Northern Oil and Gas, Inc.

Welcome to NOG's second quarter 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 at noginc.com. And our thank you will be filed with the SEC within the next few days. I'm joined this morning by our chief executive officer, Nico Grady, our president, Adam Derlam, 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 remarks on the quarter and on our recent accomplishments. Then Adam will give you an overview of operations and business development activities. And Chad will review our financial results and walk through updates to our 2024 guidance. After our prepared remarks, the team will be available to answer any questions. Before we begin, 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 this 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 these 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 gap measure can be found in our earnings release. With that, I'll turn the call over to Nick.

Thanks, Evelyn. Welcome and good morning, everyone, and thank you for your interest in our company. I'm going to change things up this quarter by answering five key questions. Number one, so how's it been going? On our fourth quarter call and several before that, I have spoken about the importance of delivering growth and profitability over time. I'd like to use that framework once again and put the results from the second quarter into context. Our second quarter adjusted EBITDA was up 31% year-over-year and 52% versus two years ago. Our quarterly cash flow from operations excluding working capital was up 33% year-over-year and about 48% versus two years ago. We achieved outsized growth per share despite commodity prices that fluctuate. Oil prices were a bit higher and gas prices a bit lower than a year ago, but two years ago, oil prices were over $20 higher and gas prices over tripled the current price. Even more impressive is the fact that despite our growth in a volatile commodity price environment, our LQA debt ratios have stayed in check in the low 1.1 range. This range is actually lower than a year ago, so in summary, our per share metrics continue to rise throughout the cycle, supported by a low leveraged and strong balance sheet. While growth is important, returns and capital efficiency are paramount. Our return on capital this quarter was approximately 25%, impressive when taking into account the step-up in capitalization we experience every time we make a significant acquisition. In the last year, our return on capital employed was over 28%. That was 14% higher than the average of our 16-company peer set, And for business context, double that of the average public non-operators in our peer set. Within our broader peer set, it shows that our business model allows for superior capital allocation, but I bring up other non-operators to show that from a managerial and asset perspective, we're also doing it better than others within our own niche. Our company continues to be focused on the same simple philosophy. finding ways to sustainably grow profits per share through cycle and over time for our investors. We believe that is the path to driving long-term share price outperformance. While oil and gas prices go through cycles that can and will affect our profits, again, it is our job and we will find ways to grow the business through such times. With our assets performing well, solid organic growth in the pipeline, and recently announced acquisitions, Our business is poised to grow profits and cash flow further. Number two, so what does that mean for you? We haven't even closed on our XL or point transactions, but based on where the business is year to date and our confidence in the outlook, we will be recommending a mid-year bump to the dividend. Additionally, we've been active in the first half repurchasing shares and have renewed our share repurchase plan. We are very discerning about when we repurchase shares. and have had a track record of entering the market during periods of value compression, and when we believe the market has understated our growth potential. And hence, we've had the opportunity in the first half of 2024. We prioritize that over dividend growth in the short term, but that won't always be the case, as our increased recommendation should also show our investors. Let me be explicitly clear. We believe there is additional capacity for growth, either in dividends or in future buyback capacity, but we are also remaining conservative and dedicated to managing leverage carefully, as we have done meticulously over the past six-plus years. We will sit down with the Board during our regular review in Q125 to discuss a further increase to the dividend. additional buyback capacity, and obviously ensuring that our balance sheet remains strong and is on a path to getting stronger after the outlay of the capital for the point and FCL acquisitions. Number three, what's behind the Uinta? In June, we announced our largest transaction ever, the co-purchase of FCL resources Uinta-based assets with SM Energy. For many investors, the Uinta is less well-known than the marquee shale place. In the past four years, however, it's been amongst the fastest growing oil plays in the country. I won't mince words when I say that personally, I have never been more excited about a transaction during my tenure here at NOG. The benefits of this asset will pay huge dividends for our investors over the next decade. The facts are simple. You have a multi-stacked pay asset where, unlike the Permian, much of the exploration was not allocated value in our acquisition. providing upside for our