UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2022

OR

☐       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number 1-10447

COTERRA ENERGY INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3072771
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

Three Memorial City Plaza

840 Gessner Road, Suite 1400, Houston, Texas 77024

(Address of principal executive offices, including ZIP code)

(281) 589-4600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	CTRA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2022, there were 795,595,177 shares of Common Stock, Par Value $0.10 Per Share, outstanding.

COTERRA ENERGY INC.

INDEX TO FINANCIAL STATEMENTS

		Page
Part I. Financial Information
Item 1.	Financial Statements
Condensed Consolidated Balance Sheet (Unaudited) at June 30, 2022 and December 31, 2021		3
Condensed Consolidated Statement of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021		4
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021		5
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021		6
Notes to the Condensed Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	37
Part II. Other Information
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
Signatures		42

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

(In millions, except share and per share amounts)	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	1,059	$	1,036
Restricted cash	10		10
Accounts receivable, net	1,525		1,037
Income taxes receivable	170		—
Inventories	46		39
Other current assets	22		14
Total current assets	2,832		2,136
Properties and equipment, net (Successful efforts method)	17,407		17,375
Other assets	408		389
	$	20,647	$	19,900
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,044	$	747
Current portion of long-term debt	124		—
Accrued liabilities	206		260
Income taxes payable	—		29
Interest payable	26		25
Derivative instruments	170		159
Total current liabilities	1,570		1,220
Long-term debt, net	2,981		3,125
Deferred income taxes	3,203		3,101
Asset retirement obligations	265		259
Other liabilities	426		407
Total liabilities	8,445		8,112
Commitments and contingencies
Cimarex redeemable preferred stock	11		50
Stockholders' equity
Common stock:
Authorized — 1,800,000,000 shares of $0.10 par value in 2022 and 2021, respectively
Issued — 894,493,926 shares and 892,612,010 shares in 2022 and 2021, respectively	89		89
Additional paid-in capital	10,976		10,911
Retained earnings	3,460		2,563
Accumulated other comprehensive income	5		1
Less treasury stock, at cost:
98,725,561 shares and 79,082,385 shares in 2022 and 2021, respectively	(2,339)		(1,826)
Total stockholders' equity	12,191		11,738
	$	20,647	$	19,900

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

	Three Months Ended  June 30,				Six Months Ended  June 30,
(In millions, except per share amounts)	2022		2021		2022		2021
OPERATING REVENUES
Natural gas	$	1,468	$	412	$	2,579	$	885
Oil	876		—		1,575		—
NGL	280		—		525		—
Loss on derivative instruments	(66)		(88)		(457)		(101)
Other	14		—		29		—
	2,572		324		4,251		784
OPERATING EXPENSES
Direct operations	116		16		216		33
Transportation, processing and gathering	238		133		471		270
Taxes other than income	98		4		174		9
Exploration	7		2		13		5
Depreciation, depletion and amortization	414		92		774		186
General and administrative	87		23		194		52
	960		270		1,842		555
Loss on sale of assets	(3)		—		(1)		—
INCOME FROM OPERATIONS	1,609		54		2,408		229
Interest expense, net	21		13		42		25
Income before income taxes	1,588		41		2,366		204
Income tax expense	359		11		529		48
NET INCOME	$	1,229	$	30	$	1,837	$	156
Earnings per share
Basic	$	1.53	$	0.08	$	2.28	$	0.39
Diluted	$	1.52	$	0.08	$	2.27	$	0.39
Weighted-average common shares outstanding
Basic	803		400		806		399
Diluted	808		403		809		402

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

	Six Months Ended  June 30,
(In millions)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,837	$	156
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization	774		186
Deferred income tax expense	101		15
Loss on sale of assets	1		—
Loss on derivative instruments	457		101
Net cash (paid) received in settlement of derivative instruments	(464)		3
Amortization of premium and debt issuance costs	(19)		1
Stock-based compensation and other	38		14
Changes in assets and liabilities:
Accounts receivable, net	(489)		32
Income taxes	(200)		(16)
Inventories	(9)		(2)
Other current assets	(6)		(3)
Accounts payable and accrued liabilities	147		(12)
Interest payable	1		(3)
Other assets and liabilities	32		(3)
Net cash provided by operating activities	2,201		469
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(745)		(274)
Proceeds from sale of assets	4		—
Net cash used in investing activities	(741)		(274)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of debt	—		(88)
Repayments of finance leases	(3)		—
Treasury stock repurchases	(487)		—
Dividends paid	(940)		(84)
Cash received for stock option exercises	10		—
Cash paid for conversion of redeemable preferred stock	(10)		—
Tax withholdings on vesting of stock awards	(7)		(6)
Net cash used in financing activities	(1,437)		(178)
Net increase in cash, cash equivalents and restricted cash	23		17
Cash, cash equivalents and restricted cash, beginning of period	1,046		152
Cash, cash equivalents and restricted cash, end of period	$	1,069	$	169

