NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation and Nature of Operations
Coterra Energy Inc. and its subsidiaries (“Coterra” or the “Company”) are engaged in the development, exploration and production of oil, natural gas and NGLs exclusively within the continental U.S. The Company’s exploration and development activities are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs.
The Company operates in one segment, oil and natural gas development, exploration and production. The Company’s oil and gas properties are managed as a whole rather than through discrete operating segments. Operational information is tracked by geographic area; however, financial performance is assessed as a single enterprise and not on a geographic basis. Allocation of resources is made on a project basis across the Company’s entire portfolio without regard to geographic areas.
The consolidated financial statements include the accounts of the Company and its subsidiaries after eliminating all significant intercompany balances and transactions. 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.
The Company and Cimarex Energy Co. (“Cimarex”) completed a merger transaction on October 1, 2021 (the “Merger”), pursuant to an agreement entered into by the Company and Cimarex (the “Merger Agreement”). Refer to Note 2, “Acquisitions,” for further information. Additionally, on October 1, 2021, Cabot Oil & Gas Corporation changed its name to Coterra Energy Inc.
Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with a maturity of three months or less and deposits in money market funds that are readily convertible to cash to be cash equivalents. Cash and cash equivalents were primarily concentrated in three financial institutions at December 31, 2022. The Company periodically assesses the financial condition of its financial institutions and considers any possible credit risk to be minimal.
Restricted Cash
Restricted cash includes cash that is legally or contractually restricted as to withdrawal or usage. As of December 31, 2022 and 2021, the restricted cash balance of $10 million and $10 million, respectively, includes cash deposited in escrow accounts that are restricted for use.
Allowance for Doubtful Accounts
The Company records an allowance for doubtful accounts based on the Company’s estimate of future expected credit losses on outstanding receivables.
Inventories
Inventories are comprised of tubular goods and well equipment and are carried at average cost. Inventories are assessed periodically for obsolescence.
Properties and Equipment
Oil and Gas Properties
The Company uses the successful efforts method of accounting for oil and gas producing activities. Under this method, acquisition costs for proved and unproved properties are capitalized when incurred. Exploration costs, including geological and geophysical costs, the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs, are expensed. Development costs, including the costs to drill and equip development wells and successful exploratory drilling costs to locate proved reserves are capitalized.
Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves. The determination is based on a process which relies on interpretations of available geologic, geophysical and
engineering data. If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well. If a well is determined to be unsuccessful, the capitalized drilling costs will be charged to exploration expense in the Consolidated Statement of Operations in the period the determination is made. If an exploratory well requires a major capital expenditure before production can begin, the cost of drilling the exploratory well will continue to be carried as an asset pending determination of whether reserves have been found only as long as: (1) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made and (2) drilling of an additional exploratory well is under way or firmly planned for the near future. If drilling in the area is not under way or firmly planned or if the well has not found a commercially producible quantity of reserves, the exploratory well is assumed to be impaired and its costs are charged to exploration expense.
Development costs of proved oil and gas properties, including estimated dismantlement, restoration and abandonment costs and acquisition costs, are depreciated and depleted on a field basis by the unit-of-production method using proved developed and proved reserves, respectively.
Costs of sold or abandoned properties that make up a part of an amortization base (partial field) remain in the amortization base if the unit-of-production rate is not significantly affected. If significant, a gain or loss, if any, is recognized and the sold or abandoned properties are retired. A gain or loss, if any, is also recognized when a group of proved properties (entire field) that make up the amortization base has been retired, abandoned or sold.
The Company evaluates its proved oil and gas properties for impairment whenever events or changes in circumstances indicate an asset’s carrying amount may not be recoverable. The Company compares expected undiscounted future cash flows to the net book value of the asset. If the future undiscounted expected cash flows, based on estimates of future commodity prices, operating costs and anticipated production from proved reserves and risk-adjusted probable and possible reserves, are lower than the net book value of the asset, the capitalized cost is reduced to fair value. Commodity pricing is estimated by using a combination of assumptions management uses in its budgeting and forecasting process as well as historical and current prices adjusted for geographical location and quality differentials, as well as other factors that management believes will impact realizable prices. Fair value is calculated by discounting the future cash flows. The discount factor used is based on rates utilized by market participants that are commensurate with the risks inherent in the development and production of the underlying oil and natural gas.
Unproved oil and gas properties are assessed periodically for impairment on an aggregate basis through periodic updates to the Company’s undeveloped acreage amortization based on past drilling and exploration experience, the Company’s expectation of converting leases to held by production and average property lives. Average property lives are determined on a geographical basis and based on the estimated life of unproved property leasehold rights.
Fixed Assets
Fixed assets consist primarily of gas gathering systems, water infrastructure, buildings, vehicles, aircraft, furniture and fixtures, and computer equipment and software. These items are recorded at cost and are depreciated on the straight-line method based on expected lives of the individual assets, which range from three to 30 years.
Asset Retirement Obligations
The Company records the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset. Asset retirement costs for oil and gas properties are depreciated using the unit-of-production method, while asset retirement costs for other assets are depreciated using the straight-line method over estimated useful lives.
Additional retirement obligations increase the liability associated with new oil and gas wells and other facilities as these obligations are incurred. Accretion expense is included in depreciation, depletion and amortization expense in the Consolidated Statement of Operations.
Derivative Instruments
The Company enters into financial derivative contracts, primarily collars, swaps and basis swaps, to manage its exposure to price fluctuations on a portion of its anticipated future production volumes. The Company’s credit agreement restricts the ability of the Company to enter into financial commodity derivatives other than to hedge or mitigate risks to which the Company has actual or projected exposure or as permitted under the Company’s risk management policies and where such derivatives do not subject the Company to material speculative risks. All of the Company’s derivatives are used for risk management purposes and are not held for trading purposes. The Company has elected not to designate its financial derivative instruments as accounting hedges under the accounting guidance.
The Company evaluates all of its physical purchase and sale contracts to determine if they meet the definition of a derivative. For contracts that meet the definition of a derivative, the Company may elect the normal purchase normal sale (“NPNS”) exception provided under the applicable accounting guidance and account for the contract using the accrual method of accounting. Contracts that do not qualify for or for which the Company elects not to apply the NPNS exception are accounted for at fair value.
All derivatives, except for derivatives that qualify for the NPNS exception, are recognized on the balance sheet and are measured at fair value. At the end of each quarterly period, these derivatives are marked to market. As a result, changes in the fair value of derivatives are recognized in operating revenues in gain (loss) on derivative instruments. The resulting cash flows are reported as cash flows from operating activities.
Leases
The Company determines if an arrangement is, or contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. Operating leases are included in right-of-use assets (“ROU assets”) and lease liabilities (current and non-current) in the Consolidated Balance Sheet. Financing leases are included in properties and equipment, net and lease liabilities (current and non-current) in the Consolidated Balance Sheet. Short-term leases (a lease that, at commencement, has a lease term of one year or less and does not contain a purchase option that the Company is reasonably certain to exercise) are not recognized in ROU assets and lease liabilities. For all operating leases, lease and non-lease components are accounted for as a single lease component.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. Most leases do not provide an implicit interest rate; therefore, the Company uses its incremental borrowing rate based on the information available at the inception date to determine the present value of the lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. Certain leases have payment terms that vary based on the usage of the underlying assets. Variable lease payments are not included in ROU assets and lease liabilities.
Fair Value of Assets and Liabilities
The Company follows the authoritative accounting guidance for measuring fair value of assets and liabilities in its financial statements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company is able to classify fair value balances based on the observability of these inputs. The authoritative guidance for fair value measurements establishes three levels of the fair value hierarchy, defined as follows:
•Level 1: Unadjusted, quoted prices for identical assets or liabilities in active markets.
•Level 2: Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially the full term of the asset or liability.
•Level 3: Significant, unobservable inputs for use when little or no market data exists, requiring a significant degree of judgment.
The hierarchy gives the highest priority to Level 1 measurements and the lowest priority to Level 3 measurements. Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the market and other particular transaction conditions. In some cases, certain inputs used to measure fair value may be categorized into different levels of the fair value hierarchy. For disclosure purposes under the accounting guidance, the lowest level that contains significant inputs used in the valuation should be chosen.
Revenue Recognition
The Company’s revenue is typically generated from contracts to sell oil, natural gas and NGLs produced from interests in oil and gas properties owned by the Company. These contracts generally require the Company to deliver a specific amount of a commodity per day for a specified number of days at a price that is either fixed or variable. The contracts specify a delivery point which represents the point at which control of the product is transferred to the customer. The Company has determined
that these contracts represent multiple performance obligations which are satisfied when control of the commodity transfers to the customer, typically through the delivery of the specified commodity to a designated delivery point.
Revenue is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue in the amount that reflects the consideration it expects to be entitled to in exchange for transferring control of those goods to the customer. The contract consideration in the Company’s variable price contracts are typically allocated to specific performance obligations in the contract according to the price stated in the contract. Amounts allocated in the Company’s fixed price contracts are based on the standalone selling price of those products in the context of long-term, fixed price contracts, which generally approximates the contract price. Payment is generally received one or two months after the sale has occurred.
The Company has not adjusted the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less.
For contracts with an original expected term of one year or less, the Company has elected not to disclose the transaction price allocated to the unsatisfied performance obligations. For contracts with terms greater than one year, the Company has elected not to disclose the price allocated to the unsatisfied performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Since each unit of the respective commodity typically represents a separate performance obligation, future volumes are considered wholly unsatisfied, and disclosure of the transaction price allocated to the remaining performance obligation is not required.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to the differences between the financial carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rate in effect for the year in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.
The Company follows the “equity first” approach when applying the limitation for certain executive compensation in excess of $1 million to future compensation. The limitation is first applied to stock-based compensation that vests in future tax years before considering cash compensation paid in a future period. Accordingly, the Company records a deferred tax asset for stock-based compensation expense recorded in the current period, and reverses the temporary difference in the future period, during which the stock-based compensation becomes deductible for tax purposes.
The Company is required to make judgments, including estimating reserves for potential adverse outcomes regarding tax positions that the Company has taken. The Company accounts for uncertainty in income taxes using a recognition and measurement threshold for tax positions taken or expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination by taxing authorities based on technical merits of the position. The amount of the tax benefit recognized is the largest amount of the benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The effective tax rate and the tax basis of assets and liabilities reflect management’s estimates of the ultimate outcome of various tax uncertainties.
The Company recognizes accrued interest related to uncertain tax positions in interest expense and accrued penalties related to such positions in general and administrative expense in the Consolidated Statement of Operations.
Stock-Based Compensation
The Company accounts for stock-based compensation under the fair value method of accounting. Under this method, compensation cost is measured at the grant date for equity-classified awards and re-measured each reporting period for liability-classified awards based on the fair value of an award and is recognized over the service period, which is generally the vesting period. To calculate fair value, the Company uses a Black Scholes or Monte Carlo valuation model based on the specific provisions of the award. Stock-based compensation cost for all types of awards is included in general and administrative expense in the Consolidated Statement of Operations.
The Company records excess tax benefits and tax deficiencies on stock-based compensation in the income statement upon vesting of the respective awards. Excess tax benefits and tax deficiencies are included in cash flows from operating activities in the Consolidated Statement of Cash Flow.
Cash paid by the Company when directly withholding shares from employee stock-based compensation awards for tax-withholding purposes are classified as financing activities in the Consolidated Statement of Cash Flow.
Earnings per Share
The Company calculates earnings per share recognizing that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are “participating securities” and, therefore, should be included in computing earnings per share using the two-class earnings allocation method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Certain of the Company’s unvested share-based payment awards, consisting of restricted stock, qualify as participating securities. The Company’s participating securities do not have a contractual obligation to share in the losses of the entity and, therefore, net losses are not allocated to them.
Environmental Matters
Environmental expenditures are expensed or capitalized, as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit are expensed. Liabilities related to future costs are recorded on an undiscounted basis when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated. Any insurance recoveries are recorded as assets when received.
Credit and Concentration Risk
Substantially all of the Company’s accounts receivable result from the sale of oil, natural gas and NGLs to third parties in the oil and gas industry and joint interest billings with other participants in joint operations. This concentration of purchasers and joint owners may impact the Company’s overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. The Company does not anticipate any material impact on its financial results due to non-performance by the third parties.
During the year ended December 31, 2022, two customers accounted for approximately 13 percent and 11 percent of the Company’s total sales. During the year ended December 31, 2021, no customer accounted for more than 10 percent of the Company’s total sales. During the year ended December 31, 2020, three customers accounted for approximately 21 percent, 16 percent and 12 percent of the Company’s total sales. The Company does not believe that the loss of any of its major customers would have a material adverse effect on it because alternative customers are readily available. If any one of the Company’s major customers were to stop purchasing the Company’s production, the Company believes there are a number of other purchasers to whom it could sell its production. If multiple significant customers were to stop purchasing the Company’s production, the Company believes there could be some initial challenges, but the Company believes it has ample alternative markets to handle any sales disruptions.
The Company regularly monitors the creditworthiness of its customers and may require parent company guarantees, letters of credit or prepayments when necessary. Historically, losses associated with uncollectible receivables have been insignificant.
Use of Estimates
In preparing financial statements, the Company follows GAAP. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates pertain to proved oil and gas reserves and related cash flow estimates which are used to compute depreciation, depletion and amortization, impairments of proved oil and gas properties and the fair value of oil and gas properties in purchase accounting. Other estimates include oil, natural gas and NGL revenues and expenses, fair value of derivative instruments, estimates of expenses related to legal, environmental and other contingencies, asset retirement obligations, postretirement obligations, stock-based compensation and deferred income taxes. Actual results could differ from those estimates.
2. Acquisitions
Cimarex Energy Co.
