Good morning, and welcome to the Chord Energy’s Third Quarter 2023 Earnings Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Lou, Chief Financial Officer. Please go ahead.

Thank you, Laura. Good morning everyone. Today, we are reporting our third quarter 2023 financial and operational results. We're delighted to have you on our call. I'm joined today by Danny Brown, Chip Rimer, Richard Robuck, and 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 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. With that, I'll turn the call over to our CEO, Danny Brown.

Thank you, Michael. Good morning everyone and thanks for joining our call. I know this is a very busy morning, and in that vein, I plan to briefly recap our third quarter performance and touch on some of our key organizational initiatives before passing the call on to Michael Lou. He'll give a little more detail on the financials, some additional color on a few other topics, and a small preview of our thoughts for 2024. We'll then open it up to Q&A. So, with that, yesterday evening, Chord reported third quarter 2023 results and raised our full year production outlook. I'm pleased to announce that third quarter volume significantly exceeded original expectations, driven by both schedule acceleration and continued strong well performance. The entire Chord team worked together to bring 45 wells online in the third quarter, which was ahead of our original expectations and higher than the 37 wells brought online in the entire first half of the year. This accomplishment is even more impressive when evaluating on a on a two-mile equivalent basis, which amounts to a 42% increase in well delivery in half the time team. So, to our team, I'd like to say thank you. And I'm very proud of all the hard work that went into executing the program. Underpinned by the strong production, Chord's quarterly financial performance supported robust free cash flow and high shareholder returns. We generated $207 million of adjusted free cash flow during the quarter and in accordance with our return of capital framework, we'll return 75% of this free cash flow to shareholders. To that end, given our base dividend of a $1.25 per share and our share repurchases of $52 million as part of our recurring return of capital program, we declared a variable dividend of $1.25 per…

Thanks Danny. I'll highlight a handful of key operating and financial items for the third quarter and discuss our updated 2023 guidance. As Danny mentioned, oil volumes were strong in the third quarter about 4.5% over midpoint guidance. Total volumes were about 3.8% above midpoint guidance. Our fourth quarter midpoint oil guidance of 103,500 barrels per day is in line with our August expectations on a full year basis, we increased oil production guidance by over a 1,000 barrels per day. I want to echo Danny's comments on the extraordinary achievement by the Chord team in the third quarter. This was an exceptional amount of effort, and I'm really proud of everyone involved. Oil realizations remained strong at a modest premium to WTI and we're slightly better than our midpoint guidance. Looking to the fourth quarter, we expect Bakken oil pricing to weaken slightly due to higher basin production and an unexpected refinery turnaround. The pricing is still expected to remain a slight premium to WTI. NGL realizations as a percent of WTI were in line with our midpoint guidance, while residue gas pricing as a percent of Henry Hub was a touch below midpoint. We expect pricing, for both NGLs and residue gas to improve modestly in the fourth quarter. Turning to operating costs. LOE was $10.94 per BOE in the third quarter, and GPT was $3.16 per BOE. Both were within our guidance expectations, but LOE trended towards the high end, mostly due to higher workover expense. We view workover expense is an important investment to reduce downtime and enhance revenue. We've seen a meaningful improvement in that downtime over the course of 2023 and we remain focused on lowering the cost side to improve the efficiency of the program. Production tax as a percent of revenue was…

[Operator Instructions] And our first question will come from Scott Hanold of RBC Capital Markets.

Yes. Thanks. Good morning all. Danny, you were talking about seeing some good things coming out of that last mile on the three-mile wells. And can you give us a sense of where your confidence level is seeing to see the that you're going to get the full contribution on an EOR basis? Like, how much more information do you need? And is that kind of performance applicable across different parts of your acreage?

