Kotera at J.P. Morgan Conference: Navigating Energy Market Volatility

On Tuesday, 24 June 2025, Kotera Energy (NYSE:CTRA) presented at the J.P. Morgan 2025 Energy, Power, Renewables & Mining Conference. CEO Tom outlined the company’s strategic strengths amid fluctuating energy markets, highlighting both opportunities and challenges. Despite a recent mechanical issue affecting shale wells, Kotera’s low-cost structure and capital flexibility were emphasized as key advantages.

Key Takeaways

• Kotera is addressing a mechanical issue in the Harkey shale wells, impacting 3-4% of its inventory.
• The company maintains a reinvestment rate of 50% of cash flow, focusing on sustainable growth.
• Kotera is prioritizing debt reduction, aiming to pay off a $1 billion term loan.
• The integration of new assets in Lea County is progressing, with a focus on emission standards.
• Potential participation in the Constitution pipeline could enhance natural gas supply to New England.

Financial Results

• Cash Flow and Reinvestment:

- Kotera aims to reinvest 50% of its cash flow, historically generating returns with this strategy.

- The company targets mid-single-digit oil production growth and single-digit BOE equivalent growth.

• Capital Allocation:

- Prioritizes ordinary dividends, followed by debt reduction and potential buybacks.

- Plans to pay off a $1 billion term loan from the Lea County acquisitions.

Operational Updates

• Harkey Shale Issue:

- Affected 11 wells due to water flow behind pipe, linked to saltwater disposal.

- Fixotropic cement is believed to have resolved the issue, with volumes removed from forecasts.

• Wolfcamp Program:

- Redirected capital to the Wolfcamp program, considered more productive than Harkey.

• Appalachia Basin:

- Restarted two rig lines in the Marcellus, with potential $50 million investment based on gas prices.

- Kotera could be a significant shipper on the Constitution pipeline if reactivated.

Future Outlook

• Production Guidance:

- Despite the Harkey shale issue, Kotera maintains its production guidance.

• Capital Allocation:

- Continues targeting a reinvestment rate of 50% of cash flow, prioritizing debt reduction.

• Data Center Opportunities:

- Exploring power pricing and potential data center projects in Pennsylvania and the Permian Basin.

• Constitution Pipeline:

- Potential participation contingent on regulatory approval and overcoming local opposition.

Q&A Highlights

• Constitution Pipeline Approval:

- Potential for faster construction post-regulatory approval.

• Gas Production:

- Kotera produces about 3 billion cubic feet a day net.

For a deeper dive into Kotera’s strategic plans, readers are encouraged to refer to the full transcript below.

Full transcript - J.P. Morgan 2025 Energy, Power, Renewables & Mining Conference:

Tom, CEO, Kotera: Thank you, Arun. Pleasure to be here. You know, this morning, just as from a macro standpoint, I’m sure today we’re gonna talk a lot about macro during the day. We’re back to worrying about oil again, you know, and God bless our industry for that.

I, you know, I’ve had the privilege in my career to have a front row seat in the shale revolution. And, I recently looked at some data on US oil production. Had there not been a shale revolution and we had been on the decline that we were as a nation starting in 1970, we’d be producing two and a half million barrels today instead of the 13 plus million barrels that we are producing. We’d be heavily dependent on imports and with what’s happening in The Middle East, Lord knows where oil prices would be. So, know, at an energy conference like this, I think it’s important to reflect on the remarkable position our industry has given and put our United States in.

That we’re no longer held hostage to energy with our foreign policy. We’re able to have relationships with the surety of domestic security of energy. And to be sitting here in a nation in the great city of New York, and be able to say that with the largest economy in the world, we have the most secure energy and one of the lowest cost structures of energy. There’s not another nation that can say that. There’s not another nation that can touch that.

So that’s that’s what our industry has done. And I just wanna reflect on that because, you know, we get up every morning and we think, oh, you know, god, I haven’t checked the news in an hour. What’s going on? And we ought to be grateful for a lot of the overprint here. You know, as far as Kotera goes, I appreciate the introduction Arun, we are we are really in a in a great position.