On October 1, 2021, the Company and Cimarex completed the Merger. Cimarex is an oil and gas exploration and production company with operations in Texas, New Mexico and Oklahoma. Upon the effectiveness of the Merger, each eligible share of Cimarex common stock was converted into the right to receive 4.0146 shares of common stock of the Company. Based on the closing price of Coterra’s common stock on October 1, 2021, the total value of such shares of Coterra common stock was approximately $9.1 billion. The Company and Cimarex intended for the Merger to qualify as a tax-free reorganization for U.S. federal income tax purposes.
Also in accordance with the Merger Agreement with Cimarex and included as merger consideration, the Company issued 3.4 million shares of restricted stock to replace Cimarex restricted stock awards granted to certain employees. Because these restricted shares have non-forfeitable rights to dividends or dividend equivalents, the Company considers these shares as issued and outstanding shares of common stock.
Purchase Price Allocation
The transaction was accounted for using the acquisition method of accounting, with the Company being treated as the accounting acquirer. 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 is complete and there were no material adjustments to the amounts disclosed herein. Determining the fair value of the assets and liabilities of Cimarex required 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. Refer to Note 6, “Fair Value Measurements,” for additional information.
The following table represents the final allocation of the total purchase price of Cimarex to the identifiable assets acquired and the liabilities assumed based on the fair values as of the effective date of the Merger.
| | | | | | | | |
| (In millions, except share price and exchange ratio) | | Final Purchase Price Allocation |
| Consideration: | | |
| Cimarex common stock issued as of October 1, 2021 | | 103 | |
| Less unvested common stock | | (3) | |
| Total Cimarex common stock to be converted | | 100 | |
| Exchange ratio | | 4.0146 | |
| Coterra common stock issued in exchange for Cimarex common stock | | 403 | |
| Coterra common stock issued for Cimarex share awards vested on October 1, 2021 | | 5 | |
| Total shares of Coterra common stock issued | | 408 | |
| Coterra common stock closing price on October 1, 2021 | | $ | 22.25 | |
| Total value of Coterra common stock issued | | $ | 9,083 | |
| Total value of Coterra stock options issued | | 15 | |
| Total value of Coterra restricted stock awards issued | | 22 | |
| Total consideration | | $ | 9,120 | |
| | |
| Assets acquired: | | |
| Cash and cash equivalents | | $ | 1,033 | |
| Accounts receivable | | 598 | |
| Other current assets | | 31 | |
| Properties and equipment | | 13,300 | |
| Other assets | | 324 | |
| Total assets acquired | | $ | 15,286 | |
| Liabilities and Mezzanine Equity assumed: | | |
| Accounts payable | | $ | 528 | |
| Accrued liabilities | | 258 | |
| Derivative instruments, current | | 382 | |
| Other current liabilities | | 83 | |
| Long-term debt | | 2,196 | |
| Deferred income taxes | | 2,201 | |
| Asset retirement obligations | | 162 | |
| Derivative instruments, noncurrent | | 7 | |
| Other liabilities | | 299 | |
| Cimarex redeemable preferred stock | | 50 | |
| Total liabilities and mezzanine equity assumed | | $ | 6,166 | |
| | |
| Net assets acquired | | $ | 9,120 | |
Post-Acquisition Operating Results
Cimarex contributed the following to the Company’s 2021 consolidated operating results.
| | | | | | | | |
| (in millions) | | October 1, 2021 through December 31, 2021 |
| Revenue | | $ | 1,129 | |
| Net income | | 394 | |
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 years ended December 31, 2021 and 2020 has been prepared to give effect to the Cimarex acquisition as if it had occurred on January 1, 2020. The information below reflects pro forma adjustments based on available information and certain assumptions that Coterra 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, 2020 and is not intended to be a projection of future results. Future results may vary significantly 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.
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions, except per share information) | | 2021 | | 2020 |
| Pro forma revenue | | $ | 5,236 | | | $ | 2,990 | |
| Pro forma net income (loss) | | 1,205 | | | (2,189) | |
| | | | |
| | | | |
| | | | |
| | | | |
| Pro forma basic earnings (loss) per share | | $ | 1.49 | | | $ | (2.71) | |
| Pro forma diluted earnings (loss) per share | | $ | 1.48 | | | $ | (2.71) | |
Other Information
In connection with the Merger, the Company recognized $42 million of transaction costs for the year ended December 31, 2021. These fees primarily related to bank, legal and accounting fees and are included in general and administrative expenses in the Consolidated Statement of Operations.
3. Properties and Equipment, Net
Properties and equipment, net are comprised of the following:
| | | | | | | | | | | |
| | December 31, |
| (In millions) | 2022 | | 2021 |
| Proved oil and gas properties | $ | 17,085 | | | $ | 15,340 | |
| Unproved oil and gas properties | 5,150 | | | 5,316 | |
Gathering and pipeline systems | 450 | | | 395 | |
| Land, buildings and other equipment | 183 | | | 140 | |
Finance lease right-of-use asset | 16 | | | 20 | |
| 22,884 | | | 21,211 | |
| Accumulated depreciation, depletion and amortization | (5,405) | | | (3,836) | |
| $ | 17,479 | | | $ | 17,375 | |
Capitalized Exploratory Well Costs
As of and for the years ended December 31, 2022, 2021 and 2020, the Company did not have any projects with exploratory well costs capitalized for a period of greater than one year after drilling.
4. Long-Term Debt and Credit Agreements
The following table includes a summary of the Company’s long-term debt. | | | | | | | | | | | |
| | December 31, |
| (In millions) | 2022 | | 2021 |
| Total debt | | | |
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(1) | 825 | | | 825 | |
4.375% senior notes due June 1, 2024 (2) | — | | | 750 | |
3.90% senior notes due May 15, 2027 (2) | 750 | | | 750 | |
4.375% senior notes due March 15, 2029 (2) | 500 | | | 500 | |
| Revolving credit facility | — | | | — | |
| Total | 2,075 | | | 2,949 | |
| Net premium | 111 | | | 185 | |
| Unamortized debt issuance costs | (5) | | | (9) | |
| Long-term debt | $ | 2,181 | | | $ | 3,125 | |
_______________________________________________________________________________ (1)The 3.65% weighted-average senior notes have bullet maturities of $575 million and $250 million due in September 2024 and 2026, respectively.
(2)These notes were assumed by the Company in October 2021 in connection with the Merger. Subsequent to an exchange transaction completed in October 2021, approximately $130 million of these notes remain the unsecured and unsubordinated obligation of Cimarex, a subsidiary of the Company, at December 31, 2022.
The following table includes a summary of Cimarex debt that was outstanding as of the consummation of the Merger on October 1, 2021:
| | | | | | | | | | | | | | |
| (In millions) | | Face Value | | Fair Value |
4.375% senior notes due June 1, 2024 | | $ | 750 | | | $ | 809 | |
3.90% senior notes due May 15, 2027 | | 750 | | 823 |
4.375% senior notes due March 15, 2029 | | 500 | | 564 |
| | $ | 2,000 | | | $ | 2,196 | |
Private Placement Senior Notes
The Company has various issuances of senior unsecured notes that were issued in separate private placements (the “private placement senior notes”). Interest on each of such series of private placement senior notes is payable semi-annually. Under the terms of the various note purchase agreements, the Company may prepay all or any portion of the notes of each series on any date at a price equal to the principal amount thereof plus accrued and unpaid interest plus a make-whole premium.
During 2022, the Company repaid $37.0 million of its 6.51% weighted-average senior notes for $38 million and $87 million of its 5.58% weighted-average senior notes for $92 million prior to their original maturity dates, and recognized a net loss on debt extinguishment of $7 million.
The note purchase agreements provide that the Company must maintain a minimum annual coverage ratio of consolidated cash flow to interest expense for the trailing four quarters of 2.8 to 1.0 and require a maximum ratio of total debt to consolidated EBITDA for the trailing four quarters of not more than 3.0 to 1.0. There are also various other covenants and events of default customarily found in such debt instruments. As of December 31, 2022, the Company was in compliance with its financial covenants under the private placement senior notes.
Senior Notes
In connection with the Merger in 2021, the Company assumed $2.0 billion of Cimarex debt (“Existing Cimarex Notes”) and completed a private exchange offer of $1.8 billion of the Existing Cimarex Notes for new Company notes (“Coterra Notes”
and, together with the Existing Cimarex Notes, the “Senior Notes”). The Coterra Notes have the same interest rate and payment and maturity dates as the Existing Cimarex Notes for which they were exchanged.
The Senior Notes are general, unsecured obligations of the Company. Interest on each series of Senior Notes is payable semi-annually. Under the terms of the indenture documents governing the Senior Notes, the Company may redeem all or any portion of the Senior Notes of each series on any date at a price equal to the principal amount thereof plus applicable redemption prices described in the governing indentures. The Company is also subject to various covenants and events of default customarily found in such debt instruments.
In 2022, the Company redeemed the $750 million principal amount of its 4.375% Senior Notes for approximately $750 million and recognized a net gain on debt extinguishment of $35 million primarily due to the write off of the associated debt premiums and debt issuance costs.
Revolving Credit Agreement
On April 22, 2019, the Company entered into a second amended and restated credit agreement (the “revolving credit agreement”). The revolving credit agreement is unsecured. The revolving credit agreement was subsequently amended on July 17, 2021 to address certain matters precedent to the Merger with Cimarex and on September 16, 2021 to among other things: (1) remove the provisions which limited borrowings thereunder to an amount not to exceed the borrowing base and certain related provisions; (2) replace the then-existing financial maintenance covenants with a covenant requiring maintenance of a leverage ratio not more than 3.0 to 1.0; (3) provide that if, in the future, the Company no longer has any other indebtedness subject to a leverage-based financial maintenance covenant, then the leverage covenant shall be replaced by a covenant requiring maintenance of a ratio of total debt to total capitalization not to exceed 65 percent at any time; and (4) provide for changes to certain exceptions to the negative covenants to reflect the completion of the Merger. This amendment became effective upon completion of the Merger and closing of the debt exchange described above. The Company’s revolving credit facility matures in April 2024 and can be extended by one year upon the agreement of the Company and lenders holding at least 50 percent of the commitments under the revolving credit facility. As of December 31, 2022, the Company was in compliance with its financial covenants under the revolving credit agreement.
Interest rates under the revolving credit facility are based on LIBOR or ABR indications, plus a margin which ranges from 112.5 to 175 basis points for LIBOR loans and from 12.5 to 75 basis points for ABR loans. The revolving credit facility also provides for a commitment fee on the unused available balance and is calculated at annual rates ranging from 12.5 to 27.5 basis points.
From time to time, the Company uses the LIBOR benchmark rate for borrowings under its revolving credit facility. In July 2017, the U.K. Financial Conduct Authority (“FCA”) announced that it will no longer compel banks to submit rates that are currently used to calculate LIBOR after 2021. Subsequently in March 2021, the FCA announced some U.S. Dollar LIBOR tenors (overnight, 1 month, 3 month, 6 month and 12 month) will continue to be published until June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (“SOFR”) for U.S. Dollar LIBOR. The Company’s revolving credit facility has a term that extends beyond June 30, 2023. The Company’s revolving credit facility also provides that in the event that the LIBOR benchmark rate is no longer available, the Company and its lenders will endeavor to establish an alternative interest rate based on the then prevailing market convention for purposes of LIBOR borrowings. The Company currently has no borrowings outstanding under its revolving credit facility and does not expect the transition to an alternative rate to have a material impact on its results of operations or cash flows.
At December 31, 2022, there were no borrowings outstanding under the Company’s revolving credit facility and unused commitments were $1.5 billion.
5. Derivative Instruments
As of December 31, 2022, the Company had the following outstanding financial commodity derivatives:
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| | | 2023 | | | | |
| Natural Gas | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | | | |
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| Waha gas collars | | | | | | | | | | | | |
| Volume (MMBtu) | | 8,100,000 | | | 8,190,000 | | | 8,280,000 | | | 8,280,000 | | | | | |
Weighted average floor ($/MMBtu) | | $ | 3.03 | | | $ | 3.03 | | | $ | 3.03 | | | $ | 3.03 | | | | | |
Weighted average ceiling ($/MMBtu) | | $ | 5.39 | | | $ | 5.39 | | | $ | 5.39 | | | $ | 5.39 | | | | | |
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| NYMEX collars | | | | | | | | | | | | |
| Volume (MMBtu) | | 54,000,000 | | | 31,850,000 | | | 32,200,000 | | | 29,150,000 | | | | | |
Weighted average floor ($/MMBtu) | | $ | 5.12 | | | $ | 4.07 | | | $ | 4.07 | | | $ | 4.03 | | | | | |
Weighted average ceiling ($/MMBtu) | | $ | 9.34 | | | $ | 6.78 | | | $ | 6.78 | | | $ | 6.61 | | | | | |
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| | 2023 | | | | |
| Oil | | First Quarter | | Second Quarter | | | | | | | | |
| WTI oil collars | | | | | | | | | | | | |
| Volume (MBbl) | | 1,350 | | | 1,365 | | | | | | | | | |
| Weighted average floor ($/Bbl) | | $ | 70.00 | | | $ | 70.00 | | | | | | | | | |
| Weighted average ceiling ($/Bbl) | | $ | 116.03 | | | $ | 116.03 | | | | | | | | | |
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| WTI Midland oil basis swaps | | | | | | | | | | | | |
| Volume (MBbl) | | 1,350 | | | 1,365 | | | | | | | | | |
| Weighted average differential ($/Bbl) | | $ | 0.63 | | | $ | 0.63 | | | | | | | | | |
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Effect of Derivative Instruments on the Consolidated Balance Sheet | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Values of Derivative Instruments |
| | | | | Derivative Assets | | Derivative Liabilities |
| | | | | December 31, | | December 31, |
| (In millions) | | Balance Sheet Location | | 2022 | | 2021 | | 2022 | | 2021 |
| Commodity contracts | | Derivative instruments (current) | | $ | 146 | | | $ | 7 | | | $ | — | | | $ | 159 | |
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Offsetting of Derivative Assets and Liabilities in the Consolidated Balance Sheet
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| | | December 31, |
| (In millions) | | 2022 | | 2021 |
| Derivative assets | | | | |
| Gross amounts of recognized assets | | $ | 147 | | | $ | 27 | |
| Gross amounts offset in the consolidated balance sheet | | (1) | | | (20) | |
| Net amounts of assets presented in the consolidated balance sheet | | 146 | | | 7 | |
| Gross amounts of financial instruments not offset in the consolidated balance sheet | | 2 | | | — | |
| Net amount | | $ | 148 | | | $ | 7 | |
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| Derivative liabilities | | | | |
| Gross amounts of recognized liabilities | | $ | 1 | | | $ | 179 | |
| Gross amounts offset in the consolidated balance sheet | | (1) | | | (20) | |
| Net amounts of liabilities presented in the consolidated balance sheet | | — | | | 159 | |
| Gross amounts of financial instruments not offset in the consolidated balance sheet | | 1 | | | 35 | |
| Net amount | | $ | 1 | | | $ | 194 | |
Effect of Derivative Instruments on the Consolidated Statement of Operations
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| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| Cash (paid) received on settlement of derivative instruments | | | | | | |
| Gas contracts | | $ | (438) | | | $ | (307) | | | $ | 35 | |
| Oil contracts | | (324) | | | (124) | | | — | |
| Non-cash gain on derivative instruments | | | | | | |
| Gas contracts | | 149 | | | 99 | | | 26 | |
| Oil contracts | | 150 | | | 111 | | | — | |
| | $ | (463) | | | $ | (221) | | | $ | 61 | |
Additional Disclosures about Derivative Instruments
The use of derivative instruments involves the risk that the counterparties will be unable to meet their obligations under the agreements. The Company’s counterparties are primarily commercial banks and financial service institutions that management believes present minimal credit risk and its derivative contracts are with multiple counterparties to minimize its exposure to any individual counterparty. The Company performs both quantitative and qualitative assessments of these counterparties based on their credit ratings and credit default swap rates where applicable.
