Coterra Energy Inc. (CTRA, NYSE)
Industry: Energy / Oil & Gas E&P
Annual report, fiscal year 2021


# We are
Disciplined.
Flexible.
Efficient.
Sustainable.
Innovative.
Coterra.




Coterra Energy is a premier exploration and production company, well positioned to deliver superior and sustainable returns. We are built to weather industry cycles with tremendous flexibility between the best oil assets and the best natural gas assets in the country. We embrace innovation, technology, and data as we work to create value for our investors, our team members, and the communities where we operate. Our approach to ESG and sustainable development is centered on a dedicated, consistent effort toward reducing our footprint, while providing a transparent view into our business with credible assessments that keep us on the path to success.



Shareholder returns play a key role in Coterra's financial strategy. Coterra is committed to returning 50% plus of free cash flow to shareholders, with the confidence to distribute 30% plus of cash flow from operations via a base plus variable dividend framework.

Furthering our commitment to shareholder returns, we have initiated a $1.25 billion share repurchase program. This offers an additional avenue for returns in excess of our base plus variable dividend framework, while supporting long-term per share metrics.

## Variable Dividend Formula

Calculated on a quarterly basis

Discretionary Cash Flow \( ^{*} \)  – Capital Expenditures = Free Cash Flow \( ^{*} \) 
Free Cash Flow x (Target Payout of 50%+) = Quarterly Dividend to Shareholders
Quarterly Dividend to Shareholders – Quarterly Base Dividend = Quarterly Variable Dividend

 \( ^{*} \) Discretionary cash flow and free cash flow are non-GAAP measures. See non-GAAP definitions and reconciliations.

## Non-GAAP Definitions and Reconciliations

Supplemental Non-GAAP Financial Measures (Unaudited)
We report our financial results in accordance with accounting principles generally accepted in the United States (GAAP). However, we believe certain non-GAAP performance measures may provide financial statement users with additional meaningful comparisons between current results and results of prior periods. In addition, we believe these measures are used by analysts and others in the valuation, rating and investment recommendations of companies within the oil and natural gas exploration and production industry. See the reconciliations below that compare GAAP financial measures to non-GAAP financial measures for the periods indicated.

## Reconciliation of Discretionary Cash Flow and Free Cash Flow

Discretionary Cash Flow is defined as cash flow from operations excluding changes in assets and liabilities. Discretionary Cash Flow is widely accepted as a financial indicator of an oil and gas company's ability to generate available cash to internally fund exploration and development activities, return capital to shareholders through dividends and share repurchases, and service debt and is used by our management for that purpose. Discretionary Cash Flow is presented based on our management's belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of peer companies. Free Cash Flow is an indicator of a company's ability to generate cash flow after spending the money required to maintain or expand its asset base, and is used by our management for that purpose. Free Cash Flow is presented based on our management's belief that this non-GAAP measure is useful information to investors when comparing our cash flows with the cash flows of other companies. Free Cash Flow is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flow from operations or net income, as defined by GAAP, or as a measure of liquidity.

<table><tr><td rowspan="2"></td><td colspan="2">Three Months Ended</td><td colspan="4">Twelve Months Ended December 31,</td></tr><tr><td>December 31, 2021</td><td>2021</td><td>2020</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Cash Flow from Operations</td><td>$ 953</td><td>$ 1,667</td><td>$ 778</td><td>$ 1,445</td><td>$ 1,105</td><td></td></tr><tr><td>Changes in Assets and Liabilities</td><td>73</td><td>144</td><td>(93)</td><td>(84)</td><td>163</td><td></td></tr><tr><td>Discretionary Cash Flow</td><td>1,026</td><td>1,811</td><td>685</td><td>1,361</td><td>1,268</td><td></td></tr><tr><td>Cash Paid for Capital Expenditures</td><td>(268)</td><td>(728)</td><td>(576)</td><td>(789)</td><td>(894)</td><td></td></tr><tr><td>Investment in Equity Method Investments</td><td>—</td><td>—</td><td>—</td><td>(9)</td><td>(77)</td><td></td></tr><tr><td>Free Cash Flow</td><td>$ 758</td><td>$ 1,083</td><td>$ 109</td><td>$ 563</td><td>$ 297</td><td></td></tr></table>

