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 ~~June~~September 30, 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 ~~August~~November 2, 2022, there were ~~795,595,177~~788,467,351 shares of Common Stock, Par Value $0.10 Per Share, outstanding.

Table of Contents

COTERRA ENERGY INC.

INDEX TO FINANCIAL STATEMENTS


		Page
Part I. Financial Information

Item 1.	Financial Statements

Condensed Consolidated Balance Sheet (Unaudited) at ~~June~~September 30, 2022 and December 31, 2021		3

Condensed Consolidated Statement of Operations (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021		4



Condensed Consolidated Statement of Cash Flows (Unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021		5

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021		6

Notes to the Condensed Consolidated Financial Statements (Unaudited)		7



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3436

Item 4.	Controls and Procedures	3739

Part II. Other Information

Item 1.	Legal Proceedings	3840

Item 1A.	Risk Factors	3840

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3941



Item 6.	Exhibits	4042

Signatures		4244

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)


(In millions, except share and per share amounts)	(In millions, except share and per share amounts)	June 30, 2022		December 31, 2021		(In millions, except share and per share amounts)	September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	1,059	$	1,036	Cash and cash equivalents	$	778	$	1,036
Restricted cash	Restricted cash	10		10		Restricted cash	10		10
Accounts receivable, net	Accounts receivable, net	1,525		1,037		Accounts receivable, net	1,419		1,037
Income taxes receivable	Income taxes receivable	170		—		Income taxes receivable	70		—
Inventories	Inventories	46		39		Inventories	57		39

Derivative instruments						Derivative instruments	8		7

Other current assets	Other current assets	22		14		Other current assets	8		7
Total current assets	Total current assets	2,832		2,136		Total current assets	2,350		2,136
Properties and equipment, net (Successful efforts method)	Properties and equipment, net (Successful efforts method)	17,407		17,375		Properties and equipment, net (Successful efforts method)	17,429		17,375

Other assets	Other assets	408		389		Other assets	526		389
		$	20,647	$	19,900		$	20,305	$	19,900

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY	LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY					LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	1,044	$	747	Accounts payable	$	1,010	$	747
Current portion of long-term debt	Current portion of long-term debt	124		—		Current portion of long-term debt	44		—
Accrued liabilities	Accrued liabilities	206		260		Accrued liabilities	294		260
Income taxes payable	Income taxes payable	—		29		Income taxes payable	—		29
Interest payable	Interest payable	26		25		Interest payable	15		25

Derivative instruments	Derivative instruments	170		159		Derivative instruments	52		159

Total current liabilities	Total current liabilities	1,570		1,220		Total current liabilities	1,415		1,220
Long-term debt, net	Long-term debt, net	2,981		3,125		Long-term debt, net	2,188		3,125

Deferred income taxes	Deferred income taxes	3,203		3,101		Deferred income taxes	3,229		3,101
Asset retirement obligations	Asset retirement obligations	265		259		Asset retirement obligations	270		259

Other liabilities	Other liabilities	426		407		Other liabilities	533		407
Total liabilities	Total liabilities	8,445		8,112		Total liabilities	7,635		8,112

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies

Cimarex redeemable preferred stock	Cimarex redeemable preferred stock	11		50		Cimarex redeemable preferred stock	11		50

Stockholders' equity	Stockholders' equity					Stockholders' equity
Common stock:	Common stock:					Common stock:
Authorized — 1,800,000,000 shares of $0.10 par value in 2022 and 2021, respectively	Authorized — 1,800,000,000 shares of $0.10 par value in 2022 and 2021, respectively					Authorized — 1,800,000,000 shares of $0.10 par value in 2022 and 2021, respectively
Issued — 894,493,926 shares and 892,612,010 shares in 2022 and 2021, respectively		89		89
Issued — 895,539,411 shares and 892,612,010 shares 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	Additional paid-in capital	10,976		10,911		Additional paid-in capital	10,992		10,911
Retained earnings	Retained earnings	3,460		2,563		Retained earnings	4,137		2,563
Accumulated other comprehensive income	Accumulated other comprehensive income	5		1		Accumulated other comprehensive income	6		1
Less treasury stock, at cost:	Less treasury stock, at cost:					Less treasury stock, at cost:
98,725,561 shares and 79,082,385 shares in 2022 and 2021, respectively		(2,339)		(1,826)
107,074,560 shares and 79,082,385 shares in 2022 and 2021, respectively						107,074,560 shares and 79,082,385 shares in 2022 and 2021, respectively	(2,566)		(1,826)
Total stockholders' equity	Total stockholders' equity	12,191		11,738		Total stockholders' equity	12,659		11,738
		$	20,647	$	19,900		$	20,305	$	19,900

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share amounts)	(In millions, except per share amounts)	2022		2021		2022		2021		(In millions, except per share amounts)	2022		2021		2022		2021
OPERATING REVENUES	OPERATING REVENUES									OPERATING REVENUES
Natural gas	Natural gas	$	1,468	$	412	$	2,579	$	885	Natural gas	$	1,644	$	641	$	4,223	$	1,526
Oil	Oil	876		—		1,575		—		Oil	755		—		2,330		—
NGL	NGL	280		—		525		—		NGL	259		—		784		—
Loss on derivative instruments	Loss on derivative instruments	(66)		(88)		(457)		(101)		Loss on derivative instruments	(156)		(201)		(613)		(302)
Other	Other	14		—		29		—		Other	18		—		47		—
		2,572		324		4,251		784			2,520		440		6,771		1,224
OPERATING EXPENSES	OPERATING EXPENSES									OPERATING EXPENSES
Direct operations	Direct operations	116		16		216		33		Direct operations	118		21		334		54
Transportation, processing and gathering	Transportation, processing and gathering	238		133		471		270		Transportation, processing and gathering	255		149		726		419
Taxes other than income	Taxes other than income	98		4		174		9		Taxes other than income	102		8		276		17
Exploration	Exploration	7		2		13		5		Exploration	10		4		23		9
Depreciation, depletion and amortization	Depreciation, depletion and amortization	414		92		774		186		Depreciation, depletion and amortization	422		97		1,196		283

General and administrative	General and administrative	87		23		194		52		General and administrative	107		64		301		116
		960		270		1,842		555			1,014		343		2,856		898

Loss on sale of assets	Loss on sale of assets	(3)		—		(1)		—		Loss on sale of assets	—		—		(1)		—
INCOME FROM OPERATIONS	INCOME FROM OPERATIONS	1,609		54		2,408		229		INCOME FROM OPERATIONS	1,506		97		3,914		326
Interest expense, net	Interest expense, net	21		13		42		25		Interest expense, net	17		13		59		38

Gain on debt extinguishment										Gain on debt extinguishment	(26)		—		(26)		—

Income before income taxes	Income before income taxes	1,588		41		2,366		204		Income before income taxes	1,515		84		3,881		288
Income tax expense	Income tax expense	359		11		529		48		Income tax expense	319		20		848		68
NET INCOME	NET INCOME	$	1,229	$	30	$	1,837	$	156	NET INCOME	$	1,196	$	64	$	3,033	$	220

Earnings per share	Earnings per share									Earnings per share
Basic	Basic	$	1.53	$	0.08	$	2.28	$	0.39	Basic	$	1.51	$	0.16	$	3.78	$	0.55
Diluted	Diluted	$	1.52	$	0.08	$	2.27	$	0.39	Diluted	$	1.50	$	0.16	$	3.77	$	0.55

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Basic	Basic	803		400		806		399		Basic	792		400		801		399
Diluted	Diluted	808		403		809		402		Diluted	797		403		805		402

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

Table of Contents

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	1,837	$	156	Net income	$	3,033	$	220
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization	Depreciation, depletion and amortization	774		186		Depreciation, depletion and amortization	1,196		283

Deferred income tax expense	Deferred income tax expense	101		15		Deferred income tax expense	128		17
Loss on sale of assets	Loss on sale of assets	1		—		Loss on sale of assets	1		—

Loss on derivative instruments	Loss on derivative instruments	457		101		Loss on derivative instruments	613		302
Net cash (paid) received in settlement of derivative instruments		(464)		3
Net cash paid in settlement of derivative instruments						Net cash paid in settlement of derivative instruments	(723)		(61)

Amortization of premium and debt issuance costs	Amortization of premium and debt issuance costs	(19)		1		Amortization of premium and debt issuance costs	(35)		2
Gain on debt extinguishment						Gain on debt extinguishment	(26)		—
Stock-based compensation and other	Stock-based compensation and other	38		14		Stock-based compensation and other	62		24
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(489)		32		Accounts receivable, net	(382)		(70)
Income taxes	Income taxes	(200)		(16)		Income taxes	(99)		(49)
Inventories	Inventories	(9)		(2)		Inventories	(26)		2
Other current assets	Other current assets	(6)		(3)		Other current assets	(4)		(2)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	147		(12)		Accounts payable and accrued liabilities	194		64
Interest payable	Interest payable	1		(3)		Interest payable	(10)		(13)
Other assets and liabilities	Other assets and liabilities	32		(3)		Other assets and liabilities	50		(3)

Net cash provided by operating activities	Net cash provided by operating activities	2,201		469		Net cash provided by operating activities	3,972		716

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(745)		(274)		Capital expenditures	(1,205)		(459)

Proceeds from sale of assets	Proceeds from sale of assets	4		—		Proceeds from sale of assets	22		—

Net cash used in investing activities	Net cash used in investing activities	(741)		(274)		Net cash used in investing activities	(1,183)		(459)

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings from debt						Borrowings from debt	—		100
Repayments of debt	Repayments of debt	—		(88)		Repayments of debt	(830)		(288)
Repayments of finance leases	Repayments of finance leases	(3)		—		Repayments of finance leases	(4)		—
Treasury stock repurchases	Treasury stock repurchases	(487)		—		Treasury stock repurchases	(740)		—

Dividends paid	Dividends paid	(940)		(84)		Dividends paid	(1,459)		(128)

Cash received for stock option exercises	Cash received for stock option exercises	10		—		Cash received for stock option exercises	11		—
Cash paid for conversion of redeemable preferred stock	Cash paid for conversion of redeemable preferred stock	(10)		—		Cash paid for conversion of redeemable preferred stock	(10)		—
Tax withholdings on vesting of stock awards	Tax withholdings on vesting of stock awards	(7)		(6)		Tax withholdings on vesting of stock awards	(15)		(6)

Net cash used in financing activities	Net cash used in financing activities	(1,437)		(178)		Net cash used in financing activities	(3,047)		(322)

Net increase in cash, cash equivalents and restricted cash		23		17
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(258)		(65)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	1,046		152		Cash, cash equivalents and restricted cash, beginning of period	1,046		152
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	1,069	$	169	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 Contents

COTERRA ENERGY INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)


(In millions, except per share amounts)	(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		(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	Balance at December 31, 2021	893	$	89	79	$	(1,826)	$	10,911	$	1	$	2,563	$	11,738	Balance at December 31, 2021	893	$	89	79	$	(1,826)	$	10,911	$	1	$	2,563	$	11,738
Net income	Net income	—	—		—	—		—		—		608		608		Net income	—	—		—	—		—		—		608		608

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

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

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

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

Other comprehensive loss		—	—		—	—		—		—		—		—

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

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

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

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


(In millions, except per share amounts)	(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		(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	Balance at December 31, 2020	478	$	48	79	$	(1,823)	$	1,804	$	2	$	2,185	$	2,216	Balance at December 31, 2020	478	$	48	79	$	(1,823)	$	1,804	$	2	$	2,185	$	2,216
Net income	Net income	—	—		—	—		—		—		126		126		Net income	—	—		—	—		—		—		126		126

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

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

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

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

Balance at September 30, 2021																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.