And obviously, I’m not objective when I say that. But, you know, when we look at the volatility of oil and gas, we have a remarkable stability of our cash flow. And, we have a very low cost of supply with a balanced set of assets, and that gives us not only the flexibility to allocate capital as we see fit, but it also gives us the ability to have consistency in our program. And, you know, I’ll talk about that. But that that’s really if you want to get your cost structure down and maintain a great degree of capital efficiency, not having your program get jerked around because of price volatility is a real asset in this business and that’s really what Cochera is all about.

Arun: Tom, on the last print or coming into the year, you took some capital out of your oily assets and allocated a little bit more to gas. How does the events in The Middle East change your thinking about capital allocation this year?

Tom, CEO, Kotera: Well, know, we said at the time that $60 oil for us is not necessarily a rocket flare event. We because of our quality of our assets, we can make a really nice return at at 60 or, you know, between 60, 65. Really, you know, we can we can run our price down to 50 and and get way above our cost of capital, and that that’s fully burdened. So what what the reason that we, at our quarterly release, announced that we were throttling back was because we just didn’t know where it was going to go. You know, I’ve I’ve seen these periods in my career where when oil markets wobble, they don’t glide gently down to their low.

They kind of wobble for a while, and then they suddenly collapse. And so we were, you know, looking at the possibility of a collapse. We’re feeling a little better about that now. So, you know, we talked about going down to seven rigs. We’re holding firm right now at nine.

And we, you know, we we have very few under contract, so we have the flexibility. Most of our fleet company wide is pad to pad. But right now, we’re going to just watch this situation as we move ahead. If we were to hold flat at nine, we’d probably be closer to the high end of that guidance range. But, you know, we’ll update it in our next quarter because we retain the option to drop that activity.

But right now we’ve decided we’re just going to steady as she goes.

Arun: Okay. What about your thoughts on natural gas? You did allocate a little bit more capital to gas. And maybe talk a little bit about some of your exposure to LNG because you actually market a lot of your gas for some of these LNG projects.

Tom, CEO, Kotera: Yeah, of course we produce about three BCF a day net, and that’s remarkable to be able to say that given our oil assets as well. So, you know, as we showed in our deck, our first quarter was nicely balanced between oil and gas revenue. And that’s really the way we like it. We really like to have that flexibility, it gives us great capital allocation. Both in the Marcellus and in the Anadarko, we have outstanding gas assets.

You know, of course the Marcellus is well known, well discussed. You know, there we’re we’ve got a very active program. We’re back drilling in the Demick Box. If those of you that have followed the long legacy of Gasland, if you saw that film, You know, that that’s been a long saga and that was one of the first things we did when we formed Corteira is get that issue settled, get it behind us, and we’re back drilling in the Demick Box, which is among the most prolific of the prolific of that Laura Marcellus. So we have quite a handful of wells to drill there.

We’ll bring we have 11 that we’re drilling this year, and we’ll have about 17 in the next couple of years. You know, the Anadarko is really standing on its own, I’ll say. You know, we’ve got a couple of projects this year that are just outstanding. And one in particular is just the best of the best in the Anadarko that we’re flowing back. And you know, it’s a single pad that’s making almost 200,000,000 cubic feet a day.

60% of that is natural gas revenue and 40%, give or take, is natural gas liquids. And those natural gas liquids really turbocharge those economics. When we look across our portfolio, it’s never been as close a call as there’s right now on three business units that are really, really neck and neck for returns and capital allocation.

Arun: Tom, one of the longer term concerns of investors of U. S. Unconventional properties worries around inventory depth, as you know, the melting ice cube kind of question. Can you talk about your inventory depth and your three core bases and where you stand?

Tom, CEO, Kotera: Yeah. You know, a peer CEO said to me a few years back, he said, you know, when when everybody was talking about tier one inventory depletion, you know, he looked at me he said, you know, our tier three inventory today is better than our tier one was prior to the shale era. And that, you know, I think we always have to keep that in mind that, you know, the the our industry will not run out of inventory. What’ll happen is our costs will just go up a little bit, you know, our capital efficiency will go down. And it’ll happen to different companies at different paces as we deplete that cream of the crop.

