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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission file number 1-10447
| | |
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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 October 29, 2024, there were 736,613,020 shares of common stock, par value $0.10 per share, outstanding.
COTERRA ENERGY INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
COTERRA ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
| | | | | | | | | | | | | | |
(In millions, except per share amounts) | | September 30, 2024 | | December 31, 2023 |
ASSETS | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 843 | | | $ | 956 | |
Restricted cash | | 5 | | | 9 | |
| | | | |
Accounts receivable, net | | 764 | | | 843 | |
Income taxes receivable | | 7 | | | 51 | |
Inventories | | 46 | | | 59 | |
| | | | |
Other current assets | | 70 | | | 97 | |
Total current assets | | 1,735 | | | 2,015 | |
Properties and equipment, net (successful efforts method) | | 17,941 | | | 17,933 | |
| | | | |
| | | | |
| | | | |
Other assets | | 450 | | | 467 | |
| | $ | 20,126 | | | $ | 20,415 | |
| | | | |
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 773 | | | $ | 803 | |
Current portion of long-term debt | | — | | | 575 | |
Accrued liabilities | | 291 | | | 261 | |
| | | | |
Interest payable | | 16 | | | 21 | |
| | | | |
Total current liabilities | | 1,080 | | | 1,660 | |
Long-term debt | | 2,066 | | | 1,586 | |
| | | | |
Deferred income taxes | | 3,359 | | | 3,413 | |
Asset retirement obligations | | 288 | | | 280 | |
| | | | |
| | | | |
Other liabilities | | 291 | | | 429 | |
Total liabilities | | 7,084 | | | 7,368 | |
| | | | |
Commitments and contingencies (Note 7) | | | | |
| | | | |
Cimarex redeemable preferred stock | | 8 | | 8 |
| | | | |
Stockholders’ equity | | | | |
Common stock: | | | | |
Authorized — 1,800 shares of $0.10 par value in 2024 and 2023 | | | | |
Issued — 736 shares and 751 shares in 2024 and 2023, respectively | | 74 | | | 75 | |
Additional paid-in capital | | 7,233 | | | 7,587 | |
Retained earnings | | 5,716 | | | 5,366 | |
Accumulated other comprehensive income | | 11 | | | 11 | |
| | | | |
| | | | |
Total stockholders' equity | | 13,034 | | | 13,039 | |
| | $ | 20,126 | | | $ | 20,415 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COTERRA ENERGY INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions, except per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
OPERATING REVENUES | | | | | | | | |
Oil | | $ | 765 | | | $ | 684 | | | $ | 2,240 | | | $ | 1,925 | |
Natural gas | | 320 | | | 481 | | | 1,177 | | | 1,739 | |
NGL | | 186 | | | 170 | | | 535 | | | 476 | |
Gain on derivative instruments | | 64 | | | 3 | | | 48 | | | 129 | |
Other | | 24 | | | 18 | | | 63 | | | 49 | |
| | 1,359 | | | 1,356 | | | 4,063 | | | 4,318 | |
OPERATING EXPENSES | | | | | | | | |
Direct operations | | 165 | | | 137 | | | 481 | | | 401 | |
Gathering, processing and transportation | | 245 | | | 235 | | | 737 | | | 729 | |
Taxes other than income | | 66 | | | 62 | | | 194 | | | 211 | |
Exploration | | 9 | | | 5 | | | 19 | | | 14 | |
Depreciation, depletion and amortization | | 475 | | | 421 | | | 1,354 | | | 1,185 | |
| | | | | | | | |
General and administrative | | 75 | | | 79 | | | 218 | | | 213 | |
| | 1,035 | | | 939 | | | 3,003 | | | 2,753 | |
| | | | | | | | |
Gain on sale of assets | | 3 | | | 7 | | | 3 | | | 12 | |
INCOME FROM OPERATIONS | | 327 | | | 424 | | | 1,063 | | | 1,577 | |
| | | | | | | | |
Interest expense | | 24 | | | 17 | | | 77 | | | 50 | |
Interest income | | (16) | | | (10) | | | (51) | | | (32) | |
| | | | | | | | |
Income before income taxes | | 319 | | | 417 | | | 1,037 | | | 1,559 | |
Income tax expense | | 67 | | | 94 | | | 213 | | | 350 | |
NET INCOME | | $ | 252 | | | $ | 323 | | | $ | 824 | | | $ | 1,209 | |
| | | | | | | | |
| | | | | | | | |
Earnings per share | | | | | | | | |
Basic | | $ | 0.34 | | | $ | 0.43 | | | $ | 1.11 | | | $ | 1.59 | |
Diluted | | $ | 0.34 | | | $ | 0.42 | | | $ | 1.10 | | | $ | 1.58 | |
| | | | | | | | |
Weighted-average common shares outstanding | | | | | | | | |
Basic | | 738 | | | 753 | | | 743 | | | 757 | |
Diluted | | 744 | | | 758 | | | 749 | | | 762 | |
| | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COTERRA ENERGY INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | | | | | | | | | | | |
(In millions) | | 2024 | | 2023 | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | | | | |
Net income | | $ | 824 | | | $ | 1,209 | | | | | | | | | | | | | | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | | | | | | | | | | | | | |
Depreciation, depletion and amortization | | 1,354 | | | 1,185 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Deferred income tax expense | | (60) | | | 19 | | | | | | | | | | | | | | |
Gain on sale of assets | | (3) | | | (12) | | | | | | | | | | | | | | |
Exploratory dry hole cost | | 5 | | | — | | | | | | | | | | | | | | |
Gain on derivative instruments | | (48) | | | (129) | | | | | | | | | | | | | | |
Net cash received on settlement of derivative instruments | | 90 | | | 238 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Amortization of debt premium, discount and debt issuance costs | | (13) | | | (13) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation and other | | 43 | | | 43 | | | | | | | | | | | | | | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | |
Accounts receivable, net | | 79 | | | 494 | | | | | | | | | | | | | | |
Income taxes | | 44 | | | 165 | | | | | | | | | | | | | | |
Inventories | | 13 | | | (1) | | | | | | | | | | | | | | |
Other current assets | | (17) | | | (5) | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | (29) | | | (292) | | | | | | | | | | | | | | |
Interest payable | | (5) | | | (6) | | | | | | | | | | | | | | |
Other assets and liabilities | | (108) | | | 3 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | 2,169 | | | 2,898 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | |
Capital expenditures for drilling, completion and other fixed asset additions | | (1,329) | | | (1,621) | | | | | | | | | | | | | | |
Capital expenditures for leasehold and property acquisitions | | (6) | | | (8) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Purchases of short-term investments | | (250) | | | — | | | | | | | | | | | | | | |
Proceeds from sale of short-term investments | | 250 | | | — | | | | | | | | | | | | | | |
Proceeds from sale of assets | | 8 | | | 40 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net cash used in investing activities | | (1,327) | | | (1,589) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | |
Proceeds from issuance of debt | | 499 | | | — | | | | | | | | | | | | | | |
Repayments of debt | | (575) | | | — | | | | | | | | | | | | | | |
Common stock repurchases | | (401) | | | (385) | | | | | | | | | | | | | | |
Dividends paid | | (470) | | | (739) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Other | | (12) | | | (12) | | | | | | | | | | | | | | |
Net cash used in financing activities | | (959) | | | (1,136) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | (117) | | | 173 | | | | | | | | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | | 965 | | 683 | | | | | | | | | | | | | |
Cash, cash equivalents and restricted cash, end of period | | $ | 848 | | | $ | 856 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COTERRA ENERGY INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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, 2023 | | 751 | | | $ | 75 | | | — | | | $ | — | | | $ | 7,587 | | | $ | 11 | | | $ | 5,366 | | | $ | 13,039 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 352 | | | 352 | |
| | | | | | | | | | | | | | | | |
Stock amortization and vesting | | — | | | — | | | — | | | — | | | 15 | | | — | | | — | | | 15 | |
Common stock repurchases | | — | | | — | | | 6 | | | (157) | | | — | | | — | | | — | | | (157) | |
Common stock retirements | | (6) | | | — | | | (6) | | | 157 | | | (157) | | | — | | | — | | | — | |
Cash dividends on common stock at $0.21 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (160) | | | (160) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at March 31, 2024 | | 745 | | | $ | 75 | | | — | | | $ | — | | | $ | 7,445 | | | $ | 11 | | | $ | 5,558 | | | $ | 13,089 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 220 | | | 220 | |
Exercise of stock options | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | |
Stock amortization and vesting | | — | | | — | | | — | | | — | | | 16 | | | — | | | — | | | 16 | |
