CTRA - Coterra Energy: Low Natural Gas Prices Shouldn't Scare You Away

2024-04-23 12:37:16 ET

Summary

• Coterra Energy produces over 70% of its volume in the form of natural gas. In the near term, the company will struggle due to historically low prices.
• Coterra can weather the near term storm with industry-leading performance in the Permian Basin, producing some of the best wells from a total recovery perspective.
• Coterra should be a big winner in 2025 when the natural gas market recovers.
• This recovery is based on over 4 BCF/d in LNG capacity coming online and normalized weather patterns as El Niño transitions into La Niña.
• I project 40% returns for CTRA in 2025 and thus rate the company as a BUY.

Thesis

It's often said it's darkest just before the dawn. The natural gas environment is truly challenging, with sustained prices of less than $2.00/MCF. Natural gas producers are clearly stressed, with the commodity trading well below the cost of production.

For Coterra Energy Inc. ( CTRA ), the company is on solid footing to weather this downswing as a result of a diversified inventory mix. In times of distress, the company can pivot its capital allocation to its Permian and Anadarko basins that results in a higher liquid content. The secret sauce for CTRA lies in its Permian assets that are located in the Delaware basin....

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