Chord Energy Corporation

Good afternoon, ladies and gentlemen, and welcome to the Corda Energy Announcements Combination with Enerplus Conference Call. At this time, online service is in only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, February 21, 2024. And I would now like to turn the conference over to Mr. Michael Liu. Please go ahead.

Thank you. Good evening, everyone. Thank you for joining the call. Today we will be discussing the business combination between Cord Energy and Enerplus, and also touching on fourth quarter 2023 financial and operational results. With me on the call are Danny Brown, President and Chief Executive Officer of Cord Energy, as well as Ian Dundas, President and Chief Executive Officer of Enerplus, as well as 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 and forward-looking information within the meaning of applicable laws. 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 joint press release announcing the transaction, and CORD's earnings releases, as well as in our filings with the Securities and Exchange Commission. 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 CORD's earnings releases and on its website. We may also reference our current investor presentation, which you can also find on our website. With that, I'll turn the call over to CORD's CEO, Danny Brown.

Thanks, Michael, and thanks, everyone, for joining our call today on such short notice. We're very excited to announce that Cord Energy and Interplus will combine with Interplus to form a premier Williston Basin company. We view today's announcement as the next logical step for both companies as we create a stronger, more sustainable organization that we believe is positioned for continued performance and long-term growth. I plan to spend some time commenting on the merits of the deal before turning it over to Ian for some additional thoughts. To start, Both Ian and I are proud of what our individual organizations have done over the years. Both companies have diligently worked to position their portfolios in one of the premier oil basins in North America, resulting in top-tier assets spread across the Wilson Basin that are highly complementary. Both companies have generated significant free cash flow and have returned a large amount of capital to shareholders. And our teams did this while being good stewards of our environment and the communities in which we operate. Both Cord and Interplus have talented, hardworking people that have accomplished a tremendous amount for which they should be extremely proud. Ian and I are certainly proud of them, and we look forward to getting the teams together to share best practices and drive continuous improvement. Slide four of our investor presentation gives a good summary of the merits of the deal. As you can see, this combination checks all the boxes between operating, financial, and strategic goals. It enhances scale and asset quality. Additionally, it delivers accretion on all key financial metrics, which is boosted by significant synergies that we'll get into. Additionally, the combination improves our financial strength and returns, which of course supports our peer-leading return of capital profile. Turning to slide five, you can see the terms of the combination. The merger consideration is structured as 90% stock and 10% cash. Each Interplus common share will be exchanged for 0.10125 shares of core common stock, and $1.84 per share in cash. At this exchange ratio and the respective share prices on February 20th, 2024, the combined company would have an enterprise value of approximately $11 billion, inclusive of Interplus's net debt. Pro forma for the transaction, Cord shareholders will own approximately 67% and Interplus shareholders will own approximately 33% of the combined company on a fully diluted basis. Following close of the transaction, The board of directors will increase to 11 members, which will consist of seven representatives from CORD and four representatives from Interplus. Ian will join the board and serve as advisor to the CEO. The CORD executive leadership team will continue to run the combined company. The combination has been unanimously approved by the board of directors of both companies. Currently, we are expecting to close by mid-year 2024. Standard regulatory approvals are needed in both U.S. and Canada, plus a shareholder vote, including HSR review. This is a deal that is good for our shareholders, good for consumers, as we should be able to access and ultimately produce more resource than either company would have otherwise been able to do standalone, and good for our communities, since as a larger organization, we'll be able to commit more time and resources to reducing our environmental footprint and focusing on local communities. Turning to slide six, we believe this transaction creates a combined company with meaningful scale. The combined organization will have approximately 1.3 million net acres, with 98% of that in the Williston Basin. Additionally, combined fourth quarter 23 production is 279,000 barrels of oil equivalent per day, with over 90% of that in the Williston Basin. The transaction also combines high-quality inventory, which supports sustainable free cash flow through the different commodity cycles. We believe Cord and Interplus have some of the best inventory in Bakken. To illustrate the point, since 2022 combined, Corda and Interplus have brought 30% of the top 100 wells online when looking at greater than six months of oil production while bringing only 15% of the wells online over the same timeframe. Our combined position represents approximately 10 years of low-cost development at the current pace with significant upside beyond that. While a standalone inventory of both companies has compelling returns, the combination expands our three-mile lateral opportunity and we will continue to pursue additional longer laterals given the success we've had over the past two years. Just to flesh this three-mile opportunity out a little more, over the course of 2023, CORD made significant progress in drilling, completing, and cleaning out three-mile wells. Drilling times have been reduced by roughly 25% since the beginning of 2023, with it now only taking 10 to 11 days on average. On