Global Decarbonization And Williston Basin Risks Will Depress Margins

Key Takeaways

• Rapid adoption of renewables, stricter regulation, and new technologies threaten Chord Energy's revenue growth and long-term earnings stability.
  
• High operational exposure in one region and limited access to capital may further constrain production and increase financing challenges.
  
• Expanding operational efficiencies, advanced technology adoption, and infrastructure improvements are enhancing margins, shareholder returns, and resilience to commodity volatility.

Catalysts

Operates as an independent exploration and production company in the United States.

• A rapid acceleration in global decarbonization policies and the large-scale adoption of renewables in both power generation and transportation could lead to a sustained reduction in oil demand over the next decade, structurally lowering realized prices, compressing Chord Energy's long-term revenues, and putting downward pressure on free cash flow.
  
• Escalating government regulation, including stricter emissions standards and the introduction of higher carbon taxes, would significantly increase Chord's operating costs, erode margins, and diminish its ability to maintain shareholder returns through buybacks and dividends.
  
• Chord's heavy concentration in the Williston Basin exposes the company to increased risk of regional regulatory or infrastructure constraints, and future basin depletion could result in sharp declines in production volumes, impairing both top-line growth and long-term earnings stability.
  
• Potential for technology breakthroughs in battery storage and alternative fuels may accelerate the pace of oil substitution in heavy industry and mobility, shrinking Chord's addressable market, capping future production growth, and leading to a decline in net earnings.
  
• Growing institutional and ESG investor divestment from hydrocarbons, coupled with tightening access to capital markets, could impede Chord's ability to fund operations at competitive rates, resulting in higher financing costs, reduced reinvestment in drilling, and ultimately lower reserve replacement, revenues, and future cash flows.

Chord Energy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Chord Energy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Chord Energy's revenue will decrease by 8.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.3% today to 19.5% in 3 years time.
• The bearish analysts expect earnings to reach $744.6 million (and earnings per share of $13.51) by about August 2028, up from $262.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, down from 22.0x today. This future PE is lower than the current PE for the US Oil and Gas industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 6.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

Chord Energy Future Earnings Per Share Growth

Risks

• Chord Energy is achieving significant reductions in drilling and completion costs, especially through its early success in 4-mile lateral wells, which have shown production gains and cost efficiency beyond expectations; this structural improvement is likely to lead to sustained higher margins and free cash flow per share over the long term.
  
• The company is aggressively deploying artificial intelligence, machine learning, and advanced data analytics across numerous operational functions, which is driving ongoing efficiency, reducing downtime, and supporting a culture of continuous improvement, thus likely strengthening profitability and earnings growth.
  
• Chord's strong balance sheet, low leverage, and robust liquidity position give it strategic flexibility to maintain capital returns through dividends and share repurchases, supporting total shareholder yield even during commodity price volatility.
  
• Permitting and logistical groundwork is already in place to rapidly scale the 4-mile lateral program, which is expected to lower breakeven costs at the corporate level, making Chord more resilient to potential oil price downturns and supporting revenue stability.
  
• Chord is generating incremental value from increased egress options and improved basin infrastructure, which are expected to narrow oil price differentials and reduce gathering, processing, and transportation costs over time, directly boosting revenue realizations and net margins.

Valuation

• The assumed bearish price target for Chord Energy is $105.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Chord Energy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $164.0, and the most bearish reporting a price target of just $105.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $744.6 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $101.06, the bearish analyst price target of $105.0 is 3.8% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.