Q1 2025 Northern Oil and Gas Inc Earnings Call
Greetings and welcome to the <unk> first quarter 2025 earnings conference call.
Operator: Greetings and welcome to the NOG's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode.
At this time all participants are in a listen only mode. The.
Operator: 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 1 again.
The question and answer session will follow the formal presentation.
If you would like to ask a question. During this time some people press star fall will be the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
Operator: As a reminder, this conference is being recorded.
As a reminder, this one France is being recorded.
Evelyn Infurna: It's now my pleasure to introduce your host, Evelyn Infurna, Vice President, Investor Relations. Thank you. You may begin.
Speaker Change: It's my pleasure to introduce your host Evelyn Inferno, Vice President Investor Relations. Thank you you may begin.
Speaker Change: Good morning, welcome to energy first quarter 2025 earnings conference call.
Evelyn Infurna: Morning. Welcome to NOG first 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. We will be filing our March 31st 10Q with the SEC within the next few days.
Speaker Change: Yesterday after the close we released our financial results you can access our earnings release and presentation at the Investor Relations section of our website and energy, Inc. Dot com and will be filing our March 31st chance, even if he says in the next few days.
Evelyn Infurna: I'm joined this morning by our Chief Executive Officer, Nicco Grady, our President, Adam Dirlam, and our Chief Financial Officer, Chad Allen, and our Chief Technical Officer, Jim Evans. Our agenda for today's call is as follows. First, Nick will provide his introductory remarks and Adam will give you an overview of operations and business development activities, and Chad will review our financial results.
Nick O'Grady: I'm joined this morning by our Chief Executive Officer, Nick O'grady, our President and 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 introductory remarks, and Adam will give you an overview of operations.
Nick O'Grady: Activities.
Todd: Todd will review our financial results after our prepared remarks, the team will be available to answer any questions.
Evelyn Infurna: After our prepared remarks, the team will be available to answer any questions.
Evelyn Infurna: Before we begin, let me cover our safe harbor line. We advise 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 expectations contemplated by our forward looking statements. Those risks include, among others, matters that have been described in our earnings release, as well as our filings with the SEC, including our annual report on Form 10-K and our quarterly report on Form 10-Q.
Speaker Change: Before we begin let me cover 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 expectations contemplated by our forward.
Speaker Change: Those risks include among others matters.
Speaker Change: Slides in our earnings release as well as 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.
Evelyn Infurna: We disclaim any obligation to update these follicles.
Evelyn Infurna: During today's call, we may discuss certain non-GAAP financial measures. including Adjusted EBITDA, Adjusted Net Income, and Pre-Cash Flow.
Speaker Change: During today's call may discuss certain non-GAAP financial measures.
Speaker Change: <unk> 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.
Evelyn Infurna: Reconciliations of these measures to the closest gap measures can be found in our earnings With that, I'll turn the call over to Nick.
Matt: I will turn the call over to Matt.
Matt: Thank you everyone welcome and good morning, everyone and thank you for your interest in our company.
Nicco Grady: Thank you, Evelyn. Welcome and good morning, everyone. And thank you for your interest in our company. The recent market volatility and changing outlook for commodities provides the perfect opportunity to give perspective on energy's adaptability in six key key areas. Number one. We are in the catbird sea. NOG operates with a uniquely adaptable model, no rig contracts, no frac commitments, no field offices, and non-consent rights across the vast majority of our joint ventures and assets. This economic machine adjusts activity based solely on marketplace dynamics, focusing singularly on profitability. As commodity prices weaken, spending will naturally slow, but absent significant shut-ins or curtailments, volume effects should remain modest with stable leverage.
Matt: The recent market volatility and changing outlook for commodities provides the perfect opportunity to give perspective on nrg's adaptability in six key points.
Matt: Number one.
Matt: We are in the catbird seat.
Speaker Change: <unk> operates with a uniquely adaptable model no rig contracts no frac commitments field offices, and non consent rights across the vast majority of our joint ventures and assets.
Speaker Change: This economic machine adjust activity based solely on marketplace dynamics, focusing singularly unprofitability.
Speaker Change: As commodity prices weakened spending will naturally slow, but absent significant shut ins or curtailments volume effects should be remain modest with stable leverage levels are.
Nicco Grady: Our model's inherent flexibility ensures dynamic capital allocation centered on returns with the ability to use any downturn to add acreage and working interests in core areas on a counter cyclical basis. Number two, strength in numbers in Q1 with oil at around 70 and gas at around 350. NOG put forth incredible numbers, generating $136 million in free cash flow and $94 million after dividends, with minimal contribution from hedge gains. This year's budget incorporates hundreds of millions in growth capital, yet requires less than $900 million in sustaining capital, demonstrating NOG's capacity to tighten spending if needed. Over 60% of expected production is hedged for 2025.
Speaker Change: Our model's inherent flexibility ensures dynamic capital allocation centered on returns with the ability to use any downturn to add acreage and working interest in core areas on the counter cyclical basis.
Speaker Change: Number two.
Speaker Change: Strength in numbers.
Q1 with oil at around 70% and gas at around $3 50.
