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Edited Transcript of NOG earnings conference call or presentation 12-Mar-20 3:00pm GMT

Q4 2019 Northern Oil and Gas Inc Earnings Call

WAYZATA Mar 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Northern Oil and Gas Inc earnings conference call or presentation Thursday, March 12, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Dirlam

Northern Oil and Gas, Inc. - COO

* Bahram Akradi

Northern Oil and Gas, Inc. - Independent Chairman of the Board

* Chad Allen

Northern Oil and Gas, Inc. - CFO

* James Evans

Northern Oil and Gas, Inc. - SVP of Engineering

* Michael Dugan Kelly

Northern Oil and Gas, Inc. - EVP of Finance

* Nicholas L. O'Grady

Northern Oil and Gas, Inc. - CEO

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Conference Call Participants

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* Derrick Lee Whitfield

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst

* Duncan Scott McIntosh

Johnson Rice & Company, L.L.C., Research Division - Research Analyst

* Jason Andrew Wangler

Imperial Capital, LLC, Research Division - MD & Senior Research Analyst

* Jeffrey Scott Grampp

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* John Phillips Little Johnston

Capital One Securities, Inc., Research Division - Analyst

* Joseph G. Dawson

Artisan Partners Asset Management Inc. - Portfolio Manager

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Greetings, and welcome to the Northern Oil and Gas Fourth Quarter and Year-End 2019 Earnings Call. (Operator Instructions)

Please note that this conference is being recorded.

I will now turn the conference over to our host, Mike Kelly, Executive Vice President of Finance. Thank you. You may begin.

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Michael Dugan Kelly, Northern Oil and Gas, Inc. - EVP of Finance [2]

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Great. Thanks, Diego, and good morning, everybody. We're happy to welcome to Northern's fourth quarter and year-end 2019 earnings call. Before we get into the results, 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 from the expectations contemplated by these forward-looking statements. 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. We disclaim any obligation to update these forward-looking statements.

During this conference call, we may discuss certain non-GAAP financial measures, including adjusted net income and adjusted EBITDA. Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued this morning.

All right. During the call, Nick will make the summary comments before turning the call over to our CFO, Chad Allen. Following Chad will be Northern's Chairman, Bahram Akradi, who is going to wrap up our prepared comments with some concluding remarks. After that, we'll open it up for Q&A, where we'll be joined by Adam Dirlam, our COO; and Jim Evans, our SVP of Engineering. And now I'll turn the call over to Nick O'Grady, Northern's Chief Executive Officer. Nick?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [3]

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Thanks, Mike, and good morning to everyone. Let's get right down to it in 6 points. Number one, let's talk about hedging. Many companies tell you they're hedging, but their books are littered with 3-way collars that are all hopelessly underwater today. That's not hedging. That's gambling for the upside. We are not going to play macro guru with your money. This has never been more important to our company than right now. At current strip, our hedged portfolio for 2020 and beyond has a staggering mark-to-market value of over $300 million. At today's spot price, that would be even higher. This is the value of risk management, front and center.

Number two, fixed charges. Much of what we've worked on over the past few years, alongside our scaling of the business, is to continue to drive our fixed charges, which include interest expense and preferred dividends, lower. Our fixed charges were over $9 a barrel in 2018, just under $5.50 in 2019, and we are projecting well less than $5 per barrel this year. But we're not done. The balance sheet steps we have taken even in the last 6 months, particularly in the consent and exchange process, have been designed to increase our flexibility, reduce debt and the risks associated with it. Perpetual preferred equity that we have issued is far more flexible than the secured debt that it replaced with a lower rate on top of this, combined with the capital shifted to our revolver, we've significantly reduced the forward-looking cost of capital. Recent downward moves and floating interest rates have only accelerated these savings.

As the cap one note highlighted earlier in the week, if this pricing persists through 2021, our debt-to-EBITDA ratio would be less than half of the median of their coverage universe, which includes many so-called investment-grade names. This continues to highlight our superior risk management. Between now and then, we'll continue to look for ways to improve that further. Number three, the dividend. We are here to protect our shareholders' interest long term. We are currently postponing a decision around the dividend to next quarter in a marketplace such as today. In this environment, we do not believe we are helping our investors with a return of capital until such time as we know the macro outlook is stable. It should be obvious that we plan for low oil prices. But we're now preparing for an extended period of below threshold prices. In the interim, that money is much better suited to reduce our borrowings and continue to pad the balance sheet. Northern is well prepared and will adapt our plan as the market evolves throughout the year.

