CHRD

Chord Energy Corp. 10-Q Summary: Q2 2024

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2024. The most significant event during this period was the completion of the "Arrangement" with Enerplus Corporation on May 31, 2024. Chord Energy acquired Enerplus in a stock-and-cash transaction, expanding its operations primarily in the Williston Basin. Consequently, financial results for the three and six months ended June 30, 2024, include Enerplus operations only from the closing date forward, while prior period comparisons reflect Chord's standalone results.

Key Financial Metrics

Note: Liquidity includes $197.4 million in cash and $894.8 million in unused borrowing capacity under the Credit Facility.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased significantly year-over-year (YTD) due to the Enerplus acquisition and higher crude oil realized prices. Crude oil revenues rose $228.2 million YTD compared to 2023.
• Net Income Decline: Despite revenue growth, YTD net income decreased by approximately $100 million compared to 2023. This was driven by a $96.5 million net gain on derivative instruments in 2023 versus a $23.0 million net loss in 2024, as well as higher merger-related costs and increased depreciation, depletion, and amortization (DD&A) due to the larger asset base.
• Expense Increases: General and administrative (G&A) expenses increased $33.1 million YTD, largely due to $62.8 million in merger-related costs. DD&A increased $126.0 million YTD due to the addition of Enerplus properties.
• Balance Sheet Expansion: Total assets nearly doubled from $6.9 billion (Dec 31, 2023) to $13.1 billion (June 30, 2024) following the acquisition. Goodwill of $539.8 million was recorded.

Guidance, Outlook, and Risks

• Capital Allocation: The company declared a base-plus-variable cash dividend of $2.52 per share, payable September 5, 2024. It also repurchased $61.7 million of common stock in Q2, with $591.3 million remaining under its $750 million repurchase program.
• Debt Management: On July 2, 2024, Chord repaid all remaining Enerplus Senior Notes ($63.0 million). The company maintains a $3.0 billion borrowing base on its credit facility, with $894.8 million currently unused.
• Commodity Hedging: As of June 30, 2024, the company had derivative contracts covering significant portions of its 2024, 2025, and 2026 crude oil production to manage price risk. The unrealized derivative position was a net liability of $15.0 million for crude oil.
• Risks: Key risks include volatility in crude oil, NGL, and natural gas prices; the successful integration of Enerplus operations; and potential impacts from the SEC's climate-related disclosure rules (currently paused pending litigation).

Investor Verification Checklist

• Acquisition Integration: Verify the timeline and cost realization for integrating Enerplus operations and achieving projected synergies.
• Debt Covenants: Confirm continued compliance with the Credit Facility covenants, specifically the Current Ratio requirement, given the increased debt load.
• Derivative Exposure: Review the specific terms of the commodity hedges (collars and swaps) to understand the downside protection and upside cap on future production.
• Capital Discipline: Monitor future capital expenditure levels to ensure they align with the company's stated strategy of maintaining free cash flow generation.
• Dividend Sustainability: Assess the variable dividend component's sensitivity to future commodity price fluctuations.