Common stock repurchases | | — | | | — | | | 5 | | | (139) | | | — | | | — | | | — | | | (139) | |
Common stock retirements | | (5) | | | (1) | | | (5) | | | 139 | | | (138) | | | — | | | — | | | — | |
Cash dividends on common stock at $0.21 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (158) | | | (158) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at June 30, 2024 | | 740 | | | $ | 74 | | | — | | | $ | — | | | $ | 7,324 | | | $ | 11 | | | $ | 5,620 | | | $ | 13,029 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 252 | | | 252 | |
| | | | | | | | | | | | | | | | |
Stock amortization and vesting | | — | | | — | | | — | | | — | | | 17 | | | — | | | — | | | 17 | |
Common stock repurchases | | — | | | — | | | 4 | | | (108) | | | — | | | — | | | — | | | (108) | |
Common stock retirements | | (4) | | | — | | | (4) | | | 108 | | | (108) | | | — | | | — | | | — | |
Cash dividends on common stock at $0.21 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (156) | | | (156) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at September 30, 2024 | | 736 | | | $ | 74 | | | — | | | $ | — | | | $ | 7,233 | | | $ | 11 | | | $ | 5,716 | | | 13,034 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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, 2022 | | 768 | | | $ | 77 | | | — | | | $ | — | | | $ | 7,933 | | | $ | 13 | | | $ | 4,636 | | | $ | 12,659 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 677 | | | 677 | |
| | | | | | | | | | | | | | | | |
Stock amortization and vesting | | — | | | — | | | — | | | — | | | 13 | | | — | | | — | | | 13 | |
Conversion of Cimarex redeemable preferred stock | | — | | | — | | | — | | | — | | | 3 | | | — | | | — | | | 3 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Common stock repurchases | | — | | | — | | | 11 | | | (271) | | | — | | | — | | | — | | | (271) | |
Common stock retirements | | (11) | | | (1) | | | (11) | | | 271 | | | (270) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Cash dividends on common stock at $0.57 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (438) | | | (438) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance at March 31, 2023 | | 757 | | | $ | 76 | | | — | | | $ | — | | | $ | 7,679 | | | $ | 13 | | | $ | 4,875 | | | $ | 12,643 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 209 | | | 209 | |
| | | | | | | | | | | | | | | | |
Stock amortization and vesting | | — | | | — | | | — | | | — | | | 17 | | | — | | | — | | | 17 | |
| | | | | | | | | | | | | | | | |
Common stock repurchases | | — | | | — | | | 2 | | | (57) | | | — | | | — | | | — | | | (57) | |
Common stock retirements | | (2) | | | — | | | (2) | | | 57 | | | (57) | | | — | | | — | | | — | |
Cash dividends on common stock at $0.20 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (153) | | | (153) | |
| | | | | | | | | | | | | | | | |
Balance at June 30, 2023 | | 755 | | | $ | 76 | | | — | | | $ | — | | | $ | 7,639 | | | $ | 13 | | | $ | 4,931 | | | $ | 12,659 | |
Net income | | — | | | — | | | — | | | — | | | — | | | — | | | 323 | | | 323 | |
| | | | | | | | | | | | | | | | |
Stock amortization and vesting | | — | | | — | | | — | | | — | | | 21 | | | — | | | — | | | 21 | |
Common stock repurchases | | — | | | — | | | 2 | | | (60) | | | — | | | — | | | — | | | (60) | |
Common stock retirements | | (2) | | | (1) | | | (2) | | | 60 | | | (59) | | | — | | | — | | | — | |
Cash dividends on common stock at $0.20 per share | | — | | | — | | | — | | | — | | | — | | | — | | | (153) | | | (153) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (1) | | | — | | | (1) | |
Balance at September 30, 2023 | | 753 | | | $ | 75 | | | — | | | $ | — | | | $ | 7,601 | | | $ | 12 | | | 5,101 | | | $ | 12,789 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2023 (the “Form 10-K”) filed with the 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.
From time-to-time, we make certain reclassifications to prior year statements to conform with the current year presentation. These reclassifications have no impact on previously reported stockholders’ equity, net income or cash flows.
Significant Accounting Policies
Short-term Investments
The Company’s short-term investments include certificates of deposit with maturities between three months and one year. Certificates of deposit are recorded at cost.
