Low operating costs in the Marcellus Shale have insulated Coterra Energy from the worst of what's been a challenging 2023 price environment for in-basin operators, CEO Tom Jorden said in an interview.
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"Our asset in Northeast Pennsylvania is dry gas, very low cost of supply, so even in current pricing, it gives very nice margins and very good profits. It's really a nice asset to have," Jorden said Sept. 25 on the sidelines of the Hamm Institute's American Energy Security Summit in Oklahoma City.
"Every basin is going to have challenges... We like low cost of supply, and Marcellus is a big area," he said.
2023 in pricing
Year to date, gas at Henry Hub has on average sold at a price 50% higher than the equivalent volume sold at Eastern Gas South in Appalachia, according to data from S&P Global Commodity Insights.
Low prices through the first half of 2023 made bears out of a number of Marcellus drillers, such as Chesapeake Energy, which in August announced that it would cut spending and hold back on production growth.
New drilling within the basin is also slower year over year for Coterra, which expects to hold its total gas production roughly flat in 2023 at around 2.8 Bcf/d. However, Jorden said the company has been protected by its margins in the Marcellus, where its average well cost per foot is about 8% below either its Anadarko or Permian operations, according to Coterra's second-quarter earnings.
Coterra also benefits from selling into diverse markets, a point Jorden made during recent remarks at Barclays CEO Energy-Power Conference. About a quarter of the company's 2023 sales volume is expected to receive premium in-basin pricing as the company sells into non-New York markets, according to its latest earnings update.
"We have a nice portfolio of markets," Jorden said. "One of the nice things our marketing group has done has really developed a range of markets. We sell in basin, out of basin, whether it's Northeast Marcellus, but that's also true in the Permian and Anadarko."
That kind of market diversification has also helped to insulate Coterra, which supplies 350-400 MMcf/d to Cove Point LNG, from the ongoing outage at the Maryland liquefaction terminal, Jorden said.
"We've really worked hard to have multiple outlets, so when we do have short-term interruptions we can redirect our gas, and that's certainly what's going on now," Jorden said.
Appalachian Basin and Northeast prices recovered Sept. 25 after several hubs fell below $1/MMBtu in the prior week as the Cove Point LNG outage pushed additional supply back into the market. The Northeast regional average price settled at $1.68/MMBtu Sept. 25 and the Appalachia average at $1.35/MMBtu.
Coterra in its second-quarter earnings report entertained a potential $200 million cut in capital spending within the Marcellus if prices don't rerate, with the plan being to redirect that capital to the Permian and Anadarko while keeping Marcellus production flat.
The company most recently guided to a production range of 2.75-2.9 Bcf/d for the year across the three basins.
Within the Marcellus, overall production has dwindled from its 2023 peak at just shy of 29 Bcf, which the basin hit on July 26. Production there has since fallen back to average approximately 28.2 Bcf/d month to date, S&P Global data showed.
As for Coterra, the company does not view itself as too constrained by the Northeast region's existing transportation network to accommodate additional gas production growth in the Marcellus Shale when the price is right, Jorden said.
"We would like to see some additional infrastructure, but there is spare capacity out of Northeast Marcellus," he said. "If you look at peak demand and where we are today producing out of that area, there is space in pipelines. Now, that won't be there forever with unlimited growth, but we're not tied down by any measure."