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COTERRA ENERGY INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Financial Statement Presentation

During interim periods, Coterra Energy Inc. (the “Company”) follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended December 31, 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'~~stockholders’ equity, net income or cash flows.

2. Acquisitions

Cimarex Energy Co.

On October 1, 2021, the Company completed a merger transaction (the “Merger”) with Cimarex Energy Co. (“Cimarex”). Cimarex is an oil and gas exploration and production company with operations in Texas, New Mexico and Oklahoma.

Purchase Price Allocation

The transaction was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the assets, liabilities and mezzanine equity of Cimarex and its subsidiaries were recorded at their respective fair values as of the effective date of the Merger. The purchase price allocation was based on preliminary estimates and assumptions, which are subject to change for up to one year after October 1, 2021, the 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 most significant fair value estimates related to the valuation of Cimarex's oil and gas properties and certain other fixed assets, long-term debt and derivative instruments. Oil and gas properties and certain fixed assets were valued using an income and market approach utilizing Level 3 inputs including internally generated production and development data and estimated price and cost estimates. Long-term debt was valued using a market approach utilizing Level 1 inputs including observable market prices on the underlying debt instruments. Derivative liabilities were based on Level 3 inputs consistent with the Company’s other commodity derivative instruments. There were no adjustments to the purchase price allocation during the ~~six~~nine months ended ~~June~~September 30, 2022.

Unaudited Pro Forma Financial Information

The results of Cimarex’s operations have been included in the Company’s consolidated financial statements since October 1, 2021, the effective date of the Merger. The following supplemental pro forma information for the ~~six~~nine months ended ~~June~~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 do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by Coterra to integrate the Cimarex assets.

The pro forma information is not necessarily indicative of the results that might have occurred had the transaction actually taken place on January 1, 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 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)

~~Six~~Nine Months Ended
~~June~~September 30, 2021

Pro forma revenue

~~1,802~~3,011

Pro forma net income

71219

Pro forma basic earnings per share

~~0.09~~0.27

Pro forma diluted earnings per share

~~0.09~~0.27

3. Properties and Equipment, Net

Properties and equipment, net are comprised of the following:


(In millions)	(In millions)	June 30, 2022		December 31, 2021		(In millions)	September 30, 2022		December 31, 2021
Proved oil and gas properties	Proved oil and gas properties	$	16,102	$	15,340	Proved oil and gas properties	$	16,505	$	15,340
Unproved oil and gas properties	Unproved oil and gas properties	5,292		5,316		Unproved oil and gas properties	5,288		5,316
Gathering and pipeline systems	Gathering and pipeline systems	423		395		Gathering and pipeline systems	436		395
Land, buildings and other equipment	Land, buildings and other equipment	144		140		Land, buildings and other equipment	175		140
Finance lease right-of-use asset	Finance lease right-of-use asset	24		20		Finance lease right-of-use asset	24		20
		21,985		21,211			22,428		21,211
Accumulated depreciation, depletion and amortization	Accumulated depreciation, depletion and amortization	(4,578)		(3,836)		Accumulated depreciation, depletion and amortization	(4,999)		(3,836)
		$	17,407	$	17,375		$	17,429	$	17,375

Capitalized Exploratory Well Costs

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

4. Debt and Credit Agreements

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


(In millions)	(In millions)	June 30, 2022		December 31, 2021		(In millions)	September 30, 2022		December 31, 2021
6.51% weighted-average private placement senior notes ~~(1)~~	6.51% weighted-average private placement senior notes ~~(1)~~	$	37	$	37	6.51% weighted-average private placement senior notes ~~(1)~~	$	—	$	37
5.58% weighted-average private placement senior notes ~~(2)~~	5.58% weighted-average private placement senior notes ~~(2)~~	87		87		5.58% weighted-average private placement senior notes ~~(2)~~	—		87
3.65% weighted-average private placement senior notes	3.65% weighted-average private placement senior notes	825		825		3.65% weighted-average private placement senior notes	825		825
4.375% senior notes due June 1, 2024(1)	4.375% senior notes due June 1, 2024(1)	750		750		4.375% senior notes due June 1, 2024(1)	44		750
3.90% senior notes due May 15, 2027	3.90% senior notes due May 15, 2027	750		750		3.90% senior notes due May 15, 2027	750		750
4.375% senior notes due March 15, 2029	4.375% senior notes due March 15, 2029	500		500		4.375% senior notes due March 15, 2029	500		500
Revolving credit facility		—		—

Net premium (discount)	Net premium (discount)	164		185		Net premium (discount)	119		185
Unamortized debt issuance costs	Unamortized debt issuance costs	(8)		(9)		Unamortized debt issuance costs	(6)		(9)
		$	3,105	$	3,125		$	2,232	$	3,125

________________________________________________________

(1) Includes ~~$37~~$44 million of current portion of long-term debt at ~~June~~September 30, ~~2022.~~

~~(2) Includes $87 million of current portion of long-term debt at June 30,~~2022 that was called for redemption in October 2022.

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

~~Table~~In September 2022, the Company redeemed $706 million principal amount of ~~Contents~~

~~Subsequent event.~~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

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

5. Derivative Instruments

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


		2022				2023										2022			2023
Natural Gas	Natural Gas	Third Quarter		Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Natural Gas		Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Waha swaps (1)	Waha swaps (1)														Waha swaps (1)
Volume (Mmbtu)		4,600,000		1,550,000			—		—		—		—
Volume (MMBtu)															Volume (MMBtu)		1,550,000			—		—		—		—
Weighted average price	Weighted average price	$	4.77	$	4.77		$	—	$	—	$	—	$	—	Weighted average price		$	4.77		$	—	$	—	$	—	$	—

Waha gas collars (1)	Waha gas collars (1)														Waha gas collars (1)
Volume (Mmbtu)		2,760,000		1,840,000			8,100,000		8,190,000		8,280,000		8,280,000
Volume (MMBtu)															Volume (MMBtu)		1,840,000			8,100,000		8,190,000		8,280,000		8,280,000
Weighted average floor	Weighted average floor	$	2.47	$	2.50		$	3.03	$	3.03	$	3.03	$	3.03	Weighted average floor		$	2.50		$	3.03	$	3.03	$	3.03	$	3.03
Weighted average ceiling	Weighted average ceiling	$	3.00	$	3.12		$	5.39	$	5.39	$	5.39	$	5.39	Weighted average ceiling		$	3.12		$	5.39	$	5.39	$	5.39	$	5.39

NYMEX collars	NYMEX collars														NYMEX collars
Volume (Mmbtu)		60,720,000		57,670,000			31,500,000		4,550,000		4,600,000		1,550,000
Volume (MMBtu)															Volume (MMBtu)		63,770,000			40,500,000		4,550,000		4,600,000		1,550,000
Weighted average floor	Weighted average floor	$	4.07	$	4.15		$	4.46	$	4.50	$	4.50	$	4.50	Weighted average floor		$	4.47		$	5.14	$	4.50	$	4.50	$	4.50
Weighted average ceiling	Weighted average ceiling	$	5.64	$	6.58		$	8.37	$	8.39	$	8.39	$	8.39	Weighted average ceiling		$	7.20		$	9.41	$	8.39	$	8.39	$	8.39

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

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

Leidy basis swaps (4)	Leidy basis swaps (4)														Leidy basis swaps (4)
Volume (Mmbtu)		4,600,000		1,550,000			—		—		—		—
Volume (MMBtu)															Volume (MMBtu)		1,550,000			—		—		—		—
Weighted average price	Weighted average price	$	(1.50)	$	(1.50)		$	—	$	—	$	—	$	—	Weighted average price		$	(1.50)		$	—	$	—	$	—	$	—

________________________________________________________

(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.

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		2022				2023				2022	2023
Oil	Oil	Third Quarter		Fourth Quarter		First Quarter		Second Quarter				Oil	Fourth Quarter		First Quarter		Second Quarter
WTI oil collars	WTI oil collars											WTI oil collars
Volume (Mbbl)	Volume (Mbbl)	2,116		2,116		1,350		1,365				Volume (Mbbl)	2,116		1,350		1,365
Weighted average floor	Weighted average floor	$	56.78	$	67.65	$	70.00	$	70.00			Weighted average floor	$	67.65	$	70.00	$	70.00
Weighted average ceiling	Weighted average ceiling	$	72.81	$	112.50	$	116.03	$	116.03			Weighted average ceiling	$	112.50	$	116.03	$	116.03

WTI Midland oil basis swaps (1)	WTI Midland oil basis swaps (1)											WTI Midland oil basis swaps (1)
Volume (Mbbl)	Volume (Mbbl)	1,840		2,116		1,350		1,365				Volume (Mbbl)	2,116		1,350		1,365
Weighted average differential	Weighted average differential	$	0.34	$	0.46	$	0.63	$	0.63			Weighted average differential	$	0.46	$	0.63	$	0.63

WTI oil roll differential swaps
Volume (Mbbl)		644		—		—		—
Weighted average price		$	0.10	$	—	$	—	$	—

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

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet


			Fair Values of Derivative Instruments										Fair Values of Derivative Instruments
			Derivative Assets				Derivative Liabilities						Derivative Assets				Derivative Liabilities
(In millions)	(In millions)	Balance Sheet Location	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021		(In millions)	Balance Sheet Location	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Commodity contracts		Other current assets (current)	$	9	$	7	$	—	$	—

Commodity contracts	Commodity contracts	Derivative instruments (current)	—		—		170		159		Commodity contracts	Derivative instruments (current)	$	8	$	7	$	52	$	159

Commodity contracts	Commodity contracts	Other assets (non-current)	16		—		—		—		Commodity contracts	Other assets (non-current)	2		—		—		—
			$	25	$	7	$	170	$	159			$	10	$	7	$	52	$	159

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


(In millions)	(In millions)	June 30, 2022		December 31, 2021		(In millions)	September 30, 2022		December 31, 2021
Derivative assets	Derivative assets					Derivative assets
Gross amounts of recognized assets	Gross amounts of recognized assets	$	56	$	27	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	(31)		(20)		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	25		7		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	$	25	$	7	Net amount	$	10	$	7