Certain counterparties to the Company’s derivative instruments are also lenders under its revolving credit facility. The Company’s revolving credit facility and derivative instruments contain certain cross default and acceleration provisions that may require immediate payment of the Company’s liabilities thereunder if the Company defaults on other material indebtedness. The Company also has netting arrangements with each of its counterparties that allow it to offset assets and liabilities from separate derivative contracts with that counterparty.
6. Fair Value Measurements
Financial Assets and Liabilities
The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:
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| (In millions) | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Balance at
December 31,
2022 |
| Assets | | | | | | | |
| Deferred compensation plan | $ | 43 | | | $ | — | | | $ | — | | | $ | 43 | |
| Derivative instruments | — | | | — | | | 147 | | | 147 | |
| Total assets | $ | 43 | | | $ | — | | | $ | 147 | | | $ | 190 | |
| Liabilities | | | | | | | |
| Deferred compensation plan | $ | 55 | | | $ | — | | | $ | — | | | $ | 55 | |
| Derivative instruments | — | | | — | | | 1 | | | 1 | |
| Total liabilities | $ | 55 | | | $ | — | | | $ | 1 | | | $ | 56 | |
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| (In millions) | Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Balance at
December 31,
2021 |
| Assets | | | | | | | |
| Deferred compensation plan | $ | 47 | | | $ | — | | | $ | — | | | $ | 47 | |
| Derivative instruments | — | | | — | | | 27 | | | 27 | |
| Total assets | $ | 47 | | | $ | — | | | $ | 27 | | | $ | 74 | |
| Liabilities | | | | | | | |
| Deferred compensation plan | $ | 56 | | | $ | — | | | $ | — | | | $ | 56 | |
| Derivative instruments | — | | | — | | | 179 | | | 179 | |
| Total liabilities | $ | 56 | | | $ | — | | | $ | 179 | | | $ | 235 | |
The Company’s investments associated with its deferred compensation plan consist of mutual funds and deferred shares of the Company’s common stock that are publicly traded and for which market prices are readily available.
The derivative instruments were measured based on quotes from the Company’s counterparties or internal models. Such quotes and models have been derived using an income approach that considers various inputs, including current market and contractual prices for the underlying instruments, quoted forward commodity prices, basis differentials, volatility factors and interest rates for a similar length of time as the derivative contract term as applicable. Estimates are derived from or verified using relevant NYMEX futures contracts and/or are compared to multiple quotes obtained from counterparties. The determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative contracts while non-performance risk of the Company is evaluated using a market credit spread provided by several of the Company’s banks. The Company has not incurred any losses related to non-performance risk of its counterparties and does not anticipate any material impact on its financial results due to non-performance by third parties.
The most significant unobservable inputs relative to the Company’s Level 3 derivative contracts are basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
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| | Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Balance at beginning of period | $ | (152) | | | $ | 24 | | | $ | — | |
| Total gain (loss) included in earnings | (446) | | | (532) | | | 41 | |
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| Settlement (gain) loss | 744 | | | 356 | | | (17) | |
| Transfers in and/or out of Level 3 | — | | | — | | | — | |
| Balance at end of period | $ | 146 | | | $ | (152) | | | $ | 24 | |
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| Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period | $ | 179 | | | $ | (154) | | | $ | 24 | |
Non-Financial Assets and Liabilities
The Company discloses or recognizes its non-financial assets and liabilities, such as impairments of oil and gas properties or acquisitions, at fair value on a nonrecurring basis. On October 1, 2021, the Company and Cimarex completed the Merger. In connection with the Merger, the assets acquired and liabilities assumed were recorded at fair value. The most significant fair value determinations for non-financial assets and liabilities related to oil and gas properties acquired. Refer to Note 2, “Acquisitions,” for additional information. As none of the Company’s other non-financial assets and liabilities were measured at fair value as of December 31, 2022, 2021 and 2020, additional disclosures were not required.
The estimated fair value of the Company’s asset retirement obligations at inception is determined by utilizing the income approach by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time value of money, and the current economic state to the undiscounted expected abandonment cash flows. Given the unobservable nature of the inputs, the measurement of the asset retirement obligations was classified as Level 3 in the fair value hierarchy.
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is the amount at which the instruments could be exchanged currently between willing parties. The carrying amounts reported in the Consolidated Balance Sheet for cash and cash equivalents and restricted cash approximate fair value, due to the short-term maturities of these instruments. Cash and cash equivalents and restricted cash are classified as Level 1 in the fair value hierarchy and the remaining financial instruments are classified as Level 2.
The fair value of the Company’s Senior Notes is based on quoted market prices, which is classified as Level 1 in the fair value hierarchy. The Company uses available market data and valuation methodologies to estimate the fair value of its private placement senior notes. The fair value of the private placement senior notes is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company’s senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of the private placement senior notes is based on interest rates currently available to the Company. The Company’s private placement senior notes are valued using an income approach and are classified as Level 3 in the fair value hierarchy.
The carrying amount and estimated fair value of debt is as follows:
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| | December 31, 2022 | | December 31, 2021 |
| (In millions) | Carrying
Amount | | Estimated
Fair Value | | Carrying
Amount | | Estimated
Fair Value |
| Long-term debt | $ | 2,181 | | | $ | 1,955 | | | $ | 3,125 | | | $ | 3,163 | |
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7. Asset Retirement Obligations
Activity related to the Company’s asset retirement obligations is as follows:
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| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| Balance at beginning of period | | $ | 263 | | | $ | 86 | | | $ | 72 | |
| Liabilities assumed in Merger | | — | | | 175 | | | — | |
| Liabilities incurred | | 10 | | | 6 | | | 10 | |
| Liabilities settled | | (3) | | | (10) | | | — | |
| Liabilities divested | | (2) | | | — | | | — | |
| Accretion expense | | 9 | | | 6 | | | 4 | |
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| Balance at end of period | | 277 | | | 263 | | | $ | 86 | |
| Less: current asset retirement obligation | | (6) | | | (4) | | | (1) | |
| Noncurrent asset retirement obligation | | $ | 271 | | | $ | 259 | | | $ | 85 | |
8. Commitments and Contingencies
Transportation, Processing and Gathering Agreements
Transportation, Processing and Gathering Commitments
The Company has entered into certain transportation and gathering agreements with various pipeline carriers. Under certain of these agreements, the Company is obligated to ship minimum daily quantities, or pay for any deficiencies at a specified rate. The Company’s forecasted production to be shipped on these pipelines is expected to exceed minimum daily quantities provided in the agreements. The Company is also obligated under certain of these arrangements to pay a demand charge for firm capacity rights on pipeline systems regardless of the amount of pipeline capacity utilized by the Company. If the Company does not utilize the capacity, it can release it to others, thus reducing its potential liability.
As of December 31, 2022, the Company’s future minimum obligations under transportation and gathering agreements are as follows:
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| (In millions) | | |
| 2023 | | $ | 108 | |
| 2024 | | 159 | |
| 2025 | | 169 | |
| 2026 | | 153 | |
| 2027 | | 159 | |
| Thereafter | | 901 | |
| | $ | 1,649 | |
Other Gathering and Processing Volume Commitments
The Company has entered into certain gas processing agreements. Under certain of these agreements, the Company is obligated to process minimum daily quantities, or pay for any deficiencies at a specified rate. The Company’s forecasted production to be processed under most of these agreements is expected to exceed minimum daily quantities provided in the agreements.
As of December 31, 2022, the Company’s future minimum obligations under gas processing agreements are as follows:
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| (In millions) | | |
| 2023 | | $ | 93 | |
| 2024 | | 96 |
| 2025 | | 96 |
| 2026 | | 84 |
| 2027 | | 80 |
| Thereafter | | 157 |
| | $ | 606 | |
The Company also has minimum volume delivery commitments associated with agreements to reimburse connection costs to various pipelines. Under certain of these agreements, the Company is obligated to deliver minimum daily quantities, or pay for any deficiencies at a specified rate. The Company’s forecasted production to be delivered under most of these agreements is expected to exceed minimum daily quantities provided in the agreements.
As of December 31, 2022, the Company’s future minimum obligations under these delivery commitments are as follows:
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| (In millions) | | |
| 2023 | | $ | 16 | |
| 2024 | | 19 | |
| 2025 | | 13 | |
| 2026 | | 13 | |
| 2027 | | 16 | |
| Thereafter | | 13 | |
| | $ | 90 | |
As of December 31, 2022, the Company had accrued $14 million in other non-current liabilities associated with these commitments, representing the present value of estimated amounts payable due to insufficient forecasted delivery volumes.
Water Delivery Commitments
The Company has minimum volume water delivery commitments associated with a water services agreement that expires in 2030. The Company is obligated to deliver minimum daily quantities, or pay for any deficiencies at a specified rate.
As of December 31, 2022, the Company’s future minimum obligations under this water delivery commitment are as follows:
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| (In millions) | | |
| 2023 | | $ | 7 | |
| 2024 | | 7 | |
| 2025 | | 7 | |
| 2026 | | 7 | |
| 2027 | | 7 | |
| Thereafter | | 18 | |
| | $ | 53 | |
As of December 31, 2022, the Company had accrued $20 million in other non-current liabilities associated with this commitment, representing the present value of estimated amounts payable due to insufficient forecasted delivery volumes.
Lease Commitments
The Company has operating leases for office space, surface use agreements, compressor services, electric hydraulic fracturing services, and other leases. The leases have remaining terms ranging from one month to 23 years, including options to extend leases that the Company is reasonably certain to exercise. During the year ended December 31, 2022, the Company recognized operating lease cost and variable lease cost of $104 million and $9 million, respectively. During the year ended December 31, 2021, the Company recognized operating lease cost and variable lease cost of $23 million and $6 million, respectively.
Short-term leases. The Company leases drilling rigs, fracturing and other equipment under lease terms ranging from 30 days to one year. Lease cost of $265 million and $113 million was recognized on short-term leases during the year ended December 31, 2022 and 2021, respectively. Certain lease costs are capitalized and included in Properties and equipment, net in the Consolidated Balance Sheet because they relate to drilling and completion activities, while other costs are expensed because they relate to production and administrative activities.
As of December 31, 2022, the Company’s future undiscounted minimum cash payment obligations for its operating lease liabilities are as follows:
| | | | | | | | |
| (In millions) | | Year Ending December 31, |
| 2023 | | $ | 126 | |
| 2024 | | 115 | |
| 2025 | | 101 | |
| 2026 | | 38 | |
| 2027 | | 9 | |
| Thereafter | | 47 | |
| Total undiscounted future lease payments | | 436 | |
| Present value adjustment | | (35) | |
| Net operating lease liabilities | | $ | 401 | |
As of December 31, 2022, the Company’s future undiscounted minimum cash payment obligations for its financing lease liabilities are as follows:
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| (In millions) | | Year Ending December 31, |
| 2023 | | $ | 7 | |
| 2024 | | 7 | |
| 2025 | | 4 | |
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| | |
| | |
| Total undiscounted future lease payments | | 18 | |
| Present value adjustment | | (1) | |
| Net financing lease liabilities | | $ | 17 | |
Supplemental cash flow information related to leases was as follows: | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | |
| Operating cash flows from operating leases | | $ | 104 | | | $ | 23 | |
| Financing cash flows from financing leases | | $ | 6 | | | $ | 2 | |
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Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating and financing leases is summarized below:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| Weighted-average remaining lease term (in years) | | | | |
| Operating leases | | 4.6 | | 5.7 |
| Financing leases | | 2.7 | | 3.7 |
| Weighted-average discount rate | | | | |
| Operating leases | | 3.3 | % | | 2.4 | % |
| Financing leases | | 2.4 | % | | 2.1 | % |
Legal Matters
Pennsylvania Office of Attorney General Matter
On June 16, 2020, the Office of Attorney General of the Commonwealth of Pennsylvania (“OAG”) informed the Company that it would pursue certain misdemeanor and felony charges in a Susquehanna County Magisterial District Court against the Company related to alleged violations of the Pennsylvania Clean Streams Law. On November 29, 2022, the Company and the OAG resolved these charges, with the Company pleading no contest to one misdemeanor and the OAG dismissing the remaining charges. In addition, the Company agreed to (i) make a one-time payment of $16 million to fund a public water line (or fund permanent water treatment systems if the water line is not constructed), (ii) provide temporary water treatment pending construction of the water line (which is reimbursable from the $16 million payment), and (iii) make a donation of $2,500 to the Clean Water Fund.
