Q4 2024 Northern Oil and Gas Inc Earnings Call
[music].
Greetings and welcome to the NN, Oh, Geez fourth quarter and year end 'twenty 'twenty four 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.
Eric: We encourage participants to limit yourselves to one question and one follow up if you would like to withdraw your question Press Star One again as a reminder, this conference is being recorded its now my pleasure to introduce your host Eric from slow Chief Legal officer. Thank you you may begin.
Speaker Change: Good morning, welcome to <unk> fourth quarter and year end 2024 earnings conference call.
Speaker Change: Standing in for Avalon and fair enough today, who could not be here, but we'll be back soon.
Speaker Change: Yesterday after the market close we released our financial results for the fourth quarter.
Speaker Change: You can access our earnings release and presentation on our Investor Relations website.
Speaker Change: <unk>, Inc, Dot com and will be filing our 2024 10-K with the SEC within the next few days.
Speaker Change: I'm joined this morning by our Chief Executive Officer, Nick O'grady, our precedent, Adam Berlin, Our Chief Financial Officer, Chad Allen, Our Chief Technical Officer, Jim Evans.
Speaker Change: Our agenda for today's call is as follows.
Nick O'Grady: First Nick will provide his introductory remarks.
Speaker Change: And then Adam will give you an overview of operations and business development activities and finally, Chad will review, our financial results and walk through the details of our 2025 guidance.
Speaker Change: After our prepared remarks, the team will be available to answer any questions.
Speaker Change: Before we begin let me cover our safe Harbor language.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: We disclaim any obligation to update these forward looking statements.
Speaker Change: During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and free cash flow.
Speaker Change: Reconciliations of these measures to the closest GAAP measures can be found in our earnings release.
Nick O'Grady: With that I will turn the call over to Nick.
Nick O'Grady: Thanks, Eric welcome and good morning, everyone.
Nick O'Grady: I'm going to deviate from our typical rundown of points and my comments will be fairly brief this quarter.
Nick O'Grady: One of the hallmarks of the non operated strategy is in its diversification.
Nick O'Grady: Our broad footprint of operators basins, and well exposures typically means that we're well insulated for more acute disruptions that happened from time to time in the fields.
Nick O'Grady: We purposely built here at energy over the past seven years.
Nick O'Grady: In the past four months, we've been hit with forest fires refinery outages trees off shut in delays of every kind of material deferments, many of which have been a result of the aforementioned issues all at the same time.
Nick O'Grady: This confluence of events, while beyond anyone's control is extraordinary in nature and very rare for our business.
Nick O'Grady: With that said it had a material effect not just on the fourth quarter, but started out at a lower level of base oil volumes, primarily in the Williston and to a lesser extent in the uinta coming into 2025 and our.
Nick O'Grady: Capital program will spend a portion of 2025 catching back up.
Nick O'Grady: As a result, we will exit 2025, much stronger than we would have otherwise however.
Nick O'Grady: It is important that we put these events in perspective, oftentimes, we have a tendency to compartmentalize results versus expectations and forego looking at the actual trends at hand.
Nick O'Grady: <unk> is that we grew volumes last year, 25% year over year and despite recent disruptions oil volumes will grow again in the high single digits. This year, and we'll exit materially higher than that.
Nick O'Grady: These are huge numbers.
Nick O'Grady: The oil that was deferred in Q4 is still there in the ground and much of the capital for those wells has already been spent and the wells in.
Nick O'Grady: Production continued to perform as expected and so ultimately this is an issue about timing.
Nick O'Grady: We think and execute for the long term here as a non operator, we allocate capital and focus meticulously on the engineering well by well, but as we've discussed in the past the timing for these wells can shift leading to periodic lumpiness quarter to quarter.
Nick O'Grady: And frankly cannot run our business in 90 day increments.
Nick O'Grady: Budget. This year is designed purposely in that fashion with a hefty spud schedule to drive long term growth and that it will.
Nick O'Grady: As an example of this thinking our Uinta program is immediately go into a larger program that optimally spaced three mile laterals, which will materially improve longer term production performance returns and capital efficiency, but it also has the added effect of pushing out turn in lines and thus volumes later into the year given they also take longer to drill.
Nick O'Grady: So you only look at the 2025 numbers might come to the opposite capital efficiency conclusion, but you'd be wrong.
Nick O'Grady: We're setting the stage not just to grow in 2025, but positioning NRG for the future. We often have a choice. We can front end load capital. So we can grow more now at the expense of the future or vice versa adhere to LNG will always choose what's best for the long term both from an organic growth perspective, which may involve recasting the cadence of the development plan.
Nick O'Grady: And in the way, we underwrite and pursue bolt ons and other inorganic opportunities.
Nick O'Grady: On the topic of inorganic opportunities things are looking increasingly strong.
Nick O'Grady: As oil prices weakened.
Nick O'Grady: We find our competitive advantage grows and the need for our capital in their request for partnerships from a variety of operators and other potential partners has never been greater.
Nick O'Grady: As gas prices strengthen we find that this market is becoming healthier on the M&A front that there is more activity in the M&A activity becomes more realistic is the contango spread improves operators continue to CCAR capital to accelerate development and many assets remained stranded looking for permanent homes as Adam will discuss we've had success in every one of them.
Nick O'Grady: Basins, adding leasehold.
Nick O'Grady: Especially in Appalachia.
Nick O'Grady: We have stated that we can double our business over the next several years, we are looking at some of the largest transactions in our history and the need for and call on our capital has never been greater.
