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Coterra Energy Third Quarter 2022 Results

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   |    Thursday,November 03,2022

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

Thomas E. Jorden, Chief Executive Officer and President, commented, "Coterra continues to execute and has delivered another strong operational quarter with outsized shareholder returns. Just over one year since the formation of this company, I am extremely proud of what we have accomplished and am excited for the future. I am proud of our employees' commitment to excellence and a culture that will continue to be a differentiated competitive advantage. As a low-cost operator of diversified, top-tier assets, and with a market-leading balance sheet, Coterra is positioned to succeed through cycles."

Third-Quarter 2022 Highlights:

  • Net income for third-quarter 2022 totaled $1,196 million, or $1.51 per share; adjusted net income (non-GAAP) for third-quarter 2022, excluding non-recurring items, was $1,126 million, or $1.42 per share.
  • Generated cash flow from operating activities of $1,771 million.
  • Discretionary Cash Flow totaled $1,524 million (non-GAAP), inclusive of $13 million of merger-related/severance costs.
  • Incurred cash paid for capital expenditures (GAAP) of $460 million, including $410 million of drilling and completion capital.
  • Generated Free Cash Flow of $1,064 million (non-GAAP) inclusive of $13 million of merger-related/severance costs.
  • Total equivalent production of 641 MBoepd (thousand barrels of oil equivalent per day), exceeding the high-end of guidance due to strong well performance and improving cycle times.
    • Natural gas production averaged 2,807 MMcfpd (million cubic feet per day), exceeding the high-end of guidance.
    • Oil production averaged 87.9 MBopd (thousand barrels of oil per day), above the mid-point of guidance.
  • Realized average prices of:
    • $93.35 per barrel (Bbl) of oil, excluding the effect of commodity derivatives, and $86.37 per Bbl of oil, including the effect of commodity derivatives
    • $6.37 per thousand cubic feet (Mcf) of natural gas, excluding the effect of commodity derivatives, and $5.58 per Mcf of natural gas, including the effect of commodity derivatives
    • $32.78 per barrel of natural gas liquids (NGLs)

Shareholder Return Highlights

Jorden added, "We are pleased to announce that we will return 74 percent of our third-quarter 2022 free cash flow to shareholders, which includes 50 percent in the form of cash dividends and 24 percent in the form of share repurchases. Driven by strong operational execution and healthy commodity prices during the quarter, our cash dividends increased 5 percent over the second quarter of 2022. We remain committed to returning 50 percent plus of free cash flow via dividends, supplemented by share repurchases, and potential future debt reduction."

  • On November 3, 2022, Coterra's Board of Directors (the "Board") approved a total quarterly dividend equal to $0.68 per share ($0.15 base, $0.53 variable), which will be paid on November 30, 2022 to holders of record on November 16, 2022.
  • Total quarterly shareholder return of $1.00 per share includes $0.68 per share quarterly dividend (payable in November 2022) and $0.32 per share of repurchases (settled in third-quarter). The total return equals 44 percent of third-quarter 2022 Cash Flow From Operating Activities, or 74 percent of Free Cash Flow (non-GAAP).
  • During the quarter, the Company repurchased 9.3 million shares for $253 million, averaging $27.03 per share.
    • As of September 30, 2022, the Company had repurchased 28.0 million shares for a total cost of $740 million, leaving $510 million remaining on the $1.25 billion share repurchase authorization.
    • The timing and volume of share repurchases under this authorization will be determined at management's discretion, based on both relative and intrinsic valuation.
    • Share repurchases represent an incremental 14 percent return of third-quarter 2022 Cash Flow From Operating Activities, or 24 percent of Free Cash Flow (non-GAAP), to shareholders.
    • As previously disclosed, Coterra retired $830 million of notes during the quarter, which includes $124 million of legacy Cabot private notes with various maturities and $706 million of the $750 million 2024 legacy Cimarex notes. Subsequent to the quarter close, the company retired the remaining $44 million of 2024 notes.

Marcellus Update

In late first-quarter 2022, Coterra brought online a seven well Upper Marcellus development. As noted in our updated corporate presentation, the Upper Marcellus development, after six months, has produced an average cumulative volume of 324 Mcf/Lateral Foot. This compares to the Company's average Lower Marcellus 2021-2022 well performance which averaged 406 Mcf/Lateral Foot. With future Upper Marcellus development costs expected to be 10-15 percent per foot less than Lower Marcellus development costs, the Upper Marcellus capital efficiency is competitive with the Company's Lower Marcellus and broader asset portfolio. At a flat $4.25 NYMEX gas price, the recent Upper Marcellus development is estimated to generate a PVI10 of 2.6x, which compares favorably to the 140 Lower Marcellus wells drilled in 2021-2022 that are estimated to generate a PVI10 of 2.8x. See "Supplemental Non-GAAP Financial Measures (Unaudited)" for our definition of PVI10.