Concurrently, the Company and the Pennsylvania Department of Environmental Protection entered into a new Consent Order & Agreement dated November 29, 2022 (“COA”) concerning the nine-square mile area in Dimock, Pennsylvania. This COA replaced the December 15, 2010 Consent Order & Settlement Agreement and provides a framework for potential future development by utilizing horizontal drilling under the nine-square mile area, provided the Company satisfies certain conditions. The Company further agreed to (i) pay a fine of $444,000, (ii) investigate the feasibility of alleviating potential gas pressures near a specific pad, and (iii) plug and abandon various legacy wells no later than December 31, 2032. This COA also incorporates the requirements of the plea agreement regarding the $16 million payment and the provision regarding temporary water treatment.
Securities Litigation
In October 2020, a class action lawsuit styled Delaware County Emp. Ret. Sys. v. Cabot Oil and Gas Corp., et. al. (U.S. District Court, Middle District of Pennsylvania), was filed against the Company, Dan O. Dinges, its then Chief Executive Officer, and Scott C. Schroeder, its Chief Financial Officer, alleging that the Company made misleading statements in its periodic filings with the SEC in violation of Section 10(b) and Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The plaintiffs allege misstatements in the Company’s public filings and disclosures over a number of years relating to its potential liability for alleged environmental violations in Pennsylvania. The plaintiffs allege that such misstatements caused a decline in the price of the Company’s common stock when it disclosed in its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 two notices of violations from the Pennsylvania Department of Environmental Protection and an additional decline when it disclosed on June 15, 2020 the criminal charges brought by the Office of the Attorney General of the Commonwealth of Pennsylvania related to alleged violations of the Pennsylvania Clean Streams Law, which prohibits discharge of industrial wastes. The court appointed Delaware County Employees Retirement System to represent the purported class on February 3, 2021. In April 2021, the complaint was amended to include Phillip L. Stalnaker, the Company’s then Senior Vice President of Operations, as a defendant. The plaintiffs seek monetary damages, interest and attorney’s fees.
Also in October 2020, a stockholder derivative action styled Ezell v. Dinges, et. al. (U.S. District Court, Middle District of Pennsylvania) was filed against the Company, Messrs. Dinges and Schroeder and the Board of Directors of the Company serving at that time, for alleged securities violations under Section 10(b) and Section 21D of the Exchange Act arising from the same alleged misleading statements that form the basis of the class action lawsuit described above. In addition to the Exchange Act claims, the derivative actions also allege claims based on breaches of fiduciary duty and statutory contribution theories. In December 2020, the Ezell case was consolidated with a second derivative case filed in the U.S. District Court, Middle District of Pennsylvania with similar allegations. In January 2021, a third derivative case was filed in the U.S. District Court, Middle District of Pennsylvania with substantially similar allegations and it too was consolidated with the Ezell case in February 2021.
On February 25, 2021, the Company filed a motion to transfer the class action lawsuit to the U.S. District Court for the Southern District of Texas, in Houston, Texas, where its headquarters are located. On June 11, 2021, the Company filed a motion to dismiss the class action lawsuit on the basis that the plaintiffs’ allegations do not meet the requirements for pleading a claim under Section 10(b) or Section 20 of the Exchange Act. On June 22, 2021, the motion to transfer the class action lawsuit to the Southern District of Texas was granted. Pursuant to the prior agreement of the parties, the consolidated derivative case discussed in the preceding paragraph was also transferred to the Southern District of Texas on July 12, 2021. Subsequently, an additional stockholder derivative action styled Treppel Family Trust U/A 08/18/18 Lawrence A. Treppel and Geri D. Treppel for the benefit of Geri D. Treppel and Larry A. Treppel v. Dinges, et al. (U.S. District Court, Southern District of Texas, Houston Division), asserting substantially similar Delaware common law claims as in the existing derivative cases, was filed in the Southern District of Texas and consolidated with the existing consolidated derivative cases. On January 12, 2022, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss the class action lawsuit but allowed the plaintiffs to file an amended complaint. The class action plaintiffs filed their amended complaint on February 11, 2022. The Company filed a motion to dismiss the amended class action complaint on March 10, 2022. On August 10, 2022, the U.S. District Court for the Southern District of Texas granted in part and denied in part the Company’s motion to dismiss the amended class action complaint, dismissing certain claims with prejudice but allowing certain claims to proceed. The Company filed its answer to the amended class action complaint on September 14, 2022. With respect to the consolidated derivative cases, on April 1, 2022, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss such consolidated derivative cases but allowed the plaintiffs to file an amended complaint. The derivative plaintiffs filed their third amended complaint on May 16, 2022. The Company filed its motion to dismiss such amended complaint on June 24, 2022, and filed its reply in support of such motion to dismiss on September 4, 2022. The Company’s motion to dismiss the consolidated derivative cases is fully briefed and is pending for decision. The Company intends to vigorously defend the class action and derivative lawsuits.
In November 2020, the Company received a stockholder demand for inspection of books and records under Section 220 of the General Corporation Law of the State of Delaware (“Section 220 Demand”). The Section 220 Demand seeks broad categories of documents reviewed by the Board of Directors and minutes of meetings of the Board of Directors pertaining to alleged environmental violations in Pennsylvania, as well as documents relating to any board of directors conflicts of interest, dating from January 1, 2015 to the present. The Company also received three other similar requests from other stockholders in February and June 2021. On May 17, 2021, the Company was served with a complaint filed in the Court of Chancery of the State of Delaware by the stockholder making the February 2021 Section 220 Demand to compel the production of books and records requested. After making an agreed books and records production, the Section 220 complaint was voluntarily dismissed effective September 21, 2021. The Company also provided substantially the same books and records production in response to the other three Section 220 requests described above. It is possible that one or more additional stockholder suits could be filed pertaining to the subject matter of the Section 220 Demands and the class and derivative actions described above.
Other Legal Matters
The Company is a defendant in various other legal proceedings arising in the normal course of business. All known liabilities are accrued when management determines they are probable based on its estimate of the potential loss. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company’s financial position, results of operations or cash flows.
Contingency Reserves
When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters for which reserves have been established. The Company believes that any such amount above the amounts accrued would not be material to the Consolidated Financial Statements. Future changes in facts and circumstances not currently known or foreseeable could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.
9. Revenue Recognition
Disaggregation of Revenue
The following table presents revenues from contracts with customers disaggregated by product:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| OPERATING REVENUES | | | | | |
| Natural gas | $ | 5,469 | | | $ | 2,798 | | | $ | 1,405 | |
| Oil | 3,016 | | | 616 | | | — | |
| | | | | |
| NGL | 964 | | | 243 | | | — | |
| Other | 65 | | | 13 | | | — | |
| $ | 9,514 | | | $ | 3,670 | | | $ | 1,405 | |
| | | | | |
| | | | | |
All of the Company’s revenues from contracts with customers represent products transferred at a point in time as control is transferred to the customer and generated in the U.S.
Transaction Price Allocated to Remaining Performance Obligations
A significant number of the Company’s product sales contracts are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
As of December 31, 2022, the Company has $7.2 billion of unsatisfied performance obligations related to natural gas sales that have a fixed pricing component and a contract term greater than one year. The Company expects to recognize these obligations over the next 16 years.
Contract Balances
Receivables from contracts with customers are recorded when the right to consideration becomes unconditional, generally when control of the product has been transferred to the customer. Receivables from contracts with customers were $1.1 billion and $922 million as of December 31, 2022 and 2021, respectively, and are reported in accounts receivable, net in the Consolidated Balance Sheet. As of December 31, 2022 and 2021, the Company had no assets or liabilities related to its revenue contracts, including no upfront payments or rights to deficiency payments.
10. Income Taxes
Income tax expense is summarized as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Current | | | | | |
| Federal | $ | 791 | | | $ | 207 | | | $ | (32) | |
| State | 78 | | | 11 | | | 1 | |
| 869 | | | 218 | | | (31) | |
| Deferred | | | | | |
| Federal | 217 | | | 119 | | | 68 | |
| State | 18 | | | 7 | | | 4 | |
| 235 | | | 126 | | | 72 | |
| Income tax expense | $ | 1,104 | | | $ | 344 | | | $ | 41 | |
Income tax expense was different than the amounts computed by applying the statutory federal income tax rate as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (In millions, except rates) | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| Computed “expected” federal income tax | $ | 1,085 | | | 21.00 | % | | $ | 315 | | | 21.00 | % | | $ | 51 | | | 21.00 | % |
| State income tax, net of federal income tax benefit | 93 | | | 1.80 | % | | 24 | | | 1.59 | % | | 5 | | | 1.86 | % |
| Deferred tax adjustment related to change in overall state tax rate | (23) | | | (0.45) | % | | (7) | | | (0.46) | % | | 1 | | | 0.50 | % |
| Valuation allowance | (66) | | | (1.28) | % | | 3 | | | 0.22 | % | | (4) | | | (1.58) | % |
| Excess executive compensation | 10 | | | 0.20 | % | | 15 | | | 1.03 | % | | 5 | | | 2.18 | % |
| Reserve on uncertain tax positions | 6 | | | 0.12 | % | | 1 | | | 0.05 | % | | 6 | | | 2.47 | % |
| Tax credits generated | (34) | | | (0.66) | % | | (6) | | | (0.39) | % | | (23) | | | (9.63) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other, net | 33 | | | 0.62 | % | | (1) | | | (0.14) | % | | — | | | 0.04 | % |
| Income tax expense | $ | 1,104 | | | 21.35 | % | | $ | 344 | | | 22.90 | % | | $ | 41 | | | 16.84 | % |
In 2022, the Company's overall effective tax rate decreased compared to 2021, primarily due to a decrease in the non-deductible excess executive compensation paid in 2022 compared to 2021, tax benefits recorded in 2022 compared to 2021 from the release of valuation allowances primarily associated with state net operating loss carryforwards, and greater research and development tax credit benefits recorded in 2022 compared to 2021 related to amended prior-year returns. The overall effective tax rate increased in 2021 compared to 2020, primarily due to lower research and development tax credit benefits recorded in 2021 compared to 2020.
The composition of net deferred tax liabilities is as follows:
| | | | | | | | | | | |
| | December 31, |
| (In millions) | 2022 | | 2021 |
| Deferred Tax Assets | | | |
| Net operating losses | $ | 196 | | | $ | 388 | |
| | | |
| | | |
| | | |
| Incentive compensation | 24 | | | 23 | |
| Deferred compensation | 30 | | | 22 | |
| Post-retirement benefits | 4 | | | 8 | |
| | | |
| Capital loss carryforward | 16 | | | 30 | |
| Other credit carryforwards | 4 | | | 10 | |
| Leases | 13 | | | 11 | |
| Derivative instruments | — | | | 35 | |
| Other | 30 | | | 18 | |
| Less: valuation allowance | (110) | | | (177) | |
| Total | 207 | | | 368 | |
| Deferred Tax Liabilities | | | |
| Properties and equipment | 3,498 | | | 3,459 | |
| Equity method investments | 1 | | | 1 | |
| Leases | 14 | | | 9 | |
| Derivative instruments | 33 | | | — | |
| Total | 3,546 | | | 3,469 | |
| Net deferred tax liabilities | $ | 3,339 | | | $ | 3,101 | |
At December 31, 2022, the Company had federal net operating loss carryforwards of approximately $442 million, of which $378 million is subject to expiration in years 2035 through 2037, and of which $64 million does not expire. The Company has a valuation allowance on $37 million of the federal net operating losses, but believes the remaining $405 million will be fully utilized prior to expiration. The Company had gross state net operating losses of $2.6 billion at December 31, 2022, primarily expiring between 2022 and 2040, with all but $198 million covered by a valuation allowance. The Company had capital loss carryforwards of $71 million, which can only be used to offset future capital gains, and expires in 2024. Accordingly, all but $6 million has been offset with a valuation allowance. The Company also had enhanced oil recovery credits of $4 million at December 31, 2022 that are fully offset by valuation allowances.
As of December 31, 2022, the Company had $8 million of valuation allowances on the deferred tax benefits related to federal net operating losses, $83 million of valuation allowances on the deferred tax benefits related to state net operating losses, $15 million of valuation allowances on the deferred tax benefits related to capital loss carryforwards, and $4 million of valuation allowances on the deferred tax benefits related to enhanced oil recovery credits. The Company believes it is more likely than not that the remainder of its deferred tax benefits will be utilized prior to their expiration.
Unrecognized Tax Benefits
A reconciliation of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| Balance at beginning of period | | $ | 7 | | | $ | 6 | | | $ | 1 | |
| Additions for tax positions of current period | | 1 | | | 1 | | | — | |
Additions for tax positions of prior periods | | 5 | | | — | | | 5 | |
| | | | | | |
| Balance at end of period | | $ | 13 | | | $ | 7 | | | $ | 6 | |
During 2022, the Company recorded a $1 million reserve for unrecognized tax benefits related to estimated current year research and development tax credits. In addition, the Company also recorded a $5 million reserve for unrecognized tax benefits related to research and development credits attributable to Cimarex for prior years. As of December 31, 2022, the Company’s overall net reserve for unrecognized tax positions was $13 million, with a $1 million liability for accrued interest on the uncertain tax positions. If recognized, the net tax benefit of $13 million would not have a material effect on the Company’s effective tax rate.