Speaker Change: <unk> put forth, an incredible numbers generating $136 million in free cash flow of $94 million after dividends with minimal contribution from hedge gains.
Speaker Change: This year's budget incorporates hundreds of millions in growth capital, yes, it requires less than $900 million in sustaining capital demonstrating nrg's capacity tightened spending if needed.
Speaker Change: Over 60% of expected production is hedged for 2025, and we have additional protection beyond ensuring resilience amid commodity cycles.
Nicco Grady: We have additional protection beyond ensuring resilience amid commodity cycle. Our leverage remains extremely low on an absolute basis, offering a cushion to navigate market shifts confidently.
Speaker Change: Our leverage remains extremely low on an absolute basis offering a cushion to navigate market shifts confidently.
Speaker Change: Number three opportunity in on certainty.
Nicco Grady: Number three, Opportunity in Uncertainty. Historical cycles show that pricing resets create valuable opportunities for capital reallocation. NOG has a proven track record, most notably during 2020, of leveraging downturns for high-return investments such as small-scale acquisitions. capital becomes scarce, our model allows us to flex towards creating long term value with exceptional return.
Speaker Change: Historical cycles show that pricing resets create valuable opportunities for capital reallocation.
Speaker Change: <unk> has a proven track record most notably during 2020 of leveraging downturns for high return investments such as small scale acquisitions as capital becomes scarce our model allows us to flex towards creating long term value with exceptional returns.
Speaker Change: Number four understanding commodity cycles, the cyclical nature of commodities means that low prices often serve as a reset for higher prices in future periods. While short term volatility may challenge perceptions, nrg's hedging strategy and non op model ensure resilience.
Nicco Grady: Number four, understanding commodity cycles. The cyclical nature of commodities means that low prices often serve as a reset for higher prices in future periods. While short-term volatility may challenge perceptions, NOG's hedging strategy and non-op model ensure resilience. Patient investors will benefit as long term implications unfold, creating opportunities for growth in our business and value creation.
Speaker Change: Investors will benefit us long term implications unfolds, creating opportunities for growth in our business and value creation.
Speaker Change: Number five outlook and strategy.
Nicco Grady: Number five, outlook and strategy. The duration of pricing drops will be key in shaping activity levels. To the extent our operators indicate a change in activity, which leads to the lower end of capital spending, this provides NOG with increased flexibility between organic and ground game capital allocation. Reductions in rate counts and activity, if they transpire, ultimately drive higher prices, reinforcing the cyclical nature of this sector.
Speaker Change: The duration of pricing drops will be key in shaping activity levels to the extent our operators indicate a change in activity, which leads to the lower end of capital spending. This provides <unk> with increased flexibility between organic and ground game capital allocation reductions in rig counts and activity if they transpire ultimately dry.
Speaker Change: Higher prices reinforcing the cyclical nature of this sector.
Nicco Grady: Number six, capital allocation focused on return. NOG remains committed to risk-adjusted capital allocation, balancing ground game investments, debt reduction, and share buybacks. As Adam will discuss further, we're already seeing opportunities arise out of what's transpired year-to-date. Every decision we make revolves around creating long-term value without excessive dependence on predicting commodity cycles. NOG's Q1 results definitively showcase the strength of our asset base. Past cycles, such as those in 2020, demonstrate our ability to create significant value during downturn. And we are motivated to seize on the opportunities presented by current market conditions. We are fortunate to have strategically aligned ourselves with some of the best and most efficient operators in the industry.
Speaker Change: Number six capital allocation focused on returns.
Speaker Change: <unk> remains committed to risk adjusted capital allocation balancing ground game investments debt reduction and share buybacks.
Speaker Change: Adam will discuss further were already seeing opportunities arise out of what's transpired year to date.
Speaker Change: Every decision, we make revolves around creating long term value without excessive dependence on predicting commodity cycles.
Speaker Change: <unk> Q1 results definitively showcased the strength of our asset base past cycles, such as those in 2020 demonstrate our ability to create significant value during downturns.
Speaker Change: We are motivated to seize on the opportunities presented by current market conditions.
Speaker Change: We are fortunate to have strategically aligned ourselves with some of the best and most efficient operators in the industry. It will be aligned to adapt alongside them with any market.
Nicco Grady: We'll be aligned to adapt alongside them with any market.
Adam Dirlam: Thank you again for listening and for your continued interest in our company, Adam. Thank you, Nick. The operational results during the quarter largely speak for themselves, so I will cover some highlights and then discuss our outlook on the macro backdrop. The first quarter shaped up largely as expected, and we hit our stride operationally. Fourth quarter's delays and deferrals resolved themselves quickly, and our operating partners were able to bring on the anticipated tills while logistical issues were also settled. This resulted in 27.3 net wells added to production as the Permian led the way with 40% of the activity.
Speaker Change: Thank you again for listening and for your continued interest in our company Adam.
Nick O'Grady: Thank you Nick.
Nick O'Grady: The operational results during the quarter largely speak for themselves.
Nick O'Grady: I'll cover some highlights and then discuss our outlook on the macro backdrop.
Nick O'Grady: The first quarter shaped up largely as expected and we hit our stride operationally.
