UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM			10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number 1-10447



COTERRA ENERGY INC.
(Exact name of registrant as specified in its charter)


Delaware						04-3072771
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

Three Memorial City Plaza

840 Gessner Road, Suite 1400, Houston, Texas 77024

(Address of principal executive offices, including ZIP code)

(281) 589-4600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	CTRA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~1, 2021,~~2, 2022, there were ~~813,577,639~~788,467,351 shares of Common Stock, Par Value $0.10 Per Share, outstanding.

Table of ~~Content~~sContents

COTERRA ENERGY INC.

INDEX TO FINANCIAL STATEMENTS


		Page
Part I. Financial Information

Item 1.	Financial Statements

Condensed Consolidated Balance Sheet (Unaudited) at September 30, ~~2021~~2022 and December 31, ~~2020~~2021		43

Condensed Consolidated Statement of Operations (Unaudited) for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021		54



Condensed Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021		65

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021		76

Notes to the Condensed Consolidated Financial Statements (Unaudited)		87



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3136

Item 4.	Controls and Procedures	3439

Part II. Other Information

Item 1.	Legal Proceedings	3540

Item 1A.	Risk Factors	3540

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3741



Item 6.	Exhibits	3842

Signatures		4144

Table of ~~Content~~s

~~EXPLANATORY NOTE~~

On October 1, 2021, Cabot Oil & Gas Corporation (“Cabot”) completed its previously announced merger transaction involving Cimarex Energy Co. (“Cimarex”) pursuant to which a wholly owned subsidiary of Cabot merged with and into Cimarex, with Cimarex surviving the merger as a subsidiary of Cabot (the “Merger”). After the Merger, Cabot changed its name to Coterra Energy Inc. (“Coterra” or the “Company”).

Although this Quarterly Report on Form 10-Q is filed after the completion of the Merger, unless otherwise specifically noted herein, information set forth herein only relates to the period as of and for the quarter and year-to-date periods ended September 30, 2021 and therefore does not include the information of Cimarex for those periods. Accordingly, unless otherwise specifically noted herein, references herein to Coterra, the Company, we, us, or our refer only to Coterra and its subsidiaries prior to the Merger and do not include Cimarex and its subsidiaries.

~~Table of Content~~sContents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)


(In millions, except share and per share amounts)	September 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	778	$	1,036
Restricted cash	10		10
Accounts receivable, net	1,419		1,037
Income taxes receivable	70		—
Inventories	57		39
Derivative instruments	8		7

Other current assets	8		7
Total current assets	2,350		2,136
Properties and equipment, net (Successful efforts method)	17,429		17,375




Other assets	526		389
	$	20,305	$	19,900

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,010	$	747
Current portion of long-term debt	44		—
Accrued liabilities	294		260
Income taxes payable	—		29
Interest payable	15		25

Derivative instruments	52		159

Total current liabilities	1,415		1,220
Long-term debt, net	2,188		3,125

Deferred income taxes	3,229		3,101
Asset retirement obligations	270		259



Other liabilities	533		407
Total liabilities	7,635		8,112

Commitments and contingencies

Cimarex redeemable preferred stock	11		50

Stockholders' equity
Common stock:
Authorized — 1,800,000,000 shares of $0.10 par value in 2022 and 2021, respectively
Issued — 895,539,411 shares and 892,612,010 shares in 2022 and 2021, respectively	90		89
Additional paid-in capital	10,992		10,911
Retained earnings	4,137		2,563
Accumulated other comprehensive income	6		1
Less treasury stock, at cost:
107,074,560 shares and 79,082,385 shares in 2022 and 2021, respectively	(2,566)		(1,826)
Total stockholders' equity	12,659		11,738
	$	20,305	$	19,900

(In thousands, except share and per share amounts) September 30,
2021 December 31,
2020
ASSETS
Current assets
Cash and cash equivalents $ 76,270 $ 140,113
Restricted cash 9,981 11,578
Accounts receivable, net 284,709 214,724
Income taxes receivable 55,728 6,171
Inventories 12,781 15,270
Derivative instruments — 26,209
Other current assets 3,254 1,650
Total current assets 442,723 415,715
Properties and equipment, net (Successful efforts method) 4,225,914 4,044,606
Other assets 62,060 63,211
$ 4,730,697 $ 4,523,532
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 227,192 $ 162,081
Current portion of long-term debt — 188,000
Accrued liabilities 21,041 22,374
Interest payable 4,883 17,771
Derivative instruments 212,894 —
Total current liabilities 466,010 390,226
Long-term debt, net 946,509 945,924
Deferred income taxes 790,604 774,195
Asset retirement obligations 91,732 85,489
Postretirement benefits 32,202 30,713
Other liabilities 77,528 81,278
Total liabilities 2,404,585 2,307,825
Commitments and contingencies 0 0
Stockholders' equity
Common stock:
Authorized — 960,000,000 shares of $0.10 par value in 2021 and 2020, respectively
Issued — 478,621,499 shares and 477,828,813 shares in 2021 and 2020, respectively 47,862 47,783
Additional paid-in capital 1,823,373 1,804,354
Retained earnings 2,276,071 2,184,352
Accumulated other comprehensive income 2,007 2,419
Less treasury stock, at cost:
78,957,318 shares and 78,957,318 shares in 2021 and 2020, respectively (1,823,201) (1,823,201)
Total stockholders' equity 2,326,112 2,215,707
$ 4,730,697 $ 4,523,532
The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	2022		2021		2022		2021
OPERATING REVENUES
Natural gas	$	1,644	$	641	$	4,223	$	1,526
Oil	755		—		2,330		—
NGL	259		—		784		—
Loss on derivative instruments	(156)		(201)		(613)		(302)
Other	18		—		47		—
	2,520		440		6,771		1,224
OPERATING EXPENSES
Direct operations	118		21		334		54
Transportation, processing and gathering	255		149		726		419
Taxes other than income	102		8		276		17
Exploration	10		4		23		9
Depreciation, depletion and amortization	422		97		1,196		283

General and administrative	107		64		301		116
	1,014		343		2,856		898

Loss on sale of assets	—		—		(1)		—
INCOME FROM OPERATIONS	1,506		97		3,914		326
Interest expense, net	17		13		59		38
Gain on debt extinguishment	(26)		—		(26)		—

Income before income taxes	1,515		84		3,881		288
Income tax expense	319		20		848		68
NET INCOME	$	1,196	$	64	$	3,033	$	220





Earnings per share
Basic	$	1.51	$	0.16	$	3.78	$	0.55
Diluted	$	1.50	$	0.16	$	3.77	$	0.55

Weighted-average common shares outstanding
Basic	792		400		801		399
Diluted	797		403		805		402

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of ~~Content~~sContents

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF ~~OPERATIONS~~CASH FLOWS (Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands, except per share amounts) 2021 2020 2021 2020
OPERATING REVENUES
   Natural gas $ 641,625 $ 333,256 $ 1,526,202 $ 991,882
   (Loss) gain on derivative instruments (201,282) (42,253) (301,641) 17,783
   Other 53 38 182 181
440,396 291,041 1,224,743 1,009,846
OPERATING EXPENSES
   Direct operations 21,354 20,197 54,384 54,864
   Transportation and gathering 148,794 146,982 418,984 425,563
   Taxes other than income 8,207 3,615 17,195 10,705
   Exploration 3,998 3,900 8,993 10,669
   Depreciation, depletion and amortization 97,289 99,649 282,986 294,406
   General and administrative 65,098 24,262 117,290 80,857
344,740 298,605 899,832 877,064
Loss on equity method investments — — — (59)
Gain (loss) on sale of assets 184 31 275 (139)
INCOME (LOSS) FROM OPERATIONS 95,840 (7,533) 325,186 132,584
Interest expense, net 12,577 14,389 37,512 43,143
Other expense 47 57 139 171
Income (loss) before income taxes 83,216 (21,979) 287,535 89,270
Income tax expense (benefit) 20,502 (7,018) 68,003 19,947
NET INCOME (LOSS) $ 62,714 $ (14,961) $ 219,532 $ 69,323
Earnings (loss) per share
Basic $ 0.16 $ (0.04) $ 0.55 $ 0.17
Diluted $ 0.16 $ (0.04) $ 0.55 $ 0.17
Weighted-average common shares outstanding
Basic 399,664 398,580 399,459 398,500
Diluted 402,738 398,580 401,923 400,628


	Nine Months Ended September 30,
(In millions)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,033	$	220
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization	1,196		283

Deferred income tax expense	128		17
Loss on sale of assets	1		—

Loss on derivative instruments	613		302
Net cash paid in settlement of derivative instruments	(723)		(61)


Amortization of premium and debt issuance costs	(35)		2
Gain on debt extinguishment	(26)		—
Stock-based compensation and other	62		24
Changes in assets and liabilities:
Accounts receivable, net	(382)		(70)
Income taxes	(99)		(49)
Inventories	(26)		2
Other current assets	(4)		(2)
Accounts payable and accrued liabilities	194		64
Interest payable	(10)		(13)
Other assets and liabilities	50		(3)

Net cash provided by operating activities	3,972		716

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(1,205)		(459)

Proceeds from sale of assets	22		—



Net cash used in investing activities	(1,183)		(459)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from debt	—		100
Repayments of debt	(830)		(288)
Repayments of finance leases	(4)		—
Treasury stock repurchases	(740)		—

Dividends paid	(1,459)		(128)

Cash received for stock option exercises	11		—
Cash paid for conversion of redeemable preferred stock	(10)		—
Tax withholdings on vesting of stock awards	(15)		(6)


Net cash used in financing activities	(3,047)		(322)

Net decrease in cash, cash equivalents and restricted cash	(258)		(65)
Cash, cash equivalents and restricted cash, beginning of period	1,046		152
Cash, cash equivalents and restricted cash, end of period	$	788	$	87

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of ~~Content~~s

~~COTERRA ENERGY INC.~~

~~CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)~~

Nine Months Ended
September 30,
(In thousands) 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income $ 219,532 $ 69,323
  Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization 282,986 294,406
Deferred income tax expense 16,529 46,513
(Gain) loss on sale of assets (275) 139
Exploratory dry hole cost — 2,011
Loss (gain) on derivative instruments 301,641 (17,783)
Net cash (paid) received in settlement of derivative instruments (61,302) 33,529
Loss on equity method investments — 59
Amortization of debt issuance costs 2,132 2,234
Stock-based compensation and other 24,259 34,204
  Changes in assets and liabilities:
Accounts receivable, net (69,985) 72,285
Income taxes (49,557) (27,020)
Inventories 2,489 (1,433)
Other current assets (1,605) (637)
Accounts payable and accrued liabilities 64,390 (25,118)
Interest payable (12,888) (13,691)
Other assets and liabilities (3,683) 1,372
Net cash provided by operating activities 714,663 470,393
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (459,040) (478,422)
Proceeds from sale of assets 319 335
Investment in equity method investments — (35)
Proceeds from sale of equity method investments — (9,424)
Net cash used in investing activities (458,721) (487,546)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from debt 100,000 123,000
Repayments of debt (288,000) (182,000)
Dividends paid (127,813) (119,532)
Tax withholdings on vesting of stock awards (5,569) (6,350)
Net cash used in financing activities (321,382) (184,882)
Net decrease in cash, cash equivalents and restricted cash (65,440) (202,035)
Cash, cash equivalents and restricted cash, beginning of period 151,691 213,783
Cash, cash equivalents and restricted cash, end of period $ 86,251 $ 11,748

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~Table of Content~~sContents

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

(In thousands, except per share amounts) Common Shares Common Stock Par Treasury Shares Treasury Stock Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total
Balance at December 31, 2020 477,829 $ 47,783 78,957 $ (1,823,201) $ 1,804,354 $ 2,419 $ 2,184,352 $ 2,215,707
Net income — — — — — — 126,354 126,354
Stock amortization and vesting 548 55 — — 3,878 — — 3,933
Cash dividends at $0.10 per share — — — — — — (39,887) (39,887)
Other comprehensive loss — — — — — (137) — (137)
Balance at March 31, 2021 478,377 $ 47,838 78,957 $ (1,823,201) $ 1,808,232 $ 2,282 $ 2,270,819 $ 2,305,970
Net income — — — — — — 30,464 30,464
Stock amortization and vesting 244 24 — — 7,538 — — 7,562
Cash dividends at $0.11 per share — — — — — — (43,963) (43,963)
Other comprehensive loss — — — — — (138) — (138)
Balance at June 30, 2021 478,621 $ 47,862 78,957 $ (1,823,201) $ 1,815,770 $ 2,144 $ 2,257,320 $ 2,299,895
Net income — — — — — — 62,714 62,714
Stock amortization and vesting — — — — 7,603 — — 7,603
Cash dividends at $0.11 per share — — — — — — (43,963) (43,963)
Other comprehensive income — — — — — (137) — (137)
Balance at September 30, 2021 478,621 $ 47,862 78,957 $ (1,823,201) $ 1,823,373 $ 2,007 $ 2,276,071 $ 2,326,112


(In millions, except per share amounts)	Common Shares	Common Stock Par		Treasury Shares	Treasury Stock		Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2021	893	$	89	79	$	(1,826)	$	10,911	$	1	$	2,563	$	11,738
Net income	—	—		—	—		—		—		608		608

Exercise of stock options	—	—		—	—		6		—		—		6
Stock amortization and vesting	—	—		—	—		10		—		—		10


Treasury stock repurchases	—	—		8	(192)		—		—		—		(192)
Cash dividends:
Common stock at $0.56 per share	—	—		—	—		—		—		(455)		(455)
Preferred stock at $20.3125 per share	—	—		—	—		—		—		(1)		(1)
Other comprehensive income	—	—		—	—		—		4		—		4
Balance at March 31, 2022	893	$	89	87	$	(2,018)	$	10,927	$	5	$	2,715	$	11,718
Net income	—	—		—	—		—		—		1,229		1,229

Exercise of stock options	—	—		—	—		3		—		—		3
Stock amortization and vesting	—	—		—	—		18		—		—		18
Conversion of Cimarex redeemable preferred stock	1	—		—	—		28		—		—		28


Purchase of treasury stock	—	—		12	(321)		—		—		—		(321)
Cash dividends:
Common stock at $0.60 per share	—	—		—	—		—		—		(484)		(484)


Balance at June 30, 2022	894	$	89	99	$	(2,339)	$	10,976	$	5	$	3,460	$	12,191
Net income	—	—		—	—		—		—		1,196		1,196

Exercise of stock options	—	—		—	—		2		—		—		2
Stock amortization and vesting	1	1		—	—		14		—		—		15



Purchase of treasury stock	—	—		8	(227)		—		—		—		(227)
Cash dividends:
Common stock at $0.65 per share	—	—		—	—		—		—		(519)		(519)

Other comprehensive income	—	—		—	—		—		1		—		1
Balance at September 30, 2022	895	$	90	107	$	(2,566)	$	10,992	$	6	$	4,137	$	12,659

(In thousands, except per share amounts) Common Shares Common Stock Par Treasury Shares Treasury Stock Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total
Balance at December 31, 2019 476,882 $ 47,688 78,957 $ (1,823,201) $ 1,782,427 $ 1,360 $ 2,143,213 $ 2,151,487
Net income — — — — — — 53,910 53,910
Stock amortization and vesting 651 65 — — 2,886 — — 2,951
Cash dividends at $0.10 per share — — — — — — (39,817) (39,817)
Other comprehensive loss — — — — — (136) — (136)
Balance at March 31, 2020 477,533 $ 47,753 78,957 $ (1,823,201) $ 1,785,313 $ 1,224 $ 2,157,306 $ 2,168,395
Net income — — — — — — 30,374 30,374
Stock amortization and vesting 2 1 — — 7,218 — — 7,219
Cash dividends at $0.10 per share — — — — — — (39,858) (39,858)
Other comprehensive loss — — — — — (151) — (151)
Balance at June 30, 2020 477,535 $ 47,754 78,957 $ (1,823,201) $ 1,792,531 $ 1,073 $ 2,147,822 $ 2,165,979
Net loss — — — — — — (14,961) (14,961)
Stock amortization and vesting 2 — — — 7,471 — — 7,471
Cash dividends at $0.10 per share — — — — — — (39,857) (39,857)
Other comprehensive loss — — — — — (144) — (144)
Balance at September 30, 2020 477,537 $ 47,754 78,957 $ (1,823,201) $ 1,800,002 $ 929 $ 2,093,004 $ 2,118,488


(In millions, except per share amounts)	Common Shares	Common Stock Par		Treasury Shares	Treasury Stock		Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
Balance at December 31, 2020	478	$	48	79	$	(1,823)	$	1,804	$	2	$	2,185	$	2,216
Net income	—	—		—	—		—		—		126		126

Stock amortization and vesting	—	—		—	—		4		—		—		4



Cash dividends at $0.10 per share	—	—		—	—		—		—		(40)		(40)


Balance at March 31, 2021	478	$	48	79	$	(1,823)	$	1,808	$	2	$	2,271	$	2,306
Net income	—	—		—	—		—		—		30		30
Stock amortization and vesting	—	—		—	—		8		—		—		8
Cash dividends at $0.11 per share	—	—		—	—		—		—		(44)		(44)

Balance at June 30, 2021	478	$	48	79	$	(1,823)	$	1,816	$	2	$	2,257	$	2,300
Net income	—	—		—	—		—		—		64		64
Stock amortization and vesting	—	—		—	—		7		—		—		7
Cash dividends at $0.11 per share	—	—		—	—		—		—		(44)		(44)

Balance at September 30, 2021	478	$	48	79	$	(1,823)	$	1,823	$	2	$	2,277	$	2,327

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of ~~Content~~sContents

COTERRA ENERGY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Financial Statement Presentation

~~On October 1, 2021, Cabot Oil & Gas Corporation changed its name to~~During interim periods, Coterra Energy Inc. (the “Company” ~~or “Coterra”~~) ~~in connection with the Merger (defined below) involving Cimarex Energy Co. (“Cimarex”) described below.~~

~~During interim periods, the Company~~ follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), except for any new accounting pronouncements adopted during the period. The interim condensed consolidated financial statements are unaudited and should be read in conjunction with the notes to the consolidated financial statements and information presented in the Form 10-K. In management’s opinion, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair statement. The results for any interim period are not necessarily indicative of the results that may be expected for the entire year.

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.

2. Acquisitions

~~Merger with~~ Cimarex Energy Co.

On ~~May 23,~~October 1, 2021, the Company ~~entered into an Agreement and Plan of Merger (as amended as of June 29, 2021, the “Merger Agreement”~~completed a merger transaction (the “Merger”) with Cimarex ~~to combine via a merger transaction pursuant to which a wholly owned subsidiary of Cabot merged with and into Cimarex, with Cimarex surviving the merger as a subsidiary of Cabot~~Energy Co. (“~~Merger”~~Cimarex”). The respective Boards of Directors of the Company and Cimarex unanimously approved the Merger in May 2021, proposals related to the Merger were approved by stockholders of the Company and Cimarex on September 29, 2021, and the Merger was completed on October 1, 2021. Cimarex is an oil and gas exploration and production company with operations in Texas, New Mexico and Oklahoma.

The Company issued approximately 408.2 million shares of its common stock to Cimarex stockholders under terms of the Merger Agreement (excluding restricted shares that were awarded in replacement of previously outstanding Cimarex restricted share awards). Under the terms of the Merger Agreement, subject to certain exceptions, each 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.Purchase Price Allocation

The transaction ~~is being~~was accounted for using the acquisition method of ~~accounting, with the Company being treated as the accounting acquirer.~~accounting. Under the acquisition method of accounting, the assets, liabilities and mezzanine equity of Cimarex and its subsidiaries ~~will be~~were recorded at their respective fair values as of the effective date ~~of the completion~~ of the Merger. The ~~preliminary~~ purchase price allocation ~~is not complete as of the date of this report~~was based on preliminary estimates and ~~will be an ongoing process~~assumptions, which are subject to change for up to one year ~~subsequent to~~after October 1, 2021, the ~~closing~~effective date of the Merger, as the Company finalizes the valuations of the assets acquired, liabilities assumed and the related tax balances as of the effective date of the Merger. Determining the fair value of the assets and liabilities of Cimarex requires judgment and certain assumptions to be ~~made, the~~made. The most significant ~~of these being~~fair value estimates related to the valuation of Cimarex's oil and gas ~~properties. The Merger~~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 ~~structured as~~valued using a ~~tax-free reorganization for United States federal income tax purposes.~~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. There were no adjustments to the purchase price allocation during the nine months ended September 30, 2022.

Unaudited Pro Forma Financial Information

The ~~post-acquisition~~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 nine months ended September 30, 2021 has been prepared to give effect to the Merger as if it had occurred on January 1, 2021. The information below reflects pro forma adjustments based on available information and certain assumptions that management believes are factual and supportable. The pro forma results of operations ~~of Cimarex for~~do not include any cost savings or other synergies that may result from the ~~fourth quarter of 2021~~acquisition or any estimated costs that have been or will be ~~included~~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, 2021 and is not intended to be a projection of future results. Future results may vary significantly

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from the results reflected in the ~~Company's consolidated results for the period ending December 31, 2021.~~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.