Nick O'Grady: The inbound activity and backlog of evaluations or underwriting on a daily basis is as high or higher than at any time. During my tenure and it gives me confidence that we can continue to find meaningful ways inorganically to create value for our investors over time, it will require discipline with the right opportunities will present themselves and that discipline.
Nick O'Grady: As paid off over the years, our corporate return on capital employed has remained above almost all of our peers and as we do multiyear look backs on our acquisitions from our early Wilson deals to the Marcellus to a series of Permian transactions. Our underwriting has continued to deliver strong returns, which gives us confidence in our four planned to grow further over time as.
Nick O'Grady: An example of our 2021 Marcellus transaction, we estimate has delivered well over double the internal return. We originally projected paid out in less than two years and still has decades of life on it based on the current gas strip, it's positioned for multiple years of strong cash flow ahead.
Nick O'Grady: It is important to note that as we have scaled our platform. We've also been mindful to ensure that we have the internal infrastructure in place to support our growth.
Nick O'Grady: During 2025, we'll be investing significantly in our financial land data science and engineering teams and have already expanded our capabilities by building out an internal geology function that when paired with our engineering prowess can help identify additional value that can be extracted from the acreage, we already own and find value where we do not.
Nick O'Grady: I'll conclude with a review of the highlights of our business model.
Nick O'Grady: The dominant non operator in the space.
Nick O'Grady: <unk> is uniquely positioned as a growth story and a consolidator.
Nick O'Grady: Our opportunity set continues to grow as we scale and as a non operator, our diversification by region commodity mix and operator over time should give us a stable business profile, our strong margins provide a durable cash profile that has provided steady peer leading growth in dividends over time.
Nick O'Grady: We'll continue through thick and thin to manage risk properly and hedge where appropriate.
Nick O'Grady: All of this combined with a disciplined approach to capital allocation should translate into superior shareholder return over time.
Nick O'Grady: This has been proven out in the marketplace over the past seven years, and we're going to continue with the same methodical approach to creating value for our investors going forward.
I remain incredibly excited for what lies ahead for our company that concludes my prepared remarks, thanks to everyone for listening and again for your interest in our company.
Adam: I'll turn it over to Adam.
Adam: Thank you Nick.
Adam: First I will expand on our operations and what we have observed in the fourth quarter and how that influences the business for 2025.
Adam: From there I will touch on our acquisition efforts as of late and what we're seeing across the landscape.
Speaker Change: As Nick alluded to we had a confluence of events hitting the fourth quarter from weather to logistics, but as we look forward, we see operations returning to normal and our asset base setting itself up for additional growth in 'twenty, five and continuing to ramp through 2006.
Speaker Change: During the fourth quarter, we returned $25 eight net wells to sales.
Speaker Change: The Permian accounted for 60% of the additions as our joint venture has accelerated activity from what was previously underwritten.
Speaker Change: Offsetting that acceleration, where reflex startup delays and deferrals in the Williston, where five five completed wells were delayed primarily due to a downtick in commodity pricing from one of our more price sensitive operators.
Speaker Change: We expect almost all will be turned in line by the end of the first quarter.
Speaker Change: <unk> also experienced some delays in expected completions in connection with third party takeaway issues that have since been resolved.
Speaker Change: As of January <unk>.
Speaker Change: <unk> has taken the reins on operations and we're excited about the long term partnership as we optimized spacing extend laterals realized cost savings from our newly operational sand mine and find other ways to drive operational value.
Speaker Change: Despite some of the temporary headwinds we saw outperformance across our portfolios base assets and most recently with our point assets.
Speaker Change: But I will hit the ground running and has outperformed on expected volumes.
Speaker Change: Since taking the hand off on operations, they have been able to optimize completion techniques as well as accelerate on the underwritten drill schedule.
Speaker Change: Turning to our D&C list, we finished the year with 54 net wells in process with the Permian, making up about a third of our wells in process and the remaining two thirds evenly split across the Uinta Williston and Appalachia.
Speaker Change: Looking ahead, the Permian had the highest levels of election activity on the year during Q4.
Speaker Change: Normalized cost in the region were in line with our annual average however, we have seen some meaningful efficiencies gained on our recent co purchased assets as our larger operators push costs lower relative to <unk> as usual, we maintained over 90% consent rate on recent well proposals driven by strong.
Speaker Change: <unk> economics.
Speaker Change: As we think about the cadence for 2025, we expect the Permian to account for 50% to 60% of our tools with the Williston accounting for about a quarter of the activity.
Speaker Change: Appalachia, and Uinta evenly making up the difference.
Speaker Change: Overall, we expect till activity to be weighted 40, 60 to the front and back halves of the year, we're spending evenly split.
Speaker Change: Drilling down further expected completion timing in the Williston will be driven by weather as is typical.
Speaker Change: While the Uinta completions will be evenly split between the first and second halves of the year and Appalachia two thirds of the development primarily from our recently announced drilling partnership is.
Speaker Change: Is slated to start in the second half of the year and build the DNC list as we finished the year.
Speaker Change: Finally, the Permian makes up roughly half of the well activity for 25.
Speaker Change: We expect 70% of those completions will come in the back half of the year.
Speaker Change: Impacting this further.
Speaker Change: Drivers around completion timing include the recent flurry of A&P elections, our ground game success in certain joint venture activity consists of high working interest and large pads with a focus on full field development.