Nick O'Grady: Fourth quarter is delays and deferrals resolve themselves quickly and our operating partners, we're able to bring on the anticipated tills, while logistical issues were also settled.
Nick O'Grady: This resulted in 27, three net wells added to production as the Permian led the way with 40% of the activity.
Nick O'Grady: During the first quarter, we spud an additional $15 six net wells and <unk>.
Adam Dirlam: During the first quarter, we spun an additional 15.6 net wells and elected to 19.1 net wells. Consistent with expectations, the Permian accounted for roughly 60% in each category, while also seeing a slight increase in gas weighted activity. We are continuously monitoring and discussing plans with our operating partners. In the volatile environment we find ourselves in, our active management of the business and the benefits of a scaled non-op model will distinguish itself. We run our business and make capital decisions with constant consideration to downside risk, which is why well elections are always sensitized with lower price decks to stress test the resilience of returns in a potential lower for longer price environment.
Nick O'Grady: Elected to $19 one net wells.
Nick O'Grady: Consistent with expectations, the Permian accounted for roughly 60% in each category, while also seeing a slight increase in gas weighted activity.
Nick O'Grady: We are continuously monitoring and discussing plans with our operating partners.
Nick O'Grady: In the volatile environment, we find ourselves in our active management of the business and the benefits of our scale non op model will distinguish itself.
Nick O'Grady: We run our business and make capital decisions with constant consideration to downside risk, which is why well elections are always sensitized with lower priced.
Nick O'Grady: To stress test the resilience of returns and a potential lower for longer price environment.
Nick O'Grady: Our first quarter elections, so 23% increase in lateral lengths relative to last year's average, resulting in a 10% decrease to normalized well costs and driving an uplift and expected rates of return.
Adam Dirlam: Our first quarter elections saw a 23% increase in lateral lengths relative to last year's average, resulting in a 10% decrease to normalized well costs and driving an uplift in expected rates of return. The Permian and Uinta saw the largest increases in lateral lengths, however, this was consistent across all our respective basins. During the quarter, we elected the 96% of our well proposals, which had expected returns well above our hurdle rate at a flat $55 crude and $2.75 gas price deck. To date, our operating partners are making minimal changes to their development plan. However, we expect to see a natural retreat to the core of our respective basins and could see an uptick in well productivity as a result.
Nick O'Grady: The Permian and Uinta, so the largest increases in lateral lengths. However, this was consistent across all our respective basins.
Nick O'Grady: During the quarter, we elected to 96% of our well proposals, which have expected returns well above our hurdle rate.
Nick O'Grady: At $55 crude and $2 75 gas price deck.
Nick O'Grady: To date, our operating partners are making minimal changes to their development plans.
Nick O'Grady: However, we expect to see a natural retreat to the core of our respective basins and could see an uptick in well productivity as a result.
Adam Dirlam: To the extent that we see another leg down in oil pricing, reduced activity and spending levels would likely follow. That said, given NOG's diversification and flexibility, we can take advantage of the environment with our ground game. Even in the first quarter, we saw a marked increase in opportunities, evaluating over 100 transactions, while seeing a further acceleration as we move into the second quarter. We remained highly selective and closed seven transactions across the Permian, Appalachia, and the Williston, picking up over a thousand net acres and separately adding 1.1 net wells. As of today, we've already reviewed over 90 transactions in April, closed on 4, with more than 10 others committed and in various stages of diligence and completion.
Nick O'Grady: To the extent that we see another leg down in oil pricing reduced activity and spending levels would likely follow.
Nick O'Grady: That said given analgesic diversification and flexibility we can take advantage of the environment with our ground game.
Nick O'Grady: Even in the first quarter, we saw a market increase in opportunities evaluating over 100 transactions, while seeing a further acceleration as we move into the second quarter.
Nick O'Grady: We remained highly selective and closed seven transactions across the Permian.
Speaker Change: Gotcha, and the Williston picking up over 1000 net acres and separately, adding one one net wells.
Speaker Change: As of today, we have already reviewed over 90 transactions in April closed on four with more than 10, others committed and in various stages of diligence and completion.
Speaker Change: Navigating through the last downturn, we were able to deploy some of the most productive capital in the company's history, and we anticipate that similar opportunities to emerge in this environment.
Adam Dirlam: Navigating through the last downturn, we were able to deploy some of the most productive capital in the company's history, and we anticipate that similar opportunities could emerge in this environment. As operators look to trim capital exposure, the first place they generally look is their non-operated assets, regardless of the expected return. Coupling that with smaller non-ops, not having the ability to fund certain types of development, we're optimistic that we can find creative ways to put capital to work.
Speaker Change: As operators look to trim capital exposure.
Speaker Change: First place they generally look as their non operated assets regardless of the expected returns.
Speaker Change: Coupling that with smaller non ops not having the ability to fund certain types of development. We are optimistic that we can find creative ways to put capital to work.
Speaker Change: Shifting gears to larger M&A we've.
