Northern Oil and Gas, Inc. (NYSE:NOG) Q4 2023 Earnings Call Transcript

Northern Oil and Gas, Inc. (NYSE:NOG) Q4 2023 Earnings Call Transcript February 23, 2024

Northern Oil and Gas, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the NOG’s Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host Evelyn Infurna, Vice President, Investor Relations. Thank you, you may begin.

Evelyn Infurna : Good morning. Welcome to NOG’s fourth quarter and year end 2023 earnings conference call. Yesterday after the close, we released our financial results for the fourth quarter and full year. You can access our earnings release and presentation on our Investor Relations website at noginc.com. Our Form 10-K will be filed with the SEC within the next several days. I’m joined this morning by our Chief Executive Officer, Nick O’Grady; our President, Adam Dirlam, our Chief Financial Officer Chad Allen and our Chief Technical Officer, Jim Evans. Our agenda for today’s call is as follows. Nick will provide his remarks on the quarter and our recent accomplishments, then Adam will give you an overview of operations and business development activities, and Chad will review our financial results and walk through our 2024 guidance.

After our prepared remarks, the team will be available to answer any questions. But before we begin, let me go over 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 our forward-looking statements. Those risks include, among others matters that we’ve described 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.

During today’s call, we may discuss certain non-GAAP financial measures including adjusted EBITDA, adjusted net income and free cash flow. Reconciliations that these measures to the closest GAAP measures can be found in our earnings release. With that, I will turn the call over to Nick.

Nick O’Grady : Thank you, Evelyn. Welcome. And good morning, everyone, and thank you for your interest in our company. I’ll get right to it with four key points to start the year. Number one, scoreboard, execution delivering growth and profits. On our second quarter call, I spoke about the importance of delivering growth in profitability year-over-year. I’d like to use that framework today to put the results from the fourth quarter into context. Our fourth quarter adjusted EBITDA was up 52% year-over-year, and our quarterly cash flow from operations excluding working capital was up 55% year-over-year. Over the same period, our weighted average fully diluted share count was up about 17% significantly less reflecting the impact from our October offering, but not the impact of our fourth quarter bolt-on deals.

We achieved outsized growth in profits despite a more challenging commodity backdrop than the prior year. Oil prices were down over 5% and natural gas prices were down 52% versus the prior period a year ago. Even more impressive is the fact that our LQA debt ratio was 1.1 times this quarter down about 17% versus the prior year. So in summary, our leverage was down, our per share profits up markedly even as commodity prices were down. The point I continue to make is that our company is focused on the same simple philosophy, finding ways to grow profits per share through cycle and overtime for our investors. We believe that is the path to driving sustainable share price outperformance. While oil and gas prices go through down periods that can and will affect our profits.

Again, it is our job to find ways to grow the business through such times. The scoreboard we share with you is something that keeps us honest, being a cyclical business does not afford us a perfectly linear path and we will have our ups and downs. But we are actively investing hedging and looking to drive consistent long-term growth to profits and cash returns. This has and will drive dividend growth and share performance. I’m pleased to say as Chad will highlight in a bit that our guidance for 2024 reflects 20% production growth on a budget that is very similar to last year’s look across the upstream sector and you’ll find very few companies offering that. Once again, we stand out and I believe we have a lot more levers to pull, which brings me to my next point.

Number two, be greedy when others are fearful. The fourth quarter was ground game one on one, highlighted by what happens when people run out of money. We saw operators pull forward activity even as budgets were exhausted. We chose to turn the ship directly into the storm and take on some of the best returning small scale acquisitions we’ve seen in some time. And these should help capital efficiency as we head into 2024 and beyond. We are diligently chipping away one opportunity at a time, and Adam and his team continue to innovate with creative structures of every kind to solve for our operators’ needs. This does mean we will spend money counter-cyclically at times. But spending money is what provides longer term growth opportunities for our investors, growth isn’t free.

And as a non-operator, sometimes our capital commitments will accelerate and come sooner. And the timing of our projects can vary somewhat, as we saw in the fourth quarter, but it doesn’t change the soundness of these investment decisions. As we track well performance through our loopback analysis and review our return parameters internally, we continue to see excellent results across the board. Number three shareholder returns. I typically leave this category for last, but I’m going to address it sooner this quarter, particularly as I’ve observed weaker relative and absolute performance for our equity out of the gate for the start of this year. We talked a lot of energy about dynamic capital allocation, and we get asked about share repurchases and where they rank in the stacks.