Derivative liabilities	Derivative liabilities					Derivative liabilities
Gross amounts of recognized liabilities	Gross amounts of recognized liabilities	$	201	$	179	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	(31)		(20)		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	170		159		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	48		35		Gross amounts of financial instruments not offset in the condensed consolidated balance sheet	13		35
Net amount	Net amount	$	218	$	194	Net amount	$	65	$	194

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Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2022		2021		2022		2021
Cash (paid) received on settlement of derivative instruments
Cash paid on settlement of derivative instruments										Cash paid on settlement of derivative instruments
Gas contracts	Gas contracts	$	(161)	$	—	$	(203)	$	3	Gas contracts	$	(202)	$	(64)	$	(405)	$	(61)
Oil contracts	Oil contracts	(132)		—		(261)		—		Oil contracts	(57)		—		(318)		—
Non-cash gain (loss) on derivative instruments	Non-cash gain (loss) on derivative instruments									Non-cash gain (loss) on derivative instruments
Gas Contracts	Gas Contracts	133		(88)		(49)		(104)		Gas Contracts	2		(137)		(47)		(241)
Oil Contracts	Oil Contracts	94		—		56		—		Oil Contracts	101		—		157		—
		$	(66)	$	(88)	$	(457)	$	(101)		$	(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 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 June 30, 2022		(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	$	41	$	—	$	—	$	41	Deferred compensation plan	$	40	$	—	$	—	$	40
Derivative instruments	Derivative instruments	—		—		56		56		Derivative instruments	—		2		68		70
		$	41	$	—	$	56	$	97		$	40	$	2	$	68	$	110
Liabilities	Liabilities									Liabilities
Deferred compensation plan	Deferred compensation plan	$	54	$	—	$	—	$	54	Deferred compensation plan	$	53	$	—	$	—	$	53
Derivative instruments	Derivative instruments	—		—		201		201		Derivative instruments	—		—		112		112
		$	54	$	—	$	201	$	255		$	53	$	—	$	112	$	165


(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2021
Assets
Deferred compensation plan	$	47	$	—	$	—	$	47
Derivative instruments	—		—		27		27
	$	47	$	—	$	27	$	74
Liabilities
Deferred compensation plan	$	56	$	—	$	—	$	56
Derivative instruments	—		—		179		179
	$	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/or are compared to multiple quotes obtained from counterparties. The

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determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative 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:


		Six Months Ended June 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Balance at beginning of period	Balance at beginning of period	$	(152)	$	24	Balance at beginning of period	$	(152)	$	24
Total gain (loss) included in earnings	Total gain (loss) included in earnings	(450)		(78)		Total gain (loss) included in earnings	(596)		(222)
Settlement (gain) loss	Settlement (gain) loss	457		(4)		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	$	(145)	$	(58)	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	$	(112)	$	(64)	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 ~~June~~September 30, 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 its private placement senior notes. The fair value of the private placement senior notes is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company’s senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of the private placement senior notes is based on interest rates currently available to the Company. The Company’s private placement senior notes are valued using an income approach and are classified as Level 3 in the fair value hierarchy.

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


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
(In millions)	(In millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		(In millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt	Long-term debt	$	3,105	$	2,887	$	3,125	$	3,163	Long-term debt	$	2,232	$	1,984	$	3,125	$	3,163
Current maturities	Current maturities	(124)		(127)		—		—		Current maturities	(44)		(44)		—		—
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities	$	2,981	$	2,760	$	3,125	$	3,163	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 millions)	~~Six~~Nine Months Ended ~~June~~September 30, 2022
Balance at beginning of period	$	263
Liabilities incurred	69
Liabilities settled	~~(2)~~(1)

Liabilities divested	(3)

Accretion expense	57
Balance at end of period	~~269~~275
Less: current asset retirement obligations	~~(4)~~(5)
Noncurrent asset retirement obligations	$	~~265~~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 8 of the Notes to Consolidated Financial Statements in the Form 10-K, except as discussed below.

Lease Commitments

~~Subsequent Event.~~On July 7, 2022, the Company commenced a lease for an electric hydraulic fracturing fleet. The Company ~~expects to record~~recognized an operating lease liability and right-of-use asset of ~~between $145 million and $155~~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.

Also in October 2020, a stockholder derivative action styled Ezell v. Dinges, et. al. (U.S. District Court, Middle District of Pennsylvania) was filed against the Company, Messrs. Dinges and Schroeder and the Board of Directors of the Company serving at that time, for alleged securities violations under Section 10(b) and Section 21D of the Exchange Act arising from the same alleged misleading statements that form the basis of the class action lawsuit described above. In addition to the Exchange Act claims, the derivative actions also allege claims based on breaches of fiduciary duty and statutory contribution theories. In December 2020, the Ezell case was consolidated with a second derivative case filed in the U.S. District Court, Middle District of Pennsylvania with similar allegations. In January 2021, a third derivative case was filed in the U.S. District Court, Middle District of Pennsylvania with substantially similar allegations and it too was consolidated with the Ezell case in February 2021.

On February 25, 2021, the Company filed a motion to transfer the class action lawsuit to the U.S. District Court for the Southern District of Texas, in Houston, Texas, where its headquarters are located. On June 11, 2021, the Company filed a motion to dismiss the class action lawsuit on the basis that the plaintiffs’ allegations do not meet the requirements for pleading a claim under Section 10(b) or Section 20 of the Exchange Act. On June 22, 2021, the motion to transfer the class action lawsuit to the Southern District of Texas was granted. Pursuant to the prior agreement of the parties, the consolidated derivative case discussed in the preceding paragraph was also transferred to the Southern District of Texas on July 12, 2021. Subsequently, an additional stockholder derivative action styled Treppel Family Trust U/A 08/18/18 Lawrence A. Treppel and Geri D. Treppel for the benefit of Geri D. Treppel and Larry A. Treppel v. Dinges, et al. (U.S. District Court, Southern District of Texas, Houston Division), asserting substantially similar Delaware common law claims as in the existing derivative cases, was filed in the Southern District of Texas and consolidated with the existing consolidated derivative cases. On January 12, 2022, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss the class action lawsuit but allowed the plaintiffs to file an amended complaint. The class action plaintiffs filed their amended complaint on February 11, 2022. The Company filed a motion to dismiss the amended class action complaint on March 10, 2022. ~~The~~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 ~~is fully briefed and is pending for decision. On~~the amended class action complaint, dismissing certain claims with prejudice but allowing certain claims to proceed. The Company filed its answer to the amended class action complaint on September 14, 2022. With respect to the consolidated derivative cases, on April 1, 2022, the U.S. District Court for the Southern District of Texas granted the Company’s motion to dismiss ~~the~~such consolidated derivative ~~case~~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 ~~10,~~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

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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.

9. Revenue Recognition

Disaggregation of Revenue

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2022		2021		2022		2021
Natural gas	Natural gas	$	1,468	$	412	$	2,579	$	885	Natural gas	$	1,644	$	641	$	4,223	$	1,526
Oil	Oil	876		—		1,575		—		Oil	755		—		2,330		—
NGL	NGL	280		—		525		—		NGL	259		—		784		—
Other	Other	14		—		29		—		Other	18		—		47		—
		$	2,638	$	412	$	4,708	$	885		$	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 ~~June~~September 30, 2022, the Company had ~~$7.5~~$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 16 ~~years.~~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 ~~$1.4~~$1.3 billion and $922 million as of ~~June~~September 30, 2022 and December 31, 2021, respectively, and are reported in accounts receivable, net on the Condensed Consolidated Balance Sheet. As of ~~June~~September 30, 2022, the Company 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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~~10.~~11. Capital Stock

Dividends

Common Stock

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

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


		Rate per share									Rate per share
		Fixed		Variable		Total		Total Dividends Paid (In millions)			Fixed		Variable		Total		Total Dividends Paid (In millions)
2022:	2022:									2022:
First quarter	First quarter	$	0.15	$	0.41	$	0.56	$	455	First quarter	$	0.15	$	0.41	$	0.56	$	455
Second quarter	Second quarter	0.15		0.45		0.60		484		Second quarter	0.15		0.45		0.60		484

Third quarter										Third quarter	0.15		0.50		0.65		519

Total year-to-date	Total year-to-date	$	0.30	$	0.86	$	1.16	$	939	Total year-to-date	$	0.45	$	1.36	$	1.81	$	1,458
2021:	2021:									2021:
First quarter	First quarter	$	0.10	$	—	$	0.10	$	40	First quarter	$	0.10	$	—	$	0.10	$	40
Second quarter	Second quarter	0.11		—		0.11		44		Second quarter	0.11		—		0.11		44

Third quarter										Third quarter	0.11		—		0.11		44

Total year-to-date	Total year-to-date	$	0.21	$	—	$	0.21	$	84	Total year-to-date	$	0.32	$	—	$	0.32	$	128

Subsequent Event. In ~~August~~November 2022, the Company’s Board of Directors approved the quarterly base dividend of $0.15 per share and a variable dividend of ~~$0.50~~$0.53 per share, resulting in a base-plus-variable dividend of ~~$0.65~~$0.68 per share on the Company’s common stock.

Treasury Stock

In February 2022, the Company’s Board of Directors terminated the previously authorized share repurchase program and authorized a new share repurchase program. This new share repurchase program authorizes the Company to purchase up to $1.25 billion of the Company’s common stock in the open market or in negotiated transactions.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company repurchased 2028 million shares for ~~$513~~$740 million under the new share repurchase ~~program, including repurchases~~program. As of ~~$27 million that were purchased prior to June~~September 30, 2022, ~~and settled in July 2022. As of June 30, 2022, 99~~107 million shares were held as treasury stock, with ~~$737~~$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 the transaction because it was completed in accordance with the original terms of the Certificate of Designations for the Cimarex redeemable preferred stock. At ~~June~~September 30, 2022, there were 6,125 shares of Cimarex redeemable preferred stock outstanding with a carrying value of $11 million.

~~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 ~~$21~~$26 million and $4$10 million in the ~~second~~third quarter of 2022 and 2021, respectively, and ~~$44~~$70 million and ~~$16~~$26 million for the ~~six~~nine months ended

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

Refer to Note 13 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 Units - Employees

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company granted ~~1,494,205~~2,244,405 restricted stock units to employees of the Company with a weighted average grant date value of ~~$23.98~~$24.80 per unit. The fair value of restricted stock unit grants is based on the closing stock price on the grant date. Restricted stock units generally vest either at the end of a three-year service period or on a graded or graduated vesting basis at each anniversary date over a three-year service period. The Company used an annual forfeiture rate assumption of zero to 5five percent for purposes of recognizing stock-based compensation expense for its restricted stock units.

