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Coterra Energy Third Quarter 2021 Results

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   |    Monday,November 15,2021

Coterra Energy Inc. reported third-quarter 2021 financial and operating results.

On October 1, 2021, Coterra announced that the merger involving the Company, which previously was named Cabot Oil & Gas Corporation, and Cimarex Energy Co. was completed. Results discussed within this release represent Coterra or legacy Cabot and exclude amounts related to legacy Cimarex, unless otherwise specified.

Net income for third-quarter 2021 totaled $62.7 million, or $0.16 per share. Adjusted net income (non-GAAP) for third-quarter 2021, excluding certain infrequent and non-cash items, was $207.0 million, or $0.52 per share.

Highlights:

• On November 3, 2021, Coterra's board approved the previously announced 14 percent increase to its annual base common stock dividend to $0.50 per share and an acceleration of its first variable dividend by one quarter. The approved base plus variable quarterly dividend equals $0.30 per share ($0.125 base, $0.175 variable), based on combined legacy Cabot and Cimarex free cash flow for third-quarter 2021, and will be paid on November 24, 2021 to holders of record on November 15, 2021.
• On October 4, 2021, Coterra's board declared a special cash dividend of $0.50 per share; paid to shareholders on October 22, 2021.
• Legacy Cabot generated net cash provided by operating activities of $245.2 million in third-quarter 2021.
• Discretionary cash flow from legacy Cabot for third-quarter 2021 totaled $308.8 million (non-GAAP), inclusive of merger-related costs.
• Combined Cabot and Cimarex free cash flow generation totaled $387.3 million (non-GAAP) in the period, inclusive of merger-related costs totaling $100.1 million.

Thomas E. Jorden, Chief Executive Officer and President, commented, "Today is just a first look at the power of Coterra's assets, financial strength, and commitment to peer-leading shareholder returns. Our strong operational performance in the third quarter can be attributed to our employees, who worked diligently to execute on both legacy company plans."

"Given the strong combined free cash flow generation in the third quarter, the improvement in commodity prices, and our disciplined capital allocation, we are confident in accelerating our first variable dividend by one quarter. We are proud to begin delivering competitive returns to our shareholders."

Third-Quarter 2021 Summary

Third-quarter 2021 daily natural gas production from legacy Cabot was 2,363 million cubic feet per day (MMcfpd), approximately two percent above the high-end of third-quarter guidance.

Legacy Cabot's average realized price for natural gas for third-quarter 2021, excluding the effect of commodity derivatives, was $2.95 per thousand cubic feet (Mcf), compared to $1.51 per Mcf for the corresponding period a year ago.

Legacy Cimarex third-quarter 2021 oil production totaled 81.5 thousand barrels per day (MBopd). Total production for the quarter averaged 251.2 thousand barrels of oil equivalent per day (MBoepd).

Legacy Cimarex's average realized prices for oil, natural gas and NGLs for third-quarter 2021, excluding the effect of commodity derivatives, was $68.49 per barrel (Bbl), $3.69 per Mcf, and $31.17 per Bbl, respectively.

Generated Strong Cash Flow

For third-quarter 2021, Legacy Cabot reported net cash provided by operating activities of $245.2 million. Discretionary cash flow (non-GAAP), inclusive of merger-related costs, was $308.8 million and free cash flow (non-GAAP) for third-quarter 2021 totaled $124.7 million, inclusive of merger-related costs.

Legacy Cabot incurred a total of $170.9 million of capital expenditures in third-quarter 2021, including $163.9 million of drilling and completion capital.

Legacy Cimarex's incurred capital expenditures in third-quarter 2021, excluding capitalized expenses, totaled $165.5 million and included $159.4 million in drilling and completion capital. Free cash flow generated by legacy Cimarex was $262.6 million (non-GAAP), inclusive of merger-related costs.

The combined free cash flow generated in third-quarter 2021 totaled $387.3 million (non-GAAP), and included $100.1 million of merger-related expenses.

Financial Position

Legacy Cabot repaid its $100.0 million of 3.24% senior notes in September, reducing its principal long-term debt to $949.0 million, and exited the third-quarter with no debt outstanding under its revolving credit facility and a cash balance of $76.3 million.

Coterra, on a combined basis, exited the third-quarter 2021 with a cash balance of $1.1 billion and principal long-term debt of $2.9 billion, before adjustments for purchase accounting. The Company has no substantial debt maturities until 2024.

Following the merger close, Coterra received investment grade credit ratings from Fitch (BBB), Moody's (Baa3) and S&P (BBB).

Accelerating Returns to Shareholders

Coterra's Board of Directors today declared a base plus variable dividend of $0.30 per share, reflecting a $0.125 per share base component and a variable component of $0.175 per share, on the Company's common stock. The combined base plus variable dividend represents 63 percent of combined third-quarter 2021 free cash flow. The combined base and variable dividend is payable on November 24, 2021, to shareholders of record as of the close of business on November 15, 2021. This variable dividend announcement is an acceleration of the Company's previous first payment target of first-quarter 2022. The recent improvement in commodity prices, strong third-quarter 2021 performance, and the Company's balance sheet strength provides the Company with capacity and confidence to accelerate cash returns to shareholders.

Outlook

The Company is providing fourth-quarter 2021 guidance which fully incorporates legacy Cimarex operations. Coterra expects fourth-quarter 2021 total equivalent production to average 665 to 690 MBoepd. Gas production for the total company is expected to average between 3,060 and 3,150 MMcfpd. Oil production is expected to average 86 to 90 MBopd, the midpoint representing 30 percent year-over-year growth from legacy Cimarex's fourth-quarter 2020 oil production of 67.8 MBopd.

Coterra is currently running five rigs and two completion crews in the Permian Basin and two rigs and two completion crews in the Marcellus Shale. Coterra plans to average four completion crews during the fourth quarter of 2021, and expects to incur between $245 and $275 million of capital expenditures.