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spk01: Good morning, ladies and gentlemen, and welcome to the Coord Energy Second Quarter 2024 earnings conference call. At this time, all lines are in listen-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 Thursday, August 8, 2028. I would now like to turn the conference over to Bob Bakanouskas, Managing Director of Investor Relations. Please go ahead.
spk04: Thanks, Matthew, and good morning, everyone. This is Bob Bakanouskas, and today we're reporting our Second Quarter 2024 financial and operating results. We're delighted to have you on the call. I am joined today by Danny Brown, our CEO, Michael Lu, our Chief Strategy and Commercial Officer, Darren Henke, our COO, and Richard Roebuck, our CFO, 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 within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to the 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 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 call, we will make reference to non-GAP measures and reconciliation so the applicable GAP measures can be found in our earnings release and on our website. We may also reference our current investor presentation, which you can find on our website. And with that, I will turn the call over to our CEO,
spk02: Danny Brown. Thanks, Bob. Good morning, everyone, and thank you for joining our call. I recognize it's a very busy morning, so I plan to provide a brief overview of our second-quarter performance and our return of capital, as well as updates on our full-year outlook. Additionally, I'll give some color on our integration with Interplus before passing it to Darren. Darren will give details on operations and synergies before passing it to Richard for a little more on our financial results. We'll then open it up to Q&A. So, in summary, CORD delivered another great quarter, which resulted in strong shareholder returns. So, diving in, second-quarter oil volumes were toward the top end of guidance, driven by strong wealth performance and less downtime. Capital was below expectations, reflecting some timing adjustments to the program, and lease operating expense also came in favorable versus our expectations, reflecting less downtime and lower maintenance costs. Many thanks to our operating team for delivering favorable results, really across the board. Well done. Given the strong quarterly performance, free cash flow was above expectations, and on a quarter of the quarter, free cash flow was approximately $263 million. This includes a full quarter of Interplus's results and excludes approximately $16 million of non-operated capital, which was not contemplated in original guidance and will be reimbursed through asset divestitures. In accordance with our return of capital framework, CORD will return 75% of this adjusted free cash flow to shareholders. To that end, given our base dividend of $1.25 per share and our normal course share repurchases in the second quarter of $41 million, we declared a variable dividend of $1.27 per share. I would note that the timing of our share repurchases was somewhat impacted by the possession of material non-public information associated with the Interplus acquisition and various filings made during the quarter. Additionally, last night, we issued third quarter and updated full year guidance. As we discussed in May, the development program went faster than expected in the first half of the year due to strong performance and a fairly mild winter. This resulted in volumes of capital above our original expectations early in the year. And as I've mentioned before, CORD is focused on efficient and sustainable free cash generation, which results in us executing a maintenance plus program. We do not plan to increase capital this year, even as we raise our full year oil guide by 500 barrels per day. With that in mind, CORD slowed frac activity and is currently down to one frac crew versus three pro forma earlier in the year. This crew count will increase as we move into late summer and fall and results in CORD being toward the lower end of its full year operated new well turn in line range. Concurrently, CORD is increasing non-op spending in the second half of the year as the team is investing in a number of attractive non-operated opportunities that we acquired in our transaction with the XTO and our combination with Interplus. Net of these offsetting impacts full year capital guidance is unchanged. I should note that when looking at capital, you'll likely notice that capital and LOE guidance reflect some accounting changes as a result of the Interplus combination that Richard will discuss in more detail. But in a nutshell, on an apples to apples basis, pro forma capital is unchanged versus our May outlook, while LOE is running favorable versus our initial expectations. And as I mentioned a few moments ago, we will be increasing our expected full year oil volumes by 500 barrels per day to account for the good performance we've seen to date. Turning to Interplus, the combination closed as expected on May 31st. We remain extremely confident in the strategic and financial benefits of the transaction and as we move through integration, our conviction level continues to grow. Interplus brings top tier assets in the core of the basin and we expect CORD can enhance returns on these assets by applying techniques it has developed over the past several years, including longer laterals, optimized spacing and reducing downtime. The combined asset base supports efficient operations, strong returns, sustainable free cash flow and a peer leading return of capital program. Our integration efforts are going well and by utilizing combined best practices and enhanced scale, we are very confident in achieving the greater than $200 million synergies target, which is up from our original estimate of $150 million. Slide 11 in our deck highlights some of our recent operational progress and opportunities to improve the combined company going forward. I want to let the organization know how grateful I am for their continued positive attitudes and dedication in driving an effective integration and pushing to realize incremental value from the transaction. And importantly, no one has taken their eye off the ball and CORD is currently putting up great operating results. Also, in our updated presentation, you will see some new material focused on helping investors better understand how attractive the Williston Basin is and I believe our technical, operational and marketing teams have been instrumental in driving what we think is a resurgence of the basin. The Williston Basin continues to evolve and the current state of play is worth revisiting. Number one, it has the highest oil cut at any major onshore lower 48 basin, which supports strong margins and impressive returns. Second, with our footprint basically extending across the entirety of the play, our subsurface understanding is both differential and fulsome. With our learnings, we generally target only the Bakken, which means parent-child interference can be more accurately modeled. This isn't well understood in my opinion, but it is an important competitive advantage. The upper right hand chart on slide 10 shows well productivity adjusted for volatility across basins. A bit of a pseudo sharp ratio if you will. The Bakken screens very well on a risk adjusted basis as the wells are prolific with lower relative variance. Third, the land and regulatory environment is excellent and is an added benefit. Coord has been the leader in longer lateral development compared to other lower 48 piers. Longer laterals are a more efficient way to develop the resource and support strong returns as well as Coord's low reinvestment ratio. Lastly, oil takeaway has really improved differentials over the past decade or so and Bakken Crude has traded consistently close to WTI for many years running. To sum it up, the Williston is a phenomenal place to do business and the Coord team is focused on making every aspect of the business better and continuing to improve our returns. And finally, we remain committed to delivering affordable and reliable energy in a sustainable and responsible manner. Coord's culture revolves around continuous improvement and is focused on driving performance across a number of key areas including emissions and safety. Coord expects to publish a sustainability report later this year on a legacy Coord only basis and also provide a summary of key ESG and sustainability metrics for Interflux. In 2025, we expect to publish a full sustainability report reflecting the combined company. So to summarize, Coord delivered a great start to the year which essentially accelerated the production profile into the first half and should result in high free cash flow and shareholder returns in the second half of the year. We remain as excited as ever on the Interflux transaction and look forward to executing in 2024 and beyond. And with that, I'll turn it to Darren.
