Coterra Earnings: Permian Efficiency and Marcellus Underpin Strong Start to 2023

We are nudging our fair value estimate for Coterra CTRA to $25 from $23 after digesting the firm’s first-quarter financial and operating results. The increase was primarily driven by our improved outlook for 2023 volumes, especially in the Permian (which will be the main focus for Coterra this year now that natural gas prices have dropped off, accounting for six out of eight to 10 operated rigs). Our updated firmwide production forecast for 2023 is 664 mboe/d, which is near the high end of revised guidance. We believe this can be achieved with a $2.1 billion capital program (midpoint of guidance).

As we initially discussed in our first take on the results, the firm posted impressive results for the first quarter, beating the FactSet consensus estimate for adjusted EPS by 21% ($0.87 versus $0.72) and coming in above the high end of guidance for both oil and total volumes. This was attributed to well performance and improved cycle times, apparently in the Permian specifically. The firm now expects to squeeze out five more wells this year than initially planned with no commensurate increase in capital spending. The firmwide outlook for capital spending was unchanged, and production guidance was nudged up by 5,000 barrels of oil equivalent per day (1%) at the midpoint. Our well-by-well modeling now indicates the firm can hit the high end of the new guidance range.