Coterra Energy (NYSE:CTRA) reported Q1 2024 production that exceeded expectations, despite it deferring 12 of its Marcellus wells until the second half of the year. It expects to meet its original full-year guidance for natural gas production despite those wells coming online later than initially scheduled, and also increased its full-year oil production guidance by 2% to 3%. Coterra has noted that its well performance has been strong, leading to that positive guidance revision.
Coterra is now expected to generate $1.232 billion in 2024 free cash flow at current strip prices. This is close to $100 million less than what I had projected for it in March, with weaker commodity prices more than offsetting the impact of its improved production guidance. I am maintaining my long-term outlook for $75 WTI oil and $3.75 Henry Hub natural gas prices, though, so I have increased my estimate of Coterra’s value slightly to $32 per share due to its oil production strength.
Q1 2024 Results
Coterra’s Q1 2024 results were pretty strong. It reported total production (and natural gas production) that was 2% above the midpoint of its guidance, along with oil production that was 6% above the midpoint of its guidance.
These results were achieved despite Coterra deferring 12 net Marcellus wells until 2H 2024 due to poor natural gas prices. If Coterra had brought those well online in Q1 2024 as scheduled, it would have reported even stronger natural gas and total production levels.
Due to the deferred wells, Coterra’s Q1 2024 capex came in at $450 million, below its guidance range of $460 million to $540 million for the quarter.
Notes On Guidance
Coterra increased its full-year oil production guidance by 2% to 3% due to a combination of faster cycle times and strong well performance. Coterra’s oil production has exceeded expectations in recent quarters.
Coterra has also maintained its full-year natural gas production guidance. Coterra’s natural gas production has exceeded expectations too in recent quarters, but due to low natural gas prices, it deferred Marcellus wells that were scheduled to be turned in line in Q1 2024. Coterra also does not expect to bring any Marcellus wells online in Q2 2024. This is expected to result in a 10% quarter-over-quarter decline in its natural gas production from Q1 2024 to Q2 2024. With its strong natural gas production performance in Q1 2024 though, Coterra should still be able to meet its initial full-year guidance for natural gas production. Natural gas prices are more favorable in 2H 2024, so I’d expect those deferred wells to be turned in line then.
Coterra’s capex budget remains unchanged, as the deferred wells mean some capex is moved from Q1 2024 to 2H 2024.
2024 Outlook
The current strip for 2024 involves slightly over $76 WTI oil and roughly $2.52 Henry Hub natural gas. With Coterra’s updated production guidance (including 104,500 barrels per day in oil production), Coterra is now projected to generate $5.521 billion in revenues inclusive of hedges.
Type | Units | $ Per Barrel/Mcf | $ Million |
Oil (Barrels) | 38,142,500 | $74.00 | $2,823 |
NGLs (Barrels) | 35,161,667 | $20.00 | $703 |
Natural Gas [MCF] | 994,625,000 | $1.95 | $1,940 |
Hedge Value | $55 | ||
Total Revenue | $5,521 |
This results in an expectation for $1.232 billion in free cash flow (before dividends) at current strip prices. This is fairly close to Coterra’s projection of $1.3 billion in 2024 free cash flow, which used slightly better overall commodity prices in its assumptions.
Type | $ Million |
Direct Operations (LOE + Workovers) | $598 |
Transportation, Processing & Gathering | $956 |
Taxes Other Than Income | $265 |
Cash G&A | $215 |
Net Cash Interest | $55 |
Cash Taxes | $350 |
Capital Expenditures | $1,850 |
Total Expenses | $4,289 |
Coterra repurchased 5.6 million shares for $150 million (excluding the 1% excise tax) in Q1 2024 at an average price of $26.94 per share. It had approximately 744 million shares outstanding at last report (on May 1).
After Coterra’s dividend (of $0.21 per quarter), this leaves around $457 million of its 2024 free cash flow remaining for additional share repurchases during 2024 as well as other purposes.
Coterra also had $1.289 billion in cash on hand at the end of Q1 2024, of which $575 million is earmarked to pay off its September 2024 note maturity.
Notes On Valuation
When I looked at Coterra in March, I estimated its value at $31 per share based on long-term (after 2024) $75 WTI oil and $3.75 Henry Hub natural gas.
Coterra’s 2024 free cash flow is now expected a bit lower than I had previously modeled due to weaker commodity prices. The reduction is only $0.12 per share, though, and I have not changed my longer-term commodity price expectations at this point.
I believe that Coterra’s strong well performance and its improved oil production guidance increase its value slightly to around $32 per share.
Conclusion
Coterra’s strong well performance resulted in it exceeding expectations for Q1 2024 and increasing its full-year oil production guidance. Due to weak natural gas prices, it pushed some Marcellus wells into the second half of the year but still expects to meet its initial natural gas production guidance.
The strong well performance and improved capital efficiency increase my estimated value for Coterra to $32 per share at long-term $75 WTI oil and $3.75 Henry Hub natural gas. Coterra repurchasing shares in the mid-$20s also helps its value slightly.
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