(In millions, except per share amounts)	Nine Months Ended September 30, 2021
Pro forma revenue	$	3,011
Pro forma net income	219




Pro forma basic earnings per share	$	0.27
Pro forma diluted earnings per share	$	0.27

3. Properties and Equipment, Net

Properties and equipment, net are comprised of the following:


(In thousands)		September 30, 2021		December 31, 2020
(In millions)						(In millions)	September 30, 2022		December 31, 2021
Proved oil and gas properties	Proved oil and gas properties	$	7,531,941	$	7,068,605	Proved oil and gas properties	$	16,505	$	15,340
Unproved oil and gas properties	Unproved oil and gas properties	28,610		49,829		Unproved oil and gas properties	5,288		5,316
Gathering and pipeline systems						Gathering and pipeline systems	436		395
Land, buildings and other equipment	Land, buildings and other equipment	96,245		92,566		Land, buildings and other equipment	175		140
Finance lease right-of-use asset						Finance lease right-of-use asset	24		20
		7,656,796		7,211,000			22,428		21,211
Accumulated depreciation, depletion and amortization	Accumulated depreciation, depletion and amortization	(3,430,882)		(3,166,394)		Accumulated depreciation, depletion and amortization	(4,999)		(3,836)
		$	4,225,914	$	4,044,606		$	17,429	$	17,375

AtCapitalized Exploratory Well Costs

As of September 30, ~~2021,~~2022, the Company did not have any projects with exploratory well costs capitalized for a period of greater than one year after drilling.

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4. Debt and Credit Agreements

The Company’s debt and credit agreements consisted of the following:

(In thousands) September 30,
2021 December 31,
2020
6.51% weighted-average senior notes $ 37,000 $ 37,000
5.58% weighted-average senior notes(1)
87,000 175,000
3.65% weighted-average senior notes(2)
825,000 925,000
Unamortized debt issuance costs (2,491) (3,076)
$ 946,509 $ 1,133,924


(In millions)	September 30, 2022		December 31, 2021
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	825		825
4.375% senior notes due June 1, 2024 (1)	44		750
3.90% senior notes due May 15, 2027	750		750
4.375% senior notes due March 15, 2029	500		500

Net premium (discount)	119		185
Unamortized debt issuance costs	(6)		(9)
	$	2,232	$	3,125

________________________________________________________

(1)Includes ~~$88.0~~$44 million of current portion of long-term debt at ~~December 31, 2020, which the Company repaid~~September 30, 2022 that was called for redemption in ~~January 2021.~~

~~(2)Includes $100.0 million of current portion of long-term debt at December 31, 2020, which the Company repaid in September 2021.~~October 2022.

At September 30, ~~2021,~~2022, the Company was in compliance with all financial and other covenants ~~applicable to~~for both its revolving credit facility and senior notes.

In September 2022, the Company redeemed $706 million principal amount of its 4.375% senior notes for approximately $706 million, exclusive of interest. In August 2022, the Company repurchased $37 million principal amount of its 6.51% weighted-average senior notes for approximately $38 million and $87 million principal amount of its 5.58% weighted-average

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senior notes for approximately $92 million. In connection with these transactions, the Company recognized a net gain on debt extinguishment of $26 million during the nine months ended September 30, 2022, primarily due to the write off of related debt premiums and debt issuance costs.

Subsequent Event. In October 2022, the Company redeemed the remaining $44 million of its Cimarex 4.375% senior notes for approximately $44 million, exclusive of interest.

Revolving Credit Agreement

The borrowing base under the terms of the Company's revolving credit facility was redetermined annually in April until the most recent amendment to the credit agreement in September 2021. Effective April 21, 2021, the borrowing base and available commitments were reaffirmed at $3.2 billion and $1.5 billion, respectively.

On June 17, 2021, the Company entered into an amendment to the credit agreement relating to its revolving credit facility to, among other things, (1) remove the requirement that certain of the Company’s restricted subsidiaries become guarantors under the credit agreement, (2) expand the permissible indebtedness that may be held or incurred by a restricted subsidiary and (3) make certain other changes to permit the Company and Cimarex to complete the Merger. This amendment became effective upon completion of the Merger on October 1, 2021.

On September 16, 2021, the Company entered into another amendment to the credit agreement 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 ratio of total debt to consolidated EBITDA of 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 below.

At September 30, ~~2021,~~2022, the Company had no borrowings outstanding under its revolving credit facility and ~~had~~ unused commitments of $1.5 billion.

~~Debt Exchange~~

~~Subsequent Event.~~ On October 7, 2021 and after the completion of the Merger, the Company completed the exchange of $1.8 billion in aggregate principal of Cimarex senior notes (“Existing Cimarex Notes”) for $1.8 billion in aggregate principal of new notes issued by Coterra (“New Coterra Notes”) and $1.8 million of cash consideration. In connection with the debt exchange, Cimarex obtained consents to adopt certain proposed amendments to each of the indentures governing the Existing Cimarex Notes to eliminate certain of the covenants, restrictive provisions and events of default from such indentures. The New Coterra Notes are general, unsecured, senior obligations of the Company and have substantially identical terms and covenants to the Existing Cimarex Notes (before giving effect to the amendments referred to in the immediately preceding sentence).

~~Table of Content~~s

5. Derivative Instruments

As of September 30, ~~2021,~~2022, the Company had the following outstanding financial commodity derivatives:

Collars
Floor Ceiling Swaps
Type of Contract Volume (Mmbtu) Contract Period Range
($/Mmbtu) Weighted-Average
($/Mmbtu) Range
($/Mmbtu) Weighted-Average
($/Mmbtu) Weighted-Average
($/Mmbtu)
Natural gas (NYMEX) 4,600,000 Oct. 2021-Dec. 2021 $ 2.74
Natural gas (NYMEX) 41,400,000 Oct. 2021-Dec. 2021 $2.50 - $2.85 $ 2.68 $2.89 - $3.80 $ 3.10
Natural gas (NYMEX) 9,200,000 Oct. 2021-Dec. 2021 $ 4.01
Natural gas (NYMEX) 9,150,000 Nov. 2021-Dec. 2021 $ 4.02
Natural gas (NYMEX) 1,550,000 Oct. 2021 $ — $ 2.50 $ — $ 2.80
Natural gas (NYMEX) 3,100,000 Oct. 2021 $ 2.78
Natural gas (NYMEX) 36,000,000 Jan. 2022-Mar. 2022 $4.00 - $4.75 $ 4.38 $5.00 - $10.32 $ 6.97
Natural gas (NYMEX) 42,800,000 Apr. 2022- Oct. 2022 $3.00 - $3.50 $ 3.19 $4.07 - $4.83 $ 4.30



	2022		2023
Natural Gas	Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Waha swaps (1)
Volume (MMBtu)	1,550,000		—		—		—		—
Weighted average price	$	4.77	$	—	$	—	$	—	$	—

Waha gas collars (1)
Volume (MMBtu)	1,840,000		8,100,000		8,190,000		8,280,000		8,280,000
Weighted average floor	$	2.50	$	3.03	$	3.03	$	3.03	$	3.03
Weighted average ceiling	$	3.12	$	5.39	$	5.39	$	5.39	$	5.39

NYMEX collars
Volume (MMBtu)	63,770,000		40,500,000		4,550,000		4,600,000		1,550,000
Weighted average floor	$	4.47	$	5.14	$	4.50	$	4.50	$	4.50
Weighted average ceiling	$	7.20	$	9.41	$	8.39	$	8.39	$	8.39

El Paso Permian gas collars (2)
Volume (MMBtu)	1,840,000		—		—		—		—
Weighted average floor	$	2.50	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.15	$	—	$	—	$	—	$	—

PEPL gas collars (3)
Volume (MMBtu)	1,840,000		—		—		—		—
Weighted average floor	$	2.60	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.27	$	—	$	—	$	—	$	—






Leidy basis swaps (4)
Volume (MMBtu)	1,550,000		—		—		—		—
Weighted average price	$	(1.50)	$	—	$	—	$	—	$	—

________________________________________________________

~~Subsequent event.~~ ~~As a result of the Merger, the Company acquired the following outstanding financial commodity derivatives:~~
Collars
Floor Ceiling
Type of Contract Volume (Mmbtu) Contract Period Range
($/Mmbtu) Weighted-Average
($/Mmbtu) Range
($/Mmbtu) Weighted-Average
($/Mmbtu)
Natural gas (Perm EP)(1)
2,760,000 Oct. 2021-Dec. 2021 $1.50 - $1.52 $ 1.51 $ — $ 1.80
Natural gas (Perm EP)(1)
3,640,000 Oct. 2021-Mar. 2022 $1.80 - $1.90 $ 1.85 $2.18 - $2.19 $ 2.18
Natural gas (Perm EP)(1)
5,460,000 Oct. 2021-Jun. 2022 $ — $ 2.40 $2.85 - $2.90 $ 2.88
Natural gas (Perm EP)(1)
7,300,000 Jan. 2022-Dec. 2022 $ — $ 2.50 $ — $ 3.15
Natural gas (PEPL)(2)
2,760,000 Oct. 2021-Dec. 2021 $1.70 - $1.78 $ 1.73 $2.12 - $2.18 $ 2.14
Natural gas (PEPL)(2)
7,280,000 Oct. 2021-Mar. 2022 $1.90 - $2.10 $ 2.00 $2.35 - $2.44 $ 2.40
Natural gas (PEPL)(2)
5,460,000 Oct. 2021-Jun. 2022 $ — $ 2.40 $2.81 - $2.91 $ 2.86
Natural gas (PEPL)(2)
7,300,000 Jan. 2022-Dec. 2022 $ — $ 2.60 $ — $ 3.27
Natural gas (Waha)(3)
2,760,000 Oct. 2021-Dec. 2021 $ — $ 1.50 $1.75 - $1.76 $ 1.75
Natural gas (Waha)(3)
7,280,000 Oct. 2021-Mar. 2022 $1.70 - $1.84 $ 1.77 $2.10 - $2.20 $ 2.15
Natural gas (Waha)(3)
5,460,000 Oct. 2021-Jun. 2022 $ — $ 2.40 $2.82 - $2.89 $ 2.86
Natural gas (Waha)(3)
3,650,000 Oct. 2021-Sep. 2022 $ — $ 2.40 $ — $ 2.77
Natural gas (Waha)(3)
7,300,000 Jan. 2022-Dec. 2022 $ — $ 2.50 $ — $ 3.12

(1)The index price ~~for these collars~~is Waha West Texas Natural Gas Index (“Waha”) as quoted in Platt’s Inside FERC.

(2)The index price is El Paso Natural Gas Company, Permian Basin Index (“Perm EP”) as quoted in Platt’s Inside FERC.

~~(2)~~(3)The index price ~~for these collars~~ is Panhandle Eastern Pipe Line, Tex/OK Mid-Continent Index (“PEPL”) as quoted in Platt’s Inside FERC.

~~(3)~~(4)The index price ~~for these collars~~ is ~~Waha West Texas Natural Gas Index~~Transco, Leidy Line receipts (“~~Waha”~~Leidy”) as quoted in Platt’s Inside FERC.

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Collars
Floor Ceiling Basis Swaps Roll Swaps
Type of Contract Volume (Mbbl) Contract Period Range
($/Bbl) Weighted-Average
($/Bbl) Range
($/Bbl) Weighted-Average
($/Bbl) Weighted-Average
($/Bbl) Weighted-Average
($/Bbl)
Crude oil (WTI) 1,288 Oct. 2021-Dec. 2021 $29.00-$30.00 $ 29.71 $34.15-$40.55 $ 36.86
Crude oil (WTI) 1,274 Oct. 2021-Mar. 2022 $ — $ 35.00 $45.15-$45.40 $ 45.28
Crude oil (WTI) 2,457 Oct. 2021-Jun. 2022 $35.00-$37.50 $ 36.11 $48.38-$51.10 $ 49.97
Crude oil (WTI) 3,650 Oct. 2021-Sep. 2022 $ — $ 40.00 $47.55-$50.89 $ 49.19
Crude oil (WTI) 2,920 Jan. 2022-Dec. 2022 $ — $ 57.00 $72.20-$72.80 $ 72.43
Crude oil (WTI Midland)(1)
1,196 Oct. 2021-Dec. 2021 $ (0.65)
Crude oil (WTI Midland)(1)
1,274 Oct. 2021-Mar. 2022 $ 0.11
Crude oil (WTI Midland)(1)
2,184 Oct. 2021-Jun. 2022 $ 0.25
Crude oil (WTI Midland)(1)
2,555 Oct. 2021-Sep. 2022 $ 0.38
Crude oil (WTI Midland)(1)
2,920 Jan. 2022-Dec. 2022 $ 0.05
Crude oil (WTI) 1,274 Oct. 2021-Mar. 2022 $ (0.24)
Crude oil (WTI) 1,092 Oct. 2021-Jun. 2022 $ (0.20)
Crude oil (WTI) 2,555 Oct. 2021-Sep. 2022 $ 0.10



	2022		2023
Oil	Fourth Quarter		First Quarter		Second Quarter
WTI oil collars
Volume (Mbbl)	2,116		1,350		1,365
Weighted average floor	$	67.65	$	70.00	$	70.00
Weighted average ceiling	$	112.50	$	116.03	$	116.03

WTI Midland oil basis swaps (1)
Volume (Mbbl)	2,116		1,350		1,365
Weighted average differential	$	0.46	$	0.63	$	0.63

(1)The index price ~~the Company pays under these basis swaps~~ is WTI Midland as quoted by Argus Americas Crude.

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet


			Derivative Assets				Derivative Liabilities						Fair Values of Derivative Instruments
(In thousands)		Balance Sheet Location	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
													Derivative Assets				Derivative Liabilities
(In millions)											(In millions)	Balance Sheet Location	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021

Commodity contracts	Commodity contracts	Derivative instruments (current)	$	—	$	26,209	$	212,894	$	—	Commodity contracts	Derivative instruments (current)	$	8	$	7	$	52	$	159

Commodity contracts	Commodity contracts	Other liabilities (non-current)	—		—		1,237		—		Commodity contracts	Other assets (non-current)	2		—		—		—
			$	—	$	26,209	$	214,131	$	—			$	10	$	7	$	52	$	159

Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet


(In thousands)		September 30, 2021		December 31, 2020
(In millions)						(In millions)	September 30, 2022		December 31, 2021
Derivative assets	Derivative assets					Derivative assets
Gross amounts of recognized assets	Gross amounts of recognized assets	$	953	$	26,354	Gross amounts of recognized assets	$	70	$	27
Gross amounts offset in the condensed consolidated balance sheet	Gross amounts offset in the condensed consolidated balance sheet	(953)		(145)		Gross amounts offset in the condensed consolidated balance sheet	(60)		(20)
Net amounts of assets presented in the condensed consolidated balance sheet	Net amounts of assets presented in the condensed consolidated balance sheet	—		26,209		Net amounts of assets presented in the condensed consolidated balance sheet	10		7
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	—		—		Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	—		—
Net amount	Net amount	$	—	$	26,209	Net amount	$	10	$	7

Derivative liabilities	Derivative liabilities					Derivative liabilities
Gross amounts of recognized liabilities	Gross amounts of recognized liabilities	$	215,084	$	145	Gross amounts of recognized liabilities	$	112	$	179
Gross amounts offset in the condensed consolidated balance sheet	Gross amounts offset in the condensed consolidated balance sheet	(953)		(145)		Gross amounts offset in the condensed consolidated balance sheet	(60)		(20)
Net amounts of liabilities presented in the condensed consolidated balance sheet	Net amounts of liabilities presented in the condensed consolidated balance sheet	214,131		—		Net amounts of liabilities presented in the condensed consolidated balance sheet	52		159
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	—		—		Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	13		35
Net amount	Net amount	$	214,131	$	—	Net amount	$	65	$	194

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Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2021 2020 2021 2020
Cash received (paid) on settlement of derivative instruments
(Loss) gain on derivative instruments $ (64,351) $ 14,106 $ (61,302) $ 33,529
Non-cash gain (loss) on derivative instruments
(Loss) gain on derivative instruments (136,931) (56,359) (240,339) (15,746)
$ (201,282) $ (42,253) $ (301,641) $ 17,783


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
Cash paid on settlement of derivative instruments
Gas contracts	$	(202)	$	(64)	$	(405)	$	(61)
Oil contracts	(57)		—		(318)		—
Non-cash gain (loss) on derivative instruments
Gas Contracts	2		(137)		(47)		(241)
Oil Contracts	101		—		157		—
	$	(156)	$	(201)	$	(613)	$	(302)

6. Fair Value Measurements

The Company follows the authoritative guidance for measuring fair value of assets and liabilities in its financial statements. For further information regarding the fair value hierarchy, refer to Note 1 of the Notes to the Consolidated Financial Statements in the Form 10-K.

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:


(In thousands)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at September 30, 2021
(In millions)										(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 September 30, 2022
Assets	Assets									Assets
Deferred compensation plan	Deferred compensation plan	$	25,737	$	—	$	—	$	25,737	Deferred compensation plan	$	40	$	—	$	—	$	40
Derivative instruments	Derivative instruments	—		—		953		953		Derivative instruments	—		2		68		70
		$	25,737	$	—	$	953	$	26,690		$	40	$	2	$	68	$	110
Liabilities	Liabilities									Liabilities
Deferred compensation plan	Deferred compensation plan	$	36,525	$	—	$	—	$	36,525	Deferred compensation plan	$	53	$	—	$	—	$	53
Derivative instruments	Derivative instruments	—		58,737		156,347		215,084		Derivative instruments	—		—		112		112
		$	36,525	$	58,737	$	156,347	$	251,609		$	53	$	—	$	112	$	165


(In thousands)		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, 2020
(In millions)										(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	Assets									Assets
Deferred compensation plan	Deferred compensation plan	$	22,510	$	—	$	—	$	22,510	Deferred compensation plan	$	47	$	—	$	—	$	47
Derivative instruments	Derivative instruments	—		2,647		23,707		26,354		Derivative instruments	—		—		27		27
		$	22,510	$	2,647	$	23,707	$	48,864		$	47	$	—	$	27	$	74
Liabilities	Liabilities									Liabilities
Deferred compensation plan	Deferred compensation plan	$	30,581	$	—	$	—	$	30,581	Deferred compensation plan	$	56	$	—	$	—	$	56
Derivative instruments	Derivative instruments	—		—		145		145		Derivative instruments	—		—		179		179
		$	30,581	$	—	$	145	$	30,726		$	56	$	—	$	179	$	235

The ~~Company's~~Company’s investments associated with its deferred compensation ~~plan~~plans consist of mutual funds and deferred shares of the ~~Company's~~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~~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~~and/or are compared to multiple quotes obtained from ~~counterparties for reasonableness.~~counterparties. The

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determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The

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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 transactions while non-performance risk of the Company is evaluated using market credit spreads provided by several of the ~~Company's~~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~~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:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)		2021		2020
(In millions)						(In millions)	2022		2021
Balance at beginning of period	Balance at beginning of period	$	23,562	$	(22)	Balance at beginning of period	$	(152)	$	24
Total gain (loss) included in earnings	Total gain (loss) included in earnings	(222,387)		2,866		Total gain (loss) included in earnings	(596)		(222)
Settlement (gain) loss	Settlement (gain) loss	43,431		(16,678)		Settlement (gain) loss	704		43
Transfers in and/or out of Level 3	Transfers in and/or out of Level 3	—		—		Transfers in and/or out of Level 3	—		—
Balance at end of period	Balance at end of period	$	(155,394)	$	(13,834)	Balance at end of period	$	(44)	$	(155)

Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period	Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period	$	(156,642)	$	(13,733)	Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period	$	(11)	$	(157)

Non-Financial Assets and Liabilities

The Company discloses or recognizes its non-financial assets and liabilities, such as impairments or acquisitions, at fair value on a nonrecurring basis. As none of the Company’s other non-financial assets and liabilities were measured at fair value as of September 30, ~~2021,~~2022, 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 Condensed 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 4.375% senior notes due June 1, 2024, 3.90% senior notes due May 15, 2027 and 4.375% senior notes due March 15, 2029 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 ~~debt.~~its private placement senior notes. The fair value of ~~debt~~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 ~~outstanding debt~~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 ~~estimated~~ fair value of the ~~Company's outstanding debt~~private placement senior notes is based on interest rates currently available to the Company. The Company’s ~~debt is~~private placement senior notes are valued using an income approach and are classified as Level 3 in the fair value hierarchy.

