Coterra(US:CTRA)2024-11-01 20:06Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Coterra Energy Inc. as of September 30, 2024, including the balance sheet, statement of operations, cash flows, and stockholders' equity, along with detailed notes Condensed Consolidated Balance Sheet Total assets decreased slightly to $20,130 million from $20,420 million at year-end 2023, primarily due to a decrease in current assets, while total liabilities also decreased to $7,080 million from $7,370 million, mainly from debt repayment Condensed Consolidated Balance Sheet (Unaudited) | (In millions) | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $1,735 | $2,015 | | Properties and equipment, net | $17,941 | $17,933 | | Total Assets | $20,126 | $20,415 | | Total current liabilities | $1,080 | $1,660 | | Long-term debt | $2,066 | $1,586 | | Total Liabilities | $7,084 | $7,368 | | Total stockholders' equity | $13,034 | $13,039 | Condensed Consolidated Statement of Operations For the third quarter of 2024, net income was $252 million, a decrease from $323 million in Q3 2023, and for the nine months ended September 30, 2024, net income was $824 million, down from $1,210 million in the same period of 2023, primarily due to lower natural gas revenue and higher operating expenses Statement of Operations Highlights (Unaudited) | (In millions, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $1,359 | $1,356 | $4,063 | $4,318 | | Income from Operations | $327 | $424 | $1,063 | $1,577 | | Net Income | $252 | $323 | $824 | $1,209 | | Diluted EPS | $0.34 | $0.42 | $1.10 | $1.58 | Condensed Consolidated Statement of Cash Flows For the nine months ended September 30, 2024, net cash from operating activities decreased to $2,170 million from $2,900 million in the prior year period, mainly due to lower net income, while cash used in investing activities decreased to $1,330 million, and cash used in financing activities decreased to $959 million Statement of Cash Flows Highlights (Unaudited, Nine Months Ended Sep 30) | (In millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,169 | $2,898 | | Net cash used in investing activities | $(1,327) | $(1,589) | | Net cash used in financing activities | $(959) | $(1,136) | | Net (decrease) increase in cash | $(117) | $173 | Notes to the Condensed Consolidated Financial Statements The notes provide detailed disclosures on key financial items, including the issuance of $500 million in 5.60% senior notes, the amendment of the revolving credit agreement to $2,000 million, the repurchase of 15 million shares for $404 million, and the maintenance of a $0.21 per share quarterly dividend - In March 2024, the Company issued $500 million of 5.60% senior notes due 203427 - In September 2024, the Company amended its revolving credit agreement, increasing aggregate commitments from $1,500 million to $2,000 million and extending the maturity to September 202923 - During the first nine months of 2024, the Company repurchased and retired 15 million shares for $404 million. As of September 30, 2024, $1,200 million remained under the current share repurchase program58 - The company increased its base quarterly dividend to $0.21 per share in February 2024. Total dividends paid in the first nine months of 2024 were $474 million57 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a decrease in net income and operating cash flow for the first nine months of 2024 compared to 2023, primarily due to lower natural gas prices, and outlines the $1,750-$1,850 million 2024 capital program funded by operating cash flow Financial and Operating Overview For the nine months ended September 30, 2024, net income fell to $824 million from $1,200 million year-over-year, and operating cash flow decreased to $2,200 million from $2,900 million, while equivalent production increased to 184.9 MMBoe from 179.3 MMBoe, despite a 35% drop in average realized natural gas price Nine-Month Financial & Operating Comparison (2024 vs 2023) | Metric | Nine Months 2024 | Nine Months 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $824 million | $1,209 million | -32% | | Diluted EPS | $1.11 | $1.59 | -30% | | Net Cash from Operations | $2.2 billion | $2.9 billion | -24% | | Equivalent Production (MMBoe) | 184.9 | 179.3 | +3% | | Avg. Realized Oil Price ($/Bbl) | $76.17 | $75.64 | +1% | | Avg. Realized Gas Price ($/Mcf) | $1.65 | $2.53 | -35% | Market Conditions and Outlook Natural gas prices have trended lower in 2024 compared to 2023 due to strong production and weak demand, leading Coterra to strategically curtail approximately 275 MMcf per day of gross production in the Marcellus Shale, with the 2024 full-year capital program projected at $1,750 million to $1,850 million - Strategically curtailed an estimated 