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Coterra Energy Q4, Full Year 2022 Results; 2023 Plans

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   |    Friday,February 24,2023

Coterra Energy Inc. reported fourth-quarter and full-year 2022 financial and operating results.

Thomas E. Jorden, Chairman, Chief Executive Officer and President, commented, "Coterra delivered a strong 2022. Outstanding execution led to value creation, outsized shareholder returns and further improvement of our industry-leading balance sheet. Combining our track record of execution with our deep inventory of high-quality assets, Coterra is positioned to succeed through commodity cycles."

Fourth-Quarter 2022 Summary:

  • Net income for fourth quarter 2022 totaled $1,032 million, or $1.32 per share. Adjusted net income (non-GAAP) for fourth-quarter 2022, excluding non-recurring items, was $905 million, or $1.16 per share.
  • Generated cash flow from operating activities of $1,484 million.
  • Discretionary cash flow totaled $1,393 million (non-GAAP).
  • Accrued capital expenditures totaled $483 million.
  • Generated Free Cash Flow of $892 million (non-GAAP).
  • Delivered total equivalent production of 632 MBoepd (thousand barrels equivalent per day).
    • Oil production averaged 90.7 MBbls/d (thousand barrels per day), above the high-end of guidance.
    • Natural gas production averaged 2,780 Mmcf/d (million cubic feet per day), above the high-end of guidance.

Coterra's average realized prices for oil, natural gas and natural gas liquids (NGLs) for fourth-quarter 2022, excluding the effect of commodity derivatives, were $82.26 per barrel (Bbl), $4.87 per thousand cubic feet (Mcf), and $25.02 per Bbl, respectively. Including the effect of commodity derivatives, average realized prices for oil and natural gas for fourth-quarter 2022 were $81.57 per Bbl and $4.74 per Mcf, respectively.

2023 Outlook

"Guided by principles focused on full-cycle value creation and disciplined capital allocation, Coterra expects to invest approximately 50 percent of its cash flow, at recent strip prices", commented Jorden. "This is expected to result in a 2023 production profile that will be relatively flat year-over-year before returning to modest growth in 2024 and 2025. Coterra's dynamic organization, top-tier assets and industry-leading balance sheet are poised to generate long-term consistent profitable growth."

  • Estimated cash flow from operating activities of approximately $4.0 billion, at recent commodity strip prices
  • Expected capital investment of $2.0 billion to $2.2 billion
    • $1,825 to $2,025 million is allocated to drilling and completion activities.
    • Approximately 49 percent of drilling and completion capital will be invested in the Permian Basin, 44 percent in the Marcellus Shale and the balance in the Anadarko Basin.
    • Represents approximately 50 percent of projected cash flow from operating activities at recent commodity strip prices.
    • Capital increase driven by inflation (10% y/y) and a modest activity increase.
  • Expect annual average production of 610 - 650 MBoe/d, in line with 2022.
    • Expect annual average oil production of 86-92 MBbls/d, up 2% y/y.
    • Expect annual average natural gas production of 2,700 - 2,850 MMcf/d, down modestly y/y as Upper Marcellus delineation increases in 2023 (~40% of 2023 Marcellus activity). The 40% Upper Marcellus weighting is expected to be the high-end over the next few years.
    • Expect to turn-in-line 150 to 175 total net wells.
  • Estimate free cash flow (non-GAAP) of approximately $1.9 billion, at recent commodity strip prices.

Share Repurchases

  • Coterra's Board of Directors (the "Board") approved a 33 percent increase to the annual base dividend to $0.80 per share from $0.60 per share.
  • After completing its buyback authorization ($1.25 billion) during calendar 2022, the Board approved a new $2.0 billion authorization, representing approximately 11% of the Company's market capitalization as of market close on February 21, 2023. The timing and volume of share repurchases under this authorization will be determined by management, at its discretion. The $2 billion share repurchase program takes effect in February 2023 and does not have a fixed expiration.
  • Coterra's 2022 return strategy targeted 50%+ of Free Cash Flow (non-GAAP) paid via cash dividends (base + variable). The company's updated 2023 strategy maintains its 50%+ Free Cash Flow return target but now assumes this can be accomplished through a combination of base dividends, share repurchases and/or variable dividends.

