Greetings, and welcome to the Northern Oil and Gas Fourth Quarter and Year-End 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. Brandon Elliott, Chief Executive Officer. Thank you, sir. You may begin.

Thanks, Jesse. Good morning, everyone. We’re happy to welcome you to Northern's fourth quarter 2018 earnings call. Before we get to 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 measure can be found in the earnings release that we issued earlier this morning or in our updated investor presentation on our website. All right. We’re going to switch up the batting order. This quarter, we’re going to let Bahram Akradi, our Chairman, walk through some comments as both a Board member and a large shareholder. We will then turn the call over to Nick O’Grady, our CFO for his comments and highlights some of the financials. Then I will take it back and make a few summary comments and then we will go ahead and open the call up to Q&A. We obviously have a few others in the room with us today to help with the Q&A portion, our President and Founder, Mike Reger; Adam Dirlam, our EVP of Land; Jim Evans, our VP of Engineering; as well as Chad Allen, our Chief Accounting Officer. With that, I will turn the call over to Bahram.

Thanks, Brandon. Nick and Brandon provided feedback to me from their most recent investor meetings. I'm looking forward to taking this opportunity to provide you with our strategy and forward path for Northern Oil and Gas. Let me start by saying it's always crucial to listen to all the investors. Analyze, rationalize, and incorporate into our overall strategy all that makes sense, and finally, decisively make the best decision for the entity itself, in this case, Northern Oil and Gas by always focusing on what's best for Northern Oil and Gas, our shareholders, vendors, and employees will be rewarded. So here is an attempt to provide a clear and concise path for Northern Oil and Gas in 2019, 2020 and beyond. Number one, remain free cash flow positive with oil prices in the $40 range. Number two, keep the debt-to-EBITDA below two at all times and generally closer to one. Number three, grow debt adjusted cash flow per share. We view this as the best metric to show true meaningful growth. Four, grow the Companies production and cash flow without compromising any of the three points I just made. Five, be prepared to replace our second lien bond on or before May 2020, this should create up to $25 million of incremental cash flow. Six, coinciding with replacement of the second lien bonds, begin a sustainable dividend returning a portion of this incremental cash flow to our shareholders. And number seven, unless essentially strategic, all acquisitions must be accretive to all metrics. The rest of the team will provide more detail to the outline that I’ve just conveyed. But before I turn it over to Nick, I would like to respond to the comment we often hear that we as a non-operator do not have control of our own destiny.…

Great. Thanks, Nick. I'm going to summarize from a high level what I hope you have heard from us this morning. First I hope you realize that we have very good alignment from our Board, our Chairman and our management team that our Board is striving to align all of us with shareholders. Second, I hope you heard some clear objectives. We are positioning this company to generate durable cash flows regardless of commodity prices by controlling our capital spend both higher and lower depending on the commodity prices that are in front of us. We are driving debt lower with debt-to-EBITDA sub 2x now and striving for 1x to 1.5x as soon as possible. We will maintain, as Nick mentioned, an active hedging program, locking in some of the returns we expect when we commit shareholders capital. As Nick mentioned, the cash flow from these hedges will also allow us to invest countercyclically should commodity prices fall. We are incentivized and focused on growing debt adjusted cash flow per share and total shareholder returns. We will continue to look to consolidate non-op working interest in the basin, but only if acquisitions do not compromise our objectives. We will look for an opportunity to refinance our second lien debt when the timing is right and that will allow us to move the conversation to a sustainable and long-term plan to return capital to shareholders. Third, I hope you heard from Nick, that the financial performance of this Company is incredibly strong and gaining momentum. The capital allocation efforts that we have been working on for some time now are truly bearing fruit in not only higher production, but better, more profitable production as well, with low cost and significant leverage on the G&A line. We are in a position to…

[Operator Instructions] Our first question comes from the line of Neal Dingmann with SunTrust. Please proceed with your question.

Good morning, all. Brandon, my question maybe for you, Nick or even Bahram, when you think about sort of, I guess it's on that Slide 5 where you talked about the flexibility. When you all talk about how you sort of rank as far as shareholder, you mentioned this, I think Nick did, I know in a bit detail already, but there's flexibility of – and sort of priority of returning shareholder value versus just growth out there right now given the sort of the flexible plan that you have?

