Chord Energy Corporation — Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2023, filed February 26, 2024. Chord is an independent exploration and production company focused primarily on crude oil, NGLs and natural gas in the Williston Basin. The filing provides annual 2023 results; it does not present a complete standalone fourth-quarter income statement.
At year-end, Chord held approximately 1.03 million net Williston Basin leasehold acres, operated 3,760 gross producing wells and averaged 173,425 net Boe per day during 2023, approximately 58% crude oil.
Financial and operating metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $3.897 billion | $3.647 billion |
| Oil, NGL and gas revenue | $3.132 billion | $2.976 billion |
| Operating income | $1.273 billion | $1.584 billion |
| Income from continuing operations | $1.024 billion | $1.430 billion |
| Net income attributable to Chord | $1.024 billion | $1.856 billion |
| Diluted EPS from continuing operations | $23.51 | $44.35 |
| Cash flow from operations | $1.820 billion | $1.924 billion |
| E&P and other capital expenditures | $926.5 million | $507.7 million |
| Total capital expenditures, including acquisitions | $1.288 billion | $508.8 million |
| Lease operating expense per Boe | $10.41 | $10.14 |
| Crude oil sales price, before derivative settlements | $77.85/Bbl | $92.98/Bbl |
| Average daily production | 173,425 Boepd | 119,785 Boepd |
2023 production totaled 63.3 million Boe, including 36.4 million barrels of crude oil, 13.0 million barrels of NGLs and 83.0 Bcf of natural gas. Realized prices after derivative settlements were $70.92/Bbl for crude oil, $13.84/Bbl for NGLs and $1.35/Mcf for natural gas.
Net cash declined by $275.2 million during 2023 to $318.0 million. Cash flow from operations exceeded E&P and other capital expenditures, but investing cash outflows also included the $361.6 million XTO acquisition. Financing cash outflows included $500.3 million of dividends and $239.3 million of share repurchases.
At December 31, 2023, total assets were $6.926 billion, total liabilities were $1.850 billion and stockholders’ equity was $5.077 billion. Debt consisted of $400.0 million of 6.375% senior unsecured notes due June 2026, net of deferred financing costs, with no borrowings under the revolving facility. Liquidity was approximately $1.3 billion, comprising $318.0 million of cash and $991.1 million of unused revolving capacity.
Material changes versus the prior comparable period
- Production increased 44.8%, principally reflecting the full-year contribution from the July 2022 Whiting merger and additional drilling.
- Total revenue increased 6.8%, with crude oil revenue up $469.0 million. Lower crude oil, NGL and natural gas prices offset part of the volume benefit; natural gas revenue declined materially because the average price fell to $1.43/Mcf from $6.30/Mcf before derivative settlements.
- Operating income decreased 19.6% as higher production-related expenses, DD&A and impairment charges more than offset revenue growth.
- Net income attributable to Chord fell 44.9%, partly because 2022 included $425.7 million of income from discontinued operations related to the OMP merger and a favorable 2022 tax benefit.
- Cash flow from operations decreased 5.4%, while E&P and other capital expenditures increased 82.5%.
- Chord completed the acquisition of approximately 62,000 net Williston Basin acres from XTO for $361.6 million and completed non-core asset sales producing $39.1 million of net proceeds, plus $12.1 million from non-operated wellbore divestitures.
- Proved reserves declined to 636.2 MMBoe from 655.6 MMBoe. Production and negative revisions outweighed extensions, discoveries and purchased reserves. Negative revisions totaled 48.9 MMBoe, driven primarily by lower commodity prices, tighter differentials, higher costs and changes in development timing.
- Chord generated a $63.2 million net derivative gain in 2023 versus a $208.1 million net derivative loss in 2022, producing significant year-over-year earnings volatility.
Guidance, outlook, commentary and unusual items
- Management expects 2024 E&P capital expenditures of approximately $905 million to $945 million, four operated rigs during most of the year and approximately 103 to 113 gross operated wells turned in line.