## Financial Highlights

<table><tr><td>($ IN MILLIONS, EXCEPT PER SHARE DATA)</td><td>2021</td><td>2020</td><td>2019</td><td>2018</td></tr><tr><td>Revenues</td><td>$ 3,449</td><td>$ 1,466</td><td>$ 2,066</td><td>$ 2,188</td></tr><tr><td>Expenses</td><td>1,883</td><td>1,170</td><td>1,190</td><td>1,401</td></tr><tr><td>Operating Income</td><td>1,564</td><td>296</td><td>956</td><td>772</td></tr><tr><td>Net Income</td><td>1,158</td><td>201</td><td>681</td><td>557</td></tr><tr><td>Earnings per Share</td><td>2.30</td><td>0.50</td><td>1.64</td><td>1.25</td></tr><tr><td>Cash Flow from Operations</td><td>$ 1,667</td><td>$ 778</td><td>$ 1,445</td><td>$ 1,105</td></tr><tr><td>Cash Flow from Investing</td><td>313</td><td>(584)</td><td>(543)</td><td>(293)</td></tr><tr><td>Cash Flow from Financing</td><td>(1,086)</td><td>(256)</td><td>(690)</td><td>(1,289)</td></tr><tr><td>Discretionary Cash Flow*</td><td>1,811</td><td>685</td><td>1,361</td><td>1,268</td></tr><tr><td>Free Cash Flow*</td><td>1,083</td><td>109</td><td>563</td><td>297</td></tr><tr><td>Total Assets</td><td>$ 19,900</td><td>$ 4,524</td><td>$ 4,487</td><td>$ 4,199</td></tr><tr><td>Debt (principal)</td><td>2,949</td><td>946</td><td>1,133</td><td>1,226</td></tr><tr><td>Stockholders&#x27; Equity</td><td>11,738</td><td>2,216</td><td>2,152</td><td>2,088</td></tr></table>

## Comparison of 5-Year Cumulative Total Return \( ^{1} \) 



*$100 invested on 12/31/16 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
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Dear Fellow Shareholders,

We are off to a great start at Coterra! Although we have not yet passed the six-month mark since our formation, we are well on our way to fulfilling our pledge to build one of the finest E&P companies in our business.

Coterra, formed by the combination of Cabot Oil & Gas Corporation and Cimarrex Energy Co., has core positions in the top onshore U.S. oil and natural gas basins, giving the Company some of the best assets. This geography coupled with a highly talented leadership team and a culture founded and focused on excellence, value creation and investment discipline, along with one of the strongest balance sheets in our sector, makes Coterra everything described on the front cover of this report and more. We have industry-leading margins, with a revenue diversity split roughly equally between natural gas and liquids (oil and natural gas liquids). We have the ability to adapt to inevitable swings in commodity pricing and consistently generate returns for our owners. All in all, a great platform for Coterra.

You, our owners, have asked for real returns, primarily in the form of a growing dividend, which I am proud to say the Company has done three times in the last 12 months. Coterra, in addition to a commitment to grow our ordinary dividend over time, has committed to return in excess of 30% of our Cash Flow from Operations (CFFO) and 50%+ of our Free Cash Flow \( ^{\circledR} \)  (FCF) in the form of an ordinary and variable dividend. Why frame this as both a return of CFFO and FCF? Taken alone, a commitment to return a percentage of our FCF is an incomplete promise, for FCF can rise and fall with the magnitude of the capital investment program. Our pledge to return in excess of 30% of CFFO is a hard marker that must be fulfilled before we build our annual capital investment program. Like our ordinary dividend, the pledge of a percentage of our CFFO instills discipline and reminds us continually of our commitment to you.

These are extraordinary times in our business. As we enter 2022, we find that we have stellar asset productivity, a reasonable cost structure, and favorable commodity prices. Moreover, there is an overwhelmingly positive outlook for these conditions to remain for some time. As we look ahead at our capital plans for 2022 and beyond, we see a future where we can maintain or modestly grow our production while investing significantly less than 40% of our cash flow – a true first in the history of our industry. More importantly, this allows us to aggressively return cash to our owners, enhance returns further by embarking on a share buyback program, and still preserve the ability to reduce net debt over time. Given what we experienced in 2020, it is encouraging to see optimism return to our sector.

