Q1 2025 Chord Energy Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Chord Energy First Quarter 2025 earnings call. As this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.
If at any time during this goal, you require immediate assistance, please press star zero for the operator.
This call is being recorded on Wednesday, May 7, 2025.
Speaker Change: I would now like to turn the conference over to Bob Bakanauskas. Please go ahead
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Speaker Change: Appreciate events that thank you. Good morning everyone, this is Bob Bakanauskas and today we are reporting our first quarter, 2025 Financial and Operational Results.
Speaker Change: We're delighted to have you on the call. I am joined today by Danny Brown, our CEO , Michael Lou, our chief strategy and commercial officer, Darren Henke, your COO, Richard Robuck, our CFO , as well as other members of the team.
Speaker Change: Please be advised that our remarks, including the answers to your questions, include statements that we believe to be forward-looking statements within the meaning of a private securities litigation reform act. These forward-looking statements are subject to recent uncertainties that could cause actual results to be materially different for those currently disclosed in our earnings releases and conference calls.
Speaker Change: Those risks include, among others, matters that we have described in our earnings releases, as well as in our filings with the Securities and Exchange Commission, including our annual report on Form 10K and our quarterly report on Form 10K.
Speaker Change: During this conference call, we will make reference to Don Gat Measures and reconcil the agents to the applicable Gat Measures can be found in our Ernie's releases and on our website. We may also reference our current investor presentation, which you can find on our website. So with that, I'll turn it over to our CEO , Danny Brown.
Thanks, Bob.
Good morning everyone and thanks for joining our call.
Speaker Change: Over the next few minutes, I plan to provide a brief overview of our first quarter performance and resulting return of capital, discuss the current macro environment in Chord's positioning, and then briefly touch upon some of our current initiatives before passing it to Darren, who will provide more color on our operations.
Speaker Change: Darren will hand it over to Richard for more details on our financial results before we open
Speaker Change: So, turning to first quarter results. Chord delivered another great quarter with solid operating result yielding free cashflow above expectations which supported robust shareholder returns.
Richard: Specifically, first quarter oil volumes were above the top end of guidance reflecting strong execution and well performance, while capital was favorable to guidance largely reflecting improved program efficiency.
Richard: Operating expenses also came in lower than our expectations as the team continues to drive improvements
Richard: My thanks to our entire organization for delivering favorable results once again and in particular to our folks in North Dakota who did an amazing job navigating extreme winter weather, positioning us to surpass expectations. Fantastic job by all.
Richard: This strong performance led to adjusted free cash flow for the first quarter of approximately $291 million dollars.
Richard: We maintain shareholder returns at 100% of free cash flow for the second consecutive quarter, repurchasing $216.5 million, or about 2 million shares during the quarter.
Richard: And since April 1, we have already repurchased another 45 million or about 500,000 shares at approximately 91 dollars per share. We will be paying our base dividend of a dollar and 30 cents per share on the lower share count, which equates to approximately 75 million dollars.
Richard: Since closing the Interplus Transaction, Chord has reduced its share count by approximately 9% through the end of April .
Richard: To put that in perspective, Chord has repurchased over a quarter of the shares issued to purchase interplus in less than a year since the transaction closed. And we were able to do this while keeping leverage essentially unchanged at about 0.3 times.
Richard: Given our view on the intrinsic value of our shares relative to how they currently trade in the market, we expect a continued focus on share repurchases and the current environment.
Turning to the macro
Richard: We are all keenly aware that the pricing outlook has deteriorated and volatility has increased since we entered the year, and Chord is in the indivisible position to navigate this type of environment.
Richard: In the event conditions remain unfavorable or weakened, Chord has substantial operational and financial flexibility to moderate activity and maintain an efficient returns focus program with strong free cash generation.
Richard: As slide seven illustrates, Chord has one of the lowest-based decline rates amongst its peers, which supports our low reinvestment rate. [inaudible]
Richard: Additionally, on the land side, Chord has no material drilling obligations as our acreage is essentially all held by production.
