Chord Energy Corporation — 2022 Form 10-K Summary
Business context and reporting period
Chord Energy, formerly Oasis Petroleum, is an independent exploration and production company focused on the Williston Basin in North Dakota and Montana. The filing covers the fiscal year ended December 31, 2022. Chord completed its merger with Whiting Petroleum on July 1, 2022; therefore, 2022 results include legacy Oasis for the first half and Chord, including Whiting, for the second half. The company also completed the sale of Oasis Midstream Partners in February 2022, which is reported as a discontinued operation.
- Average production: 119,785 Boepd, including 171,880 Boepd after the Whiting merger; 58% of full-year production was crude oil.
- Year-end proved reserves: 655.6 MMBoe, 77% proved developed and 58% crude oil.
- Williston Basin acreage: 963,009 net leasehold acres, approximately 99% held by production.
Key financial metrics
| Metric | 2022 | 2021 | Change/comment |
|---|---|---|---|
| Total revenue | $3.647 billion | $1.580 billion | Increased primarily from higher commodity prices and the merger |
| Operating income | $1.584 billion | $809.4 million | Operating margin approximately 43.4% versus 51.2% |
| Net income attributable to Chord | $1.856 billion | $319.6 million | Includes discontinued-operation income and merger-related effects |
| Net income from continuing operations | $1.430 billion | $189.0 million | Basic EPS $46.90; diluted EPS $44.35 |
| Net income margin | Approximately 50.9% | Approximately 20.2% | Elevated by the $518.9 million OMP sale gain and tax benefits |
| Operating cash flow | $1.924 billion | $914.1 million | Benefited from higher prices and expanded operations |
| Capital expenditures | $508.8 million | $805.6 million | 2021 included substantially higher acquisition spending |
| Cash dividends paid | $654.7 million | $111.9 million | Included base, variable and special dividends |
| Cash and cash equivalents | $593.2 million | $172.1 million | Year-end balance increased materially |
| Liquidity | $1.587 billion | Not clearly provided on the same basis | Includes cash and $993.6 million of unused revolver capacity |
| Long-term debt, net | $394.2 million | $392.5 million | Consists primarily of $400 million of 6.375% senior notes due 2026 |
Crude oil revenue was $2.367 billion, NGL revenue was $184.3 million and natural gas revenue was $425.0 million. Average unhedged realized prices were $92.98 per barrel for crude oil, $26.23 per barrel for NGLs and $6.30 per Mcf for natural gas. Full-year crude oil revenue and prices are not directly comparable with 2021 because the merger expanded the asset base and Chord adopted three-stream reporting for NGLs beginning July 1, 2022.
Material changes versus the prior comparable period
- The Whiting merger added approximately $1.045 billion of revenue and $553.7 million of pre-tax continuing-operation income for the post-merger period included in 2022. Chord issued 22.7 million shares and paid $245.4 million in cash to Whiting stockholders.
- Production more than doubled to 119,785 Boepd from 58,032 Boepd in 2021, although the periods are not fully comparable because Whiting contributed only six months of results.
- Operating expenses increased to $2.068 billion from $993.3 million, driven by the enlarged asset base, higher production taxes, DD&A and purchased oil and gas costs.
- Lease operating expense increased to $10.14 per Boe from $9.63 per Boe, while gathering, processing and transportation expense declined to $3.24 per Boe from $5.79 per Boe.
- Net derivative loss declined to $208.1 million from $589.6 million, but settled commodity-derivative losses were $561.1 million in 2022 and reduced realized prices. The year-end net commodity-derivative liability was approximately $328.9 million.
- General and administrative expense increased to $209.3 million, including $97.7 million of merger-related costs, such as severance, transaction costs and accelerated equity compensation.
- Chord sold OMP to Crestwood for $160.0 million in cash and Crestwood units, then sold 16.0 million Crestwood units for $428.2 million of net proceeds. The OMP transaction generated a $518.9 million pre-tax gain and $425.7 million of discontinued-operation income attributable to Chord.
- The company released most of its deferred-tax valuation allowance, producing a $46.9 million income-tax benefit from continuing operations and a $200.2 million net deferred-tax asset at year-end.
Guidance, outlook, commentary and risks
- Management expects 2023 E&P capital expenditures of approximately $825 million to $865 million, four operated rigs for most of the year and completion of approximately 90 to 94 gross operated wells at an average working interest of approximately 73%.
- The return-of-capital plan includes a $1.25 per-share quarterly base dividend, a $300 million share-repurchase authorization and variable dividends tied to adjusted free cash flow and leverage. The company declared a $4.80 per-share base-plus-variable dividend in February 2023.
- At December 31, 2022, Chord had no revolver borrowings, $6.4 million of letters of credit and $993.6 million of unused borrowing capacity. The revolver matures July 1, 2027, subject to borrowing-base redeterminations and financial covenants.
- Management identified inflation in labor, materials and oilfield services as a continuing 2023 risk, although it did not expect inflation to materially impair liquidity or day-to-day operations based on its then-current assessment.
- Key operational risks include commodity-price volatility, concentrated exposure to the Williston Basin, reliance on third-party gathering and transportation providers, possible disruption or shutdown of the Dakota Access Pipeline, winter weather, water availability and drilling-service costs.
- Regulatory and environmental risks include methane and greenhouse-gas rules, the Inflation Reduction Act methane fee, hydraulic-fracturing restrictions, pipeline-safety requirements, permitting delays, water and waste-disposal regulation, and potential environmental liabilities.
- Chord has minimum delivery, transportation or purchase commitments with estimated future obligations of approximately $519.5 million, excluding amounts that cannot be estimated because they depend on commodity-index differentials. Deficiency payments could arise if production or transportation volumes are insufficient.
- The company reserved 1,224,840 shares for potential distributions related to unresolved Whiting bankruptcy claims. It also paid $55.0 million in November 2022 to resolve Point Arguello-related decommissioning claims.
- The filing states that management and the independent auditor found internal control over financial reporting effective as of December 31, 2022, but Whiting was excluded from management’s control assessment because it was acquired during 2022.
Most important facts for investors to verify
- Separate the recurring E&P earnings and cash generation from the $518.9 million OMP divestiture gain, discontinued-operation income and deferred-tax valuation allowance release.
- Assess the sustainability of free cash flow after the planned $825 million to $865 million of 2023 capital spending, base dividends, variable dividends and share repurchases.
- Review the effect of the company’s hedges, including 2023 crude oil collars and swaps, on realized prices and downside protection.
- Monitor the revolver borrowing-base redetermination, covenant compliance and the $400 million senior notes due June 2026.
- Evaluate the comparability of production, revenue and reserve growth because the Whiting assets were consolidated only from July 1, 2022 and NGLs began being reported separately at that date.
- Review the $519.5 million of minimum-volume commitments, third-party midstream dependence and potential deficiency payments.
- Test reserve valuation sensitivity: management estimated that a 10% decrease in SEC crude oil and natural gas prices would reduce proved reserves by 9.5 MMBoe and PV-10 by approximately $2.2 billion.