Number four, guidance. This speech I'm giving is not the one that I planned to give just a week ago. For now, we can tell you this. We'll provide formal guidance no later than our first quarter call. Many of our operators are changing their plans in real time. We are very comfortable with how much capital we will spend and the free cash flow outlook because we know what the lowest level scenarios are. However, we want to be precise for our investors and have details on a unit-by-unit basis and just need some additional time with our operating partners to provide the formal plan and all the details surrounding it. We anticipate this guidance will provide ranges tied to sensitivities to activity levels commensurate with various commodity prices. We would expect that our capital expenditures in the current environment to drop to approximately $200 million in 2020. This is a testament to the beauty of Northern's actively managed non-op model.

Approximately $150 million of that capital was committed to early this year or last year. That's why we hedge as we commit capital, and as a result, we locked-in high returns on those projects. We would also expect to see a number of our wells in process get DUC-ed by operators. This is a good thing and a potential tailwind to further capital reduction. We do not want our wells turned to sales in a low pricing environment, and the majority of the cost burden comes with the completion, not the drilling. Certain private operators with strong balance sheets have already and likely will significantly curtail or shut-in some of their existing production. We are fully supportive of these moves, to preserve inventory and the oil in the ground for periods where it makes an economic return. This means production declines modestly from Q4 '19 levels, driven mostly by shut-in production and deferred activity. But these volumes will be saved for better periods. We are not here to drill holes in the ground for the sake of it. Our balance sheet and risk management program are built to endure this period of time. What we can tell you is that we would expect to generate significant free cash flow in the environment as it stands currently.

Number five, capital allocation. Our process to seek out the best wells in the basin and only those that make a fully loaded return that meets our cost of capital will get the nod. With a limited number of employees and a flat organizational structure, we are able to adapt faster than any other operated E&P in a volatile market. Where typical operator must plan out drilling schedule 6 to 12 months in advance, we can and do make our decision to participate in wells on a real-time basis. This means we are not stuck in -- stuck drilling wells that do not meet current hurdle rates due to rig commitments. And that if we choose to significantly dial back our capital investment, we simply elect not to participate and retain 100% optionality on any future well proposals. We can make these decisions within hours, not days or weeks. We non-consented 21 gross wells or just under 2 net in the fourth quarter, representing nearly $14 million in capital. This equates to an 87% consent rate for Q4, our second lowest percentage of the year and 88% for 2019 as a whole.

In total, we non-consented over $30 million of capital in 2019. Our process is driven by returns to optimize capital, and we will not change this discipline to chase growth for the sake of it. In the first quarter-to-date, our consent rate fell to 79% even as prices were significantly higher over a majority of this period. We expect the nonconsent rate to rise dramatically in an environment like today. And over time, as rigs move to only the highest areas of returns to see that start to return to normal levels as volatility subsides.

Number six, free cash flow. Given the enormous changes we've seen in the past week, we are still working on finalizing every contingency in the budget. However, we can tell you, we would expect at a low 30s oil price to generate well in excess of $100 million of free cash flow this year. That capital will be focused on debt reduction during a time of distress in the space. As capital allocators, we will, as always, compare the returns for every dollar we spend, including the returns on capital from retiring our various debt instruments with that of investments in our properties.

In closing, we have worked tirelessly for moments like this when existential shocks to the space mean that we stand apart from our peers. Northern will survive and thrive in this downturn. Where there is distress, there is opportunity. And I firmly believe we will come out of this stronger than ever. With that, I'll turn it over to our Chief Financial Officer, Chad Allen, for a quick review of the year-end and quarterly financials.

