cog-20220930

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 September 30, 2022

☐ 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 November 2, 2022, there were 788,467,351 shares of Common Stock, Par Value $0.10 Per Share, outstanding.

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COTERRA ENERGY INC.

INDEX TO FINANCIAL STATEMENTS


		Page
Part I. Financial Information

Item 1.	Financial Statements

Condensed Consolidated Balance Sheet (Unaudited) at September 30, 2022 and December 31, 2021		3

Condensed Consolidated Statement of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2022 and 2021		4



Condensed Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and 2021		5

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the Three and Nine Months Ended September 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	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	39

Part II. Other Information

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41



Item 6.	Exhibits	42

Signatures		44

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)


(In millions, except share and per share amounts)	September 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	778	$	1,036
Restricted cash	10		10
Accounts receivable, net	1,419		1,037
Income taxes receivable	70		—
Inventories	57		39
Derivative instruments	8		7

Other current assets	8		7
Total current assets	2,350		2,136
Properties and equipment, net (Successful efforts method)	17,429		17,375




Other assets	526		389
	$	20,305	$	19,900

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,010	$	747
Current portion of long-term debt	44		—
Accrued liabilities	294		260
Income taxes payable	—		29
Interest payable	15		25

Derivative instruments	52		159

Total current liabilities	1,415		1,220
Long-term debt, net	2,188		3,125

Deferred income taxes	3,229		3,101
Asset retirement obligations	270		259



Other liabilities	533		407
Total liabilities	7,635		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 — 895,539,411 shares and 892,612,010 shares in 2022 and 2021, respectively	90		89
Additional paid-in capital	10,992		10,911
Retained earnings	4,137		2,563
Accumulated other comprehensive income	6		1
Less treasury stock, at cost:
107,074,560 shares and 79,082,385 shares in 2022 and 2021, respectively	(2,566)		(1,826)
Total stockholders' equity	12,659		11,738
	$	20,305	$	19,900

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

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COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	2022		2021		2022		2021
OPERATING REVENUES
Natural gas	$	1,644	$	641	$	4,223	$	1,526
Oil	755		—		2,330		—
NGL	259		—		784		—
Loss on derivative instruments	(156)		(201)		(613)		(302)
Other	18		—		47		—
	2,520		440		6,771		1,224
OPERATING EXPENSES
Direct operations	118		21		334		54
Transportation, processing and gathering	255		149		726		419
Taxes other than income	102		8		276		17
Exploration	10		4		23		9
Depreciation, depletion and amortization	422		97		1,196		283

General and administrative	107		64		301		116
	1,014		343		2,856		898

Loss on sale of assets	—		—		(1)		—
INCOME FROM OPERATIONS	1,506		97		3,914		326
Interest expense, net	17		13		59		38
Gain on debt extinguishment	(26)		—		(26)		—

Income before income taxes	1,515		84		3,881		288
Income tax expense	319		20		848		68
NET INCOME	$	1,196	$	64	$	3,033	$	220





Earnings per share
Basic	$	1.51	$	0.16	$	3.78	$	0.55
Diluted	$	1.50	$	0.16	$	3.77	$	0.55

Weighted-average common shares outstanding
Basic	792		400		801		399
Diluted	797		403		805		402

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

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COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


	Nine Months Ended September 30,
(In millions)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,033	$	220
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization	1,196		283

Deferred income tax expense	128		17
Loss on sale of assets	1		—

Loss on derivative instruments	613		302
Net cash paid in settlement of derivative instruments	(723)		(61)


Amortization of premium and debt issuance costs	(35)		2
Gain on debt extinguishment	(26)		—
Stock-based compensation and other	62		24
Changes in assets and liabilities:
Accounts receivable, net	(382)		(70)
Income taxes	(99)		(49)
Inventories	(26)		2
Other current assets	(4)		(2)
Accounts payable and accrued liabilities	194		64
Interest payable	(10)		(13)
Other assets and liabilities	50		(3)

Net cash provided by operating activities	3,972		716

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,205)		(459)

Proceeds from sale of assets	22		—



Net cash used in investing activities	(1,183)		(459)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from debt	—		100
Repayments of debt	(830)		(288)
Repayments of finance leases	(4)		—
Treasury stock repurchases	(740)		—

Dividends paid	(1,459)		(128)

Cash received for stock option exercises	11		—
Cash paid for conversion of redeemable preferred stock	(10)		—
Tax withholdings on vesting of stock awards	(15)		(6)


Net cash used in financing activities	(3,047)		(322)

Net decrease in cash, cash equivalents and restricted cash	(258)		(65)
Cash, cash equivalents and restricted cash, beginning of period	1,046		152
Cash, cash equivalents and restricted cash, end of period	$	788	$	87

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

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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)


Balance at June 30, 2022	894	$	89	99	$	(2,339)	$	10,976	$	5	$	3,460	$	12,191
Net income	—	—		—	—		—		—		1,196		1,196

Exercise of stock options	—	—		—	—		2		—		—		2
Stock amortization and vesting	1	1		—	—		14		—		—		15



Purchase of treasury stock	—	—		8	(227)		—		—		—		(227)
Cash dividends:
Common stock at $0.65 per share	—	—		—	—		—		—		(519)		(519)

Other comprehensive income	—	—		—	—		—		1		—		1
Balance at September 30, 2022	895	$	90	107	$	(2,566)	$	10,992	$	6	$	4,137	$	12,659


