Coterra Eyes Wolfcamp D, Penn Shale Upside with $3.95B Permian M&A

Coterra Energy is getting longer in the Delaware Basin with $3.95 billion in M&A, adding core drilling locations and eyeing upside from the Permian’s deeper benches.

Houston-based Coterra’s acquisitions from private Permian producers Franklin Mountain Energy and Avant Natural Resources will add between 400 and 550 net locations, mostly within Lea County, New Mexico.

The underwritten locations primarily target the Bone Spring, Harkey and Avalon intervals, Coterra said in a Nov. 13 announcement.

The higher end of the net location count is underpinned by the deeper Wolfcamp D and Pennsylvanian (Penn) shale formations.

“The Penn shale… and the lower Wolfcamp is an emerging play, so we do see a lot of opportunity in that as it continues to grow and expand,” said Michael DeShazer, Coterra’s senior vice president of business units, during a Nov. 13 analyst call.

The Penn epoch in the Delaware Basin includes the deeper Wolfcamp D, Cisco, Canyon, Strawn, Atoka and Morrow benches.

Coterra’s underwriting assumes drilling between four and eight wells per drilling spacing unit (DSU) with average lateral lengths of 9,500 ft.

Tom Jorden, Coterra’s chairman and CEO, said there is significant opportunity to grow the acquired assets through acreage additions through trades, grassroots leasing and working interest increases.

“Obviously, our teams are working hard with trades and reconfiguring [DSUs] to get the longest lateral lengths that we think we can achieve,” DeShazer said.

Presenting at the EnerCom Denver conference this summer, Avant Natural Resources co-CEO Jacob Nagy said the company has pushed development of the Avalon, Bone Spring, Harkey and Wolfcamp benches into the northern extensions of the Delaware Basin.

He also reported potential upside from the Delaware’s Wolfcamp D and deep Penn shale zones.

Coterra is upping the ante in the Delaware with massive projects targeting multiple productive zones. The company is drilling a 54-well project across a 12-section DSU in Culberson County, Texas, including 51 wells landed in the Upper Wolfcamp benches and three in the Harkey sandstone.

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Oily boost

The Delaware acquisitions will deliver a notable oily boost to Coterra’s multi-basin portfolio covering the Permian, Appalachia and the Midcontinent.

The company’s oil cut is expected to rise to 21.7% in 2025, up from 16.9% in the current quarter, said Siebert Williams Shank & Co. Managing Director Gabriele Sorbara.

Oil revenues are expected to account for 55% to 60% of Coterra’s 2025 sales, assuming a $70/bbl WTI price and $3/MMBtu Henry Hub.

“Prior to the deal, we were modeling a 17% oil cut for roughly 44% of revenue for next year at a $65 oil and $3.25 gas deck,” analysts at Capital One Securities wrote Nov. 13.

Production from the acquired assets is expected to average about 65,000 boe/d, based on the midpoint of Coterra’s guidance, including 45,000 bbl/d of oil output.

“The strong capital efficiency on the acquired assets provides us the opportunity to hold estimated fourth quarter ’24 and ’25 oil production flat for years to come with only a 50% reinvestment rate,” Jorden said.

With the addition of Franklin Mountain and Avant, Coterra’s pro forma oil production will increase by almost 50% to 160,000 bbl/d in 2025.

Still, Coterra’s commodity optionality between oil and gas “remains a key selling point … as it is fairly unique among independent E&Ps in being able to shift capital based on relative pricing,” said Andrew Dittmar, principal analyst at Enverus Intelligence Research.

Coterra’s assets in Appalachia and Oklahoma’s Anadarko Basin produce more natural gas than oil compared to its flagship Delaware Basin asset.

Gas output from the company’s Marcellus asset averaged nearly 2 Bcf/d (321,400 boe/d) in the third quarter, accounting for 48% of Coterra’s companywide production. Anadarko gas production averaged 218.8 MMcf/d.

Due to low natural gas prices, Coterra dropped its last Marcellus rig and shifted drilling activity into liquids-rich areas during the third quarter, Jorden said during the Barclays 38th Annual CEO Energy-Power Conference in September.

Coterra’s predecessor, Cabot Oil & Gas, was a fast follower in developing the horizontal Marcellus play after its discovery by Range Resources in 2007.

Franklin Mountain and Avant are Coterra’s largest acquisitions since the company formed through the merger of Cabot and Cimarex Energy in 2021.

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Private M&A options shrink

Coterra’s acquisitions of Franklin Mountain and Avant—expected to close in the first quarter of 2025—will shrink an already-thinning list of private M&A opportunities remaining in the Permian Basin.

Several Delaware Basin E&Ps have agreed to be acquired over the past two years, including Ameredev II, Advance Energy Partners, Earthstone Energy, Forge Energy, Maple Energy Holdings, Novo Oil & Gas, Percussion Petroleum, Point Energy Partners, Tall City Exploration and Tap Rock Resources, among others.

Today, only a few private producers of notable scale remain active in the Delaware Basin—including VTX Energy Partners and UpCurve Energy. Both companies operate in the southern Delaware Basin of West Texas.

UpCurve Energy has been drilling in the southern Delaware since launching with private equity backing from Post Oak Energy Capital in 2015. As of this summer, UpCurve’s position was around 21,000 net acres with net production of 13,000 boe/d (50% oil).

VTX, backed by international commodities trading house Vitol, has accumulated roughly 46,000 net acres straddling Pecos and Reeves counties, Texas, since its founding 2022. The company is producing around 42,000 gross bbl/d of oil, according to recent Texas Railroad Commission data.

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