Yes, I think you’ve heard Nick mentioned it's going to be a little bit all of the above, right. I mean we're going to evaluate returns day-in and day-out to the extent that we can see additional working interest that Adam and his team can see become available and units that we think are going to be outstanding results. Those are small ground game acquisitions we're going to make. But we're going to try to balance it. I think where we've guided net well adds is a pretty responsible and reasonable approach to the year, sets up good sequential production growth beginning really in Q4 into Q3 and Q4 and sets up 2020, and again protects that cash flow like you've heard us say in a numerous times.

Okay. And then looking at Slide 14, where you just – on your map, unless you know all of those wells, a great slide by the way. Your thought when either two things, so when either Mike's looking for deals out there or when you all are looking to participate, you have has that sort of tier 1 area, which all considered tier 1 has that expanded or maybe you could just talk about sort of your focus area? I know, I think recently, I think it was Oasis that added a bit of tier 1 further west almost in the Montana, I'm just wondering if you could comment how you all sort of focus on a regional basis?

Neal, thanks. This is Mike. You’ve seen that what used to be tier 2 turned into tier 1 and what used to be tier 3 turned into tier 2 plus. This is the first quarter where we've expanded the map probably by double on this page. We also wanted to have a broad swap at different operators just showing everybody's capabilities in the field. You can see some wells, even some wells out further west on the Montana line that are significant. Continental started drilling wells down in Billings County and the border of Billings start down in that pronghorn area with significant results. They haven't had a rig down there in years and they started and brought a well on line here in January. You can see everybody here – there's record wells everyday, we're in most of these records. Continental and Marathon and Hess and others have really significantly brought on kind of new wells with this new completion design and we're the direct beneficiary of all this advancement.

And then if I could just – Michael, I have got you one last one just on M&A just opportunities that you are seeing out there is as good as ever. Are there less more than any color you could add to that? Thank you.

You bet, Neal. I think as – we continue to see larger acquisitions that we analyze. Again, it's going to come down to whether it's accretive on all metrics or not. As you saw from our activity in 2018, we are the markets for non-op in the Williston. As far as the larger acquisitions, we will continue to analyze every single one. As far as the ground game goes, it's never been as good as you probably heard from other operators in the conference calls we’ve had. They're talking about expanding free cash flow, which means bearing back their CapEx. First thing to go is going to be non-op exposure and we're going to be the direct beneficiary of those divestitures.

Great to hear. Thank you, all.

The only other thing I’d add from a ground game standpoint. In 2018, we closed about 90 deals give or take, that's about 22 to 23 a quarter kind of through 2019, to date we've closed 25 deals. We've got about seven in process. So the near-term drilling opportunities, the high rates of return, those are the types of opportunities that we're focusing on.

So even run a little bit ahead today than last year.

You got it.

Perfect. Thank you, all.

Thank you. The next question is from the line of Jeff Grampp with Northland Capital Markets. Please proceed with your question.

Good morning, guys.

Good morning, Jeff.

I appreciate all the shareholder friendly commentary in the prepared remarks.

Thanks.

I was hoping, Nick, you kind of touched a little bit on 2019 being your highest kind of maintenance CapEx year, was just hoping maybe to get a little bit more details on that front, maybe in terms of CapEx or wells you need to kind of keep production maybe in that mid-30s level. And can you touch on maybe how you guys expect that to change in 2020 and beyond? Nicholas O’Grady: Yes, it's pretty easy to explain. Obviously you had a huge ramp in activity as oil prices were in the 70s and late 2018. And we had a huge organic ramp and obviously that goes through the things we acquired as well. So our decline rates are probably mid-30s this year. It will step down into – and given where the rig count is, we'd expect pretty stable activity. And so that should naturally step down into the 20s and beyond. So if that's, let's call it a 28 to 30 depending on. A lot of it is less than number of wells and really the timing in which they come on line. So if you know, we put 30 wells on in the fourth quarter versus steadily through the year, it's a different scenario. What we tell you is that the way our engineers have risked and model this that that 30 wells should step down a couple wells a year throughout that. And certainly the strip, we'd expect that to be kind of the base case scenario.

