Chord Energy Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 8, 2024

Key Takeaways

  • Adjusted free cash flow of $204 million in Q1 2024 exceeded expectations, and 75% of discrete cash flow will be returned to shareholders via dividends and share repurchases.
  • Operational efficiencies drove oil volumes above expectations, including a record 8.7-day drill-to-rig-release on a 3-mile lateral well and an anticipated 40% EUR uplift for ~20% more capital.
  • Standalone full-year guidance remains unchanged with Q2 volumes and capex slightly higher, capital peaking in Q2 and reduced activity in H2 to maximize sustainable free cash flow.
  • Closing of the combination with Enerplus is expected May 31, bringing $150 million of synergies, accretion across per-share metrics, and preserving a peer-leading return-of-capital framework.
  • Realized natural gas and NGL prices in Q1 were below forecasts due to fixed marketing fees, reducing gas and NGL realizations as a percentage of benchmark prices.
AI Generated. May Contain Errors.
Earnings Conference Call
Chord Energy Q1 2024
00:00 / 00:00

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Operator

Good morning, ladies and gentlemen, and welcome to the Chord Energy first quarter 2024 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, May 8, 2024, and I would now like to turn the conference over to Mr. Richard Robuck, Chief Financial Officer. Thank you, please go ahead.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

Thanks, Ina. Good morning, everyone. This is Richard Robuck. Today we're reporting our first quarter 2024 financial and operating results. We're delighted to have you on our call. I'm joined today by Danny Brown, our CEO, Michael Lou, our Chief Strategy Officer and Chief Commercial Officer, Darrin Henke, our COO, 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.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

Those risks include, among other things, matters that we have described in our earnings releases as well as 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 references 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.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Thanks, Richard. Good morning, everyone. Thank you for joining our call. I know this is a very busy morning, so I'll get right to my comments. I plan to review our first quarter performance and return of capital, our full-year standalone outlook, and provide some updates on our pending combination with Enerplus before passing it over to Darrin Henke. Darrin will give some color on operations before passing it back to Richard for a little more detail on our financial results. We'll then open it up to Q&A. So, in summary, what a great quarter. We announced a very important and impactful combination with Enerplus and delivered another quarter of strong operational performance. First quarter 2024 resulted in oil volumes above expectations, driven by strong well performance and accelerated activity due to cycle-time improvements.

Danny Brown
Danny Brown
President and CEO at Chord Energy

I want to take a moment to thank the Chord team for demonstrating tremendous resiliency during the unusually cold weather that swept through North Dakota in January. While we experienced significant downtime, the Chord team responded quickly and got production back online fast, and most importantly, safely. In fact, I believe we had some of the best performance in the basin on these items, and I just want to extend my personal gratitude to all those that made it happen. The strong production we saw in the first quarter has underpinned Chord's financial performance and led to robust free cash flow generation, which was above expectations. We generated $204 million of adjusted free cash flow during the quarter and, in accordance with our return of capital framework, will return 75% of this free cash flow to shareholders.

