Executive Summary / Key Takeaways

• Chord Energy has solidified its position as a premier Williston Basin operator through strategic consolidation and a relentless focus on operational efficiency, particularly via longer lateral development and optimized spacing.
• The company's differentiated approach to drilling and completions, including successful 3-mile laterals and promising 4-mile tests, yields superior capital efficiency, lower breakevens, and enhanced returns compared to shorter lateral development and some peers.
• Strong financial performance in Q1 2025, with adjusted free cash flow of approximately $291 million, reflects operational execution and cost control, supporting a commitment to return 100% of free cash flow to shareholders through dividends and opportunistic share repurchases.
• The 2025 outlook and 3-year plan target a stable production profile (152-153 MBopd) with a disciplined $1.4 billion annual capital investment, underpinned by significant synergy capture from the Enerplus combination and potential upside from ongoing efficiency gains and 4-mile lateral development.
• Chord maintains a robust balance sheet (0.3x leverage) and substantial liquidity ($1.9 billion), providing significant financial and operational flexibility to navigate volatile commodity markets and execute its returns-focused strategy.

A Basin Leader Forged in Efficiency

Chord Energy Corporation stands as a prominent independent exploration and production company, primarily focused on the prolific Williston Basin. Its journey, marked by strategic evolution and a deep commitment to operational excellence, has culminated in its current position as a basin leader. Under the leadership of CEO Danny Brown over the past four years, the company has strategically enhanced its standing, emphasizing capital discipline, operating efficiency, and continuous improvement. This period saw a deliberate pivot towards optimizing development through techniques like wider spacing and the adoption of longer lateral wells, particularly 3-mile laterals, recognizing their potential to improve economics and extend the life of its valuable inventory.

The most significant step in this transformation was the combination with Enerplus Corporation (ERF), completed on May 31, 2024. This merger was not merely about increasing size; it was a strategic move to integrate top-tier assets in the core Williston Basin and leverage the best practices of both legacy organizations. The result is a scaled entity with a low-decline, high-oil-cut production base and a deep inventory of economic drilling locations, capable of generating substantial and sustainable free cash flow.

In the competitive landscape of North American E&P, Chord operates alongside notable peers such as Continental Resources (CLR), Devon Energy (DVN), Marathon Oil (MRO), and EOG Resources (EOG). While these companies compete for resources and investor capital across various basins, Chord's primary focus on the Williston Basin distinguishes it. Compared to some peers who may have broader geographic diversification (like MRO or DVN's Permian focus) or different strategic emphases (like EOG's innovation in new plays), Chord's strength lies in its concentrated, deep expertise within a single, high-quality basin. This focus allows for a differential subsurface understanding and the application of specialized operational techniques tailored to the Williston geology.

Technological Edge and Operational Mastery

A cornerstone of Chord's strategy and a key differentiator in the competitive arena is its technological and operational prowess, particularly in optimizing well design and execution. The company has been a leader in the Williston Basin in developing longer lateral wells. While 2-mile laterals were once standard, Chord has successfully transitioned to drilling over 100 3-mile laterals in recent years. This isn't just about drilling longer holes; it's about mastering the complex processes required to make them economically superior.

A significant technical achievement has been consistently cleaning out these 3-mile laterals to total depth (TD) post-completion, a challenge that has historically impacted productivity in longer wells across the industry. Chord's team has routinely succeeded in drilling out frac plugs and reaching TD, ensuring the entire lateral contributes to production. This operational success underpins the company's updated productivity assumption for the third mile, now considered essentially identical to the first two miles based on observed performance data.

The benefits of this longer lateral approach are tangible and quantifiable. Compared to 2-mile wells, 3-mile laterals are expected to deliver approximately 50% more Estimated Ultimate Recovery (EUR) for only a 20% to 25% increase in capital expenditure. This translates directly into improved capital efficiency and enhanced investment returns.

