(Coterra, 2.May.2022) Coterra Energy Inc. (NYSE: CTRA) reported first-quarter 2022 financial and operating results. On October 1, 2021, Coterra announced that the merger involving the company, which was formerly named Cabot Oil & Gas Corporation, and Cimarex Energy Co., was completed. Referenced results for the three months ended 31 March 2021 reflect only legacy Cabot. Referenced results for the three months ended 31 March 2022 reflect the combined company.
Thomas E. Jorden, Chief Executive Officer and President, commented, “The combination of solid execution in our program and robust commodity prices resulted in an outstanding quarter for the company. We are pleased to deliver another meaningful dividend to our owners in addition to executing on the first phase of our share repurchase program. With strong cash flow generation, superb asset performance, and balanced commodity exposure, Coterra is fulfilling the promise that led to our formation.”
First-Quarter 2022 Highlights
- Net income for first-quarter 2022 totaled $608mn, or $0.75 per share; adjusted net income (non-GAAP) for first-quarter 2022, excluding non-recurring items, was $818mn, or $1.01 per share.
- Generated cash flow from operating activities of $1,322mn.
- Discretionary cash flow totaled $1,232mn (non-GAAP).
- Generated free cash flow of $961mn (non-GAAP).
- Total equivalent production of 630 MBoepd, at the high-end of guidance.
- Natural gas production averaged 2,850 MMcfpd, at the high-end of guidance.
- Oil production averaged 83.1 MBopd, exceeding the high-end of guidance.
Shareholder Return Highlights
- Total quarterly shareholder return equal to $0.83 per share, including $0.60 per share quarterly dividend (payable in May) and $0.23 per share of buybacks (executed in first quarter). The total return equals 50 percent of first-quarter 2022 cash flow from operating activities and 69 percent of free cash flow (non-GAAP).
- On 2 May 2022, Coterra’s Board of Directors approved a total quarterly dividend equal to $0.60 per share ($0.15 base, $0.45 variable), and will be paid on 25 May 2022 to holders of record on May 13, 2022.
- Total quarterly dividend represents a return of 36 percent of first-quarter 2022 cash flow from operating activities, or 50 percent of free cash flow (non-GAAP).
- Executed on $1.25bn share repurchase program, repurchased 7.6 million shares at a total cost of $184mn, all of which settled during first-quarter 2022. The average repurchase price during the quarter was $24.16 per share.
- Share repurchases represent an additional 14 percent return of first-quarter 2022 cash flow from operating activities, or 19 percent of free cash flow (non-GAAP) to shareholders.
- Maintaining full-year 2022 capital investment guidance of $1,400 to $1,500mn, which is less than 30 percent of projected cash flow from operating activities at recent strip prices.
- Maintaining full-year 2022 production and cost guidance.
Thomas E. Jorden, commented, “Coterra is positioned to deliver on its 2022 plan. We remain focused on capital discipline, execution, and maximizing return on capital. Adhering to that disciplined approach, we are reiterating our full-year 2022 capital and production guidance. At the recent commodity strip, the company’s full-year 2022 free cash flow is estimated to approach $4.5bn.”
Jorden added, “We also remain focused on shareholder returns. Based on results during the quarter, we returned 69 percent of our first-quarter free cash flow, which includes 50 percent in the form of cash dividends and 19 percent in the form of share buybacks. We remain committed to returning 50 percent plus of free cash flow via base plus variable dividends, supplemented by share buybacks and potential future debt reduction.”
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.
First-Quarter 2022 Summary
First-quarter 2022 total equivalent production averaged 630 thousand barrels of oil equivalent per day (MBoepd), at the high-end of guidance. Oil production averaged 83.1 thousand barrels per day (MBopd), exceeding the high-end of guidance, and natural gas production averaged 2,850 million cubic feet per day (MMcfpd), at the high-end of guidance.
Coterra’s average realized prices for oil, natural gas and natural gas liquids (NGLs) for first-quarter 2022, excluding the effect of commodity derivatives, were $93.45 per barrel (Bbl), $4.33 per thousand cubic feet (Mcf), and $37.87 per Bbl, respectively. Including the effect of commodity derivatives, average realized prices for oil and natural gas for first-quarter 2022 were $76.15 per Bbl and $4.17 per Mcf, respectively.
Generated Strong Cash Flow
For first-quarter 2022, Coterra reported cash flow from operating activities of $1,322mn. First-quarter 2022 discretionary cash flow (non-GAAP) was $1,232mn and free cash flow (non-GAAP) totaled $961mn, both of which are inclusive of merger-related costs.