Experience, however, tells us that these good times will not last forever, and Coterra is built to withstand the inevitable cycles in our industry. Today as I write this letter, the general consensus for our industry is overwhelmingly positive. As the world navigates the energy transition, global policy makers are becoming increasingly aware that hydrocarbons will continue to play a crucial role in world energy affordability, reliability, and security for decades to come. Supply and demand fundamentals are shifting strongly towards a firm market for our products. This is driven by a post-pandemic energy demand recovery and the inevitable consequences of years of underinvestment in supply. Coterra, along with many of our U.S. producer peers, is well positioned to adapt to these changing supply/demand fundamentals. With our top-tier assets, oil and natural gas balance, and our culture of technical and financial discipline, Coterra is well positioned for success in an uncertain future.

Based upon the values of both legacy companies, Coterra holds a strong commitment to responsible and transparent ESG practices. Our environmental commitment is demonstrated by our multi-year commitments to reduce flaring, reduce greenhouse gas emissions, and a multi-year electrification project. We maintain a deep commitment to the safety of our workforce, and are strengthening our educational and cultural programs. Finally, good governance has been a hallmark of both legacy companies and will also be a hallmark of Coterra. It starts in our Boardroom, where we have an amazing group of Directors that come from multiple industries, bringing a diversity of background and perspectives that enriches our analysis and strategic focus. Our organization and culture embrace high ethical standards. We all live by the same set of rules, from the C-suite to the field. We work hard, learn from our mistakes, and operate with a degree of transparency and humility that allows us to continuously improve. We will communicate with you, our owners, honestly and with complete integrity, especially when we stumble. ESG is more than a slogan to us.

In closing, I want to thank you, our owners, for joining with us as we build Coterra into the finest E&P company in our industry. We are committed to excellence and we are unrelenting in achieving it. I want to thank our Board of Directors for giving their precious time to advise, to oversee, and to challenge us to be our best. Finally, I want to acknowledge and thank our amazing group of employees. Although Coterra has the best assets in our business, without the support and drive of our organization, and their commitment to give it all they have, we would be just one of many companies. Coterra is building a culture of excellence that will drive our performance and distinguish Coterra for many years to come. Thank you for coming along with us.



Thomas E. Jorden

Chief Executive Officer & President






We are disciplined.

“As we look ahead at our capital plans for 2022 and beyond, we see a future where we can maintain or modestly grow our production while investing significantly less than 40% of our cash flow – a true first in the history of our industry.”

– Thomas E. Jorden

4Q21 Highlights

Production

686 MBoepd

Net Income

$939MM ($1.16 per share)

Cash Flow from Operations

$953MM

Free Cash Flow \( ^{*} \) 

$758MM

Discretionary Cash Flow \( ^{*} \) 

$1,026MM

Total Dividends Paid

$652MM

($0.80 per share)

*Non-GAAP measure. See non-GAAP definitions and reconciliations.











Coterra has a deep inventory of high-quality development projects in the core of three top-tier regions, and an industry-leading cost of supply.

We operate in the Permian Basin, Marcellus Shale, and Anadarko Basin. From Texas to Pennsylvania, our goal is to responsibly and efficiently develop our 600,000-net-acre footprint to generate reliable energy and consistent returns. Our regional and asset diversification provides us immense operational flexibility and the ability to allocate capital to its most productive use.



## We are flexible.



## Permian Basin

The Permian Basin is one of the oldest oil and gas producing basins in the United States. Coterra’s acreage is located in the Delaware Basin region which spans west Texas and southeast New Mexico. Our core acreage position includes 234,000 net acres with multi-zone development opportunities. We are currently focused on developing the Wolfcamp and Bone Spring formations. Our key sustainability practices for this asset include the use of electric horsepower for completions and other operations, an on-demand pipeline system for recycling water, and lowering emissions through reducing flaring activity.

Acrage
234,000
Target Zones
Wolfcamp, Bone Spring



## Marcellus Shale

The Appalachian Basin is home to the Marcellus Shale. Coterra’s operations in the region are primarily concentrated in northeast Pennsylvania. Our properties are principally located in Susquehanna County, Pennsylvania, where Coterra currently holds approximately 177,000 net acres in the dry gas window of the play. Our key sustainability practices for this asset include field site reclamation, recycling nearly 100% of produced water, and the restriction of flaring to safety concerns only.