investors, even as many of these benches have been proven out by other operators. When planning with SM, we put forth very conservative cost spacing and pricing assumptions. The economics of the wells are very similar and competitive with those in the Delaware Basin in terms of productivity, but with a cost structure of Midland Wells and an extremely high oil cut with high quality crude that is exceptionally valuable. And while the one knock on the play is the higher cost of oil takeaway, the logistical changes that have taken place over the past few years are less well known. Whereas once the oil was capped into a handful of local refiners, there is now easily expandable rail capacity to take oil away from the basins of the Gulf Coast where the crude is in high demand. Over the longer term, we believe project by project there will be ways to cut the transport costs further as well. Even when accounting for the higher transport cost, the economics compete favorably with anything in our portfolio. And over the next several years, I think our investors will come to appreciate this asset more and more. And we believe it will pay dividends in the years to come, both figuratively and literally. Number four, how's the future looking? We find the business in the catbird seat as we hit mid-year. We have come through some of the heaviest spend periods over the past few quarters, which has required some patience from our investors, and as you see in the results today, that's converting into significant free cash flow now. Our balance sheet debt ratios are ahead of schedule, and more than half of Q2's turn in line activity will actually have more impact on Q3 volumes, so we see a very strong outlook for the base business as the year progresses, even as our capital commitments stabilize. Organic activity on our acreage has also been very healthy, and as you've seen, we've had success in all facets of our business, including the ground game and significant bull dons. We're seeing a renaissance of sorts in the Williston with longer laterals and a notable increase in refract activity as operators are finding ways to maintain and even grow in our legacy basin. In 2023, we raised equity without announcing an acquisition for the first time in my tenure here at NOG. something we didn't take lightly. In marketing our offering, I told investors that, quote, we were getting ahead of the opportunities in front of us and believe it sets the stage for over $1 billion worth of acquisitions on a balance sheet in just the next year. Here we are, nine months later, and we have deployed $900 million through two Delaware transactions, one Utica transaction, and our marquee went to transaction. Our balance sheet remains in great shape, And we still have capacity within our framework to do more if the right opportunity arises. We are people that believe in doing what we say. And when we raise that capital, first of all, we believe we have the opportunity set to put it to good work. And secondly, we wanted to be in a position to deliver accretive growth to our investors on the other side. And I'm proud to say, I believe we've done just that. These transactions, combined with our other organic projects, have us poised for year-over-year per share growth in 2024 and in 2025, regardless of the commodity strip, something few companies can match in this space. Number five, so what's next? In an era of substantial industry consolidation, we've been at the forefront of the trend in our niche. And what we've created in just the past few years is incredibly valuable and not always fully appreciated by our investors. An example would be EQT's recent non-operated asset sale in Appalachian. It implies a three to five times or even greater value for what we purchased in the Marcellus just a few short years ago. We're proud of what we've accomplished. We believe we've been superior capital allocators and been ahead of the curve in terms of strategy. But as I mentioned earlier this year, we also believe the best is yet to come. People then ask us, what is the end game? As a fiduciary, we don't get to answer that question. There is no end. Our goal is to never stop growing our profits and ultimately the value of the stock for you. Maximizing value is the main goal, however that can be achieved. That's how our board motivates us, and that's how we're aligned. From a competitive landscape, we would continue to reiterate what we have said ad nauseam quarter after quarter, which is that scale begets scale and that we stand on our own. Basic business rules apply in our line of work. Barriers to entry are real, and those focused on small deals on small assets with small capital commitments face significant competition. but the transactions you have seen us participating in, the creative, complex, and customized solutions are largely those where we simply stand alone, and those ones where return potential is much higher, where long-term upside with our operating partners is higher, and where you'll see us focus our efforts in the long term to the benefit of our stakeholders. That concludes my prepared remarks, so I'll close out, as I always do, by thanking the NOG engineering, land, BD, finance and planning teams, and everyone else on board, our investors and covering analysts for listening, and our operators and partners for all the hard work they do in the field. We hit mid-year 2024 in great shape. And as always, our team is laser focused on delivering optimal total return. That's because we're a company run by investors for investors. With that, I'll turn it over to Adam.