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Chad Allen, Northern Oil and Gas, Inc. - CFO [4]

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Thanks, Nick. I have a few highlights to go over this quarter, starting with a quick summary on Northern's financial performance. Our fourth quarter production increased 21% year-over-year and 8% sequentially to an average of 43,941 barrels of oil equivalent per day. Adjusted EBITDA was $114.2 million for the quarter. This was driven by higher production, primarily from the significant number of net well adds during the quarter and the continued outperformance of our VEN Bakken acquisition. Offsets of VEN, the production curtailments that continued during the quarter as well as for realized gas prices, higher oil differentials and the carry of fixed LOE of wells that have yet to return to sales.

The basin-wide curtailments have been frustrating. However, the end game remains the same, with significant processing capacity coming online and improvements to NGL takeaway that should lead to improved pricing in the long run. Cash G&A came in at $1.10 per BOE this quarter, slightly lower than the third quarter, which continues to be one of the lowest in the industry. Adjusted for onetime items including severance-related to the parts of our former CEO, it was approximately $0.91 per BOE. Oil differentials were $7.65 during the quarter and full year differentials came in higher than the midpoint of our guidance, which was due in part to the significant narrowing of Gulf Coast differentials and seasonal factors, such as refinery maintenance and the rise in basin production later in the year from higher oil prices.

In the current environment, we would expect oil differentials to narrow substantially throughout 2020, although we began at elevated levels at the beginning of the year as is typical during the winter season. Shut-ins, combined with higher LOE from VEN Bakken, drove our LOE up sequentially to $8.84 per BOE. We expect this to stabilize in the coming quarters as field issues normalize, and we get the full production benefit of newer wells that turned to sales late in the quarter, even if our aggregate volumes declined modestly in this current environment. We continue to be focused on debt reduction, especially given the current pricing environment. We reduced our net debt by approximately $32 million compared to the third quarter and have further reduced our second-lien notes by $76.7 million since year-end.

As Nick highlighted, the biggest benefit of these transactions we've undertaken is not just the aggregate levels of debt but the reduction in fixed charges. In the third quarter of 2018, our interest expense was over $8 per BOE. The refinancings done in late 2018 and late 2019 should drive this below $5 per BOE this year, inclusive of dividends on our preferred stock. That's over $3 in netbacks improved during an incredibly challenging time in the capital markets.

Capital spending for the fourth quarter was $134.6 million, which consisted of $85.6 million of organic D&C capital and $45.3 million of total discretionary acquisition capital, inclusive of acquisition of D&C capital. We turned 14.6 net wells to sales, approximately 2 net wells above our stated guidance, which came on in late December. Our net wells in process grew to 28 -- 25.8 at year-end, up 1.5 net wells from the prior quarter and 3 net wells from the beginning of the year. We've talked about accruals in the past and how our CapEx can fluctuate based on the timing and percentage complete our wells in process are at any given time. So the additional net wells turned to sales, coupled with the growth in our in-process well inventory, contributed to approximately $25 million of additional spend in the fourth quarter.

We should highlight the changes in the number of our net wells in process can have a big effect on the timing of our CapEx. On the hedging front, our hedge book is a testament to our commitment to protect our invested capital, cash flow stream and our balance sheet. We have approximately 27,600 barrels per day hedged at an average price of $58 for 2020, which is expected to represent, at a minimum, 75% of our oil volumes for 2020, assuming the current pricing environment.

Based on the March 10, 2020 closing oil strip, the mark-to-market value of our hedge book was approximately $300 million. So if lower oil prices persist, we can expect to generate a significant amount of free cash flow from our hedge book. With that, I'll turn the call over to Northern's Chairman, Bahram Akradi.

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Bahram Akradi, Northern Oil and Gas, Inc. - Independent Chairman of the Board [5]

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Thanks, Chad. I want to sum up remarks by emphasizing that Northern is operating from an inevitable position of the strength in these challenging macro times. The key takeaways in front of us are as follows: our hedge book protects us well into 2022. We expect to be at least 75% hedged for the oil in 2020 at prices of $58 per barrel. We're also positioning to be over 50% hedged in 2021 at prices of more than $55 a barrel. To frame the value creation here are hedges, which are valued at more than $300 million, are more than the current market value of our senior secured notes and nearly equal to our current market cap. We believe we have a significant free cash flow even if oil averages $35 this year. As Nick mentioned in his comments, we expect well in excess of $100 million of free cash flow this year if these conditions persist. To help frame this just $100 million represents a 28% yield on our current market cap. This is without question the best-in-class in the industry.