Restricted Stock Units - Non-Employees Directors

In June 2022, the Company granted 45,472 restricted stock units, with a weighted-average grant date value of $35.19 per unit, to the 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 Company will recognize compensation expense ratably over the vesting 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 six months ended June 30, 2022 commenced~~Company’s internal performance metrics (“Employee Performance Share Awards”) and one based on ~~February 1, 2022 and ends on January 31, 2025.~~market conditions (“TSR Performance Share Awards”). The Company used an annual forfeiture rate assumption of zero to five 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 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 the Company’s common stock.

Employee Performance Share Awards. During 2022, the compensation committee of the Board of Directors of the Company certified that the performance conditions for certain of the Employee Performance Share Awards that were granted in 2020 and 2021 had been met. In July 2022, 1,775,790 shares with a grant date fair value of $22 million were issued and fully vested.

Performance Share Awards Based on Market Conditions

These awards have both an equity and liability component, with the right to receive up to the first 100 percent of the award in shares of common stock and the right to receive up to an additional 100 percent of the value of the award in excess of the equity component in cash. The equity portion of these awards is valued on the grant date and is not marked to market, while the liability portion of the awards is valued as of the end of each reporting period on a mark-to-market basis. The Company calculates the fair value of the equity and liability portions of the awards using a Monte Carlo simulation model.

TSR Performance Share Awards. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company granted 1,161,599 ~~performance share awards (the “TSR~~TSR Performance Share ~~Awards”)~~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 2022 TSR Performance Share Awards include a feature that will reduce the potential cash component of the award if the actual performance is negative over the three-year period and the base calculation indicates an above-target payout.

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


		Grant Date			June 30, 2022				Grant Date			September 30, 2022
Fair value per performance share award	Fair value per performance share award	$	17.89		$	14.04		Fair value per performance share award	$	17.89		$	12.47
Assumptions:	Assumptions:							Assumptions:
Stock price volatility	Stock price volatility	42.3		%	46.2		%	Stock price volatility	42.3		%	42.3		%
Risk-free rate of return	Risk-free rate of return	1.60		%	2.94		%	Risk-free rate of return	1.60		%	4.19		%

~~12.~~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.

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The following is a calculation of basic and diluted earnings per share:


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

Income (Numerator)	Income (Numerator)										Income (Numerator)
Net income	Net income	$	1,229	$	30	$	1,837	$	156		Net income	$	1,196	$	64	$	3,033	$	220
Less: dividends attributable to participating securities	Less: dividends attributable to participating securities	(1)		—		(3)		—			Less: dividends attributable to participating securities	(2)		—		(5)		—
Less: Cimarex redeemable preferred stock dividends	Less: Cimarex redeemable preferred stock dividends	—		—		(1)		—			Less: Cimarex redeemable preferred stock dividends	—		—		(1)		—
Net income available to common stockholders	Net income available to common stockholders	$	1,228	$	30	$	1,833	$	156		Net income available to common stockholders	$	1,194	$	64	$	3,027	$	220

Shares (Denominator)	Shares (Denominator)										Shares (Denominator)
Weighted-average shares - Basic	Weighted-average shares - Basic	803		400		806		399			Weighted-average shares - Basic	792		400		801		399
Dilution effect of stock awards at end of period	Dilution effect of stock awards at end of period	5		3		3		3			Dilution effect of stock awards at end of period	5		3		4		3
Weighted-average shares - Diluted	Weighted-average shares - Diluted	808		403		809		402			Weighted-average shares - Diluted	797		403		805		402

Earnings per share:	Earnings per share:										Earnings per share:
Basic	Basic	$	1.53	$	0.08	$	2.28	$	0.39		Basic	$	1.51	$	0.16	$	3.78	$	0.55
Diluted	Diluted	$	1.52	$	0.08	$	2.27	$	0.39		Diluted	$	1.50	$	0.16	$	3.77	$	0.55

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

Three Months Ended
June 30, Six Months Ended
June 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

~~13. Related Party Transactions~~

From time to time, Helmerich & Payne, Inc. (“H&P”) provides contract drilling services to the Company. The Company incurred drilling costs of approximately $2 million and $5 million related to these services during the three and six months ended June 30, 2022, respectively.

~~Hans Helmerich, a director of the Company, is the Chairman of the Board of Directors of H&P.~~


	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 ~~$33~~$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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The following table summarizes the Company’s restructuring liabilities:


(In millions)	~~Six~~Nine Months Ended ~~June~~September 30, 2022
Balance at beginning of period	$	43
Additions to merger-related restructuring costs	33 44
Payments of merger-related restructuring costs	~~(7)~~(13)
Balance at end of period	$	6974

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15. Additional Balance Sheet Information

Certain balance sheet amounts are comprised of the following:


(In millions)	(In millions)	June 30, 2022		December 31, 2021		(In millions)	September 30, 2022		December 31, 2021
Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
Trade accounts	Trade accounts	$	1,413	$	922	Trade accounts	$	1,273	$	922
Joint interest accounts	Joint interest accounts	93		83		Joint interest accounts	125		83
Other accounts	Other accounts	22		34		Other accounts	24		34
		1,528		1,039			1,422		1,039
Allowance for credit losses	Allowance for credit losses	(3)		(2)		Allowance for credit losses	(3)		(2)
		$	1,525	$	1,037		$	1,419	$	1,037

Other assets	Other assets					Other assets
Deferred compensation plan	Deferred compensation plan	$	41	$	47	Deferred compensation plan	$	40	$	47
Debt issuance costs	Debt issuance costs	4		5		Debt issuance costs	3		5

Operating lease right-of-use assets	Operating lease right-of-use assets	295		317		Operating lease right-of-use assets	435		317

Derivative instruments	Derivative instruments	16		—		Derivative instruments	2		—
Other accounts	Other accounts	52		20		Other accounts	46		20
		$	408	$	389		$	526	$	389
Accounts payable	Accounts payable					Accounts payable
Trade accounts	Trade accounts	$	62	$	94	Trade accounts	$	76	$	94

Royalty and other owners	Royalty and other owners	511		315		Royalty and other owners	531		315
Accrued transportation	Accrued transportation	92		96		Accrued transportation	95		96
Accrued capital costs	Accrued capital costs	167		88		Accrued capital costs	149		88
Taxes other than income	Taxes other than income	78		60		Taxes other than income	81		60
Accrued lease operating costs	Accrued lease operating costs	31		29		Accrued lease operating costs	31		29

Other accounts	Other accounts	103		65		Other accounts	47		65
		$	1,044	$	747		$	1,010	$	747
Accrued liabilities	Accrued liabilities					Accrued liabilities
Employee benefits	Employee benefits	$	78	$	124	Employee benefits	$	67	$	81
Taxes other than income	Taxes other than income	21		13		Taxes other than income	35		13

Restructuring liability						Restructuring liability	35		43

Operating lease liabilities	Operating lease liabilities	73		69		Operating lease liabilities	116		69
Financing lease liabilities	Financing lease liabilities	6		14		Financing lease liabilities	6		14

Other accounts	Other accounts	28		40		Other accounts	35		40
		$	206	$	260		$	294	$	260
Other liabilities	Other liabilities					Other liabilities
Deferred compensation plan	Deferred compensation plan	$	54	$	56	Deferred compensation plan	$	53	$	56
Postretirement benefits	Postretirement benefits	28		33		Postretirement benefits	29		33

Operating lease liabilities	Operating lease liabilities	222		248		Operating lease liabilities	319		248
Financing lease liabilities	Financing lease liabilities	14		7		Financing lease liabilities	13		7
Restructuring liability						Restructuring liability	39		—
Other accounts	Other accounts	108		63		Other accounts	80		63
		$	426	$	407		$	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 ~~six~~nine month periods ended ~~June~~September 30, 2022 and 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 our Annual Report on Form 10-K for the year ended December 31, 2021 (our “Form 10-K”).

OVERVIEW

Cimarex Merger

On October 1, 2021, we completed a merger transaction (the “Merger”) with Cimarex Energy Co. (“Cimarex”). Cimarex is an oil and gas exploration and production company with operations in Texas, New Mexico and Oklahoma.

In connection with the 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 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 location optimization within the Marcellus region. Factors that may impact the size of the total adjustment include commodity prices, well performance, operating expenses and the completion of the annual PUD reserves process, which will be incorporated as of 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 for periods prior to the closing of the Merger.

Financial and Operating Overview

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

•Equivalent production increased ~~46.5~~69.2 MMboe from ~~67.7~~104.0 MMboe, or ~~374.2~~380.9 MBoepd, in 2021 to ~~114.2~~173.2 MMboe, or ~~630.8~~634.4 MBoepd in 2022. The increase was attributable to production during the first ~~half~~nine months of 2022 from properties acquired in the Merger, which significantly expanded our operations.

•Natural gas production increased ~~103.9~~144.6 Bcf from ~~406.4~~623.9 Bcf, or ~~2,245.5~~2,285.1 Mmcf per day, in the 2021 period to ~~510.3~~768.5 Bcf, or ~~2,819.4~~2,815.2 Mmcf per day, in the 2022 period. The increase was primarily attributable to production during the first ~~half~~nine months of 2022 from properties acquired in the Merger, which significantly expanded our operations.

•Oil production increased 1624 Mmbbl from prior year. The increase was attributable to production from properties acquired in the Merger.

•NGL production increased 1422 Mmbbl from prior year. The increase was attributable to production from properties acquired in the Merger.

•Average realized natural gas price was ~~$4.66~~$4.97 per Mcf, ~~$2.48~~$2.62 higher than the ~~$2.18~~$2.35 per Mcf realized in the corresponding period of the prior year.

•Average realized oil and NGL prices for the ~~six~~nine months ended ~~June~~September 30, 2022 were ~~$84.76~~$85.31 and ~~$38.55~~$36.44 per Bbl, respectively.

•Total capital expenditures were ~~$798~~$1,254 million compared to ~~$290~~$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 ~~127~~206 gross wells ~~(88.3~~(133.8 net) with a success rate of 100 percent compared to 5673 gross wells ~~(53.1~~(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 ~~109~~168 gross wells ~~(68.3~~(104.1 net) in 2022 compared to 4171 gross wells ~~(37.1~~(67.1 net) in the corresponding period of 2021. Wells completed includes wells completed during the period, regardless of when they were drilled.

•Average rig count during 2022 was approximately ~~6.3, 2.8~~ 6.2, 2.9 and ~~1.7~~1.1 rigs in the Permian Basin, Marcellus Shale and Anadarko Basin, respectively, compared to an average rig count of approximately ~~3.1~~2.7 rigs in the Marcellus Shale during the corresponding period of 2021.

•~~Paid~~Increased our dividends ~~on our common stock of $1.16 per share, including $0.30 and $0.86~~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.