Thanks, Nick. As usual, I will kick things off with a review of our operational highlights and then turn to our business development efforts and the current M&A landscape. During the second quarter, we saw production increase to over 123,000 BOE per day, driven by steady turn in line activity and some increased permanent Utica and Marcellus activity. We turned in line 30.1 net wells with the Permian making up more than two-thirds of the activity during the quarter. The most important comment I would make in terms of Q2 tills is that over half of them occurred in the month of June, and the bulk of those wells were cleaning up and contributed very little to volumes. They will have a much larger impact on Q3 oil and total volumes, and this bodes very well as we continue on track through the year. Thus far in 2024, we have seen steady activity, including robust organic activity, increased retract proposals, and continued production momentum from our various JV projects as a significant portion of the capital we deployed in the past nine months converts into sales. Overall, we expect a relatively consistent cadence in terms of tills for the balance of 2024, though Q3 will likely be lower because of the pull forward late in Q2. This will not have an effect on production as many of those wells are still rampant. We see robust activity in Q4, both in terms of tills and additional refract AFEs in the Williston. In the second quarter, we consented to another 16.7 net wells, a 46% increase from Q1 on a net basis and a 20% increase on a gross basis with 197 total consents. This points out that we saw a larger average working interest in Q2's wealth proposals, almost doubling the average working interest from Q1. Economics remained strong as we consented to 94% of our wealth proposals on a net basis while we continued to manage the portfolio non-consenting those that do not meet our hurdle rate requirements. It's worth noting that the working interest average in our non-consents is roughly half that of our consented average, which is a testament to our active management. We focus on purchasing more land in the best areas, and our lower working interest and low-value areas tend to be the areas where we non-consent. In terms of costs, while we have enjoyed cost reductions from prior levels on some of our major joint ventures, we are seeing stable costs portfolio-wide. As in any major changes to commodity prices, we are not anticipating any meaningful changes to development costs going forward. The acquisitions we completed in the past few years continue to shine And the capital efficiency is beginning to bear fruit as our free cash flow more than doubled in the quarter and should remain strong as we turn to the back half of the year. At the same time, we continue to see strong ASE activity on our acreage that should keep our production stable over time. Shifting gears to business development and the NMA landscape, the second quarter highlighted another banner quarter for NOG both on our ground game and in larger M&A. In a shift from 2-1, our ground game in the second quarter saw a market pickup as we focused on bespoke larger working interests. By doing so, we've been able to maintain our full cycle hurdle rates and avoid the more commoditized, smaller scale market with lower barriers to entry. In total, we spent approximately $25 million in capital on the ground game, just under $11 million of which was acquisition capital, acquiring 6.1 net wells and approximately 1,800 net acres. Year-to-date, that brings us to approximately 6.7 net wells and almost 3,500 net acres in total. During the quarter, we also signed our largest transaction ever, expanding into the Uinta Basin in a joint acquisition of the XTL Resources assets with SM Energy. Similar to our approach with Novo and Forge, we partnered with SM to purchase a large-scale operated asset, coupled with a long-term joint development agreement and area of mutual interest. This asset has a very long life, tremendous upside, economics that compete with anything in our existing portfolio, and we see significant operational upside from SM's stewardship, as well as future exploration potential from the multi-stack benches. Specific to XEL, within our AMI, we are already working on acquisition opportunities, which would create additional optionality and future upside. Subsequent to the closing of the quarter, we have continued the momentum, partnering once again with our friends at Vital, agreeing to purchase the Ward County Delaware Assets Point Energy Partners for $220 million net to NOG. Similar to XTL and our past transactions, we also have a long-term joint operating agreement in place with Vital and look forward to many years of development on the asset. As we've seen with our forged JV, we think Vital can bring significant improvements to go-forward performance on the point assets. As all these transactions detail, we continue to build scale but scale combined with a key focus on returns. As Nick noted, our return on capital continues to be best in class, all the more impressive given how acquisitive we have been. It's a testament to the rigor of our acquisition underwriting, our capital allocation methodology, and the quality of the properties that we seek and ultimately acquire. The overall landscape continues to be robust We see another wave of disasters coming on the back end of the large-scale M&A that has transpired over the past 18 months. Many large operators are looking to clean up their portfolios, or in some cases, their balance sheets, and we expect NOG may find some significant opportunities as these processes emerge. Some of these parties have reached out directly to us seeking out customized solutions and we will continue to have those conversations. As I've described before, these off-market transactions can be tailor-made for both parties and, with our growth in size and liquidity, could be as large or larger than any of our recent transactions. Simply put, the option to deploy capital on top-tier assets is in no way slowing down for NOG. Depending on the needs and the wants of the operator, the solutions could include simple non-op portfolio cleanups, joint development agreements, co-buying operated properties, minority interest carve-outs of operated positions, or any combination thereof. At NOG, we continue to demonstrate unmatched execution with win-win solutions through creativity and alignment with our current and prospective operating partners. By focusing on returns first, growth has become a natural output as we continue to compound capital for our investors and remain singularly focused on putting our stakeholders first. With that, I'll turn it over to Chad.