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

(In millions, except per share amounts)	Common Shares	Common Stock Par		Treasury Shares	Treasury Stock		Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2021	893	$	89	79	$	(1,826)	$	10,911	$	1	$	2,563	$	11,738
Net income	—	—		—	—		—		—		608		608
Exercise of stock options	—	—		—	—		6		—		—		6
Stock amortization and vesting	—	—		—	—		10		—		—		10
Treasury stock repurchases	—	—		8	(192)		—		—		—		(192)
Cash dividends:
Common stock at $0.56 per share	—	—		—	—		—		—		(455)		(455)
Preferred stock at $20.3125 per share	—	—		—	—		—		—		(1)		(1)
Other comprehensive income	—	—		—	—		—		4		—		4
Balance at March 31, 2022	893	$	89	87	$	(2,018)	$	10,927	$	5	$	2,715	$	11,718
Net income	—	—		—	—		—		—		1,229		1,229
Exercise of stock options	—	—		—	—		3		—		—		3
Stock amortization and vesting	—	—		—	—		18		—		—		18
Conversion of Cimarex redeemable preferred stock	1	—		—	—		28		—		—		28
Purchase of treasury stock	—	—		12	(321)		—		—		—		(321)
Cash dividends:
Common stock at $0.60 per share	—	—		—	—		—		—		(484)		(484)
Other comprehensive loss	—	—		—	—		—		—		—		—
Balance at June 30, 2022	894	$	89	99	$	(2,339)	$	10,976	$	5	$	3,460	$	12,191

(In millions, except per share amounts)	Common Shares	Common Stock Par		Treasury Shares	Treasury Stock		Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2020	478	$	48	79	$	(1,823)	$	1,804	$	2	$	2,185	$	2,216
Net income	—	—		—	—		—		—		126		126
Stock amortization and vesting	—	—		—	—		4		—		—		4
Cash dividends at $0.10 per share	—	—		—	—		—		—		(40)		(40)
Balance at March 31, 2021	478	$	48	79	$	(1,823)	$	1,808	$	2	$	2,271	$	2,306
Net income	—	—		—	—		—		—		30		30
Stock amortization and vesting	—	—		—	—		8		—		—		8
Cash dividends at $0.11 per share	—	—		—	—		—		—		(44)		(44)
Balance at June 30, 2021	478	$	48	79	$	(1,823)	$	1,816	$	2	$	2,257	$	2,300

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

COTERRA ENERGY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Financial Statement Presentation

During interim periods, Coterra Energy Inc. (the “Company”) follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), except for any new accounting pronouncements adopted during the period. The interim condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements and information presented in the Form 10-K. In management’s opinion, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair statement. The results for any interim period are not necessarily indicative of the results that may be expected for the entire year.

Certain reclassifications have been made to prior year statements to conform with the current year presentation. These reclassifications have no impact on previously reported stockholders' equity, net income or cash flows.

2. Acquisitions

Cimarex Energy Co.

On October 1, 2021, the Company completed a merger transaction (the “Merger”) with Cimarex Energy Co. (“Cimarex”). Cimarex is an oil and gas exploration and production company with operations in Texas, New Mexico and Oklahoma.