The Company files income tax returns in the U.S. federal, various states and other jurisdictions. The Company is no longer subject to examinations by state authorities before 2012 or by federal authorities before 2017. The Company believes that appropriate provisions have been made for all jurisdictions and all open years, and that any assessment on these filings will not have a material impact on the Company’s financial position, results of operations or cash flows.
Recent U.S. Tax Legislation
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law pursuant to the budget reconciliation process. The IRA introduced a new 15 percent corporate alternative minimum tax, effective for tax years beginning after December 31, 2022, on the adjusted financial statement income (“AFSI”) of corporations with average AFSI exceeding $1 billion over a three-year testing period. The IRA also introduced an excise tax of one percent on the fair market value of certain public company stock repurchases made after December 31, 2022. The Company is continuing to evaluate the IRA and its requirements, as well as the impact to the Company’s business.
11. Employee Benefit Plans
Postretirement Benefits
The Company provides certain health care benefits for legacy retired employees of Cabot Oil & Gas Corporation, including their spouses, eligible dependents and surviving spouses (retirees). These benefits are commonly called postretirement benefits. The health care plans are contributory, with participants’ contributions adjusted annually. Most legacy employees of Cabot Oil & Gas Corporation become eligible for these benefits if they meet certain age and service requirements at retirement.
The Company provided postretirement benefits to 320 retirees and their dependents at the end of 2022 and 364 retirees and their dependents at the end of 2021.
During 2022, the Company amended its postretirement plans to phase out all postretirement benefits and freeze future participation in the plan. The plan amendment provides that certain employees will be grandfathered and remain eligible for future participation in the pre-65 plan upon their retirement based on certain age and years of service criteria, while the post-65 benefit for all plan participants that reach the age of 65 after December 31, 2022, including current retirees participating the pre-65 plan, will be eliminated. Existing retirees participating in both the pre-65 and post-65 plans prior to December 31, 2022 will continue to receive benefits under the plan until the age of 65 in the case of the pre-65 participants, or voluntary termination of benefits or by death in the case of post-65 participants.
Obligations and Funded Status
The funded status represents the difference between the accumulated benefit obligation of the Company’s postretirement plan and the fair value of plan assets at December 31. The postretirement plan does not have any plan assets; therefore, the unfunded status is equal to the amount of the December 31 accumulated benefit obligation.
The change in the Company’s postretirement benefit obligation is as follows: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Change in Benefit Obligation | | | | | |
Benefit obligation at beginning of period | $ | 35 | | | $ | 33 | | | $ | 34 | |
| Service cost | 2 | | | 2 | | | 2 | |
| Interest cost | 1 | | | 1 | | | 1 | |
| Actuarial (gain) loss | (15) | | | 1 | | | (2) | |
| Benefits paid | (2) | | | (2) | | | (2) | |
| | | | | |
| Plan amendments | (3) | | | — | | | — | |
Benefit obligation at end of period | $ | 18 | | | $ | 35 | | | $ | 33 | |
| Change in Plan Assets | | | | | |
Fair value of plan assets at end of period | — | | | — | | | — | |
Funded status at end of period | $ | (18) | | | $ | (35) | | | $ | (33) | |
| Amounts recognized in balance sheet | | | | | |
| Current liabilities | $ | 1 | | | $ | 2 | | | $ | 2 | |
| Non-current liabilities | 17 | | | 33 | | | 31 | |
| Net amount | $ | 18 | | | $ | 35 | | | $ | 33 | |
| Amounts recognized in accumulated other comprehensive income (loss) | | | | | |
| Net actuarial (gain) loss | $ | (15) | | | $ | — | | | $ | — | |
| Prior service credit | (3) | | | (2) | | | (3) | |
| Total | $ | (18) | | | $ | (2) | | | $ | (3) | |
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Components of Net Periodic Postretirement Benefit Cost | | | | | |
| Service cost | $ | 2 | | | $ | 2 | | | $ | 2 | |
| Interest cost | 1 | | | 1 | | | 1 | |
Amortization of prior service credit | (1) | | | (1) | | | (1) | |
| | | | | |
| Net periodic postretirement cost | $ | 2 | | | $ | 2 | | | $ | 2 | |
| Recognized curtailment gain | (1) | | | — | | | — | |
| Total post retirement cost | $ | 1 | | | $ | 2 | | | $ | 2 | |
| Other Changes in Benefit Obligations Recognized in Other Comprehensive Income | | | | | |
| Net gain | $ | (15) | | | $ | — | | | $ | (2) | |
Prior service credit | (1) | | | — | | | — | |
Amortization of prior service credit | 1 | | | 1 | | | 1 | |
| | | | | |
| Total recognized in other comprehensive income | (15) | | | 1 | | | (1) | |
| Total recognized in net periodic benefit cost (income) and other comprehensive income | $ | (14) | | | $ | 3 | | | $ | 1 | |
Assumptions
Assumptions used to determine projected postretirement benefit obligations and postretirement costs are as follows: | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
Discount rate(1) | 5.55 | % | | 2.85 | % | | 2.65 | % |
| Health care cost trend rate for medical benefits assumed for next year (pre-65) | 8.00 | % | | 6.50 | % | | 6.75 | % |
| Health care cost trend rate for medical benefits assumed for next year (post-65) | 4.50 | % | | 4.75 | % | | 5.00 | % |
| Ultimate trend rate (pre-65) | 4.50 | % | | 4.50 | % | | 4.50 | % |
| Ultimate trend rate (post-65) | 4.50 | % | | 4.50 | % | | 4.50 | % |
| Year that the rate reaches the ultimate trend rate (pre-65) | 2030 | | 2030 | | 2030 |
| Year that the rate reaches the ultimate trend rate (post-65) | 2023 | | 2023 | | 2023 |
_______________________________________________________________________________
(1)Represents the year end rates used to determine the projected benefit obligation. To compute postretirement cost in 2022, 2021 and 2020, the beginning of year discount rates of 2.85 percent, 2.65 percent and 3.50 percent, respectively, were used.
Coverage provided to participants age 65 and older is under a fully-insured arrangement. The Company subsidy is limited to 60 percent of the expected annual fully-insured premium for participants age 65 and older. For all participants under age 65, the Company subsidy for all retiree medical and prescription drug benefits, beginning January 1, 2006, was limited to an aggregate annual amount not to exceed $648,000. This limit increases by three percent annually thereafter.
Cash Flows
Contributions. The Company expects to contribute approximately $1 million to the postretirement benefit plan in 2023.
Estimated Future Benefit Payments. The following estimated benefit payments under the Company’s postretirement plans, which reflect expected future service, are expected to be paid as follows:
| | | | | |
| (In millions) | |
| 2023 | $ | 1 | |
| 2024 | 1 | |
| 2025 | 1 | |
| 2026 | 1 | |
| 2027 | 1 | |
| Years 2028 - 2032 | 6 | |
Retirement Savings Plan
The Company has a Retirement Savings Plan (“RSP”), which is a defined contribution plan. The Company matches a portion of employees’ contributions in cash. Participation in the RSP is voluntary and all employees of the Company are eligible to participate. The Company matches employee contributions dollar-for-dollar, up to the maximum Internal Revenue Service (“IRS”) limit, on the first six percent of an employee’s pretax earnings. The RSP also provides for discretionary contributions in an amount equal to 10 percent of an eligible plan participant’s salary and bonus.
In connection with the Merger, the Company assumed the Cimarex Energy Co. 401(k) Plan (the “401(k) Plan”) with respect to Cimarex employees. The Company maintained this plan throughout the integration process and terminated this plan effective December 31, 2022, with all legacy Cimarex employees becoming eligible for the Company’s RSP effective January 1, 2023.
During the years ended December 31, 2022, 2021 and 2020, the Company made aggregate contributions to the RSP and 401(k) Plan of $12 million, $7 million and $6 million, respectively, which are included in general and administrative expense in the Consolidated Statement of Operations. The Company’s common stock was an investment option within the RSP and the 401(k) Plan. Effective December 31, 2022, investment in the Company’s common stock is no longer an option.
Deferred Compensation Plans
The Company has deferred compensation plans which are available to officers and select employees and act as a supplement to the RSP. The Internal Revenue Code does not cap the amount of compensation that may be taken into account for purposes of determining contributions to the deferred compensation plans and does not impose limitations on the amount of contributions to the deferred compensation plans. At the present time, the Company anticipates making a contribution to the deferred compensation plans on behalf of a participant in the event that Internal Revenue Code limitations cause a participant to receive less than the Company contribution under the RSP.
The assets of the deferred compensation plans are held in a rabbi trust and are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.
Under the deferred compensation plans, the participants direct the deemed investment of amounts credited to their accounts. The trust assets are invested in either mutual funds that cover the investment spectrum from equity to money market, or may include holdings of the Company’s common stock, which is funded by the issuance of shares to the trust. The mutual funds are publicly traded and have market prices that are readily available. The Company’s common stock is no longer an investment option in the deferred compensation plan effective December 31, 2022. All outstanding Coterra shares previously held in the trust will be liquidated in March 2023. Shares of the Company’s stock currently held in the deferred compensation plan represent vested performance share awards that were previously deferred into the rabbi trust. Settlement payments are made to participants in cash, either in a lump sum or in periodic installments. The market value of the trust assets, excluding the Company’s common stock, was $43 million and $47 million at December 31, 2022 and 2021, respectively, and is included in other assets in the Consolidated Balance Sheet. Related liabilities, including the Company’s common stock, totaled $55 million and $56 million at December 31, 2022 and 2021, respectively, and are included in other liabilities in the Consolidated Balance Sheet. Increases (decreases) in the fair value of the Company’s common stock are recognized as compensation expense (benefit) in general and administrative expense in the Consolidated Statement of Operations. There is no impact on earnings or earnings per share from the changes in market value of the other deferred compensation plan assets because the changes in market value of the trust assets are offset completely by changes in the value of the liability, which represents trust assets belonging to plan participants.
As of December 31, 2022 and 2021, 495,774 shares of the Company’s common stock were held in the rabbi trust, respectively. These shares were recorded at the market value on the date of deferral, which totaled $5 million and is included in additional paid-in capital in stockholders’ equity in the Consolidated Balance Sheet.
On September 30, 2021, certain executives of the Company entered into letter agreements whereby, in exchange for the cancellation of their rights under their change-in-control agreements and the non-competition and non-solicitation provisions contained in the letter agreements, each such executive would receive a contribution into his or her deferred compensation account at the effective time of the Merger. On October 1, 2021, the Company made deferred contribution payments totaling approximately $19 million into such executives’ deferred compensation accounts. All of such contributions are fully vested.
In connection with the Merger, the Company assumed the Cimarex deferred compensation plan. The market value of the trust assets and related liabilities was $27 million at the effective date of the Merger, October 1, 2021. Subsequent to the completion of the Merger, in October 2021, the Company distributed $27 million to the plan participants as a result of the change-in-control provision under the plan.
The Company made contributions to the deferred compensation plans of $1 million, $20 million and $1 million in 2022, 2021 and 2020, respectively, which are included in general and administrative expense in the Consolidated Statement of Operations.
12. Capital Stock
Issuance of Common Stock
Following the effectiveness of the Merger, on October 1, 2021, the Company issued approximately 408.2 million shares of its common stock to Cimarex stockholders under the terms of the Merger Agreement.
In October 2021, in accordance with the Merger Agreement, the Company issued 3.4 million shares of restricted stock to replace Cimarex restricted stock awards granted to certain employees. Because these awards have non-forfeitable rights to dividends or dividend equivalents, the Company considers these shares as issued common stock.
Increase in Number of Authorized Shares
On September 29, 2021, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of Company common stock from 960,000,000 shares to 1,800,000,000 shares. That amendment became effective on October 1, 2021.
Dividends
Common Stock
The following table summarizes the dividends the Company has paid on its common stock during 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Rate per share | | |
| | Base | | Variable | | Total | | Total Dividends Paid (In millions) |
| 2022: | | | | | | | | |
| First quarter | | $ | 0.15 | | | $ | 0.41 | | | $ | 0.56 | | | $ | 455 | |
| Second quarter | | 0.15 | | 0.45 | | | 0.60 | | | 484 | |
| Third quarter | | 0.15 | | 0.50 | | | 0.65 | | | 519 | |
| Fourth quarter | | 0.15 | | 0.53 | | | 0.68 | | | 533 | |
| Total year-to-date | | $ | 0.60 | | | $ | 1.89 | | | $ | 2.49 | | | $ | 1,991 | |
| 2021: | | | | | | | | |
| First quarter | | $ | 0.10 | | | $ | — | | | $ | 0.10 | | | $ | 40 | |
| Second quarter | | 0.11 | | — | | | 0.11 | | | 44 | |
| Third quarter | | 0.11 | | — | | | 0.11 | | | 44 | |
Fourth quarter (1) | | 0.13 | | 0.67 | | | 0.80 | | | 651 | |
| Total year-to-date | | $ | 0.45 | | | $ | 0.67 | | | $ | 1.12 | | | $ | 779 | |
| 2020: | | | | | | | | |
| First quarter | | $ | 0.10 | | | $ | — | | | $ | 0.10 | | | $ | 40 | |
| Second quarter | | 0.10 | | | — | | | 0.10 | | | 40 | |
| Third quarter | | 0.10 | | | — | | | 0.10 | | | 40 | |
| Fourth quarter | | 0.10 | | | — | | | 0.10 | | | 39 |
| Total year-to-date | | $ | 0.40 | | | $ | — | | | $ | 0.40 | | | $ | 159 | |
_______________________________________________________________________________
(1)Includes a special dividend of $0.50 per share on the Company’s common stock that was paid in connection with the completion of the Merger.