Thanks, Adam. Our second quarter results did not disappoint and were one for the record books. Average daily production in the quarter was more than 123,000 VOE per day, up nearly 4,000 VOE per day compared to Q1, and up 36% compared to Q2 of 2023, establishing a new NOG record. We continue to see outperformance on our recent Unica acquisition, as well as our Marcellus assets that helped drive the beat on production. Oil production came in at just over 69,600 barrels per day, even though over half of our Q2 net well ads occurred in June and contributed only modestly to our Q2 volumes, including our higher oil cut mascot project, which is still cleaning up, but bodes well as we enter the third quarter. Adjusted EBITDA in the quarter was 413 million, up 7% sequentially, and a record for NOG due to stronger well performance, lower costs, and better oil realizations. Free cash flow of 134 million in the quarter was higher sequentially and nearly tripled from the same period last year due to the strength of our underlying assets and the pull forward of activity in the prior quarter, which kept capital in check. We anticipate free cash flow to continue to stay elevated in Q3 and remain elevated for the balance of 2024 as the remainder of our tills come online and begin to contribute to production and revenue. Oil differentials were better than our expectations at an average of $3.55 per barrel, below the lower end of our guidance. Wilson differentials trended down in the second quarter as we anticipated, and Permian differentials were also improved, normalizing for winter months. We also saw better realizations from our joint development projects. Natural gas realizations are also ahead of schedule at 107% of benchmark prices for the quarter, materially ahead of our forecast due to better than anticipated natural gas prices in Q2 and higher NGL price realizations. This was partially offset by weaker Appalachian differentials and negative Waha gas for most of the quarter. Overall for the year, however, We believe differentials will trend towards our revised guidance range, especially now that gas has returned to lower levels. LOE was down 7% sequentially to $8.99 per BOE, reflected the continued shift of our production to the Permian, which carries a lower LOE compared to the Williston. LOE also benefited from the easing of weather-related shutters from the prior quarter. As we previously discussed, we anticipate LOE per BOE to gradually decline as production ramps from our joint development projects. Additionally, our recently announced acquisitions will add more production with materially lower LOE. These assets are resilient and low cost, and the XEL asset also brings very high oil cuts. Production taxes will be 8.7% slightly below our guidance as gas production ramps in all basins, as gas typically carries a lower production tax rate. We anticipate production taxes to trend even lower after the addition of XCL as the winter comes with a lower tax rate. On the CapEx front, we invested $237 million, inclusive of ground game and a quarter. Of the $237 million, 59% was allocated to Permian, 37% to the Williston, and 4% to Appalachian. We continue to experience a pull forward of organic activity driven by the strength in oil prices. However, given the level of completion in our DNC list, the higher tail count in Q2 did not have a material impact on total CapEx for the court. With that said, if the strength in oil prices persists, CapEx may trend towards the higher end of our revised guidance range for the year. Some of this capital would be driven potentially by 2025 turn in lines that could be accelerated into 2024. and by additional AFD activity for 2025 turn-in lines we anticipate in the back half of the year. This will obviously be dependent on commodity price environment. Materially weaker oil prices with, of course, slow operator activity. With that said, if we did see higher capex, it would be accompanied by higher production as our DNC list is actively converting to tills and spuds and drawing down our working capital. Specifically on the working capital front, including the impact of derivatives. We have seen an improvement of approximately $65 million year-to-date. As a result of the improvement in working capital, we reduced our borrowings on our revolving credit facility by $65 million during the quarter. As of June 30th, we had over $1.3 billion of liquidity comprised of $33 billion of cash on hand, including the deposit for XCL, and $1.3 billion available on our revolving credit facility. At quarter end, Net debt to LQA EBITDA was 1.1 times. We expect the ratio to tick up modestly upon the closing of our recently announced transactions, but train down throughout 2025 solidly to our stated target. As Nick discussed earlier, we actively repurchased shares the first half of the year. Year to date, we repurchased over 1.4 million shares or approximately 55 million of our common equity at an average price of $37.99. We are committed to allocating capital to share repurchases where there is a marked divergence between our absolute and relative performance. However, given we are funding our announced acquisitions with Revolver, we will be mindful of getting leverage back to our stated target. Given the outperformance of our wells year-to-date, and the anticipated closings of our pending acquisitions, I'd like to address our adjustments to guidance. Note this guidance assumes an October 1st close to both acquisitions and the actual closing dates could change, so this guidance is somewhat preliminary in nature. We will give an update on our third quarter call if anything changes materially during the closing processes. We are raising total production guidance by 4% at the midpoint to a range of 120,000 to 124,000 BLE per day. Obviously, we only get around one quarter of benefit from our new deals, so this reflects some of the outperformance we've seen here today, particularly on gas production. We have also increased guidance on oil production at the midpoint by 4% to a range of 73,000 to 76,000 barrels per day. reflecting the higher low cut of the Uinta in point relative to our corporate average. Our turning line guidance moves up to a range of 93 to 98 net wells, with SPUDs going into a range of 73 to 78 net wells. With respect to unit costs, given the unique nature of the Uinta, we are lowering LOE by 3% at the midpoint of the range of $9.15 to $9.40 per BOE. Production taxes should also trend lower to a range of 9% to 9.5%. And we are raising the high end of our oil differential to $4.85 per VLE to reflect higher transportation costs in the Uinta. And we are increasing our gas realizations to a range of 87.5% to 92.5% to reflect better NGL and natural gas pricing. With respect to VNA, We are tithing the range to $16.50 to $17.50 per BOE. Our overall cash and non-cash G&A per BOE should both decline, demonstrating the benefits of increased scale and the inherent operating leverage of our unique business model.

