How Faster-Curing Cement Mended Coterra’s $2B Market-Cap Loss
Injected saltwater disposal uphole was causing cross-flow behind-pipe, seeping into Coterra Energy’s Harkey sandstone wells in the Permian’s northern Delaware Basin. A faster-curing cement appears to have solved the problem.
Coterra Energy’s 11-Harkey -well problem that erased $2 billion from its market cap appears to have been solved, Tom Thomas Jorden, Coterra Energy’s chairman, president and CEO, said at a J.P. Morgan energy conference June 24.
The hit to its market cap has been solved as well.
The E&P had announced the mechanical problem during its quarterly investor call May 6, prompting its market cap to fall 11% from about $19.3 billion the day before to about $17.2 billion by market close May 7 as shares tumbled from $25.27 to $22.60.
The stock was trading at press time at $26.40 per share, translating into a market cap of $20.2 billion. The stock was trading at press time at $26.40 for a market cap of $20.2 billion.
“As soon as our call finished, our phone rang with other operators having the same problem, wanting to talk about it,” Jorden told J.P. Morgan energy securities analyst Arun Jayaram.
Injected saltwater disposal in the uphole Delaware Mountain Group had increased the pressure in that formation and was causing cross -flow behind -pipe in its Harkey wells.
“We think we properly diagnosed it and we think we have a fix that appears to be working. 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.”
The wells involved 11 of Coterra’s 22 Harkey wells in its 73-well (22, Harkey; 51, Wolfcamp) Windham Row mega-development in northern Culberson County, Texas, out of more than 150 “row” development wells the E&P has underway in the area.
Harkey sandstone sits within the Third Bone Spring in the Delaware Basin, overlying the Wolfcamp.
The project is in a 50:/50 joint venture with Chevron Corp., which is making multi-well pads on the eastern side of the JV leasehold, while Coterra is developing the western side.
Jayaram reported after the on-stage Q&A with Jorden, “Outside of Windham Row, the company has successfully tested 30 Harkey wells in Culberson County, so this issue appears to be localized.”
‘Bit exaggerated’
Jorden said, “We had water flow behind -pipe.” The stock-price reaction, though, “surprised us.”
“People thought we stood alone on this” and that other operators haven’t encountered water-infiltration issues at times.
But “it’s rather a simple issue,” he said. And “it's just part of our business.”
He added, though, “I don't want to minimize this issue, but the rocket flares that were set up were a bit exaggerated.”
Coterra’s solution was to use has been using fast-curing thixotropic cement to prevent , preventing behind-pipe channeling, while the typical cement used in its Wolfcamp and other Delaware Basin wells has been sufficient.
A more elaborate solution would be a different casing design, Jorden said, but “thus far, the thixotropic appears to be working very handily.”
“And since our last update, we've actually brought a couple of pads on with this new cement just north of where we're having the problem on these 11 wells, and they're behaving just very, very well.
“So we think we've got the problem understood.”
Still, he warned, “We’re not out of the woods yet.”
Workover rigs are currently doing squeeze jobs on the 11 wells, sealing off the flow. “We think we're sealing off the flow effectively.”
That will be ongoing into August, “then they all will be flowing back.”
Of course, he said, “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.”
Harkey sandstone sits within the Third Bone Spring in the Delaware Basin, overlying Wolfcamp.
(Source: University of Texas at Austin via Marine and Petroleum Geology, September 2022)
J.P. Morgan’s Jayaram said Coterra’s stock value may have “overcorrected” in May while investors were concerned Coterra would discontinue development of its Harkey locations, thus reducing Coterra’s future-well inventory.
Jorden said the market reaction was a natural response.
But “if all of the Harkey [wells] were to go badly in Culberson County, that's about 3% or 4% of our total company inventory. It is 11 wells. It is an insignificant portion of our total inventory.
“… As Mark Twain said, ‘Rumors of our death are greatly exaggerated.’”
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