Subsequent Event. In February 2023, the Company’s Board of Directors approved an increase in the base quarterly dividend from $0.15 per share to $0.20 per share beginning in the first quarter of 2023, and approved a quarterly base dividend of $0.20 per share and a variable dividend of $0.37 per share, resulting in a base-plus-variable dividend of $0.57 per share on the Company’s common stock.
Cimarex Redeemable Preferred Stock
During 2022 and 2021, the Company paid dividends of $1 million each year, or $20.3125 per share on the outstanding shares of Preferred Stock (as defined below) issued by Cimarex.
Treasury Stock
In February 2022, the Company’s Board of Directors terminated the previously authorized share repurchase program and authorized a new share repurchase program. This new share repurchase program authorized the Company to purchase up to $1.25 billion of the Company’s common stock in the open market or in negotiated transactions.
During 2022, the Company repurchased 48 million shares of common stock for $1.25 billion under the February 2022 share repurchase program. During 2021 and 2020, there were no share repurchases under the prior share repurchase program. As of December 31, 2022, the Company’s February 2022 repurchase program was fully executed.
During 2022 and 2021, the Company withheld 320,236 and 125,067 shares of common stock, respectively, valued at $9 million and $3 million, respectively, related to shares withheld for taxes upon the vesting of certain restricted stock awards.
In December 2022, the Company’s Board of Directors authorized the retirement of the Company’s common stock held in treasury and as of December 31, 2022, there were no common shares held in treasury stock on the Consolidated Balance Sheet. Prospectively, share repurchases and shares withheld for the vesting of stock awards will be retired in the period in which they are repurchased or withheld.
Subsequent Event. In February 2023, the Company’s Board of Directors approved a new share repurchase program which authorizes the purchase of up to $2.0 billion of the Company’s common stock.
Dividend Restrictions
The Board of Directors of the Company determines the amount of future cash dividends, if any, to be declared and paid on the common stock depending on, among other things, the Company’s financial condition, funds from operations, the level of its capital and exploration expenditures and its future business prospects. None of the senior note or credit agreements in place have restricted payment provisions or other provisions which currently limit the Company’s ability to pay dividends.
Cimarex Redeemable Preferred Stock
In October 2021, in connection with the Merger, the Company effectively assumed the obligations associated with Cimarex’s preferred stock, par value $0.01 per share, designated as 8 1/8% Series A Cumulative Perpetual Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock was originally issued by Cimarex and remains on the Cimarex balance sheet after the Merger. The fair value of the Preferred Stock as of the effective date of the Merger was $50 million. The Company accounts for the Preferred Stock as a non-controlling interest, which is immaterial for reporting purposes.
In May 2022, the holders of 21,900 shares of Preferred Stock elected to convert their Preferred Stock into Coterra common stock and cash. As a result of the conversion, the holders received 809,846 shares of Coterra common stock and $10 million in cash according to the terms of the Certificate of Designations for the Preferred Stock. The book value of the converted shares was $39 million, and upon conversion the excess of carrying value over cash paid was credited to additional paid-in capital. There was no gain or loss recognized on the transaction because it was completed in accordance with the original terms of the Certificate of Designations for the Preferred Stock. At December 31, 2022, there were 6,125 shares of Preferred Stock outstanding with a carrying value of $11 million.
13. Stock-Based Compensation
Incentive Plans
Cabot Oil & Gas Corporation 2014 Incentive Plan
On May 1, 2014, the Company’s stockholders approved the Cabot Oil & Gas Corporation 2014 Incentive Plan (the “2014 Plan”). Under the 2014 Plan, incentive and non-statutory stock options, stock appreciation rights (“SARs”), stock awards, cash awards and performance share awards may be granted to key employees, consultants and officers of the Company. Non-employee directors of the Company may be granted discretionary awards under the 2014 Plan consisting of stock options or stock awards. A total of 18.0 million shares of common stock may be issued under the 2014 Plan. Under the 2014 Plan, no more than 10.0 million shares may be issued pursuant to incentive stock options. No additional awards may be granted under the 2014 Plan on or after May 1, 2024. At December 31, 2022, approximately 9.5 million shares are available for issuance under the 2014 Plan.
Cimarex Energy Co. Amended and Restated 2019 Equity Incentive Plan
In connection with the Merger, the Company assumed all rights and obligations under the Cimarex Energy Co. Amended and Restated 2019 Equity Incentive Plan (the “2019 Plan”) and the Company will be entitled to grant equity or equity-based awards with respect to Coterra common stock under the 2019 Plan to current or former employees of Cimarex, to the extent permissible under applicable law and NYSE listing rules. The 2019 Plan provides for grants of stock options, SARs, restricted stock, restricted stock units, performance stock units, cash awards and other stock-based awards. As of December 31, 2022, approximately 35.2 million shares of Coterra common stock are available for issuance under the 2019 Plan, subject to certain limitations.
General
Stock-based compensation expense of awards issued under the Company’s incentive plans, and the income tax benefit of awards vested and exercised, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Restricted stock units - employees and non-employee directors | | $ | 31 | | | $ | 6 | | | $ | 2 | |
| Restricted stock awards | | 20 | | | 6 | | | — | |
Performance share awards (1) | | 22 | | | 41 | | | 40 | |
| Deferred performance shares | | 2 | | | 1 | | | (1) | |
| Dividend equivalents | | 11 | | | 3 | | | 2 | |
| Total stock-based compensation expense | | $ | 86 | | | $ | 57 | | | $ | 43 | |
| Income tax benefit | | $ | 20 | | | $ | 24 | | | $ | 10 | |
_______________________________________________________________________________
(1) In accordance with the Merger Agreement, the Company recognized approximately $18 million of stock-based compensation expense in the fourth quarter of 2021 associated with the acceleration of vesting of certain performance share awards. In the third quarter of 2022, the Company recognized approximately $7 million of stock-based compensation expense associated with the acceleration of vesting of certain employee performance awards.
Restricted Stock Units - Employees
Restricted stock units are granted from time to time to employees of the Company. The fair value of restricted stock unit grants is based on the closing stock price on the grant date. Restricted stock units generally vest either at the end of a three year service period or on a graded or graduated vesting basis at each anniversary date over a three or four year service period. The restricted stock units are settled in shares of the Company’s common stock on the vesting date.
For awards that vest at the end of the service period, expense is recognized ratably using a straight-line approach over the service period. Under the graded or graduated approach, the Company recognizes compensation cost ratably over the requisite service period, as applicable, for each separately vesting tranche as though the awards are, in substance, multiple awards. For most restricted stock units, vesting is dependent upon the employees’ continued service with the Company, with the exception of employment termination due to death, disability or, if applicable, retirement. If retirement protection is included in the grant award, the Company accelerates the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company’s stock-based compensation programs.
The Company used an annual forfeiture rate assumption ranging from zero to five percent for purposes of recognizing stock-based compensation expense for these restricted stock units. The annual forfeiture rates were based on the Company’s actual forfeiture history or expectations for this type of award to various employee groups.
The following table is a summary of restricted stock unit award activity:
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | | | | |
| | Shares | | Weighted-
Average Grant
Date Fair Value
per Unit | | | | | | | | |
| Outstanding at beginning of period | 1,286,471 | | | $ | 21.00 | | | | | | | | | |
| Granted | 2,249,405 | | | 24.81 | | | | | | | | | |
| Vested | (316,322) | | | 22.75 | | | | | | | | | |
| Forfeited | (31,410) | | | 25.25 | | | | | | | | | |
Outstanding at end of period | 3,188,144 | | | $ | 23.47 | | | | | | | | | |
The weighted-average grant date fair value per unit granted during 2022 and 2021 was $24.81 and $20.83, respectively. There were no units granted in 2020.
Restricted Stock Units - Non-Employee Directors
Restricted stock units are granted from time to time to non-employee directors of the Company. The fair value of the restricted stock units is based on the closing stock price on the grant date. Prior to 2022, these units vested on the grant date, compensation was recorded immediately and the shares of the Company’s common stock are issued when the director ceases to be a director of the Company. Beginning in 2022, these units will generally vest the earlier of a one-year service period or termination from the Board of Directors with compensation expense recognized ratably over the vesting period and the units will be settled in shares of the Company’s common stock on the vesting date.
The Company did not use an annual forfeiture rate for purposes of recognizing stock-based compensation expense for these restricted stock units. The annual forfeiture rate assumption was based on the Company’s actual forfeiture history or expectations for this type of award.
The following table is a summary of restricted stock unit award activity: | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | | | | |
| | Shares | | Weighted-
Average Grant
Date Fair Value
per Unit | | | | | | | | |
| Outstanding at beginning of period | 245,898 | | | $ | 20.41 | | | | | | | | | |
| | | | | | | | | | | |
Granted | 45,472 | | | 35.19 | | | | | | | | | |
Vested | — | | | — | | | | | | | | | |
| Forfeited | — | | | — | | | | | | | | | |
Outstanding at end of period | 291,370 | | | $ | 22.72 | | | | | | | | | |
The weighted-average grant date fair value per unit granted during 2022, 2021 and 2020 was $35.19, $18.51 and $15.88, respectively.
Restricted Stock Awards
Restricted stock awards are granted from time to time to employees of the Company. The fair value of restricted stock grants is based on the closing stock price on the grant date. Restricted stock awards generally vest either at the end of a three year service period or on a graded or graduated vesting basis at each anniversary date over a three year service period.
For awards that vest at the end of the service period, expense is recognized ratably using a straight-line approach over the service period. Under the graded or graduated approach, the Company recognizes compensation cost ratably over the requisite service period, as applicable, for each separately vesting tranche as though the awards are, in substance, multiple awards. For most restricted stock awards, vesting is dependent upon the employees’ continued service with the Company, with the exception of employment termination due to death, disability or, if applicable, retirement. If retirement protection is included in the grant award, the Company accelerates the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company’s stock-based compensation programs.
The Company used an annual forfeiture rate assumption of ranging from zero to 15 percent for purposes of recognizing stock-based compensation expense for restricted stock awards. The annual forfeiture rates were based on the Company’s actual forfeiture history for this type of award to various employee groups.
The following table is a summary of restricted stock award activity: | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| |
| | Shares | | Weighted-
Average Grant
Date Fair Value
per Share | | | | | | | | |
| Outstanding at beginning of period | 3,019,183 | | | $ | 22.25 | | | | | | | | | |
| Granted | — | | | — | | | | | | | | | |
| Vested | (813,812) | | | 22.25 | | | | | | | | | |
| Forfeited | (136,397) | | | 22.25 | | | | | | | | | |
Outstanding at end of period | 2,068,974 | | | $ | 22.25 | | | | | | | | | |
On October 1, 2021, the Company granted 3,364,354 shares of restricted stock, with a grant date value of $22.25 per share. These awards were replacement awards granted to Cimarex employees as provided under the Merger Agreement. The
fair value of these awards was measured based on the closing stock price on the closing date of the Merger (grant date). The remaining outstanding awards will vest over the next two years. Approximately $22 million of the grant date value was recognized as merger consideration and the remaining fair value will be recognized as stock-based compensation expense over the respective vesting periods. There were no restricted stock awards granted in 2022.
Performance Share Awards
From time to time, the Company grants performance share awards that are based on performance conditions measured against the Company’s internal performance metrics or based on the Company’s performance relative to a predetermined peer group and/or industry-related indices (“TSR Performance Share Awards”). The performance period for these awards generally commences on February 1 of the respective year in which the award was granted and extends over a three-year performance period. For most performance share awards, vesting is dependent upon the employees’ continued service with the Company, with the exception of employment termination due to death, disability or, if applicable, retirement. For all outstanding performance share awards, the Company did not use an annual forfeiture rate for purposes of recognizing stock-based compensation expense for its performance share awards. The annual forfeiture rate assumption was based on the Company’s actual forfeiture history or expectations for this type of award.
Performance Share Awards Based on Internal Performance Metrics
The fair value of performance share award grants based on internal performance metrics is based on the closing stock price on the grant date. Each performance share award represents the right to receive up to 100 percent of the award in shares of common stock.
Employee Performance Share Awards. The Employee Performance Share Awards vest at the end of the three-year performance period and the performance metric are set by the Company’s Compensation Committee. An employee will earn 100 percent of the award on the third anniversary, provided that the Company averages $100 million or more of operating cash flow during the three-year performance period. Based on the Company’s probability assessment at December 31, 2022, it is considered probable that all of the criteria for these awards will be met.
The following table is a summary of activity for Employee Performance Share Awards: | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | | | | |
| | Shares | | Weighted-
Average Grant
Date Fair Value
per Share | | | | | | | | |
| Outstanding at beginning of period | 1,858,104 | | | $ | 18.93 | | | | | | | | | |
| Granted | — | | | — | | | | | | | | | |
Vested | (1,775,790) | | | 18.88 | | | | | | | | | |
| Forfeited | (9,000) | | | 17.20 | | | | | | | | | |
| Outstanding at end of period | 73,314 | | | $ | 20.46 | | | | | | | | | |
During 2022, the compensation committee of the Board of Directors of the Company certified that the performance conditions for certain of the Employee Performance Share Awards that were granted in 2020 and 2021 had been met. In July 2022, 1,775,790 shares with a grant date fair value of $22 million were issued and fully vested.
Performance Share Awards Based on Market Conditions
These awards have both an equity and liability component, with the right to receive up to the first 100 percent of the award in shares of common stock and the right to receive up to an additional 100 percent of the value of the award in excess of the equity component in cash. The equity portion of these awards is valued on the grant date and is not marked to market, while the liability portion of the awards is valued as of the end of each reporting period on a mark-to-market basis. The Company calculates the fair value of the equity and liability portions of the awards using a Monte Carlo simulation model.
