Fitch Upgrades Coterra and Maintains Rating Watch Positive Following Devon Merger Completion

Published: 2026-05-12 06:51:14 ET CTRA

Published on 05/12/2026 at 06:51 am EDT

Fitch Ratings has upgraded Coterra Energy, Inc.'s (Coterra) Long-Term Issuer Default Rating (IDR) and senior unsecured notes to 'BBB+' from 'BBB'.

The Rating Watch Positive is maintained.

The upgrade reflects the closing of the merger and the addition of the Parent Subsidiary Linkage to Devon Energy Corporation (BBB+/RWP). Coterra's rating has been upgraded to be equalized with Devon, reflecting the assessment of strong strategic and operational ties.

The Rating Watch Positive (RWP) reflects the alignment of Coterra's ratings with Devon's. The Positive Watch on Devon's IDR reflects a potential for a significant increase in production and cash flow scale after the combination. Although unlikely, the resolution of the RWP could take longer than six months.

Key Rating Drivers

Uplift from Linkage with Parent: Following the completion of the merger, Fitch has added an assessment of Parent-Subsidiary Linkage with Devon. Fitch has assessed Devon's strategic and operational incentives to support Coterra as a subsidiary as 'High,' resulting in the equalization of Coterra's rating with Devon's. Fitch considers Coterra a strategic subsidiary of Devon due to its substantial financial contribution to the group, with Coterra's production making up approximately 48% of the combined company. Operational incentives are also considered 'High' due to the companies' fully integrated management team and the expectation for $1 billion of synergies from the transaction.

Transformational Transaction: Coterra's merger with Devon is accretive to the company's credit profile. Pro forma the acquisition, Fitch expects improvements in size and scale (approximately 1,600 million barrels of oil equivalent per day [mboepd], 34% oil), profitability, and gross reserves. Management has indicated pre-tax synergies of approximately $1 billion. Fitch expects the new board to make key decisions regarding capital allocation after it is formed but views a departure from both companies' relatively conservative policies as unlikely.

Improved Netbacks: Coterra's proposed merger with Devon will further benefit the company's profitability beyond benefits from acquisitions in 2025, which materially enhanced its netback profile due to increased exposure to oil and natural gas liquids. While improved natural gas prices contributed, greater exposure to liquids has allowed Coterra to strengthen its netbacks relative to liquid-weighted peers and maintain an advantage over gas-weighted investment-grade peers.

Strong Diversification: Coterra's diversified portfolio supports higher through-the-cycle netbacks while providing optionality to allocate capital to take advantage of differentiated pricing environments in crude oil or natural gas. In addition to premium Delaware positions, the combined company will add exposure to the DJ Basin, Rockies and Eagle Ford on top of Coterra's positions in the Anadarko and Marcellus. However, the pro forma company will lack international exposure or downstream diversification. Diversified assets across hydrocarbons provide flexibility to adapt to varying market conditions, as shown in 2024 when gas curtailments occurred while liquids capex was maintained.

Balanced Capital Allocation: Fitch expects capital allocation to be balanced between capex, shareholder returns, and gross debt reduction through the closing of the transaction. The company retains flexibility to allocate capex to capitalize on favorable natural gas or crude oil pricing. The company announced an approximate 31% increase to the common dividend relative to legacy Devon levels, but Fitch expects the new board will maintain a relatively conservative financial policy.

High Quality, Deep Inventory: The proposed merger will substantially increase Coterra's inventory across its portfolio, including crude oil reserves. While the asset base is robust, it is somewhat tempered by a high natural gas weighting. Material positions in two leading gas- and oil-weighted basins provide Coterra with the ability to deploy capital opportunistically in response to more favorable oil or natural gas markets, as demonstrated in 2023 and 2024.

