Chord Energy Corporation ($CHRD)

Good morning, ladies and gentlemen, and welcome to the Chord Energy First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Wednesday, May 6, 2026. I would now like to turn the conference over to Bob Bakanauskas, Vice President of Finance. Please go ahead.

Thanks, Natasha, and good morning, everyone. This is Bob Bakanauskas and today, we are reporting our first quarter 2026 financial and operational results. We are delighted to have you on the call. I'm joined today by Danny Brown, our CEO; and Michael Lou, our Chief Strategy Officer and Chief Commercial Officer; Darrin Henke, our COO; Richard Robuck, our CFO; as well as other members of the team. 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 the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings releases and on conference calls. 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 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During this conference call, we will make reference to non-GAAP measures, and reconciliations to the applicable GAAP measures can be found in our earnings releases and on our website. We may also reference our current investor presentation, which you can find on our website. And with that, I'll turn the call over to our CEO, Danny Brown.

Thanks, Bob. Good morning, everyone, and thanks for joining our call. Last night, we issued our first quarter results and our updated investor presentation. These materials outline key strategic, operational and financial details, along with our updated 2026 outlook. I plan on highlighting a few key points, and then we'll open it up for Q&A. To start, looking at the first quarter briefly. Chord delivered another consecutive quarter of solid operating performance. The team did an excellent job executing through adverse weather conditions and some midstream constraints to deliver oil volumes above the high end of guidance. Additionally, we maintained solid cost control. Adjusted free cash flow for the first quarter was $324 million, substantially exceeding expectations, and we returned $145 million of this amount to shareholders through a combination of our base dividend and share repurchases. After accounting for lease acquisitions occurring in the quarter, we were also able to send $175 million to the balance sheet. Second, as we assess the macro environment, there is clearly an unprecedented amount of volatility and uncertainty in commodity markets. Chord has been running a maintenance plus program for more than 5 years with the goal of maximizing free cash generation for our stakeholders. One of the key factors influencing this strategy has been the high levels of excess low-cost oil capacity which is weighed on global oil markets and contributed to persistent backwardation. We will continue to monitor global supply-demand balances and for now, given the uncertainty of how much and how quickly oil volumes will find their way into the market, we are comfortable staying the course with a flat to slight growth volume outlook. Given this, drilling and completions capital is expected to stay consistent with our February outlook. However, we are seeing improvements in cycle times, which accelerates some activity into the second quarter. Although 2026 capital spending expectations remain unchanged, we do have some flexibility within our program. Over the past 2 years, we have consistently outperformed initial expectations and have generally prioritized capital reduction over incremental volume growth. In the current environment, if efficiencies continue to improve and oil prices remain high, we are inclined to allow modest volume upside rather than focusing solely on reducing capital. For clarity, this does not bias our CapEx higher, but simply means we are not focused on reducing CapEx in this environment and will let incremental volumes roll through should we continue to outperform. Additionally, quarters pursuing various initiatives to optimize our production base with efforts centered around maximizing very short-cycle volumes through high-return projects across our roughly 5,000 operated wells. These activities include accelerating workovers, reducing cycle times for down wells, various chemical jobs, de-bottlenecking surface constraints, optimizing artificial lift through the utilization of artificial intelligence and a host of other projects. Accordingly, last night, we updated our 2026 outlook to reflect a 2,000 barrel per day increase in oil volumes with a slight increase in LOE and capital remaining unchanged. Assuming $80 oil, the net impact is over $40 million in incremental free cash flow versus our February expectations. From an activity standpoint, we are currently running 5 rigs, 1 full-time frac crew and 1 spot crew with the spot crew scheduled to drop around midyear, which because of faster cycle times, is a little earlier than our February expectations. We continue to expect approximately 80% of TILs will be longer laterals, split fairly evenly between 3- and 4-milers. We've also updated our 2026 guidance to reflect improving oil realizations. Currently, Chord is realizing modest premiums to WTI, and we expect that to persist through most of 2026, given the structure of the futures curve and linkage to waterborne crudes. Assuming benchmark prices of $80 per barrel of oil and $3.25 per MMBtu of natural gas for the balance of 2026, we expect to generate approximately $1.4 billion of free cash flow this year. With high levels of free cash flow anticipated, we expect shareholder distributions to remain robust in 2026 with a continued focus on a healthy and sustainable base dividend supplemented by share repurchases. In the current environment, share repurchases continue to look attractive. However, in the interest of avoiding pro-cyclical buybacks, Chord may choose to taper repurchases if and when we see higher oil prices more fully reflected in our share price. In addition, we currently don't envision resuming variable dividends and plan to let excess free cash flow go to the balance sheet. This will reduce net debt and allow us to create per share value opportunistically in the future. Turning to our updated hedge position. You can see Chord added significant hedged volumes in 2026 and moderate amount in outer years as well. As a reminder, our hedge program is designed to systematically hedge more when prices are above historical levels and conversely hedge less when the strip is below historical pricing. In any prompt quarter, we have the ability to lock in up to 55% of our volumes if pricing surpasses certain thresholds, and the program deliberately moves at a slower pace further out on the curve. Currently, we have approximately 1/3 of our 2026 oil volumes hedged and less than 15% of 2027. Turning to the long lateral front. I am happy to report Chord successfully executed and turned in line its first full 4-mile DSU development, the Toonie pad. The pad consisted of 5 wells, including 1 alternate shape and Chord was able to clean out to total depth on all wells. Both execution and early performance are in line with expectations. Slide 11 and our investor presentation highlights the Toonie success as well as Chord's progress on 4-mile laterals in development across the perimeter of the basin. A significant reduction in drilling and completion cost per foot underpins the strong economics of these wells. Slide 10 on the upper right illustrates a 37% reduction in Chord's D&C cost per foot over the past 4 years. These benefits can be seen in Chord's improving program level capital efficiency year-over-year. If you look at volumes delivered relative to capital spend, essentially the inverse of an F&D calculation, you can see the 2026 program is more efficient than 2025. Additionally, Chord's future F&D cost on a company level have trended 25% -- or 22% lower over the past few years, clearly demonstrating sustained efficiency gains. Overall, we are very pleased with execution and early results from the 4-mile program. As a reminder, Chord is scaling its 4-mile program in 2026 with approximately 40% of TILs and 60% of spuds expected to be 4-mile laterals. So in closing, Chord remains committed to delivering affordable and reliable energy in a sustainable and responsible manner. We continue to improve the business, growing production while simultaneously improving the depth and quality of our inventory, driving operational efficiencies and enhancing free cash flow. With that, I'll hand the call over to Natasha for questions.

