Chord Energy Corporation: Q3 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 and nine months ended September 30, 2023. Comparisons are affected by the July 1, 2022 merger with Whiting Petroleum; 2022 periods include legacy Oasis results before the merger and Chord results thereafter. Chord also adopted three-stream reporting for crude oil, NGLs and natural gas beginning July 1, 2022.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $1,123.4 million | $1,188.8 million | $2,932.0 million | $2,631.2 million |
| Operating income | $352.7 million | $537.3 million | $929.8 million | $1,160.0 million |
| Net income attributable to Chord | $209.1 million | $881.8 million | $722.1 million | $1,478.6 million |
| Diluted EPS | $4.77 | $20.45 | $16.54 | $51.99 |
| Net cash from operating activities | Not separately provided | Not separately provided | $1,276.5 million | $1,445.6 million |
Q3 operating margin was approximately 31.4% and net margin was approximately 18.6%. For the nine-month period, operating margin was approximately 31.7% and net margin was approximately 24.6%. Net income and EPS comparisons are distorted by $425.7 million of discontinued-operation income recorded in the 2022 nine-month period, primarily from the OMP merger and related gain on sale.
- Q3 production averaged 176,003 Boepd, including 101,356 Bopd of crude oil; production was 58% oil.
- Q3 crude oil revenue was $776.0 million, NGL revenue was $41.0 million, natural gas revenue was $23.6 million and purchased oil and gas sales were $282.7 million.
- Q3 average crude oil sales price before derivative settlements was $83.22 per barrel; realized price after derivative settlements was $76.45 per barrel.
- Q3 lease operating expense was $177.1 million, or $10.94 per Boe.
- Q3 E&P and other capital expenditures were approximately $255.0 million, including $254.0 million of E&P spending.
- At September 30, 2023, cash and cash equivalents were $265.0 million and total assets were $6.9 billion.
- Total debt was $395.5 million net of deferred financing costs, consisting primarily of $400.0 million of 6.375% senior unsecured notes due June 2026. The revolving facility had no borrowings outstanding.
- Available liquidity was approximately $1.3 billion, comprising cash and $993.6 million of unused revolving capacity. The company was in compliance with its financial covenants.
Material changes versus comparable periods
- Q3 revenue decreased 5.5% year over year, while operating income decreased 34.4% and net income decreased 76.3%. The primary drivers were lower commodity prices, higher operating costs and an $85.2 million net derivative loss versus a $337.4 million derivative gain in Q3 2022.
- Nine-month revenue increased 11.4%, primarily due to the expanded post-merger asset base, but operating income decreased 19.8%. Lower crude oil, NGL and natural gas prices offset higher production volumes.
- Nine-month net cash from operations decreased $169.1 million, or 11.7%, versus 2022, while investing cash outflows increased to $1.1 billion due to higher capital expenditures and the $361.6 million Williston Basin acquisition.
- Lease operating expense increased to $489.1 million for the nine months, and DD&A increased to $431.1 million, largely reflecting expanded operations and higher depletion rates.
- General and administrative expense declined to $100.8 million for the nine months, primarily because merger-related costs decreased.
- On June 30, 2023, Chord acquired approximately 62,000 net Williston Basin acres from XTO Energy for $361.6 million in cash. The acquisition was funded with cash on hand and was not material to reported post-acquisition operating results.
- Chord sold or agreed to sell non-core properties outside the Williston Basin for estimated net proceeds of $38.7 million and completed additional non-operated wellbore divestitures for $19.8 million.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide a clear quantitative production, capital expenditure or earnings guidance range. Management states that it expects adequate liquidity to fund capital expenditures and contractual obligations over the next 12 months and the foreseeable future.
- Management does not currently consider an impairment of oil and gas properties reasonably likely at prevailing prices, but notes that a material or sustained commodity-price decline or higher operating costs could require an impairment review.
- Commodity-price exposure remains significant. At September 30, 2023, unrealized crude oil derivatives were a net liability of $94.8 million; a 10% increase in crude oil prices would increase that liability by approximately $56.2 million.
- Outstanding commodity derivatives include crude oil collars and swaps extending through 2025 and natural gas swaps extending through 2025. These contracts can limit the benefit of higher commodity prices and create settlement and counterparty risks.
- Chord expects approximately $25.0 million in the first quarter of 2024 from contingent consideration related to a 2021 Permian Basin divestiture, subject to the applicable WTI price conditions.
- Unusual nine-month charges included $17.5 million for impairment of a Denver office right-of-use asset, $5.8 million for an oil-in-tank inventory write-down and $5.6 million related to properties held for sale.
- On October 31, 2023, the revolving credit facility borrowing base was reaffirmed at $2.5 billion and elected commitments remained $1.0 billion. The facility matures July 1, 2027.
- In October 2023, the board authorized a new $750.0 million share repurchase program, replacing the prior $300.0 million program. Chord repurchased $112.3 million of stock in Q3 and paid a $1.36 per-share base-plus-variable dividend.
- On November 1, 2023, Chord declared a $2.50 per-share base-plus-variable dividend payable November 28, 2023.
- Key risks include volatility in oil, NGL and natural gas prices; inflation in labor, materials and services; transportation and infrastructure constraints; environmental and regulatory obligations; operational hazards; counterparty and customer credit risk; elevated interest rates and financial-market disruptions; geopolitical conflicts; and minimum-volume delivery commitments.
- Chord had $44.0 million remaining under a gas gathering, processing and sale commitment through January 2028 and expects production and reserves to satisfy the requirement without deficiency payments. A separate October 2023 agreement adds approximately $29.3 million of aggregate minimum-volume commitments through January 2031.
Most important facts for investors to verify
- Reconcile year-over-year results on a comparable basis given the Whiting merger and the OMP discontinued operation.
- Assess sensitivity of cash flow and shareholder returns to crude oil, NGL and natural gas prices, including the effect of derivative settlements and unrealized derivative liabilities.
- Evaluate whether the $1.3 billion liquidity position remains sufficient after capital spending, dividends, repurchases, acquisitions and potential derivative settlements.
- Review the timing and economics of the $361.6 million Williston Basin acquisition and the expected benefits from the acquired acreage.
- Monitor depletion rates, reserves, production volumes and operating costs, particularly the increase in DD&A and lease operating expense per Boe.
- Confirm the terms, sustainability and funding of the expanded dividend and $750.0 million repurchase authorization.
- Review future borrowing-base redeterminations, the $400.0 million notes due in 2026, minimum-volume commitments, asset-retirement obligations and environmental liabilities.