Speaker Change: Putting all these pieces back together illustrates the overall cadence at a corporate level. It lays out the expectations of an accelerated growth profile as we exit the year.
Speaker Change: While our pace in production volumes may be muted in the immediate term we continue to focus on long term value drivers optimizing development through the organization and our capital allocation decisions will reflect as much.
Speaker Change: Our asset base long term sustainability and diversification has never been stronger and we will continue to build on our successes as we move through the year.
Speaker Change: Pivoting to our business development efforts energy finished the year off strong taking advantage of a weaker than usual A&D market.
Speaker Change: Capitalizing on depleted budgets from our competitors.
Speaker Change: <unk>, our creativity, we were able to close 14 ground game deals in Q4 across each basin, where we have operations.
Speaker Change: During the quarter, we added over three net wells of near term development in the Permian and continued to layer in longer dated inventory across the Williston Uinta and Appalachia.
Speaker Change: We had an extremely successful 2024 ground game campaign, adding 10, seven net wells and over 7000 net acres, while strictly adhering to our internal hurdle rates.
Speaker Change: Our success is attributed to our relentless pursuit.
Speaker Change: Leveraging mlg's proprietary data and technology to accurately screen over 500 opportunities during the year.
Speaker Change: Energy continues to solidify itself as the go to partner for operators are focused on alignment and equitable outcomes continues to produce opportunities as evidenced by our previously announced 2025 Appalachia drilling partnership with a top public gas producer, which was signed.
Speaker Change: In December of last year, and most recently the acquisition and drilling partnerships, we announced last week in the Midland Basin.
Speaker Change: Moving on to the broader M&A landscape, our size and scale continues to attract compelling prospects across various basins, even as the opportunity set for others is shrinking.
Speaker Change: Majors and large cap independents are looking to trim longer dated inventory.
Speaker Change: Reduced debt through asset sales and private equity is consistently looking for full or partial exits.
Speaker Change: All said, we've got around $8 billion in assets across 13 different processes that we are currently evaluating with values ranging from 100 million to over $1 billion.
Speaker Change: Across multiple basins with varying structures.
Speaker Change: As one of the only non operators of scale, we sit in a unique position with a total addressable market as large as any player in the space, but we will continue to be disciplined capital allocators with a focus on long term and sustainable returns.
Chad: With that I'll turn it over to Chad.
Chad: Thanks, Adam.
Chad: Jumping into our results our fourth quarter average daily production was 131800 Boe per day.
Chad: And 124100 BOE per day for the year above the high end of our guided range.
Chad: Oil production increased to 78900 barrels per day.
Chad: Up 11% from Q3, as we rolled in a full quarter of our <unk> acquisition.
Chad: And closed our <unk> acquisition on October one.
Speaker Change: The strength of our production was offset by the various events that Nick and Adam discussed earlier.
Speaker Change: Despite those disruptions Permian basin volumes remained strong and grew approximately 12% quarter over quarter and our <unk> acquisition is materially ahead of schedule.
Speaker Change: Adjusted EBITDA in the quarter was $407 million.
Speaker Change: A free cash flow was $96 million.
Speaker Change: Which remains strong even with the lower oil price disruptions and a higher capital investment.
Speaker Change: Adjusted EBITDA and free cash flow for 2024 were $1 6 billion and.
Speaker Change: $461 million respectively.
Speaker Change: Both all time highs for MLG.
Speaker Change: Oil differentials came in at $3 86 per barrel for the quarter.
Speaker Change: Better than our expectations as more of our production is weighted towards the Permian.
Speaker Change: Even with the inclusion of our <unk> acquisition, which carries a higher differential compared to our corporate average.
Speaker Change: Natural gas realizations were 81% of benchmark prices for the quarter.
Speaker Change: Materially better than Q3 due to strong Williston realizations, which were partially offset by the overhang of continued weakness in <unk> gas during the first half of the quarter.
Speaker Change: LOE was $9 62 per Boe.
Speaker Change: Slightly higher than Q3, as a result of higher fixed carrying costs related to the aforementioned disruptions primarily in the Williston.
Speaker Change: Which was offset by lower lease operating expenses in the Uinta basin, which is about half of our corporate average.
Speaker Change: On the Capex front, we invested $259 million inclusive of elective ground game of $27 million in the quarter.
Speaker Change: Of the 259 million, 51% of the capital is allocated to the Permian.
Speaker Change: 31% of the Williston and.
Speaker Change: At 9% to each of the Appalachian and Uinta basins, respectively.
Speaker Change: Although our development capital is in line with expectations during the quarter.
Speaker Change: We continue to see Workover costs increased throughout 2024, as our producing well count grows and shale wells age.
Speaker Change: These workovers coupled with more re frac activity are becoming bigger contributors to capex, which should be productive over time that contribute to better well performance as the work is completed.
Speaker Change: We exited the year with over $800 million of liquidity comprised of $9 million of cash on hand, and $810 million of availability on our revolving credit facility.
Speaker Change: Our net debt to LTM EBITDA ratio is close to the higher end of our stated one to one five times range, reflecting the addition of <unk> to our revolver. However, given the strength of our base asset and a strong cash flow profiles of our base business and recent acquisitions, we expect the trend towards the lower end of our leverage range by the end.
Speaker Change: <unk> 2025 based on current pricing trends.
Speaker Change: Closing <unk>, we reduced borrowings on our revolver by $145 million inclusive of a modest share buyback of $25 million and $42 million common dividend payment in the fourth quarter.
