Coterra Energy Inc. is planning to curtail about 275 MMcf/d of Marcellus Shale natural gas volumes from August through September because of expected low netbacks, according to management.
“We would like to see netbacks north of $1” before accelerating production in the Marcellus, CEO Tom Jorden said during a conference call to discuss the company’s second quarter 2024 earnings.
For Coterra, the fourth-leading U.S. publicly traded gas producer according to NGI calculations, this would require New York Mercantile Exchange Henry Hub prices to exceed $3/MMBtu, according to Jorden.
“I would say in the Lower Marcellus we’re probably in a pretty good drilling window if we’re north of $3,” the CEO said. For the Upper Marcellus, “I think we’d like to see something in the mid-$3s before it’s really in the game.”
NGI’s Henry Hub forward fixed price for September delivery averaged $2.151/MMBtu on Tuesday (Aug. 13).
Coterra operates in the Marcellus as well as the Permian and Anadarko basins, giving the firm more flexibility to respond to commodity price fluctuations. “I understand if all you had was one play, one basin, you’re in a bit of a box when things go against you,” said Jorden. “We’ve got the luxury of redirecting.”
He added, “If we have to lay all activity down to zero and our production declines, that’s the right decision. None of us like it, but the alternative is to destroy capital or to be inefficient with our shareholders’ capital.”
The company briefly turned in line 12 previously deferred Marcellus wells during 2Q2024, though they were producing for less than 10 days on average in order to de-water the developments and produced “negligible” gas volumes, management said.
The wells returned to production in July “due to favorable contract pricing” during the month, according to the firm.
In response to weak near-term natural gas pricing, Coterra lowered its forecast 2024 Marcellus drilling and completions capital expenditures by more than 55% at the midpoint versus 2023.
If prices strengthen, “We can move fairly quickly” to increase production, Jorden said. “We’re looking at delaying turn-in-lines, so that’s almost instantaneous depending on the price response.”
Coterra is forecasting natural gas production of 2.675-2.775 Bcf/d for 2024, unchanged at the midpoint from previous guidance. Overall production is now projected to be between 645,000 and 675,000 boe/d, up 1% at the midpoint. The adjustment was driven by faster cycle times and strong well performance, management said.
“As we move into the second half of 2024, we remain focused on executing our plan while maintaining significant investment optionality between oil and gas in 2025,” Jorden said.
Coterra produced 2.78 Bcf/d of natural gas during the second quarter, down from 2.9 Bcf/d in the same period last year. The Marcellus, Permian and Anadarko regions accounted for 2.11 Bcf/d, 484.5 MMcf/d and 179.4 MMcf/d, respectively, in 2Q2024.
Management highlighted that natural gas, oil and natural gas liquids production each beat the high end of company forecasts during the three-month period.
The company’s average natural gas sales price excluding hedges was $1.40/Mcf, compared to $1.95 a year earlier. The Marcellus and Anadarko regions fetched average natural gas prices of $1.66 and $1.35, respectively, while the average Permian price was negative 53.0 cents.
Coterra reported net income of $220 million (30 cents/share) for 2Q2024, versus profits of $209 million (28 cents) in 2Q2023. Operating revenues totaled $1.27 billion, compared with $1.19 billion.