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The carrying amount and estimated fair value of debt is as follows:

September 30, 2021 December 31, 2020
(In thousands) Carrying
Amount Estimated Fair
Value Carrying
Amount Estimated Fair
Value
Long-term debt $ 946,509 $ 1,010,687 $ 1,133,924 $ 1,213,811
Current maturities — — (188,000) (189,332)
Long-term debt, excluding current maturities $ 946,509 $ 1,010,687 $ 945,924 $ 1,024,479


	September 30, 2022				December 31, 2021
(In millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt	$	2,232	$	1,984	$	3,125	$	3,163
Current maturities	(44)		(44)		—		—
Long-term debt, excluding current maturities	$	2,188	$	1,940	$	3,125	$	3,163

7. Asset Retirement Obligations

Activity related to the Company’s asset retirement obligations is as follows:


(In ~~thousands)~~millions)	Nine Months Ended September 30, ~~2021~~2022
Balance at beginning of period	$	~~85,989~~263
Liabilities incurred	~~2,924~~9
Liabilities settled	~~(135)~~(1)

Liabilities divested	(3)

Accretion expense	~~3,454~~7
Balance at end of period	~~92,232~~275
Less: current asset retirement obligations	~~(500)~~(5)
Noncurrent asset retirement obligations	$	~~91,732~~270

8. Commitments and Contingencies

Contractual Obligations

The Company has various contractual obligations in the normal course of its operations. There have been no material changes to the Company’s contractual obligations described under “Transportation, Processing and Gathering Agreements” and “Lease Commitments” as disclosed in Note 98 of the Notes to Consolidated Financial Statements in the Form ~~10-K.~~10-K, except as discussed below.

Lease Commitments

On July 7, 2022, the Company commenced a lease for an electric hydraulic fracturing fleet. The Company recognized an operating lease liability and right-of-use asset of approximately $148 million during the third quarter of 2022 related to this lease.

Legal Matters

Pennsylvania Office of Attorney General Matter

On June 16, 2020, the Office of Attorney General of the Commonwealth of Pennsylvania informed the Company that it will 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, which prohibits discharge of industrial wastes. The Company is vigorously defending itself against such charges; however, the proceedings could result in fines or penalties against the Company. At this time, it is not possible to estimate the amount of any fines or penalties, or the range of such fines or penalties, that are reasonably possible in this case.

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

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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.

~~Table of Content~~s

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. OnIn December 9, 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. ~~The motions~~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 ~~actions are pending.~~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 best 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.

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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 Condensed 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.

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9. Revenue Recognition

Disaggregation of Revenue

The following table presents revenues from contracts with customers disaggregated by product:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)		2021		2020		2021		2020

(In millions)										(In millions)	2022		2021		2022		2021
Natural gas	Natural gas	$	641,625	$	333,256	$	1,526,202	$	991,882	Natural gas	$	1,644	$	641	$	4,223	$	1,526
Oil										Oil	755		—		2,330		—
NGL										NGL	259		—		784		—
Other	Other	53		38		182		181		Other	18		—		47		—
		$	641,678	$	333,294	$	1,526,384	$	992,063		$	2,676	$	641	$	7,384	$	1,526

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 United States of America.

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 September 30, ~~2021,~~2022, the Company had ~~$7.9~~$7.3 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 periods ranging from two to ~~17 years.~~16 years.

Contract Balances

Receivables from contracts with customers are recorded when the right to consideration becomes unconditional, which is generally when control of the product has been transferred to the customer. Receivables from contracts with customers were ~~$285.4 million~~$1.3 billion and ~~$215.3~~$922 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and are reported in accounts receivable, net on the Condensed Consolidated Balance Sheet. ~~The~~As of September 30, 2022, the Company ~~currently~~ has no assets or liabilities related to its revenue contracts, including no upfront payments or rights to deficiency payments.

10. Income Taxes

On August 16, 2022, the Inflation Reduction Act (the “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.

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11. Capital Stock

~~Issuance of~~ Dividends

Common Stock

On October 1, 2021 and upon closing the Merger, the Company issued approximately 408.2 million shares of its common stock to Cimarex stockholders under the terms of the Merger Agreement (excluding restricted shares that were awarded in replacement of previously outstanding Cimarex restricted share awards).

~~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~~

In ~~April 2021,~~February 2022, the Company’s Board of Directors approved an increase in the quarterly base dividend on the ~~Company's~~Company’s common stock from ~~$0.10 per share~~$0.125 to ~~$0.11~~$0.15 per share.

The following table summarizes the dividends the Company has paid on its common stock during the nine months ended September 30, 2022 and 2021:


	Rate per share
	Fixed		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

Total year-to-date	$	0.45	$	1.36	$	1.81	$	1,458
2021:
First quarter	$	0.10	$	—	$	0.10	$	40
Second quarter	0.11		—		0.11		44
Third quarter	0.11		—		0.11		44

Total year-to-date	$	0.32	$	—	$	0.32	$	128

Subsequent ~~Event.~~Event ~~On October 4, 2021, and in connection with the closing of the Merger,~~. In November 2022, the Company’s Board of Directors approved ~~a special~~the quarterly base dividend of ~~$0.50~~$0.15 per share ~~payable~~and a variable dividend of $0.53 per share, resulting in a base-plus-variable dividend of $0.68 per share on the Company’s common ~~stock on October 22, 2021. On November 3, 2021,~~stock.

Treasury Stock

In February 2022, the Company’s Board of Directors ~~approved an increase in~~terminated the ~~quarterly dividend on~~previously authorized share repurchase program and authorized a new share repurchase program. This new share repurchase program authorizes the ~~Company's common stock from $0.11 per share~~Company to ~~$0.125 per share. Also on that date, related~~purchase up to ~~the Company's dividend strategy to return at least 50 percent~~$1.25 billion of ~~quarterly free cash flows to stockholders, the Board of Directors approved a variable dividend of $0.175 per share, for a total dividend of $0.30 per share, payable on~~ the Company’s common stock in the open market or in negotiated transactions.

During the nine months ended September 30, 2022, the Company repurchased 28 million shares for $740 million under the new share repurchase program. As of September 30, 2022, 107 million shares were held as treasury stock, with $510 million remaining under the Company’s current share repurchase program.

Cimarex Redeemable Preferred Stock

In May 2022, the holders of 21,900 shares of Cimarex redeemable preferred stock elected to convert their Cimarex redeemable 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 Cimarex redeemable 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 ~~November 24, 2021.~~the transaction because it was completed in accordance with the original terms of the Certificate of Designations for the Cimarex redeemable preferred stock. At September 30, 2022, there were 6,125 shares of Cimarex redeemable preferred stock outstanding with a carrying value of $11 million.

~~Table of Content~~s

~~11.~~12. Stock-Based Compensation

General

The Company grants certain stock-based compensation awards, including restricted stock awards, restricted stock units, performance share awards and stock options. Stock-based compensation expense associated with these awards was ~~$10.3~~$26 million and ~~$11.4~~$10 million in the third ~~quarters~~quarter of ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$26.3~~$70 million and ~~$36.0~~$26 million infor the ~~first~~ nine months ended

Table of ~~2021~~Contents

September 30, 2022 and ~~2020,~~2021, respectively. Stock-based compensation expense is included in general and administrative expense in the Condensed Consolidated Statement of Operations.

Refer to Note 1413 of the Notes to the Consolidated Financial Statements in the Form 10-K for further description of the various types of stock-based compensation awards and the applicable award terms.

Restricted Stock ~~Options~~Units - Employees

~~Subsequent Event.~~ ~~On October 1, 2021,~~During the nine months ended September 30, 2022, the Company granted 2,244,405 restricted stock ~~option awards~~units to ~~purchase 1,577,554 shares~~employees of the ~~Company’s common stock~~Company with exercise prices ranging from $8.47 to $28.72 per share. These awards are replacement awards granted to Cimarex employees and former 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 $14.6 million is expected to be recognized as merger consideration.

~~Fair value was determined using~~ a ~~Black-Scholes option pricing model for in-the-money options and a Monte Carlo simulation model for out-of-the-money options based on the following assumptions:~~

~~In-the-money Options~~

~~Out-of-the-money Options~~

~~Assumptions:~~

~~Strike price~~

~~$8.47 - $20.73~~

~~$23.45 - $28.72~~

~~Expected life~~

~~1.9 - 3.1 years~~

~~0.9 - 2.8 years~~

~~Expected volatility~~

~~41.06% - 45.77%~~

~~38.44% - 47.25%~~

~~Risk-free rate~~

~~0.26% - 0.50%~~

~~0.08% - 0.44%~~

~~Restricted Stock Awards~~

~~Subsequent Event. On October 1, 2021, the Company granted 3,364,354 shares of restricted stock, with a~~weighted average grant date value of ~~$22.25~~$24.80 per ~~share. These awards are replacement awards granted to Cimarex employees as provided under the Merger Agreement.~~unit. The fair value of ~~these awards~~restricted stock unit grants is ~~measured~~ based on the closing stock price on the ~~closing~~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-year service period. The Company used an annual forfeiture rate assumption of ~~the Merger (grant date). The awards will vest over periods ranging from two months~~zero to ~~three years. Approximately $23.5 million~~five percent for purposes of ~~the grant date value is expected to be recognized as merger consideration and the remaining fair value will be recognized as~~recognizing stock-based compensation expense ~~over the respective vesting periods.~~

~~Restricted Stock Units~~

~~Subsequent Event. 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 grant ofits restricted stock units at the effective time of the Merger. On October 1, 2021, the Company granted 258,252 shares of restricted stock units, with a grant date value of $22.25 per unit to each such executive. The fair value of these units is measured based on the closing stock price on the October 1, 2021 grant date and will fully vest over a six-month vesting period.units.

Restricted Stock Units - ~~Non-Employee~~Non-Employees Directors

~~During the first nine months of 2021,~~In June 2022, the Company granted ~~107,156~~45,472 restricted stock units, with a weighted-average grant date value of ~~$18.50~~$35.19 per unit, to the ~~Company's~~Company’s non-employee directors. The fair value of these units is measured based on the closing stock price on grant date. These units will vest in April 2023 and the ~~grant date and stock-based~~Company will recognize compensation expense ~~is recorded immediately. These units immediately vest and are payable in shares of common stock of the Company when the director ceases to be a director of the Company.~~

~~Also during the first nine months of 2021, the Company issued 244,433 shares of common stock in connection with~~ratably over the vesting ~~of restricted stock units with a weighted-average grant date value of $14.08 upon the retirement of 1 of the Company's non-employee directors in the second quarter of 2021.~~

~~Table of Content~~s

~~Subsequent Event.~~ In October 2021, the Company issued 321,663 shares of common stock with a weighted-average grant date value of $19.29 upon the resignation of 3 of the Company's non-employee directors on the closing date of the Merger.period.

Performance Share Awards

The Company has two outstanding types of performance ~~period for~~share awards: one based on performance conditions measured against the ~~awards granted by the Company during the first nine months of 2021 commenced~~Company’s internal performance metrics (“Employee Performance Share Awards”) and one based on ~~January 1, 2021 and ends on December 31, 2023.~~market conditions (“TSR Performance Share Awards”). The Company used an annual forfeiture rate assumption ~~ranging from~~of zero ~~percent~~ to 4five percent for purposes of recognizing stock-based compensation expense for its performance share awards.

Performance Share Awards Based on Internal Performance Metrics

The fair value of ~~performance share award grants based on internal performance metrics~~the Employee Performance Share Awards 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. Based on~~ the Company’s ~~probability assessment at September 30, 2021, it is considered probable that the criteria for all performance awards based on internal metrics awards will be met.~~common stock.

Employee Performance Share ~~Awards.~~Awards. During the first nine months of 2021, the Company granted 696,280 Employee Performance Share Awards at a grant date value of $18.58 per share. The 2021 awards are scheduled to vest 100 percent on the third anniversary of the grant date, provided that the Company averages $100 million or more of operating cash flow during the three-year performance period, as set by the compensation committee of the Company's Board of Directors. If the Company does not meet the performance metric for the applicable performance period, then the performance shares that would have been issued on the anniversary date will be forfeited.

~~On September 29, 2021, in accordance with the Merger Agreement,~~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 ~~which~~that were granted in ~~2019~~2020 and 2021 had been met. ~~These awards are expected to be~~In July 2022, 1,775,790 shares with a grant date fair value of $22 million were issued and fully ~~vested in the first quarter of 2022.~~

~~Hybrid Performance Share Awards.~~ During the first nine months of 2021, the Company granted 423,171 Hybrid Performance Share Awards at a grant date value of $18.58 per share. The 2021 awards are scheduled to vest 25 percent on each of the first and second anniversary of the grant date and 50 percent on the third anniversary of the grant date, provided that the Company has $100 million or more of operating cash flow for the year preceding the vesting date, as set by the compensation committee of the Company's Board of Directors. If the Company does not meet the performance metric for the applicable period, then the portion of the performance shares that would have been issued on that anniversary date will be forfeited.

~~Subsequent Event.~~ On October 1, 2021, in accordance with the Merger Agreement, the Company vested 960,497 shares of common stock in connection with the accelerated vesting of all outstanding Hybrid Performance Share Awards with a weighted-average grant date value of $18.45 upon the completion of the Merger. The Company will recognize approximately $7.6 million of stock-based compensation expense in the fourth quarter of 2021 associated with the accelerated vesting of these awards.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.~~ Awards. During the ~~first~~ nine months ~~of 2021,~~ended September 30, 2022, the Company granted ~~723,224~~1,161,599 TSR Performance Share Awards, which 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.~~period, which commenced on February 1, 2022 and ends on January 31, 2025. The ~~Company incorporated~~2022 TSR Performance Share Awards include a ~~new~~ feature ~~in the 2021 TSR awards~~ 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.

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The following assumptions were used to determine the grant date fair value of the equity component on February ~~17, 2021~~28, 2022 and the period-end fair value of the liability component of the TSR Performance Share Awards:

~~Grant Date~~

September 30,
2021

~~Fair value per performance share award~~

~~16.07~~

~~$0.94 - $7.76~~

~~Assumptions:~~

~~Stock price volatility~~

~~39.8~~

~~38.53% - 44.44%~~

~~Risk-free rate of return~~

~~0.20~~

~~0.04% - 0.34%~~

~~Subsequent Even~~t. On October 1, 2021, in accordance with the Merger Agreement, the Company vested 2,122,077 shares of common stock in connection with the accelerated vesting of all outstanding TSR Performance Share Awards with a weighted-average grant date value of $16.30 upon the completion of the Merger. Under the terms of the Merger Agreement, all TSR Performance Share Awards were vested at target, resulting in a 100 percent payout of equity, with no cash payments earned under the awards. The Company will recognize approximately $10.3 million of stock-based compensation expense in the fourth quarter of 2021 associated with the acceleration of vesting of these awards.

~~12. Employee Benefit Plans~~

~~Deferred Compensation Plan~~

~~Subsequent Event.~~ 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 $19.3 million into such executives’ deferred compensation accounts. All of such contributions are fully vested.


	Grant Date			September 30, 2022
Fair value per performance share award	$	17.89		$	12.47
Assumptions:
Stock price volatility	42.3		%	42.3		%
Risk-free rate of return	1.60		%	4.19		%

13. Earnings per Common Share

Basic earnings per share (“EPS”) is computed by dividing net income 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 method to reflect the potential dilution that could occur if outstanding stock awards were vested 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 ~~weighted-average shares outstanding:~~earnings per share:

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2021 2020 2021 2020
Weighted-average shares - basic 399,664 398,580 399,459 398,500
Dilution effect of stock awards at end of period 3,074 — 2,464 2,128
Weighted-average shares - diluted 402,738 398,580 401,923 400,628


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	2022		2021		2022		2021

Income (Numerator)
Net income	$	1,196	$	64	$	3,033	$	220
Less: dividends attributable to participating securities	(2)		—		(5)		—
Less: Cimarex redeemable preferred stock dividends	—		—		(1)		—
Net income available to common stockholders	$	1,194	$	64	$	3,027	$	220

Shares (Denominator)
Weighted-average shares - Basic	792		400		801		399
Dilution effect of stock awards at end of period	5		3		4		3
Weighted-average shares - Diluted	797		403		805		402

Earnings per share:
Basic	$	1.51	$	0.16	$	3.78	$	0.55
Diluted	$	1.50	$	0.16	$	3.77	$	0.55

The following ~~table presents~~is a calculation of weighted-average shares excluded from diluted EPS due to ~~the~~ anti-dilutive effect:

Three Months Ended
September 30, Nine Months Ended
September 30,
(In thousands) 2021 2020 2021 2020
Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect due to net loss — 3,009 — —
Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method — — 914 51
— 3,009 914 51


	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2022	2021	2022	2021

Weighted-average stock awards excluded from diluted EPS due to the anti-dilutive effect calculated using the treasury stock method	1	—	1	1

14. Restructuring Costs

In connection with the Merger, the Company incurred certain merger-related restructuring costs that are primarily related to workforce reductions and the associated employee severance benefits that were triggered by the Merger. The Company recognized $44 million of restructuring expenses during 2022 related to the accrual of employee-related severance and termination benefits associated with the expected termination of certain Cimarex employees.

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~~14.~~The following table summarizes the Company’s restructuring liabilities:


(In millions)	Nine Months Ended September 30, 2022
Balance at beginning of period	$	43
Additions to merger-related restructuring costs	44
Payments of merger-related restructuring costs	(13)
Balance at end of period	$	74

15. Additional Balance Sheet Information

Certain balance sheet amounts are comprised of the following:


(In thousands)		September 30, 2021		December 31, 2020
(In millions)						(In millions)	September 30, 2022		December 31, 2021
Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
Trade accounts	Trade accounts	$	285,367	$	215,301	Trade accounts	$	1,273	$	922

Joint interest accounts						Joint interest accounts	125		83
Other accounts	Other accounts	381		462		Other accounts	24		34
		285,748		215,763			1,422		1,039
Allowance for doubtful accounts		(1,039)		(1,039)
Allowance for credit losses						Allowance for credit losses	(3)		(2)
							$	1,419	$	1,037
		$	284,709	$	214,724

Other assets	Other assets					Other assets
Deferred compensation plan	Deferred compensation plan	$	25,737	$	22,510	Deferred compensation plan	$	40	$	47
Debt issuance costs	Debt issuance costs	5,329		6,875		Debt issuance costs	3		5

Operating lease right-of-use assets						Operating lease right-of-use assets	435		317

Operating lease right-of-use assets		30,961		33,741
Derivative instruments						Derivative instruments	2		—
Other accounts	Other accounts	33		85		Other accounts	46		20
		$	62,060	$	63,211
							$	526	$	389
Accounts payable	Accounts payable					Accounts payable
Trade accounts	Trade accounts	$	24,124	$	12,896	Trade accounts	$	76	$	94

Royalty and other owners	Royalty and other owners	45,900		37,243		Royalty and other owners	531		315
Accrued transportation	Accrued transportation	53,800		52,238		Accrued transportation	95		96
Accrued capital costs	Accrued capital costs	39,771		37,872		Accrued capital costs	149		88
Taxes other than income	Taxes other than income	16,401		13,736		Taxes other than income	81		60
Accrued lease operating costs						Accrued lease operating costs	31		29

Other accounts	Other accounts	47,196		8,096		Other accounts	47		65
		$	227,192	$	162,081		$	1,010	$	747

Accrued liabilities	Accrued liabilities					Accrued liabilities
Employee benefits	Employee benefits	$	12,762	$	14,270	Employee benefits	$	67	$	81
Taxes other than income	Taxes other than income	3,330		3,026		Taxes other than income	35		13

Restructuring liability						Restructuring liability	35		43

Operating lease liabilities	Operating lease liabilities	3,814		3,991		Operating lease liabilities	116		69
Financing lease liabilities						Financing lease liabilities	6		14

Other accounts	Other accounts	1,135		1,087		Other accounts	35		40
		$	21,041	$	22,374		$	294	$	260

Other liabilities	Other liabilities					Other liabilities
Deferred compensation plan	Deferred compensation plan	$	36,525	$	30,581	Deferred compensation plan	$	53	$	56
Derivative instruments		1,237		—
Postretirement benefits						Postretirement benefits	29		33

Operating lease liabilities	Operating lease liabilities	27,035		29,628		Operating lease liabilities	319		248
Financing lease liabilities						Financing lease liabilities	13		7
Restructuring liability						Restructuring liability	39		—
Other accounts	Other accounts	12,731		21,069		Other accounts	80		63
		$	77,528	$	81,278		$	533	$	407

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16. Interest Expense, net

Interest expense is comprised of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
Interest Expense, net
Interest expense	$	29	$	10	$	90	31
Debt premium amortization	(11)		—		(32)		—
Debt issuance cost amortization	1		1		3		2
Other	(2)		2		(2)		5
	$	17	$	13	$	59	$	38

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following review of operations of Coterra Energy Inc. (“Coterra,” “our,” “we” and “us”) for the three and nine month periods ended September 30, ~~2021~~2022 and ~~2020~~2021 should be read in conjunction with our Condensed Consolidated Financial Statements and the Notes included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and with the Consolidated Financial Statements, Notes and Management’s Discussion and Analysis included in ~~the Coterra Energy Inc. (formerly Cabot Oil & Gas Corporation)~~our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (our “Form 10-K”).

