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Coterra Energy First Quarter 2022 Results

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   |    Thursday,May 05,2022

Coterra Energy Inc. reported first-quarter 2022 financial and operating results.

 On October 1, 2021, Coterra announced that the merger involving the Company, which was formerly named Cabot Oil & Gas Corp., and Cimarex Energy Co., was completed. Referenced results for the three months ended March 31, 2021 reflect only legacy Cabot. Referenced results for the three months ended March 31, 2022 reflect the combined Company.

Thomas E. Jorden, Chief Executive Officer and President, commented, "The combination of solid execution in our program and robust commodity prices resulted in an outstanding quarter for the company. We are pleased to deliver another meaningful dividend to our owners in addition to executing on the first phase of our share repurchase program. With strong cash flow generation, superb asset performance, and balanced commodity exposure, Coterra is fulfilling the promise that led to our formation."

First-Quarter 2022 Highlights:

• Net income for first-quarter 2022 totaled $608 million, or $0.75 per share; adjusted net income (non-GAAP) for first-quarter 2022, excluding non-recurring items, was $818 million, or $1.01 per share.
• Generated cash flow from operating activities of $1,322 million.
• Discretionary cash flow totaled $1,232 million (non-GAAP).
• Generated free cash flow of $961 million (non-GAAP).
• Total equivalent production of 630 MBoepd, at the high-end of guidance.
• Natural gas production averaged 2,850 MMcfpd, at the high-end of guidance.
• Oil production averaged 83.1 MBopd, exceeding the high-end of guidance.

Shareholder Return Highlights:

• Total quarterly shareholder return equal to $0.83 per share, including $0.60 per share quarterly dividend (payable in May) and $0.23 per share of buybacks (executed in first quarter). The total return equals 50 percent of first-quarter 2022 cash flow from operating activities and 69 percent of free cash flow (non-GAAP).
• On May 2, 2022, Coterra's Board of Directors (the "Board") approved a total quarterly dividend equal to $0.60 per share ($0.15 base, $0.45 variable), and will be paid on May 25, 2022 to holders of record on May 13, 2022.
• Total quarterly dividend represents a return of 36 percent of first-quarter 2022 cash flow from operating activities, or 50 percent of free cash flow (non-GAAP).
• Executed on $1.25 billion share repurchase program, repurchased 7.6 million shares at a total cost of $184 million, all of which settled during first-quarter 2022. The average repurchase price during the quarter was $24.16 per share.
• Share repurchases represent an additional 14 percent return of first-quarter 2022 cash flow from operating activities, or 19 percent of free cash flow (non-GAAP) to shareholders.

Activity Outlook:

• Maintaining full-year 2022 capital investment guidance of $1,400 to $1,500 million, which is less than 30 percent of projected cash flow from operating activities at recent strip prices.
• Maintaining full-year 2022 production and cost guidance.

Thomas E. Jorden, commented, "Coterra is positioned to deliver on its 2022 plan. We remain focused on capital discipline, execution, and maximizing return on capital. Adhering to that disciplined approach, we are reiterating our full-year 2022 capital and production guidance. At the recent commodity strip, the Company's full-year 2022 free cash flow is estimated to approach $4.5 billion."

Jorden added, "We also remain focused on shareholder returns. Based on results during the quarter, we returned 69 percent of our first-quarter free cash flow, which includes 50 percent in the form of cash dividends and 19 percent in the form of share buybacks. We remain committed to returning 50 percent plus of free cash flow via base plus variable dividends, supplemented by share buybacks and potential future debt reduction."

First-Quarter 2022 Summary

First-quarter 2022 total equivalent production averaged 630 thousand barrels of oil equivalent per day (MBoepd), at the high-end of guidance. Oil production averaged 83.1 thousand barrels per day (MBopd), exceeding the high-end of guidance, and natural gas production averaged 2,850 million cubic feet per day (MMcfpd), at the high-end of guidance.

Coterra's average realized prices for oil, natural gas and natural gas liquids (NGLs) for first-quarter 2022, excluding the effect of commodity derivatives, were $93.45 per barrel (Bbl), $4.33 per thousand cubic feet (Mcf), and $37.87 per Bbl, respectively. Including the effect of commodity derivatives, average realized prices for oil and natural gas for first-quarter 2022 were $76.15 per Bbl and $4.17 per Mcf, respectively.