Okay.

And Jeff, just to put some color on 2019, obviously no surprise to anybody that the Midwest and the North has had some pretty good snow year. So hence accommodation with a little bit of the curtailment stuff that we talked about in the release that the timing of those net wells in 2019 going to be a little bit more backend weighted and out of the Q1 and then we'll watch and see how warm it gets and what road restrictions look like, but that's kind of how we're caveat in the year a little bit.

Sure, understood. That’s really helpful. And for my follow-up, it looks like at least relative to the original 2019 guidance you put out kind of the implied average well cost looks to be more or less unchanged from where a lot of your 2018 actuals were. So I was curious given the cost environments and the other commentary we've heard elsewhere about some service deflation, are you guys seeing any of that coming through on AFEs? Or is there just some general conservatives in there to keep flat well cost or just kind of curious what you guys are kind of baking into the model here?

Yes. We really didn't see a lot of inflation as we came through last year. And so we're not expecting a lot of deflation this year. I would say they've been pretty stable at about that 8 million. Certainly at the rig count if the rig count drifts and oil prices stay down here, maybe towards the backend of 2019 you could see a little bit deflation, but we're not baking that in at this point.

Understood, makes sense. Thanks for the time guys.

Thanks.

Thank you. Our next question is from the line of Phillips Johnston with CapitalOne Securities. Please proceed with your question.

Hey, guys. Thanks. My question on maintenance CapEx and decline rates was just answered, but just wanted to follow-up on Nick's comments about possible timing for refinancing in the second lien notes. Would an early call sometime this fall still potentially make economic sense and what's some of the calculus that goes into that decision?

Yes, it's pretty easy. I mean, make whole calculations are really for those of you who don't know, so the bonds are callable at 104 next May, you can call them today if you want. And typically then you'd have to pay the interest that you'd owe between now and then, reduced by the treasury rate. And so really if you go to June, it will basically step down each month between now and then. What I tell you is that we're looking at all of the different scenarios and the benefits and costs, right everything has a cost and a benefit. And so really it comes down to how much money can we save and what the payback period is on that. So I think not to be coy, but it could be tomorrow and it could be May of 2020. I think we're really going to spend a lot of time in the next few months with our advisors and think about the best and most importantly least expensive ways to do it that really accrete because we don't want to just to solve tomorrow's problem, do something that costs us long-term money and so we'll just be very thoughtful about it. Obviously, we'd love to pay a dividend tomorrow so it's on our mind to figure out the fastest solution to do it, but we also want to make sure it's the best one.

Yes. Makes sense. Thanks guys.

Thanks.

Thank you. [Operator Instructions] Our next question is from the line of John Aschenbeck with Seaport Global. Please proceed with your question.

Good morning, everyone and thanks for taking the questions. And so before I jump in, just have to tip my hat to your prepared remarks, which frankly took a lot of my questions off the table. But I do want to follow-up on a couple of the goals that you discussed, specifically the second lien and second lien refi and the dividend. I apologize if I missed this, but I believe there currently is a restriction in the place on the second liens that prohibit the issuance of a dividend. So I'm just trying to get an idea of kind of the timing of a dividend, how that relates to the second lien retirement? Could you actually, I don't know, get a waiver on that restriction? Or would you have to indeed wait until the second liens are retired? Thanks. Nicholas O’Grady: There are numerous ways you could lead. Number one, we have restricted payments that so we certainly could pay one tomorrow and use some of that basket and then try to time it around that. The second part is that yes, not necessarily a waiver, but you could always do a consent and do that. We've already done one when we did the RBL. But honestly I think that we don't – I think both for the second lien holders sake and for our sake, we really want to have the balance sheet to the final solution of what we've always planned.