And and look, we we’ve become spoiled, and I love it. You know, at Kotera, we’re able to grow our our volumes, generate historically high returns, investing 50% or less of our cash flow. I mean, if you if you rewound a decade ago and asked me if that would ever be possible, I’d said that absolutely not. I mean, a decade ago we were outspending our cash flow, much less, spending half our cash flow. So, Kotera is going to be among the last to run out of tier one inventory.

You know, we really have a very deep inventory spread across three business units. You know, we talk about it in a number of years, you can talk about it in a number of locations. But I think it’s widely recognized that pound for pound, Kotera’s got one of the deepest, highest quality inventories in our sector. And, that, you know, that the luxury of that is how long can you wake up every morning and only allocate capital based on returns. You don’t have to worry about running out, you don’t have to worry about investor perception of that.

You just wake up every morning and make the best financial decision. That’s our core DNA, and that’s the value of that inventory.

Arun: Tom, you talked about the relatively low reinvestment rates at Midcotero, 50%, 60%. Could you talk about your updated kind of three year outlook that you’ve provided and what that can achieve in terms of oil production growth as an output of that capital allocation process?

Tom, CEO, Kotera: Yeah, and I love the way you phrased that question in the room because we really do view production as an output. We don’t manage a company by production goals, we manage the company by how much what do we think our cash flow is? How much do we think we should invest? And then and only then do we calculate the production as an output. You know, would be, in our estimation, foolish to do it otherwise, where managing your company with production goals can be throwing good money after bad.

You know, the production is a consequence of good investment decisions, not a primary driver. So our three year outlook has us investing roughly 50%, give or take, depending on the year, of our cash flow. We can, you know, grow our volumes. We talk about growing our oil mid single digits, and we think that’s fully achievable. That’s certainly consistent with our history.

And we’ll grow our on a BOE equivalent, single digit growth. And we think we can sustain that for a long, long time.

Arun: Tom, why don’t we dig a little bit deeper on your three kind of core assets? Perhaps we could start with the elephant in the room. On the 1Q print, Kotera announced a mechanical issue with recent Harkey shale wells in the Windom Row project in Culberson County. We think that, unfortunately, this erased maybe $2,000,000,000 of market cap out of the equity value. But, maybe you could start for investors here.

Talk a little bit about the Windom Row at a higher level and maybe shed light on this mechanical issue.

Tom, CEO, Kotera: Yeah. The look, that was I I don’t know if we had a do over, if we do anything differently, quite frankly, Arun. Mean, you know, our style is to be transparent, talk about the business. And if people look at us and think we’re the only outfit that has anything ever go wrong, Good luck if that’s your viewpoint, know, but we’re just gonna talk to you about the business. And and things don’t always go right.

We have problems, we have issues, and we have a lot of strengths. And you you just in this business, your strengths have to outweigh your weaknesses and you and you move the ball forward. You know, is the Harkie issue was 11 wells, 11 wells total, where we had a water flow behind pipe. And we talked about that in some detail. It it surprised us.

And I’ll say, you know, people thought we stood alone on this. As soon as our call finished, our phone rang with other operators having the same problem, wanting to talk about it. You know, it’s rather a simple issue. What’s happening is we’re injecting saltwater disposal into shallow formation in the Delaware Mountain Group, and it’s pressured up that formation, and it’s causing cross flow behind pipe. And, you know, we had not encountered it to that degree, but we think we’ve properly diagnosed it and we think we have a fix that appears to be working.

You know, it’s not a reservoir issue, it’s not a spacing issue, it’s not an overfill versus co development issue, it’s a simple mechanical issue. And so, we’ve addressed it, you know, we have several different ways to address it from simple to complex. The end members there simple is a different cement type called fixotropic cement that sets up much faster and doesn’t allow that behind pipe channeling to occur. And then the more elaborate solution is a different casing design. Thus far the fixotropic appears to be working very handily.