Acrage
177,000
Target Zones
Lower Marcellus, Upper Marcellus



## Anadarko Basin

The Mid-Continent oil and gas region has produced more oil than any other area in the United States since the first oil discovery in 1892. Coterra’s assets are primarily located in the Anadarko Basin, where it holds an acreage position of 182,000 net acres. Coterra’s activity is currently focused on the Woodford Shale in Western Oklahoma. Our key sustainability practices for this asset include the use of electric horsepower for compression and continuous emission monitoring.

Acrage
182,000
Target Zones
Woodford Shale

As of December 31, 2021, total proved reserves for the company totaled 2,893 million barrels of oil equivalent, of which 74% is total proved developed reserves. Coterra's total proved reserves commodity split was 86% natural gas, 8% NGL and 6% oil at year-end 2021. The Marcellus Shale, Permian Basin and Anadarko Basin contributed 75%, 18% and 7%, respectively, to the total proved reserves.

Coterra, on a combined basis, produced 634 thousand barrels of oil equivalent per day (MBoepd) in 2021. The total production stream for the combined company was composed of 77% natural gas, 12% oil and 11% NGL. Production in the Marcellus remained flat year-over-year, while oil production for the combined company grew to 88.6 thousand barrels of oil per day, or up 31% in fourth-quarter 2021 compared to fourth-quarter 2020. The combined company put 165 net wells on production in the year, or 72, 88 and 5 net wells in the Permian Basin, Marcellus Shale and Anadarko Basin, respectively.

Daily Production (MBoepd)



Reserves (MMBoe)






## We are efficient.

Coterra holds the ability to generate sustainable returns across our top-tier asset portfolio, which offers scale, capital optionality, and low break-evens. We anticipate our deep, high-quality inventory to be developed over multiple decades, at the current run-rate. We are committed to disciplined capital investment and using technology and innovation to maximize capital efficiency and operational execution.

Having three operating regions, in the Permian Basin, Marcellus Shale and Anadarko Basin, provides diversity of geography as well as commodity and revenue streams, which support strong and stable cash flow generation through the commodity price cycles.

In addition to operational flexibility, we believe that maintaining an industry-leading balance sheet with significant financial flexibility is imperative in a cyclical industry that is exposed to commodity price volatility. With no significant debt maturities until 2024, a year-end 2021 cash balance of $1.0 billion and $1.5 billion of unused commitments on our revolving credit facility, we believe the company is well positioned to maintain its top-tier balance sheet strength.






## We are sustainable.

We believe responsible development of oil and natural gas provides opportunity for a bright future, one built through technology and innovation that offers prosperity for both today and tomorrow.

Our operational focus is based on making our operations more environmentally and socially sustainable. We actively implement technology and best practices across our operations, from design phase to equipment improvements to limit and reduce our methane emissions, greenhouse gas emissions and flaring activity. Our safety programs are built on a foundation that emphasizes personal responsibility and safety leadership. In addition, we focus on practical and sustainable environmental initiatives that promote efficient use of water, protection of water quality, and minimizing land surface impact. We are committed to being responsible stewards of our resources and implementing sustainable practices under the guidance of management and our diverse and experienced Board of Directors.

## Environment

We are committed to being a good steward of all natural resources. Our operations are centered on environmental stewardship and sustainable practices – with a focus on protecting and preserving air quality, water resources, and the land on which we operate.

## Safety and Health

Safety is a core value of Coterra. The well-being of our workforce and the communities in which we operate are key considerations when making business decisions. We believe safe and environmentally conscious operations not only protect the individuals on our locations, but ultimately lead to more efficient operations.

## Community

At Coterra, we think of community primarily in two ways – it is both our company culture and the communities in which we live and operate. Within our company, we recognize that diversity can lead to richer discussions, better productivity, and increased long-term value creation. We focus on attracting high-quality personnel who have strong technical competence, are not afraid to contribute new ideas, and work well in a team environment. Further, as our employees and their families live in the towns and cities where we operate, we have made the commitment to focus our efforts on building prosperity and safeguarding the neighbors and environment around us.