Coterra incurred a total of $326mn of capital expenditures in first-quarter 2022, including $314mn of drilling and completion capital.
Strong Financial Position
Coterra maintains a strong financial position with investment-grade credit ratings and substantial liquidity. As of 31 March 2022, Coterra had total long-term debt of $3.1bn with a principal amount of $2.9bn, and no substantial maturities until 2024. The company exited the quarter with a cash balance of $1.4bn and no debt outstanding under its revolving credit facility. Coterra’s net debt to EBITDAX ratio (non-GAAP) at 31 March 2022 was 0.50x. The company’s net debt to combined EBITDAX ratio (non-GAAP) was 0.41x at 31 March 2022.
Coterra is currently running six rigs and two completion crews in the Permian Basin. The Company is currently running three rigs in the Marcellus and plans to run one to two completion crews in second-quarter 2022. Coterra is currently running two rigs and one completion crew in the Anadarko Basin, and expects to release one drilling rig and its completion crew in June 2022. Coterra is maintaining its previously announced 2022 capital expenditure guidance of $1,400 to $1,500mn, supported by the company’s procurement of key materials and services in 2022.
Production volumes in second-quarter 2022 are expected to average between 605 and 625 MBoepd, with oil volumes estimated to average between 82.0 and 84.0 MBopd. Natural gas volumes in the second quarter are projected to average between 2,725 and 2,775 MMcfpd.
Delivering Returns to Shareholders
Based on first-quarter 2022 free cash flow (non-GAAP), Coterra’s Board today declared a quarterly base plus variable dividend of $0.60 per share. The base plus variable dividend reflects a $0.15 per share base component and a variable component of $0.45 per share, on the company’s common stock. The combined base plus variable dividend represents 36 percent of cash flow from operating activities in first-quarter 2022, or 50 percent of free cash flow (non-GAAP). The combined base and variable dividend is payable on 25 May 2022, to shareholders of record as of the close of business on 13 May 2022.
Following the company’s announcement of its $1.25bn share repurchase program in late February, Coterra repurchased 7.6 million shares through 31 March 2022 at a total cost of $184mn, an additional 14 percent return of first-quarter 2022 cash flow from operating activities, or 19 percent of free cash flow (non-GAAP). The average repurchase price in first-quarter 2022 was $24.16 per share. Coterra entered second-quarter 2022 with an outstanding share repurchase authorization of $1,066mn, or approximately five percent of the company’s current market capitalization. The Company entered the second quarter with a Rule 10b5-1 plan in place, and will provide details of share repurchase activity in the quarter with its second-quarter 2022 financial and operating results.
The timing and volume of share repurchases under this authorization will be determined by management, at its discretion. Management expects its share repurchase program to be driven by relative and intrinsic value opportunities. The share repurchase program is supplemental to the Company’s base plus variable dividend strategy.
Committed to Sustainability and ESG Leadership
Coterra believes that environmental, social and governance (ESG) performance and strong corporate governance practices are foundational to its success. In adopting its first executive compensation program post-Merger, Coterra focused on aligning the program with governance best practices, including the addition of ESG goals in its short-term incentive plan metrics. Coterra included three ESG metrics in its 2022 short-term incentive targets, which make up 15 percent of its total short-term incentive potential. The 2022 targets include:
- Methane emissions intensity between 0.033 and 0.038 percent in 2022, versus 0.038 percent in 2021,
- Greenhouse gas emissions intensity between 5.20 and 5.94 metric tons CO2e per MBoe in 2022, versus 5.48 metric tons CO2e per MBoe in 2021, and
- Total company flare intensity between 0.118 and 0.131 percent in 2022, compared to 0.141 percent in 2021.
The 2021 results noted above are preliminary figures. Additional information regarding Coterra’s 2022 targets and current environmental initiatives is available in the company’s most recent presentation, which can be accessed on the “Events & Presentations” page under the “Investors” section of the Company’s website at www.coterra.com.
First-Quarter 2022 Conference Call
Coterra will host a conference call tomorrow, Tuesday, 3 May 2022, at 9:00 AM CT (10:00 AM ET), to discuss first-quarter 2022 financial and operating results.
Conference Call Information
Date: Tuesday, May 3, 2022
Time: 10:00 AM ET / 9:00 AM CT
Dial-in (for callers in the U.S. and Canada): (888) 550-5424
Int’l dial-in: (646) 960-0819
Conference ID: 3813676
The live audio webcast and related earnings presentation can be accessed on the “Events & Presentations” page under the “Investors” section of the company’s website at www.coterra.com. The webcast will be archived and available at the same location after the conclusion of the live event.