Williston Basin ESG Risks Will Limit Production Yet Spur Efficiency

Key Takeaways

• Heavy reliance on a single asset base and shifting global energy demand may cap production growth and threaten long-term revenue sustainability.
  
• Operational efficiencies and cost controls are beneficial but could be counteracted by rising expenses, regulatory risks, and ESG-driven capital constraints.
  
• Secular shifts to renewables, regulatory costs, market volatility, and asset concentration all threaten Chord Energy’s long-term growth, profitability, and capital access.

Catalysts

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

• While Chord Energy’s high-quality Williston Basin assets and successful adoption of longer laterals are poised to expand inventory life and reduce breakeven costs—potentially boosting future free cash flow—the company remains heavily concentrated in a single play, which increases its vulnerability to resource depletion and operational inflexibility, potentially capping long-term production growth and limiting sustained revenue upside.
  
• Although technological improvements such as enhanced drilling efficiencies and the transition toward 3
• and 4-mile laterals should reduce capital and operating costs while improving margins and overall earnings, these benefits could be offset over time by rising lease operating expenses or capital costs if geological or regulatory hurdles increase in the Williston Basin.
  
• While global underinvestment in upstream oil projects may result in supportive commodity pricing that benefits disciplined U.S. shale producers, the ongoing global energy transition toward renewables and tightening carbon-neutral policies could gradually erode oil demand, ultimately threatening Chord’s long-term relevance and putting persistent downward pressure on realized prices and future revenues.
  
• Even as the strategic importance of North American energy security and Chord’s low leverage enable advantageous capital returns through buybacks and dividends, growing adoption of electric vehicles and higher energy-efficiency standards across developed and emerging markets could slowly weaken transportation fuel demand, undermining long-term sales volume growth and placing pressure on net margins.
  
• While Chord’s sustained focus on cost control, capital productivity, and operational flexibility should help preserve cash flow through cyclical downturns, increased ESG-related restrictions on fossil fuel investment could constrain access to capital over time, raising the cost of capital and creating headwinds for future EPS growth and total shareholder returns.

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 7.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.2% today to 16.2% in 3 years time.
• The bearish analysts expect earnings to reach $642.4 million (and earnings per share of $11.34) by about May 2028, down from $845.2 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 13.4x on those 2028 earnings, up from 6.4x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.25%, as per the Simply Wall St company report.

Chord Energy Future Earnings Per Share Growth

Risks

• The increasing prevalence of renewable energy adoption and long-term secular trends toward carbon neutrality could erode oil demand over time, threatening Chord Energy’s market relevance and causing sustained declines in revenue and pricing power.
  
• Chord’s heavy operational focus and asset concentration in the Williston Basin exposes the company to resource depletion risks and limited growth opportunities, which may cap long-term production growth and place a ceiling on future revenue expansion.
  
• The rise in global ESG mandates and investor preference for low-emission portfolios could make it more expensive and difficult for Chord Energy to access capital markets or attract investors, resulting in a higher cost of capital and negatively impacting future earnings.
  
• Anticipated increases in regulatory scrutiny and operational costs pertaining to flaring, methane emissions, and water disposal may push up lease operating expenses in core assets, compressing net margins and diminishing free cash flow.
  
• Enhanced industry efficiency and technological improvements could accelerate U.S. unconventional oil supply, potentially contributing to periodic supply surpluses and downward pressure on commodity prices, thereby making Chord’s earnings highly volatile and at risk of unexpected reductions.

Valuation

• The assumed bearish price target for Chord Energy is $100.0, 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 $183.0, and the most bearish reporting a price target of just $100.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $642.4 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $90.61, the bearish analyst price target of $100.0 is 9.4% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.