•~~Repurchased 20~~Redeemed $706 million ~~shares~~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 during the ~~Company’s common stock for $513~~nine months ended September 30, 2022, as part of our efforts to strengthen our balance sheet. Repaid $188 million ~~under~~of senior notes which matured during the ~~Company’s current share repurchase program.~~nine months ended September 30, 2021.

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Impact of the COVID-19 Pandemic

The ongoing coronavirus (“COVID-19”) pandemic has caused widespread illness and significant loss of life, leading governments across the world to impose severely stringent limitations on movement and 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.

The 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 extent and duration of governmental and other measures implemented to try to slow the spread of the virus (including through the re-imposition of 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.

The ongoing conflict between Russia and Ukraine has driven oil and natural gas prices 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 global economic consequences, including disruptions of the global energy markets and 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 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. 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 NGLs that we can produce economically, and we may curtail our production during such low commodity price environments. Commodity prices have been and remain volatile, with prices sometimes fluctuating widely. Because of this volatility, we cannot accurately predict future commodity prices or, in turn determine with any degree of certainty what effect increases or decreases in these prices could have on our capital program, production volumes or revenues.

Our long-term success also depends on finding and developing sufficient amounts of oil and natural gas reserves at economical costs. Certain of our capital expenditures and expenses are affected by general inflation, which has ~~continued~~risen throughout 2022. We expect to ~~rise throughout 2022, and we expect~~see inflation ~~to be elevated~~impact our cost structure for the remainder of 2022, ~~as well as specific increased costs for supplies and services needed~~albeit it at a more moderate pace compared to earlier in ~~our operations, such as costs of drilling pipe, pipelines, drilling date rates, completion services and labor.~~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” below and Note 5 of the Notes to the Condensed Consolidated Financial Statements for more information.

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NYMEX oil and natural gas futures prices have strengthened since the reduction of pandemic-related restrictions and OPEC+ cooperation. Improving oil and natural gas futures prices in part reflect market expectations of limited U.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, 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.

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

Our 2022 capital program is expected to be approximately $1.6 billion to $1.7 billion, which includes $1.45 billion to $1.55 billion for drilling and completion activities. ~~Our full-year expected 2022 capital program increased due to inflation and a modest increase in activity for the remaining half of 2022.~~ We expect to fund these capital expenditures with our operating cash flow and, if required, cash on hand.

In 2021, we drilled 114 gross wells (99.9 net) and completed 132 gross wells (108.3 net), of which 14 gross wells (13.0 net) were drilled but uncompleted in prior years. For the ~~six~~nine months ended ~~June~~September 30, 2022, our capital program focused on the Permian Basin, Marcellus Shale and Anadarko Basin, where we drilled ~~88.3~~133.8 net wells and completed ~~68.3~~104.1 net wells. Our capital program for the remainder of 2022 will focus on execution of our 2022 plan, which remains in line with the updated full-year guidance released in ~~February.~~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

Liquidity and Capital Resources

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

Our liquidity requirements consist primarily of (1) capital expenditures, (2) payment of contractual obligations, including debt ~~maturity~~ and interest payments, (3) working capital requirements, (4) dividend payments and (5) share repurchases. See below for additional discussion and analysis of our cash flows. We believe that, with operating cash flow, cash on hand and availability under our revolving credit facility, we have the ability to finance our spending plans over the next twelve months and, based on current expectations, for the long term.

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As of ~~June~~September 30, 2022, we had no borrowings outstanding under our revolving credit facility, our unused commitments were $1.5 billion and we had unrestricted cash on hand of ~~$1.1 billion.~~$778 million.

Our revolving credit facility includes a covenant limiting our borrowing capacity based on our leverage ratio. 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 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 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 no obligation to do so.

At ~~June~~September 30, 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.

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Cash Flows

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


		Six Months Ended June 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Cash flows provided by operating activities	Cash flows provided by operating activities	$	2,201	$	469	Cash flows provided by operating activities	$	3,972	$	716
Cash flows used in investing activities	Cash flows used in investing activities	(741)		(274)		Cash flows used in investing activities	(1,183)		(459)
Cash flows used in financing activities	Cash flows used in financing activities	(1,437)		(178)		Cash flows used in financing activities	(3,047)		(322)
Net increase in cash, cash equivalents and restricted cash		$	23	$	17
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	$	(258)	$	(65)

Operating Activities. Operating cash flow fluctuations are substantially driven by changes in 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 flow may result in an increase or decrease in our capital expenditures.

On 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.

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 ~~June~~September 30, 2022 and December 31, 2021, we had a working capital surplus of ~~$1.3 billion~~$935 million and $916 million, respectively. We believe 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 for the ~~six~~nine months ended ~~June~~September 30, 2022 increased by ~~$1.7~~$3.3 billion compared to the same period in 2021. This increase was primarily due to higher natural gas, oil and NGL revenue, partially offset by higher operating expenses, higher cash paid on derivative settlements and a larger decrease in working capital and other assets and

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liabilities. The increase in natural gas, oil and NGL revenue was primarily due to our expanded operations after the Merger and an increase in realized natural gas prices from the ~~six~~nine months ended ~~June~~September 30, 2021 to the ~~six~~nine months ended ~~June~~September 30, 2022.

Refer to “Results of Operations” below for additional information relative to commodity 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 increased by ~~$467~~$724 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021. The increase was primarily due to ~~$471~~$746 million of higher capital expenditures as a result of our expanded operations after the Merger.

Financing Activities. Cash flows used in financing activities increased by ~~$1.3~~$2.7 billion for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021. This increase was primarily due to higher dividend payments of ~~$856 million~~$1.3 billion as a result of the increase in our base dividend rate from $0.10 per share in April 2021 to $0.15 per share in 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 ~~$0.41 and $0.45~~$1.36 per share ~~in February 2022 and May 2022, respectively, and~~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 ~~$487~~$740 million during the ~~six~~nine months ended ~~June~~September 30, ~~2022. These increases were partially offset by an $88~~2022 and $642 million ~~decrease in~~of higher debt repayments, ~~compared to~~net of borrowings during the ~~six~~nine months ended ~~June~~September 30, ~~2021.~~2022.

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Capitalization

Information about our capitalization is as follows:


(In millions)	(In millions)	June 30, 2022			December 31, 2021			(In millions)	September 30, 2022			December 31, 2021
Debt (1)	Debt (1)	$	3,105		$	3,125		Debt (1)	$	2,232		$	3,125
Stockholders' equity	Stockholders' equity	12,191			11,738			Stockholders' equity	12,659			11,738
Total capitalization	Total capitalization	$	15,296		$	14,863		Total capitalization	$	14,891		$	14,863
Debt to total capitalization	Debt to total capitalization	20		%	21		%	Debt to total capitalization	15		%	21		%
Cash and cash equivalents	Cash and cash equivalents	$	1,059		$	1,036		Cash and cash equivalents	$	778		$	1,036

(1)Includes ~~$124~~$44 million of current portion of long-term debt at ~~June~~September 30, 2022 that was called for redemption in October 2022. There were no borrowings outstanding under our revolving credit facility as of ~~June~~September 30, 2022 and December 31, 2021.

Share repurchases. Under our authorized share repurchase program approved in February 2022, we repurchased 2028 million shares of our common stock for ~~$513~~$740 million during the ~~six~~nine months ended ~~June~~September 30, 2022. We did not repurchase any shares of our common stock during the ~~six~~nine months ended ~~June~~September 30, 2021.

Dividends. During the ~~six~~nine months ended ~~June~~September 30, 2022, we paid dividends of ~~$940 million~~$1.5 billion on our common stock and Cimarex’s redeemable preferred stock, which included regular quarterly dividends on our common stock of ~~$0.30~~$0.45 per share and variable dividends of ~~$0.86~~$1.36 per share, and a dividend of $23.125 per share on Cimarex’s redeemable preferred stock in each of the first ~~and second~~three quarters of 2022. During the ~~six~~nine months ended ~~June~~September 30, 2021, we paid dividends of ~~$84~~$128 million ($~~0.21~~0.32 per share) on our common stock.

In ~~August~~November 2022, our Board of Directors approved a quarterly base dividend of $0.15 per share and a variable dividend of ~~$0.50~~$0.53 per share, resulting in a total base-plus-variable dividend of ~~$0.65~~$0.68 per share on our common stock.

Capital and Exploration Expenditures

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

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


		Six Months Ended June 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Capital expenditures:	Capital expenditures:					Capital expenditures:
Drilling and facilities	Drilling and facilities	$	754	$	284	Drilling and facilities	$	1,164	$	448
Leasehold acquisitions	Leasehold acquisitions	4		2		Leasehold acquisitions	6		4

Pipeline and gathering	Pipeline and gathering	27		—		Pipeline and gathering	41		—
Other	Other	13		4		Other	43		9
		798		290			1,254		461
Exploration expenditures(1)	Exploration expenditures(1)	13		5		Exploration expenditures(1)	23		9
		$	811	$	295		$	1,277	$	470

(1)There were no exploratory dry hole costs for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

For the ~~six~~nine months ended ~~June~~September 30, 2022, our capital program was focused on the Permian Basin, Marcellus Shale and Anadarko Basin, where we drilled ~~88.3~~133.8 net wells and completed ~~68.3~~104.1 net wells. We expect our 2022 capital program to be approximately $1.6 billion to $1.7 billion and will focus on the Permian Basin, where we are currently running six rigs and two completion crews, and the Marcellus Shale, where we are currently running ~~two~~three rigs and ~~plan to run~~ one ~~to two~~ completion ~~crews. Our~~crew. In August we increased our full-year expected 2022 capital program ~~increased~~ 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 adjust our capital expenditures accordingly.

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Contractual Obligations

We have various contractual obligations in the normal course of our operations. There have been no material changes to our contractual obligations described under “Transportation, Processing and Gathering Agreements” and “Lease Commitments” as disclosed in Note 8 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, except as ~~discussed below.~~

~~On July 7, 2022, we commenced a lease for an electric hydraulic fracturing fleet. We expect~~described under “Lease Commitments” as disclosed in Note 8 of the Notes to ~~record an operating lease liability and right-of-use asset of between $145 million and $155 million during~~ the ~~third quarter of 2022 related to~~Condensed Consolidated Financial Statements included in this ~~lease.~~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

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

Operating Revenues

Three Months Ended June 30, Variance
(In millions) 2022 2021 Amount Percent
Operating Revenues
Natural gas $ 1,468 $ 412 $ 1,056 256 %
Oil 876 — 876 100 %
NGL 280 — 280 100 %
Loss on derivative instruments (66) (88) 22 25 %
Other 14 — 14 100 %
$ 2,572 $ 324 $ 2,248 694 %

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	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.~~Basins, and increased commodity prices. Increases and decreases in our revenues, profitability and future production growth are highly dependent on the commodity prices we receive, which we expect to continue to fluctuate due to supply and demand factors, the availability of transportation, seasonality and geopolitical, economic and other factors.