OVERVIEW

Cimarex Merger

On ~~May 23,~~October 1, 2021, we ~~entered into an Agreement and Plan of Merger (as amended as of June 29, 2021, the “Merger Agreement”~~completed a merger transaction (the “Merger”) with Cimarex Energy Co. (“Cimarex”) ~~to combine via a merger transaction pursuant to which our wholly owned subsidiary merged with and into Cimarex, with Cimarex surviving the merger as our subsidiary (“Merger”)~~. The respective Boards of Directors of both companies unanimously approved the Merger in May 2021, proposals related to the Merger were approved by stockholders of both companies on September 29, 2021, and the Merger was completed on October 1, 2021. Cimarex is an oil and gas exploration and production company with operations in Texas, New Mexico and Oklahoma.

~~Under~~In connection with the ~~terms~~Merger, we have continued to evaluate and refine our process for assessing the estimated proved reserves of our legacy Cimarex and Cabot operations. Based on the analysis to date, as of September 30, 2022, we anticipate our total company proved reserves will decrease by approximately 15 to 20 percent year over year at December 31, 2022. This decrease in proved reserves is driven by a downward revision to prior estimates of approximately 32 to 36 percent for our Marcellus Shale properties, partially offset by an upward revision of approximately 8 to 12 percent for our Permian and Anadarko properties. Approximately a quarter of the ~~Merger Agreement,~~estimated total revision volume in the Marcellus Shale is related to the SEC 5-year rule for PUDs due to the timing of capital investments, changes around well spacing, and ~~subject to certain exceptions specified therein, each eligible share~~location optimization within the Marcellus region. Factors that may impact the size of ~~Cimarex common stock was converted into~~ the ~~right to receive 4.0146 shares of our common stock at closing. As a result of~~total adjustment include commodity prices, well performance, operating expenses and the completion of the ~~Merger, we issued approximately 408.2 million shares~~annual PUD reserves process, which will be incorporated as of ~~common stock~~year-end 2022. The expected net downward revision of prior estimates did not have a material impact on our Condensed Consolidated Financial Statements as of and for the period ended September 30, 2022 and is not expected to have a material impact on our 2022 and go-forward Consolidated Financial Statements.

Financial and operational information set forth herein does not include the activity of Cimarex ~~stockholders (excluding shares that were awarded in replacement of previously outstanding Cimarex restricted share awards). Based on~~for periods prior to the closing ~~price~~ of ~~our common stock on October 1, 2021,~~ the ~~total value of such shares of Coterra common stock issued was approximately $9.1 billion.~~

Additionally on October 1, 2021, we changed our name to Coterra Energy Inc. and, after receiving approval from our stockholders on September 29, 2021, increased the number of authorized shares of our common stock from 960,000,000 to 1,800,000,000.Merger.

Financial and Operating Overview

Financial and operating results for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020~~2021 reflect the following:

•Equivalent production increased 69.2 MMboe from 104.0 MMboe, or 380.9 MBoepd, in 2021 to 173.2 MMboe, or 634.4 MBoepd in 2022. The increase was attributable to production during the first nine months of 2022 from properties acquired in the Merger, which significantly expanded our operations.

•Natural gas production ~~decreased 15.3~~increased 144.6 Bcf from ~~639.2 Bcf, or 2,333 Mmcf per day, in the 2020 period to~~ 623.9 Bcf, or ~~2,285~~2,285.1 Mmcf per day, in the 2021 period to 768.5 Bcf, or 2,815.2 Mmcf per day, in the 2022 period. The ~~decrease~~increase was ~~driven by~~primarily attributable to production during the ~~timing~~first nine months of ~~our drilling and completion activities~~2022 from properties acquired in the ~~Marcellus Shale~~Merger, which significantly expanded our operations.

•Oil production increased 24 Mmbbl from prior year. The increase was attributable to production from properties acquired in ~~2021.~~the Merger.

•NGL production increased 22 Mmbbl from prior year. The increase was attributable to production from properties acquired in the Merger.

•Average realized natural gas price was ~~$2.35~~$4.97 per Mcf, ~~47 percent~~$2.62 higher than the ~~$1.60~~$2.35 per Mcf realized in the corresponding period of the prior year.

•Average realized oil and NGL prices for the nine months ended September 30, 2022 were $85.31 and $36.44 per Bbl, respectively.

•Total capital expenditures were ~~$460.9~~$1,254 million compared to ~~$463.9~~$461 million in the corresponding period of the prior year. The increase in capital expenditures was attributable to our expanded operations after the Merger.

•Drilled 73206 gross wells ~~(70.1~~(133.8 net) with a success rate of 100 percent compared to 5573 gross wells ~~(49.2~~(70.1 net) with a success rate of 100 percent for the corresponding period of the prior year. Wells drilled represents wells drilled to total depth during the period.

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•Completed 168 gross wells (104.1 net) in 2022 compared to 71 gross wells (67.1 net) in ~~2021 compared to 71 gross wells (62.3 net) in~~ the corresponding period of ~~2020.~~2021. Wells completed includes wells completed during the period, regardless of when they were drilled.

•Average rig count during ~~2021~~2022 was approximately ~~2.7~~6.2, 2.9 and 1.1 rigs in the Permian Basin, Marcellus Shale and Anadarko Basin, respectively, compared to an average rig count of approximately ~~2.3~~2.7 rigs in the Marcellus Shale during the corresponding period of ~~2020.~~2021.

•~~Repaid $88.0~~Increased our dividends from $0.32 per share for regular quarterly dividends in 2021 to $1.81 per share during 2022, including $0.45 and $1.36 per share for base and variable dividends, respectively, as part of the Company’s returns-focused strategy.

• Implemented our new share repurchase program and repurchased 28 million shares for $740 million. There were no share repurchases during the nine months ended September 30, 2021.

•Redeemed $706 million principal amount of our 4.375% senior notes and repurchased $37 million principal amount of our 6.51% weighted-average senior notes and $87 million principal amount of our 5.58% weighted-average senior notes ~~which matured in January 2021, and $100.0~~during the nine months ended September 30, 2022, as part of our efforts to strengthen our balance sheet. Repaid $188 million of ~~our 3.65% weighted-average~~ senior notes which matured induring the nine months ended September 30, 2021.

Impact of the COVID-19 Pandemic

The ongoing coronavirus (“COVID-19”) ~~outbreak, which~~pandemic has caused widespread illness and significant loss of life, leading governments across the ~~World Health Organization (WHO) declared as a pandemic in March 2020, has reached more than 200 countries~~world to impose severely stringent limitations on movement and ~~territories and there continues to be considerable uncertainty regarding the extent to which COVID-19 and its variants will continue to spread, the global availability and efficacy of treatments and~~

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recently deployed vaccines and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus and alleviate strain on the healthcare system and the economic impacts of those actions.

We have implemented preventative measures and developed response plans intended to minimize unnecessary risk of exposure and prevent infection among our employees and the communities in which we operate. Beginning in March 2020, we modified certain business practices (including those related to nonoperational employee work locations and the cancellation of physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by the Centers for Disease Control and Prevention, the WHO and other governmental and regulatory authorities. In addition, we implemented and provided training on a COVID-19 Safety Policy containing personal safety protocols; provided additional personal protective equipment to our workforce; implemented rigorous COVID-19 self-assessment, contact tracing and quarantine protocols; increased cleaning protocols at all of our employee work locations; and provided additional paid leave to employees with actual or presumed COVID-19 cases. We also collaborated, and continue to collaborate, with customers, suppliers and service providers to minimize potential impacts to or disruptions of our operations and to implement longer-term emergency response protocols. Although we returned to full in-person working in our Houston headquarters and other offices in July 2021 (due to our determination that we could safely do so), we intend to continue to monitor developments affecting our workforce, our customers, our suppliers, our service providers and the communities in which we operate, including any significant resurgence in COVID-19 transmission and infection. Should the need arise, we will take such precautions as we believe are warranted.

human interaction. Our efforts to respond to the challenges presented by the ongoing pandemic, as well as certain operational decisions we previously implemented, such as our maintenance capital program and safety and preventative measures developed to minimize unnecessary risk of exposure and prevent infection among our employees and the communities in which we operate, have helped to minimize the impact, and any resulting disruptions, of the pandemic to our business and operations. ~~We have not required any loans under any COVID-19-related federal or other governmental programs to support our operations, and we do not expect to have to utilize any such funding.~~

The ~~eventual~~long-term impact that the COVID-19 pandemic will have on our business, cash flows, liquidity, financial condition and results of operations will depend on future developments, including, among others, the duration, ultimate geographic spread and severity of the virus and its variants, the global availability and efficacy of treatments, vaccines and boosters, vaccination and immunization rates, any significant resurgence in virus transmission and infection in regions that have experienced improvements, the ~~consequences~~extent and duration of governmental and other measures ~~designed~~implemented to ~~mitigate~~try to slow the spread of the virus ~~and alleviate strain on~~(including through the ~~healthcare system, the distribution and effectiveness~~re-imposition of ~~therapeutic treatments and recently deployed vaccines~~prior measures) and other actions by governmental authorities, customers, suppliers and other third parties.

Market Conditions and Commodity Prices

Our financial results depend on many factors, particularly commodity prices and our ability to find, develop and market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by pipeline capacity constraints, inventory storage levels, basis differentials, weather conditions and other factors. ~~Our realized~~

The ongoing conflict between Russia and Ukraine has driven oil and natural gas prices ~~are also~~up significantly, in part because of sanctions by the European Union, the United Kingdom and the U.S. on imports of oil and gas from Russia, and may have further ~~impacted by~~global economic consequences, including disruptions of the global energy marketsand the amplification of inflation and supply chain constraints. Recent Russian actions have further contributed to global uncertainties for the future, causing even higher oil and natural gas prices. The ultimate impact of the war in Ukraine will depend on future developments and the timing and extent to which normal economic and operating conditions resume.

In addition, the issue of, and increasing political and social attention on, climate change has resulted in both existing and pending national, regional and local legislation and regulatory measures, such as mandates for renewable energy and emissions reductions, targeted at limiting or reducing emissions of greenhouse gases.

Changes in these laws or regulations may result in delays or restrictions in permitting and the development of projects, may result in increased costs and may impair our ~~hedging activities.~~ability to move forward with our construction, completions, drilling, water management, waste handling, storage, transport and remediation activities, any of which could have an adverse effect on our financial results.

Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prevailing commodity prices, particularly oil and natural gas prices. ~~Since material~~Material declines in commodity prices

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could have a material adverse effect on our operating results, financial condition, liquidity and ability to obtain financing. Lower commodity prices also may reduce the amount of oil, natural gas, and ~~natural gas liquids (“NGL”)~~NGLs that we can produce ~~economically. In addition, in periods of~~economically, and we may curtail our production during such low commodity ~~prices, we may elect to curtail a portion of our production from time to time. Historically, commodity~~price environments. Commodity prices have been and remain volatile, with prices sometimes fluctuating ~~widely, and they may remain volatile. As a result,~~widely. Because of this volatility, we cannot accurately predict future commodity prices ~~and, therefore, cannot~~or, in turn determine with any degree of certainty what effect increases or decreases in these prices ~~will~~could have on our capital program, production volumes or revenues. ~~In addition to commodity prices and production volumes,~~

Our long-term success also depends on finding and developing sufficient amounts of oil and natural gas reserves at economical ~~costs~~costs. Certain of our capital expenditures and expenses are ~~critical~~affected by general inflation, which has risen throughout 2022. We expect to see inflation impact our ~~long-term success.~~cost structure for the remainder of 2022, albeit it at a more moderate pace compared to earlier in the year.

Our realized prices are also further impacted by our hedging activities. We account for our derivative instruments on a mark-to-market basis, with changes in fair value recognized in operating revenues in the Condensed Consolidated Statement of Operations. As a result of these mark-to-market adjustments associated with our derivative instruments, we will experience volatility in our earnings due to commodity price volatility. Refer to “Results of ~~Operations — Impact of Derivative Instruments on Operating Revenues”~~Operations” below and Note 5 of the Notes to the Condensed Consolidated Financial Statements for more information.

One of the impacts of the COVID-19 pandemic was a significant reduction in demand for crude oil, and to a lesser extent, natural gas. The supply/demand imbalance driven by the COVID-19 pandemic and production disagreements in March 2020 among members of the Organization of Petroleum Exporting Countries and certain other oil exporting countries (OPEC+) led to a significant global economic contraction generally in 2020 and continued to have disruptive impacts on the oil and gas industry in 2021. Although the members of OPEC+ agreed in April 2020 to cut oil production and have subsequently taken actions that generally have supported commodity prices, and U.S. production has declined, oil prices and natural gas prices remained low,

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relative to pre-pandemic levels, through the first quarter of 2021, as the oversupply and lack of demand in the market persisted. Oil, natural gas and NGL prices increased in the third quarter of 2021 compared to the third quarter of 2020 and have further strengthened after the end of the third quarter of 2021, in part due to greater demand during the early summer heating season and slightly decreasing production levels.

~~Meanwhile,~~ NYMEX oil and natural gas futures prices have strengthened since the reduction of pandemic-related restrictions and ~~recent~~ OPEC+ cooperation. Improving oil and natural gas futures prices in part reflect market expectations of limited USU.S. supply growth from publicly traded companies as a result of capital investment discipline and a focus on delivering free cash flow returns to stockholders. In addition, natural gas prices have benefited from strong worldwide liquefied natural gas (“LNG”) demand, ~~and~~which is, in part, a result of buyers shifting from Russian gas due to the Ukraine invasion, sustained higher U.S. exports, lower associated gas growth from oil drilling and improved U.S. economic activity. Oil price futures have improved(although such future prices are still lower than current spot prices) coinciding with recovering global economic activity, lower supply from major oil producing countries, OPEC+ cooperation and moderating inventory levels.

Although the current outlook on oil and natural gas prices is generally favorable and our operations have not been significantly impacted in the short-term, in the event further disruptions occur and continue for an extended period of time, our operations could be adversely impacted, commodity prices could decline and our costs may continue to increase. Although we are unable to predict future commodity prices, at current oil, natural gas and NGL price levels, we do not believe that an impairment of our oil and gas properties is reasonably likely to occur in the near future; however, in the event that commodity prices significantly decline or costs increase significantly from current levels, our management would evaluate the recoverability of the carrying value of our oil and gas properties.

We currently believe that we are well-positioned to manage the challenges presented by the volatility in the commodity pricing environment, and we believe we can endure continued volatility in current and future commodity prices by continuing to:

•Exercise discipline in our capital program with the expectation of funding our capital expenditures with cash on hand, operating cash flows, and if required, borrowings under our revolving credit facility;

•~~Manage our portfolio by strategically curtailing production in periods of weaker commodity prices;~~

•~~Optimize our drilling, completion and operational efficiencies;~~

•Manage our balance sheet, which (when taken together with availability under our revolving credit facility) provides sufficient cash availability to meet our capital requirements and maintain compliance with our debt covenants; and

•~~Manage price risk by strategically hedging our production.~~

For information about the impact of realized commodity prices on our revenues, refer to “Results of Operations” below.

Recent U.S. Tax Legislation

On August 16, 2022, the Inflation Reduction Act of 2022 (the “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. We are continuing to evaluate the IRA and its requirements, as well as the impact to our business.

Other Issues and Contingencies

Climate-related regulations and climate-related business trends may impact our business, financial conditions and results of our operations, and we may experience the following:

•decreased demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources;

•increased demand for goods that result in lower emissions than competing products;

•increased competition to develop innovative new products that result in lower emissions;

•increased demand for generation and transmission of energy from alternative energy sources; and

•reputational risks resulting from our operations or oil, natural gas and NGLs that we sell to the extent they are perceived to produce material greenhouse gas emissions.

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Outlook

~~We expect our fourth quarter 2021~~Our 2022 capital program is expected to be approximately ~~$245.0 million~~$1.6 billion to ~~$275.0 million~~$1.7 billion, which includes $1.45 billion to $1.55 billion for ~~the combined company after the Merger with Cimarex.~~drilling and completion activities. We expect to fund these capital expenditures with our operating cash flow and, if required, cash on hand.

In ~~2020,~~2021, we drilled 74114 gross wells ~~(64.3~~(99.9 net) and completed 86132 gross wells ~~(77.3~~(108.3 net), of which 2614 gross wells ~~(26.0~~(13.0 net) were drilled but uncompleted in prior years. For the ~~first~~ nine months ~~of 2021,~~ended September 30, 2022, our capital program focused on the Permian Basin, Marcellus Shale and Anadarko Basin, where we drilled ~~70.1~~133.8 net wells and completed ~~67.1~~104.1 net wells. Our ~~fourth quarter 2021~~ capital program for the remainder of 2022 will focus on execution of our 2022 plan, which remains in line with the ~~Permian Basin, where we are currently running five rigs and two completion crews, and the Marcellus Shale, where we are currently running two rigs and two completion crews.~~updated full-year guidance released in August. We allocate our planned program for capital expenditures based on market conditions, return on capital and free cash flow expectations and availability of services and human resources. We will continue to assess the oil and natural gas price environment and may adjust our capital expenditures accordingly.

~~Financial Condition~~FINANCIAL CONDITION

Liquidity and Capital Resources

We strive to maintain an adequate liquidity level to address commodity price volatility and ~~Liquidity~~risk. Our primary sources of liquidity are (1) net cash provided by operating activities, (2) cash on hand and (3) available borrowing capacity under our revolving credit facility.

Our ~~primary source~~liquidity requirements consist primarily of ~~cash for the nine months ended September 30, 2021 was from net cash flows related to the sale of natural gas production. These cash flows were used to fund our~~(1) capital expenditures, ~~principal~~(2) payment of contractual obligations, including debt and interest payments, ~~on debt~~(3) working capital requirements, (4) dividend payments and ~~payment of dividends.~~(5) share repurchases. See below for additional discussion and analysis of our cash flows.

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~~The borrowing base~~ We believe that, with operating cash flow, cash on hand and availability under ~~the terms of~~ our revolving credit facility, ~~was redetermined annually in April until~~we have the ~~most recent amendment~~ability to finance our spending plans over the ~~credit agreement in September 2021. Effective April 21, 2021,~~next twelve months and, based on current expectations, for the ~~borrowing base and available commitments were reaffirmed at $3.2 billion and $1.5 billion, respectively.~~long term.

~~On June 17, 2021, we entered into an amendment to the credit agreement relating to our revolving credit facility to, among other things, (1) remove the requirement that certain~~As of our restricted subsidiaries become guarantors under the credit agreement, (2) expand the permissible indebtedness that may be held or incurred by a restricted subsidiary and (3) make certain other changes to permit us to complete the Merger. This amendment became effective upon completion of the Merger on October 1, 2021.

On September 16, 2021, we entered into another amendment to the credit agreement 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 ratio of total debt to consolidated EBITDA of not more than 3.0 to 1.0; (3) provide that if, in the future, we no longer have 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 on October 1, 2021, and closing of the debt exchange described below.

At September 30, ~~2021,~~2022, we had no borrowings outstanding under our revolving credit facility, ~~and~~ our unused commitments were $1.5 ~~billion. Refer to Note 4~~billion and we had unrestricted cash on hand of ~~the Notes to the Condensed Consolidated Financial Statements for more information.~~$778 million.

~~We strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity.~~ Our revolving credit facility includes a covenant limiting our borrowing capacity based on our leverage ratio. ~~We believe~~Refer to Note 4 of the Notes to the Consolidated Financial Statements, “Debt and Credit Agreements,” in our Form 10-K for further details regarding our leverage ratio.

Our debt is currently rated as investment grade by the three leading rating agencies. In determining our credit ratings, the agencies consider a number of qualitative and quantitative items including, but not limited to, current commodity prices, our liquidity position, our leverage ratios, our financial results, our asset quality and reserve mix, debt levels and cost structure. Credit ratings are not recommendations to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. There are no “rating triggers” in any of our debt agreements that ~~with operating cash flows, cash~~would accelerate the scheduled maturities should our credit rating fall below a certain level. However, a change in our credit rating could impact our interest rate on ~~hand and availability~~any borrowings under our revolving credit facility, and our ability to economically access debt markets in the future and could trigger the requirement to post credit support under various agreements, which could reduce the borrowing capacity under our revolving credit facility.

Our investments are generally funded with cash flow provided by operating activities together with cash on hand, bank borrowings, sales of non-strategic assets, and, from time to time, private or public financing based on our monitoring of capital markets and our balance sheet. We also may use a combination of these sources of funds to refinance or retire our outstanding debt through privately negotiated transactions, open market repurchases, redemptions, exchanges, tender offers or otherwise, but we have ~~the capacity~~no obligation to ~~fund our spending plans.~~do so.

At September 30, ~~2021,~~2022, we were in compliance with all financial and other covenants applicable to our revolving credit facility and senior notes. Refer to our Form 10-K for further discussion of our restrictive financial covenants.