That concludes our prepared remarks. I'd like to open the call up to questions.

Thank you. If you have a question, please press star one on your telephone keypad. To withdraw your question, simply press star one again. In the interest of time, please limit yourself to one question and rejoin the queue if necessary. Your first question comes from the line of Neil Dingman with Truist Securities. Your line is open.

Morning, guys. Nice quarter in Outlook. Nick, my first question maybe for you, Adam, is just on deal parameters specifically i'm just wondering maybe how things have changed now you know with these larger deals could you talk about um how your requirements when you think about sort of payback periods HUD value you know under undrilled location value all that sort of thing how that sort of shakes out today versus maybe a year or two ago daniel i don't think anything's really changed i mean i think in general over the last three years

you know, we have raised our hurdle rates materially, you know, just, you know, I would say as the cost of capital rose, we've generally increased our hurdle rates, and that's been something we've consistently done since college 2020. But otherwise, I think we generally look for a balanced portfolio, which is that we want, we look for at a package level to self-funding assets where we can, but we will look for, you know, there are specific things where if it is an asset which is in development, that can be okay too. I don't know, Adam, if you want to comment to that.

Yeah, I think it also dovetails into the governance, right, and the asset specifics in that regard, and so if there's ways that we can get comfortable with the underwriting with, you know, kind of the go-forward governance in order to maintain alignment and get that transparency, that's all going to come into play, not only with the quantitative, but the qualitative, you know, review.

Yeah.

And I think, you know, one of the questions we've gotten from our investors is just, you know, the difference between sort of the co-purchase of assets with operators versus a traditional non-operated asset and how you win. And I think it's just, there are different paradigms to earning supernormal returns, right? Versus how you underwrite, which is that, On a non-operated asset, how you win is ultimately that the undeveloped asset is you try to pay as little as possible on that undeveloped piece and ultimately be surprised by the future development, right? Which is that the PUD value and what you're paying for ultimately you get future development costs at a discount, right? And that's the benefit of buying non-operated assets at that discount. And what we've observed on the co-purchase of those assets is that we've seen huge synergies from the vitals and from the Permian resources in which as they've taken possession of these assets, they've become much superior operators and they've cut costs and drilled better wells. And so we've seen huge upside in performance on those assets as they've been returns in a different way. So it's different ways to create the same types of upside.

Yeah, well said. And then my second, just on capital allocation specifically, you know, you all maintain an active ground game, to say the least, and while continuing to, you know, even recently boosting the dividend and talking about shareholder return again, I'm just wondering, can you talk about, I know they're not exclusive, but maybe just talk about how those two sort of play together.

Yeah, I mean, I think in terms of the ground game, I mean, I think it ebbs and flows. Obviously, there is a seasonality to it. I would expect as we get towards the end of the year, it tends to get a bit busier. I would imagine we see a bit of a, you know, it may start to get active towards the end of the third quarter, potentially, as budgets start to get tighter. And our ground game has evolved somewhat, which it has become a bit more uh bespoke uh and more generally more concentrated uh in the last few years in terms of how it has happened it's been a little bit chunkier uh in terms of the interests um but ultimately in terms of shareholder returns I don't think we view them as mutually exclusive Neil and I think you know uh as we mentioned in our prepared remarks I think um you know I think we'll sit down with the board in the beginning of the year we really do believe that

business has the capacity uh for additional shareholder returns particularly on the dividend side the only other thing i'd add on the ground game is that it's also going to depend on kind of what the organic asset is pulling right so we're looking at that on a monthly basis and understanding exactly what the working interests um are coming in at and that'll also dictate that you know whether or not we're we're leaning in on any particular opportunities on the ground game one way or another

Your next question comes from the line of John Freeman with Raymond James. Your line is open. Good morning, guys.

All right. Morning, John.

The first question I had, I saw that XCL recently closed on the Altamont acquisition. Just can you all provide any color on how that potentially impacts the original, you know, XCL purchase price, kind of any pro forma, you know, estimates, things like that?

yeah um so that you're correct john so uh the fdc granted approval to x uh to xcl to acquire altamont and as part of that um that is within the ami for uh for sm and us and so we will have the option to purchase those assets uh what i can tell you is that we are under uh we are currently doing our analysis and review of those assets and uh what what i will say is we're very encouraged um by what we see And obviously, if we choose to exercise that option, respectively, obviously it would be, you know, 80-20. It would be a material add in terms of acreage to our position, but very immaterial in terms of capital.

Yeah, and there's a number of, you know, DSUs that are correctly offsetting the position, and that's kind of where the focus is.

Got it. And then my follow-up question, when we think about, The timing on those tills coming on, over half of them come on June, and then specifically on the mascot wells that are taking a while to clean up. Now that we're basically through July, I'm just trying to get a sense on the mascot wells. Are they fully cleaned up? Are we still going through that process? I'm just trying to get a sense of whether you're going to get the full 3Q benefit from those mascot wells or if it's going to drag a little bit more into the quarter.