In fact, once we diagnosed this problem, we had some wells underway and since our last update, we’ve actually brought a couple of pads on that with this new cement, just north of where we’re having the problem on these 11 wells, and they’re behaving just very, well. So, you know, we think we’ve got the problem understood. Now, we’re not out of the woods yet, you know, we have these 11 wells where we’ve got at one point we had 13 workover rigs on doing squeeze jobs, sealing off the flow. We think we’re sealing off the flow effectively, and it’ll that work will be underway until mid August, and then we’ll, you know, they’re all flowing will be flowing back. So, we’re, you know, this is just part of our business.

Arun: So, just to summarize, it’s 11 wells, believe your Delaware Basin program is like a 150 and

Tom, CEO, Kotera: a 165

Arun: wells, is that right?

Tom, CEO, Kotera: Yes.

Arun: You’ve identified a solution that appears to be working? Yes. And, you’ve implemented this at the Barbara Row, is that the next

Tom, CEO, Kotera: Well, Barbara Row is north of it. That’s where we had the new wells we brought on That’s okay. That are flowing back So that, you know, look, we’re we we got we have to get these 11 wells fixed and back online. I mean, you know, I I don’t I don’t wanna minimize this issue, but it’s the rocket flares that were sent up were a bit exaggerated.

Arun: Yeah, we felt so too, that’s why I wanna detail a little bit on this situation. Okay. And again, just go back to those 11 wells, you think you have a solution, you’re working with some of the workover rigs, maybe some of this production could come online later this year?

Tom, CEO, Kotera: It could. Now, very conservative in how we’re projecting that. And again, we’re in the middle solution, so we don’t want get ahead of ourselves.

Arun: You

Tom, CEO, Kotera: know, one of the things you need to do first is make sure that you’re effectively sealing off this behind pipe water flow. And there are a number of downhole tools that diagnose that. We think we are effectively sealing off. The next thing to do, of course, is to bring the wells back online, and then they’re going to produce a lot more water initially because you flooded the horizon. But, thus far, we’re seeing really good behavior of wells we’re bringing online and we’re very optimistic.

Arun: Okay. Perhaps one of the reasons why the stock over corrected in this situation is we heard some investor concerns that you obviously temporarily suspended the Harkie program, that if you were going to permanently suspend the Harkie program that this could have a negative impact on your inventory depth. Yeah. Again, this is a what if kind of question. But, sense of how much of your inventory the Harkie Shale represents?

And again, your confidence on the fact that you will be able to develop this resource over time.

Tom, CEO, Kotera: Yeah. You know, this question, it’s a natural question for people that think that we’re b s ing them. You know, we’re I mean, we’re we’re really telling you exactly the situation. If all of the harkey were to go badly on Culberson County, that’s that’s about three or 4% of our total company inventory. It it is 11 wells.

It is it is it is an insignificant portion of our total inventory. So, I I think that and, you know, the wells we brought on in the second quarter, I mean, right north of this issue, we have new wells that we brought on that are behaving perfectly normally with oil, water production and pressure draw down. So, you know, there’s as Mark Twain said, rumors of our death are greatly exaggerated.

Arun: I may add that to our note. I like that quote. Just maybe final question this kind of topic is how have you, the IR team, your ops team, how have you risked the harkey in terms of your forward outlook for 2Q, the balance of the year?

Tom, CEO, Kotera: Well, think what we said at our call is that the volumes that we suspended we took out of our forecast.

Arun: So, fully out of the forecast?

Tom, CEO, Kotera: Yeah, yeah. So, now, we’re not changing our guidance. Our guidance is what we’ve already announced. But, you know, we do have a little hope of upside there. But, you know, our guidance is our guidance.

Arun: Okay. Fair enough. One of the implications of this mechanical issue is you’ve redirected some of your capital to the Wolfcamp program and talk to me about or talk to us about what that could mean in terms of your redirecting capital to a more productive zone, so to speak.