TSR Performance Share Awards. The TSR Performance Share Awards granted are earned, or not earned, based on the comparative performance of the Company’s common stock measured against a predetermined group of companies in the Company’s peer group and certain industry-related indices over a three-year performance period. The Company’s TSR Performance Share Awards also include a feature that will reduce the potential cash component of the award if the actual performance is negative over the three-year period and the base calculation indicates an above-target payout.
The following table is a summary of activity for the TSR Performance Share Awards: | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | | | | |
| | Shares | | Weighted- Average Grant Date Fair Value per Unit (1) | | | | | | | | |
| Outstanding at beginning of period | — | | | $ | — | | | | | | | | | |
| Granted | 1,161,599 | | | 17.89 | | | | | | | | | |
Vested | — | | | — | | | | | | | | | |
| Forfeited | — | | | — | | | | | | | | | |
| Outstanding at end of period | 1,161,599 | | | $ | 17.89 | | | | | | | | | |
_______________________________________________________________________________ (1)The grant date fair value figures in this table represent the fair value of the equity component of the performance share awards.
The following table reflects certain balance sheet information of outstanding TSR Awards:
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2022 | | 2021 |
| | | | |
| Other non-current liabilities | | $ | 3 | | | $ | — | |
The following table reflects certain cash payments related to the vesting of TSR Awards:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| Cash payments for TSR awards | | $ | — | | | $ | — | | | $ | 14 | |
The following assumptions were used to determine the grant date fair value of the equity component of the TSR Performance Share Awards for the respective periods: | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Fair value per performance share award granted during the period | $ | 9.01 | | | $ | 16.07 | | | $ | 13.79 | |
| Assumptions | | | | | |
| Stock price volatility | 42.6 | % | | 39.8 | % | | 29.5 | % |
| Risk free rate of return | 4.4 | % | | 0.2 | % | | 1.4 | % |
| | | | | |
The following assumptions were used to determine the fair value of the liability component of the TSR Performance Share Awards for the respective periods: | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 | | 2020 |
| Fair value per performance share award at the end of the period | $14.92 | | $ | — | | $10.37 - $10.81 |
| Assumptions | | | | | |
| Stock price volatility | 42.6 | % | | — | % | 42.4% - 52.4% |
| Risk free rate of return | 4.4 | % | | — | % | | 0.1% |
| | | | | |
The stock price volatility was calculated using historical closing stock price data for the Company for the period associated with the expected term through the grant date of each award. The risk free rate of return percentages are based on the continuously compounded equivalent of the U.S. Treasury within the expected term as measured on the grant date.
Other Information
The following table reflects the aggregate fair value of awards and units that vested during the respective period:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| Restricted stock units - employees and non-employee directors | | $ | 9 | | | $ | 11 | | | $ | — | |
| Restricted stock awards | | 22 | | | 7 | | | — | |
| Performance share awards | | 45 | | | 84 | | | 25 | |
| | $ | 76 | | | $ | 102 | | | $ | 25 | |
The following table reflects the unrecognized stock-based compensation and the related weighted-average recognition period associated with the unvested awards and units as of December 31, 2022:
| | | | | | | | | | | | | | |
| | Unrecognized Stock-Based Compensation
(In Millions) | | Weighted-Average Period For Recognition
(Years) |
| Restricted stock units - employees and non-employee directors | | $ | 48 | | | 2.2 |
| Restricted stock awards | | 21 | | 1.4 |
| Performance share awards | | 15 | | 1.9 |
| | $ | 84 | | | |
Stock Option Awards
On October 1, 2021, the Company granted stock option awards to purchase 1,577,554 shares of the Company’s common stock with exercise prices ranging from $8.47 to $28.72 per share. These awards were replacement awards granted to Cimarex employees as provided under the Merger Agreement and were fully vested on the closing date of the Merger. The grant date fair value of approximately $14 million was recognized as merger consideration and, accordingly, no compensation expense will be recognized by the Company related to these awards, as there is no future service requirement for the holders of these awards.
The following table is a summary of activity for the Stock Option Awards:
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
| | Shares | | Weighted-
Average Strike Price | | | | | | | | |
| Outstanding at beginning of period | 1,355,352 | | | $ | 17.35 | | | | | | | | | |
| Granted | — | | | — | | | | | | | | | |
Exercised | (780,606) | | | 16.29 | | | | | | | | | |
Forfeited or Expired | (38,137) | | | 28.67 | | | | | | | | | |
Outstanding at end of period(1) | 536,609 | | | $ | 18.08 | | | | | | | | | |
Exercisable at end of period(1) | 536,609 | | | $ | 18.08 | | | | | | | | | |
_______________________________________________________________________________(1)The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the stock option. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2022 was $4 million and $4 million, respectively. The weighted-average remaining contractual term is 2.6 years.
Deferred Performance Shares
As of December 31, 2022, 495,774 shares of the Company’s common stock representing vested performance share awards were deferred into the deferred compensation plan. During 2022, no shares were sold out of the plan. During 2022, an increase to the deferred compensation liability of $2 million was recognized, which represents the increase in the closing price of the Company’s shares held in the trust during the period. The increase in compensation expense was included in general and administrative expense in the Consolidated Statement of Operations.
14. Earnings per Common Share
Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is similarly calculated except that the common shares outstanding for the period is increased using the treasury stock and as-if-converted methods to reflect the potential dilution that could occur if outstanding stock awards were vested or exercised at the end of the applicable period. Anti-dilutive shares represent potentially dilutive securities that are excluded from the computation of diluted income or loss per share as their impact would be anti-dilutive.
The following is a calculation of basic and diluted net earnings per common share under the two-class method:
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (In millions except per share amounts) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Income (Numerator) | | | | | | |
| Net income | | $ | 4,065 | | | $ | 1,158 | | | $ | 201 | |
| Less: dividends attributable to participating securities | | (7) | | | (2) | | | — | |
| Less: Cimarex redeemable preferred stock dividends | | (1) | | | (1) | | | — | |
| Net income available to common stockholders | | $ | 4,057 | | | $ | 1,155 | | | $ | 201 | |
| | | | | | |
Shares (Denominator) | | | | | | |
| Weighted average shares - Basic | | 796 | | | 503 | | 399 |
| Dilution effect of stock awards at end of period | | 3 | | | 1 | | 2 |
| Weighted average shares - Diluted | | 799 | | | 504 | | 401 |
| | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | 5.09 | | | $ | 2.30 | | | $ | 0.50 | |
| Diluted | | $ | 5.08 | | | $ | 2.29 | | | $ | 0.50 | |
The following is a calculation of weighted-average shares excluded from diluted EPS due to the anti-dilutive effect:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method | | 1 | | | 1 | | | — | |
| | | | | | |
15. Restructuring Costs
During 2022 and 2021, the Company recognized $52 million and $44 million, respectively, of restructuring costs that are primarily related to workforce reductions and associated severance benefits that were triggered by the Merger. The following table summarizes the Company’s restructuring liabilities:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | | 2022 | | 2021 |
| Balance at beginning of period | | $ | 43 | | | $ | — | |
| Additions related to merger integration | | 52 | | | 44 |
| Reductions related to merger integration payments | | (18) | | | (1) | |
| Balance at end of period | | $ | 77 | | | $ | 43 | |
16. Additional Balance Sheet Information
Certain balance sheet amounts are comprised of the following: | | | | | | | | | | | |
| | December 31, |
| (In millions) | 2022 | | 2021 |
| Accounts receivable, net | | | |
| Trade accounts | $ | 1,067 | | | $ | 922 | |
| Joint interest accounts | 108 | | | 83 | |
| Other accounts | 48 | | | 34 | |
| 1,223 | | | 1,039 | |
| Allowance for doubtful accounts | (2) | | | (2) | |
| $ | 1,221 | | | $ | 1,037 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other assets | | | |
| Deferred compensation plan | $ | 43 | | | $ | 47 | |
| Debt issuance cost | 3 | | | 5 | |
| | | |
| | | |
| Operating lease right-of-use assets | 382 | | | 317 | |
| | | |
| Other accounts | 36 | | | 20 | |
| $ | 464 | | | $ | 389 | |
| Accounts payable | | | |
| Trade accounts | $ | 27 | | | $ | 94 | |
| | | |
| Royalty and other owners | 438 | | | 315 | |
| Accrued transportation | 85 | | | 96 | |
| Accrued capital costs | 148 | | | 88 | |
| Accrued lease operating costs | 32 | | | 29 | |
| Taxes other than income | 73 | | | 60 | |
| | | |
| | | |
| Other accounts | 41 | | | 65 | |
| $ | 844 | | | $ | 747 | |
| Accrued liabilities | | | |
| Employee benefits | $ | 74 | | | $ | 81 | |
| Taxes other than income | 62 | | | 13 | |
| | | |
| | | |
| Restructuring liability | 39 | | | 43 | |
| Operating lease liabilities | 114 | | | 69 | |
| Financing lease liabilities | 6 | | | 14 | |
| | | |
| Other accounts | 33 | | | 40 | |
| $ | 328 | | | $ | 260 | |
| Other liabilities | | | |
| Deferred compensation plan | $ | 55 | | | $ | 56 | |
| Postretirement benefits | 17 | | | 33 | |
| | | |
| Operating lease liabilities | 287 | | | 248 | |
| Financing lease liabilities | 11 | | | 7 | |
| Restructuring liability | 38 | | | — | |
| Other accounts | 92 | | | 63 | |
| $ | 500 | | | $ | 407 | |
17. Interest Expense, net
Interest expense is comprised of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Interest Expense, net | | | | | |
| Interest expense | $ | 110 | | | $ | 62 | | | $ | 49 | |
| Debt premium amortization | (37) | | | (10) | | | — | |
| Debt issuance cost amortization | 4 | | | 3 | | | 3 | |
| Other | (7) | | | 7 | | | 2 | |
| $ | 70 | | | $ | 62 | | | $ | 54 | |
18. Supplemental Cash Flow Information
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Cash paid for interest and income taxes | | | | | |
| Interest | $ | 119 | | | $ | 81 | | | $ | 57 | |
| Income taxes | 983 | | | 184 | | | 11 | |
| | | | | |
| Non-cash activity | | | | | |
| Retirement of treasury shares | $ | 3,085 | | | $ | — | | | $ | — | |
Equity and replacement stock awards issued as consideration in the Merger | $ | — | | | $ | 9,120 | | | $ | — | |
| | | | | |
| | | | | |
COTERRA ENERGY INC.
SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Oil and Gas Reserves
Proved reserves are based on estimates prepared by the Company in accordance with guidelines established by the SEC. Reserves definitions comply with definitions of Rule 4-10(a) of Regulation S-X promulgated by the SEC under the Securities Act.
Users of this information should be aware that the process of estimating quantities of “proved,” “proved developed” and “proved undeveloped” oil, natural gas and NGL reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserves estimates may occur from time to time. Although every reasonable effort is made to ensure that reserves estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.
Preparation of Reserves Estimates
All of the Company’s reserves estimates are maintained by the Company’s internal Corporate Reservoir Engineering group, which is comprised of engineers and engineering analysts. The objectives and management of this group are separate from and independent of the exploration and production functions of the Company. The primary objective of the Company’s Corporate Reservoir Engineering group is to maintain accurate forecasts on all properties of the Company through ongoing monitoring and timely updates of operating and economic parameters (production forecasts, prices and regional differentials, operating expenses, ownership, etc.). In addition, the Corporate Reservoir Engineering group maintains a set of basic guidelines and procedures to ensure that critical checks and reviews of the reserves database are performed on a regular basis.
The Corporate Reservoir Engineering group is responsible for estimates of proved reserves. Corporate engineers interact with the exploration and production departments to ensure all appropriate available engineering and geologic data is taken into account prior to establishing or revising an estimate. The recommended revisions of the corporate engineers are reviewed with the Manager of Corporate Reservoir Engineering and, after approval, entered into the reserves database by an engineering analyst. During the course of the year, the Corporate Reservoir Engineering group reviews their recommendations and updates with the Vice President and Chief Technology Officer for additional oversight and approval. From time to time, the Vice President and Chief Technology Officer also will confer with senior management, including the Chief Executive Officer, regarding reserves-related issues. Upon completion of the process, the estimated reserves are presented to senior management and the Board of Directors.
The Company’s Vice President and Chief Technology Officer is the technical person primarily responsible for overseeing the Company’s internal reserves estimation process and the Company’s Corporate Reservoir Engineering group. This individual graduated from the University of Tulsa with a Bachelor of Science degree in Petroleum Engineering. He has held numerous engineering and management roles and has over 15 years of experience in oil and gas reservoir evaluation and is a member of the Society of Petroleum Engineers.
The Company utilizes various methods and technologies to estimate its proved reserves, including analysis of production performance, analogy, decline curve analysis, rate and pressure transient analysis, reservoir simulation, material balance calculations, volumetric calculations, and in some cases a combination of these methods.
Review of Estimates by Third Party Engineers
The Company also engages independent petroleum engineering consulting firms as an additional confirmation of the reasonableness of its internal estimates.
During 2022, estimates of net proved reserves representing greater than 90 percent of the total future net revenue discounted at 10 percent attributable to the Company’s proved reserves were subject to an independent evaluation performed by DeGolyer and MacNaughton.
During 2021, 100 percent of the Company’s estimates with respect to the Company’s Marcellus Shale reserves were audited by Miller and Lents, Ltd. (“Miller and Lents”), and estimates of the net reserves representing greater than 80 percent of
the total future net revenue discounted at 10 percent attributable to the Company’s remaining reserves were subject to an independent evaluation performed by DeGolyer and MacNaughton.
During 2020, 100 percent of estimates of proved reserves were audited by Miller and Lents.
In each of the respective periods, DeGolyer and MacNaughton and Miller and Lents each indicated that, based on their investigations and subject to the limitations described in their reserves letters, they believe the Company’s estimates were, in the aggregate, reasonable. A copy of DeGolyer and MacNaughton’s letter regarding the 2022 reserves estimate has been filed as an exhibit to this Annual Report on Form 10-K.