[Operator Instructions] Your first question comes from John Abbott with Wolfe Research.

Danny, I mean -- I appreciate the opening comments on the macro front. There's a lot of uncertainty there. My two questions are really on growth and on inventory. My understanding from our previous virtual events is that you do have the ability to grow at some point when you -- when there's fundamentals that's more to support the long-term commodity price being higher? How do you think about that appropriate long-term price? And then the other -- second part of -- the second question is really on inventory. If you do grow, commodity price is higher, how does that change the depth of your inventory as commodity prices sort of go higher. So those are our two questions.

Thanks, John. So I think they're both great questions. And from an oil price perspective, I think you're exactly right in our philosophy and that it's not really -- it's not necessarily a specific price, but also what is the durability in the macro setup that supports that price over a long term. And so that's really been fundamentally why we have been focused on, I call it, more of a maintenance program as opposed to a growth program because we have seen just significant behind choke volumes out in the global market that really could come to market at any time that could undermine our price expectations, and we would invest a lot of capital and not get the returns off of that investment that we may have expected in the -- when we undertook the capital investment in the first place. And so we don't want to be exposed to that. And as I look at the amount of volume not flowing currently within the global market, I think it's analogous to that. When we just don't know how much and how quickly this volume will return to the market, which means -- so the durability of any price signal is just somewhat -- we're somewhat circumspect on it. And so -- but if we did see that more constructive macro setup from a supply-demand balance, where we thought the durability of, sort of, let's say, above mid-cycle pricing would be durable for some period of time. I think we're -- we are in a great position in that we do have a deep bench of low-cost inventory that we could accelerate into and we could deliver some modest growth into the system and think of it sort of mid -- probably mid-single digits. It's something that we would be comfortable with if the structural setup was conducive to that. From an inventory standpoint, I think if we saw that set up and we're at, let's say, call it, above mid-cycle pricing, and we thought that would stay for some period of time, clearly that's a tailwind for our inventory because we would look at new development opportunities, probably some incremental evaluation on our spacing would be appropriate at that point. We would -- certainly some areas on the periphery of the basin would come into the fold. And so I think it would be a tailwind to inventory. And so we've been able to maintain 10 years of inventory for the last 5 years. I would expect in a higher commodity price environment if we did push some growth in the system that would also mean our inventory was marching up as well.