Well, I mean, you put $10 million. 10 million barrels of water into the ground, right? So it takes several months in a cube development to take it. So, you know, I would imagine by the end of the third quarter, you're going to be pretty, I mean, Jim, tell me I'm wrong, but probably by the end of the third quarter, they'll be pretty much fully going. So you'll get, I would imagine by, you know, by the end of August or September, they'll be at full capacity. But, you know, it takes what it takes. You're pumping out, call it like 30,000 barrels a day of water out of them. Everything's going according to plan. You're not going to get all that water out, John, but in a cube development like this where you're doing all the zones, it's a massive project, right? So everything's going about the way it's expected.

Your next question comes from the line of Scott Hanold with RBC. Your line is open.

Hey, thanks. I have a question on M&A. You guys have done a number of deals here over the last few years, and it sounds like there's still some pretty decent visibility. You've got Altamont, other things in the Uinta. Can you give us a sense of how you think about the balance sheet? I know I think it was Nick or Chaz mentioned some of the stuff you felt you pre-funded coming into earlier this year, but can you think about, as you think about moving forward, in the balance sheet, any incremental transactions, how do you look at funding and where do you kind of like to see that balance sheet leverage at on a go-forward basis?

Yeah, I mean, Scott, certainly within our framework, we have the capacity currently to do, you know, a significant amount more before we would bust out of our kind of self-described framework, which is really kind of a one and a half times. I mean, I think Could we go slightly over that for a period of time if we were comfortable? Sure. Would we like to do that? No. But I think from a liquidity perspective, we could always bond out that capital if we really needed to. I don't think we feel compelled to do that at all, just given the cash generation of the business at current. But I think, look, The fact of the matter is with M&A, the timing is very unpredictable. So unless something was to come in the immediacy, you know, if we roll the clock forward nine months from now, as the business generates cash flow, quite frankly, we'll be able to handle more M&A on balance sheet without worrying about these types of things, right? Because ultimately, it's more a function of timing than anything else, right? than that meaning like uh the way we model this out within a few quarters we're right back to target and so therefore i don't really unless m a becomes so substantial um that you'd really have to capitalize it in some other way so it really it's more about the acute moment in time than it is absolute leverage once again my apologies

Once again, ladies and gentlemen, we ask that you please limit yourself to one question. Your next question comes from the line of Donovan Schaffer with Northland Capital Markets. Your line is open.

Hey, guys. Thanks for taking the questions. First, I just want to dig into the Uinta play a little bit. I'm not as familiar with that one in the more like current shale revolution type context. I know that from a more historical standpoint. So the different benches and things being developed there, is it more of, is it really like a true sort of shale play or is it kind of a statistical play where, you know, as long as you put enough holes in the ground, you can feel good about the returns? Or is it going into something more conventional, but having an opportunity to exploit it with, for example, drilling, fracking, and so forth? Any clarification that would be helpful?

Yeah. Hey, Donovan. This is Jim. Yeah. I would attribute it similar to shale play, very similar to the Permian, where you've got 4,000 feet of all these stacked zones. we do see that there is true separation if you look at the oil that comes out of the different benches they are different color different grades so you can tell that they are true standalone different zones all of them have been proven from a vertical standpoint it's just recently that they've switched to horizontal the main target is what they call the lower cube that's the primary Julian Butte, upper Wasatch that has been targeted most recently. They're now starting to target the upper cube, which is going to be your Garden Gulch, Douglas Creek. That's a little bit earlier in the stages, but those are the primary zones that are being targeted. You've also got deeper zones as well that are kind of early stages proven vertically, but not yet horizontally. We're giving no value to that, but that's kind of what we're seeing here from a geologic standpoint.

Your next question comes from the line of Charles Mead with Johnson Rice. Your line is open.

Good morning to the whole energy team there. I want to actually pick up on where you just left off with that discussion of the Uinta. As I've tried to come up to speed on the play, some of the big players there, let's just say that they're maybe emphasizing other parts of their portfolio, but it looks like XCO and SM have been the most, have given the most disclosure or maybe the most aggressive in identifying the upside. So my impression is most of the development has been in that Utlin Butte. And I'm wondering if you could say if that's your plan going forward for the next 12 months, if that's what you're gonna target and uh and what any timeline is to um to target some of these other horizons with with with horizontal uh wells that have been uh historically proven productive in vertical wells yeah so the plan uh is primarily focused on the lower and upper cube uh it's going to be a mix of both we're not just drilling the eutland butte and wasatch we're we're mixing in the the douglas creek um

as well. So we plan to co-develop the upper and lower cube together. The deeper stuff is farther down the road. We'll develop that as we kind of see, you know, how these first couple of cubes turn out and then we'll go from there.

Your next question comes from the line of Phillips Johnston with Capital One. Your line is open.