2. Properties and Equipment, Net
Properties and equipment, net are comprised of the following: | | | | | | | | | | | | | | |
(In millions) | | September 30, 2024 | | December 31, 2023 |
Proved oil and gas properties | | $ | 21,245 | | | $ | 19,582 | |
Unproved oil and gas properties | | 4,224 | | | 4,617 | |
Gathering and pipeline systems | | 596 | | | 527 | |
Land, buildings and other equipment | | 211 | | | 216 | |
Finance lease right-of-use asset | | 26 | | | 25 | |
| | 26,302 | | | 24,967 | |
Accumulated DD&A | | (8,361) | | | (7,034) | |
| | $ | 17,941 | | | $ | 17,933 | |
Capitalized Exploratory Well Costs
As of and for the nine months ended September 30, 2024, the Company did not have any projects with exploratory well costs capitalized for a period of greater than one year after drilling.
3. Long-Term Debt and Credit Agreements
The following table includes a summary of the Company’s long-term debt:
| | | | | | | | | | | | | | |
(In millions) | | September 30, 2024 | | December 31, 2023 |
| | | | |
3.65% weighted-average private placement senior notes(1) | | $ | 250 | | | $ | 825 | |
3.90% senior notes due May 15, 2027 | | 750 | | | 750 | |
4.375% senior notes due March 15, 2029 | | 500 | | | 500 | |
5.60% senior notes due March 15, 2034 | | 500 | | | — | |
Revolving credit agreement | | — | | | — | |
Total | | 2,000 | | | 2,075 | |
Unamortized debt premium | | 74 | | | 90 | |
Unamortized debt discount | | (1) | | | — | |
Unamortized debt issuance costs | | (7) | | | (4) | |
Total debt | | 2,066 | | | 2,161 | |
Less: current portion of long-term debt | | — | | | 575 | |
Long-term debt | | $ | 2,066 | | | $ | 1,586 | |
_______________________________________________________________________________
(1)The 3.65% weighted-average senior notes include bullet maturities, of which $575 million was repaid in September 2024 and $250 million will mature in September 2026.
As of September 30, 2024, the Company was in compliance with all financial covenants for its revolving credit agreement and its 3.65% weighted-average private placement senior notes (the “private placement senior notes”).
Revolving Credit Agreement
On September 12, 2024, the Company entered into an Amendment No. 1 (the “Amendment”) relating to its revolving credit agreement with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and certain lenders and issuing banks party thereto (as amended by the Amendment, and further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). The Amendment has increased the aggregate revolving commitments under the Credit Agreement from $1.5 billion to $2.0 billion, extended the Credit Agreement maturity date from March 10, 2028 to September 12, 2029, made certain amendments to the representations and warranties, affirmative and negative covenants and events of default, and made certain other modifications. The Company incurred $4 million of debt issuance costs related to the Amendment which were capitalized and will be amortized over the term of the amended Credit Agreement.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to, at the Company’s option, either a term secured overnight financing rate (“SOFR”) plus a 0.10 percent credit spread adjustment for all tenors or a base rate, plus, in each case, an interest rate margin which ranges from 0 to 75 basis points for base rate loans and 100 to 175 basis points for term SOFR loans, based on the Company’s credit rating. The commitment fee on the unused available credit is calculated at annual rates ranging from 10 basis points to 25 basis points, based on the Company’s credit rating. The maturity date of the Credit Agreement can be extended for additional one-year periods on up to two occasions upon the agreement of the Company and lenders holding at least 50 percent of the commitments under the Credit Agreement.
The Credit Agreement contains customary covenants, including the maintenance of a maximum leverage ratio of no more than 3.0 to 1.0 as of the last day of any fiscal quarter until such time as the Company has no other debt in a principal amount in excess of $75 million outstanding that has a financial maintenance covenant based on a leverage ratio, at which time the Credit Agreement requires maintenance of a ratio of total net debt to capitalization of no more than 65 percent (with all calculations based on definitions contained in the Credit Agreement).
As of September 30, 2024, the Company had no borrowings outstanding under its revolving credit agreement and unused commitments of $2.0 billion.
5.60% Senior Notes due March 15, 2034
On March 13, 2024, the Company issued $500 million aggregate principal amount of 5.60% senior notes due 2034 (the “2034 senior notes”). The 2034 senior notes will mature on March 15, 2034, and interest on such notes is payable semi-
annually. The 2034 senior notes are general, unsecured obligations of the Company. Under the terms of the indenture governing the 2034 senior notes, the Company may redeem all or any portion of the 2034 senior notes on any date at a price equal to the principal amount thereof, plus applicable redemption prices described in the governing indenture. The Company is also subject to various covenants and events of default customarily found in such debt instruments. The 2034 senior notes were issued at a discount of $1 million, and the Company incurred approximately $5 million of debt issuance costs that were capitalized and will be amortized over the term of such notes.