Danny Brown
Danny Brown
President and CEO at Chord Energy

To that end, given our base dividend of $1.25 per share and our share repurchases in the quarter of $30 million, which were limited given the possession of material nonpublic information associated with the pending combination with Enerplus, we declared a variable dividend of $1.69 per share. Additionally, last night we had issued second quarter and full-year guidance which reflects Chord on a standalone basis. Given the operational improvements I mentioned earlier, the development program is proceeding faster than originally anticipated, and second quarter oil volumes and capital are expected to be a little higher than what we were projecting at the beginning of the year. While we are running ahead of schedule, you'll notice we didn't change our full-year oil volume or capital guidance from the February outlook. This reflects Chord's commitment to managing the business to maximize sustainable free cash flow with a flat plus program.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Given our strong performance to date, including the 16% free cash flow beat in the first quarter, our plan has capital peaking in the second quarter, with reduced activity relative to our original expectations in the second half of the year as we window out a frac crew and drilling rig. In addition to yielding a more stable production profile, this should help de-risk the delivery of our previously announced annual program, allow us to assign more resources to integration and synergy capture, and position us well for a strong 2025. Speaking of integration, we were pleased to announce yesterday that we expect to close the Enerplus combination later this month, on May 31st. As a reminder, our review period under the Hart-Scott-Rodino Act expired on April 5th, and since that time, the teams of both companies have been working to prepare for integration while still working as separate organizations.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Upon close, we expect to issue abbreviated combined guidance for the second quarter, which will include one month of Enerplus, as well as second-half guidance for the pro forma enterprise, and will also work to fully integrate the development plans of the two companies. We intend to provide a more fulsome update on expectations for the combined asset base when we report second quarter results in August. As a reminder, Chord's shareholder vote is scheduled for May 14th, and Enerplus's shareholder vote is scheduled for May 24th. Chord has integrated multiple transactions over the past few years, including the XTO acquisition and the Oasis and Whiting merger. The team keeps getting better, and applying the learnings from these integration efforts is expected to help ensure we realize and even exceed our announced synergies while maintaining strong operational performance of the underlying business.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Before moving on, I'd like to spend a few moments reviewing the merits of the deal. The Chord team has long believed in the industrial logic of a combination of these two organizations. We remain extremely confident in the strategic and financial benefits of the transaction, and as we move through integration planning, our conviction level continues to grow. First, Enerplus brings top-tier assets in the core of the basin, which improves the quality of our long-lived inventory, and where Chord expects to enhance returns by combining the best development and operating practices of the two companies. To put it plainly, we believe Enerplus has some of the best inventory and acreage in the basin. Second, by utilizing combined best practices at enhanced scale, we are very confident in achieving the $150 million in synergies previously noted and see potential for upside to this number.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Integration efforts are going very well, with both organizations working together to drive incremental value from the transaction. Through the process of building roadmaps for the future organization, we've learned that our cultures are very similar, and I want to let both organizations know how grateful I am for their positive attitudes and eagerness and excitement around the deal. To all the Chord employees involved in the integration efforts, you've done a great job driving the process forward while also putting up great results in our standalone business. Third, the combination drives accretion across all key per-share metrics, including EBITDA, cash flow, and free cash flow. In addition, the structure of the deal allows us to maintain a peer-leading return of capital program and preserves a fortress balance sheet, giving the pro forma organization tremendous optionality as we move forward.

Danny Brown
Danny Brown
President and CEO at Chord Energy

To sum it up, the combination with Enerplus significantly accelerates Chord's beneficial rate of change as it relates to improving economic returns and value creation, and it is a very exciting time for our organization. And finally, because we remain committed to delivering affordable and reliable energy in a sustainable and responsible manner, just a few words on our sustainability progress before turning it over to Darrin. In 2023, Chord lowered its emissions intensity and officially endorsed the World Bank's Zero Routine Flaring by 2030 initiative. We also saw dramatic improvement in our safety performance. I'd like to thank the team for their efforts on these important topics and encourage everyone to review our sustainability report on our website.

Danny Brown
Danny Brown
President and CEO at Chord Energy

After closing the Enerplus transaction, our preliminary plans for 2024 involve publishing a sustainability report, Chord, on a standalone basis and providing a summary of key ESG and sustainability metrics for Enerplus. In 2025, we expect to publish a full sustainability report reflecting the combined company. To sum things up, Chord had a great start to the year. We remain excited to close the pending transaction with Enerplus and look forward to driving forward progress through 2024 and beyond. With that, I'll turn it over to Darrin.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

Thanks, Danny. We had a solid quarter as the team continues to execute with excellence. Our wedge production benefited from strong well performance and improving cycle times, while our base production rebounded quickly from the January weather disruptions. The Chord team has enhanced our facility design in recent years and has the equipment and processes in place to mitigate downtime and rebound quickly when there are outages. Operationally, we continue to be encouraged by the progress we're making on 3-mile laterals, of which we've executed about 80 to date. While it's still early days, on average, performance is meeting or exceeding our expectations, and one can clearly observe contribution from the furthest portions of the lateral. We're also seeing an uplift compared to the 2-mile analog wells in each prospect area, which is increasing over time.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

