Q4 2020 Northern Oil and Gas Inc Earnings Call

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Greetings and welcome to the northern oil and gas fourth quarter and year end 2020 earnings conference at this time, all participants on a listen only mode. A question and answer session will follow the formal presentation.

Participants connected via phone and that would like to ask the question may do so by pressing star one on their telephone keypad.

If anyone should require operator assistance during the conference. Please press Star zero.

For an operator.

Reminder of this conference is being recorded and is now my pleasure to introduce your host Mike Kelly Chief strategy Officer. Thank you Sir Please go ahead.

And thank you Donna and good morning, everybody, who are happy to welcome you welcome you to our fourth quarter.

'twenty 'twenty earnings call I'm joined here this morning, with northern CEO, Nick O'grady, our COO and Adam Dirlam, Our CFO, Chad Allen, our chief engineer of Jim Evans, as well as northern Chairman and Brahma Crowdie our agenda for today will be as follows Brahms going to give you. The opening remarks and then he is going to hand, the mic over to Nick After Nick Adam will give you an overview of our opera.

Patients followed by Chad, who will review, northern and Q4 financials and 'twenty one guidance after that we will head into the Q&A.

Before you go on though let's cover the Safe Harbor language. Please be advised our remarks of day, including the interest of 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 these forward looking statements. Those risks include among others matters that we have described in the 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 this conference call we may discuss non-GAAP.

Actual measures, including adjusted net income and adjusted EBITDA Reconciliations of these measures to the closest GAAP measure can be found in the earnings release that we covered this morning.

Take care of I will now hand, the call over the northern Chairman Brahma crowding.

Thank you Mike.

As most of you know I began investing and northern in 2016 and subsequently filed the 13D.

Outlining changes that I thought were needed in order to transform energy into a strong and exceptional business.

I am pleased to report this morning that I believe that we have been successful and implementing almost every one of these changes and very excited about more improvements ahead.

We are in an enviable position, we have become the largest U S. Non op consolidator and the opportunities ahead of us are tremendous.

We have a pipeline of acquisition opportunities and the capital to take advantage of these opportunities as well.

The strategy is to continue to get bigger and stronger however, we will do so.

And a financially prudent fashion, which includes our commitment to building and maintaining a fortress like balance sheet.

When I joined the board in 2017, we had the leverage ratio greater than six.

Times today.

We project our leverage below two times for 2020, one and.

And our goal is to further reduce leverage to around one time and the next several years.

We also have a great alignment between our shareholders Board of directors and management. This is a unique and clear advantage.

Our board of directors.

And a significant shareholder and northern.

Finally, we have assembled and all star management team led by one of the most experienced and.

And accomplished executives and energy sector, Nick O'grady.

Nick originally joined northern as the CFO in 2018, and I quickly realized.

That he was the executive that should be leading the company Nick was promoted to CEO at the end of 2019.

I have truly enjoyed partnering with Nick and developing and implementing the board of directors of strategic vision for northern.

Our hedging the strategies in 2019 provided northern with financial security and stability in 2020.

It provided energy's significant significant free cash flow last year, while many other companies did not make it through.

We've been able to secure and extend new financing and raise additional equity which has allowed the company to significantly improve our balance sheet.

And our future cash flow, which is now approaching a $150 million in 2021.

I have complete confidence and Nick and the entire executive team at northern to continue executing our long term strategy.

We have accomplished a tremendous amount over the past several years.

But I am most excited about the future at northern.

We now have the balance sheet and.

And on acquisition opportunities that will enable northern to accelerate its growth and.

And very excited to see our the strategy play out through the remainder of 2021 and beyond.

We are also in the position to start a responsible and modest dividend by this summer that we can grow over time.

Because of my confidence in Nic and the leadership team at northern and no longer feel that it's necessary for me to be on the Nrg's Conference calls of course, I will continue to be a very active chairman and formulating the vision and long term strategies.

Before the company with other members of the board, Nick and rest of the executive team.