275 MMcf per day of gross production in the Marcellus Shale during 2024 in response to weak natural gas prices87 - The 2024 full-year capital program is projected to be approximately $1,750 million to $1,850 million, with about 64% allocated to the Permian Basin91 Liquidity and Capital Resources The company maintains strong liquidity with $843 million in cash and $2,000 million in unused commitments under its revolving credit facility as of September 30, 2024, with the debt-to-total capitalization ratio remaining stable at 14% - As of September 30, 2024, the company had $843 million in cash and $2,000 million of unused commitments under its revolving credit agreement96 Capitalization Summary | (In millions) | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total debt | $2,066 | $2,161 | | Stockholders' equity | $13,034 | $13,039 | | Total capitalization | $15,100 | $15,200 | | Debt to total capitalization | 14% | 14% | Results of Operations Q3 2024 revenues were flat year-over-year at $1,360 million, as a 12% increase in oil revenue was offset by a 33% decrease in natural gas revenue, while for the first nine months, total revenues fell 6% to $4,060 million due to a 31% drop in average realized natural gas prices Q3 Production and Sales Price Comparison (2024 vs 2023) | Metric | Q3 2024 | Q3 2023 | % Change | | :--- | :--- | :--- | :--- | | Oil Production (MMBbl) | 10.3 | 8.5 | +21% | | Natural Gas Production (Bcf) | 246.7 | 267.1 | -8% | | Avg. Oil Price ($/Bbl) | $74.04 | $80.80 | -8% | | Avg. Gas Price ($/Mcf) | $1.30 | $1.80 | -28% | Nine-Month Operating Expenses per BOE (2024 vs 2023) | Expense Category | 2024 ($/BOE) | 2023 ($/BOE) | | :--- | :--- | :--- | | Direct operations | $2.60 | $2.24 | | Gathering, processing & transport | $3.98 | $4.07 | | DD&A | $7.32 | $6.61 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is commodity price volatility for its oil, natural gas, and NGL production, which it mitigates using financial derivatives like collars and swaps, with outstanding hedges for production through Q1 2026 - The company's most significant market risk is the pricing of its oil, natural gas, and NGL production. It utilizes derivative instruments like collars and swaps to manage this risk162163 Outstanding Natural Gas Hedges (as of Sep 30, 2024) | Period | Type | Volume (MMBtu) | Avg. Floor ($/MMBtu) | Avg. Ceiling ($/MMBtu) | | :--- | :--- | :--- | :--- | :--- | | Q4 2024 | Collars | 34,990,000 | $2.75 | $4.46 | | 2025 | Collars | 146,000,000 | $2.88 | $4.76 (avg) | | Q1 2026 | Collars | 27,000,000 | $2.75 | $7.66 | Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting during the third quarter of 2024 - The CEO and CFO concluded that the Company's disclosure controls and procedures are effective as of September 30, 2024175 - No material changes in internal control over financial reporting occurred during the third quarter of 2024176 Part II. Other Information Item 1. Legal Proceedings The company reports that a securities class action lawsuit was settled in principle, with a final order entered on October 29, 2024, and also received two Notices of Violation from the EPA in 2023 regarding alleged Clean Air Act violations, which are pending resolution - A securities class action lawsuit was settled, with the court entering a final order of dismissal with prejudice on October 29, 2024. Most of the settlement will be paid by insurance carriers49 - The company received Notices of Violation from the EPA in June and August 2023 alleging Clean Air Act violations in Texas and New Mexico. The company is engaged in discussions with the EPA to resolve the allegations180 Item 1A. Risk Factors This section refers to the risk factors detailed in the company's Annual Report on Form 10-K, indicating no material changes to those previously disclosed risks - There have been no material changes to the risk factors previously disclosed in the company's Form 10-K181 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2024, Coterra repurchased 4.275 million shares of its common stock at an average price of approximately $25.26 per share, for a total cost of about $108 million, under the $2,000 million share repurchase program authorized in February 2023 Issuer Purchases of Equity Securities (Q3 2024) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | July 2024 | 2,073 | $26.53 | | August 2024 | 1,597 | $24.11 | | September 2024 | 605 | $23.15 | | Total | 4,275 | - | Item 5. Other Information No director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the third quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended September 30, 2024184 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, and officer certifications as required by the Sarbanes-Oxley Act (Sections 302 and 906)