Three, our flexibility is core strength. We easily have the ability to non-consent wells and immediately drop our CapEx to a fraction of what it was in 2019. At the same time, with our data relationship and disciplined evaluation process, Northern has the ability to take advantage of distressed opportunities in the Williston. We already are witnessing early stages of this in front of us, which we believe will ultimately pay huge dividends for shareholders going forward.

Fourth, building a fortress balance sheet is well underway. We have decreased the balance on the senior notes, our highest cost debt by more than 50% since the end of 2018, down to balance of just $341 million. At the same time, we increased our borrowing base by 88% to $800 million. Our total debt, down from $90 million -- our total debt is down over $94 million since the end of third quarter. We ended 2019 with adjusted debt-to-EBITDA of less than 2.3x, miles away from nearly 7x leverage in 2018.

It is also worth highlighting that we have found ourselves in this strong relative position, not simply by chance or luck alone. Rather, our position is product of keen strategic vision, that's consumed with the notion of controlling risks. This approach, coupled with the superb execution is how we have positioned Northern to not only make it through what many calling the Energy Armageddon, but to come out of the other side as much stronger company.

Finally, I simply couldn't be more excited about the strength of our current management team, which benefited from key promotions and new hires at the end of 2019. Since we reconsidered Northern in early 2018, Northern has outperformed S&P Exploration Index by over 37%, which includes major large caps and refiners. We have outperformed our Bakken peers by staggering 57%. While the stock price is an absolute basis -- on an absolute basis does not reflect what we have accomplished yet, the Northern certainty is off to a great start. Thanks for listening. Now let me turn it over back to Mike Kelly.

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Michael Dugan Kelly, Northern Oil and Gas, Inc. - EVP of Finance [6]

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Great. Thanks, Bahram. With that, I'll turn the call over to the operator for the Q&A portion of the call. Diego, please go ahead with the instructions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from Duncan McIntosh with Johnson Rice & Company.

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Duncan Scott McIntosh, Johnson Rice & Company, L.L.C., Research Division - Research Analyst [2]

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Thanks for the understanding that you haven't given a full 2020 guide but just looking for a little more color on the $200 million CapEx. You talked about $150 million, that's already in process. I was wondering if you could give us a little color kind of around the cadence of that. And kind of how you plan to allocate that additional $50 million? And if there's room for maybe even that $50 million turns into $40 million or $30 million, given the flexibility that you highlighted in the opening remarks?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [3]

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Well, on a cadence basis, that will really come down to the accrual. What I would say is that in terms of wells that are in process, we still think it's a moving target in terms of how many could potentially be DUC-ed up and you may wind up not spending that money. So I don't want to go quite there yet, but I would say that the $200 million is a number we're very comfortable with -- certainly with risk to the downside, assuming that on that total number, if we continue to see operators delaying some of that completion dollar. So just, for everyone on the phone, if a well is $8 million, about $3 million of that is the actual drilling capital and $5 million of that is probably the frac. And so while we're accruing for the full cost of those wells, it is possible that we see a number of those be delayed. So in terms of the cadence, I think, Dun, we'll be able to give you more details pretty shortly.

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Adam Dirlam, Northern Oil and Gas, Inc. - COO [4]

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Yes, and Duncan, this is Adam. We're having those conversations with the operators right now on a unit-by-unit basis. Obviously, our working interest all fluctuate in that regard. And so I think you've got operators kind of reshuffling things, understanding what they can duck, what they can't. And so once we nail that down on a more specific level, we'll be able to comment in more specificity.

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Duncan Scott McIntosh, Johnson Rice & Company, L.L.C., Research Division - Research Analyst [5]

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Okay. Great. And then understanding also that you plan to readjust the dividend on the 1Q call at the latest. If we are staring down the barrel at $30 oil for the rest of 2020 and -- where does that cash flow go? Obviously, some to debt reduction, but I mean you really placed an emphasis on debt reduction over the dividend even if the -- if prices stay low, kind of well into '21. Just how are you thinking about that?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [6]

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Yes. I mean I think that you're giving people money back in an environment like this is probably not necessarily helping them. So I think that the best thing that we can do is focus on that debt reduction, especially if it lasts longer. I mean let's be blunt about this. If you look at those leverage multiples that I've discussed into 2021, a good portion of the oil and gas business is insolvent. And so therefore, we most definitely want to be one of the survivors, and we will be. And so the goal here is no mistakes, and that is something that I think you can't put enough emphasis on.

