Coterra to shift from gas to oilier basins

US independent producer Coterra Energy plans to pare drilling in basins rich in natural gas and shift toward basins with more oil and NGLs because of low gas prices.

Coterra adjusted full-year guidance to increase the number of wells it plans to bring on line in the Permian basin of west Texas and southwest New Mexico while reducing net wells on line in the Anadarko basin, located in the Texas panhandle and western Oklahoma. It plans to bring 80-90 wells on line in the Permian in 2023, up from prior guidance of 75-85 wells, and it plans to bring seven wells on line in the Anadarko, down from prior guidance of 10-15 wells.

As the Permian is a more crude- and liquids-rich basin than the gassier Anadarko, the shift likely reflects an interest in exploiting the more robust price environment for crude and NGLs while reducing exposure to low gas prices. NGL prices tend to track the price of crude more than gas.

That shift is also reflected in Coterra's full-year oil production guidance, which it raised by 1,000 b/d to 87,000-93,000 b/d.

"Right now, our oil assets are really, really performing well," chief executive Thomas Jorden said today on a conference call.

Coterra also plans to delay some well completions until 2024, when gas prices are expected to be higher.

Gas prices have been low since the beginning of February, following a mild winter and a prolonged decrease in LNG export capacity stemming from a fire at a key Texas terminal in June, all of which resulted in bloated gas inventories and a generally oversupplied US gas market.

Coterra's full-year well count guidance for the Appalachian region's Marcellus basin remained unchanged at 65-75 wells. It plans to drop to two rigs and one hydraulic fracturing crew in the Marcellus in the second quarter.

The company also outlined its plan to channel future Marcellus cash flow into the Permian and Anadarko — assets where gas production is expected to grow in the coming years — while Marcellus production remains constrained because of regional opposition to the construction of new pipelines.

Although it plans to reduce activity in the Marcellus in the coming weeks, Coterra said Marcellus assets "retain the flexibility to grow in the future should macro conditions and prices warrant increased investment."

Reliance on Marcellus operations exposes the company to Pennsylvania's risky gas regulatory environment, analysts at Citi said in a note. Just last month, developers called off plans to build a $1bn gas-fired power plant in Pennsylvania amid ongoing litigation from environmental groups.

High-profile cancellations of this sort can be concerning for Marcellus producers interested in growing production in Pennsylvania, as one source of hope for them has been the significant increase in gas-fired power generation within the state in the past six years. In-basin demand growth can fuel production growth in the Marcellus in a way out-of-state demand growth often cannot, because meeting in-basin demand growth doesn't require the construction of new, controversial interstate pipelines.

Coterra's gas production in the first quarter was 2.8 Bcf/d (79mn m3/d), exceeding the high end of the company's guidance. The outperformance was driven by strong production in the Anadarko, Coterra said.

Coterra's profit for the quarter increased to $677mn from $608mn a year earlier.

By Julian Hast