You can find additional details on slide 9 of our updated investor presentation, where we've provided performance data on three-mile wells and Painted Woods that were drilled in the third quarter of last year. Additionally, we provided incremental details on the anticipated three-mile production forecast over time and also the expected 40% uplift. It's important to understand that all else equal, production per lateral foot from three-mile wells will initially be below the two-mile analogs. This mostly reflects facility constraints and managed flowback, which generally keep volumes in a certain band for the initial productivity period. However, over time, the three-mile well production per lateral foot catches up with the two-mile wells given shallower declines, which ultimately leads to higher recovery. We expect three-mile wells to deliver approximately 40% more EUR for about 20% more capital.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

This capital efficiency primarily comes from leveraging the vertical section of the wellbore as well as the locations, roads, and infrastructure while using similar-sized facilities. Chord has made significant progress in drilling, completing, and cleaning out our three-mile wells. Drilling times declined by roughly 25% over 2023 and is now taking about 10-11 days on average to drill a three-mile well. I should note, in the first quarter, Chord drilled a three-mile well in 8.7 days spud to rig release, which set a new basin record. On the clean-out side, we have made strong progress and are essentially reaching TD in all our three-mile wells at this point. We frequently get asked if there could be upside to our implied 80% productivity assumption for the third mile. We believe this is a likely possibility, especially in light of Chord's progress on clean-outs over the past year.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

However, given that our 2023 three-mile laterals were back-end weighted, it will take until later this year to get sufficient production history to effectively analyze the declines and determine whether we can increase our EUR uplift assumptions. As I said, we are essentially reaching TD on all our clean-outs, and we like what we see for production performance and well pressures. I give credit to the Chord team for embracing our culture of continuous improvement, which has significantly advanced our execution on the three-mile laterals. So, to sum things up, the Bakken is a world-class resource with strong economics, and as the premier operator in the basin, we see additional running room to drive further efficiencies and lower break-even pricing. The combination with Enerplus provides additional levers to advance our capabilities and will allow both Chord and Enerplus to create more value than either company could as a standalone.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

We expect to lower our supply costs while continuing to reduce our environmental footprint, all the while being good stewards in the communities where we operate. I'll now turn it back over to Richard.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

Thanks, Darrin. A quick heads-up: my comments regarding guidance will not include pro forma impacts of Enerplus, as we'll be incorporating a combined look post-close. In the first quarter, Chord generated adjusted free cash flow of $204 million. Looking at the puts and takes, strong volumes and lower operating costs largely offset capital costs that were at the high end of the range, while natural gas realizations were below our February forecast projections. Our volumes were strong in the first quarter, about 2.6% over midpoint guidance, while total volumes were about 1% above midpoint guidance. First quarter adjusted capex of $254 million excluded $4 million of capex, which will be reimbursed in conjunction with sales of non-operated assets. As Danny mentioned, our program has accelerated a bit from what we expected in February, which is reflected in our first quarter results and second quarter guidance.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

On a full-year basis, there were no changes to oil volumes and capital spending guidance that we outlined in February. Oil realizations in the first quarter averaged $1.71 below WTI, slightly favorable than midpoint guidance. As we look to the balance of 2024, the first quarter oil differential is expected to be wider than the rest of the year, with Bakken pricing expected to improve as the TMX pipeline begins operating. For the full year, we expect crude realizations to reflect a modest discount to WTI. NGL realizations as a percent of WTI were in line with midpoint guidance, while gas realizations fell below our guidance range. As a reminder, certain marketing fixed fees are deducted from our realized gas and NGL prices. This drives higher operating leverage, which hurts realizations for both NGLs and gas at times of weaker prices.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