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Bahram Akradi, Northern Oil and Gas, Inc. - Independent Chairman of the Board [7]

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And this is Bahram. We are definitely planning to make the company stronger with every move that we make. We've said that before and giving today this dividend, which we were absolutely certain we can initiate and continue even at $40 oil prices. When oil is at $30, and you really don't know where it's going to land, it's just prudent to hold off. Excess capital would be best used by reducing the most expensive debt that we have and continue to make the company stronger. We will have a strategic meetings with the largest shareholders and look to see what we can do to continue that path that we've started with the company.

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Operator [8]

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Our next question comes from Derrick Whitfield with Stifel.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [9]

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And I agree with the last caller, you guys have certainly positioned the company in the best manner possible.

Perhaps building on the last question, or the -- his first question, I should say. With regard to your in-process wells, do you have a view on how many have been completed or in the process of being completed?

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Adam Dirlam, Northern Oil and Gas, Inc. - COO [10]

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As far as Q1 goes, is that what you're referring to?

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [11]

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Correct.

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Adam Dirlam, Northern Oil and Gas, Inc. - COO [12]

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I think we've had like a couple per -- I don't have the numbers in front of me. All I want to say, a couple per month for January and February.

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [13]

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We only -- in our prior guidance, what I -- this is some helpful color. We expected less than 7 net wells to be turned to sales in Q1 as we alluded to in the CapEx, we had some come on -- oil prices went up $8 in the fourth quarter. And Chad talked about accruals. But what that means is a lot of that capital got brought forward late in the year, operators rushed to put them on to capture those higher prices. So we expected only -- probably sub 7 wells -- net wells turned to sales in Q1 prior to the meltdown and that's typical too just because of seasonal factors in the Bakken. But if it had been 9, about 2 of those came early. Now I would expect, as we've gone from February to March, we'll see a lot of that reduce further. Is that helpful?

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [14]

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It is. And as my follow-up, perhaps for yourself or Adam. Could you speak to your decision process for consenting or nonconsenting wells? And specifically, what I'm targeting is while oil prices are unsustainable, clearly at this level, are you planning to use strip for that purpose and apply historical hurdle rates to that decision process?

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Adam Dirlam, Northern Oil and Gas, Inc. - COO [15]

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Yes. I mean we're taking a look at it on a operator-by-operator basis, understanding kind of what their completion time line is. And so I think what you're going to see, especially in the short term with operators who have balloting wells that were planned in a completely different price environment, those are all going to get non consented, right? And so what I also expect to see is a lot of those well proposals be rescinded. And so we'll get another bite at the apple and a lot of those wells kind of down the road when they repropose them.

And so if you're looking at spud-to-sales times with operators that are in the short term that need to complete these wells, whether it's to service debt or other kind of corporate initiatives that they have, and we're certainly going to be nonconsenting those. I think the more technical or the art that comes into it is understanding which operators have the ability to potentially duck solid rate of return wells that get brought online in a much higher price environment. And so based on kind of preliminary conversations that we've had with operators, those are the ones that can, are doing that with the stuff that's been proposed. But I would imagine kind of going forward on a prospective basis, the proposals themselves start to slow.

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Operator [16]

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Our next question comes from Jeff Grampp with Northland Capital Markets.