Hey, thanks for taking the question. I wanted to ask about your implied natural gas production guidance for the back half of the year. It sort of suggests that volumes will decline by more than 15% from the second quarter. You know, I know you had some EQT wells that led to some pretty strong growth in Q2, but it seems like the decline for the rest of the year is pretty steep, I guess, especially considering you've got some incremental gas in the door from these two acquisitions.

yeah that's that's right philip so um it's it's really a function that our our our planned eqt development really came on we had some some deferred production from q1 that came back on q2 plus our eqt wells for the year were were completed um as well as some other marcellus wells and our utica and our utica project came online in 2q so that was As flushes will be so that will be that really peaked out in Q2. So obviously that's over 100 million a day of our production, which will be in decline. Obviously you'll get the benefit of the other assets. And so you will have growth in the other basins, but that will that will really be the peak of the gas production for the years that is the drive. So that is that's correct. So our Appalachian production tends to go in waves, so it tends to be. especially on our Marsalis asset where the development tends to be in the spring every year. And so there'll be another wave of development next year around the spring. So you'll have another surge next spring, but we're sort of done for the year.

Your next question comes from the line of Paul Diamond with Citi. Your line is open.

Good morning, Al. Thanks for taking the time. Just a quick one on kind of timing and cadence. And that's because we've seen kind of a pull forward of activity. I know you talked about a possibility that could continue to occur later half of this year, potentially pulling some 25 activity forward. I just want to know if you could talk about kind of if you see that as a more of a permanent compression or just a function of current market dynamics, or I guess how should we be thinking about that going forward?

Yeah, I mean, I think we're a little gun shy. And so I think that's kind of where our heads are right now. I think, you know, I guess what's the term once bitten, twice shy. And so I think, you know, as we've kind of pointed people to the sort of, you know, kind of post the midpoint of our guidance, it's with the assumption that. we'll see, based on the AFE activity we've seen year-to-date, that we'll continue to see robust AFE activity and the possibility of continued pull-fords. Now, those pull-fords don't always account for additional accruals, but they can. And so the concept was that we would see potentially in the fourth quarter a combination of both pull forward of tills and potentially 25 activity being pulled forward and so that's kind of where our heads are now it's not a given per se and so that's why the band is slightly wider but we have seen that and it will be price dependent so obviously if we were to see commodity prices take a nosedive it's unlikely that that would happen and that's why we really do want to see you know why we keep that band there but that's correct it could it but I do think You know, if we see, you know, high 70s and low 80s, it is more likely to happen than not because that's the trend we've been seeing for the last 18 months.

Your next question comes from the line of Noah Hungness with B of A Securities. Your line is open.

Morning, all. I just wanted to ask on the refract opportunities that you're seeing today and really what's driving that increase there and how you guys compare the refracts to maybe new drills in a similar place in the basin.

Yeah, I mean, I think it's been notable. I think we view refracts as locational, right, which is that not all refracts are good. And it's important to understand that, which is that they are significant in cost. They can be 60% or 70% of the cost of a new well. But we have seen a pickup specifically in the Williston in the last few years. Historically, we have literally just budgeted it in our work over budget. And as our analysts have been asking us why our work over budget kept going up, we realized that we had to start to break it out because it is productive capital. But I'll let Jim talk a little bit more about it.

Yeah, I can jump in here. I've got the stats in front of us. I mean, I think year to date, we've received roughly around 30 gross refract proposals. And the bulk of that work is going to be done in the third and the fourth quarters. It's also going to depend on whether or not it's an offensive or a defensive frack. meaning a defensive frac is coupled alongside new drills. So they're refracting legacy wells while they're drilling the new drills. And then you've also got kind of the offensive refracts. And that's going to be effectively going into pretty much a fully developed legacy unit and then refracting those. That's going to depend on the depletion as well as the completion methodology. And so underwriting, but I'd say that, you know, probably two thirds of the, uh, the refract proposals that we've received in the Williston, um, have been kind of through Grayson mill and now ultimately Devin, and you've seen, you know, some of their commentary there. So I think we're relatively encouraged, um, and they continue to kind of tweak and refine things.

So your next question comes from the line of Noel parks with two brothers. Your line is open.

Hi, good morning. You know, I'm just looking at this announcement you just had with Vital and taking an additional position in the Permian. I'm just curious, in the M&A landscape of what you're seeing, the potential deals coming to you and so forth, I'm just wondering about your thoughts on sort of the prolific but still gassier parts of the Delaware, you know, somewhat further south. Just wondering how much you're seeing out there in the market and whether you're, you know, kind of what your appetite is in that part of the play, all things being equal.