So, maybe I'll start with the second part first, Scott, and then I'll flip it over to [Technical Difficulty] any real differences in one area of the field versus another with respect to much we're expecting to see in that third mile. So, we do think it's applicable across the whole position. From a confidence level standpoint, I think we're -- we've got growing confidence that's obviously going to require production over time. And so like any of these unconventional wells, you -- we produce flat for some period of time as we were making facility strain, we go on decline. And then that decline, we go through our B factor and we turn and we level out at a sort of a terminal decline rate. And so it's -- just it's hard to know exactly what you're going to get until you go through that process and get through that B factor, and hit that terminal decline rate to know what your ultimate recovery is going to be. What I will say is we are very encouraged with where we're at right now with the, with the wells we have, both that we've done and the wells we've seen across the basin. That our underwriting at 40% is, we feel very confident with that, but we're having growing confidence that we're going see more than that. But we need to see -- we just need to see the production data over time. The pressures look good. The production looks good. This is all giving us strong. We know we're seeing contribution from the very furthest part of the lateral because we have tracer data that shows us that we're seeing that. And so I think all of these are it's all growing level of confidence that we're going to be something above this sort of 80% efficiency in the last-mile. I think, too soon to know exactly what that's going to be, but we're really we're really pleased with what we're seeing at. Chip, I don’t know what incremental comments you'd have.

Yes. Scott, Thanks for the question and good morning. Just a couple other things. The team has done a fabulous job of cleaning out these three milers. We were probably in the 25% in the first half, and now we're close to 95%, 90% clean out. And so they're doing a fabulous job cleaning up the wellbore. As Danny said, I expect that that we're going to see the contribution complete to the back half the last mile or so. Also, we're about five or six different areas throughout the basin. So, we're testing that now. So, I would assume sometime in the first quarter, we'll have a lot more data to be able to tell you. But I'm feeling real strong about where we are. The operations and the way the team's cleaning out. So, really proud of what they've done.

Great. And Danny, just to maybe pin you down a little bit here, you talked about waiting to see that, get more into the terminal to climb past the B factor. Like, generally, how would you define that? Is that more of, kind of post two to three-year type timeframe?

I think two to three years is probably a little long. I don't think we need that long, but with where we're at right now, call it may be a year plus of data and you start to really get past that factor, and we get a much better idea.

Got it. Thanks. My follow-up on is on M&A. I mean, obviously, a lot going on here over the last several months in on the M&A side. And, look, you guys have obviously participated in that over the last number of years. Can you give us your thoughts on as you look forward? What do you -- how does M&A fit into the Chord strategy? And if you can give some context around in-basin, out of basin, being a consolidator or a consolidatee?

Yes. I think maybe I could sum it up, broadly, Scott, by saying we're believers in consolidation. We're a product of consolidation. That's how Chord was formed. We will -- we plan to participate in consolidation, as we move forward whether that means we are the consolidator or the consolidatee, either way is okay. We believe in in being part of a larger equity story, and we'll look for sensible opportunities to do that. I think along those veins, as we think about, participating in consolidation, where we're consolidating, I think, in-basin consolidation is, obviously a very natural thing for us to look at. We have a very significant acreage position in the Bakken. We really touched all aspects of the basin with that sort of slightly over a 1 million acre position we've got. So, lots of synergies, from an operational standpoint, and from a -- whether it be sort of our subsurface knowledge, our operational capability, the routes we run, just converting DSUs from two mile to three mile in-basin consolidation, makes a lot of sense. We are also -- we are open and have and look at out of basin consolidation opportunities, but we're also very clear-eyed and recognize that the risk associated with out of basin consolidation is higher than the risk associated with in-basin and consolidation due to all the factors I talked about a moment ago And so it's just a higher bar to out of basin consolidation versus in-basin. And so -- but thematically, big believers in consolidation and when you're in a commodity business, I think that's just an important thing for us to recognize and be focused on.

Yes. And then if I could just a little tweak to that question too. Like, when you look at in basin opportunities, how I've -- like these higher interest rates impact like, some of the PE players, the smaller players to be willing sellers and the price to pay? Does that does that have an influence? Are you seeing any kind of impact from the higher interest rates?

