Coterra(US:CTRA)2025-08-05 20:36Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheet, statement of operations, cash flows, and stockholders' equity, with detailed notes Condensed Consolidated Balance Sheet Total assets increased to $24.0 billion, driven by acquisitions, while cash decreased significantly due to funding these purchases Condensed Consolidated Balance Sheet (In millions) | (In millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $1,522 | $3,321 | | Properties and equipment, net | $22,097 | $17,890 | | Total assets | $23,982 | $21,625 | | Total current liabilities | $1,352 | $1,136 | | Long-term debt | $4,175 | $3,535 | | Total liabilities | $9,418 | $8,495 | | Total stockholders' equity | $14,556 | $13,122 | Condensed Consolidated Statement of Operations Net income significantly increased to $1,027 million for the six-month period, driven by a 43% rise in operating revenues to $3.87 billion Condensed Consolidated Statement of Operations (In millions, except per share) | (In millions, except per share) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Operating Revenues | $3,869 | $2,704 | | Income from Operations | $1,410 | $736 | | Net Income | $1,027 | $572 | | Diluted EPS | $1.35 | $0.76 | Condensed Consolidated Statement of Cash Flows Operating cash flow increased to $2.08 billion, but significant investing activities, primarily acquisitions, led to a $2.06 billion net decrease in cash Condensed Consolidated Statement of Cash Flows (In millions) | (In millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,080 | $1,414 | | Net cash used in investing activities | ($4,370) | ($1,188) | | Net cash provided by (used in) financing activities | $229 | ($112) | | Net (decrease) increase in cash | ($2,061) | $114 | Notes to the Condensed Consolidated Financial Statements Detailed notes explain significant financial events, including major acquisitions, changes in long-term debt, derivative gains, revenue recognition, and capital stock adjustments Note 2. Acquisitions Coterra completed two major acquisitions, FME for $2.5 billion and Avant assets for $1.5 billion, primarily allocated to oil and gas properties - Closed the acquisition of Franklin Mountain Energy (FME) for total consideration of $2.5 billion, including $1.7 billion in cash and 28.2 million shares of common stock valued at $785 million20 - Closed the acquisition of certain oil and gas properties (the "Avant assets") for total cash consideration of $1.5 billion24 FME and Avant Acquisition Allocation (In millions) | (In millions) | FME Allocation | Avant Allocation | | :--- | :--- | :--- | | Total Consideration | $2,518 | $1,518 | | Proved oil and gas properties | $1,833 | $640 | | Unproved oil and gas properties | $590 | $696 | | Gathering and pipeline systems | $172 | $161 | | Net Assets Acquired | $2,518 | $1,518 | Note 4. Long-Term Debt and Credit Agreements Long-term debt increased to $4.18 billion due to a $1.0 billion term loan for acquisitions, with $350 million repaid and no revolving credit outstanding Long-Term Debt (In millions) | (In millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior notes | $3,750 | $3,500 | | Term loan | $650 | $0 | | Total Principal | $4,150 | $3,500 | | Total Long-term debt | $4,175 | $3,535 | - In January 2025, the Company borrowed $1.0 billion under its Term Loan to partially fund the FME and Avant acquisitions and subsequently repaid $350 million during the first half of 202540 Note 9. Revenue Recognition Revenue from contracts increased to $3.75 billion, driven by higher sales across all product categories, with $5.8 billion in long-term natural gas obligations Revenue by Product (In millions) | Revenue by Product (In millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Oil | $1,774 | $1,475 | | Natural gas | $1,499 | $857 | | NGL | $425 | $349 | | Other | $51 | $39 | | Total | $3,749 | $2,720 | - As of June 30, 2025, the Company had $5.8 billion of unsatisfied performance obligations for natural gas sales with a fixed pricing component and a contract term greater than one year, expected to be recognized over the next 14 years66 Note 11. Capital Stock The company issued 28.2 million shares for an acquisition, increased its quarterly dividend, and repurchased 2 million shares for $47 million - The Board of Directors approved an increase in the base quarterly dividend from $0.21 to $0.22 per share, effective Q1 202571 - During the first six months of 2025, the company repurchased and retired 2 million shares for $47 million, with $1.1 billion remaining under the share repurchase program as of June 30, 202573 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant increases in net income and cash flow, driven by acquisitions and higher natural gas prices, outlining the 2025 capital program and operational factors Overview Net income nearly doubled to $1.0 billion and operating cash flow increased to $2.1 billion, driven by acquisitions, higher production, and increased natural gas prices Key Financial and Operational Metrics (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Income | $1.0 billion | $572 million | +76% | | Net Cash from Operations | $2.1 billion | $1.4 billion | +47% | | Equivalent Production (MBoe/d) | 765.4 | 677.7 | +13% | | Realized Natural Gas Price ($/Mcf) | $2.74 | $1.76 | +56% | | Realized Oil Price ($/Bbl) | $66.52 | $77.25 | -14% | - The 2025 full-year capital program is expected to be near the high end of the $2.1 billion to $2.3 billion range, with approximately 66% allocated to the Permian Basin103 Financial Condition Coterra maintains a strong financial position with $192 million cash and $2.0 billion unused credit, despite working capital decreasing due to acquisitions and capital returns Capitalization (in millions) | Capitalization (in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Long-term debt | $4,175 | $3,535 | | Stockholders' equity | $14,556 | $13,122 | | Total capitalization | $18,731 | $16,657 | | Debt to total capitalization | 22% | 21% | - Capital expenditures for drilling, completion, and other fixed assets totaled $1.12 billion for the first six months of 2025, up from $927 million in the same period of 2024120 Results of Operations Operating revenues increased 43% to $3.87 billion due to acquisitions and higher natural gas prices, while operating expenses rose 25% to $2.46 billion Production & Price (Six Months Ended June 30) | Production & Price (Six Months Ended June 30) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Oil Production (MMBbl) | 26.9 | 19.1 | +41% | | Natural Gas Production (Bcf) | 546.8 | 522.3 | +5% | | Avg. Oil Price ($/Bbl, excl. derivatives) | $66.08 | $77.31 | -15% | | Avg. Gas Price ($/Mcf, excl. derivatives) | $2.74 | $1.64 | +67% | Operating Expenses per BOE (Six Months Ended June 30) | Operating Expenses per BOE (Six Months Ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Direct operations | $3.26 | $2.56 | | Gathering, processing and transportation | $4.00 | $3.99 | | Taxes other than income | $1.32 | $1.04 | | Depreciation, depletion and amortization | $7.83 | $7.12 | | General and administrative | $1.27 | $1.16 | | Total per BOE | $17.78 | $15.95 | Quantitative and Qualitative Disclosures about Market Risk The company manages commodity price volatility with derivatives, but a significant portion of production remains unhedged, and it faces interest rate risk on $650 million of floating-rate debt - The most significant market risk is the pricing of oil, natural gas, and NGL production, which the company mitigates using financial commodity derivatives178 - As of June 30, 2025, the company had $650 million in floating-rate term loan borrowings, where a hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $3 million187 Controls and Procedures Management concluded that disclosure controls and procedures are effective, having integrated controls from the recently acquired FME and Avant businesses - Management concluded that the Company's disclosure controls and procedures are effective as of June 30, 2025192193 - During the second quarter of 2025, the company integrated the controls and procedures of the FME and Avant acquisitions into its internal control over financial reporting194 Part II. Other Information Legal Proceedings A stockholder derivative lawsuit was dismissed, and the company is addressing EPA Notices of Violation for alleged Clean Air Act violations, not expecting a material financial impact - A stockholder derivative action was dismissed with prejudice, and the dismissal was affirmed by the Fifth Circuit Court of Appeals on May 13, 202560 - The company received Notices of Violation from the EPA in 2023 for alleged Clean Air Act violations and is engaged in discussions to resolve the allegations, with no material financial impact expected198 Risk Factors No material changes to previously disclosed risk factors are reported in this section - The report refers to Item 1A of the company's Form 10-K for information about risk factors, indicating no new significant risks have emerged during the quarter199 Unregistered Sales of Equity Securities and Use of Proceeds Coterra repurchased 929,000 shares at $24.67 per share in Q2 2025, with $1.08 billion remaining under its share repurchase program Share Repurchases (Q2 2025) | Period | Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 524 | $24.67 | | May 2025 | 405 | $24.66 | | June 2025 | 0 | $0.00 | | Total Q2 2025 | 929 | ~$24.67 | Other Information The company amended its bylaws and extended the employment agreement for Chairman, CEO, and President Thomas E. Jorden through the 2027 annual meeting - The Board of Directors amended and restated the Company's bylaws, effective July 30, 2025, to enhance clarity and conform to recent Delaware court decisions201202206 - On July 31, 2025, the company entered into an amendment to extend the employment term of CEO Thomas E. Jorden from October 1, 2026, to the date of the 2027 annual meeting of stockholders203 Exhibits This section lists exhibits filed with the Form 10-Q, including amended bylaws, the CEO's employment agreement amendment, and standard certifications - Key exhibits filed with this report include the Amended and Restated Bylaws (Exhibit 3.2) and an amendment to the employment agreement with Thomas E. Jorden (Exhibit 10.1)208