Capital Stock

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Capital Stock

Capital Stock

Issuance of Common Stock

Following the effectiveness of the Merger, the Company issued approximately 408.2 million shares of its common stock to Cimarex stockholders under the terms of the Merger Agreement.

In October 2021, in accordance with the Merger Agreement, the Company issued 3.4 million shares of restricted stock to replace Cimarex restricted stock awards granted to certain employees. Because these awards have non-forfeitable rights to dividends or dividend equivalents, the Company considers these shares as issued and outstanding common stock.

Increase in Number of Authorized Shares

On September 29, 2021, the Company's stockholders approved an amendment to the Company's certificate of incorporation to increase the number of authorized shares of Company common stock from 960,000,000 shares to 1,800,000,000 shares. That amendment became effective on October 1, 2021.

Dividends

Common Stock

In April 2021, the Company’s Board of Directors approved an increase in the quarterly dividend on the Company's common stock from $0.10 per share to $0.11 per share. In November 2021, the Company’s Board of Directors also approved an increase in the quarterly dividend on the Company's common stock from $0.11 per share to $0.125 per share.

On October 4, 2021, and in connection with the completion of the Merger, the Company’s Board of Directors approved a special dividend of $0.50 per share payable on the Company’s common stock on October 22, 2021.

On November 3, 2021, consistent with the Company's dividend strategy to return at least 50 percent of quarterly free cash flows to stockholders, the Company’s Board of Directors approved a base-plus-variable dividend of $0.30 per share, payable on the Company’s common stock on November 24, 2021.

Subsequent Event. In February 2022, the Company’s Board of Directors of approved an additional increase in the quarterly dividend on the Company’s common stock from $0.125 per share to $0.15 per share. Also on that date, the Board of Directors approved a variable dividend of $0.41 per share, resulting in a base-plus-variable dividend of $0.56 per share on the Company’s common stock.

Cimarex Redeemable Preferred Stock

In the fourth quarter of 2021 and after the Merger with Cimarex, a cash dividend of $20.3125 per share was declared on the outstanding shares of Preferred Stock (as defined below) issued by Cimarex. Dividends are paid in the quarter following the quarter of declaration. At December 31, 2021, dividends payable to preferred stockholders of $1 million were included in accounts payable in the Consolidated Balance Sheet.

Incentive Plans

Coterra Energy Inc. 2014 Incentive Plan

On May 1, 2014, the Company’s stockholders approved the Coterra Energy Inc. 2014 Incentive Plan (the “2014 Coterra Plan”). Under the 2014 Coterra Plan, incentive and non-statutory stock options, stock appreciation rights (“SAR’s”), stock awards, cash awards and performance share awards may be granted to key employees, consultants and officers of the Company. Non-employee directors of the Company may be granted discretionary awards under the 2014 Coterra Plan consisting of stock options or stock awards. A total of 18.0 million shares of common stock may be issued under the 2014 Coterra Plan. Under the 2014 Coterra Plan, no more than 10.0 million shares may be issued pursuant to incentive stock options. No additional awards may be granted under the 2014 Coterra Plan on or after May 1, 2024. At December 31, 2021, approximately 10.5 million shares are available for issuance under the 2014 Coterra Plan.

Cimarex Energy Co. 2019 Equity Incentive Plan

In connection with the Merger, the Company assumed all rights and obligations under the Cimarex Energy Co. 2019 Equity Incentive Plan (the “2019 Cimarex Plan”) and the Company will be entitled to grant equity or equity-based awards with respect to Coterra common stock under the Plan to current or former employees of Cimarex, to the extent permissible under applicable law and NYSE listing rules. The 2019 Cimarex Plan provides for grants of stock options, SARs, restricted stock, restricted stock units, performance stock units, cash awards and other stock-based awards. As of December 31, 2021, approximately 35.9 million shares of Coterra common stock are available for issuance under the 2019 Cimarex Plan, subject to certain limitations.

Treasury Stock

In August 1998, the Company’s Board of Directors authorized a share repurchase program under which the Company could purchase shares of common stock in the open market or in negotiated transactions. The timing and amount of these stock purchases was determined at the discretion of management. The Company could use the repurchased shares to fund stock compensation programs presently in existence, or for other corporate purposes. All purchases executed under the share repurchase program were through open market transactions. There was no expiration date associated with the authorization to repurchase shares of the Company.