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Jeffrey Scott Grampp, Northland Capital Markets, Research Division - MD & Senior Research Analyst [17]

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Just curious how you guys are kind of assessing, I guess, the trade-offs in terms of use of free cash flow? You mentioned obviously debt reduction is a focus, but also maybe being opportunistic on acquisitions. Can you guys just talk about the balancing act there and maybe your ability and interest specifically to repurchase your bonds in the open market given kind of the yield that we're seeing on those?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [18]

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So on the bonds, obviously, what I said in my speech was pretty clear, Jeff, which is that, we compare the returns on capital to every single dollar we spend. Whether it'd be those bonds, whether it'd be the stock, whether it'd be investments in new properties. In terms of acquisitions, we may -- it's early, ask again later as the Magic 8 ball would say, but I think in the next 3 or 4 months, we will likely see some tremendous distressed opportunities. And to the extent that you can do those and they help your balance sheet and the overall corporate returns, then we'll consider everything. But we are economic creatures. We are numbers-driven. We're not going to go and buy a bunch of properties, betting that oil prices go up tomorrow because we don't know any better than the next guy. One of my mentors once said that hardest thing to predict even more so than the stock market is the oil market, and here we are today. However, what I would say is everything is on the table. We obviously want to -- we are in an enviable position. We are far more protected than most. And we have a lot of cash coming in the door, and we want that cash to be the most productive it can be.

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Jeffrey Scott Grampp, Northland Capital Markets, Research Division - MD & Senior Research Analyst [19]

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Got it. Appreciate that. And my follow-up, I was wondering, I'm looking at the new slide deck that you guys posting at Slide 8, kind of updating the cum well performance over the last few years. And you guys kind of referenced that '20, I guess, is looking even stronger than '19 with maybe some high grading efforts in there. So I was just kind of wondering how you guys are maybe thinking about baking in well performance assumptions for '20. Is there an expectation internally that there's maybe a little bit more to grind higher in terms of productivity? Or just in general, how you guys might be kind of baking in assumptions when you do ultimately provide kind of a firmed up guide?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [20]

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I think that just the quality of the well proposals we had coming into this year happened to be a lot stronger in terms of efficiency gains. Specifically as the industry continues to be starved with capital, I think you're going to see those slow way down, not just in the Williston but in all basins. Companies simply don't have the money to spend on research projects and such and try new things. And so I think it really comes down to becoming the center. But I do think, as we talk about, we are very selective in our process and we've worked very hard and the acquisitions we've done from the ground game all the way up to the corporate deals to continue to high-grade and core up our properties, and that was manifesting itself in the drill schedule for 2020. And Jim, I don't know if you want to add to that?

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James Evans, Northern Oil and Gas, Inc. - SVP of Engineering [21]

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Yes, I would just add that, like Nick mentioned, we had a very good set of wells coming into the year. And I think what we'll see is that the wells that are going to get completed are the wells that are the best performers. You're going to want to get the wells that are going to generate the most cash flow online this year, and you're going to be DUC-ing up your wells, they're a little more sensitive to oil prices. So I think we'll just see kind of a natural regression back to the core of the wells that are getting completed.

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Operator [22]

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Our next question comes from Neal Dingmann with SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [23]

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My question around whether you guys -- little bit talked about already, Nick. My question would be on just the -- basically, generally, how much advance warning you all get if -- with your operators as far as if they're going to slow? If they're potentially doing as far as to shut-in wells? I'm just wondering how much sort of advance you all have when you start looking at your plan?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [24]

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I think it depends -- I think that in general, we're getting this information in real time. We have a lot of information already. But I think you're making the assumption that they know, right? So if we think about it, these big companies -- the corporate executives are starting to make changes that the operating folks may not even be aware of just yet, which is so -- we are a little bit of a derivative to that. So obviously, it takes some time. But in general, once we have the information, we're giving it in relatively short order. What we are very good at doing is, obviously, we are a portfolio manager, and we're very good at predicting. And so we've really given you the targets of free cash flow and the budget because -- and the production kind of [ball-posts] around that. And obviously, we're not quite there in terms of the cadence to show it to you today, but we're very confident in kind of what those contingency scenarios are. And I hope that this is enough information for everybody at the time being to show how differentiated with that we are.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [25]

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No, totally understandable. That's good color, Nick. And then one other or actually, two, if I could. Just your bonds for some unexplainable reason have not weakened much like some others, but we can [go] a little bit nonetheless here this week. Just [want to] I forget, do you have the option with some of the free cash flow to buy more of the bonds back? Or what's the status with that?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [26]

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We do, Neal.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [27]

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Okay. And then just lastly, for Bahram. I don't know, Bahram, if you can add a little color. You and Robert, obviously, been very notably active buying shares. And again, just any comments you all, I mean, obviously, now the stock -- again, given the hedge position, I think you guys summed up very well, have an immense hedge position. I'm a little unexplainable how your stock dropped versus some others given this position. So Bahram, any color just on -- I know everybody talks about potentially going private. Again, it's certainly notable, I guess, I'd just go back to my first step. Notably, you and Robert have bought a fair amount of shares. Is there anything you could say around that?