Speaker Change: As we execute our acquisition strategy.
Speaker Change: We've always said, we'd be mindful of the balance sheet without excluding the potential for capitalizing on opportunities to retire shares when market conditions allow.
Speaker Change: As I mentioned earlier, we found those opportunities in the fourth quarter with the repurchase of just under 700000 shares.
Speaker Change: In fact, we are proud to have delivered nearly $260 million and returns comprised of share repurchases and dividends to our shareholders in 2024.
Speaker Change: In the interest of time, so that we can get the Q&A.
I'm going to touch upon a few major line items in our guidance the balance of the details can be found on page 15 of our earnings deck.
Speaker Change: We anticipate annual production in the 130 to 135000 BOE per day range of which 75000 to 79000 barrels per day for annual oil production.
Speaker Change: Based on our expected til cadence.
Speaker Change: We expect a relatively flat production profile with a significant ramp towards the end of the year.
Speaker Change: As always dependent on pricing, we could see a pull forward of activity, which could affect the cadence.
Speaker Change: With respect to Capex.
Speaker Change: We have budgeted for a range of $1 <unk> 5 billion to $1 2 billion.
Speaker Change: As a reminder.
Speaker Change: The post closing Capex associated with our recently announced Midland acquisition is already in this number.
Speaker Change: Approximately 25% of our budget is earmarked for ground game acquisition and development capital and approximately 10% capital outlay for our recently announced Appalachian drilling partnership.
Speaker Change: Cash taxes in 2025 will be immaterial.
Speaker Change: With an estimate of under $10 million, mostly comprised of state income taxes.
Speaker Change: Lastly.
Speaker Change: I want to touch briefly on reserves and inventory.
Speaker Change: In 2024, we grew our proved reserves, 11% year over year to a record 378 million Boe.
Speaker Change: <unk> reduced SEC pricing and record production.
Speaker Change: This increase was driven by both our organic ads and acquisitions.
Speaker Change: In addition, we added almost 200 high quality net locations to our inventory through.
Drew: Drew announced large acquisitions and organic acreage.
Drew: In an era, where inventory is becoming more and more precious and highlights the strength and quality of our asset base the logic of our acquisitions over recent years.
Drew: And the non operated business model superior ability to replace drilling locations and generate organic inventory.
Drew: That concludes our prepared remarks, I'd like to open the call up to questions.
Drew: Okay.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Drew: Like to remind participants to limit questions to one and one follow up we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Neal Dingmann with <unk> Securities. Please go ahead.
Neal Dingmann: Good morning, guys. Thanks for the details Nick.
Speaker Change: Anybody guide specifically.
Speaker Change: And even Chad just sort of hit on anticipated sort of late 'twenty five 'twenty six guidance and then knowing that.
It's a bit difficult to go that far out there thats been a non op. Rob just wondering if you could walk me through.
Speaker Change: How are you all come up with sort of that such optimism to the notable production growth late this year and next year and does that incorporate I know you had a couple one offs wildfires and deferments and <unk> does this sort of incorporate some of that as well.
Speaker Change: Yes, Neal it's not terribly complicated look there are two factors really driving that one.
Speaker Change: Worst flooding a significantly greater number of wells and we're completing this year.
Speaker Change: And so therefore that inherently drives additional growth in 2006.
Speaker Change: The second factor is that as Adam also talked about is that the completion timing is relatively back half weighting. So youre really only getting effectively on a daily production basis sort of partial credit given the back.
Speaker Change: The partial contribution this year. So an example would be like the appellation JV, we're capitalizing that throughout the year, but the first production really won't be until past mid year, So youre not getting really a meaningful per Boe.
Speaker Change: Contribution in effect this year, obviously youre going to exit really strong, but then in 2006 youre getting the full annual contribution from those volumes, so it's largely baked but.
Speaker Change: Much of the development that you are getting here you will you will see the benefit but really it's not until you get to mid and later in the year that you would get that so it gives us a lot of confidence as you get into 2026 and that translates on a 24 month average into significant growth and is fairly locked and loaded.
Speaker Change: Now look forward to seeing that and then second question just on Uinta, specifically seemed last night that Smbs you had the production I'd call. It maybe slightly light to start the year, but it seems like listen to them. They are well expectations are certainly have not changed I'm just wondering it doesn't sound like there's maybe just your thoughts around the assets changed at.
Speaker Change: At all and maybe could you discuss sort of the expectations there.
Speaker Change: Yes.
Speaker Change: Yes, I mean look the U S. It has been the fastest growing player in North America over the past several years with some of the largest EUR oil wells drilled in the country.
Speaker Change: Amongst oil industry players, it's been one of the most sought after areas to get into.
Speaker Change: I can't tell you how much competition, we face to get into the play not a week goes by I don't have.
Speaker Change: One of our peers.
Speaker Change: Blocking us in discussing the merits of our deal and the love of the geology and specifically the part of the play where we and our partner acquired.
Speaker Change: Im not sure Wall Street has yet warm to it in the same way and I'm fine with that taking time and I think we've been we've been doubted before.
Speaker Change: And to be fair, we and our partner have to deliver results over time to prove it.
Speaker Change: But we bought this asset for a 10 15 year development period.
Speaker Change: Yeah.