During 2021 and 2020, there were no share repurchases under the share repurchase program. During the years ended December 31, 2019, the Company repurchased 25.5 million shares for a total cost of $488 million. Since the authorization date and subsequent authorizations, the Company repurchased 99.0 million shares, of which 20.0 million shares have been retired, for a total cost of approximately $1.9 billion. No treasury shares have been delivered or sold by the Company subsequent to the repurchase.

During 2021, the Company withheld 125,067 shares of common stock valued at $3 million related to shares withheld for taxes upon the vesting of certain restricted stock awards. The shares withheld are included in treasury stock in the Consolidated Balance Sheet.

As of December 31, 2021, 79.1 million shares were held as treasury stock and the remaining number of shares authorized for repurchase under the share repurchase plan was 11.0 million.

Subsequent Event. In February 2022, our Board of Directors terminated the previously authorized share repurchase program and authorized a new share repurchase program. This new share repurchase program authorizes the Company to purchase up to $1.25 billion of the Company’s common stock in the open market or in negotiated transactions.

Dividend Restrictions

The Board of Directors of the Company determines the amount of future cash dividends, if any, to be declared and paid on the common stock depending on, among other things, the Company's financial condition, funds from operations, the level of its capital and exploration expenditures and its future business prospects. None of the senior note or credit agreements in place have restricted payment provisions or other provisions which currently limit the Company’s ability to pay dividends.

Cimarex Redeemable Preferred Stock

In October 2021, in connection with the Merger, the Company effectively assumed the obligations associated with Cimarex’s preferred stock, par value $0.01 per share, designated as 8 1/8% Series A Cumulative Perpetual Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock was originally issued by Cimarex and remains on the Cimarex balance sheet after the Merger. The fair value of the Preferred Stock as of the effective date of the Merger was $50 million. The Company accounts for the Preferred Stock as a non-controlling interest, which is immaterial for reporting purposes.

Holders of the Preferred Stock are entitled to receive, when, as, and if declared by the Cimarex board of directors out of funds of Cimarex legally available for payment, cumulative cash dividends at the annual rate of 8.125% of each share’s liquidation preference of $1,000. Dividends on the Preferred Stock are payable quarterly in arrears and accumulate from the most recent date as to which dividends have been paid. In the event of any liquidation, winding up or dissolution of Cimarex, whether voluntary or involuntary, each holder will be entitled to receive in respect of its shares and to be paid out of the assets of Cimarex legally available for distribution to its stockholders, after satisfaction of liabilities to Cimarex’s creditors and any senior stock (of which there is currently none) and before any payment or distribution is made to holders of junior stock (including Cimarex’s common stock), the liquidation preference of $1,000 per share, with the total liquidation preference at December 31, 2021 being $28 million in the aggregate. Each holder has the right at any time, at its option, to convert any or all of such holder’s shares of Preferred Stock at an initial conversion rate of 34.1008 shares of fully paid and nonassessable shares of the Company’s common stock and $471.3975 in cash per share of Preferred Stock. The initial conversion rate of 34.1008 adjusts upon the occurrence of certain events, including the payment of cash dividends to common stockholders of Coterra, and is 35.38530 as of December 31, 2021. As a result of the cash redemption features included in the Preferred Stock conversion option granted to each holder, with such conversion not solely within Cimarex’s control, the instruments are classified as “Cimarex redeemable preferred stock” in temporary equity ion the Consolidated Balance Sheet.

Additionally, beginning on and continuing after October 15, 2021, Cimarex has the right, at its option, if the closing sale price of Coterra common stock meets certain criteria, to elect to cause all, and not part, of the outstanding shares of Preferred Stock to be converted into that number of shares of Coterra common stock for each eligible share of Preferred Stock equal to the conversion rate in effect on the mandatory conversion date as such terms are defined in the Certificate of Designations for

the Preferred Stock and $471.3975 in cash per share of Preferred Stock. The Company and Cimarex also have the right at any time to repurchase shares of Preferred Stock through privately negotiated transactions.