With gas prices trading at low levels, the fees deducted from our price resulted in lower realizations as a percent of the benchmark price. However, realizations should improve quickly in environments where gas prices rise. We have incorporated the current market conditions into our updated 2024 guidance. Turning to costs, LOE was $10.39 per BOE in the first quarter, which was better than our original expectations given strong volumes and lower workover costs. GPT was $3.30 per BOE, which was towards the higher end of the range. We've slightly adjusted our full-year LOE and GPT guidance to account for the first quarter performance and our latest forecast. Cash G&A, excluding transaction costs, was $14.5 million in the first quarter and was better than original expectations due to timing of spending. Full-year guidance remains unchanged.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

Production taxes average 8.5% of commodity sales in the first quarter, and we reiterated our full-year guidance. Chord made no cash tax payments in the first quarter. For the second quarter, we expect to pay 1%-8% of EBITDA, which increases to 8%-14% of EBITDA in the second half of the year. For the full year 2024, we expect to pay 4%-9% of EBITDA at WTI pricing ranging from $70-$90 a barrel, which is in line with our initial expectations. In 2024 and 2025, we generally expect cash taxes to be higher in the back half of the year relative to the front half due to timing of deductions and other factors. In closing, I'd like to thank our team for their hard work and dedication to the company.

Richard Robuck
Richard Robuck
EVP and CFO at Chord Energy

Your contribution shows up in our strong returns, sustainable free cash flow, and peer-leading return of capital. With that, I'll hand the call back over to Ina for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Neal Dingmann from Truist Securities. Please go ahead.

Neal Dingmann
Neal Dingmann
Analyst at William Blair

Morning, guys. Nice quarter. Danny, my first question is maybe on your post-Enerplus D&C plans. I know maybe just what you can talk around this. Specifically, I believe Chord's been running around 2-3 rigs end Enerplus two, and I'm just wondering you mentioned something on your prepared remarks that it seemed like you suggested that guidance would stay relatively the same given or you didn't want to raise guidance yet given your commitment to staying relatively flat. And I'm just wondering, with that said, is it fair to assume potential downside to CapEx if these operational efficiencies that you and Darrin's team are continuing to see if you're able to continue to do that?

Danny Brown
Danny Brown
President and CEO at Chord Energy

I think that's thanks for the question, Neal. Yeah, I think that's fair. What we've got, we're doing really well as an organization. The efficiencies are coming through. Cycle times are improving down. And what we're not interested in chasing production higher and higher. We think sort of a flat-plus program that we've talked about many times is kind of the right way to run the organization. And our thoughts on that haven't changed. And so, as we see these efficiencies move through, as we're able to pull more capital out of the system, instead of plowing that into more activity, we'll probably keep our activity about sort of similar to what it would have been otherwise and just let more free cash flow flow through the system.

Neal Dingmann
Neal Dingmann
Analyst at William Blair

Love to see that. Okay. And then just secondly, on future LOE specifically, I'm just wondering, you recently cut some workover rigs, but you've done a nice job just on that workover program. And I'm just wondering, outside of weather or what I would call something abnormal, what do you all envision as sort of a typical workover plan? Maybe I don't care, with or without Enerplus. What do you assume on a kind of workover plan? I'm trying to get an idea if the plan will be about where it is today. Would you ramp it back up, or how should we think about that workover or rework plan going forward? Thank you.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Yeah. I'll ask Darrin to provide some commentary here in a moment, but maybe just give my thoughts first. I think what you should expect, Neal, is we've got a significant workover rig program. There's probably some seasonality in it, so some quarters it may be a little higher than others. We've been working really, really hard to try and optimize our cost in this. We recognize it's a big portion of our LOE and that as we can get more efficiencies through the system and do that work better, we should be the beneficiaries of sort of lower cost on that structure. So that's certainly a focus for us that could include reducing the number of rigs, moving to more tower rigs for more efficient operations, and lots of different things.