~~On October 7, 2021 and after the completion~~

Table of the Merger, we completed the exchange of $1.8 billion in aggregate principal of Cimarex senior notes (“Existing Cimarex Notes”) for $1.8 billion in aggregate principal of new notes issued by us (“New Coterra Notes”) and $1.8 million of cash consideration. In connection with the debt exchange, Cimarex obtained consents to adopt certain amendments to each of the indentures governing the Existing Cimarex Notes to eliminate certain of the covenants, restrictive provisions and events of default from such indentures. The New Coterra Notes are general, unsecured, senior obligations of ours and have substantially identical terms and covenants to the Existing Cimarex Notes (before giving effect to the amendments referred to in the immediately preceding sentence), which we believe are customary for senior, unsecured notes issued by companies of similar size and credit quality as compared to us. The New Coterra Notes consist of $705.5 million aggregate principal amount of 4.375% Senior Notes due 2024, $687.2 million aggregate principal amount of 3.90% Senior Notes due 2027 and $433.2 million aggregate principal amount of 4.375% Senior Notes due 2029.Contents

Cash Flows

Our cash flows from operating activities, investing activities and financing activities were as follows:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)		2021		2020
(In millions)						(In millions)	2022		2021
Cash flows provided by operating activities	Cash flows provided by operating activities	$	714,663	$	470,393	Cash flows provided by operating activities	$	3,972	$	716
Cash flows used in investing activities	Cash flows used in investing activities	(458,721)		(487,546)		Cash flows used in investing activities	(1,183)		(459)
Cash flows used in financing activities	Cash flows used in financing activities	(321,382)		(184,882)		Cash flows used in financing activities	(3,047)		(322)
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	$	(65,440)	$	(202,035)	Net decrease in cash, cash equivalents and restricted cash	$	(258)	$	(65)

Operating ~~Activities~~.Activities. ~~Fluctuations in our operating~~Operating cash ~~flows~~flow fluctuations are substantially driven by ~~commodity prices,~~ changes in ~~our~~commodity prices, production volumes and operating expenses. Commodity prices have historically been volatile, primarily as a result of supply and demand for oil and natural gas, pipeline infrastructure constraints, basis differentials, inventory storage levels, seasonal influences and geopolitical, economic and other factors. In addition, fluctuations in cash ~~flows~~flow may result in an increase or decrease in our capital expenditures.

24On October 1, 2021, we and Cimarex completed the Merger. Although we expect to achieve certain general and administrative expense synergies over the long-term through cost savings, in the near-term we will continue to incur certain merger-related costs, which in total are expected to range from $100 million to $110 million. These payments will primarily relate to workforce reductions and the associated employee severance benefits. As of September 30, 2022, we have incurred approximately $87 million of employee severance benefits.

~~Table of Content~~s

Our working capital is substantially influenced by the variables discussed above and fluctuates based on the timing and amount of borrowings and repayments under our revolving credit facility, repayments of debt, the timing of cash collections and payments on our trade accounts receivable and payable, respectively, payment of dividends, repurchases of our securities and changes in the fair value of our commodity derivative activity. From time to time, our working capital will reflect a deficit, while at other times it will reflect a surplus. This fluctuation is not unusual. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we had a working capital ~~deficit of $23.3 million and a~~ surplus of ~~$25.5~~$935 million and $916 million, respectively. We believe ~~that~~ we have adequate liquidity and availability under our revolving credit facility to meet our working capital requirements over the next 12 months.

Net cash provided by operating activities infor the ~~first~~ nine months ~~of 2021~~ended September 30, 2022 increased by ~~$244.3 million~~$3.3 billion compared to the ~~first nine months of 2020.~~same period in 2021. This increase was primarily due to higher natural gas, ~~revenues,~~oil and NGL revenue, partially offset by ~~lower cash received from derivative settlements,~~ higher operating expenses, higher cash paid on derivative settlements and ~~higher net cash outflows related to certain other current asset and liability balances reflected~~a larger decrease in working capital ~~compared to the corresponding period of the prior year.~~and other assets and liabilities. The increase in natural gas, ~~revenues~~oil and NGL revenue was primarily due to ~~higher realized prices, partially offset by lower production. Average~~our expanded operations after the Merger and an increase in realized natural gas prices ~~increased by 47 percent for~~from the ~~first~~ nine months ofended September 30, 2021 ~~compared~~ to the ~~first~~ nine months of 2020. The decrease in natural gas production for the first nine months of 2021 compared to the first nine months of 2020 was driven by the timing of our drilling and completion activities in the Marcellus Shale in 2021.ended September 30, 2022.

Refer to “Results of Operations” below for additional information relative to commodity ~~price,~~prices, production and operating expense fluctuations. We are unable to predict future commodity prices and, as a result, cannot provide any assurance about future levels of net cash provided by operating activities.

Investing Activities. Cash flows used in investing activities ~~decreased~~increased by ~~$28.8~~$724 million for the ~~first~~ nine months ~~of 2021~~ended September 30, 2022 compared to the ~~first~~ nine months ~~of 2020.~~ended September 30, 2021. The ~~decrease~~increase was primarily due to ~~$19.4~~$746 million of ~~lower~~higher capital expenditures as a result of our expanded operations after the ~~continuation of our maintenance capital program in 2021 and a decrease in net cash outflows of $9.4 million related to the sale of equity method investments in 2020.~~Merger.

Financing Activities. Cash flows used in financing activities increased by ~~$136.5 million~~$2.7 billion for the ~~first~~ nine months ~~of 2021~~ended September 30, 2022 compared to the ~~first~~ nine months ~~of 2020.~~ended September 30, 2021. This increase was primarily due to ~~$129.0 million~~ higher ~~net repayments~~dividend payments of ~~debt in 2021 compared to 2020 and $8.3 million higher dividends paid~~$1.3 billion as a result of anthe increase in our base dividend rate from $0.10 per share in April 2021 to ~~$0.11~~$0.15 per share in ~~April 2021.~~February 2022, resulting in a base dividend of $0.45 per share for the nine months ended September 30, 2022 compared to $0.32 per share for the nine months ended September 30, 2021, and the payment of variable dividends of $1.36 per share during the nine months ended September 30, 2022. Dividend payments also increased due to the additional shares issued in October 2021 as consideration in the Merger. The increase in cash flows used in financing activities was also due to share repurchases of $740 million during the nine months ended September 30, 2022 and $642 million of higher debt repayments, net of borrowings during the nine months ended September 30, 2022.

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Capitalization

Information about our capitalization is as follows:


(In thousands)		September 30, 2021			December 31, 2020
(In millions)								(In millions)	September 30, 2022			December 31, 2021
Debt (1)	Debt (1)	$	946,509		$	1,133,924		Debt (1)	$	2,232		$	3,125
Stockholders' equity	Stockholders' equity	2,326,112			2,215,707			Stockholders' equity	12,659			11,738
Total capitalization	Total capitalization	$	3,272,621		$	3,349,631		Total capitalization	$	14,891		$	14,863
Debt to total capitalization	Debt to total capitalization	29		%	34		%	Debt to total capitalization	15		%	21		%
Cash and cash equivalents	Cash and cash equivalents	$	76,270		$	140,113		Cash and cash equivalents	$	778		$	1,036

(1)Includes ~~$188.0~~$44 million of current portion of long-term debt at ~~December 31, 2020.~~September 30, 2022 that was called for redemption in October 2022. There were no borrowings outstanding under our revolving credit facility as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

Share repurchases. Under our authorized share repurchase program approved in February 2022, we repurchased 28 million shares of our common stock for $740 million during the nine months ended September 30, 2022. We did not repurchase any shares of our common stock during the ~~first~~ nine months ~~of 2021 and 2020.~~ended September 30, 2021.

Dividends. During the ~~first~~ nine months ~~of 2021 and 2020,~~ended September 30, 2022, we paid dividends of ~~$127.8~~$1.5 billion on our common stock and Cimarex’s redeemable preferred stock, which included regular quarterly dividends on our common stock of $0.45 per share and variable dividends of $1.36 per share, and a dividend of $23.125 per share on Cimarex’s redeemable preferred stock in each of the first three quarters of 2022. During the nine months ended September 30, 2021, we paid dividends of $128 million ($0.32 per share) ~~and $119.5 million ($0.30 per share), respectively,~~ on our common stock.

In ~~April 2021, our Board of Directors approved an increase in the quarterly dividend on our common stock from $0.10 per share to $0.11 per share.~~

On October 1, 2021 and upon closing the Merger, we issued approximately 408.2 million shares of common stock to Cimarex stockholders under the terms of the Merger Agreement (excluding restricted share that were awarded in replacement of previously outstanding Cimarex restricted share awards).

On September 29, 2021, our stockholders approved an amendment to our certificate of incorporation to increase the number of authorized shares of our common stock from 960,000,000 shares to 1,800,000,000 shares. That amendment became effective on October 1, 2021.

~~Table of Content~~s

~~On October 4, 2021, and in connection with the closing of the Merger,~~November 2022, our Board of Directors approved a ~~special~~quarterly base dividend of ~~$0.50~~$0.15 per share payable on our common stock on October 22, 2021. On November 3, 2021, our Board of Directors approved an increase in the quarterly dividend on our common stock from $0.11 per share to $0.125 per share. Also on that date, related to our dividend strategy to return at least 50 percent of quarterly free cash flows to stockholders, the Board of Directors approvedand a variable dividend of ~~$0.175~~$0.53 per share, ~~for~~resulting in a total base-plus-variable dividend of ~~$0.30~~$0.68 per share ~~payable~~ on our common ~~stock on November 24, 2021 .~~stock.

Capital and Exploration Expenditures

On an annual basis, we generally fund most of our capital expenditures, excluding any significant property acquisitions, with ~~operating~~ cash ~~flows,~~generated from operations, and, if required, cash on hand and ~~if required,~~ borrowings under our revolving credit facility. We budget these expenditures based on our projected cash flows for the year.

The following table presents major components of our capital and exploration expenditures:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)		2021		2020
(In millions)						(In millions)	2022		2021
Capital expenditures:	Capital expenditures:					Capital expenditures:
Drilling and facilities	Drilling and facilities	$	448,108	$	449,045	Drilling and facilities	$	1,164	$	448
Leasehold acquisitions	Leasehold acquisitions	3,564		3,258		Leasehold acquisitions	6		4

Pipeline and gathering						Pipeline and gathering	41		—
Other	Other	9,267		11,622		Other	43		9
		460,939		463,925			1,254		461
Exploration expenditures(1)	Exploration expenditures(1)	8,993		10,669		Exploration expenditures(1)	23		9
		$	469,932	$	474,594		$	1,277	$	470

(1)There were no exploratory dry hole costs for the ~~first~~ ninemonths ofended September 30, 2022 and 2021. ~~Exploration expenditures include $2.0 million of exploratory dry hole costs for the first nine months of 2020.~~

For the ~~first~~ nine months ~~of 2021,~~ended September 30, 2022, our capital program was focused on the Permian Basin, Marcellus Shale and Anadarko Basin, where we drilled ~~70.1~~133.8 net wells and completed ~~67.1~~104.1 net wells. We expect our ~~fourth quarter 2021~~2022 capital program to be approximately ~~$245.0 million~~$1.6 billion to ~~$275.0 million for the combined company after the Merger with Cimarex. Our fourth quarter capital program~~$1.7 billion and will focus on the Permian Basin, where we are currently running ~~five~~six rigs and two completion crews, and the Marcellus Shale, where we are currently running ~~two~~three rigs and ~~two~~one completion ~~crews.~~crew. In August we increased our full-year expected 2022 capital program due to inflation and a modest increase in activity planned for the remaining second half of 2022. Refer to “Outlook” for additional information regarding the current year drilling program. We will continue to assess the commodity price environment and may ~~increase or decrease~~adjust our capital expenditures accordingly.

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Contractual Obligations

We have various contractual obligations in the normal course of our operations. ~~Other than as a result of the Merger, there~~There have been no material changes to our contractual obligations described under “Transportation, Processing and Gathering Agreements” and “Lease Commitments” as disclosed in Note 98 of the Notes to the Consolidated Financial Statements and the obligations described under “Contractual Obligations” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form ~~10-K.~~10-K, except as described under “Lease Commitments” as disclosed in Note 8 of the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Refer to our Form 10-K for further discussion of our critical accounting policies.

~~Results of Operations~~RESULTS OF OPERATIONS

Third Quarters of ~~2021~~2022 and ~~2020~~2021 Compared

~~We reported net income~~Operating Revenues


	Three Months Ended September 30,				Variance
(In millions)	2022		2021		Amount		Percent
Operating Revenues
Natural gas	$	1,644	$	641	$	1,003	156	%
Oil	755		—		755		100	%
NGL	259		—		259		100	%
Loss on derivative instruments	(156)		(201)		45		22	%
Other	18		—		18		100	%
	$	2,520	$	440	$	2,080	473	%

Production Revenues

Our production revenues are derived from the sale of our oil, natural gas and NGL production. Our 2022 production revenues were substantially higher due to the Merger, which significantly expanded our operations to include the Permian and Anadarko Basins, and increased commodity prices. Increases and decreases in our revenues, profitability and future production growth are highly dependent on the ~~third quarter~~commodity prices we receive, which we expect to continue to fluctuate due to supply and demand factors, the availability of ~~2021 of $62.7 million, or $0.16 per share, compared to a net loss of $15.0 million, or $0.04 per share, in the third quarter of 2020. The increase in net income was~~transportation, seasonality and geopolitical, economic and other factors.

Natural Gas Revenues


	Three Months Ended September 30,				Variance				Increase (Decrease) (In millions)
	2022		2021		Amount		Percent
Price variance ($/Mcf)	$	6.37	$	2.95	$	3.42	116	%	$	884
Volume variance (Bcf)	258.2		217.4		40.8		19	%	119
									$	1,003

Natural gas revenues increased $1.0 billion primarily due to ~~higher operating revenues and lower interest expense, partially offset by higher operating expenses and income tax expense.~~

~~Table of Content~~s

~~Revenues~~

~~Our revenues vary from year to year as a result of changes in commodity prices and production volumes. Below is a summary of revenues, price and volume variances.~~

Three Months Ended September 30, Variance
(In thousands) 2021 2020 Amount Percent
Operating Revenues
   Natural gas $ 641,625 $ 333,256 $ 308,369 93 %
   (Loss) gain on derivative instruments (201,282) (42,253) (159,029) (376) %
   Other 53 38 15 39 %
$ 440,396 $ 291,041 $ 149,355 51 %

~~Natural Gas Revenue Price and Volume Variances~~

Three Months Ended September 30, Variance Increase
(Decrease)
(In thousands)
2021 2020 Amount Percent
Average price ($/Mcf) $ 2.95 $ 1.51 $ 1.44 95 % $ 314,409
Volume (Bcf) 217.4 221.4 (4.0) (2) % (6,040)
Total $ 308,369

~~The increase in natural gas revenues of $308.4 million was primarily due to~~significantly higher natural gas prices ~~partially offset by a decrease~~and higher production. The increase in ~~production. Production decreased~~production was primarily related to properties acquired in the Merger, which significantly expanded our operations.

Oil Revenues

Oil revenues increased $755 million due to our expanded operations after the ~~timing of our drilling~~Merger and ~~completion activities in the Marcellus Shale in 2021.~~increased oil prices.

~~Impact of Derivative Instruments on Operating~~NGL Revenues

Three Months Ended
September 30,
(In thousands) 2021 2020
Cash received (paid) on settlement of derivative instruments
(Loss) gain on derivative instruments $ (64,351) $ 14,106
Non-cash gain (loss) on derivative instruments
(Loss) gain on derivative instruments (136,931) (56,359)
$ (201,282) $ (42,253)
NGL revenues increased $259 million due to our expanded operations after the Merger and increased NGL prices.

Table of ~~Content~~sContents

Loss on Derivative Instruments

Net gains and losses on our derivative instruments are a function of fluctuations in the underlying commodity index prices as compared to the contracted prices and the monthly cash settlements (if any) of the instruments. We have elected not to designate our derivatives as hedging instruments for accounting purposes and, therefore, we do not apply hedge accounting treatment to our derivative instruments. Consequently, changes in the fair value of our derivative instruments and cash settlements on the instruments are included as a component of operating revenues as either a net gain or loss on derivative instruments. Cash settlements of our contracts are included in cash flows from operating activities in our statements of cash flows. The following table presents the components of “Loss on derivative instruments” for the periods indicated:


	Three Months Ended September 30,
(In millions)	2022		2021
Cash paid on settlement of derivative instruments
Gas contracts	$	(202)	$	(64)
Oil contracts	(57)		—
Non-cash gain (loss) on derivative instruments
Gas contracts	2		(137)
Oil contracts	101		—
	$	(156)	$	(201)

Operating Costs and ~~Other~~ Expenses

Three Months Ended September 30, Variance
(In thousands) 2021 2020 Amount Percent
Operating Expenses
   Direct operations $ 21,354 $ 20,197 $ 1,157 6 %
   Transportation and gathering 148,794 146,982 1,812 1 %
   Taxes other than income 8,207 3,615 4,592 127 %
   Exploration 3,998 3,900 98 3 %
   Depreciation, depletion and amortization 97,289 99,649 (2,360) (2) %
   General and administrative 65,098 24,262 40,836 168 %
$ 344,740 $ 298,605 $ 46,135 15 %
Gain on sale of assets $ 184 $ 31 $ 153 494 %
Interest expense, net 12,577 14,389 (1,812) (13) %
Other expense 47 57 (10) (18) %
Income tax expense (benefit) 20,502 (7,018) 27,520 392 %

~~Total~~Costs associated with producing oil and natural gas are substantial. Among other factors, some of these costs vary with commodity prices, some trend with the volume and commodity mix of production, some are a function of the number of wells we own, some depend on the prices charged by service companies and some fluctuate based on a combination of the foregoing. Our operating costs and expenses ~~from operations~~in 2022 were substantially increased ~~by $46.1 million in the third quarter of 2021 compared~~due to the ~~corresponding period~~Merger, which significantly expanded our operations to include the Permian and Anadarko Basins. In addition, our costs for services, labor and supplies have recently increased due to higher demand for those items, inflation and supply chain disruptions.

The following table reflects our operating costs and expenses for the periods indicated and a discussion of ~~2020. The primary reasons~~the operating costs and expenses follows.


	Three Months Ended September 30,				Variance				Per BOE
(In millions, except per BOE)	2022		2021		Amount		Percent		2022		2021
Operating Expenses
Direct operations	$	118	$	21	$	97	462	%	$	1.99	$	0.59
Transportation, processing and gathering	255		149		106		71	%	4.33		4.10
Taxes other than income	102		8		94		1,175	%	1.72		0.23
Exploration	10		4		6		150	%	0.17		0.11
Depreciation, depletion and amortization	422		97		325		335	%	7.16		2.68

General and administrative	107		64		43		67	%	1.80		1.80
	$	1,014	$	343	$	671	196	%

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Direct Operations

Direct operations expense generally consists of costs for ~~this fluctuation are~~labor, equipment, maintenance, saltwater disposal, compression, power, treating and miscellaneous other costs (collectively, “lease operating expense”). Direct operations expense also includes well workover activity necessary to maintain production from existing wells. Direct operations expense consisted of lease operating expense and workover expense as follows:

•~~Direct~~


	Three Months Ended September 30,						Per BOE
(In millions, except per BOE)	2022		2021		Variance		2022		2021
Direct Operating Expense
Lease operating expense	$	93	$	17	$	76	$	1.57	$	0.48
Workover expense	25		4		21		0.42		0.11
	$	118	$	21	$	97	$	1.99	$	0.59

Lease operating and workover expense increased primarily due to our expanded operations ~~increased $1.2 million. No~~after the Merger.

Transportation, Processing and Gathering

Transportation, processing and gathering costs principally consist of expenditures to prepare and transport production downstream from the wellhead, including gathering, fuel, and compression, and processing costs, which are incurred to extract NGLs from the raw natural gas stream. Gathering costs also include costs associated with operating our gas gathering infrastructure, including operating and maintenance expenses. Costs vary by operating area and will fluctuate with increases or decreases in production volumes, contractual fees, and changes in ~~direct operations expenses were individually significant.~~fuel and compression costs.

•Transportation, processing and gathering costs increased ~~$1.8~~$106 million primarily due to ~~$2.1 million higher~~our expanded operations after the Merger, along with a slight increase in gathering charges ~~as a result of an increase~~ in the ~~gathering rate, partially offset by lower production.~~Marcellus Shale.

•Taxes Other Than Income

Taxes other than income consist of production (or severance) taxes, drilling impact fees, ad valorem taxes and other taxes. State and local taxing authorities assess these taxes, with production taxes being based on the volume or value of production, drilling impact fees being based on drilling activities and prevailing natural gas prices and ad valorem taxes being based on the value of properties. The following table presents taxes other than income for the periods indicated:


	Three Months Ended September 30,
(In millions)	2022			2021			Variance
Taxes Other than Income
Production	$	78		$	—		$	78
Drilling impact fees	8			7			1
Ad valorem	15			—			15
Other	1			1			—
	$	102		$	8		$	94
Taxes other than income as a percentage of production revenue	3.8		%	1.2		%

Taxes other than income increased ~~$4.6 million,~~$94 million. Production taxes represented the majority of our taxes other than income, which increased primarily due to ~~$4.2 million~~ higher ~~drilling impact fees driven by an increase~~production related to properties acquired in ~~rates associated with~~the Merger and higher ~~natural gas~~commodity prices. Ad valorem taxes increased primarily due to our expanded operations after the Merger and higher property valuations.

