Coterra Energy plans to put two rigs and one frac crew back to work in its Marcellus leasehold in April after quitting all drilling there in August while gas futures persisted below $3.

One rig will make Marcellus hole through the year; the second will work through the second quarter, then on a spot basis in the second half, the operator reported in an investor call Feb. 25.

A completions crew will work on a one-off basis through the second and third quarters and park at Coterra’s property through the fourth.

Between 10 and 15 net new wells are expected to be put into sales in its 186,000 net Appalachian Basin acres by year-end.

In 2024, before suspending Marcellus D&C last summer, it brought 41 wells online.

‘Arrest that decline’

But the renewed D&C work won’t be to grow Coterra’s gas sales into what is now a more than $4 strip, said Tom Jorden, Coterra chairman, president and CEO.

Rather, it will be to reverse plummeting output.

Coterra’s production fell from 2.3 Bcf/d from the Marcellus in first-quarter 2024 to about 1.9 Bcf/d in the third quarter.

It was 2 Bcf/d this past year-end after opening chokes in December on its completed Marcellus wells that had been shut-in.

“As we restart the [D&C] program, what it really does is arrest that decline,” Jorden said. “Let's address that decline and have some incremental volumes ready for winter pricing next winter.”

As for adding yet more rigs and frac crews, “we're ready to go there—or not—depending on conditions,” he said.

Yet, while Coterra is working on new markets, such as LNG and power generation for its gas to increase the average price it’s paid, “I don't think you would see us return to the growth trajectory that we had a decade ago,” he added.

“Single-digit growth is certainly something that might be an outcome.”

CFO Shane Young said, “This increase in activity is from zero to ‘some’ activity. I wouldn't characterize this as ‘leaning into’ a gas market as much as just restarting activity based on current fundamentals and economics.”

Targeting returns, not growth

A securities analyst said in the call, “It would seem the [gas] macro-environment we're seeing now is perhaps the most constructive one we've seen in well over a decade.”

Would Coterra’s gas drilling return to growth-mode in the “next three years if the gas market plays out as the strip indicates?” he asked.

Jorden said, “Lord, I hope so.”

Blake Sirgo, senior vice president of operations, added, “But I always think it's important to reiterate we're not targeting growth; we're targeting returns.”

Futures and demand forecasts would need to appear sustainable.

“It is a very dynamic gas market that we're a part of now,” Sirgo said. “We don't just worry about winter anymore. We watch LNG flows every day.

“We watch the power-demand story very closely. And now we're watching international pricing because it can move Henry Hub.”

Jorden added that signals from Washington, D.C., are encouraging too.

“We're looking at our new [White House] energy team in Washington and some of the changes that they're bringing to the fore and we are very optimistic about a structural re-set that increases the resiliency of gas investments.”

But Coterra wants to see a sustainable strip.

“We don't run our program on hope,” Jorden said.

Coterra will see how the year plays out. “We're prepared to either hold our current course steady or pick up the pace a little bit.”

$800 a foot

After halting Marcellus D&C in August, Sirgo said, “we challenged our Marcellus team to attack our cost structure and improve our capital efficiency to help us restore activity.”

Coterra expects to make its 19,000 ft laterals in the Marcellus for $700/ft, while its 14,500 ft sticks cost $860.

The average cost among the three-mile and four-mile group of holes will be $800/ft, down from $1,020.

Of the savings, $90/ft will come from drilling longer laterals, $70/ft from a new D&C design and $60/ft for generally lower service costs.

Jorden said, “They went back to the drawing board and came up with some incredible innovations,” including in water handling in addition to longer laterals.

The new D&C cost “really makes both the lower and upper Marcellus much, much more attractive to us than they were 12 or 18 months ago,” Jorden said.

About a third of Coterra’s planned 10 to 15 net new wells this year will be landed in the upper Marcellus.

Comments