4. Derivative Instruments
As of September 30, 2024, the Company had the following outstanding financial commodity derivatives:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2024 | | 2025 | | |
Oil | | | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | | | | | |
WTI oil collars | | | | | | | | | | | | | | | | | | |
Volume (MBbl) | | | | 3,680 | | 3,330 | | 3,367 | | 2,024 | | 2,024 | | | | | | |
Weighted average floor ($/Bbl) | | | | $ | 65.00 | | | $ | 61.89 | | | $ | 61.89 | | | $ | 62.05 | | | $ | 62.05 | | | | | | | |
Weighted average ceiling ($/Bbl) | | | | $ | 86.20 | | | $ | 81.40 | | | $ | 81.40 | | | $ | 81.15 | | | $ | 81.15 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
WTI Midland oil basis swaps | | | | | | | | | | | | | | | | | | |
Volume (MBbl) | | | | 4,600 | | 3,150 | | 3,185 | | 1,840 | | 1,840 | | | | | | |
Weighted average differential ($/Bbl) | | | | $ | 1.13 | | | $ | 1.18 | | | $ | 1.18 | | | $ | 1.11 | | | $ | 1.11 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | 2024 | | 2025 | | 2026 | | | | | | | | | | | |
Natural Gas | | | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | First Quarter | | | | | | | | | | | |
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NYMEX collars | | | | | | | | | | | | | | | | | | | | | | | | | |
Volume (MMBtu) | | | | 34,990,000 | | 36,000,000 | | 36,400,000 | | 36,800,000 | | 36,800,000 | | 27,000,000 | | | | | | | | | | | | |
Weighted average floor ($/MMBtu) | | | | $ | 2.75 | | | $ | 2.88 | | | $ | 2.88 | | | $ | 2.88 | | | $ | 2.88 | | | $ | 2.75 | | | | | | | | | | | | |
Weighted average ceiling ($/MMBtu) | | | | $ | 4.46 | | | $ | 4.70 | | | $ | 4.15 | | | $ | 4.15 | | | $ | 6.00 | | | $ | 7.66 | | | | | | | | | | | | |
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In October 2024, the Company entered into the following financial commodity derivatives:
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| | 2024 | | 2025 |
Oil | | Fourth Quarter | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
WTI oil collars | | | | | | | | | | |
Volume (MBbl) | | 305 | | 810 | | | 819 | | | 1,288 | | | 1,288 | |
Weighted average floor ($/Bbl) | | $ | 60.00 | | | $ | 57.78 | | | $ | 57.78 | | | $ | 58.57 | | | $ | 58.57 | |
Weighted average ceiling ($/Bbl) | | $ | 92.57 | | | $ | 80.18 | | | $ | 80.18 | | | $ | 80.09 | | | $ | 80.09 | |
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WTI Midland oil basis swaps | | | | | | | | | | |
Volume (MBbl) | | — | | | 540 | | | 546 | | | 1,012 | | | 1,012 | |
Weighted average differential ($/Bbl) | | $ | — | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.02 | | | $ | 1.02 | |
Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet
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| | | | Fair Values of Derivative Instruments |
| | | | Derivative Assets | | Derivative Liabilities |
(In millions) | | Balance Sheet Location | | September 30, 2024 | | December 31, 2023 | | September 30, 2024 | | December 31, 2023 |
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Commodity contracts | | Other current assets (current) | | $ | 41 | | | $ | 85 | | | $ | — | | | $ | — | |
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Commodity contracts | | Other assets (non-current) | | 10 | | | 7 | | | — | | | — | |
Commodity contracts | | Other liabilities (non-current) | | — | | | — | | | 1 | | | — | |
| | | | $ | 51 | | | $ | 92 | | | $ | 1 | | | $ | — | |
Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet
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(In millions) | | September 30, 2024 | | December 31, 2023 |
Derivative assets | | | | |
Gross amounts of recognized assets | | $ | 56 | | | $ | 93 | |
Gross amounts offset in the condensed consolidated balance sheet | | (5) | | | (1) | |
Net amounts of assets presented in the condensed consolidated balance sheet | | 51 | | | 92 | |
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet | | 1 | | | 1 | |
Net amount | | $ | 52 | | | $ | 93 | |
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Derivative liabilities | | | | |
Gross amounts of recognized liabilities | | $ | 6 | | | $ | 1 | |
Gross amounts offset in the condensed consolidated balance sheet | | (5) | | | (1) | |
Net amounts of liabilities presented in the condensed consolidated balance sheet | | 1 | | | — | |
Gross amounts of financial instruments not offset in the condensed consolidated balance sheet | | — | | | — | |