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•Depreciation, Depletion and Amortization

Depreciation, depletion and amortization (“DD&A”) expense consisted of the following for the periods indicated:


	Three Months Ended September 30,						Per BOE
(In millions, except per BOE)	2022		2021		Variance		2022		2021
DD&A Expense
Depletion	$	391	$	94	$	297	$	6.63	$	2.60
Depreciation	18		1		17		0.31		0.02
Amortization of unproved properties	11		1		10		0.19		0.03
Accretion of ARO	2		1		1		0.03		0.03
	$	422	$	97	$	325	$	7.16	$	2.68

Depletion of our producing properties is computed on a field basis using the units-of-production method under the successful efforts method of accounting. The economic life of each producing property depends upon the estimated proved reserves for that property, which in turn depend upon the assumed realized sales price for future production. Therefore, fluctuations in oil and gas prices will impact the level of proved developed and proved reserves used in the calculation. Higher prices generally have the effect of increasing reserves, which reduces depletion expense. Conversely, lower prices generally have the effect of decreasing reserves, which increases depletion expense. The cost of replacing production also impacts our depletion expense. In addition, changes in estimates of reserve quantities, estimates of operating and future development costs, reclassifications of properties from unproved to proved and impairments of oil and gas properties will also impact depletion expense. Our depletion expense increased $297 million due to increased production and a higher depletion rate of $6.63 per BOE for the three months ended September 30, 2022, both of which are attributable to the value of the oil and gas properties acquired on the closing date of the Merger, compared to $2.60 per BOE for the three months ended September 30, 2021.

Fixed assets consist primarily of gas gathering facilities, 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. Also included in our depreciation expense is the depreciation of the right-of-use asset associated with our finance lease gathering system. The increase in depreciation expense during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 is primarily due to depreciation on our gathering facilities acquired in the Merger.

Unproved properties are amortized based on our drilling experience and our expectation of converting our unproved leaseholds to proved properties. If development of unproved properties is deemed unsuccessful and the properties are abandoned or surrendered, the capitalized costs are expensed in the period the determination is made. The rate of amortization depends on the timing and success of our exploration and development program. Our amortization of unproved properties increased due to the amortization of our unproved properties acquired in the Merger.

General and Administrative

General and administrative (“G&A”) expense consists primarily of salaries and related benefits, stock-based compensation, office rent, legal and consulting fees, systems costs and other administrative costs incurred. A portion of our G&A expense is reported net of amounts reimbursed to us by working interest owners of the oil and gas properties we operate. The table below reflects our G&A expense for the periods indicated:


	Three Months Ended September 30,
(In millions)	2022		2021		Variance
G&A Expense
General and administrative expense	$	68	$	14	$	54
Stock-based compensation expense	26		10		16
Merger-related expense	13		40		(27)
	$	107	$	64	$	43

G&A expense, excluding stock-based compensation and merger related expenses, increased $54 million primarily due to the Merger, which significantly expanded our headcount and office-related expenses.

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Stock-based compensation expense will fluctuate based on the grant date fair value of awards, the number of awards, the requisite service period of the awards, estimated employee forfeitures, and the timing of the awards. Stock-based compensation expense increased $16 million primarily due to the issuance of additional shares as consideration in the Merger and increased headcount, and the accelerated vesting of employee performance shares as described under “Stock-Based Compensation” as disclosed in Note 12 of the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q.

Merger-related expenses decreased ~~$2.4~~$27 million primarily due to lower ~~amortization of unproved properties of $1.9 million~~administrative and lower DD&A of $0.6 million in the third quarter of 2021 compared to the third quarter of 2020. Amortization of unproved properties decreased due to lower amortization rates. The decrease in DD&A was primarily due to lower equivalent production. The DD&A rate was flat at $0.43 per Mcfe for the third quarter of 2021 and 2020.

•~~General and administrative increased $40.8 million, primarily due to $40.1 million of transaction-related costs~~professional fees associated with the Merger partially offset by ~~lower stock-based compensation expense~~$12 million of ~~$1.1 million~~employee-related severance and termination benefits associated with the expected termination of certain ~~of our market-based performance awards. The remaining changes in general and administrative expenses were not individually significant.~~employees, which is being accrued over the expected transition period.

Interest Expense, net

The table below reflects our interest expense, net for the periods indicated:


	Three Months Ended September 30,
(In millions)	2022		2021		Variance
Interest Expense, net
Interest expense	$	29	$	10	$	19
Debt premium amortization	(11)		—		(11)
Debt issuance cost amortization	1		1		—
Other	(2)		2		(4)
	$	17	$	13	$	4

Interest expense, net ~~decreased $1.8~~increased $4 million, primarily due to the ~~repayment~~incremental interest expense, net of ~~$87.0 million~~premium amortization associated with the debt assumed in the Merger of ~~our 6.51% weighted-average senior notes, which matured in July 2020,~~$2.2 billion. This increase was partially offset by lower interest expense due to the repayment of ~~$88.0 million of our 5.58% weighted-average senior notes, which matured in January 2021, and the repayment of $100.0~~$100 million of our 3.65% weighted-average private placement senior notes, which matured in September ~~2021.~~2021, and the repayment of $37 million of our 6.51% weighted-average private placement senior notes and $87 million of our 5.58% weighted-average private placement senior notes in August 2022.

Gain on Debt Extinguishment

During the third quarter of 2022, we paid down $830 million of our debt for $836 million and recognized a net gain on debt extinguishment of $26 million primarily due to the write off of related debt premiums and debt issuance costs.

Income Tax Expense ~~(Benefit)~~

The table below reflects our income tax expense for the periods indicated:


	Three Months Ended September 30,
(In millions)	2022			2021			Variance
Income Tax Expense
Current tax expense	$	292		$	18		$	274
Deferred tax expense	27			2			25
	$	319		$	20		$	299
Combined federal and state effective income tax rate	21.1		%	24.6		%

Income tax expense increased ~~$27.5~~$299 million due to higher pre-tax income in the third quarter of ~~2021~~2022 compared to ~~a pre-tax loss in~~ the third quarter of ~~2020,~~2021, partially offset by a lower effective tax rate. The effective tax ~~rates for the third quarter of 2021 and 2020 were 24.6 percent and 31.9 percent, respectively. The effective tax~~ rate was lower for the third quarter of ~~2021~~2022 compared to the third quarter of ~~2020~~2021 due to differences in the non-recurring discrete items recorded during the third quarter of ~~2021~~2022 versus the third quarter of 2020. Income tax expense was higher in the third quarter of 2021 due to non-deductible transaction costs related to the Merger, and income tax expense was lower in the third quarter of 2020 due to tax benefits related to an amended tax return filing.2021.

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First Nine Months of ~~2021~~2022 and ~~2020~~2021 Compared

~~We reported net income in the first nine months of 2021 of $219.5 million, or $0.55 per share, compared~~Operating Revenues


	Nine Months Ended September 30,				Variance
(In millions)	2022		2021		Amount		Percent
Operating Revenues
Natural gas	$	4,223	$	1,526	$	2,697	177	%
Oil	2,330		—		2,330		100	%
NGL	784		—		784		100	%
Loss on derivative instruments	(613)		(302)		(311)		(103)	%
Other	47		—		47		100	%
	$	6,771	$	1,224	$	5,547	453	%

Production Revenues

Natural Gas Revenues


	Nine Months Ended September 30,				Variance				Increase (Decrease) (In millions)
	2022		2021		Amount		Percent
Price variance ($/Mcf)	$	5.49	$	2.45	$	3.04	124	%	$	2,342
Volume variance (Bcf)	768.5		623.9		144.6		23	%	355
									$	2,697

Natural gas revenues increased $2.7 billion primarily due to ~~net income of $69.3 million, or $0.17 per share, in the first nine months of 2020.~~significantly higher natural gas prices and higher production. The increase in ~~net~~production was primarily related to properties acquired in the Merger, which significantly expanded our operations.

Oil Revenues

Oil revenues increased $2.3 billion due to our expanded operations after the Merger and increased oil prices.

NGL Revenues

NGL revenues increased $784 million due to our expanded operations after the Merger and increased NGL prices.

Loss on Derivative Instruments

The following table presents the components of “Loss on derivative instruments” for the periods indicated:


	Nine Months Ended September 30,
(In millions)	2022		2021
Cash (paid) received on settlement of derivative instruments
Gas contracts	$	(405)	$	(61)
Oil contracts	(318)		—
Non-cash (loss) gain on derivative instruments
Gas contracts	(47)		(241)
Oil contracts	157		—
	$	(613)	$	(302)

Operating Costs and Expenses

Our operating costs and expenses in 2022 were substantially increased due to the Merger, which significantly expanded our operations to include the Permian and Anadarko Basins. In addition, our costs for services, labor and supplies have recently increased due to higher demand for those items, inflation and supply chain disruptions.

Table of Contents

The following table reflects our operating costs and expenses for the periods indicated and a discussion of the operating costs and expenses follows.


	Nine Months Ended September 30,				Variance				Per BOE
(In millions, except per BOE)	2022		2021		Amount		Percent		2022		2021
Operating Expenses
Direct operations	$	334	$	54	$	280	519	%	$	1.93	$	0.52
Transportation, processing and gathering	726		419		307		73	%	4.19		4.03
Taxes other than income	276		17		259		1,524	%	1.59		0.17
Exploration	23		9		14		156	%	0.13		0.09
Depreciation, depletion and amortization	1,196		283		913		323	%	6.91		2.72

General and administrative	301		116		185		159	%	1.73		1.13
	$	2,856	$	898	$	1,958	218	%

Direct Operations

Direct operations expense consisted of lease operating expense and workover expense as follows:


	Nine Months Ended September 30,						Per BOE
(In millions, except per BOE)	2022		2021		Variance		2022		2021
Direct Operating Expense
Lease operating expense	$	269	$	44	$	225	$	1.55	$	0.42
Workover expense	65		10		55		0.38		0.10
	$	334	$	54	$	280	$	1.93	$	0.52

Lease operating and workover expense increased primarily due to our expanded operations after the Merger.

Transportation, Processing and Gathering

Transportation, processing and gathering costs increased $307 million primarily due to our expanded operations after the Merger, along with a slight increase in gathering charges in the Marcellus Shale.

Taxes Other Than Income

The following table presents taxes other than income ~~was~~for the periods indicated:


	Nine Months Ended September 30,
(In millions)	2022			2021			Variance
Taxes Other than Income
Production	$	223		$	—		$	223
Drilling impact fees	23			16			7
Ad valorem	29			—			29
Other	1			1			—
	$	276		$	17		$	259
Taxes other than income as a percentage of production revenue	3.8		%	1.1		%

Taxes other than income increased $259 million. Production taxes represented the majority of our taxes other than income, which increased primarily due to higher ~~operating revenues~~production related to properties acquired in the Merger and ~~lower interest expense, partially offset by~~ higher ~~operating expenses and income tax expense.~~

~~Revenues~~

~~Our revenues vary from year to year as a result of changes in~~ commodity ~~prices and production volumes. Below is a summary of revenues, price and volume variances.~~

Nine Months Ended September 30, Variance
(In thousands) 2021 2020 Amount Percent
Operating Revenues
Natural gas $ 1,526,202 $ 991,882 $ 534,320 54 %
(Loss) gain on derivative instruments (301,641) 17,783 (319,424) (1,796) %
Other 182 181 1 1 %
$ 1,224,743 $ 1,009,846 $ 214,897 21 %

~~Natural Gas Revenue Price and Volume Variances~~

Nine Months Ended September 30, Variance Increase
(Decrease)
(In thousands)
2021 2020 Amount Percent
Average price ($/Mcf) $ 2.45 $ 1.55 $ 0.90 58 % $ 558,098
Volume (Bcf) 623.9 639.2 (15.3) (2) % (23,778)
Total $ 534,320

~~The increase in natural gas revenues of $534.3 million was~~prices. Drilling impact fees increased primarily due to higher natural gas ~~prices, partially offset by lower production. The decrease in production was~~prices. Ad valorem taxes increased primarily due to our expanded operations after the ~~timing of our drilling~~Merger and ~~completion activities in the Marcellus Shale in 2021.~~

~~Impact of Derivative Instruments on Operating Revenues~~

Nine Months Ended
September 30,
(In thousands) 2021 2020
Cash received (paid) on settlement of derivative instruments
(Loss) gain on derivative instruments $ (61,302) $ 33,529
Non-cash gain (loss) on derivative instruments
(Loss) gain on derivative instruments (240,339) (15,746)
$ (301,641) $ 17,783
higher property valuations.

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~~Operating~~Depreciation, Depletion and ~~Other Expenses~~Amortization

Nine Months Ended September 30, Variance
(In thousands) 2021 2020 Amount Percent
Operating Expenses
   Direct operations $ 54,384 $ 54,864 $ (480) (1) %
   Transportation and gathering 418,984 425,563 (6,579) (2) %
   Taxes other than income 17,195 10,705 6,490 61 %
   Exploration 8,993 10,669 (1,676) (16) %
   Depreciation, depletion and amortization 282,986 294,406 (11,420) (4) %
   General and administrative 117,290 80,857 36,433 45 %
$ 899,832 $ 877,064 $ 22,768 3 %
Loss on equity method investments $ — $ (59) $ 59 100 %
Gain (loss) on sale of assets 275 (139) 414 298 %
Interest expense, net 37,512 43,143 (5,631) (13) %
Other expense 139 171 (32) (19) %
Income tax expense 68,003 19,947 48,056 241 %
DD&A expense consisted of the following for the periods indicated:


	Nine Months Ended September 30,						Per BOE
(In millions, except per BOE)	2022		2021		Variance		2022		2021
DD&A Expense
Depletion	$	1,086	$	274	$	812	$	6.27	$	2.63
Depreciation	53		5		48		0.31		0.05
Amortization of unproved properties	50		1		49		0.29		0.01
Accretion of ARO	7		3		4		0.04		0.03
	$	1,196	$	283	$	913	$	6.91	$	2.72

~~Total costs~~Depletion expense increased $812 million due to increased production and ~~expenses from operations increased by $22.8 million in~~a higher depletion rate of $6.27 per BOE for the ~~first~~ nine months ended September 30, 2022, both of ~~2021~~which are attributable to the value of the oil and gas properties acquired on the closing date of the Merger, compared to $2.63 per BOE for the ~~corresponding period of 2020. The primary reasons for this fluctuation are as follows:~~nine months ended September 30, 2021.

•~~Direct operations decreased $0.5~~Depreciation expense increased $48 million primarily due to ~~a decrease~~depreciation on our gathering facilities acquired in ~~production.~~the Merger.

Amortization of unproved properties increased $49 million due to the release of certain leaseholds during the period and the amortization of our unproved properties acquired in the Merger.

General and Administrative

The table below reflects our G&A expense for the periods indicated:


	Nine Months Ended September 30,
(In millions)	2022		2021		Variance
G&A Expense
General and administrative expense	$	173	$	44	$	129
Stock-based compensation expense	70		26		44
Merger-related expense	58		46		12
	$	301	$	116	$	185

•G&A expense, excluding stock-based compensation and merger-related expenses, ~~Transportation and gathering decreased $6.6~~increased $129 million primarily due to ~~lower gathering charges as a result of lower production, partially offset by a higher gathering rate.~~the Merger, which significantly expanded our headcount and office-related expenses.

•Stock-based compensation expense will fluctuate based on the grant date fair val~~Taxes other than income~~ ue of awards, the number of awards, the requisite service period of the awards, estimated employee forfeitures, and the timing of the awards. Stock-based compensation expense increased ~~$6.5~~$44 million primarily due to ~~$6.2 million higher drilling impact fees driven by an increase~~the issuance of additional shares as consideration in ~~rates associated with higher natural gas prices.~~the Merger and increased headcount, and the accelerated vesting of employee performance shares as described under “Stock-Based Compensation” as disclosed in Note 12 of the Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q.

•Merger-related expenses~~Exploration expense decreased $1.7~~ increased $12 million primarily due to ~~$2.0~~$51 million of employee-related severance and termination benefits associated with the expected termination of certain employees, which is being accrued over the expected transition period, partially offset by $39 million of ~~dry hole expense recognized in 2020.~~

•~~Depreciation, depletion and amortization decreased $11.4 million, primarily due to~~ lower DD&A of $5.6 million and lower amortization of unproved properties of $6.3 million. The decrease in DD&A was due to lower production in 2021 compared to the corresponding period of 2020. The DD&A rate was flat at $0.44 per Mcfe for the first nine months of 2021 and 2020. Amortization of unproved properties decreased due to lower amortization rates.

•~~General and administrative increased $36.4 million, primarily due to $46.3 million of~~ transaction-related costs associated with the ~~Merger and $2.4 million~~Merger.

Table of higher severance costs incurred in the first quarter of 2021 related to our early retirement program, partially offset by lower stock-based compensation expense of $9.7 million associated with certain of our market-based performance awards and a $2.8 million decrease in previously accrued fines and penalties related to compliance matters with the Office of Natural Resource Revenue. The remaining changes in general and administrative expenses were not individually significant.Contents

Interest Expense, net

The table below reflects our interest expense, net for the periods indicated:


	Nine Months Ended September 30,
(In millions)	2022		2021		Variance
Interest Expense, net
Interest expense	$	90	$	31	$	59
Debt premium amortization	(32)		—		(32)
Debt issuance cost amortization	3		2		1
Other	(2)		5		(7)
	$	59	$	38	$	21

Interest expense, net ~~decreased $5.6~~increased $21 million primarily due to the ~~repayment~~incremental interest expense, net of ~~$87.0 million~~premium amortization associated with the debt assumed in the Merger of ~~our 6.51% weighted-average senior notes, which matured in July 2020,~~$2.2 billion. This increase was partially offset by lower interest expense due to the repayment of ~~$88.0 million of our 5.58% weighted-average senior notes, which matured in January 2021, and the repayment of $100.0~~$100 million of our 3.65% weighted-average private placement senior notes, which matured in September ~~2021.~~2021, and the repayment of $37 million of our 6.51% weighted-average private placement senior notes and $87 million of our 5.58% weighted-average private placement senior notes in August 2022.

Gain on Debt Extinguishment

Income Tax Expense


	Nine Months Ended September 30,
(In millions)	2022			2021			Variance
Income Tax Expense
Current tax expense	$	720		$	51		$	669
Deferred tax expense	128			17			111
	$	848		$	68		$	780
Combined federal and state effective income tax rate	21.9		%	23.7		%

Income tax expense increased ~~$48.1~~$780 million due to higher pre-tax income attributable to higher commodity prices and our expanded operations following the Merger, partially offset by a ~~higher~~lower effective tax rate. The effective tax ~~rates~~rate was lower for the ~~first~~ nine months ~~of 2021 and 2020 were 23.7 percent and 22.3 percent, respectively. The effective tax rate was higher for the first nine months of 2021~~ended September 30, 2022 compared to the ~~first~~ nine months ~~of 2020 primarily~~ended September 30, 2021 due to differences in the non-recurring discrete items recorded during the ~~first~~ nine months ~~of 2021 compared to the first nine months of 2020.~~ended September 30, 2022 and 2021.

~~Table of Content~~s

Forward-Looking Information

The statements regarding future financial and operating performance and results, the anticipated effects of, and certain other matters related to, the Merger involving Cimarex, strategic pursuits and goals, market prices, future hedging and risk management activities, ~~the anticipated benefits of the Merger, the anticipated impact of the Merger on our business~~ and other statements that are not historical facts contained in or incorporated by reference into this report, are forward-looking statements. The words ~~‘expect”~~“expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, ~~‘budget’~~‘budget”, ~~‘plan”~~“plan”, “forecast”, “target”, “predict”, “potential”, “possible”, “may”, “should”, ~~‘could”~~“could”, “would”, “will”, strategy”, “outlook” and similar expressions are also intended to identify forward-looking statements. ~~Such~~We can provide no assurance that the forward-looking statements contained in this report will occur as expected, and actual results may differ materially from those included in this report. Forward-looking statements are based on current expectations and assumptions that involve a number of risks and uncertainties ~~including, but not limited~~that could cause actual results to differ materially from those included in this report. These risks and uncertainties include, without limitation, the potential effects of further developments related to the ~~continuing effects~~long-term impact of the COVID-19 pandemic and ~~the impact~~variants thereof on our business, financial condition and results of operations and the economy as a whole, the risk that our and Cimarex’s businesses will not be integrated successfully, the risk that the cost savings and any other synergies from the Merger may not be fully realized or may take longer to realize than expected, the availability of cash on hand and other sources of liquidity to fund our capital expenditures, actions by, or disputes among or between, members of OPEC+, market factors, market prices (including geographic basis differentials) of oil and natural gas, impacts of inflation, labor

Table of Contents

shortages and economic disruption, including as a result of pandemics and geopolitical disruptions such as the war in Ukraine, results of future drilling and marketing activity, future production and costs, the risk that the Company’s and Cimarex’s businesses will not be integrated successfully, the risk that the cost savings and any other synergies from the Merger may not be fully realized or may take longer to realize than expected, legislative and regulatory initiatives, electronic, cyber or physical security breaches and other factors detailed herein and in our other Securities and Exchange Commission (“SEC”) filings. Refer to “Risk Factors” in Item 1A of Part I of our Form 10-K and in Item 1A of Part II of this Form 10-Q for additional information about these risks and uncertainties. ~~Should one~~Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. Except to the extent required by applicable law, we undertake no obligation to update or ~~more~~revise any forward-looking statement, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on these ~~risks or uncertainties materialize, or~~forward-looking statements, which speak only as of the date hereof.

