Earnings call transcript: Northern Oil & Gas Q1 2025 beats EPS forecast

Northern Oil & Gas Inc (NOG) reported its Q1 2025 earnings, surpassing expectations with an earnings per share (EPS) of $1.33, compared to the forecasted $1.11. The company also reported revenue of $602.1 million, exceeding the anticipated $559.59 million. Despite these positive results, the company’s stock saw a decline of 2.18%, closing at $24.76, following the earnings release.

Key Takeaways

• Northern Oil & Gas reported a record Q1 adjusted EBITDA of $435 million.
• The company achieved its 21st consecutive quarter of positive free cash flow.
• Total production increased by 13% year-over-year, with gas production contributing 42% to the mix.
• Stock price declined by 2.18% in after-hours trading despite strong financial results.

Company Performance

Northern Oil & Gas demonstrated robust performance in Q1 2025, with a significant increase in both adjusted EBITDA and free cash flow. The company maintained steady oil production while increasing total production by 13% year-over-year. This performance is set against a backdrop of volatile oil and gas prices, with oil around $70 and gas at approximately $3.50.

Financial Highlights

• Revenue: $602.1 million, up from the forecast of $559.59 million.
• Earnings per share: $1.33, beating the forecast of $1.11.
• Free cash flow: $136 million, a 41% sequential increase.
• Total production: 135,000 BOE per day, up 2.5% from Q4.

Earnings vs. Forecast

Northern Oil & Gas exceeded expectations with an EPS of $1.33, 19.8% above the forecast of $1.11. Revenue also surpassed projections by 7.6%, signaling strong operational execution and effective cost management.

Market Reaction

Despite the positive earnings surprise, NOG’s stock fell by 2.18% to $24.76 in after-hours trading. This movement contrasts with the company’s strong earnings performance and may reflect broader market volatility or investor concerns about future commodity price fluctuations. The stock currently trades below its InvestingPro Fair Value estimate, while offering a substantial 7.27% dividend yield. Notably, the company has consistently raised its dividend for four consecutive years, demonstrating commitment to shareholder returns despite market challenges.

Outlook & Guidance

The company maintained its current guidance, expecting Q4 to achieve the highest production levels. Capital expenditure is projected to remain at $850-900 million, with potential growth capital of $200-300 million. The company is actively evaluating over 100 transactions, indicating a strategic focus on expansion opportunities.

Executive Commentary

CEO Nick O’Grady highlighted the company’s adaptable operational model, stating, "NOG operates with a uniquely adaptable model." President Adam Zirlam emphasized the company’s focus on returns, noting, "We will remain laser focused on total returns."

Risks and Challenges

• Volatility in oil and gas prices could impact future revenue.
• Potential supply chain disruptions may affect production costs.
• Regulatory changes in environmental policies could increase operational expenses.
• Market saturation in key regions could limit growth opportunities.

Northern Oil & Gas’s Q1 2025 results underscore its operational strengths and strategic focus, although the market’s reaction suggests caution amid broader economic uncertainties.

Full transcript - Northern Oil and Gas Inc (NOG) Q1 2025:

Conference Operator: Greetings, and welcome to the NOG’s First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Evelyn Inferno, Vice President, Investor Relations.

Thank you. You may begin.

Evelyn Inferno, Vice President, Investor Relations, NOG: Good morning. Welcome to NOG First Quarter twenty twenty five 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 dot com. We will be filing our 03/31/2010 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 Zirlam and our Chief Financial Officer, Chad Allen and our Chief Technical Officer, Jim Evans. Our agenda for today’s call is as follows: First, Nick will provide his introductory remarks, and Adam will give you an overview of operations and business development activities. Then Chad will review our financial results. After our prepared remarks, the team will be available to answer any questions. Before we begin, let me cover our safe harbor language.

Please be advised that our remarks today, including the answers to your questions, may include forward looking statements within the meaning of the Private Securities Litigation Reform Act. These forward looking statements are subject to risks and uncertainties that could cause actual results to be materially different from expectations contemplated by our forward looking statements. Those risks include, among others, matters that have been described in our earnings release as well as our filings with the SEC, including our annual report on Form 10 ks and our quarterly report 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 of these measures to the close-up measures can be found in our earnings release. With that, I’ll turn the call over to Nick.

Nick O’Grady, Chief Executive Officer, NOG: Thank you, Evelyn. Welcome and good morning, everyone, and thank you for your interest in our company. The recent market volatility and changing outlook for commodities provides the perfect opportunity to give perspective on NOG’s adaptability in six key points. Number one, we are in the catbird seat. NOG operates with a uniquely adaptable model.