Speaker Change: That being said if you look at what Oh vintage just sold their asset for it implies a material kind of 30 plus percent premium to what we just paid for our asset and frankly that was sold at a lower oil price than what than when we purchased ours validating it even further the reality is we've owned the asset for a couple of months I mean, a couple of months.
Speaker Change: And look our point transaction as an example is absolutely crushing them out of the gates.
Speaker Change: And while we think that transaction's going to be great. We do it will still take several years.
Speaker Change: In our minds to determine.
Speaker Change: The validity of our acquisition strategy, that's how we do our look back so when we look at our board. We judge all are look backs on a multiyear basis early performance is great, but its just that its early performance.
Speaker Change: To me, that's like judging a well on a 24 hour rate. It's just nonsensical you can't so SM took over operations on Jan one.
Speaker Change: And prior to that obviously there was as we mentioned there wasn't an encore unfortunate not planned outage.
Speaker Change: Which had some effect so.
Speaker Change: I think look.
Speaker Change: Planning to develop this asset over the next decade, we've gotten an optimal spacing long lateral and big savings development plan here is an incredible resource and I think frankly, we're just scratching the surface geologically we got plans to explore more in the next several years of course, we want to prove it to our investors as fast as possible, but it will take time.
Speaker Change: But I think look at the end of the day I don't think Theres anything you can do as a judge the asset over the next couple of months I think it's going to take.
Speaker Change: It's going to take all year really for us to deliver our results frankly, I think it's going to be over the next several years.
Speaker Change: Great details. Thank you.
Speaker Change: Your next question comes from the line of Scott Hanold with RBC capital markets. Please go ahead.
Scott Hanold: Yes, thanks, good morning.
Scott Hanold: Could you all talk a little bit about your Appalachian partnership.
Scott Hanold: And just in your understanding and thoughts on <unk>.
Scott Hanold: Do you think that extends into 2026 and <unk>.
Scott Hanold: If it doesn't what is the production profile of that asset do.
Scott Hanold: Well it is.
Scott Hanold: It is a one year transaction with an option to extend it to.
Speaker Change: Another two years, there's a mutual right to extend its scott whether or not we do that is a mutual decision. So we'll come to that when we do.
Scott Hanold: If it does not.
Scott Hanold: We do these one at a time and we will take them one at a time.
Scott Hanold: Production would theoretically peak in 2026 over that period of time, if it does not.
Scott Hanold: I think we'll take it in stride over that period of time.
Speaker Change: Hey, guys.
Speaker Change: So the first part of that there will be development activity.
Speaker Change: Finishing up in 2026, right. So as we're spotting wells in the back half of the year those will be completed.
Speaker Change: In the first half of <unk>.
Speaker Change: Yes.
Speaker Change: Okay. Okay. So it doesn't seem like.
Speaker Change: At this point in time, you've got.
Speaker Change: Theres not a lot of visibility on your partners' appetite to extend it at this point so it seems like it's a conversation.
Speaker Change: Throughout this year is that is that fair I guess that was the point of the question.
Speaker Change: Okay.
Speaker Change: That's right, it's kicking off now and we'll have those conversations as we move along.
Speaker Change: Okay, and then Adam you had mentioned that you all are building out.
Speaker Change: Both technology and people to kind of prepare to further scale. The business. Obviously you guys have.
Speaker Change: <unk> done.
Pretty pathetic.
Speaker Change: Fantastic job of building the business over the last two years to three years.
Speaker Change: Just.
Speaker Change: Could you give us a sense of like the.
Speaker Change: Confidence level in <unk>.
Speaker Change: How build our U R.
Speaker Change: How are you setting this company up like how big do you think you can build the business here over the next few years.
Speaker Change: Well I think the focus on the infrastructure has to continue to scale the business now.
Speaker Change: Where we go with that in terms of stacking assets and continue to do what we've done over the past five years, we will continue to stick to our knitting and focus on returns the opportunity set is clearly out there with $8 billion of.
Speaker Change: Good quality assets that we're underwriting now with more to come and last.
Speaker Change: Last year was a big push in terms of.
Speaker Change: Really implementing all of the infrastructure and technology to glean those insights and analytics from the data that work.
Speaker Change: That we're getting through the 10000 wells that we have and the focus is as we scale to continue to stay nimble like we have in the past and in order to do that we need to pick up the velocity in terms of the overall analytics.
Speaker Change: Are there, but I don't think it's ever going to be.
Speaker Change: Ending process in terms of overall process improvement Nick I don't know if you want to add to that I mean, I think the view is that we wanted to be able to wring Mattel ever so tighter right. So for every.
Nick O'Grady: For every process that we do Scott, we want to be able to do we want to be able to take it a layer deeper right. So.
Nick O'Grady: Whether it's externally focused in terms of inorganic opportunities. It's also looking and where is that the assets, we own and finding ways to squeeze the lemon even harder.
Nick O'Grady: Understood. Thanks.
Nick O'Grady: Your next question comes from the line of Charles Meade with Johnson Rice. Please go ahead.
Charles Meade: Hey, good morning, Nick and Adam and Chad.
Charles Meade: I Wonder I want to go back to some of your peers.
Charles Meade: Her comments talking about the shape of production over the course of 'twenty, five and I want to make sure I'm understanding.
Charles Meade: I think I heard you say that volumes are going to be relatively flat over the course of 'twenty five quarter to quarter, but then ramp into year end.
Charles Meade: I'd look at that.
Speaker Change: If I look at that relative to your guidance does that mean that youre going to be.