Net amount | | $ | 1 | | | $ | — | |
Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Cash received on settlement of derivative instruments | | | | | | | | |
Gas contracts | | $ | 27 | | | $ | 55 | | | $ | 90 | | | $ | 235 | |
Oil contracts | | 1 | | | — | | | — | | | 3 | |
Non-cash gain (loss) on derivative instruments | | | | | | | | |
Gas contracts | | (12) | | | (40) | | | (56) | | | (93) | |
Oil contracts | | 48 | | | (12) | | | 14 | | | (16) | |
| | $ | 64 | | | $ | 3 | | | $ | 48 | | | $ | 129 | |
5. 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:
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(In millions) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at September 30, 2024 |
Assets | | | | | | | | |
Deferred compensation plan | | $ | 16 | | | $ | — | | | $ | — | | | $ | 16 | |
Derivative instruments | | — | | | — | | | 56 | | | 56 | |
| | $ | 16 | | | $ | — | | | $ | 56 | | | $ | 72 | |
Liabilities | | | | | | | | |
Deferred compensation plan | | $ | 16 | | | $ | — | | | $ | — | | | $ | 16 | |
Derivative instruments | | — | | | — | | | 6 | | | 6 | |
| | $ | 16 | | | $ | — | | | $ | 6 | | | $ | 22 | |
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(In millions) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at December 31, 2023 |
Assets | | | | | | | | |
Deferred compensation plan | | $ | 33 | | | $ | — | | | $ | — | | | $ | 33 | |
Derivative instruments | | — | | | — | | | 93 | | | 93 | |
| | $ | 33 | | | $ | — | | | $ | 93 | | | $ | 126 | |
Liabilities | | | | | | | | |
Deferred compensation plan | | $ | 33 | | | $ | — | | | $ | — | | | $ | 33 | |
Derivative instruments | | — | | | — | | | 1 | | | 1 | |
| | $ | 33 | | | $ | — | | | $ | 1 | | | $ | 34 | |
The Company’s investments associated with its deferred compensation plans consist of mutual funds that are publicly traded and for which market prices are readily available.
The derivative instruments were measured based on quotes from the Company’s counterparties. Such quotes 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, are compared to multiple quotes obtained from counterparties and third-party valuation services, or a combination of the foregoing. The determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative contracts while non-performance risk of the Company is evaluated using credit default swap spreads for various similarly rated companies in the same sector as the Company. The Company has not incurred any losses related to non-performance risk of its counterparties and does not anticipate any material impact on its financial results due to non-performance by third parties.
The most significant unobservable inputs relative to the Company’s Level 3 derivative contracts are basis differentials, discount rates 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’ or third-party valuation service provider’s valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy: | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 |
Balance at beginning of period | | $ | 92 | | | $ | 146 | |
Total gain (loss) included in earnings | | 48 | | | 129 | |
Settlement (gain) loss | | (90) | | | (238) | |
Transfers in and/or out of Level 3 | | — | | | — | |
Balance at end of period | | $ | 50 | | | $ | 37 | |
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Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period | | $ | 30 | | | $ | 20 | |
Non-Financial Assets and Liabilities
The Company discloses or recognizes its non-financial assets and liabilities, such as impairments of oil and gas properties or acquisitions, at fair value on a nonrecurring basis. As none of the Company’s other non-financial assets and liabilities were measured at fair value as of September 30, 2024, 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 considers 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 3.90% senior notes due May 15, 2027, 4.375% senior notes due March 15, 2029 and 2034 senior notes is based on quoted market prices, which is classified as Level 1 in the fair value hierarchy. The fair value of the Company’s 3.65% weighted-average private placement senior notes is based on third-party quotes, which are derived from credit spreads for the difference between the issue rate and the period end market rate and other unobservable inputs. The Company’s 3.65% weighted-average private placement senior notes are valued using a market approach and are classified as Level 3 in the fair value hierarchy.
