plants and behind‐the‐meter power solutions for data centers, acknowledging that the commercial landscape remains uncharted and challenges persist in securing long-term deals. | Continued strategic interest evolving from early bullish speculation to a more cautious and exploratory approach in addressing emerging market opportunities linked to AI-driven power demand. |
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Marcellus Gas Activity Resumption
Q: Why are you restarting two rigs in the Marcellus in April?
A: Returns in our program are now competitive at our current price outlook. Positive developments such as improving storage situations, encouraging signs from European storage, and opening LNG exports are aligning for constructive pricing throughout 2025 and into 2026. We're prepared to hold our course steady or increase activity based on how conditions develop by mid-spring. -
Reaching 2 Bcf/d in Marcellus
Q: When do you expect to reach a run rate in the Marcellus holding about 2 Bcf/d flat?
A: Restarting activity arrests the decline in production. We anticipate being back on track to 2 Bcf/d in mid to late 2026 into 2027, which would involve capital spending above maintenance levels. Improved capital efficiency from significantly extended lateral lengths supports this trajectory. -
Acquisition Strategy Post-Franklin Mountain
Q: Will you continue to be active in acquisitions going forward?
A: We don't intend to be serial acquirers but remain opportunistic when opportunities make sense for our organization and owners, and we can acquire at a reasonable entry price. The Franklin Mountain and Avant assets met these criteria. If similar opportunities arise, we'd consider them, but we're not actively shopping and are focused on creating value with our existing inventory. -
Operational Efficiency Improvements
Q: Are there further opportunities for operational efficiency improvements in the Permian and Marcellus?
A: Yes, we've achieved record drilling feet per day and dramatically improved frac efficiencies through strategies maximizing available horsepower and minimizing transition times (now averaging close to 20 minutes between stages). We're also focusing on frac design, particularly in the Bone Spring sands, using machine learning models to rightsize fracs for the same productivity at a lower cost. We'll continue pushing for efficiencies across our operations. -
Power Generation and Data Center Opportunities
Q: Are you exploring power generation and supplying power for data centers in the Permian?
A: Yes, we're engaged in discussions. The Waha gas molecule is advantageous for power generation, attracting interest for baseload power and data center loads. We're well positioned to take advantage of these opportunities and are hopeful to have some good announcements soon. -
Upper Marcellus Development Plans
Q: Will you focus on both Upper and Lower Marcellus in your upcoming activity?
A: Yes, we'll be returning to the box and overfilling with Upper Marcellus wells, while also developing the Lower Marcellus. Although productivity is slightly lower in the Upper Marcellus, longer lateral lengths and improved capital efficiency allow us to hold production flat at 2 Bcf/d. The cost reductions make both the Lower and Upper Marcellus more attractive than they were 12 to 18 months ago.