## Methane Intensity

Methane Emissions (metric tons CH \( _{4} \) ) / Gross Annual Production (MBoe)



Greenhouse Gas Emission Intensity

GHG Emissions (metric tons CO \( _{2} \) e) / Gross Annual Production (MBoe)



Permian High-Pressure Flare Intensity

% of Gross Permian Basin Natural Gas Production



Combined emissions profile. Preliminary 2021 results.

"Our environmental commitment is demonstrated by our multi-year commitments to reduce flaring, reduce greenhouse gas emissions, and a multi-year electrification project. We maintain a deep commitment to the safety of our workforce, and are strengthening our educational and cultural programs."

– Thomas E. Jorden




## Corporate Information

BOARD OF DIRECTORS
Dan O. Dinges
Executive Chairman
Thomas E. Jorden
Chief Executive Officer and President
Lisa A. Stewart 1, 4*
Lead Director
Dorothy M. Ables 1*, 3
Robert S. Boswell 1, 4
Amanda M. Brock 2, 4
Paul N. Eckley 2*, 3
Hans Helmerich 2, 4
Frances M. Vallejo 1, 3*
Marcus A. Watts 2, 3*

Board Committee Membership:
 \( ^{1} \) Audit Committee
 \( ^{2} \) Compensation Committee
 \( ^{3} \) Governance and Social Responsibility Committee
 \( ^{4} \) Environment, Health & Safety Committee
 \( ^{5} \) Committee Chair

## EXECUTIVE OFFICERS

Thomas E. Jorden
Chief Executive Officer and President
Scott C. Schroeder
Executive Vice President and Chief Financial Officer
Stephen P. Bell
Executive Vice President - Business Development
Francis B. Barron
Senior Vice President and General Counsel
Christopher H. Clason
Senior Vice President and Chief Human Resources Officer
Steven W. Lindeman
Senior Vice President – Production and Operations
Phillip L. Stalnaker
Senior Vice President – Marcellus Business Unit
Michael D. DeShazer
Vice President of Business Units

Todd M. Roemer
Vice President and Chief Accounting Officer
Kevin W. Smith
Vice President and Chief Technology Officer

## CORPORATE OFFICERS

Jeffrey W. Hutton
Senior Vice President – Marketing

Todd L. Liebl
Senior Vice President – Land

Charles E. Dyson II
Vice President – Information Technology

Stephen A. Flaherty
Vice President – Government Affairs

Daniel D. Guffey
Vice President – Finance, Planning & Analysis and Investor Relations

Philip G. Johnson
Vice President – Production

Matthew P. Kerin
Vice President – Finance and Treasurer

Deidre L. Shearer
Vice President and Corporate Secretary

Blake S. Sirgo
Vice President – Operations

Adam M. Vela
Vice President and Assistant General Counsel

## CORPORATE HEADQUARTERS

Coterra Energy Inc.
Three Memorial City Plaza
840 Gessner Road, Suite 1400
Houston, Texas 77210
281.589.4600
www.coterra.com

## ANNUAL MEETING

The Annual Meeting for Coterra Energy Inc. shareholders is currently planned for Friday, April 29, 2022.

## INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP
1000 Louisiana Street, Suite 5800
Houston, Texas 77002

## INDEPENDENT RESERVE ENGINEERS

Miller & Lents, Ltd.
Global Oil & Gas Consultants
909 Fannin Street, Suite 1300
Houston, Texas 77010

DeGolyer and MacNaughton
Worldwide Petroleum Consulting
5001 Spring Valley Road, Suite 800 East
Dallas, Texas 75244

## INVESTOR RELATIONS

Additional copies of the Form 10-K are available without charge, please contact:

Coterra Energy Inc.
Attn: Investor Relations
281.589.4600
IR@coterra.com
www.coterra.com

## TRANSFER AGENT

Equiniti Trust Company
Q Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, Minnesota 55120
800.468.9716
www.shareowneronline.com

General Inquiries:
EQ Shareowner Services
P.O. Box 64874
St. Paul, Minnesota 55164
800.468.9716

Certified/Overnight Mail:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, Minnesota 55120

Telephone Number for Foreign Shareholders: 651.450.4064

## STOCK EXCHANGE

Coterra Energy Inc. common stock trades on the New York Stock Exchange under the symbol CTRA.



## COTERRA