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Coterra Energy Fourth Quarter, Full Year 2021 Results

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   |    Thursday,February 24,2022

Coterra Energy Inc. reported fourth-quarter and full-year 2021 financial and operating results.

On October 1, 2021, Coterra announced that the merger involving the Company, which was formerly named Cabot Oil & Gas Corporation, and Cimarex Energy Co., was completed. Fourth-quarter 2021 results discussed within this release represent Coterra. Full-year 2021 results include nine months of legacy Cabot results from January 1 to September 30, plus three months of Coterra beginning October 1, unless noted otherwise.

Net income for fourth-quarter 2021 totaled $939 million, or $1.16 per share. Adjusted net income (non-GAAP) for fourth-quarter 2021, excluding non-recurring items, was $670 million, or $0.83 per share. Net income for full-year 2021 totaled $1,158 million, or $2.30 per share. Adjusted net income (non-GAAP) for full-year 2021, excluding non-recurring items, was $1,132 million, or $2.25 per share.

Fourth-Quarter 2021 Highlights:

• Generated cash flow from operating activities of $953 million.
• Discretionary cash flow totaled $1,026 million (non-GAAP).
• Generated free cash flow of $758 million (non-GAAP).
• Delivered total equivalent production of 686 MBoepd.
• Oil production averaged 88.6 MBopd and natural gas production averaged 3,123 MMcfpd.
• Exited the year with zero routine high-pressure flaring across Coterra's three core operating regions.

Shareholder Return Highlights:

• On February 23, 2022, Coterra's Board of Directors (the "Board") approved a 20 percent increase to the annual base common dividend from $0.50 per share to $0.60 per share ($0.15 per share, per quarter).
• On February 23, 2022, the Board also approved an incremental $0.41 per share variable dividend payment based on fourth-quarter 2021 free cash flow (non-GAAP) generation.
• The approved base plus variable quarterly dividend equals $0.56 per share ($0.15 base, $0.41 variable), and will be paid on March 17, 2022 to holders of record on March 7, 2022.
• Base plus variable quarterly dividend payment represents a return of 48 percent of cash flow from operating activities or, 60 percent of free cash flow (non-GAAP).
• Separately, the Company announced a share repurchase program of its common stock with a $1.25 billion authorization, representing approximately 7 percent of the Company's market capitalization as of market close on February 22, 2022.

Thomas E. Jorden, Chief Executive Officer and President, commented, "Coterra's initial quarter as a combined company generated solid results and we are excited to communicate our 2022 plans. We look to remain disciplined in 2022, with plans to reinvest less than 35 percent of our projected cash flow from operating activities, at the recent strip. While all three regions provide ample and competitive opportunities for investment, in light of inflation, service availability and prevailing commodity prices, we made a tactical decision to allocate incremental capital toward our oil assets. This decision was driven by our focus on optimizing free cash flow generation and returns to shareholders, with the added benefit of providing a more balanced revenue profile between liquids and natural gas."

"Today we also proudly announce the next phase of our shareholder return strategy, both by increasing our base common dividend and initiating a $1.25 billion share repurchase program. We remain committed to returning 50 percent plus of quarterly free cash flow through our base plus variable dividend framework and using share repurchases as a supplemental shareholder return method."

Fourth-Quarter 2021 Summary

Fourth-quarter 2021 total equivalent production averaged 686 thousand barrels of oil equivalent per day (MBoepd). Oil production averaged 88.6 thousand barrels per day (MBopd) in the fourth quarter and natural gas production averaged 3,123 million cubic feet per day (MMcfpd).

Coterra's average realized prices for oil, natural gas and natural gas liquids (NGLs) for fourth-quarter 2021, excluding the effect of commodity derivatives, were $75.61 per barrel (Bbl), $4.43 per thousand cubic feet (Mcf), and $34.18 per Bbl, respectively. Including the effect of commodity derivatives, average realized prices for oil and natural gas for fourth-quarter 2021 were $60.35 per Bbl and $3.57 per Mcf, respectively.

Generated Strong Cash Flow

For fourth-quarter 2021, Coterra reported cash flow from operating activities of $953 million. Fourth-quarter 2021 discretionary cash flow (non-GAAP) was $1,026 million and free cash flow (non-GAAP) totaled $758 million both of which are inclusive of merger-related costs.

