Northern Oil and Gas, Inc. 2026 Q2 Earnings Call

Good morning. Welcome to NOG's second quarter 2026 earnings conference call. Yesterday after the close, we released our financial results. You can access our earnings release and presentation in the investor relations section of our website at noginc.com. We will be filing our June 30th, 2026 10-Q with the SEC within the next few days. I'm joined this morning by our Chief Executive Officer, Nick O'Grady, our President, Adam Dirlam, and our Chief Financial Officer, Chad Allen, as well as our Chief Technical Officer, Jim Evans. Our agenda for today's call will be as follows. Chad will provide an overview of our financial performance, followed by Adam, who will share an overview of NOG's operations and business development activities. Nick will close with remarks about NOG's positioning and value proposition. After our prepared remarks, the team will be available to answer any questions.

Before we begin, let me remind you of 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 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 those 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 of these measures to the closest GAAP measures can be found in our earnings release.

With that, I will turn the call over to Chad.

Thanks, Evelyn. Q2 was a clear demonstration of our diversified portfolio business model. When one region hits turbulence, other aspects of our platform pick up the slack. In this quarter, that showed up directly in the numbers. Adjusted EBIT was up 17% sequentially, free cash flow was up over 400% from the first quarter. That's the model working as designed. Total production was up 9% year-over-year, with record natural gas volumes up 35% year-over-year and 5% sequentially. As previously disclosed, we saw significant curtailments in the second quarter as a result of challenging Waha economics. In a volatile environment, our operating partners in the Permian made prudent decisions to generate excess cash flows. With improving economic conditions, we've seen volumes come back online, including three net turning lines that will contribute to the third quarter.

Outside of that Waha-driven curtailment, the underlying assets performed well. The Williston and Uinta both topped our internal expectations, our Appalachian volumes set another record with a full quarter of contribution of our Utica joint development, where early well results have been strong. On pricing, our unhedged net realized oil price improved 36% from the first quarter. Gas realizations were 90% of Henry Hub and with our hedges, Waha basis included, reached 123%. Strong NGL prices contributed as well. Waha pressures have receded, and we're seeing that trend continue thus far into Q3. On costs, production expenses per BOE were down 4% year-over-year. Budgeted capital expenditures were $196 million, comprised of $151 million of organic D&C and $45 million of ground game activity. Normalized well costs were $761 per lateral foot, essentially in line with the first quarter. Spending this quarter skewed more towards oil weighted.

Permian at 37%, Williston at 33%. Appalachian, Uinta, each at 14%, our newly acquired Duvernay position beginning to contribute at 2%. We ended the quarter with over $1 billion of total liquidity. Our balance sheet remains well-positioned to fund our development program and continue executing on inorganic opportunities as they arise. Turning to capital allocation and shareholder returns. This is where the free cash flow generation translates directly into returns. We repurchased 2.95 million shares, roughly 3% of shares outstanding, at an average price of $20.37, with about 81% of that activity completed before the dividend record date in late June. That repurchase largely offset the shares issued to the Duvernay seller, so we effectively funded a scaled acquisition while holding share count roughly flat.

Subsequent to quarter end, the board increased our stock repurchase authorization, bringing total capacity to approximately $243 million, a clear signal of how we view the value in our stock at current levels. On the dividend, our board declared $0.45 per share for the quarter, or approximately $48 million paid on July 31st.

Against the $159 million of free cash flow this quarter alone, the dividend is covered several times over. We view the dividend as a floor, not a ceiling, on the capital we return to shareholders. With that, I'll turn the call over to Adam.

Thank you, Chad. We remain as confident as ever in the strength of our assets, confirmed through recent results and leading indicators. Looking ahead, we are seeing multiple positive catalysts as drilling activity materially outperformed internal expectations and the D&C list built to almost 52 net wells as operators modestly pull forward activity in the Permian and Williston. Additionally, we elected to do approximately 17 net wells, which is up almost 20% relative to the trailing 12-month run rate. 90% of those elections were weighted towards our oily basins with normalized AFE costs down 5% from our 2025 average. Moving to business development, our M&A engine has been firing on all cylinders. We continue to build on our track record of finding premier assets, including our latest with the Duvernay joint development deal that we closed in early June.

The Parallax acquisition is a self-funding asset with 20 years worth of inventory at an average breakeven below $50 and with a price tag of less than 600,000 per location, highly competitive with the basins in the Lower 48. With it, we have strategically and meaningfully expanded our addressable market into Canada. We will continue to screen for other complementary assets. Our ground game has maintained strong momentum and the barbell approach of sourcing near-term drilling opportunities as well as long-dated inventory continues to be underappreciated. Since we have made a concerted effort to build out our inventory in Appalachia, we've amassed roughly 80 locations through our leasing efforts, excluding the acreage that has already converted to development.

We believe that NOG is one of the few companies, if not the only, that budgets for the acquisition of new locations on an annual basis, which allows us to build duration and optionality for the future with core locations that would compete in any portfolio. This overstates the reinvestment rate that is needed and also means NOG is one of the few who is actively replacing its inventory year after year. That said, we can and will adjust how capital is deployed based on dislocations in the market. Capital can be shifted to buybacks or other near-term drilling opportunities, or both, as you saw us do in Q2. In the second quarter, we pivoted to more drilling opportunities, acquiring over six net wells weighted to the Permian and Bakken that are currently in process.

To further put this into perspective, through the first half of 2026, our ground game has already capitalized on the same number of drilling opportunities than we did in all of 2025. NOG's opportunity set continues to expand and will remain dynamic capital allocators, directing capital to wherever it creates the most value as the market presents it.

Nick? Thanks, Adam. Thanks for joining us this morning and your continued interest in our company.