NORTHERN OIL & GAS, INC. Q3 FY2024 earnings call

Key Points:

• Fruits of labor: Three straight quarters of declining CapEx, yet growing oil volumes, record free cash flow, near-record adjusted EBITDA, and volume growth in Permian and Williston basins.
• Balance sheet power: Recent acquisitions had investors questioning balance sheet, but net leverage ratio and net debt levels almost unchanged.
• Growth: Busy running multiple scenarios for 2025, evaluating spending path, Ground Game opportunities increase in weaker pricing periods.
• Costs: Adjusted cash G&A cost per barrel expected to drop, well costs down, potential to recapture margin in 2025.
• Shareholder returns: Over $230 million of returns via share repurchases and dividends year-to-date, Board to meet in early 2025 to determine dividend policy.
• Operational Highlights: Production resilient at over 121,000 BOE per day despite reduced tills, Williston accounted for over two-thirds of Q3 activity, added over 20 net wells to D&C list, average working interest in Permian increased, forecasted well costs showing deflation, Uinta Basin early performance encouraging. M&A efforts: Aggregated 1,250 net acres through Ground Game, over 4,700 net acres and 6.8 net wells year-to-date, focusing on low-break-even, resilient assets.

Average daily production in the third quarter was 121,800 BOE per day, down 1% sequentially but up 19% year-over-year. Oil production reached 70,900 barrels per day, a new NOG record. Adjusted EBITDA was $412 million, slightly lower sequentially due to lower commodity prices. Free cash flow was $177 million, 32% higher sequentially and up 39% year-over-year. Oil differentials were $3.45 per barrel, better than expected. Natural gas realizations were 72% of benchmark prices for the quarter, but full-year guidance was adjusted to 90%-95%. LOE was $9.54 per BOE, 6% higher sequentially. CapEx was $198 million, with 56% allocated to Permian, 41% to Williston, and 3% to Appalachia.

2025 Plans: Busy running multiple scenarios, evaluating spending path. 2025 CapEx program allocation expected to be roughly 60% Permian, 30% Williston, 9% Uinta, 1% Appalachia. No detailed 2025 guidance provided yet, but CapEx not expected to exceed $1.1 billion at high end. Free cash flow expected to stay strong given Q4 forecast of over 25 net wells and contributions from Point and XCL.

Risks: Commodity price volatility, which could impact production and financial results. Uncertainty around operator decisions regarding well deferrals based on price environments. Potential challenges in executing complex M&A transactions and integrating acquired assets.

Q: Neal Dingmann asked about pivoting in organic activity during volatility and how it relates to operators reducing capital.

A: Nick O'Grady said the business model allows flexibility, with Ground Game capital shifting during volatility as seen in 2020, and being faster than operators. Adam Dirlam added running sensitivities on return impact of capital deployment.

Q: Scott Hanold asked about 4Q production trajectory, capital, and Appalachia activity.

A: Nick O'Grady discussed D&C list and return-driven decisions. Chad Allen mentioned 25+ tills in 4Q. Adam Dirlam talked about traction in Appalachia's Utica basin.

Q: Charles Meade asked about CapEx trends and till guide.

A: Chad Allen said 25+ tills in 4Q. Nick O'Grady mentioned October activity.

Q: Phillips Johnston asked about XCL impact on 4Q production and oil production guidance.

A: Nick O'Grady said XCL delays not material to 4Q production. Nick O'Grady discussed timing of till coming on as driver of oil production guidance.

Q: Paul Diamond asked about bespoke M&A opportunities and 10 wells pulled-forward.

A: Nick O'Grady said bespoke opportunities are off-market discussions with operators. Nick O'Grady discussed that speed of development has increased but may see pausing due to lower prices.

Q: Noah Hungness asked about well deferrals and decline rate.

A: Nick O'Grady said producers pause wells then turn them on when prices stabilize. Chad Allen said decline rate evolved to mid-30s from high 30s, expected to be low to mid-30s by year end.