Richard: On the midstream side, Chord is well-covered with very limited volume commitments and we have intentionally laddered and structured our service contracts to provide program optionality. And finally, at a leverage ratio of 0.3 times our balance sheet, our balance sheet strength stands out versus our peer group.
Our Development Plan also provides us with significant optionality.
Richard: Court started the year running five drilling rigs and two frack crews
Richard: At Accordance with our original plan laid out in February , we have already reduced our Frat Crew count, and by early June we'll be running a program consisting of four rigs and one frat crew.
Richard: Both our original and current guidance reflect the return of the second fracture in the fourth quarter of this year.
Richard: This allows us to monitor the macro environment at a lower activity pace and gives us the option to either bring back this second track group or just keep one track spread through the end of 25 and end of 2026.
Richard: Let me be clear that at current strip prices, we are inclined to maintain one frat crew instead of reinstating the second frat crew near your end. However, given the original plan already included a mid-year reduction in activity, we have several months to decide on this second frat spread with the final decision to be made in the third quarter.
Richard: If Chord makes the decision to stay with one for a crew and not bring back the second, the production impact at 2025 would be negligible. However, fourth quarter capital would be much lower than current expectations. And I should note that last night, Chord announced a $30 million reduction to its full year chapel guidance.
Richard: This $30 million reduction largely reflects program efficiencies, and does not currently contemplate any reductions to activity given we have until the third quarter to make the final call. And once again, chords full-year volume expectations remain unchanged.
Richard: Next, I'd like to discuss some of our initiatives to increase free cash flow, given our track record of innovation and continuous improvement.
Richard: Slide 12 outlines approximately $3 billion controllable cost across the business between operated DNC capital, lease operating expenses, marketing expenses, and GNA.
Richard: We've already made progress this year in reducing our capital investment in Eloy guidance with no impact volumes.
Richard: Our culture is built around continuous improvement and advancing efficiencies to improve our capital productivity and margins.
Richard: A good example of this is our recent decision to lean into four-mile laterals, with seven spuds now planned versus our original expectations of two to three.
Richard: This follows our first four mile lateral, which was successful on a variety of fronts, including being $1 million below budget and successfully cleaning the well out all the way to the toe.
Richard: Production over the first couple of months for the well has been encouraging but we really need to get past the flat period and initial decline to better to get a better sense of the ultimate productivity and recovery. Darren will provide more details in his section but it's fair to say we like what we're seeing.
Speaker Change: In light of the improved capital efficiency and lower breakeven cost that long lateral development provides, slide 11 illustrates an example of how court is reconfiguring acreage to optimize longer lateral development.
Speaker Change: You can see as Chord moves from the two-mile scenario to the four-mile scenario, it results in a 24% reduction in capital to develop the same amount of resource. This results in stronger rates of return and lower break even pricing.
Speaker Change: Our goal is to convert our inventory to over 80% long laterals in the coming years which will enhance economic returns.
Speaker Change: Pins, I arrived at the company over four years ago. We've had a successful track record of keeping our sub $60 inventory position strong. We've done this not just through discipline M&A, but also organically through wider spacing, longer laterals, and program efficiencies.
Speaker Change: Going forward, we expect to further improve our inventory strength and returns by extending laterals in driving down costs. This will include straight three and four miles, as well as alternate shape well designs.
Speaker Change: On the yellow weed side, we've leveraged our scale to get more efficient, systematized processes, and reduced downtime
Speaker Change: Looking forward, we have multiple initiatives to drive further improvement, including artificial lift optimization, faster cycle times, logistics improvements, and potentially leveraging newer technologies such as predictive maintenance and remote well-site monitoring.
Speaker Change: On the marketing side, we're driving efficiency through consolidating contracts from predecessor companies and negotiating competitive rates when contracts mature
Speaker Change: Also, on the gas and NGL side we are adding more dual and split connections to our facilities, which provides midstream optionality when the gas plants are down This has the dual benefit of higher gas capture rates and additional revenue
Darrin: Lastly, a few words on sustainability before handing it to Daren.