Investors should ~~underlying assumptions prove incorrect, actual outcomes~~note that we announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may ~~vary materially from those indicated.~~use the Investors section of our website (www.coterra.com) to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on our website is not part of, and is not incorporated into, this report.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

~~Market~~In the normal course of business, we are subject to a variety of risks, including market risks associated with changes in commodity prices and interest rate movements on outstanding debt. The following quantitative and qualitative information is provided about financial instruments to which we were party to as of September 30, 2022 and from which we may incur future gains or losses from changes in commodity prices or interest rates.

Commodity Price Risk

~~Prior to the Merger, our primary~~Our most significant market risk ~~was~~ exposure is pricing applicable to our oil, natural gas ~~prices.~~and NGL production. Realized prices are mainly driven by the worldwide price for oil and spot market prices for North American natural gas ~~production, which can be~~and NGL production. These prices have been volatile and unpredictable. To mitigate the volatility in commodity prices, we may enter into derivative instruments to hedge a portion of our production.

Derivative Instruments and Risk Management Activities

Our risk management strategy is designed to reduce the risk of commodity price volatility for our production in the oil and natural gas markets through the use of financial commodity derivatives. A committee that consists of members of senior management oversees our risk management activities. Our financial commodity derivatives generally cover a portion of our production and, ~~provide only partial price protection by limiting the benefit to us of increases in prices,~~ while protecting us in the event of price ~~declines.~~declines, limit the benefit to us in the event of price increases. Further, if any of our counterparties defaulted, this protection might be limited as we might not receive the full benefit of our financial commodity derivatives. Please read the discussion below as well as Note 65 of the Notes to the Consolidated Financial Statements in our Form 10-K for a more detailed discussion of our ~~derivative instruments.~~derivatives.

Periodically, we enter into financial commodity derivatives, including collar, swap, roll differential swap and basis swap agreements, to protect against exposure to commodity price declines related to our oil and natural gas production. Our credit agreement restricts our ability to enter into financial commodity derivatives other than to hedge or mitigate risks to which we have actual or projected exposure or as permitted under our risk management policies and that do not ~~subjecting~~subject us to material speculative risks. All of our financial derivatives are used for risk management purposes and are not held for trading purposes. Under the collar agreements, if the index price rises above the ceiling price, we pay the counterparty. If the index price falls below the floor price, the counterparty pays us. Under the swap agreements, we receive a fixed price on a notional quantity of natural gas in exchange for paying a variable price based on a market-based ~~index, such as the NYMEX natural gas futures.~~index.

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As of September 30, ~~2021,~~2022, we had the following outstanding financial commodity derivatives:

Collars Estimated Fair Value Asset (Liability)
(In thousands)
Floor Ceiling Swaps
Type of Contract Volume (Mmbtu) Contract Period Range
($/Mmbtu) Weighted-Average
($/Mmbtu)
Range
($/Mmbtu) Weighted-Average
($/Mmbtu)
Weighted-Average
($/Mmbtu)
Natural gas (NYMEX) 4,600,000 Oct. 2021-Dec. 2021 $ 2.74 $ (14,535)
Natural gas (NYMEX) 41,400,000 Oct. 2021-Dec. 2021 $2.50 - $2.85 $ 2.68 $2.89 - $3.80 $ 3.10 (116,139)
Natural gas (NYMEX) 9,200,000 Oct. 2021-Dec. 2021 $ 4.01 (17,351)
Natural gas (NYMEX) 9,150,000 Nov. 2021-Dec. 2021 $ 4.02 (17,438)
Natural gas (NYMEX) 1,550,000 Oct. 2021 $ — $ 2.50 $ — $ 2.80 (4,733)
Natural gas (NYMEX) 3,100,000 Oct. 2021 $ 2.78 (9,516)
Natural gas (NYMEX) 36,000,000 Jan. 2022-Mar. 2022 $4.00 - $4.75 $ 4.38 $5.00 - $10.32 $ 6.97 (26,628)
Natural gas (NYMEX) 42,800,000 Apr. 2022- Oct. 2022 $3.00 - $3.50 $ 3.19 $4.07 - $4.83 $ 4.30 (8,165)
$ (214,505)


											Estimated Value at September 30, 2022 (in millions)
	2022		2023
Natural Gas	Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Waha swaps (1)											$	2
Volume (MMBtu)	1,550,000		—		—		—		—
Weighted average price	$	4.77	$	—	$	—	$	—	$	—

Waha gas collars (1)											8
Volume (MMBtu)	1,840,000		8,100,000		8,190,000		8,280,000		8,280,000
Weighted average floor	$	2.50	$	3.03	$	3.03	$	3.03	$	3.03
Weighted average ceiling	$	3.12	$	5.39	$	5.39	$	5.39	$	5.39

NYMEX collars											(62)
Volume (MMBtu)	63,770,000		40,500,000		4,550,000		4,600,000		1,550,000
Weighted average floor	$	4.47	$	5.14	$	4.50	$	4.50	$	4.50
Weighted average ceiling	$	7.20	$	9.41	$	8.39	$	8.39	$	8.39

El Paso Permian gas collars (2)											(2)
Volume (MMBtu)	1,840,000		—		—		��		—
Weighted average floor	$	2.50	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.15	$	—	$	—	$	—	$	—

PEPL gas collars (3)											(4)
Volume (MMBtu)	1,840,000		—		—		—		—
Weighted average floor	$	2.60	$	—	$	—	$	—	$	—
Weighted average ceiling	$	3.27	$	—	$	—	$	—	$	—






Leidy Basis swaps (4)											1
Volume (MMBtu)	1,550,000		—		—		—		—
Weighted average price	$	(1.50)	$	—	$	—	$	—	$	—
Total Natural Gas Estimated Value											$	(57)

________________________________________________________

(1)The index price is Waha West Texas Natural Gas Index (“Waha”) as quoted in Platt’s Inside FERC.

(2)The index price is El Paso Natural Gas Company, Permian Basin Index (“Perm EP”) as quoted in Platt’s Inside FERC.

(3)The index price is Panhandle Eastern Pipe Line, Tex/OK Mid-Continent Index (“PEPL”) as quoted in Platt’s Inside FERC.

(4)The index price is Transco, Leidy Line receipts (“Leidy”) as quoted in Platt’s Inside FERC.

Table of Contents


							Estimated Value at September 30, 2022 (in millions)
	2022		2023
Oil	Fourth Quarter		First Quarter		Second Quarter
WTI oil collars								$	20
Volume (Mbbl)	2,116		1,350		1,365
Weighted average floor	$	67.65	$	70.00	$	70.00
Weighted average ceiling	$	112.50	$	116.03	$	116.03

WTI oil basis swaps (1)								(5)
Volume (Mbbl)	2,116		1,350		1,365
Weighted average differential	$	0.46	$	0.63	$	0.63




Total Oil Estimated Value								$	15

(1)The index price is WTI Midland as quoted by Argus Americas Crude.

The amounts set forth in the table above represent our total unrealized derivative position at September 30, ~~2021~~2022 and exclude the impact of non-performance risk. Non-performance risk is considered in the fair value of our derivative instruments that are recorded in our Condensed Consolidated Financial Statements and is primarily evaluated by reviewing credit default swap spreads for the various financial institutions with which we have derivative contracts, while our non-performance risk is evaluated using a market credit spread provided by several of our banks.

~~Subsequent event.~~ ~~As a result of the Merger, we acquired the following outstanding financial commodity derivatives:~~
Collars
Floor Ceiling
Type of Contract Volume (Mmbtu) Contract Period Range
($/Mmbtu) Weighted-Average
($/Mmbtu) Range
($/Mmbtu) Weighted-Average
($/Mmbtu)
Natural gas (Perm EP)(1)
2,760,000 Oct. 2021-Dec. 2021 $1.50 - $1.52 $ 1.51 $ — $ 1.80
Natural gas (Perm EP)(1)
3,640,000 Oct. 2021-Mar. 2022 $1.80 - $1.90 $ 1.85 $2.18 - $2.19 $ 2.18
Natural gas (Perm EP)(1)
5,460,000 Oct. 2021-Jun. 2022 $ — $ 2.40 $2.85 - $2.90 $ 2.88
Natural gas (Perm EP)(1)
7,300,000 Jan. 2022-Dec. 2022 $ — $ 2.50 $ — $ 3.15
Natural gas (PEPL)(2)
2,760,000 Oct. 2021-Dec. 2021 $1.70 - $1.78 $ 1.73 $2.12 - $2.18 $ 2.14
Natural gas (PEPL)(2)
7,280,000 Oct. 2021-Mar. 2022 $1.90 - $2.10 $ 2.00 $2.35 - $2.44 $ 2.40
Natural gas (PEPL)(2)
5,460,000 Oct. 2021-Jun. 2022 $ — $ 2.40 $2.81 - $2.91 $ 2.86
Natural gas (PEPL)(2)
7,300,000 Jan. 2022-Dec. 2022 $ — $ 2.60 $ — $ 3.27
Natural gas (Waha)(3)
2,760,000 Oct. 2021-Dec. 2021 $ — $ 1.50 $1.75 - $1.76 $ 1.75
Natural gas (Waha)(3)
7,280,000 Oct. 2021-Mar. 2022 $1.70 - $1.84 $ 1.77 $2.10 - $2.20 $ 2.15
Natural gas (Waha)(3)
5,460,000 Oct. 2021-Jun. 2022 $ — $ 2.40 $2.82 - $2.89 $ 2.86
Natural gas (Waha)(3)
3,650,000 Oct. 2021-Sep. 2022 $ — $ 2.40 $ — $ 2.77
Natural gas (Waha)(3)
7,300,000 Jan. 2022-Dec. 2022 $ — $ 2.50 $ — $ 3.12

~~(1)The index price for these collars is El Paso Natural Gas Company, Permian Basin Index (“Perm EP”) as quoted in Platt’s Inside FERC.~~

~~(2)The index price for these collars is Panhandle Eastern Pipe Line, Tex/OK Mid-Continent Index (“PEPL”) as quoted in Platt’s Inside FERC.~~

~~(3)The index price for these collars is Waha West Texas Natural Gas Index (“Waha”) as quoted in Platt’s Inside FERC.~~

~~Table of Content~~s

~~(1)The index price we pay under these basis swaps is WTI Midland as quoted by Argus Americas Crude.~~

A significant portion of our expected oil and natural gas production for ~~2021~~the remainder of 2022 and beyond is currently unhedged and directly exposed to the volatility in oil and natural gas prices, whether favorable or unfavorable.

During the ~~first~~ nine months ended September 30, 2022, oil collars with floor prices ranging from $35.00 to $90.00 per Bbl and ceiling prices ranging from $45.15 to $120.85 per Bbl covered 7.6 Mmbbls, or 32 percent, of ~~2021,~~oil production at a weighted-average price of $51.49 per Bbl. Oil basis swaps covered 6.6 Mmbbls, or 28 percent, of oil production at a weighted-average price of $0.24 per Bbl. Oil roll differential swaps covered 2.7 Mmbbls, or 11 percent, of oil production at a weighted-average price of $(0.02) per Bbl.

During the nine months ended September 30, 2022, natural gas collars with floor prices ranging from ~~$2.50~~$1.70 to ~~$2.85~~$8.50 per Mmbtu and ceiling prices ranging from ~~$2.80~~$2.10 to ~~$3.94~~$10.63 per Mmbtu covered ~~128.2~~178.5 Bcf, or 2123 percent of natural gas production at a weighted-average price of ~~$2.87~~$4.71 per Mmbtu. Natural gas swaps covered ~~31.0~~11.9 Bcf, or ~~five~~2 percent of ~~our~~ natural gas production at a ~~weighted-average~~weighted average price of ~~$2.76~~$2.41 per Mmbtu.

We are exposed to market risk on financial commodity derivative instruments to the extent of changes in market prices of oil and natural gas. However, the market risk exposure on these derivative contracts is generally offset by the gain or loss recognized upon the ultimate sale of the commodity. Although notional contract amounts are used to express the volume of oil and natural gas agreements, the amounts that can be subject to credit risk in the event of non-performance by third parties are substantially smaller. Our counterparties are primarily commercial banks and financial service institutions that our management believes present minimal credit risk and our derivative contracts are with multiple counterparties to minimize our exposure to any individual counterparty. We perform both quantitative and qualitative assessments of these counterparties based on their credit ratings and credit default swap rates where applicable. We have not incurred any losses related to non-performance risk of our counterparties and we do not anticipate any material impact on our financial results due to non-performance by third parties. However, we cannot be certain that we will not experience such losses in the future.

The preceding paragraphs contain forward-looking information concerning future production and projected gains and losses, which may be impacted by both production and changes in the future commodity prices. Refer to “Forward-Looking Information” for further details.

Table of Contents

Interest Rate Risk

At September 30, 2022, we had total debt of $2.2 billion (with a principal amount of $2.1 billion). All of our outstanding debt is based on fixed interest rates and, as a result, we do not have significant exposure to movements in market interest rates with respect to such debt. Our revolving credit facility provides for variable interest rate borrowings; however, we did not have any borrowings outstanding as of September 30, 2022 and, therefore, no related exposure to interest rate risk.

Fair Value of Other Financial Instruments

The estimated fair value of other financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amounts reported in the Condensed Consolidated Balance Sheet for cash, cash equivalents and restricted cash approximate fair value due to the short-term maturities of these instruments.

The fair value of our senior notes is based on quoted market prices. We use available market data and valuation methodologies to estimate the fair value of ~~debt.~~our private placement senior notes. The fair value of ~~debt~~the private placement senior notes is the estimated amount we 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 our default or repayment risk. The credit spread (premium or discount) is determined by comparing our ~~outstanding debt~~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 ~~estimated~~ fair value of ~~our outstanding debt~~the private placement senior notes is based on interest rates currently available to us.

~~Table of Content~~s

The carrying amount and ~~estimated~~ fair value of debt is as follow:


		September 30, 2021				December 31, 2020					September 30, 2022				December 31, 2021
(In thousands)		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
(In millions)										(In millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt	Long-term debt	$	946,509	$	1,010,687	$	1,133,924	$	1,213,811	Long-term debt	$	2,232	$	1,984	$	3,125	$	3,163
Current maturities	Current maturities	—		—		(188,000)		(189,332)		Current maturities	(44)		(44)		—		—
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities	$	946,509	$	1,010,687	$	945,924	$	1,024,479	Long-term debt, excluding current maturities	$	2,188	$	1,940	$	3,125	$	3,163

ITEM 4. Controls and Procedures

As of September 30, ~~2021, we~~2022, the Company carried out an evaluation, under the supervision and with the participation of ~~our~~the Company’s management, including ~~our~~the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ~~our~~the Company’s disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, ~~our~~the Chief Executive Officer and Chief Financial Officer concluded that ~~our~~the Company’s disclosure controls and procedures are effective ~~in all material respects,~~to provide reasonable assurance with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by usthe Company in the reports that ~~we file~~it files or ~~submit~~submits under the Exchange Act.

~~There~~During the quarter ended December 31, 2021, the Company completed its Merger with Cimarex. As part of the ongoing integration of the acquired business, the Company is in the process of incorporating the controls and related procedures of Cimarex. Other than incorporating Cimarex’s controls, there were no changes in ~~our~~ internal control over financial reporting that occurred during the third quarter of ~~2021~~2022 that have materially affected, or are reasonably likely to have a material effect on, ~~our~~the Company’s internal control over financial reporting.

Table of ~~Content~~sContents

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Legal Matters

The information set forth under the heading “Legal Matters” in Note 8 of the Notes to Condensed Consolidated Financial Statements included in ~~Item 1 of Part I of~~ this Form 10-Q is incorporated by reference in response to this item.

Environmental Matters

From time to time, we receive notices of violation from governmental and regulatory authorities in areas in which we operate relating to alleged violations of environmental statutes or the rules and regulations promulgated thereunder. Although we cannot predict with certainty whether these notices of violation will result in fines and/or penalties, if fines and/or penalties are imposed, they may result in monetary sanctions, individually or in the aggregate, in excess of $300,000.

ITEM 1A. Risk Factors

The ~~following is~~below risk factor updates a ~~discussion of~~risk factor, and should be read in conjunction with the other risk factors, ~~relating to the Merger. For additional information about risk factors that affect us, refer to~~previously discussed in Part I, Item 1A of ~~Part I~~our Form 10-K. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition or results of ~~ours~~operations.

Commodity prices fluctuate widely, and ~~Cimarex’s Form 10-K~~low prices for an extended period would likely have a material adverse impact on our business.

Our revenues, operating results, financial condition and ability to borrow funds or obtain additional capital depend substantially on prices we receive for the ~~year~~oil, natural gas and NGLs that we sell. Lower commodity prices may reduce the amount of oil, natural gas and NGLs that we can produce economically. Historically, commodity prices have been volatile, with prices fluctuating widely, and they are likely to continue to be volatile. For example, in 2021, the WTI oil prices ranged from a high of $84.65 to a low of $47.62 per Bbl and NYMEX natural gas prices ranged from a high of $23.86 (during Winter Storm Uri) to a low of $2.43 per Mmbtu, while during the nine months ended ~~December 31, 2020~~September 30, 2022, WTI oil prices ranged from a high of $123.70 to a low of $76.08 per Bbl and ~~subsequent Forms 10-Q~~NYMEX natural gas prices ranged from a high of ~~Coterra and Cimarex.~~

~~The failure~~$9.85 to ~~integrate~~a low of $3.73 per Mmbtu. Any substantial or extended decline in future commodity prices would have a material adverse effect on our ~~businesses and operations with those of Cimarex successfully in the expected time frame may adversely affect the combined business’~~ future ~~results.~~

The Merger involved the combination of two companies that previously operated as independent public companies. It is possible that the process of integrating the two businesses following the Merger could result in the loss of key employees, the disruption of either or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, potential unknown liabilities, unforeseen expenses or delays or higher-than-expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.

The Merger may result in a loss of customers, distributors, service providers, suppliers, vendors, joint venture participants and other business counterparties and may result in the termination of existing contracts.

As a result of the Merger, some of our and Cimarex’s legacy customers, distributors, service providers, suppliers, vendors, joint venture participants and other business counterparties may terminate or scale back their current or prospective business relationships with the combined business. If relationships with customers, distributors, service providers, suppliers, vendors, joint venture participants and other business counterparties are adversely affected by the Merger, our business, financial condition, results of operations, ~~and~~ cash flows, liquidity or ability to finance planned capital expenditures and commitments. Furthermore, substantial, extended decreases in commodity prices may cause us to delay or postpone a significant portion of our exploration and development projects or may render such projects uneconomic, which may result in significant downward adjustments to our estimated proved reserves and could benegatively impact our ability to borrow and our cost of capital and our ability to access capital markets, increase our costs under our revolving credit facility and limit our ability to execute aspects of our business plans. Refer to “Future commodity price declines may result in write-downs of the carrying amount of our oil and gas properties, which could materially and adversely ~~affected.~~affect our results of operations” in our Form 10-K under Part I, Item IA.

~~The combined business~~Wide fluctuations in commodity prices may ~~fail~~result from relatively minor changes in the supply of and demand for oil, natural gas and NGLs, market uncertainty and a variety of additional factors that are beyond our control. These factors include but are not limited to ~~realize all~~the following:

•the levels and location of oil, natural gas and NGLs supply and demand and expectations regarding supply and demand, including the ~~anticipated benefits~~potential long-term impact of an abundance of natural gas from shale (such as that produced from our Marcellus Shale properties) on the ~~Merger.~~global natural gas supply;

~~The success~~•the level of consumer demand for oil, natural gas and NGLs, which had been significantly impacted by the ~~Merger will depend,~~COVID-19 pandemic, particularly during 2020, and may be impacted in ~~part,~~the future depending on ~~our ability to realize~~ the ~~anticipated benefits~~predominance of new variants of COVID-19;

•weather conditions and ~~cost savings from combining our two businesses~~seasonal trends;

•political, economic or health conditions in oil, natural gas and ~~operational synergies. The anticipated benefits~~NGL producing regions, including the Middle East, Africa, South America and ~~cost savings~~the U.S., including for example, the impacts of ~~the Merger may not be realized fully~~local or ~~at all, may take longer to realize than expected, may not be realized~~international pandemics and disasters or ~~could have other adverse effects that we do not currently foresee. Some of the assumptions that we have made,~~events such as the ~~achievement of the anticipated benefits related to the geographic, commodity~~global COVID-19 pandemic;

•geopolitical risks and asset diversification and the expected size, scale, inventory and financial strength of the combined business, may not be realized. In addition, there could be potential unknown liabilities and unforeseen expenses associated with the Merger that could adversely impact the combined business.