No rig contracts, no frac commitments, no field offices and non consent rights across the vast majority of our joint ventures and assets. This economic machine adjusts activity based solely on marketplace dynamics, focusing singularly on profitability. As commodity prices weaken, spending will naturally slow, but absent significant shut ins or curtailments, volume effects should remain modest with stable leverage levels. Our model’s inherent flexibility ensures dynamic capital allocation centered on returns with the ability to use any downturn to add acreage and working interests in core areas on a countercyclical basis. Number two, strength in numbers.

In Q1 with oil at around $70 and gas at around $350 NOG put forth incredible numbers generating $136,000,000 in free cash flow and $94,000,000 after dividends with minimal contribution from hedge gains. This year’s budget incorporates hundreds of millions in growth capital, yet requires less than $900,000,000 in sustaining capital, demonstrating NOG’s capacity to tighten spending if needed. Over 60% of expected production is hedged for 2025, and we have additional protection beyond, ensuring resilience amid commodity cycles. Our leverage remains extremely low on an absolute basis, offering a cushion to navigate market shifts confidently. Number three, opportunity in uncertainty.

Historical cycles show that pricing resets create valuable opportunities for capital reallocation. NOG has a proven track record, most notably during 2020 of leveraging downturns for high return investments such as small scale acquisitions. As capital becomes scarce, our model allows us to flex towards creating long term value with exceptional returns. Number four, understanding commodity cycles. The cyclical nature of commodities means that low prices often serve as a reset for higher prices in future periods.

While short term volatility may challenge perceptions, NOG’s hedging strategy and non op model ensure resilience. Patient investors will benefit as long term implications unfold, creating opportunities for growth in our business and value creation. Number five, outlook and strategy. The duration of pricing troughs will be key in shaping activity levels. To the extent our operators indicate a change in activity, which leads to the lower end of capital spending, This provides NOG with increased flexibility between organic and ground game capital allocation.

Reductions in rig counts and activity if they transpire ultimately drive higher prices reinforcing the cyclical nature of this sector. Number six, capital allocation focused on returns. NOG remains committed to risk adjusted capital allocation, balancing ground game investments, debt reduction and share buybacks. As Adam will discuss further, we’re already seeing opportunities arise out of what’s transpired year to date. Every decision we make revolves around creating long term value without excessive dependence on predicting commodity cycles.

NOG’s Q1 results definitively showcase the strength of our asset base. Past cycles such as those in 2020 demonstrate our ability to create significant value during downturns and we are motivated to seize on the opportunities presented by current market conditions. We are fortunate to have strategically aligned ourselves with some of the best and most efficient operators in the industry, and we’ll be aligned to adapt alongside them with any market. Thank you again for listening and for your continued interest in our company. Adam?

Adam Zirlam, President, NOG: Thank you, Nick. The operational results during the quarter largely speak for themselves, so I will cover some highlights and then discuss our outlook on the macro backdrop. The first quarter shaped up largely as expected and we hit our stride operationally. Fourth quarter’s delays and deferrals resolved themselves quickly and our operating partners were able to bring on the anticipated TILs while logistical issues were also settled. This resulted in 27.3 net wells added to production as the Permian led the way with 40% of the activity.

During the first quarter, we spun an additional 15.6 net wells and elected to 19.1 net wells. Consistent with expectations, the Permian accounted for roughly 60% in each category, while also seeing a slight increase in gas weighted activity. We are continuously monitoring and discussing plans with our operating partners. In the volatile environment we find ourselves in, our active management of the business and the benefits of a scaled non op model will distinguish itself. We run our business and make capital decisions with constant consideration to downside risk, which is why well elections are always sensitized with lower priced decks to stress test the resilience of returns in a potential lower for longer price environment.

Our first quarter elections saw a 23% increase in lateral lengths relative to last year’s average, resulting in a 10% decrease to normalized well costs and driving an uplift in expected rates of return. The Permian and Uinta saw the largest increases in lateral lengths. However, this was consistent across all our respective basins. During the quarter, we elected the 96% of our well proposals, which had expected returns well above our hurdle rate at a flat $55 crude and $2.75 gas price deck. To date, our operating partners are making minimal changes to their development plans.

However, we expect to see a natural retreat to the core of our respective basins and could see an uptick in well productivity as a result. To the extent that we see another leg down in oil pricing, reduced activity and spending levels would likely follow. That said, given NOG’s diversification and flexibility, we can take advantage of the environment with our ground game. Even in the first quarter, we saw a market increase in opportunities, evaluating over 100 transactions while seeing a further acceleration as we move into the second quarter. We remained highly selective and closed seven transactions across the Permian, Appalachia and the Williston picking up over 1,000 net acres and separately adding 1.1 net wells.

As of today, we’ve already reviewed over 90 transactions in April, closed on four with more than 10 others committed and in various stages of diligence and completion. Navigating through the last downturn, we were able to deploy some of the most productive capital in the company’s history and we anticipate that similar opportunities could emerge in this environment. As operators look to trim capital exposure, the first place they generally look is their non operated assets regardless of the expected returns. Coupling that with smaller non ops not having the ability to fund certain types of development, we’re optimistic that we can find creative ways to put capital to work. Shifting gears to larger M and A, we’ve seen a bit of a mixed bag as would be expected in a volatile market.

Many of the processes we were involved with earlier in the year were put on the shelf as bid ask spreads widened while more gas focused assets also came to market. While we expect a relative slowdown in larger M and A, we are actively engaged in over 10 processes and having bilateral conversations with asset values ranging from $50,000,000 to over $500,000,000 Regardless of the environment, we will remain laser focused on total returns, mindful of the balance sheet, continue to take full advantage of the flexibility in our business model and respond appropriately to what the macro provides. With that, I’ll turn it over to Chad.

Chad Allen, Chief Financial Officer, NOG: Thanks, Adam. We had a successful first quarter, mostly free from the noise of material disruptions seen in the prior quarter. First quarter total average daily production was approximately 135,000 BOE per day, up 2.5% versus Q4, with oil production coming in flat versus Q4 at approximately 79,000 barrels per day. Year over year, total production increased by 13%, with oil production up 12%. Gas production has ramped both sequentially and year over year and contributed 42% to our production mix.

Gas was up 6.5% on a sequential quarterly basis and 14% year over year. Our record Q1 production highlighted by double digit sequential growth from the Uinta and Appalachian Basins help us to exceed internal estimates across several financial metrics. Adjusted EBITDA in the quarter was approximately $435,000,000 a record for NOG and free cash flow is nearly $136,000,000 up 41% sequentially on reduced capital spending compared to last quarter. And this is our twenty first consecutive quarter of positive free cash flow totaling over $1,700,000,000 since the beginning of twenty twenty. On commodity realizations, oil differentials came in at the above the high end of our guided range at $5.79 per barrel for the quarter, reflecting disruptions from the prior quarter and typical seasonal widening.

However, we expect differentials to improve from here and are comfortable with our guided range of $4.75 to $5.5 for the year. Natural gas realizations were 100% of benchmark prices for the quarter, better sequentially from Q4 due to strong Williston realizations, which were partially offset by weakness in Waha gas during the last half of the quarter. Similarly, we expect our guidance for gas realizations to accurately reflect the market outlook for the remainder of the year as it stands today. Cash operating costs continue to improve as our production mix continues to evolve. Our cash operating costs were down nearly $2 per BOE from a year ago and $1 per BOE from last quarter, which is a testament to our diverse and continuously improving asset base, both by region and by commodity.

On the CapEx front, we invested nearly $250,000,000 in the quarter. Of the $250,000,000 50 7 percent was allocated to the Permian, 20 Percent to the Williston, 15 Percent in Uinta and 8% in the Appalachian Basin respectively. I want to remind everyone that our CapEx guidance includes 200,000,000 to $300,000,000 of growth capital, which can be reallocated as the commodity price environment dictates over the next several months, implying an $850,000,000 to $900,000,000 maintenance level. This provides us with the flexibility to pivot capital towards other uses if we find ourselves in a lower for longer commodity pricing environment as the year progresses. We exited the quarter with over $900,000,000 of liquidity comprised of $34,000,000 of cash on hand, a $4,000,000 deposit and $870,000,000 of availability on our revolving credit facility.

Our business continues to generate significant cash, which we have allocated across multiple areas: growth, shareholder returns and, of course, continuing to focus on a strong balance sheet. Both our absolute debt levels and our net debt to LQAEBITDA ratios trended lower, as expected, ending the quarter around 1.3 times near the midpoint of our internal stated one times to 1.5 times range. And net debt was reduced by approximately $90,000,000 in the quarter. Moving on to guidance. We are maintaining the guidance issued on our last call.

Given the fluid situation we’re in, in the event we see a material change in activity levels as the year progresses, we’ll adjust guidance accordingly. It is important to remember, however, that we do not anticipate production levels to change materially in 2025, absent significant curtailments or shut ins, while we may potentially see CapEx spend contract significantly. With that, I’ll turn it back over to the operator for Q and A.

Conference Operator: And A. Your first question comes from the line of Noah Hungness with Bank of America. Please go ahead.

Noah Hungness, Analyst, Bank of America: Morning, guys. My first question here, I was just hoping you guys could add maybe a little more color on the production cadence. I mean, keeping in mind the macro uncertainty that you guys had mentioned, but also your strong 1Q production print, How can we think about that production cadence trending through the rest of the year?

Chad Allen, Chief Financial Officer, NOG: Yeah. As we discussed prior, we expect Flash production cadence to kind of the first three quarters of Q2 and early Q3 marking kind of

Adam Zirlam, President, NOG: the lowest in terms of

Chad Allen, Chief Financial Officer, NOG: activity. That means that CapEx will largely be equally weighted. It’s likely to be sequentially down in Q2. We have a large number of wells in process that are scheduled until later in the year. On the base case, we’d still expect Q4 to see the highest level of production absent any massive pullback in spending.

A majority of our pullback in activity will likely affect the growth rates that we discussed, but, you know, we would see we would have to see significant curtailments or deferral deferrals to kind of have an effect on our production guidance, I guess. Yeah.

Nick O’Grady, Chief Executive Officer, NOG: But the situation, though, will remain really fluid.

NOG: So obviously, with commodity prices all over the place, we’ll adjust accordingly.

Adam Zirlam, President, NOG: Yeah. I mean, the conversations that we’ve had with our operators kinda coming into quarter end, you know, everybody’s generally sticking to the plans that they came in on the year. That being said, I think everybody, you know, operators included, are gonna stay nimble with their plans. And so if you’re gonna see any sort of, you know, adjustment, that’s gonna be seen towards the back half of the year.

Noah Hungness, Analyst, Bank of America: Gotcha. No. That that makes sense. And then, my next question was on service pricing. Could you maybe talk about how service pricing today, when an AFE comes in your door, compares to where service pricing was, let’s say, at the start of the year?

Adam Zirlam, President, NOG: Yeah. From an AFE standpoint, on a normalized basis, as we alluded to, we’ve seen about a 10% decrease. That being said, that’s driven more from a 20% to 25% increase in overall lateral lengths relative to kind of the quarterly averages that we saw in 2024. From the conversations that we’ve had with operators and what we’re seeing on AFEs, drilling rates have generally been relatively sticky. Completions is probably where we see any sort of relief.

But again, I think out of conservatism, we’re keeping our estimates and guidance relatively flat as to what we released at the beginning of the year.

Nick O’Grady, Chief Executive Officer, NOG: Yes. And I mean, I’ll

NOG: make two comments. One, for us, we will accrue basically at the AFE cost. So to the extent that costs come down, it will only be at the end. And so obviously, as new wells come in, they will be adjusted accordingly. But for older wells, to the extent we see cost relief, it will take some time for us to true that up.

But what I would say is I’ve never seen a scenario where oil prices went down a lot, well costs went up. So I’ll eat crow if I’m wrong, but I don’t think I’m going to be wrong this time either. The majority of our operators have pre purchased six to twelve months of their expected materials. So that is one thing to be we have gotten a lot of questions about tariffs and things like that. So we have not seen a material impact from that type of stuff at this point in time.

Noah Hungness, Analyst, Bank of America: Sounds good, guys. Thank

Conference Operator: Your next question comes from the line of Noel Parks with Sowie Brothers. Please go ahead.

Noel Parks, Analyst, Sowie Brothers: Hi, good morning. Apologize if you touched on this already, but I’m just wondering, has the change in sort of oil and gas outlook, which of course has been particularly volatile lately, has that shaken loose any potential sellers of non op interests out there? Just as, again, the world is looking a little different now than it did three, six months ago.

Adam Zirlam, President, NOG: Yeah. I mean, I think it’s early days. What I would say in order to kind of frame it up for you, we screened, call it, a hundred ground game transactions in the first quarter. As it stands today in April, we’ve already screened a hundred transactions, so it’s certainly accelerating. And so, you know, when you think about operators as well as other nonoperators who may have the inability to fund, you know, some of these well proposals for, you know, operators looking to pare back their CapEx spend, the first place they’re gonna go is to the you you know, their non op regardless of expected returns.

And so that’s what we’re seeing right now. I think what remains to be seen, and we’re starting to make some traction in the second quarter is, you know, what does that mean from a conversion standpoint? We’re gonna be highly selective with, you know, whatever we choose to bid on, and we’re running downside scenarios to ensure that we’ve got full cycle rates of return that are penciling in a lower for longer type of price environment.

Noel Parks, Analyst, Sowie Brothers: Right. Right. It’s So is fair to say then that it as opposed to other non operated holders who might have had positions for a long time, like, you know, generational selling, that it it’s actually operators themselves taking a quick look around and saying, What can we what can we off offload?

Adam Zirlam, President, NOG: Yeah. I think it’s a combination of the two, and I would say that that’s more the the smaller side of things. On the on the larger kind of m and a, you know, you’re gonna see with the volatility, you know, a natural slowdown. Right? You’ve got expectations coming into the year on larger packages where the bid ask spread is gonna widen.

Now if this, you know, settles out, and you’ve got some relative consistency in overall commodity pricing and and people start feeling the pain and there’s, you know, capital needs wherever that might mean, then you could start seeing, you know, additional packages on the larger side, medium to larger side kinda coming to market. That being said, we’re still, you know, very busy, right, with 10 other kind

Nick O’Grady, Chief Executive Officer, NOG: of processes that we’re actively involved in. I mean, generally, if you don’t

NOG: have to, you wouldn’t want to sell your assets at a lower oil price. Right? You’d prefer to wait for a higher price because it imbues higher activity levels in that net present value calculation as well as higher prices. That’s right. However, to Adam’s point, as cash flows decline, and capital calls continue, the ground game tends to accelerate.

And so, to Adam’s point, we think this will be an incredible opportunity over the next eighteen months for us, and pretty excited.

Adam Zirlam, President, NOG: And I think the other evolution, just to build on it a little bit more, is one thing that we might see as things progress is more of these drilling joint venture types of transactions alongside operators that we’ve been successful with in the past.

Noel Parks, Analyst, Sowie Brothers: Good. Terrific. And just one more quick one. I’ve been a little bit struck by some of the gassy operators who’ve reported so far that they seem to me a little bit aggressive in assessing what they think mid cycle pricing is right now. I think I can think of one that has been talking like 3.5 to $4 and with the presumption that LNG is increasingly offsetting seasonal factors.

I sort of wondered what your thoughts are on that.

NOG: Yes. I don’t know if we’re great prognosticators on price. I mean, I think, you know, the street is littered with bodies of people who tried to make it.

Noel Parks, Analyst, Sowie Brothers: So I

NOG: I I you know, you know, I think I I I might have an opinion, but I don’t think it’s worth very much. I think our view is, in general, we obviously will look at the prevailing strip and the pricing. We will look at highly stressed scenarios. And as a nonoperator, we try to look at assets that are gonna be resilient in any market. That’s why we own extremely low cost Marcellus and Utica assets that can work in pretty much any environment.

And as a result, they have survived through good markets and bad. And I think that that’s where our focus will always remain.

Noel Parks, Analyst, Sowie Brothers: Fair enough. Great. Thanks a lot.

NOG: Yes. Thank you for your interest.

Conference Operator: Your next question comes from the line of Phillips Johnston with Capital One. Please go ahead.

Phillips Johnston, Analyst, Capital One: Hey, thanks for the question. In a scenario where you take CapEx to the low end of the range for this year, what do you think maintenance CapEx would be for oil for 2026 and 2027 approximately?

Chad Allen, Chief Financial Officer, NOG: It would be about

NOG: the same, Phillips, call it $850,000,000 roughly.

Noel Parks, Analyst, Sowie Brothers: Okay. Perfect.

Phillips Johnston, Analyst, Capital One: And then, Chad, I I probably missed this in your prepared comments, but, seems like

Chad Allen, Chief Financial Officer, NOG: you guys So sorry.

Nick O’Grady, Chief Executive Officer, NOG: Just let me let me

NOG: caveat that. That’s at today’s drilling cost. I should I should also add it. Right? So that’s assuming that we don’t see a change in cost.

Phillips Johnston, Analyst, Capital One: Yeah. Okay. Makes sense. So, yeah, Chad, I probably missed this in the comments, but you guys had a pretty nice beat on both production taxes and gas prices relative to your full year guidance. Are those expected to sort of trend back into the range for the year?

Chad Allen, Chief Financial Officer, NOG: They are. They are. I think it’s really the production tax is really a function of our production mix. But as our Permian grows, they have a bit higher production taxes. So expect that to kind of move back into our guided range.

Noel Parks, Analyst, Sowie Brothers: All right.

Phillips Johnston, Analyst, Capital One: Perfect. Thank

Conference Operator: I will turn the call back over to Nick O’Grady, CEO, for closing remarks.

Nick O’Grady, Chief Executive Officer, NOG: Thanks again for your interest in our company, and we look forward to talking to you in the coming weeks.

Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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