Coterra Energy (CTRA) Risk Analysis

In general, the production rate of oil and gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Unless we successfully replace the reserves that we produce, our reserves will decline, eventually resulting in a decrease in oil and natural gas production and lower revenues and cash flow from operations. Our future production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. We may not be able to replace reserves through our exploration, development and exploitation activities or by acquiring properties at acceptable costs. Low commodity prices may further limit the kinds of reserves that we can develop and produce economically. We estimate that production from our proved developed reserves as of December 31, 2021 will decrease at a rate of 24 percent, 17 percent and 13 percent during 2023, 2024 and 2025, respectively (although production from our proved developed reserves is expected to increase during 2022 due to the effects of the Merger, partially offset by natural decline rates). Future development of proved undeveloped and other reserves that we have not currently classified as proved developed producing will impact these rates of decline. Exploration, development and exploitation activities involve numerous risks that may result in, among other things, dry holes, the failure to produce oil, natural gas and NGLs in commercial quantities and the inability to fully produce discovered reserves.

We maintain insurance against some, but not all, operating risks and losses. We do not carry business interruption insurance. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial position, results of operations and cash flows. The cost of insurance may increase, and the availability of insurance may decrease, as a result of climate change or other factors.

Studies have found that emission of certain gases, commonly referred to as greenhouse gases (“GHG”), impact the earth’s climate. The U.S. Congress and various states have been evaluating, and in some cases implementing, climate-related legislation and other regulatory initiatives that restrict emissions of GHGs. In the absence of significant federal GHG legislation, a number of state and regional efforts have emerged, aimed at tracking and/or reducing GHG emissions through cap-and-trade programs, which typically require major sources of GHG emissions, such as electric power plants, to acquire and surrender emission allowances in return for emitting GHGs. On January 20, 2021, his first day in office, President Biden signed an executive order on climate action and reconvened an interagency working group to establish social costs of three GHGs: carbon dioxide, nitrous oxide, and methane. Carbon dioxide is released during the combustion of fossil fuels, including oil, natural gas, and NGLs, and methane is a primary component of natural gas. The Biden administration stated it will use updated social cost figures to inform federal regulations and major agency actions and to justify aggressive climate action as the U.S. moves toward a “100% clean energy” economy with net-zero GHG emissions. These actions as well as any future laws or regulations that regulate or limit emissions of GHGs from our equipment and operations could require us to both develop and implement new practices aimed at reducing GHG emissions, such as emissions control technologies, and monitor and report GHG emissions associated with our operations, any of which could increase our operating costs and could adversely affect demand for the oil and gas that we produce. At this time, it is not possible to quantify the impact of such future laws and regulations on our business. For additional information, please read “Business and Properties—Other Business Matters—Environmental and Safety Regulations—Greenhouse Gas and Climate Change Laws and Regulations” in Items 1 and 2.

