Coterra Energy shares dropped 3% on Tuesday despite the oil and natural gas producer delivering better-than-expected fourth-quarter earnings late Monday. Capital efficiency was a highlight with output levels above management’s outlook range and capital expenditures near the low end of guidance. Revenue in the three months ended Dec. 31 declined 13% versus the year-ago period at $1.395 billion, slightly missing the $1.4 billion consensus forecast, according to analyst estimates compiled by LSEG. Adjusted diluted earnings per share fell 6% versus the year-ago period to 49 cents and beat expectations of 43 cents, LSEG data showed. Why we own it Formed by the merger of Cabot Oil & Gas and Cimarex, Coterra Energy is an exploration-and-production company with a high-quality, diversified asset portfolio. The company practices capital discipline and is a low-cost operator. Our lone energy stock, Coterra also acts as a hedge on inflation and geopolitical risk. Competitors: EQT Corp ., Devon Energy Last buy: Oct. 1, 2024 Initiation: April 14, 2022 Bottom Line Coterra Energy ended the year on a good note thanks to strong production on a lower-than-expected capital expenditure base. This is what we mean when we say Coterra is a disciplined, capital-efficient operator. It is able to get more out of the ground while keeping spending in check. There was some nitpicking around the company’s first-quarter outlook, which featured a lower-than-consensus production outlook and higher capital expenditures. However, the 2025 outlook was pretty much in line with what management provided in November when the company announced the acquisition of two assets in the Permian basin, a resource-rich area in western Texas and southeastern New Mexico. But there were two noteworthy updates to the full-year projections: (1) Coterra is lowering its planned Permian spending this year by $70 million, driven by cost and service deflation and acquisition synergies. (2) It’s taking part of those cost savings and raising its investment in the natural gas-rich Marcellus Shale by $50 million to increase drilling activity that will impact next winter’s volumes. The Marcellus encompasses parts of New York, Pennsylvania, Ohio, West Virginia, Maryland, Tennessee, Virginia and Kentucky. If macro conditions present an opportunity, management said it could increase Marcellus capital by an incremental $50 million in the second half of 2025 to deliver higher volumes by early 2026. This flexibility between basins and commodities is what has always attracted us to Coterra. If oil has a stronger outlook versus natural gas, Coterra can shift some of its investment activity toward more oily regions, like the Permian. If nat gas has the better fundamental outlook, it can flex some of that spending towards Marcellus to capitalize on the opportunity. “Although our 2025 plan includes significant oil investments, we also have flexibility if oil markets were to wobble. Rest assured, if we need to adjust…
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