Tom, CEO, Kotera: Well, it’s a little higher capital efficiency. Know, we’ve talked about the the Wolf Camp and the Harkey at length. You know, if had to pick one of the two and say that’s all you had, you’d the Wolf Camp. You know, it’s a little more productive, a little higher return. But, you know, you’re talking about one is an a plus and one may be an a minus.

So, you know, because of the issue, we and because of the depth of our inventory, we to the Wolf Camp. And, you know, I’m not sure what else I can say there. It’s it you know, we’ll we’ll be back drilling these Harkie wells and we’ll we’ll balance that out over time.

Arun: Okay.

Tom, CEO, Kotera: Yeah.

Arun: I did, Tom, I know we started off talking about a mechanical issue, but I did want to acknowledge the fact that your team has topped the high end of its oil guide for nine out of 10 quarters prior to this. The execution’s been really, really good, we did want to address that. I want to talk a little bit about some of the A and D activity that you’ve done in the Delaware. Talk to us about the industrial logic of the Franklin Mountain and Avant deals and how some of the integration’s going and maybe the addition of Lea County is kind of a core area at Kotera.

Tom, CEO, Kotera: Yeah. Lea County is terrific. I mean, it’s a terrific area. It’s complex, I’ll say that, and there’s opportunity in that. You know, this Franklin Mountain, Devon asset that we bought was really for that Bone Spring section.

I mean, you know, the Bone Spring sits above the Wolfcamp, The Bone Spring is a basin margin deposit, and as such, it can be locally more variable than the Wolfcamp. And so, you know, you’ve got multiple targets in that Bone Spring section. You’ve got the third, second and first Bone Spring, and then you’ve got the Avalon that sits on top of those. I would say since we’ve closed on the acquisition, we’ve seen some outstanding well results. We’ve continued to explore with geologic complexity.

Mean, you know, one of the things is we get well results in, with a combination of geophysical data and subsurface data, and well results, we have a much more focused understanding of a lot of those reservoirs. And I’ll say we’re just really, really happy we made those acquisitions. We see we see a lot more up side in those formations than we modeled when we bought it. So, you know, it’s not easy. You can’t just throw darts on the map there.

You really need to to map the formations and and you’ll have a lot of variability if you don’t. But we think we’ve unlocked it quite frankly, both geophysically and geologically. And we’re really, really pleased to have these assets in our portfolio.

Arun: And the integration has been going well?

Tom, CEO, Kotera: Yeah, the integration is going well. It’s you know, whenever you bring new assets on, you know, one of the things that we’re trying to do is bring these new assets up to our emission standards. You know, we we I know that sounds like so to 2024 to be talking about emissions, but we really care about emissions. We’ll continue to care about emissions regardless of the regulatory environment. And so we’re in the process of bringing that footprint up to our own standards when it comes to emissions.

Arun: Okay. Let’s shift gears, talk a little bit about the Appalachia Basin. You restarted two rig lines down in the Marcellus. You’re spending, call it, dollars $250,000,000 of D and C capital this year, and you highlighted the potential to allocate $50,000,000 more. Talk to us about where you stand with that decision.

Tom, CEO, Kotera: Well, we are proceeding. You know, that was if we kept two rigs continuously running, and that’s what we decided to do. So gas prices look very constructive, and we really do see the Marcellus as a really meaningful part of our program going forward. You know, the other issue that’s been in the news is constitution pipeline. And for those of you that, you know, don’t follow that in some detail, constitution pipeline was an initial Cabot project, so it’s Cotera, and the the constitution pipeline originates in our field in Susquehanna County and shoots up to the right interconnect outside Albany in New York.

It’s a 125 mile line, and, you know, it was killed by governor Cuomo over the really the period 2016 to 02/2020. It’s back as a top priority of the Trump administration. And if that constitution were to go, we we expect to be asked to be a significant, you know, anchor shipper on it. And so that would be a probably a ten year commitment to that line. So I I only bring this up because as we look at our capital planning with the Marcellus, the our if constitution is a go and if we were to participate, that would be a significant input to our capital allocation decisions.

We think we can deliver those volumes with our current plan, but we need to just plan on it.

Arun: And, do you think that the prospects that you’re seeing suggest that this could happen?