Purchase Price Allocation

The transaction was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the assets, liabilities and mezzanine equity of Cimarex and its subsidiaries were recorded at their respective fair values as of the effective date of the Merger. The purchase price allocation was based on preliminary estimates and assumptions, which are subject to change for up to one year after October 1, 2021, the effective date of the Merger, as the Company finalizes the valuations of the assets acquired, liabilities assumed and the related tax balances as of the effective date of the Merger. Determining the fair value of the assets and liabilities of Cimarex requires judgment and certain assumptions to be made. The most significant fair value estimates related to the valuation of Cimarex's oil and gas properties and certain other fixed assets, long-term debt and derivative instruments. Oil and gas properties and certain fixed assets were valued using an income and market approach utilizing Level 3 inputs including internally generated production and development data and estimated price and cost estimates. Long-term debt was valued using a market approach utilizing Level 1 inputs including observable market prices on the underlying debt instruments. Derivative liabilities were based on Level 3 inputs consistent with the Company’s other commodity derivative instruments. There were no adjustments to the purchase price allocation during the six months ended June 30, 2022.

Unaudited Pro Forma Financial Information

The results of Cimarex’s operations have been included in the Company’s consolidated financial statements since October 1, 2021, the effective date of the Merger. The following supplemental pro forma information for the six months ended June 30, 2021 has been prepared to give effect to the Merger as if it had occurred on January 1, 2021. The information below reflects pro forma adjustments based on available information and certain assumptions that management believes are factual and supportable. The pro forma results of operations do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by Coterra to integrate the Cimarex assets.

The pro forma information is not necessarily indicative of the results that might have occurred had the transaction actually taken place on January 1, 2021 and is not intended to be a projection of future results. Future results may vary significantly

7

from the results reflected in the following pro forma information because of normal production declines, changes in commodity prices, future acquisitions and divestitures, future development and exploration activities and other factors.

(In millions, except per share amounts)	Six Months Ended  June 30, 2021
Pro forma revenue	$	1,802
Pro forma net income	71
Pro forma basic earnings per share	$	0.09
Pro forma diluted earnings per share	$	0.09

3. Properties and Equipment, Net

Properties and equipment, net are comprised of the following:

(In millions)	June 30, 2022		December 31, 2021
Proved oil and gas properties	$	16,102	$	15,340
Unproved oil and gas properties	5,292		5,316
Gathering and pipeline systems	423		395
Land, buildings and other equipment	144		140
Finance lease right-of-use asset	24		20
	21,985		21,211
Accumulated depreciation, depletion and amortization	(4,578)		(3,836)
	$	17,407	$	17,375

Capitalized Exploratory Well Costs

As of June 30, 2022, the Company did not have any projects with exploratory well costs capitalized for a period of greater than one year after drilling.

4. Debt and Credit Agreements

The Company’s debt and credit agreements consisted of the following:

(In millions)	June 30, 2022		December 31, 2021
6.51% weighted-average private placement senior notes (1)	$	37	$	37
5.58% weighted-average private placement senior notes (2)	87		87
3.65% weighted-average private placement senior notes	825		825
4.375% senior notes due June 1, 2024	750		750
3.90% senior notes due May 15, 2027	750		750
4.375% senior notes due March 15, 2029	500		500
Revolving credit facility	—		—
Net premium (discount)	164		185
Unamortized debt issuance costs	(8)		(9)
	$	3,105	$	3,125

________________________________________________________

(1) Includes $37 million of current portion of long-term debt at June 30, 2022.

(2) Includes $87 million of current portion of long-term debt at June 30, 2022.

At June 30, 2022, the Company was in compliance with all financial and other covenants for both its revolving credit facility and senior notes.

8

Subsequent event. In August 2022, the Company repurchased $37 million principal amount of its 6.51% weighted-average senior notes for approximately $38 million and $87 million principal amount of its 5.58% weighted-average senior notes for approximately $92 million.

Revolving Credit Agreement

At June 30, 2022, the Company had no borrowings outstanding under its revolving credit facility and unused commitments of $1.5 billion.

5. Derivative Instruments

As of June 30, 2022, the Company had the following outstanding financial commodity derivatives:

	2022				2023
Natural Gas	Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Waha swaps (1)
Volume (Mmbtu)	4,600,000		1,550,000		—		—		—		—
Weighted average price	$	4.77	$	4.77	$	—	$	—	$	—	$	—
Waha gas collars (1)
Volume (Mmbtu)	2,760,000		1,840,000		8,100,000		8,190,000		8,280,000		8,280,000
Weighted average floor	$	2.47	$	2.50	$	3.03	$	3.03	$	3.03	$	3.03
Weighted average ceiling	$	3.00	$	3.12	$	5.39	$	5.39	$	5.39	$	5.39
NYMEX collars
Volume (Mmbtu)	60,720,000		57,670,000		31,500,000		4,550,000		4,600,000		1,550,000
Weighted average floor	$	4.07	$	4.15	$	4.46	$	4.50	$	4.50	$	4.50
Weighted average ceiling	$	5.64	$	6.58	$	8.37	$	8.39	$	8.39	$	8.39
El Paso Permian gas collars (2)
Volume (Mmbtu)	1,840,000		1,840,000		—		—		—		—
Weighted average floor	$	2.50	$	2.50	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.15	$	3.15	$	—	$	—	$	—	$	—
PEPL gas collars (3)
Volume (Mmbtu)	1,840,000		1,840,000		—		—		—		—
Weighted average floor	$	2.60	$	2.60	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.27	$	3.27	$	—	$	—	$	—	$	—
Leidy basis swaps (4)
Volume (Mmbtu)	4,600,000		1,550,000		—		—		—		—
Weighted average price	$	(1.50)	$	(1.50)	$	—	$	—	$	—	$	—

________________________________________________________

(1)The index price is Waha West Texas Natural Gas Index (“Waha”) as quoted in Platt’s Inside FERC.

(2)The index price is El Paso Natural Gas Company, Permian Basin Index (“Perm EP”) as quoted in Platt’s Inside FERC.

(3)The index price is Panhandle Eastern Pipe Line, Tex/OK Mid-Continent Index (“PEPL”) as quoted in Platt’s Inside FERC.

(4)The index price is Transco, Leidy Line receipts (“Leidy”) as quoted in Platt’s Inside FERC.

9

	2022				2023
Oil	Third Quarter		Fourth Quarter		First Quarter		Second Quarter
WTI oil collars
Volume (Mbbl)	2,116		2,116		1,350		1,365
Weighted average floor	$	56.78	$	67.65	$	70.00	$	70.00
Weighted average ceiling	$	72.81	$	112.50	$	116.03	$	116.03
WTI Midland oil basis swaps (1)
Volume (Mbbl)	1,840		2,116		1,350		1,365
Weighted average differential	$	0.34	$	0.46	$	0.63	$	0.63
WTI oil roll differential swaps
Volume (Mbbl)	644		—		—		—
Weighted average price	$	0.10	$	—	$	—	$	—

________________________________________________________

(1)The index price is WTI Midland as quoted by Argus Americas Crude.

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet

		Fair Values of Derivative Instruments
		Derivative Assets				Derivative Liabilities
(In millions)	Balance Sheet Location	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Commodity contracts	Other current assets (current)	$	9	$	7	$	—	$	—
Commodity contracts	Derivative instruments (current)	—		—		170		159
Commodity contracts	Other assets (non-current)	16		—		—		—
		$	25	$	7	$	170	$	159

Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet

(In millions)	June 30, 2022		December 31, 2021
Derivative assets
Gross amounts of recognized assets	$	56	$	27
Gross amounts offset in the condensed consolidated balance sheet	(31)		(20)
Net amounts of assets presented in the condensed consolidated balance sheet	25		7
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	—		—
Net amount	$	25	$	7
Derivative liabilities
Gross amounts of recognized liabilities	$	201	$	179
Gross amounts offset in the condensed consolidated balance sheet	(31)		(20)
Net amounts of liabilities presented in the condensed consolidated balance sheet	170		159
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	48		35
Net amount	$	218	$	194

10

Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

	Three Months Ended  June 30,				Six Months Ended  June 30,
(In millions)	2022		2021		2022		2021
Cash (paid) received on settlement of derivative instruments
Gas contracts	$	(161)	$	—	$	(203)	$	3
Oil contracts	(132)		—		(261)		—
Non-cash gain (loss) on derivative instruments
Gas Contracts	133		(88)		(49)		(104)
Oil Contracts	94		—		56		—
	$	(66)	$	(88)	$	(457)	$	(101)

6. Fair Value Measurements

The Company follows the authoritative guidance for measuring fair value of assets and liabilities in its financial statements. For further information regarding the fair value hierarchy, refer to Note 1 of the Notes to the Consolidated Financial Statements in the Form 10-K.

Financial Assets and Liabilities

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:

(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at   June 30, 2022
Assets
Deferred compensation plan	$	41	$	—	$	—	$	41
Derivative instruments	—		—		56		56
	$	41	$	—	$