Your next question comes from Oliver Huang with TPH.

I wanted to start on the base production enhancement program. There were a number of callouts in the release, AI optimized artificial workover [indiscernible] programs, less downtime among some other stuff. But just wanted to dive in a bit deeper. Are you all viewing this as something that's more structural driving lower base declines for the portfolio across multiple years? Or is this more of a onetime addition on the set of wells the program is targeting. Just trying to understand the sustainability of that uplift better? And just what sort of upside running room there might be beyond what's baked into this year's guide?

I think it's a great question, Oliver. And I think maybe the answer is it's a bit of both. And the reality is we've had efforts underway as an organization to optimize the production base -- from our base wells, we've seen some early success there. And in pricing, in a world where the market has been telling us it needs oil, very short-cycle oil. We've had opportunities to do that. So we've leaned in. And so -- but I'm going to ask Darrin maybe to talk us through a little bit more some of the specifics going on there and some of the early results we're seeing.

Yes. Oliver, we've seen dramatic increase in our productivity on our older wells by -- we've lowered some pumps, some rod pumps lower into the wells. We've adjusted our artificial intelligence to focus on maximizing productivity out of our older rod pump wells and really seeing -- as you see on Slide 12, on the lower right-hand side, you can really see a dramatic impact -- positive impact to base production and really a resting decline on this group of wells. And we have the teams consistently generating new ideas and as Danny said, it's going to take time to figure out how sustainable these changes are to the wells that are already improved on production, and we'll see how it goes over time. But the team is doing a great job there. And where -- we picked up a couple of additional workover rigs, we're focusing on some longer-term shut-in wells that have some challenging downhole problems and we're finding that we're able to get those wells back online and get those producing as well. And there's a number of wells in that category that we're working on. So while we see these higher prices where we are definitely trying to take advantage of maximizing our base production.

Awesome. And maybe just for my second question, just on the 4-mile laterals, you all talked about verifying the total contribution with tracers on these 4-mile laterals, but just as you all get more data and a greater sample set, is there a point in time or some sort of quantitative benchmark that we should be aware of where you all would kind of revisit and start to assume maybe greater than the 80% contribution on the last mile to wells lateral if the data were to be supportive of it?

I think the answer to that, Oliver, is yes, just like with the 3-mile laterals, after we got enough production history, we came out and said we were no longer underwriting that last mile at 80%. We were moving that up to 100% because we were seeing that through the production data. I think it would be sort of a similar case from a 4-mile lateral standpoint. And so it's a little too early for us to say that right now, but we're continuing to monitor our production. And given if we're -- if we continue to see things look positively, hopefully, we'll come out with an update at some point in the future, indicating that we're getting more from that last mile than we're currently underwriting.

Your next question comes from Phillip Jungwirth with BMO Capital Markets.

This is Jack Kindregan on for Phil. Just hoping you could touch on crude differentials a little bit. I think I have a decent understanding of the near-term premium to WTI, but can you help us understand what the second half might look like and why you could still price barrels above WTI at that point?

Jack, good question. Obviously, over the first -- the end of the first quarter and into the second quarter, you're seeing stronger differentials in the basin. Some of that is, as you think about Brent TI differentials, they've widened, a lot of our barrels get to the coastal markets. And so you're seeing very strong differentials in basin. A lot of that's going to depend on kind of how the broader global markets act, but we think that it certainly will last through the second quarter and maybe beyond into the second half of it.