Speaker Change: I want to reemphasize that core is proud of our work providing reliable and affordable sources of energy, so critical to every aspect of modern living.
Speaker Change: And we do this while maintaining a commitment to operating in a sustainable and responsible manner.
Speaker Change: On this run, Chord continues to make progress on our already strong sustainability initiatives with a focus on putting safety first, minimizing our environmental impact and being a good partner in our communities.
Speaker Change: We plan to publish an updated sustainability report in the second half of this year, which will reflect the full integration of Chord and Interplus
Speaker Change: So, to summarize, while markets have taken a term for the worse in recent months, Chord has a strong foundation and significant flexibility to adjust if needed.
Speaker Change: Chord was built around modest, mid-cycle oil price expectations with the recognition that we operate in a cyclical business and there will inevitably be downturns from time to time [inaudible]
Speaker Change: The steps we've taken over the past four years have lowered our cost structure, strengthened our inventory position, and enhanced flexibility in our development program, all while keeping the balance sheet and liquidity in an inviable place, allowing us to better navigate times like these. And with that, I'll turn it to Darren.
Darrin: Thanks, Danny. While the macro environment is challenging, the core team continues to execute with excellence, and we're off to a great start this year.
Speaker Change: We have tremendous confidence in our executionability and we have the flexibility and optionality to reduce activity if needed while still generating significant free cash flow at lower prices.
Speaker Change: As Danny mentioned, we are laser focused on driving continued efficiency throughout the program.
Speaker Change: As a result, we were able to lower our 2025 capital by 30 million without changing our production targets.
Speaker Change: This $30 million reduction is incremental to the $90 million reduction to the 2025 budget versus pro-former 2024 capital.
Speaker Change: Furthermore, this 30 million reduction is also net of expected tariff pressure later in the year, which wasn't contemplated in our February guidance.
Speaker Change: We've certainly made a lot of progress improving capital productivity over the past year.
Speaker Change: Since we're on the topic of efficiency improvements, we wanted to give you an update on Chord's 4-mile program. As announced earlier in the year, Chord successfully drilled and completed our first 4-mile lateral and reached the TD exceeding 30,400 feet while cleaning out the
Speaker Change: The cleanup was executed in only one run and was much faster than we originally expected, leading to a total well cost approximately $1 million below the original budget.
Speaker Change: Additionally, we ran tracers on this well and subsequently observed every stage of the lateral contributing to production.
Speaker Change: Initial volumes and pressure indications are encouraging, but we need to monitor the flat period and initial decline before drawing definitive conclusions.
Speaker Change: Over the spring, Chord successfully drilled two additional four mile wells, with drilling times again faster than expected.
Speaker Change: These wells are in the queue to be completed later this year.
Speaker Change: As we announced in April , we're planning to spread a total of seven four mile wells over the next eight to nine months, and with success, Chord is likely to implement many more in 2026 and beyond.
Speaker Change: As a reminder, our initial approach to four mile wells will be converting two mile DSUs to one four mile DSU.
Speaker Change: However, similar to Chord's evolution on the three mile program, as we make progress on execution and drive the risk adjusted returns higher, we could ultimately look to convert some of our existing three mile inventory into four mile wells.
Speaker Change: Relative to 2 mile wells, 4 mile wells are expected to recover 90 to 100 percent more ultimate recovery for only 40 to 60 percent more capital.
Speaker Change: On a break-even basis, 4 mile laterals are expected to be anywhere from 8 to $12 per barrel
Speaker Change: It's important to remember that all else equal, longer laterals will deliver slightly higher IPs versus two mile wells, staying flatter longer and exhibit shallower declines. When comparing analog well performance on a per-foot of lateral bases,
Speaker Change: Initially longer lateral wells would typically be lower than two mile wells, as the higher IP is more than offset by the longer lateral.
Speaker Change: However, typically in a 6 to 12 month period, the longer flat period and shallower declines will lead longer laterals to catch up to the two mile well on a recovery per foot basis.
