8-K: Chord Energy Exceeds Production Guidance, Announces Dividends and 2024 Outlook

Chord Energy reported strong fourth-quarter and full-year 2023 results, exceeding production guidance and announcing a base-plus-variable dividend, while also providing its 2024 outlook.

Summary

• Chord Energy announced its financial and operating results for the fourth quarter and full year of 2023.
• The company's oil production for the fourth quarter was 106.2 thousand barrels per day (MBopd), and total production was 183.8 thousand barrels of oil equivalent per day (MBoepd), both exceeding the high end of guidance.
• Full-year 2023 oil production was 99.8 MBopd, with total production at 173.4 MBoepd.
• Exploration and production (E&P) capital expenditures for the fourth quarter were $208.8 million, and $922.3 million for the full year, also exceeding guidance.
• Net cash from operating activities was $543.3 million, and net income was $301.6 million for the fourth quarter.
• Adjusted EBITDA was $480.9 million, and adjusted free cash flow was $247.4 million for the quarter.
• The company returned $188 million to shareholders in the fourth quarter, representing 75% of adjusted free cash flow.
• Share repurchases totaled $82.8 million at a weighted average price of $162.20 per share.
• A base-plus-variable cash dividend of $3.25 per share was declared.
• For 2024, E&P capital expenditures are projected to be between $905 million and $945 million.
• The company plans to turn-in-line 103 to 113 gross operated wells.
• Oil production is expected to remain flat at 97 to 101 MBopd.
• Adjusted free cash flow for 2024 is estimated at approximately $875 million, based on $79 per barrel WTI crude oil and $2.50 per MMBtu Henry Hub natural gas prices.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong production results, robust cash flow, and a commitment to shareholder returns. The company's 2024 outlook is also positive, with a focus on capital efficiency and free cash flow generation. However, there are some minor negative points such as the impact of winter storms on 1Q24 production and some misses on guidance for oil premium and gas realization.

Positives

• Chord Energy exceeded its production guidance for both oil and total volumes in the fourth quarter of 2023.
• The company generated strong cash flow from operations, with $543.3 million in net cash provided by operating activities in the fourth quarter.
• Chord Energy demonstrated a commitment to shareholder returns, distributing $188 million in the fourth quarter and $646 million for the full year.
• The company's 2024 outlook indicates a focus on capital efficiency and maximizing cash flow generation.
• The company is increasing its focus on three-mile wells, which are expected to make up two-thirds of the 2024 program.
• Chord Energy has a strong balance sheet and low-cost inventory, supporting sustainable free cash flow generation.
• The company has endorsed the World Bank Zero Routine Flaring by 2030 initiative, demonstrating a commitment to environmental stewardship.

Negatives

• The company's E&P and other capital expenditures exceeded the high end of guidance for both the fourth quarter and full year of 2023.
• First-quarter 2024 volumes are expected to be impacted by downtime and deferred activity due to winter storms in North Dakota.
• The company's oil premium to WTI was a discount of $0.52 per barrel in 4Q23, which was worse than the guidance range.
• Residue gas realization was 37% of Henry Hub in 4Q23, which was below the guidance range of 50% to 60%.

Risks

• The company's future performance is subject to fluctuations in crude oil, NGL, and natural gas prices.
• The company's operations are subject to weather and environmental conditions, as evidenced by the impact of winter storms on 1Q24 production.
• There are uncertainties in estimating proved reserves and forecasting production results.
• The company's ability to achieve its 2024 outlook is dependent on the successful execution of its capital program and the performance of its wells.
• The company is exposed to risks related to environmental regulations and litigation.

Future Outlook

Chord Energy anticipates generating approximately $1.9 billion of Adjusted EBITDA and $875 million of Adjusted Free Cash Flow in 2024, with a focus on capital efficiency and maximizing cash flow generation. The company expects to maintain flat oil production between 97 and 101 MBopd and plans to turn-in-line 103 to 113 gross operated wells, with approximately two-thirds being three-mile laterals.

Management Comments

• Danny Brown, Chord Energy's President and Chief Executive Officer, stated that Chord closed 2023 on sound footing by executing on its program and delivering strong volume growth in the second half of the year.
• He also noted that 2023 was a pivotal year for the company as three-mile wells were approximately 50% of the mix, and execution and well performance continue to meet or exceed expectations.
• Danny Brown mentioned that three-mile wells will approximate two-thirds of the 2024 program.
• He emphasized that the Chord team will remain focused on driving continuous improvement and better efficiency throughout the organization.

Industry Context

This announcement reflects a trend in the oil and gas industry towards capital discipline and shareholder returns. Chord Energy's focus on three-mile laterals and low reinvestment rates aligns with industry efforts to improve efficiency and profitability. The company's strong free cash flow generation and commitment to shareholder returns position it favorably compared to peers.

Comparison to Industry Standards

• Chord Energy's production results, particularly the outperformance of guidance, suggest strong operational execution compared to some peers who have struggled with production targets.
• The company's focus on three-mile laterals is in line with industry trends towards longer laterals to improve well economics, similar to companies like EOG Resources and Devon Energy.
• Chord's return of capital to shareholders, through dividends and share repurchases, is competitive with other large-cap E&P companies that prioritize shareholder returns, such as Pioneer Natural Resources and ConocoPhillips.
• The projected 2024 free cash flow of $875 million, if achieved, would place Chord in a strong position relative to its peers in terms of cash generation.
• The company's 50% reinvestment rate is relatively low, indicating a focus on maximizing free cash flow rather than aggressive growth, which is a common strategy among mature E&P companies.

Stakeholder Impact

• Shareholders will benefit from the declared dividends and share repurchases.
• Employees will be impacted by the company's focus on efficiency and continuous improvement.
• Customers will benefit from the company's commitment to delivering affordable and reliable energy.
• Suppliers will be impacted by the company's capital expenditure plans.
• Creditors will be impacted by the company's strong balance sheet and cash flow generation.

Next Steps

• The company will continue to execute its 2024 capital program, focusing on drilling and completing 103 to 113 gross operated wells.
• Chord Energy will focus on driving continuous improvement and better efficiency throughout the organization.
• The company will continue to monitor commodity prices and adjust its operations as needed.
• The company will pay the declared base-plus-variable cash dividend on March 19, 2024.

Key Dates

Keywords

Chord Energy, Oil and Gas, Production, EBITDA, Free Cash Flow, Dividends, Capital Expenditures, Williston Basin, Reserves, Share Repurchase