Finally, I want to think of Wells Fargo Bank of America, and RBC amongst others for being great partners and supported the northern throughout this exciting adventure.

With that I will now turn it over to our CEO Nick O'grady.

Thanks very much of the.

Kind words, and and the vote of confidence and our executive team.

Alright, everybody as usual, let's get down to what it was six points.

Number one and teamwork.

And I know that 2020 was the tumultuous time for investors for oil and for the industry.

But as we sit here today I'm exceptionally proud of how we've managed through it.

Our team has worked around the clock and think Leslie of times as painful as it was no one wavered and we continue to plug away and not lose sight of our long term mission.

We entered the year of larger stronger and with the clean de Levered balance sheet. When we started this path and early 2018, the company shareholders carried over $136 of debt and over $9 of annual interest expense for every share of they owned.

We project this year that number will be well under $15 of debt less and a dollar of interest and expect production to be up this year over threefold from 2017 levels put simply our debt adjusted cash flow per share. This year is expected to more than double from those 2017 levels.

It has not been easy and our employees board of directors and my executive team at northern truly deserve credit for it all.

Number two execution the quarter was strong as production and activity continue to ramp up and methodically.

Costs continue to be in control and the assets performed admirably, we produced over $30 million of free cash and the quarter on record for the company. What's more impressive is that our volumes have continued to improve despite significant shut and activity.

And with Workover rigs going at a furious pace despite winter conditions and the Williston, we expect of further boost of the vast majority of these remaining shut and should be back online as we exit the spring.

Number three consistency.

I have explained and each of the last four conference calls that we have been dedicated to managing risk continuing to deliver.

And that the non op model gives us significant flexibility and the allocation of capital.

As we stand today, we successfully counter cyclically invested and projects throughout 2020 that are beginning to bear fruit and will likely vastly exceed what we had underwritten.

Risk management and the form of hedging meant that we were able to reduce debt and the downturn rather than lean on it and with higher prices today that will accelerate.

Number four expansion, we exit 2020 very differently than we began we entered it as the Williston pure play we will soon be of three based on company diversified and with <unk>.

Increased flexibility to allocate capital to different commodities different regions and simply put in the place that has the highest return on capital employed.

Number five discipline, while oil prices are high and the market of volume today I want to be clear about northern strategy. While we certainly welcome more normalized levels of drilling we continue to be disciplined and how we deploy capital as I have repeated ad-nauseum growth should be the output of good investment discipline non.

The driver of spending decisions, we are dedicated to responsibly returning capital when the risks of our balance properly for our debt holders as well as for our equity holders, which brings me to my final point.

Number six returns.

As we integrate the reliance assets and continue to deliver we will begin discussions with the board of directors over the summer about establishing a long term dividend strategy and we are watching others carefully as they craft their dividend policies to see what works best for our investors and the marketplace, but it is clear that higher prices and the short term are accelerating our cash flows.

The retire debt faster and with it the mission to deliver real shareholder returns and.

In conclusion to those set of stuck by us through thick and thin and thanks for the patients, but we are not done in fact, we're just getting started there are north of $10 billion worth of working interest opportunities out there that need to be rationalized, we are focused on making our enterprise stronger more profitable and providing exceptional returns.

Of our shareholders, but at the same time, we will not lose our strong financial discipline, we're not deal junkies.

Everyone must win for anything to be even considered these aren't just words, we are of company run by investors for investors and I truly thank each and every one of you for your interest with that I'll turn it over to Adam.

Thanks, Nick operationally 2020 was a transformational year for northern and as we move into 2021, we see ourselves and an enviable position.

The standard of both the Permian and Marcellus, we now have three premier basins to deploy capital and with.

And with the expansion of our business model the <unk>.

Active management of allocating capital across a broader opportunity set and will enable us to continue to high grade our returns on capital employed while diversifying and taking risk out of the enterprise.

And the Williston curtailments are subsiding with the increase in commodity pricing and we expect that the remaining production will be brought back online towards the beginning of the second quarter.

While the rigs on the.