Speaker Change: Additionally, Chord's choke methodology is more restricted than most peers, which minimizes the sand flow back and ultimately lengthens the life of our ESPs, saving costs and delivering higher returns on average.
Speaker Change: Given our focus on improved returns versus higher IP rates, we have been implementing this more restrictive choke program on the Interplus Wells, which will impact the optics of initial IP rates per foot on a year over year basis.
Speaker Change: Again, perfect performance is an appropriate way to judge well productivity over the long term, but early data can and often is misleading.
Speaker Change: Turning to LOE, Chord lowered its full-year guidance reflecting strong first quarter execution and our current outlook. LOE has been a major focal point for the company in recent years, and Chord has been able to drive efficiency improvements through multiple avenues, including streamlining workover expenses and reducing downtime.
Speaker Change: Chord Strides for additional improvements as we confidently manage capital allocation, maximized returns, and efficiently generate pre-cash flow.
Speaker Change: Lastly, I wanted to comment on Chord's operational efficiency. Our teams continue to perform with excellence and aim to drive cycle times lower for both drilling and completions.
Speaker Change: We are drilling three mile wells, 13% faster than a year ago, and our full-time frat crew is using cymbal frat operations on most pads, which has driven down non-productive time and materially increase the lateral footage completed on a daily basis.
Pumping hours per month are also well above basin piers [inaudible]
Speaker Change: On the post-fract clean outside, Chord continues to drive faster cycle times as we leave the basin in three model laterals.
Speaker Change: To sum it up, Chord's execution and delivery remained best in class. We're off to a great start in 2025 and look forward to additional progress as our teams relentlessly pursue continuous improvement and innovative solutions.
I'll now turn it over to Richard Richard.
Richard: Thank you, Darrin. I'll round out our conversation with some final thoughts that expand on comments made earlier and in our press release.
I'll start with the strength of our balance sheet.
Richard: 6.75% that are due in 2033 and by increasing our elected
Richard: We also layered on additional hedges during the first quarter and our derivative position can be found in our latest investor deck.
Next, I'll cover differentials.
Richard: Royal Differentials in the first quarter averaged $2.30 below WTI, which we can slightly from our prior quarter, but were within our original guidance range.
Richard: We expect oil differentials to improve modestly over the course of the year, which is reflected in our updated guidance.
Richard: In GL Realizations, we're 20% of WTI in the first quarter, just above the midpoint guidance.
Richard: Natural gas realizations of 63% were above the top end of guidance and benefited from seasonally strong regional prices in both the Bakian and Marcellus.
Richard: We anticipate natural, realized natural gas prices to soften during the middle of the year before improving markedly toward the end of the year, reflecting normal seasonality. As a reminder, certain marketing fixed fees are deducted from our NGL and natural gas prices.
Richard: differently the team has done a great job managing costs beating first quarter guidance and with continued momentum for the balance of the year as L.O.E. is down 30 cents per B.O.E. and capital is down 30 million in our 2025 guidance.
Richard: Production Taxes, Average 6.8% of commodity sales in the first quarter, which was below our expectations.
Richard: This primarily reflects the impact of non-recurring refund for stripper wells that received
and adjusted tax rate during the quarter. [inaudible]
Richard: The oil revenue from these low producing wells is taxed at a reduced rate. Additionally, the production tax rate was impacted by higher gas revenues as a percent of total sales as gas is taxed differently than oil. For the remainder of the year, we anticipate production tax is average, 8.5% of quality sales.
Richard: First quarter cash taxes were in line with our expectations at $34 million, and we expect full year cash taxes to approximate 4 to 9% of EBITDA at WTI prices ranging between $55 and $75 per barrel.
Richard: There have been no changes to full-year cash tax guidance issued in February , other than the yearly range now reflects actual first quarter results.
Speaker Change: In closing, thanks again to the court team for all their hard work and intense focus on improving day-to-day operations during the period of market uncertainty. We are pleased with the company's first quarter performance and believe that we are in a strong position to successfully deliver on our goals for the remainder of the year. With that, I'll hand the call over to Vincent for questions.
