Chord Energy Corporation: Q1 2023 Form 10-Q Summary
Business context and reporting period
Chord Energy is an independent exploration and production company focused on long-lived assets in the Williston Basin. This unaudited Form 10-Q covers the three months ended March 31, 2023. Results include the operations of Whiting Petroleum following the July 1, 2022 merger; the March 31, 2022 comparable period primarily reflects legacy Oasis and is therefore not fully comparable.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenues | $896.5 million | $653.0 million |
| Operating income | $326.1 million | $291.9 million |
| Income from continuing operations | $297.0 million | $(19.6) million |
| Net income attributable to Chord | $297.0 million | $466.0 million |
| Basic diluted EPS | $7.13 / $6.87 | $24.14 / $24.14 |
| Net cash from operating activities | $468.8 million | $265.6 million |
| Capital expenditures, cash basis | $172.3 million | $48.8 million |
| Capital expenditures per MD&A | $203.7 million | Not provided |
Operating margin was approximately 36.4% and net margin was approximately 33.1% in Q1 2023. Operating cash flow was approximately 52.3% of revenue. These calculated margins are affected by derivative gains and the post-merger change in scale.
- Average production was 164,740 Boepd, including 95,113 Bopd of crude oil; production was 58% oil.
- Average crude oil sales price was $76.04 per barrel, or $65.79 after derivative settlements. Natural gas sales price was $2.66 per Mcf, or $2.31 after settlements. NGL sales price was $21.13 per barrel, or $22.10 after settlements.
- Lease operating expense was $153.4 million, or $10.35 per Boe. DD&A was $133.8 million, and general and administrative expense was $32.5 million.
- Q1 included a $66.9 million net derivative gain, consisting primarily of a $157.7 million unrealized gain partly offset by $91.9 million of settled-contract losses.
- Cash and equivalents were $592.3 million at March 31, 2023, compared with $400.0 million of gross senior notes debt and $394.6 million of debt net of financing costs.
- The company had no revolver borrowings, $6.1 million of letters of credit, and $994.0 million of unused elected borrowing capacity. Reported liquidity was approximately $1.6 billion.
- The company paid $202.5 million of dividends and repurchased $15.0 million of common stock during the quarter.
Material changes versus prior comparable period
- Revenue increased 37% to $896.5 million, primarily because the Whiting merger expanded the operating base. Excluding merger effects, management said lower commodity prices reduced legacy crude oil and natural gas/NGL revenues.
- Operating income increased to $326.1 million from $291.9 million, despite higher lease operating costs, DD&A, production taxes, G&A, and impairment expense.
- Continuing-operations earnings improved from a $19.6 million loss to $297.0 million of income, primarily due to the favorable year-over-year change in derivative results.
- Q1 2022 net income included $485.6 million of after-tax discontinued-operations income from the OMP merger and related gain on sale. No discontinued operations were reported in Q1 2023, making total net income and EPS comparisons misleading.
- Operating cash flow rose by $203.2 million, while investing cash flow shifted to a $241.6 million use, reflecting higher capital expenditures, lower divestiture proceeds, and derivative settlements.
- LOE increased to $10.35 per Boe from $10.07 per Boe, while gathering, processing and transportation expense declined to $2.50 per Boe from $5.17 per Boe.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide a clear full-year production, capital expenditure, revenue, or earnings guidance figure.
- Management expects Q2 2023 realized oil prices to range from a $0.60 per barrel discount to a $1.40 per barrel premium to NYMEX WTI.
- Management stated that current liquidity should fund capital expenditures and contractual obligations for the next 12 months and the foreseeable future, while noting that future dividend payments depend on earnings, financial condition, capital requirements, debt, and other restrictions.
- On May 2, 2023, the revolving facility borrowing base was reduced to $2.5 billion from $2.75 billion due to lower bank commodity price assumptions. Elected commitments remained $1.0 billion, and the next redetermination is expected around October 2023.
- Q1 included a $17.5 million impairment of the Denver office right-of-use asset and a $5.8 million lower-of-cost-or-market write-down of oil-in-tank inventory.
- At March 31, 2023, unrealized crude oil derivative positions were a net liability of $147.4 million. A 10% increase in crude oil prices was estimated to increase that liability by approximately $58.4 million.
- Commodity prices, production volumes, inflation, service and labor availability, pipeline and transportation access, environmental and regulatory requirements, counterparty credit, cybersecurity, banking-market disruptions, and potential Dakota Access Pipeline disruption are material risks.
- In April 2023, Chord entered a gas gathering, processing and sale agreement requiring minimum gas deliveries through January 2028, with aggregate commitments of approximately $55.6 million. Management believes production and reserves are sufficient to avoid deficiency payments.
- In May 2023, Chord announced sales of certain non-core properties outside the Williston Basin for approximately $35.0 million, with transactions closed or expected to close in Q2 2023.
Most important facts for investors to verify
- Separate the recurring E&P results from Q1 2022 discontinued-operations income and the non-comparable effects of the Whiting merger.
- Reconcile reported earnings and cash flow to commodity prices, derivative settlements, and unrealized derivative mark-to-market gains or losses.
- Monitor crude oil, NGL, and natural gas production, realized prices, LOE per Boe, and capital spending against future disclosures.
- Confirm the impact of the reduced borrowing base, fixed-rate senior notes due June 2026, covenant compliance, and available revolver capacity.
- Assess the sustainability of the base-plus-variable dividend and share-repurchase program under lower commodity-price scenarios.
- Review the gas minimum-volume commitment, other transportation and delivery commitments, asset retirement obligations, and potential deficiency payments.
- Track non-core divestiture proceeds, integration progress, and any additional merger-related or lease-related charges.