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Bahram Akradi, Northern Oil and Gas, Inc. - Independent Chairman of the Board [28]

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So that's a great question. Let me see how I can respond to you intelligently. From my perspective, as a shareholder, knowing that everything we just shared with all shareholders, the stock is obviously being treated like any other oil and gas stock, while the company is radically different. So if we were buying stock at $1.60, $1.70, $1.80, it basically is opportunity. Bob, and I haven't spoken about anything that is related to this. So their buying is their decision. In my case, I'm planning to go and buy some stock when I can, which is not going to be till Monday. So therefore, if the current shareholders that they're really investors of the company, probably would look at this as a buying opportunity and try to accumulate more shares.

As far as going private, there's nothing I can mention to you about that. There's no plans. There's no discussion. That is absolutely not something that we have any knowledge of from the discussion with anybody. For now, business as usual. I still love this company as a public company with a currency. Our currency today is not performing as good as the company is, but that will take care of itself. And when the currency allows us to put it to work, we will put the currency to work.

For now, we are going to use the excess cash flow we have to decide on where is the best way to spread that. There may be opportunity to buy some shares back. And we know that's the way to give share back to -- return to the shareholders. There may be opportunity to buy some of our bonds back. But as I have always told you guys, we collectively have only one thing in mind, and that is to serve the entity itself. Our goal with every move is to make the entity itself stronger. And as Nick and I have told you guys, our long-term objective is basically closer to 1x debt to EBITDA.

That's where I really feel an oil and gas company should be in, closer to 1x debt to EBITDA. So you have the ability to go through any period of time with commodity prices doing these crazy things. And then when they come back up, is your opportunity to really go ahead and make bold moves and grow your company. For right now, we're in the eye of the storm. I don't believe anybody knows which direction this hurricane really is going to go, and anybody who thinks they know, I would love to hear about it. So the prudent thing to do is to close the hatchets, stay safe, come out of the hurricane when you can see the direction, then you start making your moves accordingly, and we are best situated to do that.

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Operator [29]

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Our next question comes from Jason Wangler with Imperial Capital.

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Jason Andrew Wangler, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [30]

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Nick, you mentioned in your prepared remarks, obviously, you're talking a lot about go-forward CapEx, but I think you also mentioned looking at shut-ins and something that you support, obviously, early days. But can you maybe talk about what you're seeing there in real time and the impact that you think it would kind of have on your production as you look forward, if we kind of stay in this environment?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [31]

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Sure, Jason. Well, number one, as you all know, we are very diversified. So if you -- we have 45 operating partners and it really jockies from one period to the next of who becomes a bigger part of that drill schedule and the overall base production. There are a handful of private operations in the Bakken. They run their business like a private person would to make money, not to grow production or whatever NAV or whatever those metrics are. So in the case of -- I'll use as an example, Slawson, which is one of our important producers, they have no debt. They have the ability to flex their production up and down, and it will have some impact on us. It could be -- and it really just depends on how much flush production we have with them in any given period.

But overall, on the margin, it's not going to be some huge impact. And then, Jim, I think you could give us -- based on Slawson's historical procurement activity and low prices, you could give us a total -- I mean, it's -- sorry, I'm looking at the sheet here. Yes, so. Yes. So net to us, it's somewhere between 1,000 and 2,000 barrels a day in any given point in time. Again, I don't want those barrels produced at $35 oil. I don't have debt covenants to worry about like some other public companies might. We do have debt, obviously, but we're in very good shape. And so therefore, he has shown a propensity over time to preserve those barrels. One of the reasons our position is as strong as it is today is in the last downturn in 2015 and such, he curtailed wells and activity and preserve that production for periods of higher pricing. That's what you're supposed to do in this business. It will have some modest impact on what we would produce in a normal period, if we were to spend that $200 million. But at the end of the day, it's not going to have a huge enormous impact, in fact, especially when the spot barrels are in the 30s, you just wind up being more hedged.