As I’ve said before, and I’ll say again, we try to seize on opportunities and allocate capital accordingly. Our valuation has compressed in recent months. So in 2024, our stock may well be front and center in our capital allocation stacks. We don’t buy back stock with reckless abandon only one flush with cash and when times are good, and when our valuation is high. Instead, stock repurchases legitimately compete as a use of capital to maximize the long term returns on the capital we employ, which by nature means focusing on the point of entry and being discerning on when we do so. You’ve seen us be aggressive and repurchasing equity during times of value compression, like in early 2022. We tried to allocate capital efficiently and seize on the opportunity when the time is right.

From this vantage point, it certainly seems as though this is the moment when the macro outlook has been more influx, and commodities have been more range bound and volatile, and our own value has compressed. If the market gives us lemons for the first time in a while, we’re more than happy to make some lemonade. Number four, I have not yet begun to fight. Sailor John Paul Jones immortalized that defined phrase during the American Revolutionary War, when asked to surrender by the British and the naval battle. My use of it here is meant to convey that while our team has grown our business tremendously over the past six years, you’d be mistaken if you think our growth story is over. Far from it. We’ve worked hard to claim the mantle of the non-operating partner of choice.

Given the opportunities and landscape in front of us, I believe we can with thoughtful execution, double the size of our company again, if not more over the next five years. And this time, I believe we can do it more creatively. It’s an enormous goal, and will pose a tremendous challenge. But I believe the opportunity is there for the taking. We will stay humble to our roots as a small company. But we had great ambition to grow the business to the benefit of our stakeholders. And our board has incentivized this and aligned us with our investors to do so for the long term and to do it the right way. And done right it will add tremendous per share value row dividend significantly and drive market outperformance all while continuing to lower the business risk.

It would be stating the obvious to point out that it’s been an active time in the M&A sphere in oil and gas of late as we’ve seen many mega merger transactions, as well as many private to public transactions in 2023. The fallout from these mega transactions is likely to create even more opportunity for our company overtime, providing both improved cost efficiencies on our properties, and a broad variety of potential acquisitions as combined portfolios are rationalized. We’re already seeing signs of significant cost benefits on our properties from some of these mergers. While I just spoke about our dedication and focus on shareholder returns. I also want to highlight that NOG’s path to grow through acquisition also remains very, very strong.

We are involved in as many if not more conversations today than at any point in my history of the company. And the quality of these counterparties is very different, as are the nature of these discussions. That is largely because our company today has become de facto the only viable entity for complex solutions for our partners that is truly upscale and commercial. We believe we built a reputation as creative problem solvers. Our balance sheet is locked and loaded with capacity for deals in 2024. While we remain selective, I have no doubt there will be a myriad of opportunities in front of us this year. But it should go without saying that our main goal is to grow our business the right way. One of the first questions we always ask ourselves when we look at an opportunity is will this make our company not just bigger, but will it make it better?

We pass on a lot of things that would certainly make us a lot bigger, but we question whether they’ll make us a better company. Asset quality governance, if needed value, operatorship, inventory and commodity price resilience are all factors that go into driving these transactions. These questions have driven us to where we are today and will continue to drive us as we move forward. Adam will fill you in further on the deal front but expect an active 2024. I’ll close out as I always do by thanking the NOG engineering, land, BD finance and planning teams and everyone else on board our investors and covering analysts for listening our operators and contractors for all the hard work they do in the field that actually creates what you see in NOG’s results quarter-after-quarter.

We entered 2024 formatively positioned with our strongest balance sheet, the highest level of liquidity and largest size and scale since our formation. And as always, our team is ready to pounce on the opportunities to drive the best possible outcome for our investors, whether that’s growth through our ground game, through our organic assets, through M&A or through share repurchases in our quest to deliver the optimal total return. That’s because we’re a company run by investors for investors. With that, I’ll turn it over to Adam.

Adam Dirlam : Thanks, Nick. As usual, I’ll kick things off with a review of operational highlights, and then turn to our business development efforts and the current M&A landscape. During the fourth quarter, we saw production increase to over 114,000 BOE per day, driven by the closing of Novo in the middle of Q3, as well as an acceleration of wells turned in line during the quarter. We turned in line 27.6 net wells evenly split between the Williston and Permian, which included roughly half the net wells in process acquired through our ground game in Q4. While well performance has been in line with expectations, we have been encouraged by the outperformance of our Mascot assets. The new wells completed since closing forge in the New Mexico results from our Novo assets.

As we navigate the rest of the winter, we expect to see a typical seasonal deferral on IPs from the Williston in the first quarter with the reacceleration in completion activity, as we move into the spring and summer. Overall, we expect a relatively balanced completion cadence in 2024, as activity is more heavily weighted towards the Permian, which accounts for about two thirds of the estimated tails. Our drilling program has remained consistent over the last three quarters as we spun an additional 20.8 net wells in Q4, with our organic acreage seeing continued focus from our operating partners. Our Permian position pulled roughly 60% of the organic net well additions, and if we include the contribution from our ground game, we saw three quarters of our activity come from the Delaware in Midland basins.

Our acquisitions over the past few years are driving growth in the Permian, as locations are converted, and we head into 2024. At the end of the year, the Permian wells in process were sitting at all time highs of 35.7 net wells, and now account for more than 50% of our total wells in process and over two thirds of our oil weighted wells in process. We expect this trend to continue as the Permian accounts for the majority of expected new drills in 2024. As our drilling program has remained consistent, so have our inbound well proposals. During the quarter we evaluated over 180 AFEs with our Williston footprint contributing over 100 proposals in every quarter of 2023. Our net well consent rate remained at over 95% in Q4. However, we continue to actively manage the portfolio by comparing what’s in the market at a ground game level and what is being proposed.

For example, given the commodity market volatility, we non-consented approximately 16% of gross AFEs, which collectively accounted for just half a net well in the Williston during the quarter. As certain operators have stepped out, we have redeployed that capital into our ground game at higher expected returns. This highlights our flexibility with capital allocation and our ability to quickly react to changing environments, in contrast to operators that have to stick with their drill schedules. With that said, our acreage footprint continues to produce some of the highest quality opportunities available as our 2023, well proposals have expected rates of return north of 50% based on the current strip. Looking ahead, we have seen cost reductions come through with our operating partners, yet we remain conservative with our budgeting process for 2024.

Through 2023, well, costs were relatively flat. However, as of late, we have seen some of our larger operators coming in below their cost estimates from original well proposals. Notably, we have seen evidence from our planning sessions and recent AFEs have a potential 5% to 10% reduction in well costs related to our Mascot Novo and Forge properties. As gas prices remain under pressure, some drilling and completing resources may also be reallocated to our oily basins, where we could then expect some additional tailwinds. Shifting gears to business development and the M&A landscape, the fourth quarter kept up another banner year for NOG, both on our grounding and in larger M&A. As Nick alluded to earlier, we were able to take advantage of the dislocations we were seeing during the fourth quarter, executing on a number of short cycle grounded in acquisitions.

While competitors’ budgets were running dry, we were able to step in and deploy meaningful capital consistent with our return requirements. During the quarter, roughly half of the locations we closed on were also turned in line, which will contribute to our 2024 plans and growth profile. Our small ball focus was almost entirely in the Permian during the fourth quarter in caps off a record year for our ground game, where we picked up roughly 30 net wells, and 2,500 net acres. While, we buy non-op interest day in and day out. We’ve also used our co-buying structures, joint development programs, and have acquired operated positions with our ground game to generate these results. During the quarter, we expanded our footprint as we signed and closed our Utica transaction.

Similar to our approach in building scale in the Permian, we’ve elected to walk before we run, deploying a modest amount of capital in the core of a new play under some of the top operators. Since the Utica announcement, we’ve been inundated with additional opportunities, and we will methodically review each of those, as we think about our footprint in Ohio and Appalachian in general. In January, we closed our previously announced non-operated package in the Delaware, where we have significant overlap with our current position and grossed up many of our working interests in New Mexico. With Newburn [ph] as the operator on 80% of the position, we’ve aligned ourselves with one of the most cost efficient and active private operators in the basin, which drive future growth for NOG.

The scale that we’ve been able to achieve over the past few years has opened doors for us that were previously unavailable. And the creative structures that we’ve been able to implement have created mutually beneficial outcomes with alignment for both NOG and our operators. Given the ongoing consolidation in the industry, we have been engaging in more frequent and substantial conversations with our operators. To put the landscape in perspective, there are currently $46 billion of assets that we’re reviewing, both on and off market. Even more than that, we’ve been in discussions with some of our large independent and mid cap operators, about how we can be helpful whether they are pursuing assets or digesting recent acquisitions. As consolidation continues, we can provide capital to help rationalized combined portfolios, accelerate high quality, longer dated inventory, or facilitate debt reduction initiatives through sales to NOG.

These off-market transactions can be tailor made for both parties, and with our growth in size and liquidity can be as large or larger than any of our recent transactions. Simply put, the option to deploy capital on top tier assets is in no way slowing down for NOG. Depending on the needs and wants of the operator, the solutions could include simple non-op portfolio cleanups, joint development agreements, co-buying operated properties, minority interests carve outs of operating positions, or any combination thereof. At NOG we pride ourselves on finding win-win solutions through creativity and alignment. Our priority is not to chase growth for growth’s sake, but three main returns focused over the long term and doing right by our stakeholders.

With that, I’ll turn it over to Chad.

Chad Allen : Thanks, Adam. I’ll start by reviewing our fourth quarter results and provide additional color on the operator update we released on February 15. Average daily production the quarter was more than 114,000 BOE per day, up 12% compared to Q3 and up 45% compared to Q4 of 2022 marking another NOG record. Oil production mix of our total volumes was lower in the quarter at 60%, driven primarily by gas outperformance. Adjusted EBITDA in the quarter was $402 million, up 52% over the same period last year, while our full year EBITDA was $1.4 billion, up 32% year-over-year. Free cash flow of approximately $104 million in the quarter was up 90% over the same period last year despite lower oil volumes, CapEx pull forward to fund accretive 2024 investments as well as commodity price volatility and widening oil differentials.

Adjusted EPS was $1.61 per diluted share. Oil realizations were wider as expected in Q4, with the increased production and other seasonal factors in the Williston driving wider overall pricing. For these differentials, particularly on the Delaware were modestly wider. Natural gas realizations were 97% of benchmark prices for the fourth quarter, a bit better than we expected, given better winter NGL prices and in season Appalachian differentials. LOE came in at $9.70 per BOE is driven by a few factors. We had highlighted in the third quarter we expected more normalized workovers in the fourth quarter after a lighter quarter in the prior period. We also incurred approximately $4 million of firm transport expense as a result of refining our accrual process based off historical data.

And with the curtailments in our Mascot project that had the effect of artificially inflated the per BOE numbers. As we reach mid-year 2024, we expect our LOE per BOE to trend down as production ramps. On the CapEx front, the investment of $260 million in drilling, development and ground getting capital the fourth quarter, with roughly two thirds allocated the Permian and one third to Williston As a result of having access to high quality opportunities, success on the ground game along with a pull forward of organic activity has shifted more investment into the fourth quarter from 2024. The pull forwarding activity is most apparent because we are seeing a 5% to 10% decline in expected spot to sales development timelines. And we with over a billion dollars of liquidity comprised of $8.2 million cash on hand, and $1.1 billion available on a revolver.

Our net debt to LQA EBITDA was 1.15 times can we expect that ratio remained relatively flat throughout 2024. I want to point out that we did build our working capital significantly in the fourth quarter and expect that trend to continue through the first quarter of the year, and then begin to ease for the rest of the year as we convert the tremendous amount of capital that is currently in the ground into revenue producing wells. We have remained discipline on the heavy front and has been adding significant oil and natural gas hedges to this year through 2026 given the increased commodity price volatility we’ve seen over the past several months. The oil portfolio consists of over 40% collars in 2024 maintaining material upside exposure while providing a strong floor near $70 per barrel.

With respect to shareholder returns in 2024, everything’s on the table. As we’ve shared in the past, we adhere to a dynamic approach with the objective of achieving optimal returns for our shareholders. And while Nick alluded to potentially an active year for NOG. Those activities may include share buybacks if there’s a dislocation or share price, and if returns are competitive with other alternatives we are evaluating. Turning now to our 2024 guidance, we are guiding to 115,000 to 120,000 BOE per day, with 72,000 to 73,000 barrels of oil per day. You’ll see typical seasonal declines in the Williston in the first quarter, exacerbated by some fruit in January, but our production cadence will build throughout the year. We anticipate adding about 90 tills and 70 spuds reflecting the midpoint of our guidance.

After a significant build in our D&C list in 2023. The conversion of IP wells in 2024 should materially help our capital efficiency, as the D&C cadence returned to more normalized levels. This will bring some large amounts of working capital that we have drawn back on the balance sheet started in the second quarter. On the CapEx front, the 2023 pull forward lowered our 2024 CapEx from our prior internal estimates. So we are making the assumption that the pull forwards are likely to continue given the acceleration and pace of drilling that we’re seeing across our core basins. Or CapEx expectations this year are in the $825 million to $900 million range. This level of CapEx will be driven by ground game success, commodity price driven activity levels throughout the year, and overall wall costs with for the time being, are forecasted to say flat despite recent evidence of savings and AFEs, particularly from our larger JV interests.

We have significant capital in the ground right now and expect our larger ventures specifically Mascot and Novo to run materially in the first half of the year. So the capital will be first half weighted around 58% to 60%. On the LOE side, our guidance is purposely wide, at $9.25 to $10 per BOE. This is due to the inclusion of our firm transport charge on a quarterly basis, as well as the anticipated rent we just discussed. We expect LOE to start on the higher side before trending down throughout the year. I believe there will be room for improvement. We want to be conservative out of the gate. And with the firm transport charges being accrued for a quarterly our LOE expense runway will be less lumpy than in the last several years. On the cash G&A front, we’ve seen a modest tech done an average cost per BOE driven by increased production volumes year-over-year, offset by some inflation and costs and services.

On the pricing front, given the low overall price of natural gas, we expect lower gas realizations year-over-year, even as NGL prices have thus far been better than we expected to the seasonal demand for propane used for heating in the winter months, would expect higher realizations of 85% to 90% in Q1 benefiting from winter NGL prices and differentials. However, we remain cautious based on the typical pattern for pricing as we enter the spring and summer. If we were to see material curtailments from natural gas producers to benefit the overall NYMEX price and 2024, obviously this could help guidance throughout the year. As a reminder, our Q3 reporting embeds transport costs and pricing instead of a separate GP&T line item, and the fixed costs that are absorbed like realizations go down when the absolute price is so low.

To the extent gas prices rise materially or a flat prices and NGL stick around. There’s room to the upside. But for now, this is where we’re starting. Thankfully, we’re well ahead on the gas front, which offsets much of the weakness in the near term. On the oil front, while regarding wider on differentials to start at $4 to $4.50, we will reevaluate this in the second half of the year. Williston volume growth has widened differentials materially over the past five months versus what we’ve enjoyed over most of 2023 but we believe the Canadian TMX pipeline may pull away some demand from Canadian crude as it comes online in the coming months. We’ll remain conservative until then, but this could lift pricing in the back half of the year. Overall Midland Cushing differentials have been solid, so on the Delaware realized deducts has slightly wider.

I’d like to touch on some other items related to guidance. Our production taxes will be tracking an estimated 50 basis points higher in 2024, given the shift in production volumes towards the Permian production taxes are generally higher than our other basins. And our DD&A rate per BOE will also be higher in 2024, reflecting over $1 billion of both on and ground game acquisitions completed in 2023. This of course does not impact free cash flow as it’s a non-cash item, but it does impact EPS, and is provided to help with analysts modeling. Before I turn the call over to the operator for our Q&A session, I’d like to provide an update on cash taxes. Given the volume of acquisitions and organic growth completed in 2023, our oil and natural gas properties balance has grown by $1.9 billion year-over-year, which in turn impacts the magnitude of our tax cost to policemen deductions, which reduces our taxable income.

We’re now anticipating becoming a cash taxpayer in 2025, with a potential tax expense of less than $5 million over the following two-three years, which is a significant reduction from our prior forecast. This is a material improvement for our shareholders, with potential of over $150 million of additional free cash flow over the next several years. With over 20% growth in year over year production abroad opportunities that are available in front of us. And a strong balance sheet, NOG is well positioned to execute in 2024 and beyond. With that, I’ll turn the call back over to the operator for Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] We’ll go to our first question from Neal Dingmann at Truist.

Neal Dingmann: Good morning, guys. Thanks for the time, Nick is really just on timing. Could you just go over I guess time your cadence that is, can you talk about maybe just looking what’s the 4Q CapEx and maybe why that doesn’t translate into call it immediate production? Maybe just talk about timing, if you would?

Nick O’Grady : Sure. Good morning, Neal, I definitely think I’m the one to answer this, because, like a lot of the buy and sell side analysts, I’m not an accountant, I’m a former buy side analyst. And, I can read a financial statement, but the nuances of accrual accounting versus cash CapEx accounting. And I should be clear, a lot of operated companies like a Diamondback, or a lot of the operators follow cash CapEx, we’re an accrual CapEx company. And so that means we’re going to account for our wells by well status and percentage of completion. And just to be clear, 70% of the cost of a well is in the completion. So as the wells become more complete, the cost of a well we account for goes way up. So, in the fourth quarter is an example we have, say, 30 wells that we budgeted to go from, say, 25%, in the third quarter to go to 50%, in the fourth quarter.

And instead, they went to 75% to 90%, complete, that’s a lot of capital. And it doesn’t necessarily translate into any incremental production in that quarter. And it’s just an accounting exercise, it’s not any more capital over the long run, it’s just you have to account for that capital in a given quarter. So it’s not that we choose our spend, you just have to account for that in that period. So in Excel, you might think, well, why did you choose to spend that it’s — and that’s why we, we put this in our release, our till count didn’t really change that much. Now, the ground game spending that was elective that $25 million, and we capitalize on that. And some of those did turn to sales towards the end of the quarter, but when they come online in December, they’re obviously not going to contribute much.

They will help in Q1 somewhat, but of course, seasonally, that’s one of our slower quarters. If you look at the overall midpoint of our ’24 guidance, you will see a partial benefit to the midpoint, clearly we it’s about a $25 million benefit from the pull forward. But from that sort of overrun, but the reason it’s not the full sort of $50 million, is because our assumptions are that the shorter spot, the sales times that we’ve been seeing, on average, in our total portfolio, you’re talking about a full 7% acceleration of spud to sales times is that we’re assuming that that continues sort of in perpetuity. So that means that all of the capital in perpetuity is going forward. So you’ve got 2025 capital that we would have assumed is also coming into 2024.

So there’s sort of a half cycle effect to that. So I would also just say, you know, for all the listeners out there, we have sort of a mock accrual model that we can make available for anyone with that can walk through how a D&C list and a percentage of completion will actually drive CapEx, versus the tillies and model does better. So if anyone would like to reach out to Evelyn, she’d be happy to walk them through it. What I can assure you is that overtime, these are just moments in time and the overall spending won’t change a ton over it. It’s really just a function of timing. In the first fourth quarter or till games is right on track. And we can’t really control how we account for wealth status, we can, of course control our capital decisions.

We made the decision to spend the $25 million on the ground game, because those were great economic decisions and relatively modest dollars. But the $50 million plus is not really incremental, the timing of the production cadence of this stuff, frankly, we’re more focused on making sound investment decisions with our budget than the optics of the timing on a three month time horizon, when on a 12 to 18 month, for the longer term investors that will come out in the wash. Number of the wells are the same, the cost is roughly the same, the amount you’re accounting for in a given quarter is different. That’s about it, we’re not sure. And also, just say, we’re not cherry picking single IRR, well, IRR plots we did publish in our earnings presentation, the cube of all our wealth plots year-over-year.

And if you look at the data in aggregate, in our earnings presentation, 2023 was amongst our best well performance years in history. So, optically, I recognize it’s a bit noisy, but it’s just noise. And I want to reassure people, I’m sympathetic, because I don’t like the optics of it any more than anyone else. And I can understand why you might draw the wrong conclusions, but they’d be the wrong conclusions. Because the well performance is a testament to everything’s going according to plan. So over the long term, everything’s going great.

Neal Dingmann: So it does sound like a capital on the ground is going to really pay dividends. So I’m glad to hear about the timing. And then might, just follow up, could you just talk a little bit about, what opportunities that unanimous seeing out there right now Permian versus Bakken? Is it pretty split? Or could you just talk about there is one reason that you’re seeing predominantly more potential spends.

Adam Dirlam : Hey Neal, this is Adam, I would say that the opportunities that we’re seeing right now are generally weighted towards the Permian, in the Permian, most of that’s in the Delaware. So I don’t think anything’s necessarily changed. I think one emerging theme that we’ve seen kind of evolve, has been around Appalachia and kind of the commodity price. Volatility there, you’ve obviously seen the pain ongoing for the last 12 to 18 months. Some of those conversations are tabled a couple years ago, or a year ago, when you’re seeing $7 and now you’re obviously on the inverse of that. And they would things settling out. And having some of these operators truly feel a pain. I think there’s some ability for us to potentially capitalize there.

But I think it’s across the board, in terms of the conversations that we’re having. We’re certainly seeing things in the Bakken that are interesting. Looking at our deal tracker right now, I think we’ve executed about 10 NDAs. There’s about 17 different immediate processes that are either in market or coming to market shortly. And so I think we’ll obviously parse through that, a lot of that might just go immediately into the garbage. So I don’t think we’re necessarily changing our stripes in terms of underwriting or any of that. But I think you’ve got a few different dynamics that are going on that are in interesting, especially on the consolidation front with operators, and then having to kind of wrap their head around their new assets and then potentially rationalizing those assets, whether or not those are core assets to them, regardless of the economics.

Nick O’Grady : Yeah. The only thing I would add to that would be on the Williston front, I think you’re not seeing as much small scale activity. But I think there’s the opportunity for bigger chunkier transactions overtime. I think there’s there are bigger things that couldn’t move overtime there, which does give us some excitement. I think it’s — we did hit record volumes in the fourth quarter. It’s been amazing how resilient it’s frankly surprised even us how our Williston asset just keeps growing both organically and frankly and organically. We’ve continued to find ways to grow our footprint. Our small foray into the Utica, we have been inundated with Utica opportunities. And we’ve actually, even in the last month or two, we’ve probably gotten another half a dozen shot to us.

So we’ve been building up our technical expertise and we’re evaluating through those we would use view at this point as an extension of Appalachia. It is technically the Appalachian Basin but that’s a really a distinct play. And obviously, the Utica is a broader play in the sense that, there’s a dry gas, white gas and oil part of it. So it’s a couple of different plays in some ways. But just having planted our flag there to some degree by doing so, we’ve suddenly found ourselves in another set of deal flow.

Neal Dingmann: Thanks, guys. Congrats.

Operator: We’ll move to our next question from Charles Meade at Johnson Rice.

Charles Meade : Good morning, Nick, Adam and in Chad. And, Nick, I want to go back to this this question of the 4Q CapEx. And I know you’ve already spent a lot of time on it, but I wanted to maybe take a slightly different angle. I think I understand the dynamic of the opportunities out of the ground games was looking good at year end. And I think I understand the dynamic of your accrual accounting. What I don’t get is the magnitude of it, particularly with respect to kind of what you knew on November 1, when you report it 3Q. And so I’m wondering if there’s something that I don’t understand, like, maybe that that you what you call your ground game, D&C, if that would get loaded into that line item? Is everything you’ve done from the ground game, year-to-date? I don’t know, maybe you could just address it from that angle.

Nick O’Grady : Well, Charles, I mean, as a non-operator, well, status updates come from the operators on delay. And so we’re only as good as the information that is provided to us, right? So oftentimes, it can be, we can provide this stuff, sometimes months on delay, right. So we can be told that it well is hasn’t been even spud, and then you’ll get a report that has been completed. And so I don’t have any answer beyond that.

Adam Dirlam : Same thing could be said with the ground game, right, depending on the complexity and the due diligence that’s going around that. Some of these deals get closed within weeks, and some of them take months. And then you get up into year end. And there’s different from a seller standpoint, different tax consequences, and so different levels of urgency there. And so we’re trying to be as accommodating and commercial as we can without obviously sacrificing any other protection from a due diligence standpoint, but these things ebb and flow on a real time basis.

Charles Meade : Got it. So if I understand correctly, if you’ve got both volatility, and also maybe would be fair to characterize the song as is out a period of adjustment catch ups?

Chad Allen : So this is Chad. I don’t think it’s necessarily out of period adjustments. Like we mentioned earlier, it’s the pull forward. I think, look, we had record D&C levels at Q3 and the timing of when those come out come off, really depends on like, Nick mentioned that the well status and where it’s at. I think we look, we went from a typical D&C list, percentage of completion of 40%, all the way up, excuse me all the way up to just over 60%. So I think you’re going to see you see that bill, and that’s kind of ebbs and flows each quarter as we receive well status from operators.

Charles Meade : Got it.

Adam Dirlam: Charles, maybe just to put it into perspective, in terms of the accrual accounting, and operator is collecting all of the service invoices and everything else. And they have to aggregate all of that and then bill it up to the various non-ops. And every operator does that at a different cadence, right. And so you have these accruals out there until we’re confident that all of the costs that have been incurred from actual have been appropriately billed. And so those accruals, depending on the operator can hang out there a few months far long relative to the IP day, because we need to make sure that we’ve got the coverage that we need.

Nick O’Grady : Yeah. But at the end of the day, it doesn’t really change the aggregate dollars. It’s not anymore. Well, it’s just a factor of time.

Adam Dirlam : Looking at it on a three month basis. I mean you need to be looking at it 12 —

Nick O’Grady : So what I can tell you is we’re not electing day anymore. We’re not making any different capital decisions, we’re looking to the same number of wells. We’re electing, we’re tilling the same number of wells. It’s just a matter of how much money is being spent. It’s not a matter of these wells costing more or performing worse. It’s a matter of truncating the amount of capital and when you’re accruing for women, I mean, optically, I’m not any happier about it than anybody else.

Adam Dirlam : On a dog tails in the ’24. Right, and what the projected well costs are we’ve had some great conversations with our operators. And what we’re seeing in field estimates, and we alluded to as much right, I think we expect 5% to 10% kind of under run from these AFEs. But we’re going to take these AFEs at face value. And depending on the operator and build AFEs might be three months old, they might be 12 months old. But we’re not going to change our accounting practices based on what that mix looks like.

Nick O’Grady : Yeah, and let me walk you through worse, Charles. So let’s just say Midland Petro send a AFE, gross AFE for $12 million in November. So they sent us that and we’re accruing for that $12 million on a percentage of completion starting in November through the completion of that, well, let’s just say it’s an April. And we’ll continue. And then that accrual is held until probably — and then there’s a period where it’s held out until the final billing, which is probably at least 90 days until after the well is on sales. And then if there’s no more billing after that, that accrual falls out, and it’s finalized. We’re getting field reports along the way that that, well, maybe it’s costing $10 million, right? But so there’s a $2 million savings, but only at some point later in 2024, will you see in our results, that that reduction to the capital.

So there’s a lot of conservatism built into this. If you’re typical cash operator, when they tell you when they guide to you, and they say we’re going to spend $12 million in this quarter, and then they actually spend 10, they’re giving you the immediacy of that benefit, we’re not. And so what I would tell you is there’s inherent conservatism and how we’re doing this, but overtime, you will see the benefits of those. And so while it obviously is the inverse, certainly in the fourth quarter overtime, I think you’ll see it doesn’t really change the outcome in the long run. And in some ways, I think, throughout 2024, and certainly into next year, you will see the benefits of our accounting. And it’s like I said it will all come out in the wash.

Charles Meade : Got it. And thank you for all that that added detail. And if I can transition away from accounting, and more towards pictures.

Adam Dirlam : Thank you very much.

Charles Meade : Yeah, I like pretty pictures. Slide 10. I appreciate that you guys put this this gun barrel view of your Mascot — of your Mascot project in one short question, one bigger question. So the first question is, it doesn’t look at — the first question is those yellow circles, I’m interpreting that as kind of completion batches is what it looks like, is that right? And then the second thing I want to ask you guys are more open ended. I really liked this picture. It helps fill in the, the dynamics for me. But what, I guess when you guys first looked at this, you recognize it maybe as much as a year ago. But what are the lessons there? What insights did you generate? Or what insights came to you when you first looked at this?

Jim Evans: Yeah, hey, Charles, this is Jim. Yeah, what you’re looking at there, the kind of the yellow amoeba, those are completion batches. So they will do a min two, three, four wells at a time. And then what we’re showing is, you’ve got several rows where you need to shove wells in behind it, whether it’s due to the drilling or, or fracing to protect yourself. So when we looked at this about a year ago, really all you saw on here, in terms of the wells that were we’re producing was the charger unit. And so the Mudbank, Rebel [ph] and Bulldog units were all undeveloped at that time. Discussions around development time and completion with MPDC at that time was that we’re going to do smaller batches. And so we’re you see the yellow dots, we maybe do three wells at a time.

We build wells, turn them online, go another six months to complete the next three to four wells. What we saw with the first batches is that we started to see some interference issues, some frac heads, because we were drilling and fracing all the same time as we moved from west to east across this project. And so the decision was made, let’s do bigger batches. And so what that did is it obviously causes delays. And when we thought the project was going to peak in terms of production. But what we’re seeing is that because we’re doing that we’re getting better well performance. Overall, the project is outperforming by 5% to 10% versus our original estimates. Obviously, there’s delays, but we think in the long run, it’s actually going to benefit from a return on investment IRR, overall project economics.

And so what we’re learning is that obviously, things change overtime. And this is a big working interest project. So it’s more impactful than our typical Novo package would be. So our learning is just make sure we’re in full communication with the operator at all times and that we’re all in agreement on how the development plan is going to go forward. And like say we’re acceptable to the changes, obviously, that hurts us from a guidance standpoint and trying to understand when these wells are going to be coming online. But overall, we’re very happy with the project and we’re comfortable with how things have changed.

Nick O’Grady : And what you can see in this, Charles, is that you’re pretty much almost all the way there right. You’re down to your last at pretty much eight wells to be drilled. Your frac schedule, you’re really all — and when you can see is where the Charger [ph] and Mustangs which are really the ones that are remaining, there, you’re going to have fewer shut ins on the back end you’re going to have to in terms of you will have to shut some in when you go to frac those wells later on. But in the last wave of shut-ins, which will be sort of towards the end of this year into 2025 it will be reduced. So the one thing I can tell you about this project is it while it won’t produce that peak rate that it would have, it will produce it will cume way more barrels and a much flatter production profile than ever would have before.

And so the total ROI on the project will be much more superior to what it would have been originally. And we’ve obviously we’re also saving because you’re doing much more continuous drilling and fracing, we’re saving a lot of money. I mean, that’s still be to be determined until we finished the project. And I think we want to be a bit tight lipped and conservative on that, and we’re done. But I think we feel very confident at this point that it’s gone swimmingly. And obviously, it doesn’t feel that way. But the strip was about $70 this year when we underwrote this program. And obviously, we’re in the mid to high 70s today, so we’re earning higher returns than we would have otherwise underwritten.

Charles Meade : Great detail. Thank you.

Nick O’Grady : Yeah.

Operator: We’ll call next to Scott Hanold at RBC Capital Markets.

Scott Hanold : In your prepared comments, you mentioned about wanting to accretively double the company in five years. Can you give us a sense of how you achieve that? I mean, since you kind of came on you, you first pivot out of the Bakken into other basins. And, obviously, your next significant move was doing JVs. What’s next? Is there other basins you’re looking at? Would you consider being an operator like, how do you double a company from here?