[inaudible]
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Speaker Change: Ladies and gentlemen, we will now begin question and answer session. Should you have a question? Please press star.
Speaker Change: Followed by the one on your touch-tone phone, you will hear a pump that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using speakerphone, please lift the handset before pressing any keys.
Speaker Change: First question comes from Oliver Wang with DPH, please go ahead [inaudible]
Oliver Wang: Good morning, Danny and team, and thanks for taking the questions.
Oliver Wang: I 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
Oliver Wang: But if we're talking about crude with a five handle on it once Q4 and even early 2026 comes around
Oliver Wang: would one full time somal frag 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 crew for a portion of the year.
Speaker Change: 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.
Speaker Change: I would say firmly and what we would think would be durably in the 60s.
Speaker Change: and in order to bring that second track crew back. So with oil at a five-handle, you know, again, all L sequel would 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.
Speaker Change: 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.
Speaker Change: and so we've gone down to the single frack crew that's doing frack sports. It's a very efficient program and will maintain this and will 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 frame the situation well.
Thanks, Danny, that's helpful color. And maybe for a follow-up.
Speaker Change: I think slide 11 does a really good job in illustrating the magnitude of potential capital savings with a four mile lateral program and I know Darren hit on it very briefly in the prepared remarks, but should we think about the potential moved and corporate a four mile development plan being more gradual or an immediate jump from that 40 to 50% to the 80% goal?
Yeah, I think you, again, you framed it pretty well.
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Speaker Change: We have sticks laid out on a map for every single sort of spot and inventory location that we've got and so it's really a full Recontemplation of our development plan which includes roads, midstream connections, you know everything that's associated with that as you as you work through this [inaudible]
Speaker Change: So that does take a little time for us to work through. We've got to go through the permit process, but I would suspect we'll be able to move to this more swiftly than we did a three mile program.
Speaker Change: Yeah, and so I'll kind of leave it there, but we're encouraged with what we're seeing, we think it's a great opportunity, and I think we could move over to a program in a reasonably swift manner.
Awesome. Thanks for the time, Danny.
Thank you.
Speaker Change: The next question comes from Noah Hungness, with Bank of America, please go ahead
Morning, everyone. For my first question here.
Speaker Change: Stronger than a lot of us had in our models. You may be talked to us about how the oil cadence, what the oil cadence looks like for 3Q and 4Q for this year.
Speaker Change: Thanks for the question, Noah. I think if you look at how we got in for the full year relative to what we just did for 1Q and 2Q you can kind of implies that we'll be drifting down particularly in the fourth quarter and if you think about what we talked about
Speaker Change: 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 apply 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.
Speaker Change: If we elect to pick up that second frack crew in the fourth quarter, that will obviously will start completing those wells, we'll tell them maybe starting at the very end of the fourth quarter but really end of the 2026, and you'll see that production cadence picked back up again. But yeah, we do anticipate seeing oil fall a little bit as we drop this frack crew, we'll bring tills on through the third quarter, we won't bring as many tills on in the fourth quarter, and so you'll start to see our production bonds fall a little bit into 4Q. And if we pick that frack crew up.
They'll move back up again in one cue.
Speaker Change: and for the third quarter, last quarter results you mentioned that 3Q would be above 2Q. Should we kind of think maybe 2Q rising that 3Q would be flat versus the prior quarter?
Speaker Change: I think flat-ish to 2Q is probably a good expectation.
Speaker Change: Great. And then for my second question, could you maybe add a little more color on what's giving you guys the confidence to increase your original plan from sputting three, four mile laterals to seven, and then will you be testing anything new with these additional wells like a different clean-out technique or anything else?
Speaker Change: Yeah, I think we've just seen positive results is the short answer but I'm going to turn it over to Derrick to provide a little more color but we like what we're seeing so far and that's given us a little confidence but I'll turn it to Derrick for more color.