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Operator [32]

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Our next question comes from Phillips Johnston with Capital One Securities.

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John Phillips Little Johnston, Capital One Securities, Inc., Research Division - Analyst [33]

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Nick, I think on the third quarter call, you estimated maintenance CapEx at around $200 million or so, which is obviously what you're anticipating this year's spending to be. I think in the prepared comments, you mentioned that you would expect production to decline modestly from the fourth quarter level. So I just wanted to reconcile those 2 comments.

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [34]

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Yes. So Phil, we just covered that in the last question to some degree. But what I'd tell you is that what I said on the call, as I said, we could maintain on an annual basis, those levels. What that would have meant at the time is we would have come in significantly higher, and they would have pressed it down, so it wouldn't have been exit to exit being flat, it would have been averaging for 2020 higher. Obviously, we will lose some volumes to curtailments and some of the capital we spend this year will be DUC-ed. That is the delta between what we're discussing here.

So the delta between -- if that $200 million that we spent was all productive and all turned to sales, that would obviously have more of an impact and money that's being spent for wells that they're suddenly going to start to not complete. And the rest would just be curtailments. So the reality is that what that also means is that, before you look at that as a negative is that would mean in 2021, if the oil prices were to normalize to some degree, you'd have flush production come back online with no cost and you'd only have to complete those wells as opposed to drill all that capital. So it's really just a moment in time.

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John Phillips Little Johnston, Capital One Securities, Inc., Research Division - Analyst [35]

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Okay. And then, I guess, I heard your comments around acquisitions. But in terms of expectations around ground game acquisitions for the remainder of the year, what should we model? And is there any ground game acquisitions in the $200 million figure?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [36]

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That $200 million figure is an all-in capital number. The only way we would really see ground game as if it was to replace organic activity that had lower returns. So that $200 million is everything.

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Adam Dirlam, Northern Oil and Gas, Inc. - COO [37]

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Yes. And Phillips, we had a handful of deals that didn't close in Q4. And so you'll see a little bit of Q1 activity. I think we've mentioned that in the press release. So there's some more detail there. And from there, obviously, we're looking at everything on a prospective basis, and not a lot of stuff is obviously penciling right now.

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [38]

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Yes. But that $200 million includes everything.

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Operator [39]

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Our next question comes from Joseph Dawson with Artisan.

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Joseph G. Dawson, Artisan Partners Asset Management Inc. - Portfolio Manager [40]

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When is your spring revolver redetermination?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [41]

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It's not set yet.

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Joseph G. Dawson, Artisan Partners Asset Management Inc. - Portfolio Manager [42]

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Do you expect one in the spring?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [43]

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You're required to a year.

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Joseph G. Dawson, Artisan Partners Asset Management Inc. - Portfolio Manager [44]

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Okay, that makes sense. And given this environment, do you think it'd be more prudent to look to pay down the revolver with the cash flow you generate or to buyback bonds?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [45]

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I think there's a balance of all of them.

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Joseph G. Dawson, Artisan Partners Asset Management Inc. - Portfolio Manager [46]

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Okay, that makes sense. And do you have flexibility to stop paying the preferred dividend if you choose to?

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Nicholas L. O'Grady, Northern Oil and Gas, Inc. - CEO [47]

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Correct.

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Operator [48]

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We have reached the end of the question-and-answer session. I'll now turn the floor back to management for closing remarks. Thank you.

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Michael Dugan Kelly, Northern Oil and Gas, Inc. - EVP of Finance [49]

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All right. Thanks, Diego. And thank you, everybody, for dialing in today. Before we send you off in your way, please take a note of 2 items. One, we have a new presentation posted to our new website. Two, we've got a busy schedule over the next several months attending conferences. They'll probably all be virtual now in nature, but nonetheless, we look forward to catching up with a number of you either on the road or on the phone. Thank you.

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Operator [50]

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Thank you. To access a digital replay of this call, please dial (877) 660-6853 or (201) 612-7415 and enter the access code, 13699346. Thank you all for your participation. You may disconnect your lines at this time. Thank you.