spk05: Thanks Danny. We had a solid quarter on the operations front as the team continues to execute with excellence. Our wedge production benefited from robust well performance while our base production benefited from lower levels of downtime. I thought we'd spend a little time talking about Coord's asset base and the kind of things we're doing to make great assets even better. First, most of you know that Coord is the leader in three mile lateral development. Slide six on the bottom left shows Coord's longer lateral wells as a percent of the program last year. And as you can see, we're at the top of the peer group. The upper right chart shows Coord's longer lateral well productivity in the Wilson Basin compared to peers. Since the second half of last year, which is when we started to consistently reach total depth on post-frack cleanouts, again, Coord is at the top of the pack. It was early days at Interplus relative to three mile laterals and we see an opportunity to high grade our new asset by applying Coord's technical expertise. Pro FOMA, Coord's inventory consists of approximately 40% longer laterals and we believe we can increase that percentage materially over the next few years. While some outperformance is already being captured in our PDP-based forecast, we currently model three mile wedge wells delivering approximately 40% more EUR for 20 to 25% more capital. It's likely that we're getting more than the 40% uplift, especially since the team has improved the coal tubing cleanout process whereby Coord routinely reaches TD on most wells. We expect to formally update the market on our third mile productivity assumption in November as part of our third quarter results. Across the portfolio, we certainly like what we see relative to productivity, decline rates, and flowing pressures. Referring to slide seven, the chart on the upper right shows Coord's average spacing across the basin is wider than other operators. This upspacing has helped keep declines shallow, production flat, and reinvestment rates low. As we integrate the Interplus assets, we think an opportunity exists to optimize spacing and enhance the economic returns of the overall development program. Wider spacing has been a key driver to improve Coord's capital efficiency in recent years. The lower half of the chart shows a case study from Inveris which assesses Coord's widely spaced well performance versus those in a neighboring DSU with tighter spacing. The result is similar DSU recovery in aggregate with Coord deploying substantially less wells and capital. Continuing with well spacing, slide eight shows Coord's success with wider spacing across the entire basin. Again, Coord is draining most if not all of the DSU with fewer wells and materially less capital than our peers. Coord continues to evaluate opportunities to maximize capital efficiency and continually analyzes the merits of removing or adding wells across our position. Just a couple quick thoughts on synergies before passing it to Richard. Like Danny mentioned, as the teams get deeper into the integration, we continue to like what we see. On slide 11, we highlighted some key items where we see considerable opportunity. Coord is the leader in drilling times in the Wilson Basin and by applying Coord's drilling We have already seen improvements in drilling performance on the EnterPlus asset since closing just a couple months ago. Additionally, Coord has increased completion efficiencies over the past year with its legacy zipper fracks. We expect to achieve further efficiency improvements with the simulfrac completions that EnterPlus used extensively. Finally, I wanted to highlight our progress in reducing downtime over the past 12 to 18 months. As you can see on the right hand side of the slide, the Coord team has made significant improvements on this front and we see a meaningful opportunity to lower downtime on the new areas of our expanded portfolio. To sum it up, Coord continues to execute quite proficiently and I want to give credit to a team that pushes innovation and relentlessly strives for continuous improvement. It's a really exciting time for the company and Coord will further advance these top-notch assets, jumping the S-curve by applying its technical and operational expertise. I'll now turn it over to Richard.
spk03: Thanks, Darren. I'll walk you through the second quarter results which include contributions from EnterPlus after the combination closed on May 31st. Guidance for the remainder of the year reflects a contribution from both companies. You'll notice a handful of key guidance items look different than what you might have expected by looking at Coord and EnterPlus standalone financials. Certain reclassifications have been made in the historical presentation of EnterPlus' financial statements to conform to Coord's accounting policies and presentations. EnterPlus expensed certain items through LOE that Coord will deduct through gas and NGL revenue or charge through capital. Additionally, EnterPlus capitalized certain GNA charges that Coord will expense. The net impact of these changes relative to EnterPlus' standalone reporting is lower LOE, lower gas and NGL revenues, and slightly higher capital and GNA expense. The impact of the accounting changes is neutral to adjusted free cash flow. Slide 18 in the investor presentation bridges the impact between the accounting policy alignment differences. In the second quarter, Coord generated adjusted free cash flow of $263 million on a pro-forma basis. Strong volumes as well as lower operating cost and lower capital offset weaker than expected pricing, especially for natural gas and NGLs. Flow volumes were strong in the second quarter, about 1% over midpoint guidance, and total volumes were about 2%
spk00: above. Ladies and
spk01: gentlemen, please stand by. We are experiencing technical difficulty and the presentation will resume shortly. Thank you.
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