Chord Energy Corporation — Q2 2023 Form 10-Q Summary
Business context and reporting period
Chord Energy is an independent exploration and production company focused primarily on the Williston Basin. This unaudited Form 10-Q covers the three and six months ended June 30, 2023. Comparisons with 2022 are affected by the July 1, 2022 merger with Whiting Petroleum; 2023 includes Whiting’s operations, while pre-merger 2022 periods primarily reflect legacy Oasis. Chord also began reporting crude oil, NGLs and natural gas on a three-stream basis beginning July 1, 2022.
Key financial metrics
| Metric | Q2 2023 | Six months 2023 | Comparable prior period |
|---|---|---|---|
| Total revenue | $912.1 million | $1.809 billion | $789.4 million Q2 2022; $1.442 billion six months 2022 |
| Operating income | $251.0 million | $577.1 million | $330.8 million Q2 2022; $622.7 million six months 2022 |
| Net income attributable to Chord | $216.1 million | $513.1 million | $130.8 million Q2 2022; $596.8 million six months 2022 |
| Diluted EPS from continuing operations | $4.96 | $11.83 | $6.23 Q2 2022; $5.30 six months 2022 |
| Operating margin | 27.5% | 31.9% | 41.9% Q2 2022; 43.2% six months 2022 |
| Net cash provided by operating activities | $408.2 million | $877.0 million | Six months 2022: $662.0 million |
| Capital expenditures | $257.0 million E&P and other | $462.0 million E&P and other; $823.7 million including acquisition | Six months 2022 cash capital expenditures: $114.3 million |
Q2 average production was 168,952 Boepd, including 96,352 Bopd of crude oil, with an oil mix of approximately 57%. Q2 lease operating expense was $10.31 per Boe. Crude oil sales price before derivative settlements averaged $73.89 per barrel, and realized crude oil price after derivative settlements was $68.03 per barrel.
At June 30, 2023, cash and cash equivalents were $214.8 million, down from $593.2 million at December 31, 2022. The company reported approximately $1.2 billion of liquidity, consisting of cash and $993.9 million of unused revolver capacity. Total debt was $395.0 million net, comprising $400.0 million of 6.375% senior unsecured notes due June 2026; there were no revolving facility borrowings.
Material changes versus prior periods
- Revenue increased year over year primarily because the Whiting merger substantially expanded operations, although lower commodity prices reduced legacy-asset revenue.
- Q2 operating income and operating margin declined year over year as lease operating expense, DD&A, production taxes, G&A and other operating costs increased with the expanded asset base.
- Six-month net income declined from $596.8 million to $513.1 million despite higher continuing-operations income, because the 2022 period included $485.6 million of discontinued-operation income related primarily to the OMP merger gain.
- Derivative results improved materially, with a $96.5 million six-month net gain in 2023 versus a $466.2 million net loss in 2022. The 2023 gain included $238.7 million of unrealized gains, partially offset by $143.1 million of realized settlement losses.
- Cash used in investing activities increased to $858.3 million, driven by $407.8 million of cash capital expenditures and the $361.6 million Williston Basin acquisition.
- Cash used in financing activities was $397.1 million, including $337.7 million of dividends and $45.8 million of share repurchases.
Guidance, outlook, commentary and unusual items
The filing does not provide a clear formal production, capital spending or earnings guidance range. Management stated that it expects adequate liquidity to fund capital expenditures and contractual obligations for the next 12 months and the foreseeable future, but results remain highly sensitive to oil, NGL and natural gas prices.
- On June 30, 2023, Chord completed the acquisition of approximately 62,000 net Williston Basin acres from XTO Energy for $361.6 million in cash. The acquisition had no material post-acquisition operating contribution during the quarter.
- Chord entered agreements to sell non-core properties outside the Williston Basin for estimated net proceeds of $36.7 million; $31.8 million had been received by June 30, with approximately $4.9 million expected from remaining transactions in Q3 2023. It also received $21.5 million from non-operated wellbore divestitures.
- Six-month exploration and impairment expense included a $17.5 million Denver office right-of-use asset impairment, a $5.8 million oil-in-tank inventory write-down and a $5.6 million impairment of assets held for sale.
- The company declared a base-plus-variable dividend of $1.36 per share on August 2, 2023, payable August 29, 2023. The share-repurchase authorization had $227.1 million remaining at June 30.
- Commodity price hedges covered portions of future production. At June 30, unrealized crude oil derivatives were a net liability of approximately $66.4 million. Additional crude oil collars were entered into after quarter-end for late 2023 through 2025.
- Chord had a remaining commitment of $47.3 million under a gas gathering, processing and sale agreement requiring minimum gas deliveries through January 2028. Management believes production and reserves are sufficient to avoid deficiency payments.
Principal risks and contingencies
Material risks include volatility in commodity prices, production and reserve uncertainty, inflation in labor and service costs, gathering and transportation constraints, environmental and plugging obligations, counterparty and customer credit exposure, access to capital, regulatory changes and potential disruption in banking and financial markets. The filing identifies no material changes to previously disclosed risk factors other than risks associated with bank failures, liquidity events and financial institution nonperformance. The company had $6.1 million of letters of credit and $22.3 million of net surety bond exposure at June 30, 2023.
Investor verification checklist
- Reconcile year-over-year trends using merger-adjusted or pro forma information because reported 2022 comparisons are not fully comparable.
- Verify the sustainability of cash returns against commodity prices, hedge settlements, acquisition spending and continuing capital requirements.
- Track integration and operating performance of the XTO acreage acquisition, including future production, reserves and required development capital.
- Review the company’s hedge volumes, floors, ceilings and settlement losses to assess exposure to changes in crude oil, NGL and natural gas prices.
- Confirm completion and proceeds of the remaining non-core divestitures expected in Q3 2023.
- Monitor the $400 million senior notes due June 2026, revolver borrowing-base redeterminations and compliance with credit facility covenants.
- Assess potential deficiency payments under minimum-volume contracts and the adequacy of reserves to satisfy the $47.3 million gas delivery commitment.