Natural Gas Revenues


		Three Months Ended June 30,				Variance				Increase (Decrease) (In millions)			Three Months Ended September 30,				Variance				Increase (Decrease) (In millions)
		2022		2021		Amount		Percent					2022		2021		Amount		Percent
Price variance ($/Mcf)	Price variance ($/Mcf)	$	5.78	$	2.05	$	3.73	182	%	$	947	Price variance ($/Mcf)	$	6.37	$	2.95	$	3.42	116	%	$	884
Volume variance (Bcf)	Volume variance (Bcf)	253.9		200.6		53.3		27	%	109		Volume variance (Bcf)	258.2		217.4		40.8		19	%	119
										$	1,056										$	1,003

Natural gas revenues increased ~~$1.1~~$1.0 billion primarily due to significantly higher natural gas prices and higher production. The increase in production was primarily related to properties acquired in the Merger, which significantly expanded our operations.

Oil Revenues

Oil revenues increased ~~$876~~$755 million due to our expanded operations after the ~~Merger.~~Merger and increased oil prices.

NGL Revenues

NGL revenues increased ~~$280~~$259 million due to our expanded operations after the ~~Merger.~~Merger and increased NGL prices.

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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 June 30,					Three Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Cash paid on settlement of derivative instruments	Cash paid on settlement of derivative instruments					Cash paid on settlement of derivative instruments
Gas contracts	Gas contracts	$	(161)	$	—	Gas contracts	$	(202)	$	(64)
Oil contracts	Oil contracts	(132)		—		Oil contracts	(57)		—
Non-cash gain (loss) on derivative instruments	Non-cash gain (loss) on derivative instruments					Non-cash gain (loss) on derivative instruments
Gas contracts	Gas contracts	133		(88)		Gas contracts	2		(137)
Oil contracts	Oil contracts	94		—		Oil contracts	101		—
		$	(66)	$	(88)		$	(156)	$	(201)

Operating Costs and Expenses

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 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.

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


		Three Months Ended June 30,				Variance				Per BOE					Three Months Ended September 30,				Variance				Per BOE
(In millions, except per BOE)	(In millions, except per BOE)	2022		2021		Amount		Percent		2022		2021		(In millions, except per BOE)	2022		2021		Amount		Percent		2022		2021
Operating Expenses	Operating Expenses													Operating Expenses
Direct operations	Direct operations	$	116	$	16	$	100	625	%	$	2.03	$	0.48	Direct operations	$	118	$	21	$	97	462	%	$	1.99	$	0.59
Transportation, processing and gathering	Transportation, processing and gathering	238		133		105		79	%	4.13		3.99		Transportation, processing and gathering	255		149		106		71	%	4.33		4.10
Taxes other than income	Taxes other than income	98		4		94		2,350	%	1.72		0.13		Taxes other than income	102		8		94		1,175	%	1.72		0.23
Exploration	Exploration	7		2		5		250	%	0.12		0.07		Exploration	10		4		6		150	%	0.17		0.11
Depreciation, depletion and amortization	Depreciation, depletion and amortization	414		92		322		350	%	7.21		2.74		Depreciation, depletion and amortization	422		97		325		335	%	7.16		2.68

General and administrative	General and administrative	87		23		64		278	%	1.52		0.69		General and administrative	107		64		43		67	%	1.80		1.80
		$	960	$	270	$	690	256	%						$	1,014	$	343	$	671	196	%

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Direct Operations

Direct operations expense generally consists of costs for 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:


		Three Months Ended June 30,						Per BOE					Three Months Ended September 30,						Per BOE
(In millions, except per BOE)	(In millions, except per BOE)	2022		2021		Variance		2022		2021		(In millions, except per BOE)	2022		2021		Variance		2022		2021
Direct Operating Expense	Direct Operating Expense											Direct Operating Expense
Lease operating expense	Lease operating expense	$	94	$	12	$	82	$	1.65	$	0.35	Lease operating expense	$	93	$	17	$	76	$	1.57	$	0.48
Workover expense	Workover expense	22		4		18		0.38		0.13		Workover expense	25		4		21		0.42		0.11
		$	116	$	16	$	100	$	2.03	$	0.48		$	118	$	21	$	97	$	1.99	$	0.59

Lease operating and workover expense increased primarily due to our expanded operations 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 fuel and compression costs.

Transportation, processing and gathering costs increased ~~$105~~$106 million primarily due to our expanded operations after the Merger, along with a slight increase in gathering charges in the Marcellus Shale.

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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 June 30,									Three Months Ended September 30,
(In millions)	(In millions)	2022			2021			Variance		(In millions)	2022			2021			Variance
Taxes Other than Income	Taxes Other than Income									Taxes Other than Income
Production	Production	$	82		$	—		$	82	Production	$	78		$	—		$	78
Drilling impact fees	Drilling impact fees	8			4			4		Drilling impact fees	8			7			1
Ad valorem	Ad valorem	8			—			8		Ad valorem	15			—			15

Other										Other	1			1			—
		$	98		$	4		$	94		$	102		$	8		$	94
Taxes other than income as a percentage of production revenue	Taxes other than income as a percentage of production revenue	3.7		%	1.0		%			Taxes other than income as a percentage of production revenue	3.8		%	1.2		%

Taxes other than income increased $94 million. Production taxes represented the majority of our taxes other than income, which increased primarily due to higher production related to properties acquired in the Merger and higher commodity prices. ~~Drilling impact fees increased primarily due to higher natural gas prices.~~ Ad valorem taxes increased primarily due to our expanded operations after the ~~Merger.~~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 June 30,						Per BOE					Three Months Ended September 30,						Per BOE
(In millions, except per BOE)	(In millions, except per BOE)	2022		2021		Variance		2022		2021		(In millions, except per BOE)	2022		2021		Variance		2022		2021
DD&A Expense	DD&A Expense											DD&A Expense
Depletion	Depletion	$	356	$	89	$	267	$	6.19	$	2.66	Depletion	$	391	$	94	$	297	$	6.63	$	2.60
Depreciation	Depreciation	16		2		14		0.31		0.05		Depreciation	18		1		17		0.31		0.02
Amortization of unproved properties	Amortization of unproved properties	39		—		39		0.68		—		Amortization of unproved properties	11		1		10		0.19		0.03
Accretion of ARO	Accretion of ARO	3		1		2		0.03		0.03		Accretion of ARO	2		1		1		0.03		0.03
		$	414	$	92	$	322	$	7.21	$	2.74		$	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 ~~$267~~$297 million due to increased production and a higher depletion rate of ~~$6.19~~$6.63 per BOE for the three months ended ~~June~~September 30, 2022, both of which are attributable to ~~a significant increase in~~ the value of the oil and gas properties acquired on the closing date of the Merger, compared to ~~$2.66~~$2.60 per BOE for the three months ended ~~June~~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 ~~June~~September 30, 2022 as compared to the three months ended ~~June~~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

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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 ~~release of certain leaseholds during the period and an increase in the rate of~~ amortization ~~of certain~~ 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 June 30,							Three Months Ended September 30,
(In millions)	(In millions)	2022		2021		Variance		(In millions)	2022		2021		Variance
G&A Expense	G&A Expense							G&A Expense
General and administrative expense	General and administrative expense	$	52	$	13	$	39	General and administrative expense	$	68	$	14	$	54
Stock-based compensation expense	Stock-based compensation expense	21		4		17		Stock-based compensation expense	26		10		16
Merger-related expense	Merger-related expense	14		6		8		Merger-related expense	13		40		(27)
		$	87	$	23	$	64		$	107	$	64	$	43

G&A expense, excluding stock-based compensation and merger related expenses, increased ~~$39~~$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 ~~$17~~$16 million primarily due to the issuance of additional shares as consideration in the Merger and increased ~~headcount.~~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 ~~increased $8~~decreased $27 million primarily due to ~~$14~~lower administrative and professional fees associated with the Merger partially offset by $12 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 lower administrative and professional fees associated with the Merger.~~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 increased $8$4 million, primarily due to the incremental interest expense, net of premium amortization associated with the debt assumed in the Merger of $2.2 billion. This increase was partially offset by lower interest expense due to the repayment of $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

~~Table~~During the third quarter of ~~Contents~~

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

Three Months Ended June 30,
(In millions) 2022 2021 Variance
Income Tax Expense
Current tax expense $ 294 $ 8 $ 286
Deferred tax expense 65 3 62
$ 359 $ 11 $ 348
Combined federal and state effective income tax rate 22.6 % 26.2 %
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 ~~$348~~$299 million due to higher pre-tax income in the ~~second~~third quarter of 2022 compared to the ~~second~~third quarter of 2021, partially offset by a lower effective tax rate. The effective tax rate was lower for the ~~second~~third quarter of 2022 compared to the ~~second~~third quarter of 2021 due to differences in the non-recurring discrete items recorded during the ~~second~~third quarter of 2022 versus the ~~second~~third quarter of 2021.

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

Operating Revenues


		Six Months Ended June 30,				Variance					Nine Months Ended September 30,				Variance
(In millions)	(In millions)	2022		2021		Amount		Percent		(In millions)	2022		2021		Amount		Percent
Operating Revenues	Operating Revenues									Operating Revenues
Natural gas	Natural gas	$	2,579	$	885	$	1,694	191	%	Natural gas	$	4,223	$	1,526	$	2,697	177	%
Oil	Oil	1,575		—		1,575		100	%	Oil	2,330		—		2,330		100	%
NGL	NGL	525		—		525		100	%	NGL	784		—		784		100	%
Loss on derivative instruments	Loss on derivative instruments	(457)		(101)		(356)		352	%	Loss on derivative instruments	(613)		(302)		(311)		(103)	%
Other	Other	29		—		29		100	%	Other	47		—		47		100	%
		$	4,251	$	784	$	3,467	442	%		$	6,771	$	1,224	$	5,547	453	%

Production Revenues

Natural Gas Revenues


		Six Months Ended June 30,				Variance				Increase (Decrease) (In millions)			Nine Months Ended September 30,				Variance				Increase (Decrease) (In millions)
		2022		2021		Amount		Percent					2022		2021		Amount		Percent
Price variance ($/Mcf)	Price variance ($/Mcf)	$	5.05	$	2.18	$	2.87	132	%	$	1,468	Price variance ($/Mcf)	$	5.49	$	2.45	$	3.04	124	%	$	2,342
Volume variance (Bcf)	Volume variance (Bcf)	510.3		406.4		103.9		26	%	226		Volume variance (Bcf)	768.5		623.9		144.6		23	%	355
										$	1,694										$	2,697

Natural gas revenues increased ~~$1.7~~$2.7 billion primarily due to significantly higher natural gas prices and higher production. The increase in production was primarily related to properties acquired in the Merger, which significantly expanded our operations.