- The return-of-capital framework includes a base dividend of $1.25 per share per quarter, variable dividends tied to adjusted free cash flow and leverage, and a $750 million share repurchase authorization. Chord declared $11.88 per share of dividends for 2023 and had $683.0 million of repurchase capacity remaining at year-end. A $3.25 per share base-plus-variable dividend was declared on February 21, 2024.
- On February 21, 2024, Chord agreed to acquire Enerplus in a stock-and-cash transaction expected to close by mid-2024, subject to shareholder, court, regulatory and other closing conditions. Enerplus shareholders are to receive 0.10125 Chord shares and $1.84 in cash per Enerplus share. Chord and Enerplus shareholders are expected to own approximately 67% and 33%, respectively, of the combined company.
- The Enerplus transaction carries execution, integration, approval, litigation, dilution and potential termination-fee risks. The filing identifies termination fees of $240 million payable by Chord or $127 million payable by Enerplus under specified circumstances.
- Unusual 2023 charges included $17.5 million for a Denver office lease right-of-use asset impairment, $5.8 million for an oil-in-tank inventory write-down and $5.6 million for non-core properties held for sale.
- Chord received a $25.0 million earn-out payment in January 2024 related to the 2023 sale of Permian Basin assets. The company may receive additional earn-outs for 2024 and 2025 if specified WTI price conditions are met.
- Commodity derivatives covered portions of 2024 crude oil production and 2025 crude oil and natural gas production. Derivatives reduce downside exposure but can limit participation in higher commodity prices and create fair-value earnings volatility.
Principal risks and contingencies
- Commodity price volatility, OPEC+ actions, geopolitical conflicts, macroeconomic conditions and inflation can materially affect revenue, profitability, liquidity, reserve values and capital spending.
- Operations are heavily concentrated in the Williston Basin and depend on a limited number of midstream providers and transportation routes. A shutdown or material disruption of the Dakota Access Pipeline could weaken regional prices, although management cites alternative outlets.
- Production and development depend on drilling results, equipment, qualified personnel, water availability, disposal capacity, permitting, weather and service costs. Approximately 29% of proved reserves were classified as proved undeveloped at year-end.
- Environmental, methane, flaring, hydraulic fracturing, water, pipeline safety, climate-related and occupational regulations may increase costs, restrict operations or delay permitting.
- Volume commitments require minimum deliveries or purchases of approximately 20.6 MMBbl of crude oil, 12.0 MMBbl of NGLs, 438.7 Bcf of natural gas and 1.6 MMBbl of water. Estimated future commitments were $391.6 million, excluding amounts that cannot be estimated and potential deficiency payments.
- Material contingencies include $8.9 million of letters of credit, $27.1 million of net surety bond exposure and litigation relating to title to certain Missouri Riverbed minerals on the Fort Berthold Reservation. The filing states that the ultimate outcome of legal and regulatory matters may be uncertain.
- Cybersecurity threats, counterparty and customer concentration, uninsured operational losses, tax-attribute limitations and restrictions under debt agreements remain material risks. Management and the auditor concluded that internal control over financial reporting was effective at December 31, 2023.
Facts investors should verify
- Reconcile annual 2023 earnings and cash flow with the impact of lower commodity prices, derivative settlements, tax expense and the discontinued OMP operation.
- Assess the sustainability of the dividend and repurchase program against 2024 capital spending, commodity-price assumptions and free cash flow.
- Review the Enerplus transaction’s final approvals, financing, dilution, integration assumptions, expected synergies and post-closing leverage.
- Evaluate reserve revisions, the 29% PUD reserve concentration, the $2.7 billion estimated cost to develop PUD reserves and sensitivity to commodity prices.
- Monitor borrowing-base redeterminations, the June 2026 senior-notes maturity, volume commitments and potential deficiency payments.
- Assess exposure to Williston Basin transportation, DAPL, midstream capacity, environmental regulation, methane fees and Fort Berthold title proceedings.