Darrin: We've seen lower torque and drag, just really operationally everything's gone as well or better than they expected, so that's definitely given us confidence to move forward with additional testing additional wells, which will help us convert to ideally more.
Speaker Change: Longer lateral program, four miles, etc., down the road, four miles in my tank, etc., I'm talking about alternate well-shaped them as well. So really, everything's going very well, operationally in that regard, Noah, so that's just given this confidence to press forward faster.
Good stuff, guys. Thanks
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Speaker Change: Your next question comes from Derrick Whitfield with Texas Capital. Please go ahead.
Good morning all and congrats on a strong one, Q.
Thanks, Derrick.
Speaker Change: I wanted to focus on your maintenance capital with 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 flatish growth in 2026?
Speaker Change: And so, what would the maintenance capital be to sustain that at current cost and optimal level for three-mole or greater levels?
Speaker Change: Yeah, I think if the question for us to maintain, you know, 152.5, you know, is around a one and a half crew program. And so if we go down to something sub that, I think we would, you know, that's probably unlikely to maintain a 150 program. And so it would be something, something sub that if you're talking about a one crew cymo-frag program.
Speaker Change: Terrific, and it didn't just any color on what that would be from a from a capital perspective as you guys see cost at current. [inaudible]
Speaker Change: Yeah, so, you know, as we're looking into 26, I will say that as we think about, you know, one, I wouldn't normally give, we don't really start again in soft guidance until the third quarter for the prompt year and so we're clearly ahead of that and, you know,
Speaker Change: Lots in a very very dynamic environment, but you know generally speaking if we're looking into if we if we pull the you know go down to a 1
Speaker Change: Frack Through Program, you're probably talking about around a third of our operated activity coming out of the program through 26.
Speaker Change: and so that's sort of the impact associated with this and so that one and a half crews, you know, you just think about it delivering about a third of the tills over the course of the year. So that's the impact, capital would be associated with that and clearly some wedge volume would be associated with that as well if we follow that path.
Speaker Change: Great. And then maybe just shifting over to your self-help slide on page 12. Danny, if you or Darren could just speak to how material the LOE and market contract opportunities could be to lower your cash costs, and then several of your marketing contracts are set to renew over the next couple of years.
Speaker Change: I think we've got a tremendous opportunity in this space and clearly we're focused on CapEx and CapEx gets a lot of the headline numbers but you know these other pieces have just a big impact on free cash flow any dollar any dollar save regardless of the bucket it comes from just translates right into that free that right into that incremental free cash will column. [inaudible]
Speaker Change: To your point, we do have marketing contracts. They're rolling off over the next few years. That gives us opportunities to renegotiate there. We've also seen tremendous benefit. I mentioned in my prepared comments. We've consolidated some contracts. If you think about it, we've got three legacy organizations, all of which had contracts with different midstream providers. Some of those, it was a little unwieldy for both parties. [inaudible]
Speaker Change: to manage those contracts. And so we've been able to consolidate into a single contract that offered us better rates. So that's a that's a good thing. And then from an L.O.E. perspective, I just think we've got tremendous opportunity there as we continue to. Yeah.
Speaker Change: You know, leverage the scale we've built as an organization to improve and lower our L.O.E. But maybe I'll give Darren an opportunity to talk a little bit about some of these specifics we're looking at. Yeah, we continue to work with our vendors to reduce our costs, particularly chemical cost things of that nature.
Speaker Change: also spending a tremendous amount of time getting the inter-plus wells, the legacy inter-plus wells to have the same run times that we have on the legacy chord wells so if we can reduce the down time and improve run times [inaudible]
Speaker Change: Spred out the, you know, requiring fewer workovers into the future that obviously saves us a lot of money and improves cash flow with the additional production. So just never ending looking at these type of opportunities, Derrick.
Thanks, it's great. I'll turn it back to the operator.
Paul Diamond: The next question comes from Paul Diamond with City. We go ahead.
