Northern Oil and Gas, Inc.

Greetings. Welcome to Northern Oil's second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Eric Romslow. Thank you. You may begin.

Good morning. This is Eric Romslow, Chief Legal Officer of NOG, and welcome to our second quarter 2022 earnings conference call. Yesterday, after the market closed, we released our financial results for the second quarter. You can access our earnings release on our Investor Relations website, and our Form 10-Q will be filed with the SEC in the next few days. We also posted a new investor deck on our website last night. I'm joined here this morning by NOG's Chief Executive Officer, Nick O'Grady, our President, Adam Durlam, our Chief Financial Officer, Chad Allen, and our EVP and Chief Engineer, Jim Evans. Our agenda for today's call is as follows. Nick will start us off with his comments regarding our second quarter and our business strategy. After that, Adam will give you an overview of operations, and then Chad will review our second quarter financials and updates to our 2022 guidance. After the conclusion of our prepared remarks, the team will be available to answer any questions. Before we go any further, though, let me cover our safe harbor language. Please be advised that our remarks today, including the answers to your questions, may include 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 the expectations contemplated by these forward-looking statements. Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the SEC, 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 today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and pre-cash flow. Reconciliations of these measures to the closest GAAP measures can be found in our earnings release. With that, I will turn the call over to our CEO, Nick O'Grady.

Good morning, everyone, and thank you for participating in today's call. I'll get right down to it and focus on five key points. Number one, despite some nasty storms, the second quarter still broke records for NMG. We generated a company record $272.5 million of adjusted EBITDA and approximately $114 million of free cash flow, the highest and second highest in company history, respectively. We produced nearly 73,000 BOE per day in the quarter, and we have already generated over $260 million of free cash flow in the first half of 2022, more than we produced during all of 2021. We also hit an important milestone of one-times leverage on an LQA basis for the first time in my tenure here at NOG, despite having a working capital surplus of over $85 million, which is additional cash that will come to us over time. Number two, acquisition discipline. The deal we announced in June to acquire additional Williston properties is a testament to our strategy and we continue to find meaningful ways to add value to our business. We continue to focus on a risk-managed, return-driven strategy that adds inventory and surety to our investments, all with the goal of delivering superior total return for our stakeholders. This means focusing on return on capital employed, which in turn will drive higher long-term dividend and buyback potential. Number three, diversification is key. Although early spring storms had a temporary but significant effect on the Williston Basin, NOG's diversified model continues to prove itself, where we delivered higher volumes driven by the benefit of having properties in multiple basins. The Williston is now fully back online, and we're benefiting from exceptional in-basin pricing and lower inflation than in our other most active areas. Number four, future growth. Organic activity on our acreage has been accelerating and exceeding our expectations. Larger than typical, meaningful ground game opportunities are at exceptionally high levels, and while quality is as variable as ever, there are also an ever-growing number of significant bolt-on opportunities hitting the marketplace today. I'll remind our investors that NOG's balance sheet is built to handle most acquisition targets we're analyzing without external equity financing. NOG is fully on the offensive. We have the firepower, the scale, and perhaps the broadest set of opportunities in the company's history. With every high commodity cycle comes some newfound competition, but in the end, it will be our discipline, analytical rigor, and balance sheet strength that will set NOG apart more than anything else through the cycles. Number five, shareholder returns. Our goal is to provide our shareholders with the highest possible total return over the long term. We have implemented a multi-prong approach, including repurchasing common stock and preferred stock, canceling a portion of our common stock warrants, repurchasing our senior notes at a discount, and increasing cash dividends for our common shareholders. A, during the quarter, we bought back our senior notes at 98% of par, lowering fixed charges, which boosts free cash flow permanently, but also at a discount to face value, which is accreted to the enterprise value. These notes were issued last fall at nearly 107% of par value and now have been retired at less than we owe. If higher interest rates drive bond values below par value, we are prepared to take advantage of opportunities to continue to repurchase senior notes. B, on the equity side, we've retired $77.5 million year-to-date, including $20 million of common stock so far, the remainder being preferred stock. As a reminder, we have $130 million of remaining common stock buyback authorization. C, we also cleaned up a large portion of our outstanding warrants during Q2. We did this in a capital efficient manner to reduce future potential dilution and to mitigate associated hedging by our warrant holders that we believe could affect the trading of our common stock. Investors may have noticed a significant recent reduction in short interest in part derived from this transaction. B, on Monday, we announced a 32% increase to our quarterly common stock dividend to 25 cents per share for Q3 with the goal of providing an attractive yield for our investors. We strongly believe that the consistency of a stable and growing quarterly dividend is more valuable to investors and our equity value over time than special dividend structures which introduce unpredictability and volatility. E, finally, actions speak louder than words. Our successful execution of acquiring and integrating accretive acquisitions has driven our free cash flow to record levels. We believe there's continued room for expansion. We seek to maximize our long-run total shareholder return by providing for a stable, attractive dividend and ongoing free cash flow growth. While we have outperformed our peer group, we are mindful of the continued attractiveness of the stock and are pleased to have a robust buyback plan authorization, which presents further opportunity for our free cash flow. In closing, I will remind you, as I always do, we are a company run by investors for investors, and I want to thank each and every one of you for taking the time to listen to us today. With that, I'll turn the call over to Adam.