Chord Energy Corporation

Good day, everyone, and welcome to the Corda Energy third quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Michael Liu, Chief Financial Officer. Please go ahead.

Thank you, Jamie. Good morning, everyone. Today, we are reporting our third quarter 2022 financial and operational results. We are delighted to have you on our call. I'm joined today by Danny Brown, Chip Reimer, and other members of our team. Please be advised that our remarks, including the answers to your questions, include statements that we believe to be forward looking statements within the meaning of the Private Securities Litigation Reform Act. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and conference calls. Those risks include, among others, matters that we have described in our earnings releases as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During this conference call, we will make references to non-GAAP measures, and the reconciliations to the applicable GAAP measures can be found in our earnings releases and on our website. We may also reference our current investor presentation, which you can find on our website as well. With that, I'll turn the call over to Danny.

Thanks, Michael. Good morning, everyone. Thank you for joining our call. Well, we've now completed our first full quarter of operations as Cord Energy, and I'm pleased to be discussing our operating and financial results with you, as well as our peer-leading return of capital program. Additionally, we're going to give you some updates on merger integration progress, our ESG strategy, and our expectations for the balance of the year. So with that, jumping right into the third quarter, I can say that our performance here exceeded expectations. We had a large volume beat, which I think sets us up nicely for above consensus volume delivery for the second half of 2022. Paired with that, we are also lowering our capital guidance, which positions us for strong free cash flow delivery in the second half, which should be in line with street consensus. Given this performance and combined with our strong balance sheet, In alignment with our return of capital framework we announced in August, we anticipate delivering 85% of our free cash flow generated in the quarter back to shareholders. Most importantly, we continue to see very strong wealth performance in the field, even as we address some operational items that I'll discuss in a moment. So, digging in just a little more on our results versus our guide. Production exceeded our guidance in the third quarter, largely driven by strong wealth performance, which you can see on slide 10 of our latest presentation. Some mechanical issues with the casing on a few of our new wells has extended the timing for the completion on those wells, shifting our frac scale to the right. As a result, fourth quarter production was updated to reflect this new completion timing, as well as the associated volume impact of leaving surrounding wells, which are down waiting for completions operations to conclude, offline longer than originally expected. We've also included in our revised fourth quarter expectations the impact of many of our ESPs in the Saanich area being offline due to a power disruption caused by a vehicle incident. So, in aggregate, given our strong performance in the third quarter and taking into account the items above, we expect to deliver total second half production volumes favorable to our August update with slightly less oil but also slightly less capital. Importantly, we view these items as transient and timing related in nature. The field is performing very well and we anticipate no impact to our 2023 program. On capital, as I mentioned, we lowered our full-year capital guidance versus our August update, reflecting good performance in the third quarter, the schedule shift, and perhaps a bit too much conservatism built into our previous estimates. I'll note we continue to expect to frack around 106 wells in 2022, which is about the same as our August update. However, while total fracks are about the same, a number of our turn-in lines, or tills, will be pushed into 2023, taking our total till estimate down below 100 for the full year. Now, turning to our return of capital program. Given the strong quarterly performance previously discussed, we delivered an exceptional adjusted free cash flow of $326 million for the quarter. Recall that in August, we announced a peer-leading return of capital framework that returns 75% or more of free cash flow generated during the quarter when court has low leverage. We expect to return this capital through a balanced approach of base dividends, variable dividends, and opportunistic share repurchases. Our annualized base dividend of $5 per share has a yield of 3.2% and represents a 233% increase in less than two years. Our base dividend is a core part of our return of capital strategy and, importantly, is designed to be resilient at low prices and to be sustainable through commodity cycles. On repurchases, in July, we took the opportunity to repurchase $125 million worth of stock at an average price of $106.25. This represented close to 3% of the company, over 50% of the non-based dividend portion of our return program, and we have an additional $300 million of share repurchase authorization today. Given the above, we have declared a variable dividend of $2.42 per share for the quarter and have gone above 75% of free cash flow in determining this variable dividend. The aggregate variable payment of approximately $100 million is the difference between approximately 85% of the $326 million of free cash flow generated in the third quarter, minus the base dividend of around $52 million, minus $125 million of share repurchases. Since the merger closed, and including our November payout, we will return $869 million of capital as core, and our third quarter return of 85% of free cash flow will amount to $277 million and represent an annualized yield of 18%. In other highlights for the quarter, in September we successfully monetized $16 million or about 76% of our Crestwood units at an approximate discount of 6.5%. Gross proceeds were roughly $428 million and we're expecting cash taxes of around $10 to $15 million. The company took the opportunity to monetize these units given an attractive mix of market conditions which allowed us to unlock this value at a fairly modest discount. After the sale, CORD currently holds about 5 million Crestwood units. Now turning to ESG. You may have noticed we recently posted a letter to our stakeholders on our website, along with pro forma ESG metrics for the combined companies. We provided this information in the interest of transparency and to remind the markets we are dedicated to providing robust disclosure and improving our performance. In 2023, we plan to resume publishing a full sustainability report after the integration is complete. Highlights include a trend of reduced GHG intensity, improved freshwater intensity, a continued commitment to safety for employees and contractors, and maintaining strong corporate governance. Cord is currently using Tier 4 engines and dual fuel on our frac fleet, and also battery systems on our rigs, which reduce the need for diesel-generated power. These technologies have mutual beneficial impacts of reducing emissions while also saving costs. On to the mergers. We continue to make substantial progress on integration and remain very excited about our prospects going forward. We continue to make progress on the staffing side, having solidified leadership over the summer, with further progress on managers and staff in the third quarter. We continue to integrate software and processes across all verticals. And as a reminder, we've identified over $100 million per year of total synergies versus our original expectations of $65 million. On the capital side, we're optimizing our drilling rigs and are implementing best practices. We're also implementing new practices to optimize completions as well as facility design and construction. On the operating side, in the near term, we're expecting initial investments to create the groundwork to reduce artificial lift failure rate, and we should start to see the benefits of that later in 2023. Additionally, we're centralizing maintenance and other operations while consolidating routes and driving further efficiencies. And on the G&A side, we remain on track for approximately $35 million of cash savings versus the pre-merger baseline. All in all, I'm very pleased with the progress we're making and the new opportunities the team have identified. I can't thank our people enough for driving this progress and making it happen. Your efforts are recognized and sincerely appreciated. And with those highlights, I'll now turn it over to Michael for some financial updates.