Paul Diamond: Good morning, all right, thanks for taking the call. It's a quick one. Could you talk a bit more detail on kind of the total addressable market, those four mile lateral versus locations. Talk about being 50% of the program, but should we think about that extrappowating out to kind of the wider inventory numbers, or is there a different kind of decline rate than that over time? Yeah.
Speaker Change: Thanks for the question, Paul. So as we think about our, I'm going to prime it as around, around long lateral inventory. And so long lateral inventory, we're, we're trying to shoot to sort of over 80%.
of our Total Inventory Set.
Bob Bakanauskas: Bob Bakanauskas, Richard Robuck, Bob Bakanauskas, Richard Robuck, Bob Bakanauskas, Richard Robuck,
Speaker Change: I know just to be extra can we extrapolate that over time to like cold sticks like on the inventory perspective?
Well clearly as we expect that number one ain't paying overtime. [inaudible]
Speaker Change: Yeah, so as we, you know, the nice thing about doing this is it just really does...
Speaker Change: Lower our breakeven economics, you're pretty significantly and so as we do that obviously inventory that might not have been compelling for us to go develop previously becomes starts to offer really attractive rates of return and so you do you do sort of suck some inventory into the system when you're able to lower your breakeven costs which we're able to do with these four mile laterals and so I do think you know it does have a dual benefit not only of improving our capital efficiency but also sort of giving us more runway to go continue to develop the field. [inaudible]
Speaker Change: Understood, makes perfect sense. Just a quick follow-up. Given the current volatility, I should be thinking about any shifting sentiment, you know, the macro and as far as how that would kind of read through into your willingness to either expand or contract your existing edgebook.
you know we take a
Speaker Change: and a reasonably conservative view on hedging part of our opportunity here is...
Speaker Change: We have a fantastic balance sheet, we have low reinvestment rate, we've got strong free cash generation even down to very low prices and so in what we've found is over time human nature seems to be that you hedge at the exact wrong times when oil is high you think it's going to go higher and you won't hedge and when oil is low you think it's going to stay low forever so you hedge and you've done just the exact wrong thing [inaudible]
Speaker Change: So I think one of the great things is just the resiliency of the business in the organization we've created is a great hedge to us.
Bob Bakanauskas: Heads more and higher prices and so that's kind of how we look at hedging and so I don't really see a change to that framework because our whole framework on how we think about hedging is in recognition of the fact that we're in a cyclical business and so not much changed to our philosophy there.
Instead, appreciate the clarity I'll live it there.
The next question comes from Josh Silverstein with UBS.
Please go ahead.
Bob Bakanauskas: You think it's good morning guys. Just wanted to ask on a couple of questions on the M&A side.
Bob Bakanauskas: First, just on the Marcellus, just more to see how you're thinking of it with that acid, obviously, you know, stronger gas prices this year relative to last year. How are you thinking about that as kind of a core fit within the portfolio right now and potentially use the proceeds there?
Bob Bakanauskas: So as we said before, we like that asset, it's in the core of the basin, we've got a great operating partner associate with that.
Bob Bakanauskas: However, it's not core for our organization and so we recognize that that's not a non-core position for us and we're going to look to maximize value on that over time. Clearly gas price relative to oil price is more constructive now than it has been historically and so we're always looking at how we can maximize value.
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Speaker Change: and then just on Wilson and M&A, you guys are always active in looking to do some both on stellar transactions. Have you seen any change in valuations or how people are thinking about what you're impacting in the base and just giving the lower all prices right now?
Speaker Change: I'd say it's, you know, the move's been pretty swift and still fairly recent. As a general comment, I would say that, you know,
Significant...
Significant and rapid movements in price. [inaudible]
Speaker Change: Bob Bakanauskas, Richard Robuck, Bob Bakanauskas, Richard Robuck, Bob Bakanauskas, Richard Robuck,
Thanks, guys.
Thanks, Josh.
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Speaker Change: Next question comes from Jeff Jay with Daniel Energy Partners. Please go ahead.