And you touched on your capital plans for the balance of the year a little bit. But just seeing the oil uplift in 1Q and the better 2Q and 3Q guide is trying to get into the sense of the 4Q dip and just understanding if there's a case for running higher activity there, filling in completion white space just to maintain operational momentum even if it leads to some CapEx creep.

Yes. Phillip (sic) [ Jack ], I think at this point, we're pretty happy with our activity levels. We've got the spot crew, we'll release later this year. And so that we run that crew continuously until we drop it. So it's not really like we're trying -- we need to manage white space on a -- sort of in between an existing program, it's just we'll drop that. And so I don't think there's a lot of efficiency improvement we pick up by pushing incremental activity through the system. So we're -- I think we're happy with our activity levels where they are right now. We'll continue to monitor the macro situation, but too early for us to pivot off that. We're very comfortable with where we're at now.

Your next question comes from Scott Hanold with RBC Capital Markets.

I was wondering if you could pivot to shareholder returns. You all have had a pretty good appetite to be pretty aggressive with buybacks getting close to 100% in past quarters. It sounds like you want to be a little bit reserved just not to be pro-cyclical, but like when you look at your stock price today, in -- with oil kind of still near $100 a barrel, is this an opportunity for you to continue to be pretty assertive with buybacks and push it a little bit harder? Or would you rather just wait for a much more countercyclical time to get that robust with buybacks?

Scott, I'd kind of frame it this way. Clearly, the -- if you look at the prompt -- if you look at the headline oil price, our stock is not underwriting anywhere near that level in our opinion. And so we really like where our stock's at right now, and I think their buybacks will command. They are very attractive at the current levels. At some point, it may be that we see our stock price underwriting at significantly higher oil price. We're not seeing that today, but we may see that at some point. And at that point, we would consider tapering back on those buybacks to avoid being procyclical. But I like where our shares are right now.

Okay. Understood. And I guess, looking at the Toonie pad, could you just talk about like the learnings from that? Have you seen cost reductions with that pad consistent or better than what you expected? And what does that mean for like 4-mile pad development moving forward?

I'll let Darrin address this. I'd say, generally speaking, Scott, we're really happy with what we saw at the Toonie and any time you get the pad level development, you're just going to pick up efficiencies as opposed to doing one-offs. And so getting to pad is a pretty big cost improvement for us organizationally, but I'll let Darrin expand.

Yes. So we have 12 4-mile laterals now producing and so 5 of them were on the Toonie pad. And we have drilled 33 4-mile laterals. And so there's tons of learnings not only on the Toonie pad, but where we've drilled the wells on other pads, 4-mile wells, and we're consistently getting those wells drilled with 1 BHA. We recently just drilled our first hairpin with 1 BHA. So pretty neat accomplishment there. So the Toonie was just able to put it all together on 1 pad. And so definitely saw efficiencies across the entire pad that we'll take into the future for future pads, but learnings come in on all those wells that we've done. As far as you asked about the cost and performance, the costs were in line with what we thought we would do on that pad, well productivity is in line with what we thought. So we're very pleased with what we're seeing with our 4-mile program at this time.

We now have a question from Neal Dingmann with William Blair.

My first question, Dan, a little bit maybe more on capital allocation then what you mentioned in the prepared remarks. Specifically, I know you've had -- I've seen a couple of guys now talk about dialing down buybacks perhaps in the current upcycle. I'm just wondering what's your thoughts on incremental buybacks versus debt repayment for the remainder of this year if prices stay here?

Yes. I think, Neal, in the current environment, we think our return on capital framework provides a great framework for us to think about capital allocation. We have -- based on -- we listen to investors and based on a lot of investor feedback, we're not really focused on variable dividends at this point. So I think our return of capital program is really going to be made up of our -- what we think is a pretty strong base dividend plus share repurchases. We really like the shares with where we're at right now. We do recognize that if we see elevated oil prices, some of that elevated oil price may cause us to think a little bit about is it the right time for us to be buying back aggressively shares. We've said for a long time, we're not fans of pro-cyclical buybacks. That's not something we've been focused on historically, but I don't think with where we're at currently, that's what we're doing. We think the shares are very attractive and they're going to -- they're currently commanding a significant focus of our -- from a capital allocation perspective.