Qualifications of Third Party Engineers
DeGolyer and MacNaughton’s Executive Vice President is the technical person primarily responsible for the evaluation of the Company’s proved reserves. He is a Registered Professional Engineer in the State of Texas with over 12 years of experience in oil and gas reservoir studies and reserves evaluations and meets the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. DeGolyer and MacNaughton is an independent firm of petroleum engineers, geologists, geophysicists and petro physicists; they do not own an interest in the Company’s properties and are not retained on a contingent fee basis.
Estimated Quantities of Proved Oil and Gas Reserves
Estimates of total proved reserves at December 31, 2022, 2021 and 2020 were computed using the trailing 12-month average index price for the respective commodity, calculated as the unweighted arithmetic average for the first day of the month price for each month during the respective year.
No major discovery or other favorable or unfavorable event after December 31, 2022, is believed to have caused a material change in the estimates of proved or proved developed reserves as of that date.
The following tables illustrate the Company’s net proved reserves, including changes, and proved developed and proved undeveloped reserves for the periods indicated, as estimated by the Company’s engineering staff. All reserves are located within the continental U.S.
| | | | | | | | | | | | | | | | | | | | | | | |
| |
Oil (MBbl) | | Natural Gas
(Bcf) | |
NGLs
(MBbl) | | Total
(MBoe) |
| December 31, 2019 | 22 | | | 12,903 | | | — | | | 2,150,422 | |
Revision of prior estimates | (3) | | | (347) | | | — | | | (57,808) | |
Extensions, discoveries and other additions | — | | | 1,974 | | | — | | | 328,976 | |
| Production | (4) | | | (858) | | | — | | | (142,954) | |
| | | | | | | |
| | | | | | | |
| December 31, 2020 | 15 | | | 13,672 | | | — | | | 2,278,636 | |
Revision of prior estimates | 10,837 | | | (538) | | | 16,797 | | | (61,967) | |
Extensions, discoveries and other additions | 2,633 | | | 973 | | | 6,100 | | | 170,988 | |
| Production | (8,150) | | | (911) | | | (7,104) | | | (167,113) | |
| Purchases of reserves in place | 184,094 | | | 1,699 | | | 204,822 | | | 672,038 | |
| | | | | | | |
| December 31, 2021 | 189,429 | | | 14,895 | | | 220,615 | | | 2,892,582 | |
Revision of prior estimates | 14,594 | | | (4,299) | | | 35,162 | | | (666,716) | |
Extensions, discoveries and other additions | 69,118 | | | 1,602 | | | 69,862 | | | 405,972 | |
| Production | (31,926) | | | (1,024) | | | (28,697) | | | (231,342) | |
| | | | | | | |
| Sales of reserves in place | (1,460) | | | (1) | | | (177) | | | (1,830) | |
| December 31, 2022 | 239,755 | | | 11,173 | | | 296,765 | | | 2,398,666 | |
| Proved Developed Reserves | | | | | | | |
| December 31, 2019 | 22 | | | 8,056 | | | — | | | 1,342,589 | |
| December 31, 2020 | 15 | | | 8,608 | | | — | | | 1,434,714 | |
| December 31, 2021 | 153,010 | | | 10,691 | | | 193,598 | | | 2,128,439 | |
| December 31, 2022 | 168,649 | | | 8,543 | | | 224,706 | | | 1,817,140 | |
| Proved Undeveloped Reserves | | | | | | | |
| December 31, 2019 | — | | | 4,847 | | | — | | | 807,833 | |
| December 31, 2020 | — | | | 5,064 | | | — | | | 843,922 | |
| December 31, 2021 | 36,419 | | | 4,204 | | | 27,017 | | | 764,143 | |
| December 31, 2022 | 71,107 | | | 2,630 | | | 72,059 | | | 581,526 | |
Year-end 2022 proved reserves decreased approximately 17 percent from year-end 2021 proved reserves to 2,399 MMBoe. Proved natural gas reserves were 11.2 Tcf, proved oil reserves were 240 MMBbls, and proved NGL reserves were 297 MMBbls. The Company’s reserves in the Marcellus Shale accounted for 62 percent of total proved reserves, the Permian Basin accounted for 29 percent, and the remaining nine percent were in the Anadarko Basin.
During 2022, the Company added 406 MMBoe of proved reserves through extensions, discoveries, and other additions, which included 191 MMBoe in the Marcellus Shale, 193 MMBoe in the Permian Basin, and 22 MMBoe in the Anadarko Basin.
The Company had net negative revisions of prior estimates of 667 MMBoe, which included 571 MMBoe in downward performance revisions related to updated forecast parameters in the Marcellus Shale to account for a different decline behavior observed in bounded wells compared to unbounded wells. The net negative revisions also included 168 MMBoe associated with the removal of PUD reserves in the Marcellus Shale whose development is expected to be delayed beyond five years of initial booking. These negative revisions in the Marcellus Shale were partially offset by 32 MMBoe in positive performance revisions in the Permian Basin, 39 MMBoe in positive revisions related to upward price revisions, and 1 MMBoe in positive revisions related to decreases in operating expenses.
During 2021, the Company added 171 MMBoe of proved reserves through extensions, discoveries, and other additions, which were primarily in the Marcellus Shale. Additionally, the Company added 672 MMBoe from purchases of reserves in place related to the acquisition of Cimarex’s oil and gas properties in connection with the Merger. The reserves acquired were primarily related to the Wolfcamp Shale and Bone Spring in the Permian Basin and the Woodford Shale in the Anadarko Basin. The Company also had net negative revisions of 62 MMBoe, which was primarily due to a 97 MMBoe downward performance
revision and a 6 MMBoe downward revision associated with PUD reclassifications as a result of the five-year limitation. These downward revisions were partially offset by a 42 MMBoe positive pricing and cost revision. The net downward performance revision of 97 MMBoe was primarily due to a 57 MMBoe performance revision related to certain proved developed reserves and a 40 MMBoe downward performance revision associated with PUD reserves.
During 2020, the Company added 329 MMBoe of proved reserves through extensions, discoveries, and other additions in the Marcellus Shale. The Company had net negative revisions of 58 MMBoe, which were primarily due to a net downward performance revision of 41 MMBoe and a downward revision of 11 MMBoe associated with PUD reclassifications as a result of the five-year limitation. The net downward performance revision of 41 MMBoe was primarily due to a downward performance revision of 61 MMBoe related to certain proved developed producing properties, partially offset by an upward revision of 21 MMBoe associated with the Company’s PUD reserves related to positive performance revisions as a result of drilling of longer lateral length wells.
Proved Undeveloped Reserves
At December 31, 2022, the Company had PUD reserves of 582 MMBoe, down 182 MMBoe, or 24 percent, from 764 MMBoe of PUD reserves at December 31, 2021. Future development plans are reflective of the current commodity price environment and have been established based on expected available cash flows from operations. By the end of 2023, the Company expects to complete substantially all the work necessary to convert its PUD reserves associated with wells that were drilled but uncompleted at December 31, 2022 to proved developed reserves. As of December 31, 2022 all PUD reserves are expected to be drilled and completed within five years of initial disclosure of these reserves. The following table is a reconciliation of the change in the Company’s PUD reserves (MMBoe): | | | | | |
| Year Ended December 31, 2022 |
Balance at beginning of period | 764 |
Transfers to proved developed | (280) |
Additions | 364 |
Revision of prior estimates | (266) |
Balance at end of period | 582 |
During 2022, the Company invested $945 million to develop and convert 37 percent of its 2021 PUD reserves to proved developed reserves. During 2021, the Company invested $565 million to develop and convert 31 percent of its 2020 PUD reserves to proved developed reserves. During 2020, the Company invested $456 million to develop and convert 37 percent of its 2019 PUD reserves to proved developed reserves.
During 2022, the Company’s 364 MMBoe of PUD reserves additions consisted of 172 MMBoe added in the Marcellus Shale, 171 MMBoe added in the Permian Basin, and 21 MMBoe added in the Anadarko Basin. At December 31, 2022, 62 percent of the Company’s PUD reserves were in the Marcellus Shale, 34 percent were in the Permian Basin and the remaining four percent were in the Anadarko Basin.
During 2022, the Company had a net negative PUD reserves revision of 266 MMBoe. Of this total, 100 MMBoe was related to a downward revision to PUD forecasts as a result of lower than expected well performance in the Marcellus Shale. The net negative revisions also included 168 MMBoe due to the removal of PUD reserves in the Marcellus Shale whose development is expected to be delayed beyond five years of initial date of booking due to the Company’s updated development plans, which resulted in changes to the timing of capital investments and well spacing in the Marcellus Shale. These negative revisions were partially offset by 2 MMBoe related to a positive revision to PUD forecasts in the Permian Basin as a result of better than expected well performance compared to previous proved reserves estimates.
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs relating to oil and gas producing activities and related accumulated depreciation, depletion and amortization were as follows:
| | | | | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Aggregate capitalized costs relating to oil and gas producing activities | $ | 22,235 | | | $ | 20,655 | | | $ | 7,154 | |
| Aggregate accumulated depreciation, depletion and amortization | (5,285) | | | (3,775) | | | (3,149) | |
| Net capitalized costs | $ | 16,950 | | | $ | 16,880 | | | $ | 4,005 | |
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities
Costs incurred in property acquisition, exploration and development activities were as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2022 | | 2021(1) | | 2020 |
| Property acquisition costs, proved | $ | — | | | $ | 7,472 | | | $ | — | |
| Property acquisition costs, unproved | 10 | | | 5,386 | | | 6 | |
| Exploration costs | 29 | | | 18 | | | 15 | |
| Development costs | 1,617 | | | 688 | | | 547 | |
| Total costs | $ | 1,656 | | | $ | 13,564 | | | $ | 568 | |
_______________________________________________________________________________(1)These amounts include the fair value of the proved and unproved properties recorded in the purchase price allocation with respect to the Merger. The purchase was funded through the issuance of the Company’s common stock.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following information has been developed based on oil and natural gas reserves and production volumes estimated by the Company’s engineering staff. It can be used for some comparisons, but should not be the only method used to evaluate the Company or its performance. Further, the information in the following table may not represent realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows (“Standardized Measure”) be viewed as representative of the current value of the Company.
The Company believes that the following factors should be taken into account when reviewing the following information:
•Future costs and selling prices will differ from those required to be used in these calculations.
•Due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate of production assumed in the calculations.
•Selection of a 10 percent discount rate is arbitrary and may not be a reasonable measure of the relative risk that is part of realizing future net oil and gas revenues.
•Future net revenues may be subject to different rates of income taxation.
Under the Standardized Measure, future cash inflows were estimated by using the trailing 12-month average index price for the respective commodity, calculated as the unweighted arithmetic average for the first day of the month price for each month during the year.
The average prices (adjusted for basis and quality differentials) related to proved reserves are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Natural gas | $ | 6.36 | | | $ | 2.93 | | | $ | 1.64 | |
Oil | $ | 93.67 | | | $ | 65.40 | | | $ | 32.53 | |
| NGLs | $ | 41.76 | | | $ | 25.74 | | | $ | — | |
In the above table, natural gas prices are stated per Mcf and oil and NGL prices are stated per barrel.
Future cash inflows were reduced by estimated future development and production costs based on year end costs to arrive at net cash flow before tax. Future income tax expense was computed by applying year end statutory tax rates to future pretax net cash flows, less the tax basis of the properties involved and utilization of available tax carryforwards related to oil and gas operations. The applicable accounting standards require the use of a 10 percent discount rate.
Management does not solely use the following information when making investment and operating decisions. These decisions are based on a number of factors, including estimates of proved reserves and varying price and cost assumptions considered more representative of a range of anticipated economic conditions.
Standardized Measure is as follows:
| | | | | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Future cash inflows | $ | 90,509 | | | $ | 60,908 | | | $ | 22,385 | |
| Future production costs | (20,105) | | | (18,241) | | | (10,784) | |
Future development costs(1) | (3,859) | | | (2,449) | | | (1,612) | |
| Future income tax expenses | (14,570) | | | (8,535) | | | (2,176) | |
| Future net cash flows | 51,975 | | | 31,683 | | | 7,813 | |
| 10% annual discount for estimated timing of cash flows | (25,903) | | | (18,399) | | | (4,751) | |
| Standardized measure of discounted future net cash flows | $ | 26,072 | | | $ | 13,284 | | | $ | 3,062 | |
______________________________________________________________________________(1)Includes $544 million, $390 million and $224 million in plugging and abandonment costs as of December 31, 2022, 2021 and 2020, respectively.
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following is an analysis of the changes in the Standardized Measure:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (In millions) | 2022 | | 2021 | | 2020 |
| Beginning of year | $ | 13,284 | | | $ | 3,062 | | | $ | 5,861 | |
| Discoveries and extensions, net of related future costs | 5,944 | | | 800 | | | 311 | |
| Net changes in prices and production costs | 17,462 | | | 9,573 | | | (4,326) | |
| Accretion of discount | 1,919 | | | 551 | | | 750 | |
| Revisions of previous quantity estimates | (3,825) | | | 467 | | | (108) | |
| Timing and other | 55 | | | (161) | | | 6 | |
| Changes in estimated future development costs | 65 | | | (103) | | | — | |
| Development costs incurred | 604 | | | 497 | | | 501 | |
| Sales and transfers, net of production costs | (7,912) | | | (2,801) | | | (746) | |
| Sales of reserves in place | (18) | | | (1) | | | — | |
| Purchases of reserves in place | — | | | 6,477 | | | — | |
| Net change in income taxes | (1,506) | | | (5,077) | | | 813 | |
| End of year | $ | 26,072 | | | $ | 13,284 | | | $ | 3,062 | |