And I'm going to add to this. This is Bahram. Ultimately, as I mentioned, we want to build yet in the stronger Northern Oil and Gas. So my desire is to find a path to payoff the second lien, replace it with a much cheaper capital. As I mentioned before, when we do that coinciding with that is the time to start a sustainable dividend. The goals for the company long-term is to maintain a debt-to-EBITDA of under one and a nice dividend that is sustainable and we can continue to methodically grow that dividend for our shareholders. We're not going to do anything irrational. We're not going to jump the gun. We still want to make this company bigger and stronger, so we can go through any periods of volatility with commodities. We've made a tremendous amount of progress over the last 18 months as you guys can see and we still have higher and higher goals and standards for our company, and we're going to take care of Northern Oil and Gas as I mentioned before, and the entity will take care of all constituencies involved with it. Hopefully that clears this for you and others who maybe have the same question.

Okay. Got it. That's really helpful. It actually leads perfectly into my follow-up just on the overall dividend strategy. Nick, you mentioned in your prepared remarks potentially issuing special dividends in the event of higher prices, higher cash flow, just wondering if you're also considering other ways to flex the dividend with higher prices such as, maybe targeting a percent of cash flow. So yes, I would just love to get your thoughts on what you guys are considering additional options to just return excess cash flow through a dividend? Thanks. Nicholas O’Grady: I was a history major in college, which might not dovetail to the CFO of a public company, but I have a long memory and I think dividends are the right thing to do. But I want to remind everyone on the call, I watched the birth of the upstream MLP and the disaster that ensued from that. And so in my prepared comments, I talked about that we are in a depleting business. We certainly enjoy some of the best margins in the business and we want to be able to pay that back. We also believe that it is about balance and making sure that we can continue to grow the entity because oftentimes if you don't reinvest in the future, you put yourself at risk. So if you do something like a percentage of cash flow, I certainly think we can formulize the strategy of when special dividends and how the regular dividend would grow. And I think we will do that when it's appropriate. But I'd be very cautious on setting some esoteric target because ultimately that's what got those companies in trouble. For example, when you're paying out a fixed dollar amount in any business where the revenues are volatile, the only thing worse than making a dividend too big is cutting it, and so we want to make sure we can do it in a way where the investors know what to expect and I think that's really important, but at the same time that we do what's right for the entity long-term.

Okay, great. Very well said. I appreciate the time. Thanks.

Thanks.

Thank you. Our next question is from the line of Jason Wangler with Imperial Capital. Please proceed with your question.

Good morning, all.

Good morning, Jason.

Maybe asking from a different way as you're looking at the second liens and things and obviously generating the free cash flow, would at least the near-term be basically discontinue to paydown. I assume the credit facility as you get those cash flows in as you kind of get positioned to refinance those, whether it's – as Nick said tomorrow or May 2020.

Yes.

Okay. That’s good enough for me. I just want to make sure…

That's the only one word answer you'll ever hear from Nick.

Those are the best ones and…

And known…

I was curious too on the hedging side, obviously you guys have been pretty aggressive there. I think it's 63% or something of this year's production. Is that a level we should kind of think about going forward is where you want to be? Is it higher or lower or just kind of where your thoughts are on, on the general level of it?

Right, I think that's about a good place to kind of benchmark us against. I mean, I think we feel like obviously as we're committing capital to returns, as we've pulled everybody over and over again, we're using the strip at the time we commit that capital. So we think we should hedge some of it. So yes, we're going to run that kind of hedge book as you see it laid out, I would say fairly consistent. We'll be opportunistic at times, but yes, that's a good level.

Okay. I appreciate it. I'll turn it back.

Thanks Jason.

Thank you. [Operator Instructions] Our next question is from the line of Derrick Whitfield with Stifel. Please proceed with your question.

Good morning all and congrats on the strong quarter and update.

Thanks, Derrick.

All right, so two quick questions on your operations updates and comments, perhaps for Brandon or Mike, I definitely agree that Page 14 is impressive given the aerial extent of the current core fairway. Do you have a view of your inventory depth of 1 million barrel type wells?

Yes, we’ve got Jim Evans in here and he's shaking his head and saying, hey, we just finished year end reserves and so we're updating those type curves and updating some of those results, so probably a little early we’ll maybe get you an inventory update here in the near future.

Got it.

I think the long answer is I think we are continuing to see improvements even in the core apples-to-apples as operators are adjusting completions. We are continuing to see gains in well efficiency. I think you heard Nick mentioned that as well, that we continue to see that. So we feel good that the core is improving. And as you heard Mike said, even stepping outside the core, we're seeing some pretty significant improvement on that border between core and tier 1 and as well out from tier 1 to tier 2. But we'll get you updated inventory numbers maybe in a little bit.