Jeff Jay: 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, you know, to a greater percentage of the longer laterals, you know, how will that sort of a change your, I guess, cadence of spending and production, if you kind of look at the 2026 and 2027.
Jeff Jay: And so, as you think about that, you can accomplish the same sort of lateral foot drilling with lower capital cost and fewer wells.
Jeff Jay: How does the, again, what is the, what's the right capital allocation decision for us in the environment that we're in? What is, and then the production will be an output of that, not necessarily an input to that. So anyway, the nice thing is that, you know, again, the cycle times stretch out a little bit, but the delivery, the perfect delivery actually improves pretty significantly associated with this. You know, the, the, the, the, the, the, the, the, the,
Paul Diamond: That's fair. And then just to follow up on Paul's question from earlier, just to make sure I understand the answer. When I look at slide six with your inventory life, they're both sort of sub 50 and sub 60. As you migrate to the longer laterals, you're saying there won't be significant degradation and sort of the inventory life of the program. [inaudible]
Paul Diamond: Yeah, because we're measuring inventory life not necessarily a stick count, but as sort of what we're, you know, relative to production, production capacity and reserves delivery relative to what we're currently producing.
Very good. Thank you, guys.
Great. Thanks, Jeff.
Speaker Change: Next question, Olds from Noel Parks with 2ee Brothers Investment Research. Please go ahead.
Noel Parks: Ike Morning, a podcast 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 footprint that were not quite economic feasible?
Thank you.
Speaker Change: Spacing four-mile laterals. All these things are continuing to help the program. You heard it in Danny's prepared remarks.
Speaker Change: He talked about a 10-year inventory life at sub 60 and we've been able to hold that flat at 10 years for the last four years.
Speaker Change: Some of that's for M&A, but a lot of that's through this continuous improvement and the team really improving economics and bringing
Like you're saying, acreage dead. [inaudible]
Speaker Change: Currently isn't sub-60 into that sub-60 category. We still have quite a bit of the acreage that's not.
Speaker Change: in that sub-60 category today, that four mile laterals and continued kind of improvements from the team will continue to bring that into that tenure inventory life and push down our current inventory life to a lower break even. So the team's doing a great job on that front.
Speaker Change: And now we're going to play some more of the Dq. Let's go. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq. Dq.
Speaker Change: Great, great. And again, this is something that would just be incremental. But as I look ahead to the implications of the longer laurels sort of rippling through, would you have enough
Data, production data from your first early four-mile years.
Speaker Change: to be able to get any bits of re-rating upward as far as reserve bookings. I don't know if you know he had two two mile pugs on the books that we're going to go to four with the better economics and so forth. And would that needle get moved at all? No.
Speaker Change: I think for our proven reserve base right now, as we move two twos to a four, we're really just capturing that entire resource that's kind of already accounted for, just in a more cost effective manner. As we're able to expand our opportunity to capture out because we have better break even economics, what will happen is we'll have sort of more inventory associated with that that will move their way into the proven undeveloped category over time. And so I think the actual wealth themselves probably
Downwork so that P.V. should be biased upward. [inaudible]
Drupick, thanks a lot.
Thanks Noel.
Danny Brown: There are no further questions. I'll now turn the call back over to Denny.
Speaker Change: Thanks Vincent. Well to close out, I want to thank all of our employees for their continued hard work and dedication to our organization.
Speaker Change: Despite the macroeconomic headwinds, this is the best position the company has been since I arrived four years ago. Our strategic actions, coupled with our fantastic operations team, have created what we believe is a valuable and increasingly rare asset.
Speaker Change: Chord had substantial yet low decline and high cut, high oil cut production base, which is paired with the deep portfolio of highly economic, lower risk, conservatively spaced and oil rich inventory.
Speaker Change: We feel great about what we've accomplished and have a lot of confidence in our ability to deliver going forward. As you can imagine, we will be closely monitoring the oil price environment and have the organizational flexibility to optimize capital allocation to drive returns and continue to generate strong free cash flow.
Speaker Change: And with that, I appreciate everyone's interest, and thank you for joining our call.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.