Jorden commented, "We are pleased to increase the base dividend, which underscores the confidence in our long-term outlook and financial strength through all cycles. Additionally, we established a new buyback authorization totaling $2.0 billion, which will accelerate returns to shareholders and allow the company to take advantage of value dislocations. We remain committed to returning 50%+ of our Free Cash Flow to shareholders. Due to market conditions and the value proposition of our shares, in 2023 we are realigning our strategy to focus on buybacks ahead of variable dividends. Our 2023 capital return priorities include paying our increased base dividend first, share repurchases second, and variable dividends third. With 2023 estimated Free Cash Flow approaching $2 billion, based on recent strip prices, we are projected to generate sufficient cash flow to fund the base dividend and make meaningful progress on the new buyback authorization."

Q4 & Full Year 2022 Shareholder Return Highlights

  • Driven by relatively high commodity prices and strong execution during 2022, the company returned $3.25 billion to shareholders through our base dividend ($480 million), variable dividend ($1.51 billion) and share repurchases ($1.25 billion). The total 2022 return was 85% of Free Cash Flow and the total dividend (base + variable) was 50% of Free Cash Flow.
  • On February 22, 2023, in addition to its base dividend ($0.20 per share), the Board approved a $0.37 per share variable dividend payment based on fourth-quarter 2022 free cash flow (non-GAAP) generation.
    • The approved total quarterly dividend (base plus variable) equals $0.57 per share ($0.20 base, $0.37 variable), and will be paid on March 30, 2023 to holders of record on March 16, 2023.
  • During the quarter, the Company repurchased 20 million shares for $510 million, averaging $25.60 per share, to fully execute on its $1.25 billion share repurchase authorization during calendar 2022.

2022 Highlights:

  • Net Income of $4.1 billion, or $5.09 per share.
  • Operating Cash Flow of $5.5 billion, Discretionary Cash Flow of $5.6 billion, Free Cash Flow of $3.9 billion.
  • Dividends paid of $2.0 billion, complemented by $1.25 billion of share repurchases.
  • Retired $0.9 billion of long-term notes.
  • Exceeded initial 2022 production targets as well as emissions reduction targets.

Full-Year 2022 Summary

Full-year 2022 total equivalent production averaged 633.8 MBoepd. Oil production averaged 87.5 MBbls/d and natural gas production averaged 2,806 MMcf/d.

Coterra's average realized prices for oil, natural gas and NGLs for 2022, excluding the effect of commodity derivatives, were $94.47 per Bbl, $5.34 per Mcf, and $33.58 per Bbl, respectively. Including the effect of commodity derivatives, average realized prices for oil and natural gas for 2022 were $84.33 per Bbl and $4.91 per Mcf, respectively.

Net income for full-year 2022 totaled $4,065 million or $5.09 per share. Adjusted net income (non-GAAP) for full-year 2022, excluding non-recurring items, was $3,932 million, or $4.94 per share.

Coterra reported cash flow from operating activities of $5,456 million for full-year 2022. Full-year 2022 discretionary cash flow (non-GAAP) was $5,642 million and free cash flow (non-GAAP) totaled $3,942 million, both of which are inclusive of merger-related costs.

Coterra incurred a total of $1,737 million of capital expenditures in full-year 2022, including $1,617 million of drilling and completion capital.

The company achieved zero routine high-pressure flaring across Coterra's three core operating regions during 2022. Additionally, the company beat its 2022 environmental goals and laid out ambitious 2023 goals.

Strong Financial Position

As of December 31, 2022, Coterra had total long-term debt of $2.2 billion with a principal amount of $2.1 billion, with no substantial maturities until 2024. The Company exited the year with a cash balance of $0.7 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, 2022 was 0.2x.

2022 Proved Reserves

At December 31, 2022, Coterra's proved reserves totaled 2,399 MMBoe, down 17 percent from the Company's proved reserves of 2,893 MMBoe at December 31, 2021, which is in line with estimates provided in the Company's third-quarter 2022 earnings press release. At year-end 2022, proved undeveloped reserves accounted for 24 percent of total proved reserves, down from 26 percent at year-end 2021. The Company's proved reserves are approximately 78 percent natural gas, 10 percent oil and 12 percent NGLs. Proved developed reserves totaled 1,817 MMBoe, or 76 percent of total proved reserves. For a summary of Coterra's estimated proved reserves at December 31, 2022, see the "Year-End Proved Reserves" table below.

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