Northern Oil and Gas(NOG) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1, the company generated approximately $136 million in free cash flow and $94 million after dividends, marking a 41% sequential increase in free cash flow [10][23] - Adjusted EBITDA reached a record of approximately $435 million for the quarter, reflecting strong operational performance [23] - Total average daily production was approximately 135,000 BOE per day, up 2.5% versus Q4, with year-over-year production increasing by 13% [22][23] Business Line Data and Key Metrics Changes - The company added 27.3 net wells to production, with the Permian Basin accounting for 40% of the activity [15] - The first quarter elections saw a 23% increase in lateral lengths compared to last year's average, resulting in a 10% decrease in normalized well costs [17] - Gas production ramped up both sequentially and year-over-year, contributing 42% to the production mix, with a 6.5% increase on a sequential basis and 14% year-over-year [22][23] Market Data and Key Metrics Changes - Oil differentials averaged $5.79 per barrel for the quarter, above the high end of the guided range, while natural gas realizations were at 100% of benchmark prices [23][24] - The company expects differentials to improve and is comfortable with its guided range of $4.75 to $5.5 for the year [24] Company Strategy and Development Direction - The company emphasizes a flexible capital allocation strategy focused on returns, balancing investments, debt reduction, and share buybacks [13] - The management highlighted the importance of adapting to market conditions and leveraging downturns for high-return investments [10][12] - The company is actively engaged in over 10 M&A processes, focusing on total returns while being mindful of the balance sheet [21][45] Management's Comments on Operating Environment and Future Outlook - Management noted that the cyclical nature of commodities often leads to pricing resets, creating opportunities for growth and value creation [11][12] - The company remains optimistic about finding creative ways to deploy capital as operators look to trim capital exposure [20][47] - Management indicated that production levels are not expected to change materially in 2025 absent significant curtailments or shut-ins [28] Other Important Information - The company exited the quarter with over $900 million in liquidity, including $34 million in cash and $870 million available on its revolving credit facility [26] - Cash operating costs improved, down nearly $2 per BOE from a year ago, reflecting a diverse and improving asset base [24] Q&A Session Summary Question: Production cadence outlook for the rest of the year - Management expects production cadence to be lowest in Q2 and early Q3, with Q4 anticipated to see the highest production levels [30][31] Question: Service pricing comparison to the start of the year - AFE costs have seen about a 10% decrease, driven by increased lateral lengths, while drilling rates remain relatively stable [34][35] Question: Impact of oil and gas outlook on potential sellers of non-operated interests - There has been an acceleration in transaction screening, with operators looking to offload non-operated assets due to capital constraints [41][47] Question: Thoughts on mid-cycle pricing for gas - Management focuses on resilient assets and does not attempt to predict prices, emphasizing the importance of low-cost assets [51][52]