Building on this success, Chord is now actively exploring the next frontier: 4-mile laterals. The company recently spudded its first 4-mile well and plans several more in 2025. Initial results from the first 4-mile lateral are encouraging, with the well completed approximately $1 million below budget and successful cleanout to TD. While early production data is being monitored, the strategic intent is clear: 4-mile laterals are expected to recover 90% to 100% more EUR than 2-mile wells for only a 40% to 60% increase in capital, potentially lowering breakeven prices by $8 to $12 per barrel. The goal is to convert over 80% of the company's inventory to long laterals (3-mile plus) in the coming years, significantly enhancing economic returns across the portfolio.

Beyond lateral length, Chord's operational edge extends to spacing and completion techniques. The company's average spacing across the basin is wider than many peers. This conservative approach has contributed to shallower base declines and lower reinvestment rates. While some might view this as potentially leaving resource behind, Chord's analysis suggests similar total DSU recoveries are achieved with substantially fewer wells and less capital, demonstrating superior capital efficiency. The integration with Enerplus has also brought valuable techniques, such as simul-frac operations, which Chord is adopting. Simul-frac has shown a 40% increase in fracked feet per day compared to traditional zipper fracs, reducing non-productive time and accelerating time to first production. These combined operational advancements, from drilling speed (drilling 3-mile wells 13% faster than a year ago) to post-frac cleanouts and downtime reduction, underscore Chord's commitment to continuous improvement and its ability to drive efficiency across its expanded asset base.

Financial Strength and Performance

Chord's operational excellence and strategic scale are reflected in its solid financial performance and robust balance sheet. The first quarter of 2025 demonstrated strong results, with operating performance leading to adjusted free cash flow of approximately $291 million, exceeding expectations. This performance was supported by oil volumes above guidance and capital expenditures favorable to guidance, largely due to improved program efficiency. Operating expenses also came in lower than anticipated, contributing to improved cash margins. Lease operating expenses (LOE) per Boe decreased both quarter-over-quarter and period-over-period, partly benefiting from operational synergies realized through the Enerplus integration and ongoing efficiency efforts. While Gathering, Processing, and Transportation (GPT) expenses per Boe increased period-over-period, this was primarily a function of expanded operations post-merger, partially offset by lower transportation rates.

Revenue from produced oil, NGL, and gas increased significantly in Q1 2025 compared to Q1 2024, primarily driven by the expanded operations resulting from the Enerplus Arrangement. Purchased oil and gas sales, a lower-margin marketing activity, decreased substantially period-over-period due to lower volumes. Depreciation, depletion, and amortization (DDA) expense increased, reflecting higher production volumes and a higher depletion rate influenced by the fair value allocation in the Enerplus acquisition. General and administrative (G&A) expenses were higher period-over-period due to the larger organizational scale, though merger-related costs are trending downward.

The company's liquidity position is strong, standing at $1,944.9 million as of March 31, 2025, comprising $35.8 million in cash and $1,909.2 million in unused borrowing capacity under its Credit Facility.

The Credit Facility's borrowing base was recently redetermined to $2.75 billion, with elected commitments increasing to $2.0 billion, highlighting the company's access to capital. In March 2025, Chord successfully issued $750 million of 6.75% senior unsecured notes due 2033, using the proceeds to repurchase and discharge existing 2026 Senior Notes and repay Credit Facility borrowings, proactively managing its debt profile. As of March 31, 2025, long-term debt stood at $798.8 million.

The company's leverage ratio of approximately 0.3x net debt-to-EBITDA is notably low compared to many peers, providing significant financial flexibility and resilience in volatile markets.

This financial strength underpins Chord's commitment to shareholder returns. The company returned 100% of its adjusted free cash flow in Q1 2025 through a base dividend of $1.30 per share and significant share repurchases ($216.5 million in Q1 2025, plus an additional $45 million subsequent to quarter-end). Since closing the Enerplus transaction, Chord has reduced its share count by approximately 9%, repurchasing over a quarter of the shares issued in the merger in less than a year. This focus on returning capital, particularly through buybacks when the share price is viewed as compelling, is a key component of the investment thesis.