Danny Brown
Danny Brown
President and CEO at Chord Energy

From an Enerplus perspective, I'd say their workover program is sort of comparable to ours on a flowing barrel or on a well basis. So I don't anticipate a huge amount of changes other than our focus on continuous improvement. But I'll ask Darrin to maybe provide his thoughts on it.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

Yeah, Neal. Since third quarter of last year, we've been able to reduce our workover costs on our rod repair jobs by about 15%, just really focusing on how we conduct our operations and being the most efficient operator possible. We've also been able to improve our run times so that we actually don't need as many rigs as maybe we did historically. So when you look at Enerplus relative to Chord, the run times at Chord are slightly longer than what Enerplus has been experiencing. And so I think when we put the two companies together, we'll be able to glean some additional efficiencies, increase in run times, as well as a decrease in the overall workover program.

Neal Dingmann
Neal Dingmann
Analyst at William Blair

Very helpful. Thanks, guys.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Thanks, Neal.

Operator

Thank you. Your next question comes from the line of David Deckelbaum from TD Cowen. Please go ahead.

David Deckelbaum
David Deckelbaum
Analyst at TD Cowen

Thanks, Danny, Michael, Richard, and team. I wanted to ask a follow-up just on guidance for this year. Obviously, you left the full year unchanged. Just given a historical bias to producing more in the back half of the year, I was surprised at the implication is that you'd more or less be flattish from the second quarter. I know that there's obviously pretty even splits throughout the first half and the back half of the year. If we think about summer seasonality and that uptick there, it would seem that you guys should have increased production in the back half of the year, unless I'm thinking about that incorrectly. I know that you guys talked about managing the program to fit within the capital budget, but is there something else that would be impacting the production side that would otherwise keep those volumes flat?

Danny Brown
Danny Brown
President and CEO at Chord Energy

Yeah, thanks for the question, David. I think we'll actually anticipate having maybe fewer wells in the back half of the year than in the front half of the year as we wind down a frac crew and a drilling rig. So our activity, actually, we anticipate will fall as we move into the third quarter. And so, as a result of that, that well balance is going to be slightly tilted toward the front half of the year, not the back half of the year. And so what that's going to do is provide instead of sort of a more cyclical production profile, it should provide a more stable production profile quarter on quarter. And I think that's the impact you're going to see. So as we continue to see strong performance, again, we're not really looking to chase activity higher as we go faster.

Danny Brown
Danny Brown
President and CEO at Chord Energy

We'll just slow the activity down a little bit and let more free cash flow flow through.

David Deckelbaum
David Deckelbaum
Analyst at TD Cowen

I appreciate that. Maybe you can revisit some of the commentary around potentially doing better on some of the synergies with Enerplus. I know it's probably too early to talk about some of those, but I know a lot of us are intrigued about the potential to kind of repermit some of their locations in the three-mile laterals on a go-forward basis. You've obviously had some increased success on your own program. Has the timeline, how you guys think about achieving that, changed as you look at integrating some of these assets, or is that something that's still likely not impactful until 2026?

Danny Brown
Danny Brown
President and CEO at Chord Energy

Well, I think from a development program standpoint, so for new wells that we're doing, we're likely to see really the impact of that in 2025, not in 2026. And so we've been working as separate organizations as is appropriate until close. We won't really get a full new integrated development plan put together until post-close. And so, internally, we've used the phrase "coiling the spring." So we're coiling the spring here, getting ready to sort of jump on this as soon as we close. We've done as much integration planning as we can up till that point. Once we close, we'll put full integrated development plans together, which I anticipate will go largely into effect in 2025. So I think you'll see really those benefits, at least from a practice standpoint, move through in 2025. So a lot of those synergy captures in 2025.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Now, with respect to repermitting and replatting, that process obviously takes a little longer. And so we'll need to put the acreage together, play the geometry games of replatting out. And so maybe the impact of moving from currently planned two-mile laterals to future planned three-mile laterals may be a little later in the process. But from an activity standpoint, we should see that synergy savings roll through in, I'd say, early 2025 and maybe the opportunity for replatting into three-mile laterals and moving some of that development plan over maybe later in the year.

Neal Dingmann
Neal Dingmann
Analyst at William Blair

Thanks, Danny.