Oil Revenues

Oil revenues increased ~~$1.6~~$2.3 billion due to our expanded operations after the ~~Merger.~~Merger and increased oil prices.

NGL Revenues

NGL revenues increased ~~$525~~$784 million due to our expanded operations after the ~~Merger.~~

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Merger and increased NGL prices.

Loss on Derivative Instruments

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


		Six Months Ended June 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2022		2021
Cash (paid) received on settlement of derivative instruments	Cash (paid) received on settlement of derivative instruments					Cash (paid) received on settlement of derivative instruments
Gas contracts	Gas contracts	$	(203)	$	3	Gas contracts	$	(405)	$	(61)
Oil contracts	Oil contracts	(261)		—		Oil contracts	(318)		—
Non-cash (loss) gain on derivative instruments	Non-cash (loss) gain on derivative instruments					Non-cash (loss) gain on derivative instruments
Gas contracts	Gas contracts	(49)		(104)		Gas contracts	(47)		(241)
Oil contracts	Oil contracts	56		—		Oil contracts	157		—
		$	(457)	$	(101)		$	(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.

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


		Six Months Ended June 30,				Variance				Per BOE					Nine Months Ended September 30,				Variance				Per BOE
(In millions, except per BOE)	(In millions, except per BOE)	2022		2021		Amount		Percent		2022		2021		(In millions, except per BOE)	2022		2021		Amount		Percent		2022		2021
Operating Expenses	Operating Expenses													Operating Expenses
Direct operations	Direct operations	$	216	$	33	$	183	555	%	$	1.90	$	0.49	Direct operations	$	334	$	54	$	280	519	%	$	1.93	$	0.52
Transportation, processing and gathering	Transportation, processing and gathering	471		270		201		74	%	4.12		3.99		Transportation, processing and gathering	726		419		307		73	%	4.19		4.03
Taxes other than income	Taxes other than income	174		9		165		1,833	%	1.53		0.13		Taxes other than income	276		17		259		1,524	%	1.59		0.17
Exploration	Exploration	13		5		8		160	%	0.11		0.07		Exploration	23		9		14		156	%	0.13		0.09
Depreciation, depletion and amortization	Depreciation, depletion and amortization	774		186		588		316	%	6.78		2.74		Depreciation, depletion and amortization	1,196		283		913		323	%	6.91		2.72

General and administrative	General and administrative	194		52		142		273	%	1.70		0.77		General and administrative	301		116		185		159	%	1.73		1.13
		$	1,842	$	555	$	1,287	232	%						$	2,856	$	898	$	1,958	218	%

Direct Operations

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


		Six Months Ended June 30,						Per BOE					Nine Months Ended September 30,						Per BOE
(In millions, except per BOE)	(In millions, except per BOE)	2022		2021		Variance		2022		2021		(In millions, except per BOE)	2022		2021		Variance		2022		2021
Direct Operating Expense	Direct Operating Expense											Direct Operating Expense
Lease operating expense	Lease operating expense	$	176	$	27	$	149	$	1.55	$	0.40	Lease operating expense	$	269	$	44	$	225	$	1.55	$	0.42
Workover expense	Workover expense	40		6		34		0.35		0.09		Workover expense	65		10		55		0.38		0.10
		$	216	$	33	$	183	$	1.90	$	0.49		$	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 ~~$201~~$307 million primarily due to our expanded operations after the Merger, along with a slight increase in gathering charges in the Marcellus Shale.

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Taxes Other Than Income

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


		Six Months Ended June 30,									Nine Months Ended September 30,
(In millions)	(In millions)	2022			2021			Variance		(In millions)	2022			2021			Variance
Taxes Other than Income	Taxes Other than Income									Taxes Other than Income
Production	Production	$	145		$	—		$	145	Production	$	223		$	—		$	223
Drilling impact fees	Drilling impact fees	15			9			6		Drilling impact fees	23			16			7
Ad valorem	Ad valorem	14			—			14		Ad valorem	29			—			29

Other										Other	1			1			—
		$	174		$	9		$	165		$	276		$	17		$	259
Taxes other than income as a percentage of production revenue	Taxes other than income as a percentage of production revenue	3.7		%	1.0		%			Taxes other than income as a percentage of production revenue	3.8		%	1.1		%

Taxes other than income increased ~~$165~~$259 million. Production taxes represented the majority of our taxes other than income, which increased primarily due to higher production related to properties acquired in the Merger and higher commodity prices. Drilling impact fees increased primarily due to higher natural gas prices. Ad valorem taxes increased primarily due to our expanded operations after the ~~Merger.~~Merger and higher property valuations.

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Depreciation, Depletion and Amortization

DD&A expense consisted of the following for the periods indicated:

Six Months Ended June 30, Per BOE
(In millions, except per BOE) 2022 2021 Variance 2022 2021
DD&A Expense
Depletion $ 695 $ 180 $ 515 $ 6.09 $ 2.65
Depreciation 35 4 31 0.31 0.07
Amortization of unproved properties 39 — 39 0.34 —
Accretion of ARO 5 2 3 0.04 0.02
$ 774 $ 186 $ 588 $ 6.78 $ 2.74


	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

Depletion expense increased ~~$515~~$812 million due to increased production and a higher depletion rate of ~~$6.09~~$6.27 per BOE for the ~~six~~nine months ended ~~June~~September 30, 2022, both of which are attributable to ~~a significant increase in~~ the value of the oil and gas properties acquired on the closing date of the Merger, compared to ~~$2.65~~$2.63 per BOE for the ~~six~~nine months ended ~~June~~September 30, 2021.

Depreciation expense increased ~~$31~~$48 million primarily due to depreciation on our gathering facilities acquired in the Merger.

Amortization of unproved properties increased ~~$39~~$49 million due to the release of certain leaseholds during the period and ~~an increase in~~ the ~~rate of~~ amortization ~~of certain~~ of our unproved properties acquired in the Merger.

General and Administrative

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


		Six Months Ended June 30,							Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		Variance		(In millions)	2022		2021		Variance
G&A Expense	G&A Expense							G&A Expense
General and administrative expense	General and administrative expense	$	105	$	30	$	75	General and administrative expense	$	173	$	44	$	129
Stock-based compensation expense	Stock-based compensation expense	44		16		28		Stock-based compensation expense	70		26		44
Merger-related expense	Merger-related expense	45		6		39		Merger-related expense	58		46		12
		$	194	$	52	$	142		$	301	$	116	$	185

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G&A expense, excluding stock-based compensation and merger-related expenses, increased ~~$75~~$129 million primarily due to the Merger, which significantly expanded our headcount and office-related expenses.

Stock-based compensation expense will fluctuate based on the grant date fair ~~value~~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 ~~$28~~$44 million primarily due to the issuance of additional shares as consideration in the Merger and increased ~~headcount.~~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 increased ~~$39~~$12 million primarily due to ~~$38~~$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.~~period, partially offset by $39 million of lower transaction-related costs associated with the Merger.

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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 increased ~~$17~~$21 million primarily due to the incremental interest expense, net of premium amortization associated with the debt assumed in the Merger of $2.2 billion. This increase was partially offset by lower interest expense due to the repayment of $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


		Six Months Ended June 30,									Nine Months Ended September 30,
(In millions)	(In millions)	2022			2021			Variance		(In millions)	2022			2021			Variance
Income Tax Expense	Income Tax Expense									Income Tax Expense
Current tax expense	Current tax expense	$	428		$	33		$	395	Current tax expense	$	720		$	51		$	669
Deferred tax expense	Deferred tax expense	101			15			86		Deferred tax expense	128			17			111
		$	529		$	48		$	481		$	848		$	68		$	780
Combined federal and state effective income tax rate	Combined federal and state effective income tax rate	22.4		%	23.2		%			Combined federal and state effective income tax rate	21.9		%	23.7		%

Income tax expense increased ~~$481~~$780 million due to higher pre-tax income attributable to higher commodity prices and our expanded operations following the Merger, partially offset by a lower effective tax rate. The effective tax rate was lower for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021 due to differences in the non-recurring discrete items recorded during the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

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, and other statements that are not historical facts contained in or incorporated by reference into this report, are forward-looking statements. The words “expect”, “project”, “estimate”, “believe”, “anticipate”, “intend”, ‘budget”, “plan”, “forecast”, “target”, “predict”, “potential”, “possible”, “may”, “should”, “could”, “would”, “will”, strategy”, “outlook” and similar expressions are also intended to identify forward-looking statements. 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 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 long-term impact of the COVID-19 pandemic and 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

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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, 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. 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 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 forward-looking statements, which speak only as of the date hereof.

~~Table of Contents~~

Investors should note that we announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may 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

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 ~~June~~September 30, 2022 and from which we may incur future gains or losses from changes in commodity prices or interest rates.

Commodity Price Risk

Our most significant market risk exposure is pricing applicable to our oil, natural gas and NGL production. Realized prices are mainly driven by the worldwide price for oil and spot market prices for North American natural gas 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, while protecting us in the event of price 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 5 of the Notes to the Consolidated Financial Statements in our Form 10-K for a more detailed discussion of our 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 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.

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


																Estimated Value at June 30, 2022 (in millions)																Estimated Value at September 30, 2022 (in millions)
		2022				2023									Estimated Value at June 30, 2022 (in millions)				2022			2023									Estimated Value at September 30, 2022 (in millions)
Natural Gas	Natural Gas	Third Quarter		Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter					Natural Gas		Fourth Quarter			First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Waha swaps (1)	Waha swaps (1)															$	—	Waha swaps (1)														$	2
Volume (Mmbtu)		4,600,000		1,550,000			—		—		—		—
Volume (MMBtu)																		Volume (MMBtu)		1,550,000			—		—		—		—
Weighted average price	Weighted average price	$	4.77	$	4.77		$	—	$	—	$	—	$	—				Weighted average price		$	4.77		$	—	$	—	$	—	$	—

Waha gas collars (1)	Waha gas collars (1)															11		Waha gas collars (1)														8
Volume (Mmbtu)		2,760,000		1,840,000			8,100,000		8,190,000		8,280,000		8,280,000
Volume (MMBtu)																		Volume (MMBtu)		1,840,000			8,100,000		8,190,000		8,280,000		8,280,000
Weighted average floor	Weighted average floor	$	2.47	$	2.50		$	3.03	$	3.03	$	3.03	$	3.03				Weighted average floor		$	2.50		$	3.03	$	3.03	$	3.03	$	3.03
Weighted average ceiling	Weighted average ceiling	$	3.00	$	3.12		$	5.39	$	5.39	$	5.39	$	5.39				Weighted average ceiling		$	3.12		$	5.39	$	5.39	$	5.39	$	5.39