Speaker Change: That <unk> was going to show a sequential decline versus <unk> and then we're going to hold that relatively flat maybe through the first half of the year and then ramp in the back half of the year is that is that what I should be thinking about.
Speaker Change: That's generally than the pattern.
Speaker Change: Charles I mean, I think book.
Speaker Change: The reality is that.
Speaker Change: We are taking a look you've seen in the last several years, where we have seen pull forwards of activity right and so that's certainly a possibility now we have designed our capital program this year to be able to absorb.
Speaker Change: Our Capex program is designed to absorb any potential pull forwards.
Speaker Change: But it certainly we could see a pull forward as we've seen in the past several years of that cadence of development. So I think there is definitely room for that but we have on a conservative basis, certainly pushed our til schedule towards the back part of the year. That's right I mean, I think if youre going to see a pull forward it likely comes from the Permian.
Speaker Change: And with.
Speaker Change: With the Williston and the seasonality there youre going to obviously have that impact on the front half. So if you remember last year. Charles we suggested the same thing in the first quarter and then we obviously saw material pull forwards in the first quarter, that's a possibility, but I don't think we would want to push you that direction because frankly.
Speaker Change: It's just going to be dependent on weather and other factors and obviously last year things.
Speaker Change: <unk> wound up being more favorable we saw deferments being pulled forward and things like that but we can't always depend on that it's going to be operator specific.
Speaker Change: And it's still cold right here in the back half of February.
Speaker Change: That's right that's right.
Speaker Change: 30 in North Dakota today.
Speaker Change: <unk>.
Speaker Change: Glad I'm not there.
Nick O'Grady: Nick I wanted to go back to you you've touched on the 25% 26 Congress you touched on it in your prepared comments.
Speaker Change: And I think the first question you elaborated a bit on it but.
Speaker Change: So I think I don't want to flog that because I think I get that message, but I wanted to ask it seems to me that it's it's different for you guys to give this kind of new.
Speaker Change: Next year outlook.
Speaker Change: Plus one year outlook in your on your <unk> call.
Speaker Change: If that's the case could you maybe talk about what's different this year that that kind of gives you either the group where it gives you more confidence in the visibility that far out.
Speaker Change: It's more just a function that it's the first year in several years, where we had a material build in the DNC list and we felt that it warranted an explanation right. So what we've had in the past few years, either a drawdown of the DNC list or one that's been relatively matching right. So when you're spending capital Thats building a D&C list ultimately.
Speaker Change: Investors need to understand where that money is going right or it's going to drive.
Speaker Change: So ultimately, especially given where a lot of that capital is.
Speaker Change: <unk> is driven towards the back half of the year.
Speaker Change: And again as a non operator, the timing is a little bit.
Speaker Change: Murphy at times in the sense of that it's going to be.
Speaker Change: Whether whether or not it's November December and stuff like that it can it can shift from time to time, but ultimately you're going to have a bit of a hockey stick type scenario because.
Speaker Change: Where it's lying.
Speaker Change: We wanted to make sure the investors understood from a capital efficiency perspective that all of that capital. When you stretch it out past that 12 month window is really driven towards driving our longer term growth profile.
Speaker Change: Got it I think the only other thing I'd add is.
Speaker Change: This year, we've got five or six different.
Speaker Change: JV of sorts right.
Speaker Change: That governance lends itself.
Longer dated conversations with our operators and others that change potentially right also only makes up call. It.
Speaker Change: 30% of the business give or take.
Speaker Change: In terms of kind of overall activity on the year, but given the relationships the size and scale of northern and the capital commitments that we have with our other operating partners. They tend to have those longer dated conversations with us and just as a frame of reference and I am probably getting these numbers off a little bit.
Charles Meade: Charles but using the appellation JV as an example, you were talking about spending 80% of the capital and getting about 10% of the production credit far right. So your investors need to understand where that capital is going.
Speaker Change: Got it. Thank you that is a helpful elaboration and Adam Thank you.
Charles Meade: Putting out that that dynamic with the jv's.
Speaker Change: Your next question comes from the line of John Freeman with Raymond James. Please go ahead.
John Freeman: Good morning, guys.
John Freeman: First of all I think.
John Freeman: Todd you mentioned that.
John Freeman: Kind of have this we've had a steady kind of.
John Freeman: Increase in kind of Workover re frac activity, which is consistent with what we've been seeing and hearing from operators as well can you kind of quantify.
How much in the budget. This year is allocated to Workovers and re frack this year relative to last year.
John Freeman: Yes, I think.
John Freeman: We expect relatively similar levels of Workovers and re Fracs I think we saw more and more of it towards the Williston last year versus I think this year, we expect it to be more spread out between the basins I think we're expecting around 10% to 10% to 15% of our budget to be allocated towards the.
John Freeman: Work overs, and <unk> thats pretty similar to last year.
John Freeman: But obviously a lot got it.
John Freeman: Yes, that's right.
John Freeman: Okay and then just my follow up question. Obviously, there was a lot of discussions early last year about just sort of the way that you all kind of accrual process works with AARP et cetera.
John Freeman: Curious if not better.
John Freeman: Well I think kind of a look back can you kind of like quantify kind of how afg's ended up coming in relative to the initial what was embedded in that initial 24 budget.
John Freeman: Yes, I mean, I think year over year.
John Freeman: Looking at the normalize.
John Freeman: Costs.
John Freeman: We saw about a 15%.
John Freeman: The benefit in that regard and then obviously that.