Adam Dirlam: 15 gears to larger M&A. We've seen a bit of a mixed bag, as would be expected in a volatile market. Many of the processes we were involved with earlier in the year were put on the shelf as bid-ask spreads widened, while more gas-focused assets also came to market. While we expect a relative slowdown in larger M&A, we are actively engaged in over 10 processes and having bilateral conversations with asset values ranging from $50 million to over $500 million.
Speaker Change: We've seen a bit of a mixed bag as would be expected in a volatile market.
Speaker Change: Many of the processes, we were involved with earlier in the year were put on the shelf as bid ask spreads widened.
Speaker Change: More gas focused assets also came to market.
Speaker Change: While we expect a relative slowdown in larger M&A. We are actively engaged in over 10 processes and having bilateral conversations with asset values, ranging from 50 million to over $500 million.
Speaker Change: Regardless of the environment, we will remain laser focused on total returns mindful of the balance sheet.
Adam Dirlam: Regardless of the environment, we will remain laser focused on total returns, mindful of the balance sheet, continue to take full advantage of the flexibility in our business model, and respond appropriately to what the macro provides.
Speaker Change: Continue to take full advantage of the flexibility in our business model and respond appropriately towards the macro provides.
Chad Allen: With that, I'll turn it over to Chad. Thanks, Adam. We had a successful first quarter, mostly free from the noise of material disruption seen in the prior quarter. First quarter total average daily production was approximately 135,000 BOE per day, up 2.5% versus Q4, with oil production coming in flat versus Q4 at approximately 79,000 barrels per day. year over year total production increased by 13% with oil production up 12%. Gas production has ramped both sequentially and year over year and contributed 42% to our production mix. Gas was up 6.5% on a sequential quarterly basis and 14% year over year.
Chad: With that I'll turn it over to Chad.
Chad: Thanks, Adam we had a successful first quarter, mostly for you from the noise of material disruptions seen in the prior quarter.
Chad: First quarter total average daily production was approximately 135000 Boe per day up two 5% versus Q4 with oil production coming in flat versus Q4 at approximately 79000 barrels per day.
Chad: Year over year total production increased by 13% with oil production up 12%.
Chad: Gas production has ramped both sequentially and year over year and contributed 42% to our production mix.
Chad: Cash was up six 5% on a sequential quarter basis, and 14% year over year.
Chad: Our record Q1 production highlighted by double digit sequential growth from the Uinta and Appalachian basins.
Chad Allen: Our record Q1 production, highlighted by double-digit sequential growth from the Uinta and Appalachian basins, help us to exceed internal estimates across several financial metrics. Adjusted EBIT in the quarter was approximately $435 million. a record for NLG and free cash flows nearly $136 million. up 41% sequentially on reduced capital spending compared to last quarter and this is our 21st consecutive quarter of positive free cash flow totaling over 1.7 billion since the beginning of 2020. On commodity realizations, oil differentials came in above the high end of our guided range at $5.79 per barrel for the quarter. reflecting disruptions from the prior quarter and typical seasonal widening.
Chad: Help us to exceed internal estimates across several financial metrics.
Chad: Adjusted EBIT in the quarter was approximately $435 million.
Chad: A record for MLG and free cash flow is nearly a $136 million.
Chad: Up 41% sequentially on reduced capital spending compared to last quarter.
Chad: And this is our 20 <unk> consecutive quarter of positive free cash flow totaling.
Chad: Totaling over $1 7 billion since the beginning of 2020.
Chad: On commodity realizations oil differentials came in at the high above the high end of our guided range at $5 79 per barrel for the quarter.
Chad: Reflecting disruptions from the prior quarter and typical seasonal widening however, we expect differentials to improve from here and are comfortable with our guided range of $4 75.
Chad Allen: However, we expect differentials to improve from here and are comfortable with our guided range of $4.75 to $5.50 for the year. Natural gas realizations were 100% of benchmark prices for the quarter. better sequentially from Q4 due to strong Williston realizations which were partially offset by weakness in Oaxaca gas during the last half of the quarter. Similarly, we expect our guidance for gas realizations to accurately reflect the market outlook for the remainder of the year as it stands today. Cash operating costs continue to improve as our production mix continues to evolve. Our cash operating costs were down nearly $2 per BOE from a year ago and $1 per BOE from last quarter.
Chad: The $5 50 for the year.
Chad: Natural gas realizations were 100% of benchmark prices for the quarter.
Chad: Better sequentially from Q4 due to strong Williston realizations, which were partially offset by weakened weakness in Oaxaca gas during the last half of the quarter.
Chad: Similarly.
Chad: We expect our guidance for gas realizations to accurately reflect the market outlook for the remainder of the year as it stands today.
Chad: Cash operating costs continue to improve as our production mix continues to evolve.
Chad: Our cash operating costs were down nearly $2 per Boe from a year ago and $1 per Boe from last quarter.
Chad Allen: which is a testament to our diverse and continuously improving asset base, both by region and by commodity.
Chad: Which is a testament to our diverse and continuously improving asset base.
Chad: By region and by commodity.
Chad: On the Capex front, we invested nearly $250 million in the quarter.
