Chord Energy Corporation Common Stock 2026 Q2 Earnings Call

Please go ahead. Thanks, Julie, good morning, everyone.

This is Bob Bakanauskas, today we are reporting second quarter 2026 financial and operational results. We are delighted to have you on the call. I'm joined today by Danny Brown, our CEO; 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 question, 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 our 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, 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. With that, I'll turn the call over to our CEO, Danny Brown.

Thanks, Bob. Good morning, everyone, thanks for joining our call. Last night, we released our second quarter results along with an updated investor presentation. In those documents, you'll see Chord delivered another quarter of strong operational and financial performance, which resulted in free cash flow above expectations. Execution remained solid across the organization. Oil production came in at the high end of guidance, while adjusted capital spending finished modestly below the midpoint of guidance. Additionally, we continued making progress on a number of strategic initiatives that we believe will further improve the quality of our business and enhance long-term free cash flow generation. Adjusted free cash flow for the second quarter was $414 million, exceeding expectations, we returned 54% of this, or $220 million, to shareholders through a combination of our base dividend and share repurchases.

With Chord's balance sheet growing to $612 million and normalized leverage declining below one-half turn at quarter end, targeted return of capital is expected to increase to at least 75% of adjusted free cash flow beginning in the third quarter. Stepping back and looking at the macro for a moment, we've obviously seen unusually high volatility this year, and the outlook for commodity prices, particularly oil, remains uncertain. Against this backdrop, Chord will remain focused on disciplined capital allocation and driving continuous improvement through the business. While we expect to see further volatility in the macro, we have diligently built a company that can consistently generate attractive returns across a wide range of price environments. Chord has operated a maintenance plus program for over five years.

This approach has created a large, resilient production base with low declines, supported by an efficient drilling and completions program that delivers volumes at an attractive supply cost. This approach has supported sustainable free cash flow generation and robust shareholder returns. We continue to believe this is the right approach today, even as we leaned into the plus last quarter by raising our full-year guide by 2,000 barrels of oil per day through our investment in an array of low-cost, short-cycle base production opportunities. Diving deeper into Chord's continuous improvement initiatives, we continue to make progress across a wide variety of areas, including driving longer laterals, improving cycle times, optimizing the production base, implementing AI, and optimizing marketing contracts. As I mentioned in May, Chord is pursuing various projects to optimize its large PDP base.

These activities include accelerating workovers, reducing cycle times for down wells, various chemical jobs, de-bottlenecking surface constraints, optimizing artificial lift through AI, and a host of other projects. Success year to date has driven Chord's full-year volume above original expectations, as I just noted. Since May, the team has broadened the scope of its chemical workover program to test multiple new opportunities. That is, we are testing additional chemical treatments over a larger population of wells. We are currently assuming only limited volume upside from these initiatives as we evaluate their effectiveness, economic returns, and implications for the program going forward. While these initiatives have created some near-term upward pressure on LOE, we believe expanding the program is the right step to maximize the long-term potential of the business. On the drilling and completion side, Chord continues to operate well and set new records.

Transitioning the portfolio to longer laterals has been highly impactful for Chord, driving a structurally lower cost of supply and higher returns on invested capital. Since the May update, Chord has turned in line four additional four-mile pads. As of today, the company has executed 26 four-mile wells in total. Importantly, Chord continues to reach total depth on cleanouts, and execution as well as early performance of the four-mile program is in line with expectations. Chord remains on track to scale its four-mile program through the second half of 2026 and into 2027. Looking at cycle times, year to date, we've seen some acceleration on the frac side, which has essentially de-risked the 2026 development program by pushing volumes to the front end of the year.

The team also successfully executed the basin's first trimulfrac, which we believe could further drive efficiencies in select areas by reducing completion costs while maintaining high execution quality. Additionally, Chord is benefiting from reduced facilities-related capital through equipment reuse and scalable facility design. You can see Chord continues to make progress driving efficiencies across the business. This has resulted in higher levels of sustainable free cash flow, which in combination with our share repurchase program, has driven strong growth in free cash flow per share. Slide seven in our investor presentation highlights that free cash flow per share has grown about 30% since 2024 on normalized commodity pricing. When using actual 2026 pricing, the growth is obviously substantially higher. That's impressive performance, but maybe even more impressive when considering we preserved the balance sheet along the way.

Turning to updated guidance, we've made a few fairly minor changes. We continue to expect oil volumes to average 161,000 barrels of oil per day over the course of 2026, which is 2,000 barrels of oil per day higher than our initial outlook, largely due to investing in Chord's base production. On the DNC side, due to faster cycle times, we accelerated some activity to earlier in the year, which increased first-half volumes and reduced second half relative to our initial outlook. On the capital side, our outlook is essentially unchanged. Looking at the quarterly cadence, we are expecting a meaningful reduction in spending during the third quarter as we drop our second frac crew, followed by another decline in the fourth quarter. We've also updated our differential and realization outlook to reflect current market conditions.

Unique market circumstances drove Bakken crude to trade at premiums to WTI during the second quarter. Currently, we're expecting net premium to fade over the course of the year. On the natural gas and NGL side, we also updated differential guidance to reflect current market conditions. Full-year LOE expense was raised to $10.30 per BOE, reflecting the additional production enhancement initiatives discussed earlier. Additionally, we have also seen some higher workover costs relative to initial expectations, as well as a bit higher non-operated LOE. Expanding on these additional production enhancement opportunities, I'd like to emphasize that Chord is very focused in maximizing economic returns. If investing a small amount of incremental LOE in short cycle opportunities today has a high probability of generating strong risk-adjusted cash flow in the future, that's exactly the type of investment we want to make.

Finally, turning to our updated hedge position, you can see Chord has added some incremental hedged volumes over the next couple of years. Currently, we have approximately 38% of our second-half 2026 oil volumes hedged and about 18% of 2027. In closing, Chord remains committed to delivering affordable and reliable energy in a sustainable and responsible manner. We remain focused on the factors we can control and driving improvements across the business. With that, Julie, we'd be happy to open the line for questions.