Northern Oil and Gas, Inc.

second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. As a reminder, this conference is being recorded. It's my pleasure to introduce your host, Evelyn Inferna, Vice President, Investor Relations. Thank you. You may begin.

Good morning. Welcome to NOG's second quarter 2025 earnings conference call. Yesterday after the close, we released our financial results. You can access our earnings release and presentation in the Investor Relations section of our website at NOGinc.com. who will be filing our June 30 TEN-Q with the SEC within the next few days. I'm joined this morning by our Chief Executive Officer, Nick O'Grady, our President, Adam Durlam, 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 introductory remarks, followed by Adam, who will share an overview of NOG's operations and business development activities, and Chad will review our financial results. After our prepared remarks, the team, including Jen, will be available to answer any questions. Before we begin, let me remind you of 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 have been 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 free cash flow. Reconciliations of these measures to the closest GAAP measures 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. As usual, I'll give some highlights on our outlook and five key points. Number one, resiliency. NOG's business model is proving its resiliency every day. We've built a solid business that embodies a number of tenets, diversity, scale, and risk optimization that consistently drives results. Our Uinta and Appalachian basins are and will continue to be strong contributors as the Williston moderates during a period of lower prices. Our commodity mix of oil and gas positions us to benefit or offset weakness in either or strengthen both And our conservative and disciplined approach to investing, as well as downside protection, supports our cash flow in the near term through hedging. And as we look through oil price cycles and take a longer-term risk-managed view as to how and where to deploy our capital. Our business activity continues to be solid, with the DNC list building substantially this quarter, as we have seen overall stable drilling activity on our lands. As I have said before and will reiterate now, our goal is to make money for investors, and we believe that our diverse portfolio of holdings will be a relative outperforming given the number of levers we have at our disposal. Number two, drilling versus acquiring, organic versus inorganic, the how and the why. In a period of flux for oil prices, it is a unique time for our model and the decisions we make. Many companies continue to modestly grow their volumes and continue to march forward, even as price is signaling to do something else. I want to be clear that our tactics will likely differ depending on the commodity outlook. We always tell investors that growth is the output of return-based decisions, not a front-end decision for our company. As prices have retracted, our view is that growth capital is better preserved for higher returns in the future at better prices or if spent today on acquisitions. Upwards of 80% of a well's return is delivered in the first year of its life. An acquisition, on the other hand, typically delivers its return over four to seven years. Drilling, while generally higher return in the short term, is inherently riskier in this volatile price environment. With acquisitions, we benefit in multiple ways, long-term upside convexity and the resiliency to the long-term return profile. This is the driving logic to our reduced near-term spendings. To the extent we do spend additional capital, it will be through discretionary capital outlays through acquiring stable production and inventory. That inventory and production will have the aforementioned convexity of future prices, so we retain the option of ramping activity if the environment changes. Remember, the oil is still there on the ground and will adapt quickly. Number three, whatever the price of oil, cash flow continues. We generated over $126 million in free cash flow this quarter, plus we have another nearly $50 million pending from a recent legal settlement. Our debt balance has changed little since last quarter, mostly a function of the closing of our recent Midland acquisition, changes to working capital, and the mechanics of our convert, tack-on, and simultaneous stock buyback. But the business itself, through a very weak period of oil prices, continues to shine while production has remained resilient and our careful risk management shines through. This is in spite of a significant amount of price-related shut-ins from price-sensitive operators and other deferments that are typical in a lower-price environment. While not always the most popular, these decisions by our operators have proven time and time again to be value-enhancing through patiently waiting out the cycles. With that said, the ground game is providing compelling offset opportunities, which brings me to my next point. Number four, ground game success. As I've mentioned in the past several quarters, the term ground game means many things, from raw, unbound acreage to drill-ready projects, and our competitiveness in all of these categories ebbs and flows at times. Our discipline means we evaluate across basins, structures, and commodity type, depending on the returns and opportunity. In the past year, we focused particularly on acreage, as it's become a lost art to take longer-dated positions on undeveloped acreage, and the results have been stellar. We've seen large portions of our acreage in the Utica become unitized rapidly, and in short order, we're seeing our concentrated working interest getting well proposals on those lands. And in the second quarter, with the weakness in oil, all portions of the ground game saw more success across each of our active basins. If we see further weakness in the oil markets in the later innings of 2025, expect to see even further success for us in this arena, as that's when we tend to have the most traction. Number five. With great power comes great responsibility. As the largest and best capitalized non-operator, we have found ourselves uniquely situated by being involved in most major M&A processes that are going on in the marketplace today. This is being driven by the breadth of our capabilities, our reputation in the marketplace, and the increasing need for our capital. I mentioned the difference between drilling for returns versus acquiring and our view that ultimately, From a long-term perspective, acquiring today has the best future potential. I'm pleased to note that our backlog of potential acquisitions from bolt-ons to truly transformational transactions is at an all-time peak, both in value and, in many cases, impact and quality. These potential transactions cover almost every structure, basin of operation, and variance of scale. Should we be successful on our terms, these opportunities could be highly beneficial to our stakeholders on almost every measure. As I'll remind you, every transaction goes through incredible rigor and scrutiny here at NOG, not to mention our low level of actual conversion success rate. That being said, we are working hard to find value accretive ways to continue to drive our business forward, and I'm highly confident that we'll find meaningful ways to do so this year and beyond. NOG's Q2 results highlight the flexibility of the business model and our returns-based philosophy. These factors have translated into significant cash flow generation and excellent capital efficiency over time. While overall growth dynamics have slowed in US Yale, we are hard at work to find accretive opportunities for our stakeholders and believe we can deliver over the long term. Let me be absolutely clear. As it pertains to 2026 and beyond, our goal is to maximize returns for our investors and find the optimal path to differentiated growth and value. And we have incredible opportunities to do so beyond just our drilling capital, but we will allocate our capital in the way that creates the most value for our investors. We remain focused on the same simple tenets, which is to grow our profits on a per share basis and build scale for our investors, all the while focusing on strong returns on capital and keeping a strong balance sheet. I often mention that NOG is different. We are different in so many ways, but I think we're most different in that we do things almost exclusively focused on long-term thinking, on long-term value creation through cycle. Sometimes these measures may differ from our peers, but seizing on market opportunities will ultimately drive more value in the end. Thank you again for listening and your continued interest in our company. Adam.