Chad Allen: On the CapEx front, we invested nearly $250 million in the quarter. Of the $250 million, 57% was allocated to the Permian. 20% to the Williston, 15% in Uinta, and 8% in the Appalachian Basin, respectively. I want to remind everyone that our CAPEX guidance includes $200 to $300 million of growth capital. can be reallocated as the commodity price environment dictates over the next several months implying an $850 to $900 million maintenance level. This provides us with the flexibility. and Pivot Capital towards other uses if we find ourselves in a lower for longer commodity pricing environment as the year progresses.
Chad: So the 250 million, 57% was allocated to the Permian.
Chad: 20% of the Williston.
Chad: <unk>, 15% in Uinta and 8% in the Appalachian Basin, respectively.
Chad: I want to remind everyone that our capex guidance includes $200 million to $300 million of growth capital.
Chad: Can be reallocated as the commodity price environment dictates over the next several months, implying that $850 to $900 million maintenance level.
Chad: This provides us with the flexibility.
Chad: It's a debit capital towards other uses if we find ourselves in a lower for longer commodity price environment as the year progresses.
Chad: We exited the quarter with over $900 million of liquidity comprised of $34 million of cash on hand of.
Chad Allen: We exited the quarter with over $900 million of liquidity comprised of $34 million of cash on hand, a $4 million deposit. and $870 million of availability on our revolving credit facility. Our business continues to generate significant cash, which we have allocated across multiple areas, growth, shareholder returns, and of course, continuing to focus on a strong balance sheet. Both our absolute debt levels and our net debt to LQA EBITDA ratios trended lower as expected and in the quarter around 1.3 times near the midpoint of our internal stated 1 times to 1.5 times range. And that debt was reduced by approximately $90 million in the quarter.
Chad: $4 million deposit and.
Chad: $870 million of availability on our revolving credit facility.
Chad: Our business continues to generate significant cash, which we have allocated across multiple areas growth shareholder returns and of course.
Chad: Continuing to focus on our strong balance sheet.
Chad: Both our absolute debt levels, and our net debt to LTM EBITDA ratios trended lower.
Chad: As expected and in the quarter around one three times near the mid point of our internal stated one times to one five times range.
Chad: And net debt was reduced by approximately $90 million in the quarter.
Chad: Moving onto guidance, we are maintaining the guidance issued on our last call.
Chad Allen: Moving on to guidance, we are maintaining the guidance issued on our last call. Given the fluid situation we're in, in the event we see a material change in activity levels as the year progresses, we'll adjust guidance accordingly. It is important to remember, however, that we do not anticipate production levels to change materially in 2025, absent significant curtailments or shut-ins. Well, we may potentially see CapEx spend contract significantly.
Chad: Given the fluid situation we're in.
Chad: In the event, we see a material change in activity levels as the year progresses, we will adjust guidance accordingly.
Chad: Important to remember however that we do not anticipate production levels to change materially in 2025 absent significant curtailments or shut ins all.
Chad: While we may potentially see capex spend contract significantly.
Chad: With that I'll turn it back over to the operator for Q&A.
Operator: With that, I'll turn it back over to the operator for Q&A. 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. We request that you limit yourself to one question and one follow up. We will pause for just a moment to compile the Q&A restroom.
Speaker Change: 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.
Speaker Change: We request that you limit yourself to one question 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 Noah <unk> with Bank of America. Please go ahead.
Noah Hungness: Your first question comes from the line of Noah Hungness with Bank of America, please go ahead. Morning, guys. Um, my first question here, I was just hoping you guys could add maybe a little more color on the production cadence. I mean, keeping in mind the macro uncertainty that you guys had mentioned, but also your strong one cue production print. Uh, how can we think about that production cadence trending through through the rest of the year? Yeah, as we discussed prior, you know, we expect flash production cadence to kind of the first three quarters of Q2 and early Q3 marking kind of the lowest in terms of activity.
Speaker Change: Hi, good morning, guys.
Speaker Change: My first question here I was just hoping you guys could add maybe a little more color on the production cadence I mean, keeping in mind the macro uncertainty that you guys had mentioned, but also your strong <unk> production print.
Speaker Change: How can we think about that production cadence trending through the rest of the year.
Speaker Change: Yeah as we've discussed prior we expect flattish production cadence was kind of the first three quarters with Q2 and early Q3 marked the lowest in terms of activity.
Adam Dirlam: You know, that means that CapEx will largely be equally weighted is likely to be sequentially down in Q2. And we have a large number of wells in process that are scheduled to till later in the year. On the base case, we'd still expect Q4 to see the highest level of production, absent any massive pullbacks in spending. A majority of our pullback in activity will likely affect the growth wedge that we discussed, but we would have to see significant curtailments or deferrals to kind of have an effect on our production guide.
Speaker Change: That means that capex, a large it's equally weighted is likely to likely to be sequentially down in Q2.
Speaker Change: We have a large number of wells in process on our schedule until later in the year.
Speaker Change: On the base case, we still expect Q4 to see the highest level of production absent any massive pullbacks in spending.
Speaker Change: A majority of our pullback in activity will likely.
Speaker Change: The growth wedge that we discussed but.
Speaker Change: We would see.
Speaker Change: Significant curtailments or deferral.