NYMEX collars	NYMEX collars															(52)		NYMEX collars														(62)
Volume (Mmbtu)		60,720,000		57,670,000			31,500,000		4,550,000		4,600,000		1,550,000
Volume (MMBtu)																		Volume (MMBtu)		63,770,000			40,500,000		4,550,000		4,600,000		1,550,000
Weighted average floor	Weighted average floor	$	4.07	$	4.15		$	4.46	$	4.50	$	4.50	$	4.50				Weighted average floor		$	4.47		$	5.14	$	4.50	$	4.50	$	4.50
Weighted average ceiling	Weighted average ceiling	$	5.64	$	6.58		$	8.37	$	8.39	$	8.39	$	8.39				Weighted average ceiling		$	7.20		$	9.41	$	8.39	$	8.39	$	8.39

El Paso Permian gas collars (2)	El Paso Permian gas collars (2)															(6)		El Paso Permian gas collars (2)														(2)
Volume (Mmbtu)		1,840,000		1,840,000			—		—		—		—
Volume (MMBtu)																		Volume (MMBtu)		1,840,000			—		—		��		—
Weighted average floor	Weighted average floor	$	2.50	$	2.50		$	—	$	—	$	—	$	—				Weighted average floor		$	2.50		$	—	$	—	$	—	$	—
Weighted average ceiling	Weighted average ceiling	$	3.15	$	3.15		$	—	$	—	$	—	$	—				Weighted average ceiling		$	3.15		$	—	$	—	$	—	$	—

PEPL gas collars (3)	PEPL gas collars (3)															(8)		PEPL gas collars (3)														(4)
Volume (Mmbtu)		1,840,000		1,840,000			—		—		—		—
Volume (MMBtu)																		Volume (MMBtu)		1,840,000			—		—		—		—
Weighted average floor	Weighted average floor	$	2.60	$	2.60		$	—	$	—	$	—	$	—				Weighted average floor		$	2.60		$	—	$	—	$	—	$	—
Weighted average ceiling	Weighted average ceiling	$	3.27	$	3.27		$	—	$	—	$	—	$	—				Weighted average ceiling		$	3.27		$	—	$	—	$	—	$	—

Leidy Basis swaps (4)	Leidy Basis swaps (4)															(3)		Leidy Basis swaps (4)														1
Volume (Mmbtu)		4,600,000		1,550,000			—		—		—		—
Volume (MMBtu)																		Volume (MMBtu)		1,550,000			—		—		—		—
Weighted average price	Weighted average price	$	(1.50)	$	(1.50)		$	—	$	—	$	—	$	—				Weighted average price		$	(1.50)		$	—	$	—	$	—	$	—
Total Natural Gas Estimated Value	Total Natural Gas Estimated Value															$	(58)	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.

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										Estimated Value at June 30, 2022 (in millions)												Estimated Value at September 30, 2022 (in millions)
		2022				2023							2022		2023									Estimated Value at September 30, 2022 (in millions)
Oil	Oil	Third Quarter		Fourth Quarter		First Quarter		Second Quarter			Oil					Fourth Quarter			First Quarter						Estimated Value at September 30, 2022 (in millions)
WTI oil collars	WTI oil collars										$	(82)		WTI oil collars												$	20
Volume (Mbbl)	Volume (Mbbl)	2,116		2,116		1,350		1,365						Volume (Mbbl)			2,116			1,350		1,365
Weighted average floor	Weighted average floor	$	56.78	$	67.65	$	70.00	$	70.00					Weighted average floor			$	67.65		$	70.00	$	70.00
Weighted average ceiling	Weighted average ceiling	$	72.81	$	112.50	$	116.03	$	116.03					Weighted average ceiling			$	112.50		$	116.03	$	116.03

WTI Midland oil basis swaps (1)											(4)
WTI oil basis swaps (1)														WTI oil basis swaps (1)														(5)
Volume (Mbbl)	Volume (Mbbl)	1,840		2,116		1,350		1,365						Volume (Mbbl)			2,116			1,350		1,365
Weighted average differential	Weighted average differential	$	0.34	$	0.46	$	0.63	$	0.63					Weighted average differential			$	0.46		$	0.63	$	0.63

WTI oil roll differential swaps											(1)
Volume (Mbbl)		644		—		—		—
Weighted average price		$	0.10	$	—	$	—	$	—

Total Oil Estimated Value	Total Oil Estimated Value										$	(87)		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 ~~June~~September 30, 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.

A significant portion of our expected oil and natural gas production for 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 ~~six~~nine months ended ~~June~~September 30, 2022, oil collars with floor prices ranging from $35.00 to ~~$57.00~~$90.00 per Bbl and ceiling prices ranging from $45.15 to ~~$72.80~~$120.85 per Bbl covered ~~5.5~~7.6 Mmbbls, or 3632 percent, of oil production at a weighted-average price of ~~$49.46~~$51.49 per Bbl. Oil basis swaps covered ~~4.8~~6.6 Mmbbls, or 3128 percent, of oil production at a weighted-average price of ~~$0.21~~$0.24 per Bbl. Oil roll differential swaps covered ~~2.3~~2.7 Mmbbls, or 1511 percent, of oil production at a weighted-average price of ~~$(0.04)~~$(0.02) per Bbl.

During the ~~six~~nine months ended ~~June~~September 30, 2022, natural gas collars with floor prices ranging from $1.70 to ~~$4.75~~$8.50 per Mmbtu and ceiling prices ranging from $2.10 to ~~$10.32~~$10.63 per Mmbtu covered ~~113.2~~178.5 Bcf, or 2223 percent of natural gas production at a weighted-average price of ~~$4.38~~$4.71 per Mmbtu. Natural gas swaps covered ~~3.0~~11.9 Bcf, or 12 percent of natural gas production at a weighted average price of ~~$4.77~~$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.

~~Table of Contents~~

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.

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Interest Rate Risk

At ~~June~~September 30, 2022, we had total debt of ~~$3.1~~$2.2 billion (with a principal amount of ~~$2.9~~$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 ~~June~~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 our private placement senior notes. The fair value of 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 senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of the private placement senior notes is based on interest rates currently available to us.

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


		June 30, 2022				December 31, 2021					September 30, 2022				December 31, 2021
(In millions)	(In millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		(In millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Long-term debt	Long-term debt	$	3,105	$	2,887	$	3,125	$	3,163	Long-term debt	$	2,232	$	1,984	$	3,125	$	3,163
Current maturities	Current maturities	(124)		(127)		—		—		Current maturities	(44)		(44)		—		—
Long-term debt, excluding current maturities	Long-term debt, excluding current maturities	$	2,981	$	2,760	$	3,125	$	3,163	Long-term debt, excluding current maturities	$	2,188	$	1,940	$	3,125	$	3,163

ITEM 4. Controls and Procedures

As of ~~June~~September 30, 2022, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of 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, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective 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 the Company in the reports that it files or submits under the Exchange Act.

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 internal control over financial reporting that occurred during the ~~second~~third quarter of 2022 that have materially affected, or are reasonably likely to have a material effect on, the Company’s internal control over financial reporting.

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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 below risk factor updates a risk factor, and should be read in conjunction with the other risk factors, previously discussed in Part I, Item 1A of 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 operations.

Commodity prices fluctuate widely, and 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 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 ~~in 2021~~ ranged from a high of $84.65 to a low of $47.62 per Bbl and NYMEX natural gas prices ~~in 2021~~ 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 September 30, 2022, WTI oil prices ranged from a high of $123.70 to a low of $76.08 per Bbl and NYMEX natural gas prices ranged from a high of $9.85 to a low of $3.73 per Mmbtu. Any substantial or extended decline in future commodity prices would have a material adverse effect on our future business, financial condition, results of operations, 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 negatively 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 affect our results of operations” in our Form 10-K under Part I, Item IA.

Wide fluctuations in commodity prices may 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 the following:

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

•the level of consumer demand for oil, natural gas and NGLs, which had been significantly impacted by the COVID-19 pandemic, particularly during 2020, and may be impacted in the future depending on the predominance of new variants of COVID-19;

•weather conditions and seasonal trends;

•political, economic or health conditions in oil, natural gas and NGL producing regions, including the Middle East, Africa, South America and the U.S., including for example, the impacts of local or international pandemics and disasters or events such as the global COVID-19 pandemic;

•geopolitical risks and sanctions, including as a result of the war in Ukraine and other actions that may impact demand and supply chains;

•the ability and willingness of the members of OPEC+ to agree to and maintain oil price and production controls;

•the price level and quantities of foreign imports;

•~~actions of governmental authorities;~~

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•actions of governmental authorities;

•the availability, proximity and capacity of gathering, transportation, processing and/or refining facilities in regional or local areas;

•inventory storage levels and the cost and availability of storage and transportation of oil, natural gas and NGLs;

•the nature and extent of domestic and foreign governmental regulations and taxation, including environmental and climate change regulation;

•the price, availability and acceptance of alternative fuels;

•technological advances affecting energy consumption;

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

•overall economic conditions, including the value of the U.S. dollar relative to other major currencies.

These factors and the volatile nature of the energy markets make it impossible to predict future commodity prices. If commodity prices decline significantly for a sustained period of time, the lower prices may cause us to reduce our planned drilling program or adversely affect our ability to make planned expenditures, raise additional capital or meet our financial obligations.

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

Issuer Purchases of Equity Securities

Share repurchase activity during the quarter ended ~~June~~September 30, 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)
April 2022 745 $ 27.06 745 $ 1,038
May 2022 254 $ 28.52 254 $ 1,031
June 2022 (3)
10,691 $ 27.44 10,691 $ 737
Total 11,690 11,690


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 Directors terminated the previously authorized share repurchase program and 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 ~~11.7~~8.3 million common shares for ~~$321~~$227 million during the quarter ended ~~June~~September 30, 2022.

(2)As of ~~June~~September 30, 2022, we can purchase up to ~~$737~~$510 million of shares under the repurchase program.

~~(3)Includes one million shares that were purchased for $27 million prior to June 30, 2022 and settled in July 2022.~~

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ITEM 6. Exhibits

Index to Exhibits


Exhibit Number						Description

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 4.3 of Coterra’s Annual Report on Form 10-K filed with the SEC on March 1, 2022).

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

4.3						Amendment to Certificate of Designations to 8 1/8% Series A Cumulative Perpetual Convertible Preferred Stock of Cimarex Energy Co. (incorporated herein by reference to Exhibit 4.3 of ~~Coterra~~’sCoterra’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, ~~2022~~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).

10.2*						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. 33-260230) filed with the SEC on October 14, 2021).
						(a) Form of Restricted Stock Unit Award Agreement (legacy Cimarex continuing officers);
						(b) Form of Restricted Stock Unit Award Agreement (legacy Cimarex transitioning officers);
						(c) Form of Performance Share Award Agreement (legacy Cimarex continuing officers);
						(d) Form of 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.

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.

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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).

_______________________________________________________________________________.

*Compensatory plan, contract or arrangement.

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Table of Contents

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)

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

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

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

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