Peer Analysis

The combined company is among the largest exploration and production (E&P) companies in North America. Its total production of 1,604 mboepd (pro forma 1Q26) will be larger than Occidental Petroleum Corp's (Occidental; BBB/Stable) 1,428 mboepd, comparable to Canadian Natural Resources Limited's (Canadian Natural Resources; BBB+/Stable) 1,571 mboepd (as of YE25) but materially lower than ConocoPhillips' (A/Stable) 2,309 mboepd. Relative to Coterra's standalone netbacks, Fitch forecasts material improvements to the combined company's netbacks but still expects these to be toward the bottom of the similarly sized peer group.

Reserves will be comparable to Occidental's but will trail both Canadian Natural Resources' and ConocoPhillips'. Pro forma geographic diversification is above average, with production centered in the Delaware Permian, DJ Basin, Rockies, Anadarko, Eagle Ford and Marcellus Shale. The company will lack the international diversification of peers ConocoPhillips and Occidental, as well as lacking diversification from non-E&P businesses.

Fitch's Key Rating-Case Assumptions

For key assumptions please refer to the latest RAC for Devon Energy Corporation listed below:

'Fitch places Devon Energy on Rating Watch Positive Following Coterra Merger Announcement,' dated Feb. 3, 2026

Corporate Rating Tool Inputs and Scores

For the Corporate Rating Tool Inputs and Scores please refer to the latest RAC for Devon Energy Corporation. :

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade (Coterra)

Weakening of Devon's credit profile;

Material reduction in Devon's incentive to support Coterra.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade (Coterra)

Positive rating action on Devon, provided Devon's incentive to support Coterra remains intact.

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade (Devon Consolidated Profile)

Midcycle EBITDA leverage above 2.0x;

Shareholder distribution levels (fixed/variable dividend) or share buybacks that contribute to a weakened liquidity profile or a deteriorating FCF profile.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade (Devon Consolidated Profile)

An increase in operational scale above 1 million boe/d;

Structural improvement in unit netbacks;

Midcycle EBITDA leverage sustained below 1.0x and demonstrated material positive FCF across the cycle.

Liquidity and Debt Structure

For the liquidity and debt structure, please refer to the latest RAC for Devon Energy Corporation.

Issuer Profile

Coterra is a fully owned subsidiary of Devon Energy Corporation. Its operations are in the Permian Basin, Marcellus Shale and Anadarko Basin.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The Climate.VS for 2035 for Coterra Energy, Inc. is 50.

This signal reflects the potential risks related to policies that require lower carbon emissions over time and encourage reduced usage of fossil fuels in favor of renewable fuels. This poses near-term risks from higher costs driven by the need to reduce emissions and longer-term risks from reduced demand for fossil fuels as the world transitions toward renewable fuels. Fitch believes a meaningful energy transition will play out over several decades. These risks have not materially influenced the current rating, given the very long-term time frame over which the transition may occur, uncertainty regarding the extent and nature of changes, and the potential reaction from markets and companies.

ESG Considerations

Fitch does not provide ESG relevance scores for Coterra Energy Inc.

In cases where Fitch does not provide ESG relevance scores in connection with the credit rating of a transaction, programme, instrument or issuer, Fitch will disclose any ESG factor that is a key rating driver in the key rating drivers section of the relevant rating action commentary. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products

RATING ACTIONS

Entity / Debt

Rating

Prior

Coterra Energy Inc.

LT IDR

BBB+

Upgrade

BBB

senior unsecured

BBB+

Upgrade

BBB

Page

of 1

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PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 03 Aug 2024) (including rating assumption sensitivity)

Corporate Hybrids Treatment and Notching Criteria (pub. 08 Apr 2025)

Parent and Subsidiary Linkage Rating Criteria (pub. 28 Jun 2025)

Corporate Rating Criteria (pub. 10 Jan 2026) (including rating assumption sensitivity)

Sector Navigators - Addendum to the Corporate Rating Criteria (pub. 10 Jan 2026)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

Corporate Monitoring & Forecasting Model (COMFORT Model), v8.2.0 (1)

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