Speaker Change: Deferrals.
Speaker Change: I have an effect on our production guidance I guess.
Speaker Change: But the situation no remains really fluid.
Adam Dirlam: The situation now over me. So obviously, the commodity price is all over the place. Yeah, I mean, the conversations that we've had with our operators kind of coming into quarter and you know, everybody's generally sticking to the plans that they came in on the year. That being said, I think everybody, you know, operators included are going to stay nimble with their plans. And so if you're going to see any sort of, you know, adjustment, that's going to be seen towards the back half of the year.
Speaker Change: So obviously with commodity prices all over the place.
Speaker Change: And we'll adjust accordingly.
Speaker Change: The conversations we've had with our operators kind of coming into quarter end.
Speaker Change: Everybody is generally sticking to the <unk>.
Speaker Change: <unk> that came in on the year that being said I think everybody.
Speaker Change: Operators included are going to stay nimble with their plans and so if youre going to see any sort of adjust.
Speaker Change: Adjustment, that's going to be seeing towards the back half of the year.
Speaker Change: Gotcha that makes sense.
Operator: That makes sense, and then my next question was on service pricing.
Speaker Change: And then my next question was on service pricing could you maybe talk about how you service pricing today when an AFB comes in your door compares to where service pricing wise, let's say at the start of the year.
Adam Dirlam: Can you maybe talk about how service pricing today when an AFE comes in your door compares to where service pricing was, let's say, at the start of the... Yeah, from an AFE standpoint, on a normalized basis, as we alluded to, we've seen about a 10% decrease. That being said, that's driven more from, you know, 20 to 25% increase in overall lateral lengths relative to kind of the quarterly averages that we saw in 2024. From the conversations that we've had with operators, and what we're seeing on AFEs, you know, drilling rates have generally been relatively sticky.
Speaker Change: Yes from an AAP standpoint on a normalized basis as we alluded to we've seen about a 10% decrease that being said that's driven more from.
Speaker Change: At 20% to 25% increase in overall lateral lengths relative to kind of the quarterly averages that we saw in 2024 from the conversations that we've had with operators and what we're seeing on fees.
Speaker Change: Drilling rates have generally been relatively sticky.
Chad Allen: Completions is probably where we see any sort of relief. But again, I think, you know, out of conservatism, you know, we're keeping our estimates. got its relatively flat as to what we what we released at the beginning of the year yeah I mean I'll make two comments one for us We will accrue basically at the AFE cost, so to the extent that costs come down. be at the stand. So obviously, as new wells come in, they will be adjusted accordingly. But for older wells, to the extent we see cost relief, it will take some time for us to true that up.
Speaker Change: Completions is probably where we see any sort of relief, but again I think on.
Speaker Change: On a conservatism or keeping our estimates.
Speaker Change: Guidance relatively flat.
Speaker Change: As to what we what we released at the beginning of the year I'll make two comments one for us.
Speaker Change: We will accrue basically at the A&P cost so to the extent that costs come down.
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: Obviously as new wells come in they will be adjusted accordingly for older wells to the extent, we see cost relief. It will take some time for us to true that up.
Chad Allen: But what I would say is I'm.
Speaker Change: But what I would say is.
Speaker Change: I've never seen a scenario where oil prices went down a lot in well costs went up so Ali if I'm wrong, but I don't think I'm going to be wrong. This time either.
Chad Allen: I've never seen a scenario where oil prices went down a lot, oil costs went up. So I'll eat crow if I'm wrong, but I don't think I'm going to be wrong this time either. You know, the majority of our operators are pre-purchased, you know, six to 12 months of their expected materials. So, you know, that is one thing to be, you know, we have gotten a lot of questions about tariffs and things like that. So we have not seen a material impact from that type of stuff at this point in time.
Speaker Change: The majority of our operators are pre purchased six to 12 months of their expected material. So.
Speaker Change: That is one thing to be.
Speaker Change: A lot of questions about tariffs and things like that.
Speaker Change: And so we have not seen a material impact from that type of stuff at this point in time.
Speaker Change: Sounds good guys. Thank you.
Operator: Sounds good, guys. Thank you.
Speaker Change: Again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Noel Parks with Sally Potter's. Please go ahead.
Operator: Again, if you would like to ask a question, press star 1 on your telephone keypad.
Noel Parks: Your next question comes from the line of Noel Parks with Sowie Brothers. Please go ahead. Hi, good morning. Apologize if you touched on this already, but I'm just wondering, Has the change in oil and gas outlook, which, of course, has been particularly volatile lately, has that shaken loose any potential sellers of non-op interests out there, just as, again, the world is looking a little different now than it did three, six months ago? Yeah, I mean, I think it's early days, what I would say in order to kind of frame it up for you, we screened call it 100 ground game transactions in the first quarter.
Noel Parks: Hi, good morning.
Speaker Change: I apologize if you touched on this already but.
Noel Parks: I was just wondering.
Noel Parks: The change in sort of oil and gas outlook, which of course is.
Noel Parks: I am particularly volatile lately.
Noel Parks: Has that shaken loose any potential sellers or not.
Noel Parks: Non op interest out there.