Yeah, I mean, as you go south in the Delaware, it doesn't mean it's all bad, but the geology becomes very complex, right? You have a lot of faulting, specifically in Reese County. And as you get into Vegas, it's very challenging. very challenging geology. So there are people who know how to do it. It's operator by operator, and so it can be done. But I would say it is definitely something you wouldn't go with, as you would say, not with a hammer, but with a scalpel. And so I think it's not something that's out of the question. It's just something that requires more of a fine-tooth comb. You know, certainly it's, you know, it's a different paradigm, but, you know, what I would tell you is that we're focused on quality, but I would also tell you that inventory in general in the country is changing. And some people would tell you that they're looking for the next wave of inventory. And that is something that we have to adapt in the world, which is that ultimately we have to recognize in the United States that sticks are becoming more and more scarce. And so this may be

what is the new paradigm in a few years and so will evolve as the market does and dovetailing off of that and i think it's evident in terms of what we've seen in williston with operators refining completion techniques and stepping out and you know if we're focused on rate of return we need to continue to monitor the dynamics and the changes there we've obviously looked in southern Delaware before and there's you know have been a number of opportunities that haven't necessarily fit the bill but as you know operations change hands that you know using forage as an example you know we've seen a 13 reduction in well costs and we've seen that you know early performance on you know, underwritten type curves that have exceeded by roughly 20%, right? And so if we start, you know, rolling those types of changes into acreage that otherwise didn't necessarily pass our brutal rates, then maybe that changes in the future. And so that's why we're continuing to do our look backs, both with our operating partners, as well as the folks that were participating on a heads up basis. And if those things continue to change and we've got conviction in that, then that's something that we'll honor.

Your next question is a follow-up from Charles Mead with Johnson Rice. Your line is open.

Thanks for letting me back in the queue there. Nick, I wanted to ask a question about the – on these co-purchase deals, the dynamics and the motivations of your partners. When I think about what they would – look for or the advantages they get from partnering with you i i think about well first off they can kind of get the size of the deal where they want it but but you know truthfully if you're taking a 20 cut that's not maybe that big a delta i think that i don't imagine that you're bringing a lower cost of capital or like significantly low cost capital to the deal um and i i think that perhaps from the operator's point of view, they're reducing their LOE a bit by charging you some overhead. But what do you think, when you sit down with these guys, what is the... They can't charge us overhead. What do you bring to the table for them? Say again?

They can't charge us overhead. They do not. Cannot? Okay. I mean, you pay... No, we pay the... know typical uh we pay lod straight um it's just it's it's an undivided interest um but uh the answer is you you hit it the same thing which is that the the if it's cost of capital uh you know it's very simple which is that um if you're a company and you are looking, I mean, I can't answer the motivations for every company. So, I mean, you're asking me to answer somebody else's question, but, um, what I would tell you is that we were an oil and gas company, right? At the end of the day, we are certainly a financial owner in, in many ways, but we're not a financial entity. We're a permanent owner of the assets, right? We're not, we're not turning it into a security. So our cost of capital in some ways is higher. Um, right. But, uh, If you are a private equity firm, your main goal is to own it for five years and then flip it. Right. And you require a lot of maintenance. And so your cost of capital might be lower than ours. But then at the end of the day, it's heads or tails. I win because I needed to be a security and then I need you to buy me out at the end and I need you to manage it and do all these things and and then turn it around. Whereas for us, we're true oil and gas concern. So from the operator's perspective, We're a great quote silent partner because we understand and we can underwrite alongside them. We have our own engineering team. We literally can sit down with them and we do our own underwriting, right? Number one, our technical team become a great sounding board because they can sit there and say they know that we agree with them when we go through this process, when we're going to purchase these things. And so that we know we all agree. But number two, for those partners, they can understand that when they're going to size these transactions, they're not stretching themselves financially. But if they take on more debt or they take on another financial party, they have to deal with that party at some point, whereas we own it forever. And they don't have to worry about what we're going to do with the other end or buying us out. Or if something goes wrong in the case of a security in which that person says they have to be paid or that, you know, a VPP where in a VPP, I'm not sure you're aware, but if the volumes disappoint, you have to give them more volumes. Right. So no matter what happens, you pay the man. Right. And so ultimately, we wind up being a much better partner where we take risk alongside an undivided interest means we share in the benefits. And if things go wrong.

Your next question is a follow-up from Phillips Johnston with Capital One. Your line is open.

Hey, thanks for the follow-up. It's early to talk 25, I know, but just from a directional standpoint, it looks like consensus CapEx next year is around 975, which is pretty similar to this year. Just wondering if you guys would potentially envision a higher spend next year, considering your, you know, your implied capital efficiency for this year's program. It's helped by about 20 more net tills than what you have planned for net spuds.

Yeah, Phillips, it's a little early, but I would just say this, like, you know, looking at consensus so far, we haven't seen anything we really object to. But again, I don't want to, it's too early to truly opine on it.

But so far, we haven't seen anything that has terribly scared us.

This concludes the question and answer session. I'll turn the call to Nick O'Grady for closing remarks.

Thank you for joining us today. We appreciate your continued support and look forward to touching base with you in the coming weeks.

This concludes today's conference call. We thank you for joining. You may now disconnect.