Makes sense. And then second question, maybe around Slide 15, a little bit more than what you said on inventory. Specifically, you all suggest, and I agree, 10-plus years of low breakeven inventory. Can you speak to maybe have the assumptions changed at all when you include maybe what level of kind of your price deck you're assuming here, maybe cost around that, then maybe other things that dictate how you view the breakevens and the corresponding inventory.

Yes. So the inventory that we put out there is really low sub-60 WTI inventory. And so that's really what's determining that count. And so if that -- if our pricing assumptions from a commodity perspective were higher than that, you'd see more inventory on that from an account perspective. So that's what we're assuming on that, Neal. I think if structurally, again, we get to a situation where structurally, we see a longer term, higher oil price than perhaps we would think a little differently about what our inventory position is, and you'd see more inventory flow in. But we're looking at it from a sub-60 standpoint.

Your next question comes from Michael Furrow with Pickering Energy Partners.

Daniel, I want to follow up on that last statement. You mentioned that higher oil prices would unlock some inventory that might not have been economical a few months prior. So would that change your capital allocation priorities? Or would you still plan on targeting your highest return wells first?

I think we would continue to focus on our highest return wells.

Got it. That makes sense. Okay. As a follow-up, clearly, some volatility this morning. It sounds like the message is clear that activity levels are unlikely to change given the current market dynamics. But what are the levers can the company pull to capitalize on higher prices?

Yes. I think we say activity -- our drilling and completion activity, we don't anticipate changing. But we have flexed up on some of the very, very near-term, more OpEx-related opportunities. So the workovers and some of the chemical jobs and these things that really are opportunities across our 5,000 existing wells, we are looking at that because that can deliver very, very short-cycle volumes at incredibly high IRRs and profitability. And so we're looking at those types of opportunities. And then -- and you've seen us deliver some incremental volumes in the first quarter as a result of that. So we're looking at that. And then the other thing I'd say, Michael, is we continue to focus on improvement across all aspects of our business. And so that's a lever that we continue to pull and have the entire organization focused on is how do we do better -- how do we do better tomorrow. And we've got around 800 people who wake up every morning and come into the office trying to make tomorrow better than today, from a cost structure perspective, from a productivity perspective. And so that focus -- we focused on that for a long time, and that focus continues because we can't control what oil price is, but we can control what our cost structure looks like, we can control how we develop the field, and so we're focused on that quite intensely. So we'll flex into those opportunities that deliver very robust and attractive short cycle. And by that, I mean sort of more OpEx, things that can deliver some oil next week or next month, you've seen us do that, and then we'll focus on just improving the business across the board.

You have a question from John Annis with Texas Capital.

For my first one in building off of what you just mentioned, I wanted to ask if you could provide some color on the organizational changes you've made, whether it be standing up new teams or shifting allocation of resources that have been driving the improvement in base production optimization initiatives.

It's a great question, John. And we -- I think one of the -- maybe one of the most significant organizational changes we've made recently is we've -- in our production engineering team, we've actually sort of bifurcated that team and to those that are looking at our wells that are on ESPs and I'd call it our high-rate wells and having a separate team looking at the balance of our wells, which is measured in the thousands that aren't on ESPs and delivering high rate. As would be natural, you can imagine a team that's responsible for looking after all of that. The natural focus and the appropriate focus is going to be to focus on those high-rate wells, those ESP wells because they're -- they have the biggest impact on your organization. And unfortunately, the reality is that sometimes you don't focus as much on the other wells, which still could provide meaningful value. But on a relative basis, they just don't come in -- they don't command as much as your attention. And so we sort of recognize that dynamic going on in the organization, and we've now bifurcated that team. And so we have a group that's dedicated just to looking at these lower-producing wells, but there's a lot of them. And then in aggregate, they can have a big impact into what we deliver and what our overall cost structure looks like. So we've seen success with that. I'm really pleased with the results and the focus of that team -- of both of those teams because they're delivering great work.

Terrific. For my follow-up, you're guiding around 40% of 2026 TILs and 60% of spuds being 4-mile laterals, could you provide some color on how the 4 miles spud till this year potentially impacts the 2027 production profile and then is there a ceiling on the 4-mile development mix given 50% of your inventory or 4-mile locations and DSU geometry constraints?

