Chord Energy Third Quarter 2026 Earnings Call - CHORD ENERGY CORP

Explicit Guidance:

• Fourth Quarter 2026 Volume: Guidance raised to a level "well above" August expectations and consensus estimates, building on a full-year 2026 guidance range of 162.5 million barrels (up from an initial 159 million).
• 2027 Volume Outlook: Plans to sustain production at approximately 162.5 million barrels flat, contingent on base performance replication and oil price/cost environments.
• Marketing Cost Savings: Expecting $35 million to $55 million in incremental annual savings from optimized oil, gas, and water contracts by the end of the current ramp, bringing total annual savings to approximately $85 million (incremental to the $45–50 million previously announced).
• Capital Expenditure (CapEx): Updated outlook reflects increased operated and non-operated activity plus an additional $20 million investment in midstream projects; blended CapEx rate is $1.46 per boe.
• Capital Allocation: Commitment to return 75%+ of free cash flow to shareholders via buybacks and dividends, assuming debt leverage remains under 0.5x.

Business-Segment Outlook:

• Production Base & Drilling: Four-mile lateral wells are performing as expected with drilling costs down 9% Q1 QTD; currently 47 four-mile wells have been drilled to date, with full impact on the fourth mile expected within one year.
• Operational Efficiency: Fracking productivity up >20% year-over-year, averaging >1 mile/day; execution improvements include completing more four-mile wells in a single run and reaching total depth on cleanouts.
• Chemical Treatments: Testing various chemical treatments (acids, solvents, surfactants) on the production side to determine incorporation into the 2027 program; completion-side chemical treatments are in the lab evaluation phase and expected to be applied in 2027.
• Midstream: Additional $20 million CapEx directed to midstream projects in late 2026 to support 2027 programs and optimize/renegotiate contracts for better rates.
• Non-Operated Activity: Non-op activity picked up significantly in the second half of 2026 (driven by 30% rig count increase in the basin) and is expected to persist into 2027 if oil prices remain healthy; non-op represents roughly 10–15% of total production.
• Frack Crews: Currently operating with one frack crew; a second crew is scheduled to return in late 2026 or early 2027 depending on service provider availability, with production ramp-up expected in Q2 2027.

Market and Competitive Outlook:

• Consolidation Strategy: Cord positions itself as the "natural consolidator" in the Williston Basin, leveraging the largest acreage position and 13–14% of basin production to drive higher efficiencies than competitors; expects opportunities to consolidate further over the next few years.
• M&A Discipline: Will continue to evaluate opportunities, but primarily focused on internal organic growth and acquisitions within the Williston Basin where value creation is proven; open to JVs or carries only if they improve returns.
• Service Market: Service inflation seen in low-to-mid single digits; service crew availability is tight, influencing rig count and non-op participation timing.
• Pricing & Realizations: Experiencing "more favorable pricing" due to external factors and lower marketing fees; marketing optimization savings will flow through to both GP&T line items and realizations on NGLs and gas.

Macro / Industry Outlook:

• Oil Price Environment: Management views the current environment as "constructive" despite short-term volatility; assumes a healthy oil price supports continued activity and non-op participation in 2027.
• Hedge Philosophy: Adopts a "hedge more when prices are high, hedge less when low" approach; currently leaning toward hedging more in the near term but reducing exposure over time given the strong balance sheet and lack of leverage constraints.
• Commodity Cycles: Prepared to flex capital allocation (buybacks vs. drilling) based on oil price movements; aims to avoid locking into hedges during stable low-price periods.

Strategic Initiatives:

• Divestitures: Proceeds from the sale of non-core Marcellus assets, expected to close "later this year," will bolster the balance sheet and free cash flow flexibility.
• Inventory Optimization: Continued focus on utilizing deep low-cost inventory; recently completed five acquisitions in the Williston Basin to expand position.
• Sustainability: Published 2025 Sustainability Report highlighting emissions reduction and workforce safety commitments.
• Continuous Improvement: Core team initiative delivered $225 million in incremental FCF over the past two years through production optimization, capital efficiency, and marketing cost reductions.

Risks and Headwinds to Outlook:

• Oil Price Volatility: Significant weakness in oil prices could alter capital allocation decisions between buybacks and drilling.
• Cost Inflation: Potential for commodity price inflation and service cost increases in 2027, though offset by historical efficiency gains.
• Service Capacity: Tightness in the frac crew market could delay the return of the second frack crew to late 2026/early 2027, affecting production ramp timing.
• Macro Uncertainty: Changes in the broader economic environment could impact demand and pricing.
• Regulatory/Environmental: No specific new regulatory hurdles cited, but sustainability and emissions reduction remain ongoing operational priorities.

Management Tone on the Future:

• Confidence Level: High confidence in sustaining strong production levels and the ability to remain the "natural consolidator" in the basin; expressed pride in the team's ability to deliver "continuous improvement."
• Strategic Continuity: Emphasis on maintaining consistency in capital discipline, low-leverage balance sheet management, and shareholder return focus (75%+ FCF return).
• Guidance Updates: Positive sentiment regarding the ability to "raise guidance twice" in 2026 due to base outperformance, signaling strong execution momentum.
• Hedges: Balanced tone regarding future volatility; acknowledges the risk of price drops but emphasizes the financial flexibility to pivot strategy.

Miscellaneous:

• Leadership Transition: CEO Michael Liu noted this is his first call as CEO, succeeding Danny Brown, and emphasized preserving the foundation built over the past five years.
• Share Count: Fully diluted shares outstanding reduced by 10.8 million shares (17%) since the 2024 Enterplus combination; over half of the equity issued in that transaction repurchased.
• Production Metrics: Achieved 11% annual growth in oil production per share over five years; 35% growth in free cash flow per share (price-neutral) over the past two years.