Generated Strong Cash Flow

For first-quarter 2022, Coterra reported cash flow from operating activities of $1,322 million. First-quarter 2022 discretionary cash flow (non-GAAP) was $1,232 million and free cash flow (non-GAAP) totaled $961 million, both of which are inclusive of merger-related costs.

Coterra incurred a total of $326 million of capital expenditures in first-quarter 2022, including $314 million of drilling and completion capital.

Financial Position

Coterra maintains a strong financial position with investment-grade credit ratings and substantial liquidity. As of March 31, 2022, Coterra had total long-term debt of $3.1 billion with a principal amount of $2.9 billion, and no substantial maturities until 2024. The Company exited the quarter with a cash balance of $1.4 billion and no debt outstanding under its revolving credit facility. Coterra's net debt to EBITDAX ratio (non-GAAP) at March 31, 2022 was 0.50x. The Company's net debt to combined EBITDAX ratio (non-GAAP) was 0.41x at March 31, 2022.

Outlook

Coterra is currently running six rigs and two completion crews in the Permian Basin. The Company is currently running three rigs in the Marcellus and plans to run one to two completion crews in second-quarter 2022. Coterra is currently running two rigs and one completion crew in the Anadarko Basin, and expects to release one drilling rig and its completion crew in June 2022. Coterra is maintaining its previously announced 2022 capital expenditure guidance of $1,400 to $1,500 million, supported by the Company's procurement of key materials and services in 2022.

Production volumes in second-quarter 2022 are expected to average between 605 and 625 MBoepd, with oil volumes estimated to average between 82.0 and 84.0 MBopd. Natural gas volumes in the second quarter are projected to average between 2,725 and 2,775 MMcfpd.

Delivering Returns to Shareholders

Based on first-quarter 2022 free cash flow (non-GAAP), Coterra's Board today declared a quarterly base plus variable dividend of $0.60 per share. The base plus variable dividend reflects a $0.15 per share base component and a variable component of $0.45 per share, on the Company's common stock. The combined base plus variable dividend represents 36 percent of cash flow from operating activities in first-quarter 2022, or 50 percent of free cash flow (non-GAAP). The combined base and variable dividend is payable on May 25, 2022, to shareholders of record as of the close of business on May 13, 2022.

Following the Company's announcement of its $1.25 billion share repurchase program in late February, Coterra repurchased 7.6 million shares through March 31, 2022 at a total cost of $184 million, an additional 14 percent return of first-quarter 2022 cash flow from operating activities, or 19 percent of free cash flow (non-GAAP). The average repurchase price in first-quarter 2022 was $24.16 per share. Coterra entered second-quarter 2022 with an outstanding share repurchase authorization of $1,066 million, or approximately five percent of the Company's current market capitalization. The Company entered the second quarter with a Rule 10b5-1 plan in place, and will provide details of share repurchase activity in the quarter with its second-quarter 2022 financial and operating results.

The timing and volume of share repurchases under this authorization will be determined by management, at its discretion. Management expects its share repurchase program to be driven by relative and intrinsic value opportunities. The share repurchase program is supplemental to the Company's base plus variable dividend strategy.

Sustainability and ESG Leadership

Coterra believes that environmental, social and governance (ESG) performance and strong corporate governance practices are foundational to its success. In adopting its first executive compensation program post-Merger, Coterra focused on aligning the program with governance best practices, including the addition of ESG goals in its short-term incentive plan metrics. Coterra included three ESG metrics in its 2022 short-term incentive targets, which make up 15 percent of its total short-term incentive potential. The 2022 targets include:

• Methane emissions intensity between 0.033 and 0.038 percent in 2022, versus 0.038 percent in 2021,
• Greenhouse gas emissions intensity between 5.20 and 5.94 metric tons CO₂e per MBoe in 2022, versus 5.84 metric tons CO₂e per MBoe in 2021, and
• Total company flare intensity between 0.118 and 0.131 percent in 2022, compared to 0.141 percent in 2021.