Chord Energy Corp Q1 FY2025 earnings call

• Danny Brown highlighted strong first quarter results, free cash flow above expectations, and shareholder returns. The company reduced full-year capital guidance by $30 million. - Darrin Henke discussed efficiency improvements, including the successful four-mile lateral program with lower well costs and faster drilling times. He also mentioned LOE improvements and operational excellence. - Richard Robuck spoke about the company's strong balance sheet, differentials, production taxes, and cash taxes.

Chord delivered a strong first quarter with adjusted free cash flow of approximately $291 million. Oil volumes were above capital guidance due to strong well performance, and operating expenses were lower than expected. Share repurchases totaled $216.5 million during the quarter, and since April 1, an additional $45 million was repurchased. The company maintained shareholder returns at 100% of free cash flow.

• Announced a $30 million reduction to full-year capital guidance, reflecting program efficiencies. - Full-year volume expectations remain unchanged. - Decision on the second frac crew to be made in the third quarter; inclined to maintain one frac crew at current strip prices as per current strip prices.

• Volatility in pricing and macroeconomic uncertainties that could impact activity levels and capital allocation.

Q: Good morning, Danny and team, and thanks for taking the questions. Just wanted to start on activity levels. And I know there are many variables that go into the decision-making process and understand the biases to not pick up the spot right crew in Q4 at this time, whether it is more returns driven or just not wanting to chew through precious inventory at these oil prices. But if we're talking about crude with a five handle on it once Q4 and even early 2026 comes around, would one full-time simulfrac fleet be the default optimal ballpark of activity levels for 2026 as well? If you could just maybe walk through the thought process on what would need to happen to justify the bringing back of the spot crude for a portion of the year.

A: Thanks for the question, Oliver. And I think you framed it well. At the end of the day, it's really just a capital allocation decision for us. And it's going to depend on a variety of factors. So we'll be looking at service costs based on this. We'll be looking at our own share price candidly because, again, it's just a capital allocation decision. But all else being equal, I think what we would want to see is oil, I would say, firmly and what we would think would be in the 60s in order to bring that second frac crew back. So with oil at a five handle, again, all else equal, we probably would anticipate we'd have better capital allocation opportunities in an environment like that. And that's kind of how we're thinking about it. But again, we have not made that decision. We are in a really nice place just naturally through our program that we've reduced activity in this environment. And it gives us a chance to monitor. And so we've gone down to the single frac crew that's doing simulfracs for us. It's a very efficient program. And we'll maintain this. And we'll really make a final call on this in the third quarter. So no decisions have been made, but wanted to be transparent about kind of how we're thinking about this environment, and I think you framed the situation well.

Q: Good morning, everyone. For my first question here, first quarter looks like a really strong quarter with oil production higher than expected. 2Q also looks stronger than a lot of us had in our models. Could you maybe talk to us about how the oil cadence -- what the oil cadence looks like for 3Q and 4Q for this year?

A: Yeah. Thanks for the question, Noah. I think if you look at kind of how we're guiding for the full year relative to what we just did for 1Q and 2Q, you can kind of imply that we'll be -- oil will be drifting down, particularly in the fourth quarter. And if you think about what we've talked about the fact that we're dropping to a one crew program right now and contemplating picking one up again in the fourth quarter, that also ought to imply a little bit on the cadence of our oil production. And so we do anticipate oil production is going to fall as we move into the back end of the year. If we elect to pick up that second frac crew in the fourth quarter that will obviously will start completing those wells, we'll TIL them maybe starting at the very end of the fourth quarter, but really into 2026, and you'll see that production cadence pick back up again. But yeah, we do anticipate seeing oil fall a little bit as we've dropped this frac crew. We'll bring TILs on through the third quarter. We won't bring as many TILs on in the fourth quarter. And so you'll start to see our production volumes fall a little bit into 4Q. And if we pick that frac crew up, they'll move back up again in 1Q.

Q: Good morning all, congrats on a strong 1Q.

A: Thanks, Derrick.

Q: Wanted to focus on your maintenance capital as my first question. If we were to assume the approximate 150,000 barrel per day rate implied by your second half guide, could the current rate of activity generate flattish growth in 2026? And if so, what would the maintenance capital be to sustain that at current cost and optimal level through all or greater laterals?

A: Yeah. I think if the question -- for us to maintain -- 152.5 is around 1.5 crew program. And so if we go down to something sub that, I think we would -- that's probably unlikely to maintain a 150 program. And so it would be something sub that if you're talking about a one crew simulfrac program.

Q: Good morning. Thanks for taking the question. Just a quick one. Could you talk -- give a bit more detail on kind of the total addressable market, those four-mile laterals versus locations? Talk about being 50% of the program, but should we think about that extrapolating out kind of the wider inventory numbers? Or is there a different kind of decline rate in that over time?

A: Thanks for the question, Paul. So as we think about our -- I'm going to frame this around long lateral inventory. And so long lateral inventory. We're trying to shoot to sort of over 80% of our total inventory set. Four-mile laterals, as you think about the opportunity set there, that's probably under 50% of the program, but 80% is what we're shooting for, for three miles, let's call it, three-mile plus, which just offers tremendous incremental efficiency gains relative to what we would see from a two-mile program. And what was the second part of your question?

Q: Hi, guys. The question is really about sort of the increase in cycle times from sort of two-mile to three-mile to four-mile. And as you sort of migrate to a greater percentage of the longer laterals. How will that sort of change your, I guess, cadence of spending and production if you kind of look out to 2026 and 2027?

A: Yeah. My expectation is that as we've -- the cycle time per well increases, but the cycle time per foot decreases. And so as you think about that, you can accomplish the same sort of lateral foot drilling with lower capital cost and fewer wells. And so it all depends on what you're solving for. If you're solving for delivering a particular well count, that's one issue, but we're solving -- that's not necessarily what we're solving for. And so I think what we're going to look at is -- how does the -- again, what's the right capital allocation decision for us in the environment that we're in. And then the production will be an output of that, not necessarily an input to that. So the nice thing is that, again, the cycle times stretch out a little bit, but the delivery -- the per foot delivery actually improves pretty significantly associated with this.

Q: Hi, good morning. I apologize if you touched on this already, but can you talk about sort of the potential footprint expansion that four-miles could give you, just making locations or parts of the play that were not quite economic feasible?

A: Yeah. I don't know how much specific I can provide around that. We've got some acreage maps that we've put out in the past, and we're probably happy to visit on this sort of off-line on areas where -- it was more at the very outskirts of the basin, areas where it was a little tougher for us to compete with capital. And so as we go for those opportunities to compete for capital -- as we move into four miles, I think some of those start to fall in to where they do offer very attractive rates of returns associated with development out there. And so there is -- there will be a small footprint expansion associated with going successfully moving to four-mile laterals, again, just because of the breakeven cost. Just because of the breakeven cost improvement that we'll see due to the more efficient development design.