The occurrence of one or more unexpected events, including a public health crisis, pandemic and epidemic, war or civil unrest, a terrorist act, a cybersecurity incident resulting in unauthorized access to sensitive information or causing data or systems to be unusable, a weather event, an earthquake or other catastrophe could cause instability in world financial markets and lead to increased volatility in prices for oil and natural gas, all of which could adversely affect our business, financial condition and results of operations. For example, the ongoing COVID-19 outbreak has resulted in widespread adverse impacts on the global economy. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread, including new strains of COVID-19 such as the Delta and Omicron variants, the global availability and efficacy of treatments and vaccines and boosters and the acceptance of such treatments and vaccines by a significant portion of the population, and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus, such as quarantines, shelter-in-place orders and business and government shutdowns (whether through a continuation of existing measures or the re-imposition of prior measures). The worldwide vaccine rollouts in 2021 have allowed governments to ease COVID-19 restrictions and lockdown protocols; however, the recent increase in COVID-19 cases resulting from the Delta and Omicron variants has created questions about whether lockdown protocols must be adjusted and the ultimate impact of those variants is unknown. We have implemented preventative measures and developed response plans intended to minimize unnecessary risk of exposure to infection among our employees at our work sites, and we continue to assess and plan for various operational contingencies related to COVID-19. However, if a significant portion of our employees or contractors or the employees or contractors of the operators of pipelines, processing and other facilities we utilize or of our vendors or suppliers were unable to work due to illness or if our field operations were suspended or temporarily restricted due to control measures designed to contain the outbreak, that could adversely affect our business, financial condition and results of operations, and we cannot guarantee that any precautionary actions taken by us will be effective in preventing disruptions to our business. In the event of any significant resurgence in COVID-19 transmission and infection in the areas in which we operate, our non-operational employees may return to working remotely, which could increase the risk of security breaches or other cyber-incidents or attacks, loss of data, fraud and other disruptions as a consequence of more employees accessing sensitive and critical information from remote locations via network infrastructure and internet services not arranged, established or secured by us. Additionally, vaccination and testing requirements related to COVID-19 could impact our business in the future. In September 2021, the OSHA was directed to implement an emergency temporary standard requiring employers with 100 or more employees to ensure their workforce is fully vaccinated or to require unvaccinated workers to produce a negative COVID-19 test result on at least a weekly basis. Although the U.S. Supreme Court recently blocked the implementation of the standard, the future implementation of similar mandatory vaccination and testing requirements could have a material adverse effect on our business, financial condition or results of operations in the event that, among other things, a significant portion of our workforce does not choose to become vaccinated, the costs related to mandatory testing for unvaccinated employees are significant or the time away from work for testing is disruptive to our operations. Furthermore, the COVID-19 pandemic caused a significant reduction in demand for crude oil, and to a lesser extent, natural gas and NGLs during much of 2020. The supply/demand imbalance driven by the COVID-19 pandemic and production disagreements in March 2020 among members of OPEC+ led to a significant global economic contraction generally in 2020 and continued to have disruptive impacts on our industry in 2021. Although an agreement to cut production was subsequently announced by OPEC+, the situation, coupled with the impact of COVID-19 and storage and transportation capacity constraints, resulted in a significant downturn in the oil and gas industry. We cannot predict the full impact that COVID-19 and its variants or the significant disruption and volatility currently being experienced in the oil and natural gas markets will have on our business, financial condition and results of operations at this time due to numerous uncertainties. For example, the operations of our midstream service providers, on whom we rely for the transmission, gathering and processing of a significant portion of our produced oil, natural gas and NGLs, may be disrupted or suspended in response to containing outbreaks, and/or the economic challenges may lead to a reduction in capacity or closing of the facilities and infrastructure of our midstream service providers, which may result in substantial discounts in the prices we receive for our produced oil, natural gas or NGLs or result in the shut-in of producing wells or the delay or discontinuance of development plans for our properties. Although we have not received notices from our customers or counterparties regarding non-performance issues or delays resulting from the COVID-19 pandemic, to the extent we or any of our material suppliers or customers are unable to operate due to government restrictions or otherwise, we may have to temporarily shut down or reduce production, which could result in significant downtime and have significant adverse consequences for our business, financial condition and results of operations. In addition, the COVID-19 pandemic has impacted supply chains, delaying deliveries of supplies and equipment and increasing costs. Our costs for services, labor and supplies increased during 2021 due to increased demand for those items and supply chain disruptions related to the COVID-19 pandemic. The ultimate impacts of the COVID-19 pandemic will depend on future developments, including, among others, the ultimate severity of the virus, any resurgence in COVID-19 transmission and infection in affected regions after they have begun to experience improvements, the consequences of governmental and other measures, the efficacy of treatments and vaccines and boosters and the success of vaccination programs, the duration of the outbreak, further actions taken by members of OPEC+, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability and the timing and extent to which normal economic and operating conditions resume.