Northern Oil and Gas, Inc. Q2 FY2025 earnings call

• Resiliency: NOG's business model is resilient with diverse portfolio, Uinta and Appalachian Basins strong, commodity mix of oil and gas, conservative investing and hedging supporting cash flow. • Drilling vs Acquiring: Growth is return-based; with oil prices retracted, growth capital better preserved for higher returns in future or acquisitions; acquisitions offer long-term upside convexity. • Cash Flow: Generated over $126 million in free cash flow this quarter, plus nearly $50 million pending from legal settlement. Business continues to shine despite oil price weakness. • Ground Game Success: Discipline in evaluating across basins, structures, and commodity type; acreage in Uinta unitized rapidly, ground game saw success in Q2. • M&A Backlog: Backlog of potential acquisitions at all-time peak in value and quality, covering various structures, basins, and scales. • Operational Updates: Second quarter finished as expected despite commodity price volatility; operating partners maintained development cadence except for some in Williston; drilling and AFE activity remained strong with Permian, Uinta, and Appalachia accounting for 80% of wells in process; normalized well costs averaged ~$800 per lateral foot, oil-weighted basins saw cost decline 6% sequentially; well elections had elevated percentage at 95-plus percent.

Second quarter total average daily production was approximately 134,000 BOE per day, up 9% versus Q2 2024. Oil production was approximately 77,000 barrels of oil per day, up 10.5% from Q2 2024 but down 2% sequentially, largely due to lower activity in the Williston. The Uinta saw volumes up 18.5% sequentially. Gas production was a record ~343 mmcf per day. Adjusted EBITDA in the quarter was $440.4 million including a legal settlement of ~$48.6 million. Free cash flow, excluding the legal settlement, was approximately $126 million. Debt balance changed little since last quarter. Lease operating costs per BOE rose 6% to $9.95. CapEx in the quarter was $210 million, 16% lower sequentially, with allocation across basins: 34% Permian, 25% Williston, 15% Uinta, 26% Appalachian Basin.

• Revised CapEx guidance to $925 million to $1.05 billion, a reduction of about $137.5 million at the midpoint. • Adjusted guidance on LOE, production taxes, and production due to higher costs and activity outlook. • Free cash flow and legal settlement impact considered in capital allocation. • Anticipate 50-50 split in spend for third and fourth quarters of 2025. • No federal cash taxes expected in 2025 and through 2028 based on current forecast.

• Commodity price volatility could impact production and cash flow. • Legal uncertainties related to forward-looking statements and potential differences from actual results. • Operational risks such as price-sensitive shut-ins and deferments in lower price environments that could affect production and returns.

Q: Could you help think about the cadence into 2026, oil production guidance reduction, and organic vs inorganic activity?

A: Nick O'Grady mentioned Q2 spending lower translating to modestly lower volumes in Q3, D&C list building to see Q4 levels similar to Q2, spending dictated by return on capital employed, and spending for growth is output of returns.

Q: How is the reduction in CapEx broken down?

A: Nicholas L. O'Grady said it's a combination of operators reducing activity (nonconsent not major) and discretionary spending reduction as risk-adjusted returns not seen in forward price environment. Adam Dirlam added alignment with operators, activity based, driven by Williston, and focus on near-term drilling and long-dated inventory with acceptable full cycle returns.

Q: Reconcile well in process and TIL cadence?

A: Adam Dirlam said it's a combination of deferrals of TILs prior to liberation day, elongation of spud to sales timing, and cube development. Nicholas L. O'Grady noted TIL count follows previous quarter, lower spend in Q2 impacting Q3 more.

Q: How to treat $50 million settlement in 3Q for shareholder returns?

A: Nicholas L. O'Grady said it's working capital, not in free cash flow, and Chad Allen said it'll be rolled into normal capital allocation process.

Q: Use of free cash flow funds?

A: Nicholas L. O'Grady said default uses include sweeping revolver, then inorganic opportunities and stock buyback considered, depending on price environment and commodity mix.

Q: M&A market comparison and why robust assets on market?

A: Nicholas L. O'Grady said oil assets still robust due to fund life and prices not that weak, Adam Dirlam added seller expectations and bid-ask spread due to volatility.

Q: Quarterly cadence and production for remainder of year?

A: Nicholas L. O'Grady said Q3 may have modest dip, Q4 similar to Q2, mid-single digit decline possible, depending on completion timing and price strength.

Q: Cost structure and further runway for cost reduction?

A: Nicholas L. O'Grady said rig count reduction, frac spread usage decline needed for material cost reductions, Adam Dirlam added conservative accrual and anecdotally potential cost reductions.

Q: M&A market concentration and structures?

A: Adam Dirlam said across the board, including non-op packages, co-buying, minority interest buy down.

Q: Post-deal divestments and gas concerns?

A: Nicholas L. O'Grady mentioned ConocoPhillips Mid-Con package example, Adam Dirlam said operators getting creative with asset marketing, and Nicholas L. O'Grady said pricing based on differentials and regional gas scenarios.