Operator

Thank you. Your next question comes from the line of John Annis from Stifel. Please go ahead.

John Annis
Analyst at Texas Capital Securities

Hey, good morning, guys, and thanks for taking my questions. For my first one, staying on the synergies, Enerplus has been active on the simultaneous frac front. And if I'm not mistaken, that's one area Chord hasn't really leaned into yet. Can you provide your thoughts on incorporating the simultaneous frac development program and the potential cost savings associated with it?

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

Sure thing. Happy to do that. So you're exactly right. Enerplus has done a great job implementing simultaneous fracs, as well as they recycle more produced water in their frac operations than we do. And so those are some learnings that we intend to implement immediately, really mid-year this year going forward. And so the savings, when you combine the recycling the water along with simultaneous fracking, is probably going to work out ±$100,000 per well in savings. Some other things that Enerplus has done really well is they use more vapor recovery units as far as capturing gas off of their facilities. And that's something that you'll see Chord implement as well to help with our gas capture going forward.

John Annis
Analyst at Texas Capital Securities

Makes sense. And a quick clarification, are those savings already included in the $150 million synergy target?

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

The savings I've talked about are in those numbers.

John Annis
Analyst at Texas Capital Securities

Makes sense. For my follow-up, with the 4-Mile Laterals planned for later this year, can you offer any preliminary expectations regarding potential cost savings and ultimate EUR, either from the subsurface work you have done or analogs across the basin?

Danny Brown
Danny Brown
President and CEO at Chord Energy

So I think from a 4-mile lateral standpoint, obviously, it's sort of early days for us in that we would anticipate that similar to as we underwrite a 4-mile lateral program, we'll obviously be looking at some incremental degradation on the 4-mile delivery, just like we've looked at incremental degradation of a 3-mile delivery as opposed to 2-mile. And so I think we're encouraged that maybe we've been a little too conservative on that from a 2- to 3-mile standpoint. Again, we'll provide some more clarity on that as we get a little more data in, as we get toward the end of the year. But as we increase our learnings through that 3-mile process, we'll plow that into 4-mile. I'd say that from a drilling perspective, we're very confident that 4 miles shouldn't provide too much of a technical challenge for us.

Danny Brown
Danny Brown
President and CEO at Chord Energy

From a profit placement standpoint, we feel confident we can place our profit appropriately out to 4-mile. I think the cleanout is probably the technical challenge that we have most, just with existing coil. Certainly, coil tubing cleanout will be a big challenge for us in a lateral that's long and probably will require some stick pipe. But we do anticipate sort of similar to moving from 2 and 3 miles, you can think about there's still huge advantages in leveraging the vertical section of the well, the facilities that you've got, the roads that bring you to the pad, etc. And so if you can imagine going from a 2-mile development program to one 4-mile development program, it provides a real opportunity.

Danny Brown
Danny Brown
President and CEO at Chord Energy

I'm not sure how much we're envisioning 4 miles replacing 3 miles, but where we've got geometry that doesn't lend itself to 3-mile development but really is lending itself to 2-mile development, certainly a 4-mile well instead of a 2-mile well could be a big uplift for us. That's really what we're excited about.

Michael Lou
Michael Lou
EVP and Chief Strategy Officer and Chief Commercial Officer at Chord Energy

John, just to add to that a little bit, the three-mile, on a Chord standalone, we've been talking about 60% of our inventory is in that three-mile category, which means that 40% is open to being able to continue to extend. On a combined basis, we're about 40% in the three-mile identified category. So the four-mile lateral will just give us more opportunities, as Danny mentioned, to have more shapes, if you will, to get a larger portion of that inventory into either three or four mile, thus increasing the capital efficiency across the program. So there's a lot of opportunity left in the program, and we think the four-mile will just add to that.

John Annis
Analyst at Texas Capital Securities

Great color. Thanks again for taking my questions.

Michael Lou
Michael Lou
EVP and Chief Strategy Officer and Chief Commercial Officer at Chord Energy

Thanks, John.

