Northern Oil and Gas, Inc.

Greetings and welcome to the Northern Oil and Gas Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Evelyn Inferna, Vice President of Investor Relations. Thank you, Evelyn. You may begin.

Thank you, Operator. Good morning and welcome to NOG's second quarter 2023 earnings conference call. Yesterday, after the market closed, we released our financial results for the second quarter. You can access our earnings release and presentation on our Investor Relations website. Our Form 10-Q will be filed with the SEC within the next few days. I'm joined this morning by our Chief Executive Officer, Nick O'Grady, our President, Adam Durland, our Chief Financial Officer, Chad Allen, and our Chief Technical Officer, Jim Evans. Our agenda for today's call is as follows. Nick will provide his remarks on the quarter and our recent accomplishments. Then Adam will give you an overview of our operations, followed by Chad, who will review our second quarter financials and walk through our updated 2023 guidance. After our prepared remarks, the executive 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 our 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 obligations to update those forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow. Reconciliations of these measures to the closest GAAP measure can be found in our earnings release. With that, I'll turn the call over to Nick.

Thank you, Evelyn. Welcome and good morning, everyone, and thank you for your interest in our company. As usual, I'll get right to it with four key points. Number one, our investment philosophy is driving tangible results. Our second quarter adjusted EBITDA was up 16% year over year. Our quarterly cash flow from operations excluding working cap was up 11% year over year. Over this same period, our weighted average fully diluted share count was up only 3%. Oil prices were down 32% and natural gas prices were down 69%. Also, this quarter's results included the impact from our recent share offering with no financial benefit from the acquisitions that it funded. Suffice it to say, we've grown materially on a per share basis while prices were down materially. The point I am driving here is that our company is focused on a fairly simple philosophy, finding ways to grow profits per share to investors over time and through cycle. We believe that is the path to driving sustainable share price outperformance. While oil and gas prices go through down periods that can and will affect our profits, it is our job to find ways to grow the business through such times. We are actively investing, hedging, and looking to drive consistent long-term growth to profits and cash returns. This has driven and will drive future dividend growth and share performance. Number two, our investment cycle is pivoting to harvest mode. As we entered 2023, we highlighted we would be spending approximately 60% of our capital in the first half of the year, even though the completion activity was somewhat back-end loaded. Our DNC list today is materially more complete, meaning paid for, than typical. This means even as the number of wells turned online rises in the coming quarters, we have front-end loaded much of the spending, and we should see a marked increase to free cash flow in the back half of the year. Number three, growth. Our growth continues on a strong pace, turbocharged by the bolt-on acquisitions of Forge and Novo, which will come into play in the second half of 2023. As we previously communicated, Novo is expected to close on August 15th and will be financed with cash on hand and borrowings on our revolver. We anticipate an acceleration of free cash flow for the back half of 2023 and continuing on into 2024. Importantly, as oil prices have improved in the third quarter at today's trip, we believe that NOG can fully repay our revolving credit facility by mid-2024, materially earlier than our internal expectations when we made the acquisitions. We have added hedges recently and completed our targets for NOBO as oil prices have rallied, locking in higher levels than we underwrote. To put the acquisition and subsequent financing into perspective, By around this time next year, based on our projections, we could have a business producing 20% to 30% greater amounts of cash flow than today with materially less debt than we just reported. And this is at a backward-aided pricing strip, mind you. This would imply, from a total return perspective, when including our dividend yield, we could deliver up to a 30-plus percent total return on our business, which compares favorably to the high payout, low growth strategies we've observed from some competitors and quite favorably with the long-term returns of the stock market, which brings me to number four, capital allocation. Our goal is to provide our shareholders with the highest possible total return over the long term. We say this every quarter, but it's important to us and we believe it bears repeating. We recently announced a 3% increase in our common stock dividend for the third quarter of 2023, our 10th straight increase. Our view at NOG is that our scale should help us build a shareholder return program that can grow over time. As a result, we're instituting a policy of annual reviews of the dividend with a potential for interim changes should we experience significant sustained commodity repricing or if we execute on substantially accretive corporate actions. As always, we'll be mindful of risk and leverage while also providing an attractive risk-adjusted total return. Our capital allocation is about maximizing potential returns, making our dollars go the farthest they can from a value creation perspective. The data overwhelmingly suggests NOG has thus far created more value and more long-term dividend growth by acquiring assets at a significant discount to what we already view as a discounted value for our stock, as you saw in the second quarter. This is capital allocation 101. But there have been and will be times when these paradigms shift, allowing us to create more value by pouncing on undervalued securities. We are continually evaluating all options and executing on what we believe to be the best path for the company and our shareholders. We're truly excited to have executed on two large-scale joint development projects in the second quarter, specifically for Genovo. These two acquisitions are indicative of striking while the iron is hot. On prior conference calls, we shared that the opportunity set for NOG was the largest we had been presented with. In both cases, Forge and Noble were attractive and were excited to be working with Vital and Hearthstone to create more value. We believe NOG is very well positioned from an asset and balance sheet perspective for the remainder of 2023, as well as for the year ahead. Before I turn the call over to Adam, I did want to bring a personal matter to our investors' attention. As you may have seen, a 10b-5-1 plan I entered into about a year ago got executed last week. And additionally, I've entered into a modest monthly 10b-5-1 plan to sell some shares over the next year to address some personal needs. Over my five and a half year tenure here with NOG, I had never sold a share of stock and had only been a net buyer with 15,000 shares purchased with my own personal funds. NOG is and will remain the vast majority of my net worth. I believe in the company, and by that fact, it should ensure to all of you that I am aligned with you all and highly motivated to deliver results and stock performance. I pride myself on always being direct and honest with you, so I don't want anyone to think that me selling some shares means something about my views on the company's future or trajectory. Quite the contrary. Our executive compensation incentive structures are driven by all the right things. Corporate return on capital targets, making more money for our shareholders, and driving the stock price higher over time. A large proportion of our future compensation is directly achieved only through significant absolute long-term upside in the stock. So it should be clear that we are as hungry and motivated as ever to find ways to drive share prices higher. I just don't want this to be confused with personal decisions I may make from time to time. So with that out of the way, thanks for taking the time to listen today, and a special thanks to the entire NOG team from top to bottom. NOG is on an incredible upward path with a bright future ahead, driven by our unique investment-focused culture. I will close by reminding you, as I always do, that we are a company run by investors for investors. And with that, I'll turn the call over to Adam.