Chord Energy Corporation

Good morning and welcome to the Cord Energy second quarter 2023 earning results conference call. All participants will be in 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 then one on your touch tone phone. To withdraw a question, Please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Michael Liu, Chief Financial Officer. Please go ahead.

Thank you, Megan. Good morning, everyone. Today we are reporting our second quarter 2023 financial and operational results. We're delighted to have you on our call. I'm joined today by Danny Brown, Chip Reimer, and other members of the 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 reference to non-GAAP measures, and 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. With that, I'll turn the call over to our CEO, Danny Brown.

Thank you, Michael, and thank you to everyone who's joined our call on what I know is a very busy morning. So with that, in addition to discussing our quarterly results and expectations for the balance of the year, I'd also like to briefly recognize what CORD has done over the past 12 months to integrate two premier Williston Basin operators and form a new, stronger, and more resilient organization. While integration is never easy, I am very proud of what the team has accomplished, including fulfilling our commitment to capitalize on the best practices of the two legacy organizations and using that to capture and expand significant financial and operating synergies. We've also been very focused on our shareholders. One year ago, we rolled out what we believe to be a peer-leading return of capital program that showed our commitment to both the balance sheet and to delivering returns to our investors. For the 12 months from July 1, 2022 to June 30, 2023, we've returned $1.1 billion in the form of dividends and another $198 million via share buybacks, including aggressively repurchasing steeply discounted shares shortly after the transaction closed. We've also strengthened the portfolio, including closing the XTO bolt-on acquisition on the one-year anniversary of close and selling non-core assets, streamlining our operations, and directing focus to where we have scale and competitive advantages. I'm also very pleased to announce that we've added a key member to our executive team, Shannon Kenney. Shannon joins us as our Executive Vice President and General Counsel and brings over 20 years of legal experience with her, most recently from ConocoPhillips, where she was Vice President, Deputy General Counsel, and Corporate Secretary. We are absolutely thrilled to have Shannon as part of the team and look forward to working with her and benefiting from her expertise as we move forward. Now, turning our attention to the quarter, the organization once again delivered strong operational performance, resulting in oil and total volumes above expectations. This volume delivery was underpinned by very solid performance from new wells, the underlying asset base, and acceleration of turn-in lines, or TILs, early in the quarter. While NGL and gas realizations were softer sequentially, and Michael will provide more detail on this topic shortly, capital and other items were generally right in line with expectations and guidance. So, taking all of this into account, we generated $116 million of adjusted free cash flow during the quarter, which as presented in our deck, does include removal of around $11 million of capital booked from non-operated wellbores which have been sold and which will be reimbursed to us. And given this free cash flow generation, and in keeping with our return of capital framework, we declared a variable dividend of 11 cents per share with a base dividend which remains unchanged at $1.25 per share. As a reminder, the aggregate variable payment of approximately $5 million is the difference between 75% of the $116 million of adjusted free cash flow generated in the second quarter minus the base dividend of approximately $52 million minus $31 million of second quarter share repurchases. In other words, the variable dividend is designed to make up any difference between our targeted free cash flow payout and the amount distributed through base dividends and share repurchases. As I've said before, We believe our capital return program is peer-leading and demonstrates our commitment to both capital discipline and shareholder returns. And as we noted last quarter, we aimed to increase share repurchases as our percentage of return capital in recognition of the discount that we believe CORE trades at relative to peers and our intrinsic value. Accordingly, in the second quarter, share repurchases accounted for almost 90% of capital returned after our base dividend. As we look forward, we will continue to be opportunistic with share repurchases and return and return capital through a mix of base dividends, share repurchases, and variable dividends. Now shifting topics to development. As most of those on the call know, three-mile laterals are an important part of our program in 2023 and beyond, so I want to spend a little time discussing our latest performance and what we're expecting going forward. Year-to-date, we've tilled around 13 three-mile laterals, and when combined with the 17 wells from 2022, I'm encouraged by the performance we've seen so far. More specifically, we are seeing improving performance on well delivery and are clearly seeing a strong contribution from the furthest portions of the lateral once