John Freeman: Net basis Thats also going to depend on what our working interests are but as I alluded to earlier in my prepared remarks.
John Freeman: Seeing a lot of that meaningful downward pressure on A&P costs through a lot of the JV is switch obviously have.
John Freeman: Supernormal working interest yes.
John Freeman: And not that too Adam's horn, but we also have a evergreen massive joint interest audit program ongoing where are we.
John Freeman: We routinely look over our shoulder and check the operators on that on a regular basis to make sure were being charged.
John Freeman: Charge, what we should be.
John Freeman: Got it thanks guys.
Speaker Change: Your next question comes from the line of Paul Diamond with Citigroup. Please go ahead.
Paul Diamond: Hi, Good morning, Thanks for taking my call honestly, a quick one on the Appalachian drilling partnership can you talk a bit about the opportunities set to either.
Paul Diamond: To mirror that elsewhere or do you see any kind of opportunities too.
Paul Diamond: Do similar structures in other basins.
Paul Diamond: Yeah. So I mean dovetailing to Scott's question, where you said well, we just signed this thing a month and a half ago and while you haven't renewed it yet.
Paul Diamond: Hadn't side I don't think the ink was dry when we had about six phone calls of people asking in the immediate area.
Paul Diamond: This call would you be interested in doing another one I think the answer is.
Paul Diamond: There is a lot of interest in structures such as these I mean look we we do things on small scales like this all the time.
Paul Diamond: The we obviously just signed a small scale one in the Midland Basin.
Paul Diamond: But the answer is I see multiple opportunities for structures, such as these or structures like these embedded.
Speaker Change: Your next question comes from Mark.
Paul Diamond: Okay.
Paul Diamond: Sorry about that Paul.
Paul Diamond: With Daily Brothers. Please go ahead.
Noel Parks: Hi, Noel parks from Tuohy brothers.
Noel Parks: I was just interested in your thoughts on sort of the hedging environment.
Noel Parks: As we've been hearing operators talk about their outlooks.
Noel Parks: Thanks for going through earnings season.
Noel Parks: It seems like with both gas and oil we've got some pretty variable drivers and and we also sort of have attitudes with.
Noel Parks: Yeah.
Noel Parks: Different producers some of them being acquisitive and <unk> looking to sort of.
Try to bring value forward, others sort of being more.
Noel Parks: Hanging back mode.
Noel Parks: Looking to sort of sort of.
Noel Parks: Yeah.
Noel Parks: Piece out there their inventory and.
Noel Parks: Maybe look for stronger price environment down the road.
Noel Parks: <unk>.
Speaker Change: Are you just seeing anything that makes you think that there might be different patterns.
Speaker Change: Of hedging emerging.
Speaker Change: From certain operators as you as we go forward.
Speaker Change: Well I would just say this.
Speaker Change: <unk>.
Speaker Change: We obviously have taken advantage of hedging windows. So as an example.
Speaker Change: You would have seen that.
Speaker Change: We've had several spikes in oil prices and we've added judiciously to our oil hedges since our last report.
Speaker Change: Very favorable oil prices and largely completed our 2025.
Speaker Change: Hedging program for oil more or less.
Speaker Change: On gas, we have added modestly to hedges.
Speaker Change: Yet.
Speaker Change: We have been very careful in the bulk of our gas hedges coming into this year. We are in the form of Costless collars, yes, thats been the structure of the gas.
Speaker Change: The gas curve had been very favorable to that and so as gas prices rallied have rallied even as we on a percentage basis had been very hedged we've been able to participate in the bulk of the gas rally and so therefore, we.
Speaker Change: You can both be hedged and participate in that upside.
Speaker Change: We have obviously added some hedges as you've seen the tremendous strength of late.
Speaker Change: But again, we wound up being B, we've been able to I think.
Speaker Change: Our hedge program around gas has been very.
Speaker Change: Strong.
Speaker Change: Again, as we look out to the out years.
Speaker Change: We tend to be much more careful.
Speaker Change: The backwardation and oil is relatively unfavorable I think in the last several years.
Speaker Change: We have been much slower in <unk>.
Speaker Change: Hedging our oil volumes and just much more judicious because of that backwardation and so we just tended to take our time and doing so so we've been doing it kind of quarter by quarter as opposed to just on a programmatic and blanket basis.
Speaker Change: It's proven to be I think a more profitable angle for us is certainly it's prevented us from doing stupid things.
Speaker Change: And I would say on the gas front contango has is certainly helpful. But obviously the market has been a lot stronger I don't know if that answers your question.
Speaker Change: Sure, Yes, I was just.
Speaker Change: Sorry to get again, my sense, there might be a little bit of a divergence Jeff in terms of how aggressive.
Speaker Change: Operators were as they as they tried to sort itself out.
Speaker Change: The sort of medium term pricing environment.
Speaker Change: Sounds like from your perspective, you're kind of.
Speaker Change: Following your own instincts, and just sort of leaving leaving the producers or what theyre going to do there.
Speaker Change: Yes, I mean, we.
Speaker Change: We do our own hedging no. We don't we don't follow any what the producers do so well we have our own volumes.
Speaker Change: Property owners, so we have to deal with our own stuff not necessarily what our operators are shipped.
Speaker Change: Sure.
Speaker Change: Fair and then just one other thing I just wondering if you have any any thoughts on.
Speaker Change: Permian gas.
Speaker Change: There has been some spec.