(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
Net income	—	—		—	—		—		—		64		64
Stock amortization and vesting	—	—		—	—		7		—		—		7
Cash dividends at $0.11 per share	—	—		—	—		—		—		(44)		(44)

Balance at September 30, 2021	478	$	48	79	$	(1,823)	$	1,823	$	2	$	2,277	$	2,327

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

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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 are unaudited and 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 nine months ended September 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 nine months ended September 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

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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)	Nine Months Ended September 30, 2021
Pro forma revenue	$	3,011
Pro forma net income	219




Pro forma basic earnings per share	$	0.27
Pro forma diluted earnings per share	$	0.27

3. Properties and Equipment, Net

Properties and equipment, net are comprised of the following:


(In millions)	September 30, 2022		December 31, 2021
Proved oil and gas properties	$	16,505	$	15,340
Unproved oil and gas properties	5,288		5,316
Gathering and pipeline systems	436		395
Land, buildings and other equipment	175		140
Finance lease right-of-use asset	24		20
	22,428		21,211
Accumulated depreciation, depletion and amortization	(4,999)		(3,836)
	$	17,429	$	17,375

Capitalized Exploratory Well Costs

As of September 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)	September 30, 2022		December 31, 2021
6.51% weighted-average private placement senior notes	$	—	$	37
5.58% weighted-average private placement senior notes	—		87
3.65% weighted-average private placement senior notes	825		825
4.375% senior notes due June 1, 2024 (1)	44		750
3.90% senior notes due May 15, 2027	750		750
4.375% senior notes due March 15, 2029	500		500

Net premium (discount)	119		185
Unamortized debt issuance costs	(6)		(9)
	$	2,232	$	3,125

________________________________________________________

(1) Includes $44 million of current portion of long-term debt at September 30, 2022 that was called for redemption in October 2022.

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

In September 2022, the Company redeemed $706 million principal amount of its 4.375% senior notes for approximately $706 million, exclusive of interest. 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

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senior notes for approximately $92 million. In connection with these transactions, the Company recognized a net gain on debt extinguishment of $26 million during the nine months ended September 30, 2022, primarily due to the write off of related debt premiums and debt issuance costs.

Subsequent Event. In October 2022, the Company redeemed the remaining $44 million of its Cimarex 4.375% senior notes for approximately $44 million, exclusive of interest.

Revolving Credit Agreement

At September 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 September 30, 2022, the Company had the following outstanding financial commodity derivatives:



	2022		2023
Natural Gas	Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Waha swaps (1)
Volume (MMBtu)	1,550,000		—		—		—		—
Weighted average price	$	4.77	$	—	$	—	$	—	$	—

Waha gas collars (1)
Volume (MMBtu)	1,840,000		8,100,000		8,190,000		8,280,000		8,280,000
Weighted average floor	$	2.50	$	3.03	$	3.03	$	3.03	$	3.03
Weighted average ceiling	$	3.12	$	5.39	$	5.39	$	5.39	$	5.39

NYMEX collars
Volume (MMBtu)	63,770,000		40,500,000		4,550,000		4,600,000		1,550,000
Weighted average floor	$	4.47	$	5.14	$	4.50	$	4.50	$	4.50
Weighted average ceiling	$	7.20	$	9.41	$	8.39	$	8.39	$	8.39

El Paso Permian gas collars (2)
Volume (MMBtu)	1,840,000		—		—		—		—
Weighted average floor	$	2.50	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.15	$	—	$	—	$	—	$	—

PEPL gas collars (3)
Volume (MMBtu)	1,840,000		—		—		—		—
Weighted average floor	$	2.60	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.27	$	—	$	—	$	—	$	—






Leidy basis swaps (4)
Volume (MMBtu)	1,550,000		—		—		—		—
Weighted average price	$	(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.

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	2022		2023
Oil	Fourth Quarter		First Quarter		Second Quarter
WTI oil collars
Volume (Mbbl)	2,116		1,350		1,365
Weighted average floor	$	67.65	$	70.00	$	70.00
Weighted average ceiling	$	112.50	$	116.03	$	116.03

WTI Midland oil basis swaps (1)
Volume (Mbbl)	2,116		1,350		1,365
Weighted average differential	$	0.46	$	0.63	$	0.63

________________________________________________________

(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	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021

Commodity contracts	Derivative instruments (current)	$	8	$	7	$	52	$	159

Commodity contracts	Other assets (non-current)	2		—		—		—
		$	10	$	7	$	52	$	159

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


(In millions)	September 30, 2022		December 31, 2021
Derivative assets
Gross amounts of recognized assets	$	70	$	27
Gross amounts offset in the condensed consolidated balance sheet	(60)		(20)
Net amounts of assets presented in the condensed consolidated balance sheet	10		7
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	—		—
Net amount	$	10	$	7

Derivative liabilities
Gross amounts of recognized liabilities	$	112	$	179
Gross amounts offset in the condensed consolidated balance sheet	(60)		(20)
Net amounts of liabilities presented in the condensed consolidated balance sheet	52		159
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	13		35
Net amount	$	65	$	194

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Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
Cash paid on settlement of derivative instruments
Gas contracts	$	(202)	$	(64)	$	(405)	$	(61)
Oil contracts	(57)		—		(318)		—
Non-cash gain (loss) on derivative instruments
Gas Contracts	2		(137)		(47)		(241)
Oil Contracts	101		—		157		—
	$