Yes. Well, to your point about -- we think about 50% of our inventory is 4 miles. And so I think in a year, you'll see us sort of, I'll call it, an error bar around that 50%, maybe some years will be slightly ahead and some years will be slightly underneath. But generally speaking, I think our development programs will probably largely mirror our inventory makeup. And so -- and so that's kind of how I would characterize it. Now because we're spudding 60% 4 miles this year. Obviously, that's going to roll into '27 from a production perspective. So we've started that ramp this year, and we'll just sort of continue that into 2027.

Your next question comes from Phillips Johnston with Capital One.

I wanted to ask you about the XTO assets. I recall you guys are in the process of re-permitting, I think, most of those wells for longer laterals. So I just wanted to see where we are in that process. And when we might see some of those wells coming to the fray?

Yes. I think as we've worked through -- clearly, as we moved into 4-mile laterals and looking at our spacing opportunities in the lateral lengths that was -- we wanted to make sure we maximize the contribution from that asset. And so we've taken our time in doing that. And so as we look toward developing in that area, I think that's probably more of a late '27 type phenomenon. And so we might get some contribution from it in '27 but more likely going into 2028.

Okay. Sounds good. And then I'm sure you can't comment too much on this one, but what's the latest messaging regarding long-term plans for the Marcellus acreage?

So I think the messaging around Marcellus really kind of remains consistent. We continue to see that as a non-core asset and have been very front foot and consistent in saying that we're looking to maximize value for our shareholders. And that would include divesting that asset. But I'd say we're not in a rush, but certainly, it's non-core, and we just want to maximize value from it. In the meantime, I'd say it's got very low friction cost to us holding. And you can see from our first quarter results, the significant value that asset contributed. So non-core -- we want to maximize value from it. We are absolutely open to divesting it, but we want to make sure we do that in a fashion that maximizes value for shareholders.

[Operator Instructions] Your next question comes from John Edelman with Jefferies.

Dan and team, I appreciate getting me on. Just a quick one for me. I heard from [ NAG ] earlier this week -- last week, I guess, about a large Bakken package that was coming for sale. Just wanted to get your thoughts on M&A in the current elevated price environment and sort of what type of leverage are you guys, kind of, on an upside scenario, able to kind of stretch to for the right type of inventory mix?

So I'll make some opening comments, and then I'll pass it over to Michael. I think from a positioning perspective, we clearly -- our footprint in the Bakken really stretching across the entirety of the basin means that any package that comes to market there, we think we can be quite competitive on. We can bring synergies to bear, I think, really like no one else can. We've got great supply chains in place. We know the subsurface quite well. And so from -- we're believers in consolidation. And so I think we'll -- we can compete well in any process. but we will also be very disciplined in what we do, and you'll see us -- you haven't seen us win every deal in the Bakken and oftentimes that's been because the market clearing price wasn't something that we think made us a better company at the end of the day. So with those maybe opening comments, I'll ask Michael to fill in with some more color.

Yes, John, there -- I would say that the -- usually when prices are moving very rapidly, there's a bit of a lull in terms of M&A opportunities that are out there. As you've seen elevated pricing for, call it, 2 months now, I think that because of that, you're going to see some assets come to market. The big question is whether or not you're going to be able to close the gap between buyers and sellers in terms of valuations and see how that goes. As Danny mentioned, we think we're in great shape to be consolidated in the Bakken, but we're going to be disciplined in the way we look at that marketplace.

This looks like all the questions for now. So I will turn the call over to Danny Brown, CEO, for closing remarks. Please continue.

Okay. Thanks, Natasha. Well, to close out, I just want to extend my sincere thank you to all of our employees, who through their hard work, have positioned us for continued success. Chord has consistently delivered results that have exceeded expectations while improving the quality and depth of our inventory and enhancing profit margins. Chord has created what we believe is a valuable and increasingly rare asset. Chord has a substantial low decline, high oil cut production base paired with a deep inventory of highly economic conservatively spaced oil-weighted locations. We feel great about our competitive position and have a lot of confidence in our ability to deliver going forward. And with that, I appreciate everyone's interest, and thank you for joining our call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.