Operator

Thank you once again. Should you have a question, please press star followed by the 1 on your telephone keypad. Your next question comes from the line of Sean Mitchell from Daniel Energy Partners. Please go ahead.

Sean Mitchell
Analyst at Daniel Energy Partners

Good morning, guys. Thanks for taking my question. You guys had impressive improvements on drill times year over year. Is this improvement around more the size of the hammer or well design in the form of drilling fluids, drilling mud, etc.?

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

Yeah, it's a great question. The team has done a fabulous job driving down our cycle times on the drilling front. And it's a combination of working with our vendors on bit design and advancing our bit design. You hit the nail on the head with respect to the drilling mud that we use and the properties of that mud and how we're able to drill the well bores really quickly but also keep the laterals clean while we're doing that. And, of course, having good laterals that we can get the pipe to bottom with no problem and cement it in place. So it's not really any one individual area. It's Chord's commitment to continuous improvement. We're never going to rest with what we've done historically.

Darrin Henke
Darrin Henke
EVP and COO at Chord Energy

We have set the record for the fastest 3-mile well in the basin, but that doesn't mean we're going to sit back and be comfortable with those results. We'll continue to focus and look for additional wins to drive down those cycle times.

Sean Mitchell
Analyst at Daniel Energy Partners

Got it. Maybe a follow-up. Just several of your competitors or peers are talking about refracs in the Bakken and the Eagle Ford. How do you guys think about the refrac market? Do you think about it? I think Enerplus does some, but any color around that would be helpful.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Yeah, I think we're open to refracs. We think we've got some opportunity within our program to do those. Candidly, the greenfield development program we have right now is really compelling. But as we have opportunities to do refracs, particularly in areas where we see development in the area, so we've already got wells shut in in the area. We've already got wells frac protected in the area. Those areas, doing refracs at that moment is it would be difficult for the refrac itself to justify going back into areas like that to shut wells in, to frac protect them because there's expense and cost associated with all of that. And so I think you'll see us focus on refracs in that manner. As a standalone program for us, we are observing others. We're learning from our own practices, and we'll move forward.

Danny Brown
Danny Brown
President and CEO at Chord Energy

One of the reasons you go in and do a refrac program is really the original wells were maybe understimulated, at least relative to modern expectations in the first place. And we've got a few areas in the field that are like that. But generally speaking, I think the legacy organizations have did a pretty good job up front. And so maybe there's not as much meat on the bone as there may be for some others, but still an interesting program that we're looking at.

Sean Mitchell
Analyst at Daniel Energy Partners

Yeah. Okay. Thanks for taking my questions.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Thanks, Sean.

Operator

Thank you. There are no further questions at this time. I will now hand the call back to Mr. Danny Brown, CEO, for closing remarks.

Danny Brown
Danny Brown
President and CEO at Chord Energy

Thanks, Ina. Well, to close out, we appreciate everyone's time today and interest in our company. I also want to thank our employees for their continued commitment and dedication because they really are the backbone to our success. We pride ourselves on being strong capital allocators and doing the right thing for shareholders. We remain more excited than ever about the merits of the combination with Enerplus, which will accelerate Chord's beneficial rate of change as relates to improving returns and value creation, and look forward to updating the market on our progress as we move through that process. With that, thanks to everyone for joining our call.

Operator

This concludes today's call. Thank you for participating. You may all disconnect.

Executives
    • Danny Brown
      Danny Brown
      President and CEO
    • Darrin Henke
      Darrin Henke
      EVP and COO
    • Michael Lou
      Michael Lou
      EVP and Chief Strategy Officer and Chief Commercial Officer
    • Richard Robuck
      Richard Robuck
      EVP and CFO
Analysts
    • David Deckelbaum
      Analyst at TD Cowen
    • John Annis
      Analyst at Texas Capital Securities
    • Neal Dingmann
      Analyst at William Blair
    • Sean Mitchell
      Analyst at Daniel Energy Partners
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