The carrying amount and estimated fair value of debt are as follows:
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| | September 30, 2024 | | December 31, 2023 |
(In millions) | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Total debt | | $ | 2,066 | | | $ | 1,989 | | | $ | 2,161 | | | $ | 2,015 | |
Current maturities | | — | | | — | | | (575) | | | (565) | |
Long-term debt, excluding current maturities | | $ | 2,066 | | | $ | 1,989 | | | $ | 1,586 | | | $ | 1,450 | |
6. Asset Retirement Obligations
Activity related to the Company’s asset retirement obligations is as follows:
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(In millions) | | Nine Months Ended September 30, 2024 |
Balance at beginning of period | | $ | 289 | |
Liabilities incurred | | 6 | |
Liabilities settled | | (2) | |
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Accretion expense | | 8 | |
Balance at end of period | | 301 | |
Less: current asset retirement obligations | | (13) | |
Noncurrent asset retirement obligations | | $ | 288 | |
7. 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 “Gathering, Processing and Transportation Agreements” and “Lease Commitments” as disclosed in Note 8 of the Notes to Consolidated Financial Statements in the Form 10-K.
Legal Matters
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 then-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 lawsuit was subsequently transferred to the United States District Court for the Southern District of Texas, and the plaintiffs amended the complaint to add claims against Phillip L. Stalnaker, the Company’s then-Senior Vice President of Operations. The claims against Mr. Stalnaker, however, were later dismissed. The current amended complaint was filed on January 9, 2024 and alleges that the Company and the individual defendants made material misstatements and omissions regarding the Company’s 2019 production growth guidance and the status of certain environmental matters in Pennsylvania, including alleged violations of the Pennsylvania Clean Streams Law and the remediation status of certain gas
wells. The plaintiffs allege claims under Section 10(b) and Section 20 of the Exchange Act and seek monetary damages, interest, and attorney’s fees. The court has certified a class consisting of persons and entities who purchased the Company’s common stock between February 22, 2016, and June 12, 2020, inclusive. On April 29, 2024, the Company and plaintiffs reached a settlement in principle, with most of the settlement amount to be paid by the Company’s insurance carriers. The formal settlement agreement was filed with the court on June 3, 2024. On October 29, 2024, the court entered a final order accepting the settlement and dismissed the case with prejudice.
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 Messrs. Dinges and Schroeder and the Board of Directors of the Company serving at that time. Several additional derivative complaints were also filed and have been consolidated with the Ezell lawsuit, which was later transferred to the U.S. District Court for the Southern District of Texas. The most recent consolidated amended derivative complaint asserted claims for alleged securities violations under Section 10(b) and Section 21D of the Exchange Act arising from some of the same alleged misleading statements that form the basis of the class action lawsuit described above, as well as claims based on alleged breaches of fiduciary duty and statutory contribution theories. On January 2, 2024, the court issued an order and final judgment granting the Company’s and defendants’ motion to dismiss and dismissing the consolidated derivative case in its entirety with prejudice. The derivative plaintiffs filed a notice of appeal regarding the final judgment on February 1, 2024. The Company intends to vigorously defend any further proceedings in the derivative lawsuit.
On March 21, 2024, one of the plaintiffs in the above consolidated derivative action served a demand letter on the Company’s current Board of Directors. The letter demanded that the Board of Directors pursue legal claims against various current and former officers and directors of the Company based on similar factual allegations as contained in the securities class action and consolidated shareholder derivative action described above. On June 11, 2024, the individual who made the demand filed a stockholder derivative lawsuit styled Fischer v. Dinges et. al. (U.S. District Court, Southern District of Texas). The Board of Directors has formed a committee to advise it in addressing each of the demands and the lawsuit.
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 and the potential loss is estimable. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company’s financial position, results of operations or cash flows.
Contingency Reserves
When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters for which reserves have been established. The Company believes that any such amount above the amounts accrued would not be material to the 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.
8. Revenue Recognition
Disaggregation of Revenue
The following table presents revenues from contracts with customers disaggregated by product: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
Oil | | $ | 765 | | | $ | 684 | | | $ | 2,240 | | | $ | 1,925 | |
Natural gas | | 320 | | | 481 | | | 1,177 | | | 1,739 | |
NGL | | 186 | | | 170 | | | 535 | | | 476 | |
Other | | 24 | | | 18 | | | 63 | | | 49 | |
| | $ | 1,295 | | | $ | 1,353 | | | $ | 4,015 | | | $ | 4,189 | |
All of the Company’s revenues from contracts with customers on sales of oil, natural gas and NGL products are recognized at the point in time when control of the product is transferred to the customer and payment can be reasonably assured. All revenues are generated in the U.S.