Tom, CEO, Kotera: Well, we’re we we think the governor of New York is not going to oppose it. So if the governor doesn’t oppose it, at least the regulatory pathway is clean. It’s a Williams project, so I I you know, we’re a significant shipper on that line. The other, you know, of course, regulatory approval is one thing. There are local ways that opponents block projects, and so we’ll see how that evolves.

You know, you you live here in New York, but it it doesn’t take a rocket scientist to justify this line. I mean, you know, if you look at New England, the New England states as a block, 50% of their electricity is generated from natural gas. 50%. And, the constitution pipeline was reactivated, we’re told, because secretary Wright and secretary Bergen were meeting with New England governors, and they were very upset as to why they can’t get more natural gas because they can’t compete for data centers because electricity prices in New England are so high. And you just want to get a rubber mallet and start hitting yourself on the head when you hear this.

But, you know, the truth of the matter is, you know, our politicians didn’t come out of energy space, so they don’t know the story, and they cycle. So they weren’t around when this happened. So, you know, you have to be patient and just educate people. But, with the with the new electricity demand, with the competition for data centers, and the critical role that electricity prices plays in that arena, we’re very hopeful that New England will come to their senses.

Arun: Dovetails nicely to a couple of questions kind of on data centers. In your backyard in Pennsylvania, there’s a couple of noteworthy projects that are being discussed. Homer City, which is a four and a half gigawatt mega gas powered facility near Pittsburgh. What’s your sense of the data center opportunities in Pennsylvania and even in the Permian and how could Cotera potentially play a part given your large production base?

Tom, CEO, Kotera: Yeah, are deeply engaged in this. You know, we’ve entered into one power agreement in the Permian Basin that we’re quite pleased with. As far as the data center market goes, we’re talking to a number of the tech companies, as I think you’ll hear all of our peers say. You know, the question is how fast can you make it happen? You know, it’s really fascinating and you’ll hear others say the

We’re we’re we’re used to saying, no, we you know, you need to be prudent, you need to make sure it’s lined out right, you need to think about long term. And a lot of these tech companies are like, you know what? We want it yesterday. We just want it fast. You know, we’re we’ve got a lot of gas available for electricity generation.

We’re exploring power pricing. We’d like to see a little more power pricing in our portfolio. And, you know, I’m quite hopeful that we’ll have participation in that.

Arun: Last question for me before turning it to the audience for a question or two. Could you just quickly talk about your cash return program? How does the acquisition activity impact the way you’re thinking about cash return this year?

Tom, CEO, Kotera: Yeah. Well, know, investing 50% of our cash flow gives us options on cash return. I mean, you know, our ordinary dividend is top of the list. We really like paying a dividend. We think that reminds us who we work for.

And so that’s always going to be a big part of it, and we’ll seek to grow that over time. And then the other two elements that tend to compete next are buybacks or debt reduction. And although we love buybacks, think Kotera as one of the best M and A opportunities out there, We want to get that debt down. You know, we took on some additional debt when we bought these assets in Lea County. And so at least for the near term, you know, we took out a billion dollar term loan, and we expect to pay that off if if We expect to pay it off this year.

It may bleed into a quarter next year. But that’s really the way we to clean up that balance sheet.

Arun: We have maybe time for one question in front. Just wait for the mic, sir.

Unidentified speaker: After getting regulatory approval, assuming that happens with constitution, given the work that was done before, will it be a faster construction process? Do they have to start from scratch?

Tom, CEO, Kotera: No. It’ll be faster. Yeah. And again, this is Williams project, but what they will tell you is they have the right of way ready to go and it’s still active. And pending regulatory approval, it it could be in service quite soon, you know, within a year or more, or maybe a little more.

But that’s that’s really a question for them.

Arun: And just as a follow-up, Williams is our keynote lunch speaker, so they’ll be presenting in the main hall. So, Tom, thank you so much. We’re out of time. Really appreciate you participating with

Tom, CEO, Kotera: Well, thank you very much. Yeah.

Arun: Thank you, sir.

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