8-K: Chord Energy Exceeds Expectations in Q1 2024, Merger with Enerplus on Track

Chord Energy reported strong first-quarter 2024 results, exceeding production guidance and maintaining its merger timeline with Enerplus.

Summary

• Chord Energy announced its financial and operating results for the first quarter of 2024, with oil volumes reaching 99.0 MBopd, surpassing the high end of guidance.
• Lease Operating Expenses were $10.39 per BOE, below the low end of guidance.
• Total production volumes were 168.4 MBoepd.
• E&P and other capital expenditures totaled $257.7 million, including $3.9 million of reimbursed non-operated capital.
• Net cash from operating activities was $406.7 million, and net income was $199.4 million.
• Adjusted EBITDA was $464.8 million, and Adjusted Free Cash Flow was $199.6 million.
• The company expects to complete its merger with Enerplus on May 31, 2024.
• Shareholder returns were $153 million, representing 75% of Adjusted Free Cash Flow, excluding reimbursed capital.
• Share repurchases totaled $30.0 million at a weighted average price of $155.20 per share.
• A base-plus-variable cash dividend of $2.94 per share was declared.
• Chord expects to generate approximately $1.9 billion of Adjusted EBITDA and $870 million of Adjusted Free Cash Flow in 2024.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong operational results, exceeding production guidance, lower than expected operating expenses, and a significant shareholder return program. The merger with Enerplus is also presented as a positive development. However, there are some minor negatives such as lower natural gas volumes and price realizations, and the net loss on derivative instruments.

Positives

• Chord Energy's oil production exceeded expectations, demonstrating strong operational performance.
• The company's lease operating expenses were lower than anticipated, indicating efficient cost management.
• The company generated significant free cash flow, allowing for substantial shareholder returns.
• The merger with Enerplus is progressing as planned, promising enhanced scale and synergies.
• The company declared a strong dividend of $2.94 per share.
• Chord's safety performance was the strongest in company history for the quarter.
• The company has a strong balance sheet with $1,287.5 million in liquidity.

Negatives

• Natural gas volumes were slightly below guidance at 209.8 MMcfpd.
• Natural gas price realizations were lower than expected.
• The company experienced a net loss on derivative instruments of $27.6 million.
• Total revenues decreased from $766.2 million in Q1 2023 to $748.3 million in Q1 2024.

Risks

• The merger with Enerplus is subject to customary closing conditions and could be delayed or not completed.
• The company's future performance is subject to commodity price fluctuations.
• Integration of Enerplus may present challenges and may not achieve the expected synergies.
• Changes in governmental regulations or enforcement practices could impact the company.
• The company faces risks associated with oil and gas activities, including operational and environmental risks.

Future Outlook

Chord Energy expects to update its 2024 guidance following the completion of the transaction with Enerplus, and anticipates generating approximately $1.9 billion of Adjusted EBITDA and $870 million of Adjusted Free Cash Flow in 2024 on a standalone basis.

Management Comments

• Chord delivered exceptional operational performance in the first quarter, said Danny Brown, Chord Energy's President and Chief Executive Officer.
• The team rebounded quickly from difficult weather conditions in January while improving cycle times in our development program and exhibiting the strongest quarterly safety performance in company history.
• This improved operational performance, coupled with strong well performance, drove first quarter oil production and free cash flow above expectations.
• Shareholder returns remain robust, supported by deep, low-cost inventory and excellent capital efficiency.
• Chord and Enerplus remain on track to combine at the end of the month, creating a premier Williston Basin operator with enhanced scale, significant low-cost inventory, financial strength, and peer-leading shareholder returns.
• The Chord and Enerplus teams are working diligently to identify incremental synergies and expect to see more than $150MM of synergies captured, excluding upside from stock-based compensation or cost of capital.
• We remain focused on our core operating philosophy emphasizing capital discipline, improving operational efficiency and returns, and sustainable practices.
• We remain excited about the oil and gas industry and the value we bring to the world.

Industry Context

This announcement comes as the oil and gas industry continues to navigate fluctuating commodity prices and consolidation trends. Chord's strong operational performance and focus on shareholder returns position it well within the sector, while the pending merger with Enerplus reflects a broader trend of companies seeking scale and efficiency through strategic combinations.

Comparison to Industry Standards

• Chord's oil production of 99.0 MBopd is strong compared to other mid-sized E&P companies in the Williston Basin, such as Continental Resources and Marathon Oil, which have reported similar production levels in recent quarters.
• The company's LOE of $10.39/BOE is competitive, indicating efficient cost management compared to the industry average, which typically ranges from $10 to $13 per BOE for onshore operations.
• Chord's Adjusted EBITDA of $464.8 million and Adjusted Free Cash Flow of $199.6 million are solid, placing it in a good position relative to peers like Devon Energy and EOG Resources, which have reported similar metrics.
• The planned merger with Enerplus is a significant move, similar to other recent consolidations in the sector, such as the merger between Ovintiv and Encana, aimed at creating larger, more efficient operators.
• The expected synergies of over $150 million from the merger are in line with industry expectations for similar transactions, where cost savings and operational efficiencies are key drivers.

Stakeholder Impact

• Shareholders will benefit from the strong dividend and share repurchase program.
• Employees may experience changes due to the merger with Enerplus.
• Customers and suppliers may see changes in the company's operations and scale.
• Creditors will be impacted by the company's financial performance and debt management.

Next Steps

• Complete the merger with Enerplus on May 31, 2024.
• Update 2024 guidance following the completion of the merger.
• Continue to focus on capital discipline and operational efficiency.
• Monitor commodity prices and market conditions.
• Integrate the operations of Chord and Enerplus to achieve expected synergies.

Key Dates

Keywords

Chord Energy, Enerplus, Merger, Oil Production, EBITDA, Free Cash Flow, Dividends, Share Repurchase, Williston Basin, Capital Expenditures