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2024, the Company had $6.2 billion of unsatisfied performance obligations related to natural gas sales that have a fixed pricing component and a contract term greater than one year. The Company expects to recognize these obligations over the next 14 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 $565 million and $723 million as of September 30, 2024 and December 31, 2023, respectively, and are reported in accounts receivable, net in the Condensed Consolidated Balance Sheet. As of September 30, 2024, the Company had no assets or liabilities related to its revenue contracts, including no upfront payments or rights to deficiency payments.
9. Capital Stock
Dividends
Common Stock
In February 2024, the Company’s Board of Directors approved an increase in the base quarterly dividend from $0.20 per share to $0.21 per share.
In February 2023, the Company’s Board of Directors approved an increase in the base quarterly dividend from $0.15 per share to $0.20 per share.
The following table summarizes the Company’s dividends on its common stock:
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| | Rate per share | | |
| | Base | | Variable | | Total | | Total Dividends (In millions) |
2024 | | | | | | | | |
First quarter | | $ | 0.21 | | | $ | — | | | $ | 0.21 | | | $ | 160 | |
Second quarter | | 0.21 | | | — | | | 0.21 | | | 158 | |
Third quarter | | 0.21 | | | — | | | 0.21 | | | 156 | |
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| | $ | 0.63 | | | $ | — | | | $ | 0.63 | | | $ | 474 | |
2023 | | | | | | | | |
First quarter | | $ | 0.20 | | | $ | 0.37 | | | $ | 0.57 | | | $ | 438 | |
Second quarter | | 0.20 | | | — | | | 0.20 | | | 153 | |
Third quarter | | 0.20 | | | — | | | 0.20 | | | 153 | |
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| | $ | 0.60 | | | $ | 0.37 | | | $ | 0.97 | | | $ | 744 | |
Treasury Stock
During the nine months ended September 30, 2024, the Company repurchased and retired 15 million shares for $404 million and as of September 30, 2024, had $1.2 billion remaining under its current share repurchase program.
During the nine months ended September 30, 2023, the Company repurchased and retired 15 million shares for $388 million under its previous share repurchase program.
10. Stock-Based Compensation
General
Stock-based compensation expense of awards issued under the Company’s incentive plans, and the income tax benefit of awards vested and exercised, are as follows:
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2024 | | 2023 | | 2024 | | 2023 |
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Restricted stock units - employees and non-employee directors | | $ | 11 | | | $ | 14 | | | $ | 32 | | | $ | 28 | |
Restricted stock awards | | 3 | | | 3 | | | 6 | | | 11 | |
Performance share awards | | — | | | 4 | | | 5 | | | 12 | |
Deferred performance shares | | — | | | — | | | — | | | (7) | |
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Total stock-based compensation expense | | $ | 14 | | | $ | 21 | | | $ | 43 | | | $ | 44 | |
Income tax benefit | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | |
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 nine months ended September 30, 2024, the Company granted 2,192,947 restricted stock units to employees of the Company with a weighted average grant date value of $25.83 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 at the end of a three-year service period. The Company assumed a zero to five percent annual forfeiture rate for purposes of recognizing stock-based compensation expense for awards granted in 2024 based on the Company’s actual forfeiture history and expectations for this type of award.
Restricted Stock Units - Non-Employees Directors
In May 2024, the Company granted 64,107 restricted stock units, with a weighted-average grant date value of $28.08 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 on the earlier of April 2025 or upon the director’s separation from the Company. Accordingly, the Company recognized compensation expense immediately.
Performance Share Awards
Total Shareholder Return (“TSR”) Performance Share Awards. During the nine months ended September 30, 2024, the Company granted 541,865 TSR Performance Share Awards, which are earned or not earned, based on the comparative performance of the Company’s common stock measured against a predetermined group of companies in the Company’s peer group and certain industry-related indices over a three-year performance period, which commenced on February 1, 2024 and ends on January 31, 2027.
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. These awards also include a feature that will reduce the potential cash component of the award if the actual performance is negative over the three-year period and the base calculation indicates an above-target payout. The 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.
The Company assumed a zero percent annual forfeiture rate for purposes of recognizing stock-based compensation expense for these awards based on the Company’s actual forfeiture history and expectations for this type of award.
The following assumptions were used to determine the grant date fair value of the equity component and the period-end fair value of the liability component of the TSR Performance Share Awards: | | | | | | | | | | | | | | |
| | Grant Date | |
| | February 21, 2024 | | September 30, 2024 |
Fair value per performance share award | | $ | 19.38 | | | $0.60 - $6.16 |
Assumptions: | | | | |
Stock price volatility | | 38.0 | % | | 23.1% - 31.7% |
Risk-free rate of return | | 4.39 | |