Yes. I think maybe too early to say specifically on that, topic because you got to have a number of transaction to see what kind of effect you're seeing, et cetera. But generally speaking, I'd say, if you're thinking about cash-based deals where debts on the backside, higher interest rates probably aren't very helpful to that. And I'd say big swings in commodity price also aren't very helpful to M&A in general. And so, you know, we'll see where that goes. And, Michael, I'll invite you to make any further comments.

No, I think that's exactly right. I mean, obviously, the capital markets, the lending markets, all of them are much tighter than they have been across history. And so, that financing cost obviously is increasing for both the buyers and as well as maybe forcing sellers to think about exiting earlier, just because that financing cost is higher. So, it puts pressure on both sides. It also makes obviously buyers a little bit more, disciplined, I would say, with that higher interest cost and how they think about valuations.

Yes. No. I appreciate that. And that's exactly what I was pointing to. It's more the latter part of that answer where a seller is more motivated and if you have cash, you're in a better position as a potential buyer.

That's right. Yes, totally agree with that.

And the next question comes from John Abbott of Bank of America.

Hey. Good morning. Thank you for taking our questions on a -- it's a busy morning.

Good morning John. Thanks.

Hey. Recognize it's still early with the tracer test and you're looking at three-mile laterals. What do you think the implications could potentially be four miles? I mean, are you ever thinking, are you considering actually testing a four-mile lateral with a sort of similar test?

I think the short answer to that, John, is yes. We've seen four miles in other basins. We have -- there's certain least geometries we've got that would really lend themselves to doing four-mile laterals. You're right. It is early from a three-mile standpoint. I'll tell you if you sort of rewind the clock and we would have thought at some point, moving into three laterals was, was a big step into the unknown, and we would have had lots of concerns about it. But certainly, the three-mile program, to-date has, we think, has been very successful. We're excited about it moving forward. And I think the opportunity for four-mile laterals is absolutely out there and something we're investigating.

Thank you, Danny. And then for our follow-up question, you gave some color in 2024. You talked about -- your current underlying decline rate is a little bit elevated at this point in time. You suggested that could reverse by the end of next year. You indicated that for 2024, that CapEx could be roughly around the low $900,000 range. So, when you think about that potential reversal in the underlying decline rate at the end of 2024, when you think about your 2000 -- you spent in 2024, you think about the potential implications to 2025 CapEx given the change in the underlying decline rate versus the $900 million for 2024?

I think with, as you'd expect, with a lower decline rate, it should be helpful from a reinvestment rate perspective. And so if we're running a maintenance program, all else being equal, you'd expect lower CapEx needed to maintain, whatever production you're trying to hold. And so I think it's nothing but beneficial as we see the contribution of these -- as these three-mile laterals grow in proportion to our existing base, and we see that contribution of the shallower decline, it's going to be helpful to us as we march forward in maintaining a production base for better capital efficiency, if you want to look at it that way, but certainly a lower CapEx to maintain or achieve any sort of production level.

So, if I can squeeze a quick one in there. So, where do you think long-term maintenance CapEx gets you at this moment? If you take -- if you think about that sort of, reduction, if that's changing your underlying decline rate?

Yes. I think if you think we're thinking it's going to be something in the, low 900s next year, what we should reverse off of that a little bit. Of course, lots of things can change between here and there with service costs, et cetera. And so we'll have to see when we get to that timeframe. But I think with where we're at right now, what we've seen in 2023 and where we're going in 2024, you would expect to be something more capital efficient than the than the anticipated 2024 program. And so pro probably trending back towards what we saw this year.

All right. Thank you very much.

[Operator Instructions] I'm showing no further questions. That will conclude our question-and-answer session. I would like turn the conference back over to Danny Brown, Chief Executive Officer, for any closing remarks.

Thanks Laura. Well, to close out, I just want to thank the employees of Chord for their commitment and dedication to our company. It was a really strong quarter from an execution standpoint and the team did a fantastic job. And I know -- also know we all have a relentless drive to improve, so we'll continue to work as a team to make Chord an even stronger company for all of our stakeholders. We're proud of a great third quarter, excited about the setup for the remainder of 2023, and plans for 2024 and beyond. And with that, thanks to everyone for joining our call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.