Speaker Change: Speculation that with more supportive environment.
Speaker Change: Washington overall, we might see.
Speaker Change: More infrastructure spending and <unk>.
And again.
Speaker Change: Again, sorry to hear mixed things about.
Speaker Change: People's attitudes towards.
Speaker Change: Embracing gas our share of avoiding avoiding gasoline in the Permian.
Speaker Change: Okay.
Speaker Change: Well I mean I don't.
Speaker Change: I'm not sure what I would say this is that.
Speaker Change: We've certainly seen of late and improvement in local prices in the Permian basin.
Speaker Change: What I do here.
Speaker Change: As part of your industry groups is that.
Speaker Change: It is a great resourcing is it is constantly facing.
Speaker Change: Bottlenecks in a sense that the growth in the Permian basin volumes has.
Speaker Change: Has outstripped its ability to build our infrastructure and so there are thoughts about for example building data centers directly in the Permian basin, and effectively building plants and things like that that could be direct use within the base I'm sure.
Speaker Change: So perhaps those are some things that you might be referring to I'm not sure.
Chad: Sure Chad.
Chad: I think you are right. We saw this in the Williston I think it just takes time and I think the new new.
Chad: Administrative likely probably helps helps with the infrastructure build out so certainly will welcome that.
Chad: Great. Thanks, a lot.
Chad: Okay.
Chad: Your next question comes from the line of.
Chad: Paul <unk> with Citigroup. Please go ahead.
Speaker Change: Sorry about that Paul.
Speaker Change: Good morning, guys, Paul just for audio cutting out there.
Speaker Change: Christian answering the first question just wanted to circle back on.
Speaker Change: Yes.
Speaker Change:
Speaker Change: The opportunities that you are all seeing an inorganic.
Speaker Change: By scale or is it more the lease hold level or is it you're seeing more opportunity that's kind of a more conversations on those larger co purchase type deals.
Speaker Change: Yeah, So I would say this that.
Speaker Change: At sort of at the ground game level I would say definitely.
Speaker Change: We've had a lot of success to leasehold level at the package level I would say.
Speaker Change: It's been more just true I would say asset packages.
Speaker Change: Actually I would I wouldn't say that necessarily it's been a mix, yes, I think it ebbs and flows I guess going back to the ground game. I mean, you saw us kind of do both in the fourth quarter.
Speaker Change: We'll continue the screen at all and I think that's where.
Speaker Change: We've got to be able to zig, where everyone else is zagging and going back to some of the comments with.
Speaker Change: Scott's questions around the technology right, we've got to be able to underwrite all of this stuff.
Speaker Change: We're seeing at least two to three even sometimes five of these things coming in the door.
Speaker Change: The competition.
Speaker Change: Levels are going to wax and wane.
When we think about some of the larger <unk>.
Speaker Change: A&D processes out there I think Nick at this moment in time next next spot on I think we've got a handful of regular way non op packages.
Speaker Change: At least four of them that are kind of out there and active now.
Speaker Change: Do some of the.
Speaker Change: Majors or larger independents rationalize their portfolio with non op packages post M&A, that's certainly conversations that we've had.
Speaker Change: And then we've got a handful of drilling partnerships that we're looking at.
Speaker Change: Probably another.
Speaker Change: Three to four.
Speaker Change: Co buying types of exercises across our respective basins as well as minority interest buy down or partial monetization. So you are seeing.
Speaker Change: The whole buffet of options out there and really for us, it's a focus on quality and overall alignment.
Speaker Change: Understood, particularly.
Speaker Change: Your next question comes from the line of Noah <unk> with Bank of America. Please go ahead.
Noah: Good morning, everyone.
Noah: My first question I wanted to ask on how you guys are seeing steel tariffs potentially impacting costs, especially for smaller operators, who may not have a CTG pricing or service costs contracted out.
Noah: Yes. So this was the topic will remember of SBC. In this is a topic that just sort of circulated as part of that and the answer is it's it's unclear at this point in time, but it's likely going to have some effect. So the answer is.
Noah: It's going to have some upward impact that.
Noah: The magnitude of which I do not know at this point in time.
Speaker Change: Got you. So I think from a planning purpose, maybe just to jump on that a little bit I think from a planning purpose as a non operator, we're generally conservative on well costs are going to let that flow through from an actual standpoint, and so typically we are building in some level of buffer.
Noah: To mitigate that.
Noah: The next point, we will see what.
Noah: The true ramifications are.
Noah: The extent that there are.
Noah: What I would just say this is that we've seen in general overall Aaas and Aas.
Noah: We budgeted for zero reduction in costs when in reality the act.
Noah: Overall, we have seen cost reductions. So we have plenty of wiggle room, I would say in general within our overall budget.
Noah: I appreciate that color and then excellent on buybacks I mean, just given the stock's recent performance.
Noah: Over this year.
Noah: Or are you thinking about buybacks right now.
Noah: Yes, I mean, I think everything's on the table and obviously, we've been in quiet period for some period of time and these are board decision. So we sit down with the board and discuss this every single quarter and we basically take their guidance and we'll have that conversation in the next week or two as we go into the next quarter window.
Noah: Appreciate it guys. Thanks.
Noah: Yes.
Speaker Change: I will turn the call back over to Nick O'grady for closing remarks.
Noah: Yes.
Nick O'Grady: Thank you for joining us today. We appreciate your continued support and look forward to touching base with you in the coming weeks.
Nick O'Grady: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.