Noel Parks: Jefferies.
Noel Parks: The World is looking a little different now than it did.
Noel Parks: Three six months ago.
Noel Parks: Yes, I mean, I think it's early days, what I would say in order to kind of frame. It up for you. We screened call. It 100 ground game transactions in the first quarter.
Noel Parks: As it stands today in April we've already screened.
Adam Dirlam: As it stands today in April, we've already screened 100 transactions. So it's certainly accelerating. So, you know, when you think about operators, as well as other non-operators who may have the inability to fund, you know, some of these well proposals for, you know, operators looking to pare back their CapEx spend, the first place they're going to go is to the, you know, their non-op, regardless of expected returns. And so that's what we're seeing right now. I think what remains to be seen, and we're starting to make some traction in the second quarter is, you know, what does that mean from a conversion standpoint?
Noel Parks: 100 transactions, certainly accelerating and so.
Noel Parks: So when you think about operators as well as other non operators, who may have the inability to fund some of these well proposals for operators looking to pare back their capex spend in the first place they are going to go.
Noel Parks: So the.
Noel Parks: Their non op, regardless of expected returns and so that's what we're seeing right now.
Noel Parks: I think what remains to be seen.
Noel Parks: Starting to make some traction in the second quarter is what does that mean from a conversion standpoint, we're going to be highly selective with.
Adam Dirlam: We're going to be highly selective with, you know, whatever we choose to bid on. And we're running downside, you know, scenarios to ensure that we've got full cycle rates of return that are penciling in a lower for longer type of price environment. Right, right. It's interesting.
Noel Parks: Ever we choose to bid on and were running downside scenarios to ensure that we've got full cycle rates of return that are penciling in a lower for longer price environment.
Speaker Change: Right right. It's interesting, though is it is it fair to say then that.
Adam Dirlam: So is it is it fair to say then that it as opposed to other non operated holders who might have had positions for a long time, like, you know, generational selling, that it's actually operators themselves, taking a quick look around and saying, okay, what can we what can we off offload? Yeah, I think it's a combination of the two. And I would say that that's more the smaller side of things on the larger kind of M&A. You know, you're going to see with the volatility, you know, a natural slowdown, right? You've got expectations coming into the year on larger packages, where the bid-ask spread is going to widen.
Speaker Change: As opposed to other non operated holders, who might've had positions for a long time like generational showing that it's actually operators himself.
Speaker Change: Taking a quick look around and saying, okay. What can we what can we offer offload.
Speaker Change: Yes, I think it's a combination of the two and I would say that thats more of the smaller side of things on the on the larger kind of M&A.
Speaker Change: Youre going to see with the volatility.
Speaker Change: Natural slowdown right, you've got expectations coming into the year.
Speaker Change: Larger packages, where the bid ask spread is going to widen now this settles out.
Adam Dirlam: Now, if this settles out, and you've got some relative consistency and overall commodity pricing, and people start feeling the pain, and there's, you know, capital needs, wherever that might mean, then you could start seeing, you know, additional packages on the larger side, medium to larger side kind of coming to market. That being said, we're still, you know, very busy, right, with 10 other kind of processes that we're actively involved in. I mean, generally, if you don't have to, you wouldn't want to sell. You know, you'd prefer to wait for a higher price because it imbues higher activity levels in that present value calculation as well as higher prices.
And you've got some relative consistency in overall commodity pricing and people starting to go on the page.
Speaker Change: And there is capital needs were.
Speaker Change: Wherever that might mean.
Speaker Change: You could start seeing.
Speaker Change: Additional packages on the larger side.
Speaker Change: Medium to larger sized kind of coming to market.
Speaker Change: That being said we're still.
Speaker Change: Very busy right.
Speaker Change: Another kind of processes that we're actively involved with jet.
Speaker Change: Generally.
Speaker Change: If you don't have to you wouldn't want us all yours.
Speaker Change: Assets at lower oil price right.
Speaker Change: You'd prefer to wait for a higher price because it imbues higher activity levels in that net present value calculation as well as higher prices. That's right. However at this point.
Adam Dirlam: That's right. However, to Adam's point, as cash flows decline and capital calls continue to the ground, Accelerate. And so, to add this point. I think this will be an incredible opportunity over the next 18 months for us, and I'm pretty excited. And I think the other evolution, just to build on it a little bit more, is one thing that we might see as things progress is more of these drilling joint venture types of transactions alongside operators that we've been successful with in the past.
Speaker Change: As cash flows decline.
Speaker Change: Capital costs continue.
Speaker Change: Brown game tends to accelerate.
Speaker Change: So.
Speaker Change: At this point.
Speaker Change: We think this will be an incredible opportunity over the next 18 months for us.
Speaker Change: Pretty excited.
Speaker Change: Evolution just to build on it a little bit more is one thing that we might see as things progress as more of these.
Speaker Change: Drilling joint venture types of transactions alongside operators that we've been successful with in the past.
Speaker Change: All right terrific. Thanks, and just one more quick one I've been a little bit struck by some of the the gassy operator, who have reported so far that.
Noel Parks: Good, terrific. Thanks.
Noel Parks: And just one more quick one.