that rock is stimulated and cleaned out. As slide 9 of our presentation shows, we have materially reduced drilling times for three-mile wells over the past year and are now running a little ahead of schedule. On the clean-out side, we've also made steady improvements and have generally been able to stimulate and access the vast majority of the third mile. As a reminder, for three-mile wells, we are assuming a 40% EUR uplift for 50% longer lateral and about 20% more drilling and completion costs. Said another way, we're assuming the third mile is only 80% as productive as the first two miles. In practice, what we're seeing is a volume response proportional to the percentage of the third mile that's cleaned out. So a 50% longer well that was cleaned out all the way to the toe is generally delivering an approximate 50% uplift in EUR. In some instances, we've been unable to clean out a small portion of the tow, and that can lead to a reduction in productivity for the last mile, but once again, we've anticipated this with our 80% production assumption I just discussed. We provided more performance analysis on slide nine of our investor presentation, which shows the three-mile wells are clearly outperforming two-mile wells in the same area. Additionally, as you can see on the left side of slide 10, we performed a study using tracer to determine which portions of the lateral are contributing to production at specific points in time. For this test, initially the toe of the well was intentionally not cleaned out and we observed a strong production response from the stages that were cleaned out plus only one or two stages further in the lateral despite using dissolvable plugs. We came back to the well 10 weeks later to clean out the toe stages and subsequently saw a strong production response from the previously uncleaned portion of the well bore. Given the large number of potential three-mile laterals the cord has and the improved capital efficiency opportunity these laterals represent, The results we are seeing are exciting in that our execution performance has been improving, and we believe spending a little more time to ensure that our coil tubing drill-outs, which is a very low-cost operation, are effective all the way to the toe, could allow us to increase the 80% efficiency number for the third mile of the lateral, which would obviously enhance our capital efficiency even further. Finally, on slide 11, you can see that in aggregate, our well performance is running slightly favorable to expectations. This can be attributed to the effectiveness of the three-mile laterals we just discussed as well as our practice of wider well spacing, both of which we believe improve per-well recoveries, increase capital efficiency, and reduce variability of performance across the asset. Moving on from development, concurrent with second quarter results, CORD announced the sale of additional non-core properties for proceeds of approximately $29 million. This includes approximately $11 million of capital reimbursement for non-operated spending we had not budgeted for 2023. Given this capital will be reimbursed and was not part of our original guidance, we excluded it from adjusted free cash flow and capex for the purposes of the second quarter capital return, as you can see in our deck. Oil volumes associated with these non-core sales approximate 500 barrels of oil per day. For clarity, the 500 barrels of oil per day are not associated with the non-op wellbore sales, but are associated with scattered legacy wells outside the Williston Basin. Year-to-date, CORE has announced over $64 million of non-CORE asset sales. We've updated our full-year guidance to reflect these asset sales and production gain from the XTO bolt-on acquisition, which is contributing approximately 3,000 barrels per day of oil in the second half of 2023. This bolt-on was an excellent supplement to our CORE inventory and demonstrates natural synergies from our scaled position in the Bakken, which is now over 1 million acres. We added approximately 123 net locations, and importantly, we were also able to convert six cord two-mile DSUs into three-mile DSUs. This further enhanced the economics of the deal, which is immediately accretive to cash flow, free cash flow, and our return metrics. In light of the above, we have updated our full-year capital forecast to a range of $850 million to $880 million. Excluding the $11 million of reimbursed non-operated capital, the midpoint of annual CapEx investment increased approximately $20 million, largely due to additional drilling and completions activity associated with maintaining a larger production base moving forward. And finally, a brief update on ESG. Ford expects to publish its first sustainability report as a combined company in the third quarter of this year. My thanks to the team for putting together a great piece of work. In it, we will highlight our continued focus on improving safety and emissions and our commitment to continuous improvement in other aspects of sustainable operations while proudly delivering the energy the world needs. To sum things up, the assets are performing well. We are substantially through merger integration and have become a stronger organization than either legacy company. We have a compelling financial outlook and are keenly focused on continuing to deliver and support high levels of sustainable free cash flow as we move forward. I'll now turn it over to Michael for some additional updates.