Driven by strong well performance, the Company's 2022 Marcellus production continues to trend above originally budgeted expectations.

Activity Outlook and Guidance Update

  • Capital Investment and Free Cash Flow Guidance
    • Estimate 2022 Discretionary Cash Flow of approximately $5.6 billion at recent strip prices
    • Now expect 2022 capital budget of $1.7 billion, the high end of the previously provided guidance range. The capital budget is expected to be approximately 30 percent of 2022 Discretionary Cash Flow, even as inflationary impacts have driven capital costs +25 percent year-over-year
    • Estimate 2022 Free Cash Flow of approximately $3.9 billion at current strip prices, and expect to return the vast majority to shareholders.
  • Increasing full-year 2022 production guidance:
    • Total equivalent production: 625-640 MBoepd, +1 percent at the midpoint from 615-635 MBoepd
    • Natural gas production: 2,775-2,850 MMcfpd, +1 percent at the midpoint from 2,750-2,825 MMcfpd
  • Lease operating expense, gathering, processing and transportation, and general and administrative, taxes other than income, and deferred income tax ratio guidance remains unchanged
  • No change to full-year 2022 turn-in-line guidance

Coterra is currently running six rigs and two completion crews in the Permian Basin and three rigs and one completion crew in the Marcellus.

Production volumes in fourth-quarter 2022 are expected to average between 615 and 635 MBoepd, with oil volumes estimated to average between 86 and 89 MBopd. Natural gas volumes in fourth-quarter are projected to average between 2,725 and 2,775 MMcfpd.

See "Supplemental non-GAAP Financial Measures" below for descriptions of the above non-GAAP measures as well as reconciliations of these measures to the associated GAAP measures.

Year-to-date 2022 Summary Highlights:

  • Net income totaled $3,033 million, or $3.78 per share; adjusted net income (non-GAAP) for the same period, excluding non-recurring items, was $3,028 million, or $3.78 per share.
  • Generated cash flow from operating activities of $3,972 million.
  • Discretionary cash flow totaled $4,249 million (non-GAAP).
  • Incurred cash paid for capital expenditures (GAAP) of $1,205 million.
  • Generated free cash flow of $3,044 million (non-GAAP)
Strong Financial Position

Coterra maintains a strong financial position with investment-grade credit ratings and substantial liquidity. As of September 30, 2022, Coterra had total long-term debt of $2.2 billion with a principal amount of $2.1 billion. The Company exited the quarter with a cash balance of $778 million, no debt outstanding under its revolving credit facility, and no near-term debt maturities. Coterra's net debt to Adjusted EBITDAX ratio (non-GAAP) at September 30, 2022 was 0.2x.

Proved Reserves Update

In connection with the Merger, we have continued to evaluate and refine our process for assessing the estimated proved reserves of our legacy Cimarex and Cabot operations. Based on the analysis to date, as of September 30, 2022, we anticipate our total company proved reserves will decrease by approximately 15-20 percent year over year at December 31, 2022. This decrease in proved reserves is driven by a downward revision to prior estimates of approximately 32-36 percent for our Marcellus Shale properties, partially offset by an upward revision of approximately 8-12 percent for our Permian and Anadarko properties. Approximately a quarter of the estimated total revision volume in the Marcellus Shale is related to the SEC 5-year rule for proved undeveloped reserves (PUDs) due to the timing of capital investments, changes around well spacing, and location optimization within the Marcellus Region. Factors that may impact the size of the total adjustment include commodity prices, well performance, operating expenses and the completion of the annual PUD reserves process, which will be incorporated as of year-end 2022. The expected net downward revision of prior estimates did not have a material impact on our Condensed Consolidated Financial Statements as of and for the period ended September 30, 2022 and is not expected to have a material impact on our 2022 and go-forward Consolidated Financial Statements.

Mr. Jorden commented, "The revision noted above spans the 50-year life of these wells and is not material to our financials, nor to the go-forward economics of the Marcellus play. These revisions are not expected to have any significant impact on our near-term cash flows or capital allocation. After accounting for these adjustments to our estimated total proved reserves, we expect our year-end 2022 standardized measure of future net cash flows to increase significantly from year-end 2021, driven by higher commodity prices."

Committed to Sustainability and ESG Leadership

Coterra believes that environmental, social and governance (ESG) performance and practices are foundational to our success. Today we published the first Coterra Energy Sustainability Report, which can be accessed on the "Sustainable Future" section of our website at

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