Noel Parks: You know, I've been a little bit struck by some of the the gassy operators who've reported so far that they seem to me a little bit aggressive in assessing what they think mid-cycle pricing is right now. I think I can think of one that has been talking like $3.50 to $4 and with the presumption that LNG is increasingly offsetting seasonal factors. I sort of wondered what your thoughts are on that. Yeah, I don't know if we're great prognosticators on price. I mean, I think, you know, The street is littered with bodies of people who tried to make a call to the press.
Speaker Change: They seem to me a little bit of Crawford and assessing what they think mid cycle pricing is right now I think I can think of one that has been talking like $3 50 to $4 and.
Speaker Change: With the presumption that and LNG is increasingly offsetting seasonal factors.
Speaker Change: Wondering what your thoughts are on that.
Speaker Change: Yes, I don't know four great Prognosticators on price.
Speaker Change: I mean I think.
Speaker Change: History is littered with bodies of people, who tried to make it.
Speaker Change: Okay.
Speaker Change: No.
Adam Dirlam: You know, I might have an opinion, but I don't think it's worth very much. Our viewers. In general, we obviously will look at the prevailing strip and the pricing, we'll look at highly stressed scenarios, and as a non-operator, we try to look at assets that are going to be resilient in any market. That's why we... extremely low cost Marcellus and Utica assets that can work in pretty much any environment. You know, they have survived good markets and bad.
Speaker Change: I think.
Speaker Change: I might have an opinion, but I don't think its worth very much.
Speaker Change: Our view is.
Speaker Change: In general, we obviously will look at the prevailing strip and the pricing look at highly stressed scenarios.
Speaker Change: Operator, we try to look at assets that are going to be resilient in any market. That's why we own.
Speaker Change: <unk> low cost Marcellus and Utica assets that can work in pretty much any environment.
Speaker Change: As a result.
Speaker Change: They have survived through good markets and bad and I think that that's where our focus will always Wally.
Noel Parks: And I think that that's where our focus will always Fair enough. Great. Thanks a lot.
Fair enough great. Thanks, a lot.
Speaker Change: Yes.
Speaker Change: Yes.
Before going to the next question again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Phillips Johnston with capital one. Please go ahead.
Operator: Before going to the next question, again, if you would like to ask a question, press star 1 on your telephone.
Phillips Johnson: Your next question comes from the line of Phillips Johnson with Capital One. Please go ahead. Hey, thanks for the question.
Phillips Johnston: Hey, Thanks for the question.
Chad Allen: In a scenario where you take CapEx to the low end of the range for this year, what do you think maintenance CapEx would be for oil for 2026 and 2027? It would be about the same, Phillips, call it $850 million. Okay, perfect.
Speaker Change: In a scenario, where you take capex to the low end of the range for this year.
Speaker Change: What do you think maintenance Capex would be for oil for 2026 and 2027 approximately.
It would be about the same.
Speaker Change: So call it.
Speaker Change: So call it $850 million.
Speaker Change: Okay perfect.
Phillips Johnson: And then, Chad, I probably missed this in the prepared comments, but it seems like you guys... Oh, sorry, just let me caveat that that's at today's drilling costs, I should also add it, right? So, that's assuming that we don't see a change. Yeah, okay.
Speaker Change: And then Chad I, probably missed this in your prepared comments, but.
Speaker Change: It seems like you guys sorry, just let me let me caveat that that's at today's drilling costs.
Speaker Change: Also at that rate. So that's assuming that we don't see a change in costs.
Speaker Change: Yes, okay.
Speaker Change: Sense.
Speaker Change: So yes.
Chad Allen: Chad, I probably missed this in the comments, but you guys had a pretty nice beat on both production taxes and gas prices relative to your full year guidance. Are those expected to sort of trend back into the range for the year? They are. I think it's really the production taxes is really a function of our production mix. But as our permian grows, they have a bit higher production taxes. So expect that to kind of move back into our category. All right, perfect, thank you.
Speaker Change: I probably missed this in the comments, but.
Speaker Change: You guys had a pretty nice beat on both production taxes on gas prices relative to your full year guidance.
Speaker Change: Are those expected to sort of trend back end of the range for the year.
Speaker Change: Hey art.
Speaker Change: Alright.
Speaker Change: Clearly the production taxes is really a function of our production mix.
Speaker Change: But as our Permian as a Permian grows.
Speaker Change: The higher production taxes.
Speaker Change: So expect that to kind of move back into our guided range.
Speaker Change: Alright, perfect. Thank you.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Operator: Again, if you would like to ask a question, press star 1 on your telephone.
Nick O'Grady: I will turn the call back over to Nick O'grady CEO for closing remarks.
Nicco Grady: I will turn the call back over to Nick O'Grady, CEO, for a closing report. Thanks again for your interest in our company and we look forward to talking to you in the Ladies and gentlemen, that concludes today's call. Thank you all for joining.
Nick O'Grady: Thanks again for your interest in our company and we look forward to talking to you in the coming weeks.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: You may now disconnect.
Nick O'Grady: Okay.
Nick O'Grady: [music].
Operator: Thanks for watching!