Outlook and Strategic Flexibility

Chord's outlook is centered on maintaining a stable production profile while maximizing free cash flow generation through continued efficiency gains. The 2025 plan targets average daily oil production between 152,000 and 153,000 barrels, similar to pro forma 2024 levels, supported by a disciplined capital investment of $1.4 billion. This capital program is approximately $90 million less than pro forma 2024, reflecting anticipated efficiencies. The plan involves running five drilling rigs and two frac crews, scaling down to four rigs and one frac crew by early June, with the potential to bring back the second frac crew in Q4 2025, a decision contingent on the macro environment.

Management explicitly states that the 2025 outlook and the subsequent 2025-2027 three-year plan are based on a conservative assumption of no further improvements in capital efficiency beyond year-end 2024 capabilities. This suggests potential upside to the stated capital targets as the company continues to implement best practices, optimize operations, and realize the full benefits of the Enerplus integration, which is expected to yield over $200 million in annual synergies.

The ongoing exploration of 4-mile laterals represents a significant potential catalyst not yet fully incorporated into the formal guidance. Successful implementation could further reduce capital requirements per barrel and extend the economic inventory life. The company's low base decline rate, a competitive advantage, also supports the ability to maintain production with a relatively low reinvestment rate (around 60% in 2025 at benchmark prices).

At benchmark prices of $70 per barrel WTI and $3.50 per MMBtu Henry Hub, Chord expects to generate approximately $860 million of free cash flow in 2025. This free cash flow generation is expected to continue funding the company's robust shareholder return program.

The company's operational and financial flexibility is a critical element of its strategy, particularly in the face of volatile commodity markets. The ability to adjust activity levels (rig and crew counts) based on market conditions, coupled with a strong balance sheet and low fixed costs, positions Chord to maintain an efficient, returns-focused program and generate strong free cash flow even if market conditions weaken.

Risks and Considerations

Despite its strengths, Chord Energy faces inherent risks common to the E&P sector. Commodity price volatility is the most significant factor influencing revenue, profitability, cash flows, and reserve economics. Recent decreases in crude oil prices due to geopolitical factors and supply dynamics highlight this risk. A sustained decline could materially impact financial results and potentially lead to non-cash impairment charges on assets or goodwill.

Operational risks, including those related to drilling and completion success, well performance, and downtime, can impact production volumes and costs. While Chord has demonstrated strong operational execution and is focused on reducing downtime and improving efficiency, these risks remain.

The company is also exposed to market risks related to interest rates (affecting borrowings on the Credit Facility) and counterparty credit risk (from joint interest partners and commodity purchasers). While mitigation strategies are in place (e.g., contracting with high credit-quality counterparties for derivatives), these risks cannot be entirely eliminated.

Minimum volume commitments under midstream and transportation contracts represent a material cash requirement, although the company expects to meet these through production or third-party purchases.

Regulatory and environmental risks, including potential changes in laws, taxes (like production taxes), and environmental regulations, could impact operating costs and development plans.

Finally, while the Enerplus integration is progressing well and yielding significant synergies, the successful realization of all anticipated benefits and the smooth integration of systems and personnel carry execution risk.

Conclusion

Chord Energy has successfully transformed into a leading, highly efficient independent E&P company focused on the core Williston Basin. The strategic combination with Enerplus has enhanced its scale, asset quality, and operational capabilities, driving significant synergy capture and improving capital efficiency. The company's mastery of longer lateral development, particularly 3-mile wells, and its pursuit of 4-mile laterals represent a tangible technological advantage that lowers costs, improves returns, and extends inventory life.

Supported by a strong balance sheet and a commitment to capital discipline, Chord is well-positioned to generate robust and sustainable free cash flow, even in volatile commodity price environments. The 2025 outlook and 3-year plan reflect a focus on maintaining a stable production profile while prioritizing efficiency gains and shareholder returns through dividends and opportunistic share repurchases. While commodity price volatility and operational execution risks persist, Chord's financial strength, operational flexibility, and ongoing efforts to enhance its cost structure and inventory economics provide a compelling investment thesis for investors seeking exposure to a high-quality, returns-focused operator in a premier North American basin. The successful execution of its longer lateral strategy and the realization of full synergy potential remain key factors to watch for future value creation.