Derrick, this is Adam. The only other thing that I'd add there is from an operator standpoint, we're starting to see kind of a bell curve tightened. And so you're seeing some of the other operators that were slow to kind of catch up on the completion methodologies see kind of the best-in-class performers and kind of tailor their completions to some of the better completion methodologies that we're seeing.

Sounds good. Definitely understood. And then really a build on your last comments there, if you were to look at Page 14, are there one to two wells out of that group of wells that really surprised you versus your pre-drill estimates?

This is Mike. Derrick, I would say that everything in the core has started to surprise us over the last year. You start to see some of these peak 30-day averages over 4,000 barrels of oil. You have some that have come on and you're delaying 100,000 barrels in 30 days, it's just really unbelievable production results from these new completion designs. We've seen wells in device come in that have – that are double our original EUR estimate. We saw Continental moved down to Billings County where they haven't had a rig in there for five years. They drilled one well right in the middle of where we have a pretty significant acreage position. We bought an AMI partner of Continental out about five, six years ago. And that acreage is just been sitting down there, held by production with one well. Continental moved the rig in and drilled the well that has a 30-day average of [1,350] Boe. So we're encouraged by this new completion design. It's opening up the entire field. And you can see and I'll just reiterate what Nick said and what several others have said. The slide that talks about our type curves, our 2018 wells in aggregate are tracking over 1 million barrel type curve. That isn't cherry pick. That's our 2018 wells set. And that's 475 plus wells. This field really turned itself on and we've never been this excited about the rock.

Very helpful Mike. Thanks for the colors guys.

Thanks Derrick.

Thank you. The next question is from the line of Lenny Raymond with Johnson Rice. Please proceed with your question.

Hey guys. How are you doing today?

Good Lenny. Thanks.

So do you all have a breakdown of how much of 2019 activity will be weighted towards public operators opposed to private and are we seeing it more public operators as privates are deferring completion activity with the lower oil prices?

Adam?

This is Adam. I’ll just give you a rundown. Our D&C list is kind of currently weighted towards Continental, Whiting, Slawson, Conoco and Marathon kind of in that order give or take. And that hasn't necessarily changed even from 2018, and same as kind of our elections that we're seeing. So the cadence is effectively kind of remain the same kind of since the back half of 2018.

So yes, Slawson obviously the only – really private on there that's on that, probably the top – almost the top 90% of the D&C list is basically every names you would all recognize except the one private being Slawson.

Okay, great.

And maybe you wouldn't recognize Equinor just because that's Statoil now, but everyone else is public.

That's very helpful. And then also you've historically talked about that we would see a 40/60 split first half to second half, and is this year similar to that? Or should we expect more of a split between first year completions and second half as you all alluded to earlier in the presentation.

Yes. Lenny, you're correct. We do normally come into the year with a little bit of a 40/60 split. But we are looking out the window up here in Minneapolis and similar winter weather, kind of up in this area. The country probably has a stack in those completions a little bit more to the back half than normal just given winter snow pack and some early concern on maybe road restrictions. We haven't seen it yet, but you know us, we do try to take that into a little bit account as we start the year, so maybe a little bit more backend weighted than the normal 40/60.

Perfect. Thank you. That's all I have today.

Thank you. We have reached the end of our question-and-answer session, so I'd like to pass the floor back over to Mr. Elliott for any additional concluding comments.

All right. Thanks Jesse. We appreciate everyone’s participation in the call and your interest in Northern Oil and Gas. Do take note that we have a busy schedule over the next couple of months at some conferences around the country, and some of those details are in our press release. So we look forward to seeing some of you on the road and we will hope to plan to talk to all of you again next quarter. Jesse, you can give the replay instructions. We appreciate everyone's attention.

Thank you. If you'd like to access the audio replay of today's event, please dial (877) 660-6853 or (201) 612-7415. Then enter ID number 13688118. Again this does conclude today's conference. We thank you for your participation and you may now disconnect your lines.