Northern Oil and Gas(NOG) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 production increased by 7% sequentially over Q2 and up 98% compared to Q3 2020 [27] - Adjusted EBITDA rose by 2% and free cash flow increased by 22% over Q2, exceeding Wall Street expectations [28] - Cumulative free cash flow for the first nine months of 2021 reached over $140 million, nearly matching the full-year estimate and doubling the amount generated in 2020 [30] Business Line Data and Key Metrics Changes - Production was higher than internal forecasts, with improved unit costs and realizations contributing to exceeding cash flow forecasts [10] - The company expects a substantial increase in completion counts in both the Williston and Permian basins in Q4 [11] - The average rate of return for Q3 well elections is estimated to be well north of 100% [20] Market Data and Key Metrics Changes - Oil and natural gas differentials were stronger during the quarter, contributing to increased cash flow [28] - The company is experiencing a positive trajectory in cash flow and balance sheet, with expectations to end the year with a run rate leverage ratio of less than 1.5x [13] Company Strategy and Development Direction - The company is focused on disciplined capital spending and high-return opportunities, with a growing pipeline of M&A prospects totaling over $1 billion [12] - The strategy includes expanding reach through creative structures to aid operating partners in development [12] - The company plans to recommend a quarterly dividend increase to $0.06 per share upon closing the Williston acquisition, marking a 100% increase since the first declaration [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a materially stronger Q4, driven by the full impact of the Permian acquisition and a partial contribution from the Williston acquisition [11] - The management team emphasized the importance of risk management in M&A transactions, especially with rising oil and gas prices [12] - Future dividend increases will be supported by smart M&A and continued leverage ratio reduction [16] Other Important Information - The company has updated its 2021 guidance, increasing the midpoint of production guidance and lowering cost guidance, reflecting year-to-date performance [31] - The company is formulating its financial plan for 2022, with a capital expenditure upper bound set at $350 million, which is expected to generate over $250 million of free cash flow [32] Q&A Session Summary Question: Inquiry about participation in Midland Basin wells - The company is actively looking for opportunities in the Midland Basin and has a favorable rate of return on new initiatives [34][35] Question: Interest from operators to reduce working interest - There has been an increase in inbound interest from operators looking to reduce working interest, particularly in the last few months [38][39] Question: Thoughts on shareholder returns and buybacks - The company is focused on increasing dividends rather than buybacks, as dividends are seen as more stable and less risky [41][42] Question: Clarification on capital expenditures for 2022 - The upper bound for capital expenditures in 2022 is set at $350 million, which includes growth capital [50][51] Question: Quality of larger A&D deals in the current environment - The quality of assets coming to market is better than in previous years, but there is still a mix of high and low-quality opportunities [86][87]