Coterra Energy Bets on Marcellus - Should Investors Follow?

Coterra Energy CTRA is set to restart its Marcellus operations in the second quarter of 2025 following a halt in drilling last August due to low gas prices. With two rigs and a frac crew ready to return, the company is cautiously stepping back into growth mode as natural gas prices show signs of stability. Coterra is not alone — other major gas producers such as Expand Energy EXE, Comstock Resources CRK and Range Resources RRC — are also gearing up to increase output in response to rising demand and expanding LNG export capacity. But with the stock up just 6% over the past year, the key question is whether investors should buy, hold, or move on. Image Source: Zacks Investment ResearchMarcellus Rebound: A Strategic Move?Coterra’s decision to restart drilling in the Marcellus comes after a complete pause in activity during the second half of 2024, when gas prices dipped below $3 per MMBtu. The company now expects to invest $250 million in the region this year, with plans to drill 10-15 wells. If market conditions remain favorable, an additional $50 million could be allocated in the second half of 2025 to further expand operations. Image Source: Coterra EnergyNotably, Coterra has revamped its drilling approach to enhance capital efficiency. By increasing lateral lengths by 60% and optimizing well designs, the company has reduced per-foot drilling costs by 22%, making its Marcellus assets more competitive. While these strategic improvements position Coterra to capitalize on rising gas prices, the company remains cautious, with CFO Shane Young emphasizing that this move is from “zero to ‘some’ activity” rather than an aggressive push into growth.Permian Basin: A Steady Cash Flow MachineWhile Coterra’s Marcellus operations are crucial to its natural gas strategy, the company’s Permian assets continue to serve as a reliable source of free cash flow. The Windham Row Project, which brought 51 wells online at a cost of $864 per foot, showcases Coterra’s efficiency in large-scale developments. Additionally, the $3.9 billion acquisitions of Franklin Mountain Energy and Avant Natural Resources are expected to drive a nearly 50% increase in oil production in 2025, reaching 160 MBOE/d at the midpoint of guidance.Cost synergies from these acquisitions are expected to reduce drilling and completion expenses by 10% in 2025, further strengthening the company’s financial position. With projected free cash flow of $2.7 billion this year—up more than 120% year over year—Coterra is well-positioned to manage its debt and return capital to its shareholders.Earnings and Growth Outlook: A Strong Case for StabilityDespite the volatility in energy markets, Coterra’s earnings trajectory remains promising. The company’s expected EPS growth rate of 15.5% over the next three to five years surpasses the industry average of 12.3%, indicating stronger long-term profitability. Additionally, the Zacks Consensus Estimate for 2025 earnings suggests an 83.9% jump, followed by another 10.1% increase in 2026. These figures underscore Coterra’s ability to navigate market fluctuations while maintaining earnings expansion. Image Source: Zacks Investment ResearchKey Risks: Price Volatility and Rising DebtWhile the outlook appears constructive, there are notable risks that could pressure the stock. Natural gas prices remain highly volatile, and Coterra’s ability to sustain production growth hinges on market stability. If LNG export delays or milder weather conditions reduce demand, the company may struggle to justify further expansion in the Marcellus.Additionally, Coterra’s recent acquisitions have increased its leverage ratio from 0.4 to 1.3. While management aims to pay down $1 billion in term loans by year-end 2025, this strategy is contingent on steady commodity prices. If oil and gas markets soften, Coterra could face a longer deleveraging timeline, potentially limiting its ability to fund future investments or increase shareholder returns.The Verdict: CTRA is a HoldCoterra Energy presents a compelling mix of growth potential and financial discipline. The restart of Marcellus drilling, combined with strong free cash flow from the Permian, positions the company well for improved profitability. However, natural gas price volatility and elevated debt levels introduce risks that cannot be ignored. Given these factors, CTRA stock is best suited for a Zacks Rank #3 (Hold) at this time. Investors should monitor commodity price trends and the company’s ability to execute its strategic initiatives before making a more decisive move. 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(CTRA): Free Stock Analysis Report Expand Energy Corporation (EXE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks