Coterra Energy Reports Q3 2023 Results

Coterra Energy Inc. (NYSE: CTRA) (“Coterra” or the “Company”) today reported third-quarter 2023 financial and operating results. Additionally, the Company declared a quarterly dividend of $0.20 per share, provided fourth-quarter production and capital guidance, and updated full-year 2023 guidance.

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Key Takeaways & Updates

3Q23 production beat and full-year 2023 production guidance raise driven by faster cycle times and strong well productivity
2023 accrued capital expenditure (non-GAAP) guidance remains unchanged; continue to trend 1-2% above the mid-point
On track to well exceed shareholder return threshold of 50% of Free Cash Flow (non-GAAP) for the year
Published 2023 Sustainability Report, available on the ESG section of our website
Joined the United Nations Environment Programme’s Oil & Gas Methane Partnership 2.0 (OGMP 2.0), a framework dedicated to achieving reliable methane emission measurement, reporting, and mitigation

Third-Quarter 2023 Highlights

Net Income (GAAP) totaled $323 million, or $0.43 per share. Adjusted Net Income (non-GAAP) was $373 million, or $0.50 per share.
Cash Flow From Operating Activities (GAAP) totaled $758 million. Discretionary Cash Flow (non-GAAP) totaled $796 million.
Capital expenditures for drilling, completion and other fixed asset additions (GAAP) totaled $546 million. Accrued capital expenditures from drilling, completion and other fixed asset additions (non-GAAP) totaled $542 million, near the low end of our guidance range of $540 – $610 million, due primarily to delayed infrastructure spend and non-operated activity that we expect to move into 4Q23.
Free Cash Flow (non-GAAP) totaled $250 million.

Unit operating cost (reflecting costs from direct operations and G&A) totaled $7.99 per BOE (barrel of oil equivalent), within our annual guidance range of $7.30-$9.40 per BOE.

Total equivalent production of 670 MBoepd (thousand barrels of oil equivalent per day), exceeded the high end of guidance (655 MBoepd), driven by improved cycle times and strong well performance in all three of our regions.
- Oil production averaged 91.9 MBopd (thousand barrels of oil per day), exceeding the high end of guidance (91.0 MBopd).
- Natural gas production averaged 2,903 MMcfpd (million cubic feet per day), exceeding the high end of guidance (2,875 MMcfpd).
- Natural Gas Liquids (NGLs) production averaged 94.5 MBoepd.
Realized average prices:
- Oil: $80.80 per Bbl (barrel), excluding the effect of commodity derivatives, and $80.74 per Bbl, including the effect of commodity derivatives
- Natural Gas: $1.80 per Mcf (thousand cubic feet), excluding the effect of commodity derivatives, and $2.01 per Mcf, including the effect of commodity derivatives
- Natural Gas Liquids (NGLs): $19.52 per BOE

Shareholder Return Highlights

Common Dividend: On November 6, 2023, Coterra’s Board of Directors (the “Board”) approved a quarterly base dividend of $0.20 per share, which will be paid on November 30, 2023 to holders of record on November 16, 2023.
Share Repurchases: During the quarter, the Company repurchased 2.2 million shares for $60 million at an average price of $27.05 per share, leaving $1.6 billion remaining on the $2.0 billion share repurchase authorization as of September 30, 2023. Since implementing the share repurchase authorization in early 2022, the Company has repurchased 64 million shares for $1.6 billion, at an average price of $25.72 per share.
Total Shareholder Return: During the quarter, total shareholder return amounted to $211 million, comprised of $151 million of declared dividends and $60 million of share repurchases, representing 84% of Free Cash Flow (non-GAAP). Year-to-date, total shareholder return amounted to $839 million, composed of $454 million of declared dividends and $385 million of share repurchases, representing 91% of Free Cash Flow (non-GAAP).
Reiterate Shareholder Return Strategy: Coterra is committed to returning 50%+ of annual Free Cash Flow (non-GAAP) to shareholders through its $0.80/share annual dividend and share repurchases. Based on the share repurchases executed through the third quarter and expected declared dividends for the year, Coterra is on track to return at least 80% of forecasted 2023 Free Cash Flow (non-GAAP).

Guidance Update and Activity Outlook:

Increasing full-year 2023 production guidance to the following:
- Total production of 655-665 MBoepd; mid-point +3% from prior guidance
- Oil production of 94.5-95.5 MBopd; mid-point +3% from prior guidance
- Natural gas production of 2,840-2,870 MMcfpd; mid-point +1% from prior guidance
Estimated 2023 accrued capital expenditures (non-GAAP) remains unchanged at $2.0 – $2.2 billion; still trending 1-2% above mid-point
Estimate 2023 Discretionary Cash Flow (non-GAAP) of approximately $3.5 billion, at recent strip prices
Estimate 2023 Free Cash Flow (non-GAAP) of approximately $1.3 billion, at recent strip prices

Fourth-quarter 2023 production and capital guidance:

Total production of 645-680 MBoepd; mid-point -1% sequentially and +5% year-over-year
Oil production of 98-102 MBopd; mid-point +9% sequentially and +10% year-over-year
Natural gas production of 2,780-2,900 MMcfpd; mid-point -2% sequentially and +2% year-over-year
Expected accrued capital expenditures (non-GAAP) of $460 – $530 million

Coterra is currently running seven rigs and two completion crews in the Permian Basin, one rig in the Anadarko Basin, and two rigs and one completion crew in the Marcellus. We recently added a seventh rig in the Permian Basin, a few months ahead of schedule. This was driven by a recent decision to simul-frac and de-risk the timing of our largest 2024 project, the Windham Row in Culberson County. Simul-fracing has the potential to decrease dollar per foot on this project by up to 5%, bringing the project’s total estimated cost savings to 5-15% versus our current Culberson County average.

Strong Financial Position
The Company exited the quarter with a cash balance of $847 million and no debt outstanding under its $1.5 billion five-year revolving credit facility, for total liquidity of approximately $2.3 billion. Additionally, Coterra maintains a strong financial position with an investment-grade credit rating. As of September 30, 2023, Coterra had total debt outstanding of $2.2 billion, comprised of $1.6 billion long-term debt and $575 million short-term debt due September 2024. Coterra’s total debt to trailing twelve-month net income ratio at September 30, 2023 was 1.0x, while net debt to trailing twelve months Adjusted EBITDAX ratio (non-GAAP) at September 30, 2023 was 0.3x.

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.