Coterra incurred a total of $264 million of capital expenditures in fourth-quarter 2021, including $240 million of drilling and completion capital.

Full-Year 2021 Summary

Full-year 2021 total equivalent production averaged 457.8 MBoepd. Oil production averaged 22.3 MBopd and natural gas production averaged 2,496 MMcfpd. Combined full-year 2021 total equivalent production averaged 634 MBoepd, including average oil production of 77.9 MBopd and natural gas production of 2,927 MMcfpd.

Coterra's average realized prices for oil, natural gas and NGLs for 2021, excluding the effect of commodity derivatives, were $75.61 per Bbl, $3.07 per Mcf, and $34.18 per Bbl, respectively. Including the effect of commodity derivatives, average realized prices for oil and natural gas for 2021 were $60.35 per Bbl and $2.73 per Mcf, respectively.

Coterra reported cash flow from operating activities of $1,667 million for full-year 2021. Full-year 2021 discretionary cash flow (non-GAAP) was $1,811 million and free cash flow (non-GAAP) totaled $1,083 million, both of which are inclusive of merger-related costs.

Coterra incurred a total of $725 million of capital expenditures in full-year 2021, including $688 million of drilling and completion capital. Combined capital expenditures incurred in 2021, excluding capitalized expenses incurred by Cimarex prior to the Merger, totaled $1,211 million, including $1,135 million of drilling and completion capital.

Strong Financial Position

As of December 31, 2021, Coterra had total long-term debt of $3.1 billion with a principal amount of $2.9 billion, with no substantial maturities until 2024. The Company exited the year with a cash balance of $1.0 billion and no debt outstanding under its revolving credit facility. Coterra's net debt to trailing twelve month EBITDAX ratio (non-GAAP) at December 31, 2021 was 0.95x. The Company's net debt to combined trailing twelve month EBITDAX ratio (non-GAAP) was 0.65x at December 31, 2021.

2021 Proved Reserves

At December 31, 2021, Coterra's proved reserves totaled 2,893 MMBoe, up 27 percent from the Company's proved reserves of 2,279 MMBoe at December 31, 2020, which is primarily driven by the Merger. The Company's proved reserves are approximately 86 percent natural gas, 6 percent oil and 8 percent NGLs. Proved developed reserves totaled 2,128 MMBoe, or 74 percent of the total proved reserves. Coterra's proved reserves at December 31, 2021 represent a 3 percent increase to the combined reserves of legacy Cabot and Cimarex, which totaled 2,813 MMBoe at December 31, 2020. The increase to proved reserves at year-end 2021 compared to the combined proved reserves at year-end 2020 is primarily attributed to the addition of new proved developed producing wells. For a summary of Coterra's estimated proved reserves at December 31, 2021, see the "Year-End Proved Reserves" table below.

Increasing Returns to Shareholders

On February 23, 2022, Coterra's Board approved a 20 percent increase to the annual base common dividend from $0.50 per share to $0.60 per share ($0.15 per share, per quarter).

Based on fourth-quarter 2021 free cash flow (non-GAAP), Coterra's Board today declared a quarterly base plus variable dividend of $0.56 per share. The base plus variable dividend reflects a $0.15 per share base component and a variable component of $0.41 per share, on the Company's common stock. The combined base plus variable dividend represents 48 percent of cash flow from operating activities in fourth-quarter 2021, or 60 percent of free cash flow (non-GAAP) . The combined base and variable dividend is payable on March 17, 2022, to shareholders of record as of the close of business on March 7, 2022.

The Company also announced today the next step in its shareholder return strategy, initiating a supplementary share repurchase program with a $1.25 billion authorization, which represents approximately 7 percent of our current market capitalization.

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 in excess of the Company's base plus variable dividend strategy and our first priority remains funding and growing a sustainable base dividend.

Committed to Sustainability and ESG Leadership

Preliminary results for 2021 include:

• 15% reduction in greenhouse gas emissions intensity,
• 48% reduction in methane emissions intensity,
• 50% reduction in Permian Basin high-pressure flaring intensity, and
• Zero routine high-pressure flaring across all three operating regions by year-end.