Coterra Energy Slashing Marcellus Budget 55%, Production by 6%
Our worst fears about the merger between Cabot Oil & Gas and Cimarex Energy to form Coterra Energy have come to pass. We said from the beginning that the new company would use the Marcellus as a “cash cow” to fund more oil drilling. That’s now happening. Yes, the price of natural gas (especially in northeastern Pennsylvania, where Coterra drills) is in the basement. We understand it’s not all that profitable to sink money into more gas production right now. However, Coterra announced on Friday during its fourth quarter and full-year 2023 update that in 2024, the company will slash spending on new drilling in the Marcellus by 55% (dropping $460 million) and that production will drop by an estimated 6% in the Marcellus.
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There were 13 new permits issued to drill in the Marcellus/Utica during the week of Feb. 12 – 18, versus 19 permits issued the prior week. Pennsylvania issued 11 new permits last week. Ohio issued no new permits. West Virginia issued 2 new permits last week. Chesapeake Energy landed the most new permits, with 5 issued in Bradford County, PA. Range Resources had 3 new permits issued in Washington County, PA. Coterra Energy had 2 new permits in Susquehanna County, PA. Southwestern Energy also had 2 new permits issued in Ohio County, WV. And EQT, the largest natural gas producer in the country, had a single new permit issued in Greene County, PA.
From time to time, we bring you news of the latest merger and acquisition (M&A) deals happening, especially the deals that impact the Marcellus/Utica. Often, we don’t highlight large M&A deals if they are exclusively between companies operating in other shale plays and regions. One of those deals we ignored was announced on Monday, a proposed merger between publicly-traded Diamondback Energy, which wants to buy privately held Endeavor Energy Resources for $26 billion. Both companies operate in the Permian Basin of Texas and New Mexico. The question floating around the O&G space is, who’s left to buy and merge after all of the M&As happening over the past year or so? It’s a pretty short list. One of the companies on that list (with significant Permian acreage, in addition to Marcellus acreage) is Coterra Energy.
In October 2020, a law firm filed a lawsuit on behalf of several Cabot Oil & Gas shareholders against Cabot (now Coterra Energy), claiming the company “had inadequate environmental controls and procedures and/or failed to properly mitigate known issues related to those controls and procedures,” and that the company “failed to fix faulty gas wells which polluted Pennsylvania’s water supplies through stray gas migration,” and that the company, in general, hid all of this from the public — namely from investors (see 
How was 2023 with respect to the return on investment (ROI) in the stocks of gas-focused (largely Marcellus/Utica) drillers? Of the three classes of O&G companies — oil-focused, diversified, and gas-focused — it was the gas-focused drillers who had the best stock returns in 2023, according to an analysis by RBN Energy. Gas-weighted E&Ps posted a 7% median gain last year, according to RBN. Most of the companies in RBN’s list of gas-focused drillers have major operations in the M-U. Let’s have a look at how each one did.
Zacks is one of the top investment research firms focusing on stock research, analysis, and recommendations. A new alert issued by Zacks asks this question: Is Natural Gas Poised for a Turnaround After 2023 Slump? The article recaps what happened to the price of natural gas in 2023 and what may happen in 2024. Interestingly, the author says the natural gas space “is currently quite unpredictable and spooked by the sudden changes in weather and production patterns. As such, investors are clueless about what to do.” Boy, that about sums it up, right? Even without a clue about the future, Zacks makes a couple of stock pick recommendations (of M-U companies) that it feels are safe bets…
It’s been a financial roller coaster for oil and gas drillers over the past 15 years. Investors in shale oil and gas companies suffered for years with little or no returns for their invested money. Five of eight large Marcellus/Utica drillers saw their share prices decrease by an astonishing 85% or more from 2008 to 2019 (see 
A Susquehanna County, PA judge recently ruled against fractivist lawyers looking for a quick payday in a “Dimock” case stretching back to 2017. In a damning decision against the lawyers, the judge said they repeatedly refused to provide documents in the case even though ordered to by the judge. Not only that, but the lawyers destroyed evidence! They destroyed computers with emails and documents, and even destroyed hard-copy documents, to avoid handing them over to the court. Next up is a trial to determine how much the plaintiff (Coterra Energy) will receive after being wronged by these fractivist lawyers.
According to an analysis by S&P Global Commodity Insights, large U.S. shale gas drillers (namely Marcellus/Utica drillers) have hedged (pre-sold at a specific price) an average of 50% of anticipated shale gas production for the second half of 2023. The average price of the hedges is $3.35/Mcf, far above the average NYMEX Henry Hub price that has been bumping along between $2.25 and $2.75. CNX Resources is the top hedger, hedging 80% of its production in 2H23 at $3.04/Mcf.
Going back at least 10 years, MDN has referred to the way Coterra Energy (then Cabot Oil & Gas) was seemingly able to spin golden profits from the straw of low gas prices in the northeastern PA Marcellus (see