the clean-out side, we've made strong progress over the course of the year and reached TD and essentially all 30-plus three-mile wells brought online in the second half. We get asked frequently if there could be upside to our implied 80% productivity assumption for the third mile. We believe this is a possibility, especially in light of our progress on clean-outs over the past year. However, it will take a little more time, likely until the end of this year, to get sufficient production history to effectively analyze the three-mile declines and determine whether we can increase our EUR uplift assumptions from 140% to 150%. The Interplus team is in the early innings of pivoting to three-mile laterals and already have over 10% of their inventory set. We see meaningful opportunity to increase this percentage in Interplus's high-quality acreage, which supports better economics and more free cash flow. Additionally, we're continuing to evaluate four-mile laterals, and we expect to drill our first four-milers at the end of this year. If successful, these initiatives should further improve returns. On slide seven, you can see our pro forma market cap is over $10 billion, significantly increasing our size, positioning the combined company nicely within our new large cap peer group. The combined oil cut is high at 56% and positions us well given the current commodity backdrop. Slide eight shows inventory quality and depth as estimated by an independent research firm which tries to use similar modeling methods across each company represented. The key takeaway is their analysis shows the pro forma cord right in the mix with large cap names on inventory depth and quality. While we evaluate our inventory differently than Inveris, we believe that they are objective and try to be consistent. With this in mind, the scale of the combined company is competitive with large cap peers. Moving to slide nine, as we think about potential synergies, the opportunity is significant. The combined company expects to benefit from administrative, capital, and operating synergies of up to $150 million per year. Administrative synergies are expected to begin immediately in 2024 and increase in 2025 up to $40 million. Capital synergies are expected to increase to up to $55 million during 2025, and operating synergies initiate in 2025 and are expected to increase up to $55 million in 2026. The combined company will leverage best practices to further advance efficiencies across the business. The after-tax present value of synergies is expected to exceed $750 million. As you are aware, this is a cross-border transaction. The team has evaluated the tax ramifications, and we do not expect there to be much tax leakage on a pro forma basis. To expand on this a bit, the core team has made great progress reducing downtime through the course of 2023. As a combined company, we see additional opportunity to make progress on improving downtime, which is important given base production is the vast majority of any year's volumes. Additionally, we'll be looking at ways to drive LOE down through field standardization data analytics, lower failure rates, among other items. You can refer to the appendix for more detail on synergy potential. I should note our respective teams have spent considerable time together and look forward to digging in on further synergies. We are confident we can deliver based on the capability and level of rigor from both teams. Now, turning to slide 10, we see our superior profitability. Our high oil cut of 56% underpins healthy cash margins. As we just discussed, we are focused on expanding margins further through a variety of initiatives. Additionally, the transaction is accretive to all financial metrics, and the accretion didn't come at the cost of financial strength. We maintain our best-in-class credit profile with net debt to EBITDA of 0.2 times at close and minimal near-term maturities. With leverage well below peers, we have additional flexibility for strategic initiatives and return of capital. Turning to slide 11, Cord has significantly outperformed our new large-cap peers over the past several years through a combination of mergers, acquisitions and divestitures, focus on returns, and returning significant capital to shareholder. All of this was done while maintaining a healthy balance sheet. Notably, Cord has paid $45 per share in dividends since 2021, while the underlying equity has appreciated significantly as well. So, accretion is obviously important to shareholder returns, and as we discussed earlier, the outlook is strong on that front. The pro forma company expects approximately $1.2 billion of free cash flow and a reinvestment rate of approximately 51% in 2024 at $79 per barrel WTI and $2.50 per MMBTU NYMEX gas. Return of capital following closing is expected to remain at Cord's pre-combination level of 75% plus of free cash flow given the strong balance sheet. CORD's base dividend remains unchanged at $5 per year. The base dividend will continue to be supplemented by share repurchases and variable dividends. Slide 12 shows our relative valuation and yield, which we view as attractive, seeing as they are based on pro forma analyst consensus expectations and don't include the impact of synergies. And finally, slide 13 summarizes the merits of the deal, and I think it's important to note that both CORD and Interplus have maintained a disciplined approach to M&A, We're confident the combination is the right move and will result in significant value creation for both of our respective shareholders. Additionally, both Core and Interplus have a tremendous track record of being responsible corporate citizens and respecting all of our stakeholders. We remain committed to ESG and sustainability and capitalizing on combined best practices. We also remain committed to supporting the communities where we operate and look forward to building on each company's relationship with the MHA nation and their leadership. To sum things up, The combined company is expected to generate significant free cash flow from its low-cost asset base, improve efficiencies, and execute disciplined capital spending through business cycles. With that, I'll turn the call over to Ian to provide some thoughts on the combination.