Houston-based Coterra Energy Inc., created from a merger between Cabot Oil & Gas Corp. and Cimarex Energy Co., surpassed natural gas and oil production guidance in the second quarter, setting the independent up for higher-than-forecast volumes this year.

Cotera

Total production from three Lower 48 plays – the Anadarko and Permian basins and the Marcellus Shale, was 632,000 boe/d in 2Q2022, above internal forecasts of 605,000-625,000 boe/d.

Natural gas output across the trio of plays averaged 2.79 Bcf/d, exceeding a forecast of 2.73-2.78 Bcf/d. Oil production also surpassed projections, averaging 88,200 b/d. Coterra noted that results for the first six months of 2021 reflected legacy Cabot figures, while the first half of this year referenced the combined company.

“While inflation has driven 2022 capital costs up 20-25% year/year, we are still projecting all-in returns that markedly exceed our historical results,” CEO Tom Jorden said. 

During the quarterly conference call Wednesday, Jorden said “inflation continues to be a headwind,” with increased costs for rigs and fracture fleets, as “our term commitments expire and we move to prevailing rates.”

Oilfield services executives during 2Q2022 calls have pointed to their ability to demand higher prices from their exploration customers as contracts expire. 

Diesel, Steel, Sand Prices

Meanwhile, the company has held the line on some oilfield service costs, allowing it to add “a modest amount of incremental activity in the second half of 2022.” Coterra’s revised 2022 capital program “is expected to be $1.6-1.7 billion, 10% above the high end of our initial guidance range.

“The incremental activity capital is being driven by our intention to keep a third rig in the Marcellus during the second half of 2022, increases relating to facilities capital and a modest uptick in nonoperated activity,” Jorden said. “Our new capital guidance assumes we will invest less than 30% of our 2022 projected cash flow from operating activities, at recent strip prices.”

Today, Coterra has six rigs and two completion crews working in the Permian, and three rigs and one completion crew in the Marcellus.

Full-year production guidance was increased to 615,000-635,000 boe/d, up 1% at the midpoint from 600,000-635,000 boe/d. Natural gas volumes also are projected to be 1% higher, averaging 2.75-2.83 Bcf/d. Oil output is projected to be up 4% year/year at 85,500-87,500 b/d.

Coterra also is keeping its eyes on reducing its carbon emissions footprint, said the CEO.

“We are on track to hit our greenhouse gas intensity goals, methane intensity goals and flaring reduction.” The company last fall “eliminated all routine flaring” from the Lower 48 plays. 

“We also continue to make great progress on our multi-year electrification goals,” he said. “Fully two-thirds of our Permian wells drilled in 2022 will be drilled by rigs running directly on grid power.”

Coterra took delivery of a “fully electric” fracture fleet during the second quarter, “which we are powering directly off our electrical distribution grid. We have begun the pivot to electric compression within our Permian midstream assets and are seeing excellent operational performance.”

For 2Q2022, Coterra fetched average realized prices of $5.78/Mcf natural gas, compared with $2.05 in 2Q2022. Realized oil prices averaged $109.23/bbl, with $39.17/bbl for natural gas liquids (NGL). There were no comparable oil or NGL prices for a year ago because of the merger.

Production volumes in 3Q2022 are expected to average 610,000-630,000 boe/d. Gas volumes are pegged at 2.73-2.78 Bcf/d, with oil output of 85,500-88,500 b/d. 

Net income for second-quarter 2022 totaled $1.2 million ($1.53/share), compared with year-ago profits of $30 million (8 cents). The board also has declared a quarterly base-plus-variable dividend of 65 cents/share, which represents 92% of cash flow from operating activities in 2Q2022. Coterra also repurchased 11 million shares in the quarter. Since late February, it has repurchased 18.6 million shares.