~~The market price of our common stock may fluctuate for various reasons and may decline if large amounts of our common stock are sold following the Merger.~~

The market price of our common stock may fluctuate significantly in the future and holders of our common stock could lose some or all of the value of their investment. As a result of the Merger, we issued approximately 408.2 million shares of our common stock to former Cimarex stockholders (excluding restricted shares that were awarded in replacement of previously outstanding Cimarex restricted share awards). The Merger Agreement contained no restrictions on the ability of former Cimarex stockholders or our historic stockholders to sell or otherwise dispose of shares of our common stock. Former Cimarex stockholders may decide not to hold the shares of our common stock that they received in the Merger, and our historic stockholders may decide to reduce their investment in ussanctions, including as a result of the ~~changes to our investment profile as a result~~war in Ukraine and other actions that may impact demand and supply chains;

•the ability and willingness of the ~~Merger. These sales~~members of ~~our common stock (or~~ OPEC+ to agree to and maintain oil price and production controls;

•the ~~perception that these sales may occur) could have the effect~~price level and quantities of ~~depressing the market price for our common stock. In addition, with the completion of the Merger, our financial position is different from our~~foreign imports;

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financial position before the completion of the Merger, and our future results of operations and cash flows will be affected by factors different from those that previously affected our results of operations and cash flows, all of which could adversely affect the market price of our common stock. Furthermore, the stock market has experienced significant price and volume fluctuations in recent times which, if they continue to occur, could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.

~~The increase in our indebtedness as a result of the Merger may limit our financial flexibility.~~

Following the Merger, our legacy revolving credit facility and senior notes remained outstanding. In addition, on October 7, 2021, we completed an exchange offer, whereby we issued $1.8 billion in aggregate principal amount of new senior notes in exchange for $1.8 billion in aggregate principal amount of previously outstanding Cimarex senior notes. Following completion of that exchange offer, $0.2 billion in aggregate principal amount of Cimarex senior notes remained outstanding. The increase in our indebtedness as a result of the Merger and related transactions could have adverse effects on our business, financial condition, results of operations and cash flows, including by:

•~~imposing additional cash requirements in order to support interest payments, which could limit the amount available to fund our operations and other business activities;~~actions of governmental authorities;

•~~increasing~~ the ~~risk~~availability, proximity and capacity of ~~default on debt obligations;~~gathering, transportation, processing and/or refining facilities in regional or local areas;

•~~increasing our vulnerability to adverse changes in general economic~~inventory storage levels and ~~industry conditions, economic downturns~~the cost and ~~adverse developments in its business;~~availability of storage and transportation of oil, natural gas and NGLs;

•~~limiting our ability to sell assets, engage in strategic transactions or obtain additional financing for working capital, capital expenditures, general corporate~~the nature and ~~other purposes;~~extent of domestic and foreign governmental regulations and taxation, including environmental and climate change regulation;

•~~limiting our flexibility~~the price, availability and acceptance of alternative fuels;

•technological advances affecting energy consumption;

•speculation by investors in ~~planning~~oil, natural gas and NGLs;

•variations between product prices at sales points and applicable index prices;

•the impact of increased commodity prices and prices in general, on demand for ~~or reacting to changes in our business~~oil, natural gas and ~~the industry in which we operate;~~NGLs; and

•~~increasing our exposure to a rise in interest rates, which would generate greater interest expense to the extent we do not have applicable interest rate fluctuation hedges.~~

~~We have incorporated Cimarex’s hedging activities into our business, and we may be exposed to additional commodity price risks arising from such hedges.~~

To mitigate a portion of its exposure to changes in commodity prices, Cimarex has historically hedged oil and natural gas prices from time to time, primarily through the use of certain derivative instruments. Upon completion of the Merger, we assumed Cimarex’s existing hedges, such that we will now bear theoverall economic impact of those hedges. Actual crude oil and natural gas prices may differ from expectations and, as a result, such hedges could have a negative impact on our financial condition, results of operations and cash flows.

~~The declaration, payment and amounts of future dividends distributed to our stockholders will be uncertain.~~

Although we and Cimarex have paid cash dividends on shares of common stock in the past, our Board of Directors may determine not to declare dividends in the future or may reduce the amount of dividends paid in the future. Decisions on whether, when and in which amounts to declare and pay any future dividends will remain in the discretion of our Board of Directors. Any dividend payment amounts will be determined by our Board of Directors on a quarterly basis, and it is possible that our Board of Directors may increase or decrease the amount of dividends paid in the future, or determine not to declare dividends in the future, at any time and for any reason. We expect that any such decisions will depend on our financial condition, results of operations, cash balances, cash requirements, future prospects, the outlook for commodity prices and other considerations that our Board of Directors deems relevant,conditions, including ~~but not limited to:~~

•~~whether we have enough cash to pay such dividends due to our cash requirements, capital spending plans, cash flows or financial position;~~

•~~our desire to maintain or improve the credit ratings on our debt; and~~

•~~applicable restrictions under Delaware law.~~

~~Common stockholders should be aware that they have no contractual or other legal right to dividends that have not been declared.~~

~~Table of Content~~s

~~As a result of the Merger, we may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to our results of operations in the future.~~

~~In accordance with Accounting Standards Codification Topic 805,~~ ~~Business Combinations~~, the Merger will be accounted for as an acquisition by Coterra pursuant to the acquisition method of accounting for business combinations. Under the acquisition method of accounting, we will record the net tangible and identifiable intangible assets and liabilities of Cimarex and its subsidiaries as of the consummation of the Merger, at their respective fair values. Our reported financial condition and results of operations for periods after consummation of the Merger will reflect Cimarex balances and results after consummation of the Merger but will not be restated retroactively to reflect the historical financial position or results of operations of Cimarex and its subsidiaries for periods prior to the Merger.

Under the acquisition method of accounting, the total purchase price will be allocated to Cimarex’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the Merger, with any excess purchase price allocated to goodwill. To the extent the value of ~~goodwill or intangibles, if any, becomes impaired in~~ the ~~future, the combined business may be required~~U.S. dollar relative to ~~recognize material non-cash charges relating to such impairment. The combined business’ operating results may be significantly impacted from both the impairment~~other major currencies.

These factors and the ~~underlying trends in~~volatile nature of the ~~business that triggered~~energy markets make it impossible to predict future commodity prices. If commodity prices decline significantly for a sustained period of time, the ~~impairment.~~

~~Our~~lower prices may cause us to reduce our planned drilling program or adversely affect our ability to ~~utilize Cimarex’s historic net operating loss carryforwards may be limited.~~

As of December 31, 2020, Cimarex had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $2.0 billion, $1.8 billion of which is subject to expiration in years 2032 through 2037 and $224.4 million of which is not subject to expiration. Our ability to utilize these NOLs and other tax attributes to reduce future taxable income depends on many factors, including future income, which cannot be assured. Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”) generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone an “ownership change” (as determined under Section 382). An ownership change generally occurs if onemake planned expenditures, raise additional capital or more stockholders (or groups of stockholders) who are each deemed to own at least 5 percent of such corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

As a result of the Merger, we believe that an ownership change occurred with respect to Cimarex under Section 382, which triggered a limitation (calculated as described below) on Coterra’s ability to utilize Cimarex’s historic NOLs and could cause some of those NOLs to expire unutilized. This annual limitation under Section 382, is determined by multiplying (1) the fair market value of Cimarex’s stock at the time of the Merger by (2) the long-term tax exempt rate published by the Internal Revenue Service for the month in which the Merger occurred, subject to certain adjustments (provided that any unused annual limitation may be carried over to later years).~~In addition, the NOLs Cimarex acquired in 2019 as part of its acquisition of Resolute Energy Corporation are already subject to a Section 382 limitation.~~meet our financial obligations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

~~Our Board of Directors has authorized a share~~Share repurchase ~~program under which we may purchase shares of common stock in the open market or in negotiated transactions. There is no expiration date associated with the authorization. There were no repurchases~~activity during the quarter ended September 30, ~~2021. The maximum number~~2022 was as follows:


Period	Total Number of Shares Purchased (In thousands)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (In thousands) (1)	Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (In millions) (2)
July 2022	1,131	$	25.91	1,131	$	707
August 2022	500	$	27.82	500	$	693
September 2022	6,718	$	27.22	6,718	$	510
Total	8,349			8,349

(1)In February 2022, our Board of ~~remaining shares that may be purchased under our~~Directors terminated the previously authorized share repurchase program asand authorized a new share repurchase program, which was announced on February 24, 2022. This new share repurchase program authorizes us to purchase up to $1.25 billion of our common stock in privately negotiated transactions or in the open market, including under plans complying with Rule 10b5-1 under the Exchange Act. We purchased 8.3 million common shares for $227 million during the quarter ended September 30, 2022.

(2)As of September 30, ~~2021 was 11.0~~2022, we can purchase up to $510 million ~~shares.~~of shares under the repurchase program.

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ITEM 6. Exhibits

Index to Exhibits


Exhibit Number						Description

~~2.1~~†						~~Agreement and Plan of Merger, dated as of May 23, 2021, by and among Cabot Oil & Gas Corporation, Double C Merger Sub, Inc. and Cimarex Energy Co. (incorporated herein by reference to Exhibit 2.1 of Coterra’s Current Report on Form 8-K filed with the SEC on May 24, 2021).~~

~~2.2~~						Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2021, by and among Cabot Oil & Gas Corporation, Double C Merger Sub, Inc. and Cimarex Energy Co. (incorporated herein by reference to Annex A of Coterra’s Registration Statement No. 333-257534 on Form S-4).

3.1						Restated Certificate of Incorporation of Coterra Energy Inc. (incorporated herein by reference to Exhibit 3.3 of Coterra's Current Report on Form 8-K filed with the SEC on October 1, 2021).

3.2						Amended and Restated Bylaws of Coterra Energy Inc. (incorporated herein by reference to Exhibit 3.4 of Coterra’s Current Report on Form 8-K filed with the SEC on October 1, 2021).

4.1						Certificate of Designations to 8 1⁄8% Series A Cumulative Perpetual Convertible Preferred Stock of Cimarex Energy Co. (incorporated herein by reference to Exhibit ~~3.2~~4.3 of ~~Cimarex's Current~~Coterra’s Annual Report on Form ~~8-K~~10-K filed with the SEC on ~~October~~March 1, ~~2021)~~2022).

4.2						Amendment to Certificate of Designations to 8 1⁄1/8% Series A Cumulative Perpetual Convertible Preferred Stock of Cimarex Energy Co. (incorporated herein by reference to Exhibit ~~3.4~~4.4 of ~~Cimarex’s Current~~Coterra’s Annual Report on Form ~~8-K~~10-K filed with the SEC on ~~October~~March 1, ~~2021)~~2022).

4 .34.3						~~Form of Common Stock~~Amendment to Certificate of ~~Coterra~~Designations to 8 1/8% Series A Cumulative Perpetual Convertible Preferred Stock of Cimarex Energy ~~Inc.~~Co. (incorporated herein by reference to Exhibit 4.3 of Coterra’s ~~Registration Statement No. 333-260035~~Quarterly Report on Form ~~S-8)~~10-Q for the fiscal quarter ended March 31, 2022).

10.1*						Coterra Energy Inc. 2014 Incentive Plan (incorporated herein by reference to Exhibit 10.1 of Coterra’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014)
						(a) Form of Restricted Stock Unit Award Agreement (legacy Cabot officers);
						(b) Form of Performance Share Award Agreement (legacy Cabot officers).

410.2*.4						Indenture, dated as of October 7, 2021, by and between Coterra Energy Inc. and the Trustee (incorporated herein by reference to Exhibit 4.1 of Coterra’s Current Report on Form 8-K filed with the SEC on October 7, 2021).

~~4.5~~						First Supplemental Indenture, dated as of October 7, 2021, by and between Coterra Energy Inc. and the Trustee (incorporated herein by reference to Exhibit 4.2 of Coterra’s Current Report on Form 8-K filed with the SEC on October 7, 2021).

4 .6						~~Form of 4.375% Notes due 2024 (incorporated herein by reference to Exhibit 4.2 of Coterra’s Current Report on Form 8-K filed with the SEC on October 7, 2021).~~

4 .7						~~Form of 3.90% Notes due 2027 (incorporated herein by reference to Exhibit 4.2 of Coterra’s Current Report on Form 8-K filed with the SEC on October 7, 2021).~~

4 .8						~~Form of 4.375% Notes due 2029 (incorporated herein by reference to Exhibit 4.2 of Coterra’s Current Report on Form 8-K filed with the SEC on October 7, 2021).~~

~~Table of Content~~s


Exhibit Number						~~Description~~
4 .9						Registration Rights Agreement, dated as of October, 7 2021, by and among Coterra Energy Inc., J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., PNC Capital Markets LLC, Scotia Capital (USA) Inc., TD Securities (USA) LLC, U.S. Bancorp Investments, Inc., Wells Fargo Securities, LLC, Capital One Securities, Inc., CIBC World Markets Corp., KeyBanc Capital Markets Inc., RBC Capital Markets, LLC, SMBC Nikko Securities America, Inc., Truist Securities, Inc. and MUFG Securities Americas Inc. (incorporated herein by reference to Exhibit 4.6 of Coterra’s Current Report on Form 8-K filed with the SEC on October 7, 2021).

~~10.1~~						First Amendment to Second Amended and Restated Credit Agreement, dated as of June 17, 2021, by and among Cabot Oil & Gas Corporation, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of Coterra’s Current Report on Form 8-K filed with the SEC on June 17, 2021).

~~10.2~~						~~Second Amendment to Second Amended and Restated Credit Agreement, dated as of September 16, 2021,~~ by ~~andamongCabotOil~~ &~~GasCorporation, the Lenders party thereto andJPMorgan Chase Bank, N.A., asAdministrative Agent (incorporated herein by reference to Exhibit 10.1 of Coterra’s Current Report onForm 8-K filedwiththeSECon September 17, 2021).~~

~~10.3~~*						Employment Letter Agreement, dated as of May 23, 2021, between Cabot Oil & Gas Corporation and Dan O. Dinges (incorporated herein by reference to Exhibit 10.1 of Coterra’s Registration Statement No. 333- 257534 on Form S-4).

~~10.4~~*						Employment Letter Agreement, dated as of May 23, 2021, between Cabot Oil & Gas Corporation and Thomas E. Jorden (incorporated herein by reference to Exhibit 10.2 of Coterra’s Registration Statement No. 333-257534 on Form S-4).

~~10.5~~*						Side Letter Agreement, dated as of June 29, 2021, by and among Cabot Oil and Gas Corporation and Thomas E. Jorden (incorporated herein by reference to Exhibit 10.3 of Coterra’s Registration Statement No. 333-257534 on Form S-4).

~~10.6~~*						~~Form of Amendment to Change in Control Agreement (incorporated herein by reference to Exhibit 10.4 of Coterra’s Registration Statement No. 333-257534 on Form S-4).~~

1 ~~0.7~~*						~~Form of Letter Agreement with respect to Change-in-Control Arrangements (incorporated herein by~~ ~~reference~~to ~~Exhibit~~ ~~10.1 of Coterra’s CurrentReport on Form 8-K filedwith the SEC~~on ~~October 1, 2021).~~

1 ~~0.8~~*						~~DeferredCompensation LetterAgreement,dated asof September30,2021,betweenCabotOil~~&~~GasCorporation and Phillip L. Stalnaker. (incorporated herein by reference to Exhibit 10.2 of Coterra’s CurrentReport on Form 8-K filed with the SEC~~on ~~October 1, 2021).~~

1 ~~0.9~~*						~~Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.3 of Coterra’s CurrentReport on Form 8-K filed with the SEC~~on ~~October 1, 2021).~~

1 ~~0.10~~*						Cimarex Energy Co. Amended and Restated 2019 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.4 of Coterra’s Registration Statement on S-8 (Reg. No. ~~333-260230~~33-260230) filed with the SEC on ~~Form S-8)~~October 14, 2021).
						(a) Form of Restricted Stock Unit Award Agreement (legacy Cimarex continuing officers);
~~10.11~~*						(b) Form of ~~Amendment dated September 30, 2021 to Severance Compensation Agreements dated March 9, 2020 and amended May 23, 2021,~~Restricted Stock Unit Award Agreement (legacy Cimarex transitioning officers);
						(c) Form of ~~certain executive officers~~Performance Share Award Agreement (legacy Cimarex continuing officers);
						(d) Form of ~~Cimarex Energy Co.~~Performance Share Award Agreement.

31.1						302 Certification — Chairman, President and Chief Executive Officer.

31.2						302 Certification — Executive Vice President and Chief Financial Officer.

~~Table of Content~~s


Exhibit Number						~~Description~~
32.1						906 Certification.

101.INS						Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

Table of Contents


Exhibit Number						Description
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

†_______________________________________________________________________________~~Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Coterra hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.~~.

*Compensatory plan, contract or arrangement.

4043

Table of ~~Content~~sContents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	COTERRA ENERGY INC.
	(Registrant)

November ~~3, 2021~~4, 2022	By:	/s/ THOMAS E. JORDEN
		Thomas E. Jorden
		Chief Executive Officer and President
		(Principal Executive Officer)

November ~~3, 2021~~4, 2022	By:	/s/ SCOTT C. SCHROEDER
		Scott C. Schroeder
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

November ~~3, 2021~~4, 2022	By:	/s/ TODD M. ROEMER
		Todd M. Roemer
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

4144


			Collars
			Floor				Ceiling				Swaps
Type of Contract	Volume (Mmbtu)	Contract Period	Range ($/Mmbtu)		Weighted-Average ($/Mmbtu)		Range ($/Mmbtu)		Weighted-Average ($/Mmbtu)		Weighted-Average ($/Mmbtu)
Natural gas (NYMEX)	4,600,000	Oct. 2021-Dec. 2021									$	2.74
Natural gas (NYMEX)	41,400,000	Oct. 2021-Dec. 2021	$2.50 - $2.85		$	2.68	$2.89 - $3.80		$	3.10
Natural gas (NYMEX)	9,200,000	Oct. 2021-Dec. 2021									$	4.01
Natural gas (NYMEX)	9,150,000	Nov. 2021-Dec. 2021									$	4.02
Natural gas (NYMEX)	1,550,000	Oct. 2021	$	—	$	2.50	$	—	$	2.80
Natural gas (NYMEX)	3,100,000	Oct. 2021									$	2.78
Natural gas (NYMEX)	36,000,000	Jan. 2022-Mar. 2022	$4.00 - $4.75		$	4.38	$5.00 - $10.32		$	6.97
Natural gas (NYMEX)	42,800,000	Apr. 2022- Oct. 2022	$3.00 - $3.50		$	3.19	$4.07 - $4.83		$	4.30


	Three Months Ended September 30,				Variance				Increase (Decrease) (In thousands)
	2021		2020		Amount		Percent
Average price ($/Mcf)	$	2.95	$	1.51	$	1.44	95	%	$	314,409
Volume (Bcf)	217.4		221.4		(4.0)		(2)	%	(6,040)
Total									$	308,369


			Collars										Estimated Fair Value Asset (Liability) (In thousands)
			Floor				Ceiling				Swaps
Type of Contract	Volume (Mmbtu)	Contract Period	Range ($/Mmbtu)		Weighted-Average ($/Mmbtu)		Range ($/Mmbtu)		Weighted-Average ($/Mmbtu)		Weighted-Average ($/Mmbtu)
Natural gas (NYMEX)	4,600,000	Oct. 2021-Dec. 2021									$	2.74	$	(14,535)
Natural gas (NYMEX)	41,400,000	Oct. 2021-Dec. 2021	$2.50 - $2.85		$	2.68	$2.89 - $3.80		$	3.10			(116,139)
Natural gas (NYMEX)	9,200,000	Oct. 2021-Dec. 2021									$	4.01	(17,351)
Natural gas (NYMEX)	9,150,000	Nov. 2021-Dec. 2021									$	4.02	(17,438)
Natural gas (NYMEX)	1,550,000	Oct. 2021	$	—	$	2.50	$	—	$	2.80			(4,733)
Natural gas (NYMEX)	3,100,000	Oct. 2021									$	2.78	(9,516)
Natural gas (NYMEX)	36,000,000	Jan. 2022-Mar. 2022	$4.00 - $4.75		$	4.38	$5.00 - $10.32		$	6.97			(26,628)
Natural gas (NYMEX)	42,800,000	Apr. 2022- Oct. 2022	$3.00 - $3.50		$	3.19	$4.07 - $4.83		$	4.30			(8,165)
													$	(214,505)