Coterra Energy Inc.

Good day and welcome to the Cotera Energy third quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Katerina Papadetropoulos, Investor Relations Analyst. Please go ahead.

Thank you, Matt. Good morning, everyone, and thank you for joining Cotera Energy's third quarter 2021 earnings conference call. During today's call, we will reference an updated investor presentation, which can be found on the company's website. Today's first pair of remarks will include a business overview from Tom Jordan, CEO and President, and Scott Schroeder, Executive Vice President and CFO. As a reminder, on today's call, we will make forward-looking statements based on our current expectations. Additionally, some of our comments will reference non-GAAP financial measures. Forward-looking statements and other disclaimers, as well as reconciliations to the most directly comparable GAAP financial measures were provided in this morning's earnings release, which can be found on our website. Following our prepared remarks, we will take your questions. Please limit yourself to one question and one follow-up. With that, I'll turn the call over to Tom.

Thank you, Katarina. and thank all of you for joining us on this morning's call. I'll make a few introductory remarks followed by Scott who will walk us through third quarter financials and fourth quarter guidance. We have quite a crew in the room today and I just want to make sure you know who is in the room because we may be directing questions to them given the complexity of our release. Blake Sergo is here for operations. Dan Guffey is here for financial planning and analysis. We have Todd Raymer, our Chief Accounting Officer. We have Matt Caron for Finance and other overarching business issues, including marketing. And, of course, Scott, who will be making some prepared remarks. The closing of the Cabot and Semerex merger occurred on October 1. As a result, Legacy Semerex will not report third quarter financials. I'm pleased to report that Cotera Energy is well underway with the integration of our two legacy companies. As you can imagine, a merger of equals between Simerex and Cabot is not an easy task. We've been full court press since May. We have functional teams working around the clock to integrate accounting, information systems, production reporting, safety protocol, land systems, operations, marketing, legal, and human resources. Each of these teams are tasked with identifying and implementing best-in-class systems and processes. Our approach is all Cotera, all go forward. That's not the way we've done it here is not an acceptable answer. We've made great strides and we'll hit the ground running as we head into 2022. I want to salute our exceptional people from both legacy organizations who are coming together to form a new, better Cotera from two outstanding legacy companies. We all share an enthusiasm and commitment to create the very best DMP company in our industry. I have great confidence that we will exceed our lofty expectations. Speaking of confidence, this morning's announcement that we are accelerating our first variable dividend underscores and demonstrates this confidence. Cotera is built to deliver superior financial returns through the cycles. This morning's announced base and accelerated variable dividend totals a combined 30 cents per share. Coupled with the 50 cent special dividend we paid on October 22nd, the company will return 80 cents per share during the fourth quarter. As these moves demonstrate, we are committed to our owners. Cotera owners benefit from assets that are second to none, a pristine balance sheet, and asset diversity that will sustain and preserve our cash flow through commodity cycles. Our owners also benefit from our ongoing discipline to allocate capital to its most productive use and continually challenge the status quo. Although Cotera is barely one month old, we have some excellent operational results to discuss this morning. On a pro forma basis, Cotera produced 645,000 barrels of oil equivalent per day, including 81.5 thousand barrels of oil per day during the third quarter. As promised, we are on track to exit 2021 with oil rates that are 30% greater year over year compared to fourth quarter 2020. We brought 61 wells online during the quarter and are currently running seven rigs and will average four completion crews during the fourth quarter. Five of our rigs are in the Delaware Basin. Two rigs are in Susquehanna County of Northeast Pennsylvania. We benefited nicely from higher commodity prices during the quarter. This was true across the board. Oil, gas, and natural gas liquid prices were significantly higher during Q3 and have continued to strengthen. More on that later. We continue to see excellent productivity and deliverability from our Northeast Pennsylvania assets. Slide eight in the investor deck we posted this morning highlights our ongoing activity level and sustainable production volumes in Northeast Pennsylvania. Our Pennsylvania operation is impressive on all fronts. We continue to make remarkable drilling progress and are bringing projects online faster than predicted. Faster drilling has meant that we can drill more wells with the same number of rigs, resulting in four additional wells drilled during 2021. When acceleration occurs owing to operational excellence, it's a nice problem to have. We're also moving seven additional completions into late fourth quarter 21 from early 22, pushing our planned Marcellus capital slightly above the upper end of our previously issued annual guidance range. As a result, we will have additional volumes coming online around year-end to take advantage of strong Appalachian winter pricing. We continue to see a significant increase in capital efficiency in our Delaware Basin assets. Slide 9 of our investor presentation highlights recent development projects in Culberson County. As we previously discussed, we are observing that relaxed spacing and modestly-upsized completions can significantly improve well-level returns and, in many instances, recover the same amount of oil per drilling spacing unit than more dense well spacing. We are achieving increased productivity per well, similar section recoveries, and increased PV10 with substantially lower capital per drilling spacing unit. We're also seeing excellent results from our lone 2021 Anadarko development. the five-well Carroll Elder, which targets the Woodford Shale. Slide 11 in our deck illustrates the uplift we have seen with relaxed spacing and improved completions. Our Anadarko team has assembled a deep inventory of projects that are highly competitive for capital. I would also like to make a few comments regarding our ESG performance. Cotera, like both legacy companies before it, is deeply committed to making ESG performance a top priority. Our industry has grand engineering challenges, and we embrace these challenges wholeheartedly. Cotera is dedicated to be a top performer in ESG metrics, to be transparent in our communication, and to aim higher than state and federal requirements. We will be an industry leader in ESG performance. As we look ahead into 2022 and beyond, Cotera is well positioned to generate consistent returns. We have the flexibility to pivot in response to market constraints and opportunities, commodity price swings, and operational advances. Our capital allocation philosophy is supported by three pillars, geographic diversity, commodity diversity, and economic windage. Geographic diversity and commodity diversity are self-explanatory. Economic lindage is provided by having assets that provide some of the highest margins in our business. High margins and a low cost structure mean that returns are preserved through downdrafts and commodity prices. These pillars are a fundamental attribute and a competitive advantage of Cotera. Our capital discipline, diversity, and flexibility underwrite our ability to generate outsized returns and accelerate return of capital to our owners.