ugurhan
cutera energy (New York Stock Exchange: CATRAThe company reported higher-than-expected production in the first quarter of 2024, despite delaying the drilling of 12 Marcellus wells until the second half of the year. It expects to meet its original full-year guidance for natural gas production Although these wells came online later than initially scheduled, it also increased its full-year oil production guidance by 2% to 3%. Coterra noted that its performance was strong, resulting in a positive guidance review.
Coterra is now expected to generate $1.232 billion in free cash flow for 2024 at current sector prices. That’s nearly $100 million less than it expected in March, with weaker commodity prices offsetting the impact of improved production guidance. I’m maintaining my long-term price forecast of $75 for WTI and $3.75 for natural gas at Henry Hub, so I’ve increased my forecast. Coterra is valued slightly at $32 per share given its strong oil production.
Results for the first quarter of 2024
Coterra’s Q1 2024 results were very strong. It reported that total production (and natural gas production) 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 delaying the drilling of 12 net Marcellus wells until the second half of 2024 due to lower natural gas prices. If Coterra had commissioned those wells in the first quarter of 2024 as scheduled, it would have recorded stronger natural gas and overall production levels.
Due to the deferred wells, Coterra’s capital expenditures in the first quarter of 2024 were $450 million, below the 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. Oil production at Kotera has exceeded expectations in recent quarters.
Coterra also maintained its full-year natural gas production guidance. Coterra’s natural gas production has also exceeded expectations in recent quarters, but due to low natural gas prices, it has postponed its Marcellus wells that were scheduled to come online in the first quarter of 2024. Coterra also does not expect to have any of its Marcellus wells come online in the second quarter of 2024. This is expected to lead to a 10% quarter-on-quarter decline in natural gas production from the first quarter of 2024 to the second quarter of 2024. With the strong performance of natural gas production in the first quarter of 2024, it is assumed That Coterra remains able to meet its full initial needs. – Annual guidance for natural gas production. Natural gas prices are more favorable in the second half of 2024, so I expect those deferred wells to come online then.
Coterra’s capex budget remains unchanged, as the deferred wells will mean moving some capex from the first quarter of 2024 to the second half of 2024.
2024 forecast
The current 2024 sector includes just over $76 of WTI and about $2.52 of Henry Hub natural gas. With Coterra’s updated production guidance (including 104,500 barrels per day of oil production), Coterra is now expected to generate $5.521 billion in revenue including hedges.
| He writes | Units | $ per barrel/mkv | Million dollars |
| Oil (barrels) | 38,142,500 | $74.00 | $2,823 |
| Natural gas liquids (barrels) | 35,161,667 | $20.00 | $703 |
| Natural gas (MCF) | 994,625,000 | $1.95 | $1,940 |
| Hedging value | $55 | ||
| Total revenue | $5,521 |
This results in a free cash flow forecast of $1.232 billion (before dividends) at current sector prices. That’s fairly close to Cutera’s forecast of $1.3 billion in free cash flow for 2024, which used slightly better overall commodity prices in its assumptions.
| He writes | Million dollars |
| Live Operations (LOE + Workovers) | $598 |
| Transportation, processing and assembly | $956 |
| Non-income taxes | $265 |
| General and administrative cash | $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 1% excise tax) in the first quarter of 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 ($0.21 per quarter), this leaves approximately $457 million of 2024 free cash flow remaining for additional stock repurchases during 2024 among other purposes.
Coterra also had $1.289 billion in cash at the end of the first quarter of 2024, of which $575 million was allocated to repay its bonds due in September 2024.
Notes about evaluation
When I looked at Coterra in March, it was valued at $31 per share on a long-term (post-2024) basis with a value of $75 WTI and $3.75 Henry Hub natural gas.
Coterra’s 2024 free cash flow is now expected to be slightly lower than I had previously envisioned due to weak commodity prices. However, the discount is only $0.12 per share, and I have not changed my outlook for long-term commodity prices at this point.
I think Coterra’s strong well performance and improving oil production guidance increases its value slightly to around $32 per share.
Conclusion
Coterra’s strong well performance led to it beating expectations for the first quarter of 2024 and increasing full-year oil production guidance. Given weak natural gas prices, it has pushed some Marcellus wells into the second half of the year but still expects to meet its initial natural gas production guidance.
Good performance and improved capital efficiency increase Coterra’s estimated value to $32 per share at $75 for WTI and $3.75 for Henry Hub natural gas. The buyback of Coterra shares in the mid-$20s also helps its value a bit.
