Greetings, and welcome to the Northern Oil and Gas First Quarter 2019 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 first quarter 2019 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 last night or in our updated investor presentation on our website. With that out of the way, this morning, we’re going to stick to a format we used last quarter. Northern’s Chairman, Bahram Akradi, is going to lead us off with some of his comments; Nick O’Grady, Northern’s CFO will follow Bahram and highlight some of the financial results for the quarter. I will then make a few summary comments before we open up the call for Q&A. Like last quarter, we have with us in the room today to help with the Q&A portion: Northern’s President, 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. With the recent announcement of the Flywheel acquisition, I’m excited to take this opportunity to reiterate and update our strategy and forward path for Northern Oil and Gas. On our year-end conference call, I listed our priorities and our strategy, and I would like to stay with the same format and update you based on what our expectations will be after closing the Flywheel acquisition later this year. One, remain free cash flow positive with oil prices in the $40 range with the Flywheel acquisition, we expect to expand free cash flow generation; two keeping net debt to EBITDA below two and striving for closer to one times. With this acquisition, we remain under two tines net debt to EBITDA and will continue to pursue further delivering of our expanded – with our expanded cash flow generation; three, growing net adjusted free cash flow per share. Flywheel is accretive to this metric, and we expect debt adjusted cash flow per share to improve; four growing the company’s production and cash flow without compromising one through three. Flywheel once again accomplishes this; five, once we have closed the Flywheel acquisition, we are in better – we are better positioned to replace our second lean bonds on or before May of 2020. This will create incremental cash flow from lower interest expenses; six, coinciding with the interest expense saving from replacement of the second lien bonds, along with expanded free cash flow from acquisition, we are better prepared to initiate a sustainable dividend into 2020. Seven, we really like our position at this point and are excited to be able to raise our production guidance for the year. Thank you for listening, and I look forward to answering your questions later in the call. Now, let me turn it over…

Thanks, Nick. Like I did last quarter, let me emphasize what I hope you have heard from us this quarter. Northern had another good quarter and a string of quarters where the company and our assets have performed at least on plan and often better than planned. Production outperformed again this quarter with costs just slightly higher than our expectations. Despite the lower gas realizations, primarily driven by lower propane prices in the quarter that drove a good portion of the variance versus expectations, our operating cash flow exceeded our drilling and development CapEx again this quarter. We continued to gear this business to be cash flow positive even during times of low commodity prices. Debt levels remain in check and apart from the closing of Flywheel, we currently plan to allocate a significant portion of our free cash flow to debt reduction in the coming quarters. We continue to allocate capital in a prudent fashion that will continue to generate long-term growth and critically debt adjusted growth per share. Hopefully, this is evident not only in our consistent drilling and completion budget, but also in the logic surrounding the Flywheel acquisition we announced. We continue to plan for the refinance of our second lean bonds over the next 12 months and plan to use the increased financial flexibility provided by the refinancing to begin returning even more capital to shareholders. Let me talk more about some that has us optimistic in the coming quarters. One, capital discipline by operators is benefiting Northern with increased well efficiency and performance as their own focus on cash flows and returns is giving us a tailwind with which to make our capital allocation decisions. Operator capital discipline is also causing them to look at and potentially shed additional non-op working interest. Also as…

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

Good morning guys. My question is for some of the additional opportunities you’ll see. You’ve certainly been attractively picking up higher working interest on some of these attractive deals. I’m just wondering, Nick for you and the team, when the deals are seen, could you talk about -- are there opportunities for higher working interest? And are you willing to do that versus I know in the past, you know what was kind of 0.5% or whatever you all would play? Maybe just talk about the working interest you are looking at on this deal? Nick O’Grady: Yes. Neal, it’s Nick. I think I might let Adam talk a little bit about this. Because what I can tell you is that in aggregate, and this is a -- it’s a balance between -- obviously, we talk about capital allocation and there’s such acute focus on budget and things like that and obviously generating free cash flow, it’s very important to us. But at the same time, we were also inundated now more than ever with opportunities in some cases that have enormous returns on capital employed. And it’s really a balance between managing that budget and those things and those opportunities that present themselves. So I mean, Adam, you want to talk a little bit...

Yes. Our average working interest is around 7%. We really don’t see that deviating as a whole. As far as the opportunities that we’re seeing that kind of depends on the counter parties. So the deals that we’re doing with operators, generally those working interest might be a little bit chunkier, just given kind of the operated nature of those working interests. Smaller non-op counter parties, those might be a little bit less. And so it’s taking a look at everything in aggregate and deploying capital to the highest rates of return. Nick O’Grady: Hey, Neal, it’s Nick. Let me put a little color on that. As I look at the election activity that Adam and Jim have done this last quarter. I mean, again, I mentioned in my prepared remarks, but I’ll hit it home again which is, these really are some outstanding wells that we’re looking to participate in with EURs as I mentioned, as good as they have been and weighted average IRRs continuing to be very, very strong. So we think from a shareholder perspective, this is the kind of capital that we should be committing to, very high rates of return.

Yes. That makes sense. And Brandon thanks for taking my next question. I agree with your comment, just continue to be surprised with the stock given the amount of production and permitted cash flow. Do you think that is evident that you and Nick have laid out -- I mean, is there a way, and I think Bahram had even did a good job talking about that. Is there a way to either sell forward or I’m just sort of wondering, is there something out that you think that you could help investors better recognize and create the value upfront? I’m again kind of surprised that your sales given the cash flow stream and that is quite evident out there for not only for this year, but well in the next year better than much larger companies. I’m just wondering again, if investors aren’t going to recognize that is there a different way to bring that forward? Maybe Nick, a question for you?

Neal, this is Bahram. I really appreciate your comment here, but let me just say that -- and every time, every quarter that I come in here for this call and every interaction I have on daily basis with this team, just gives me the comfort as a large shareholder of this company that this is an amazing company. There’s an amazing team. We literally, as you guys can all attest, completely have transformed this company’s balance sheet in the last two years. We’re rock solid. We’re making money. And we’re going to continue to make money. We focused on making cash flow a big metric and growing cash flow per share big metric, and we are on track to do so in the foreseeable future. So while on a the level frustrated like the rest of the team is about the price of a stock, I think it is temporary. It is literally going to take some time. We’re going to continue to demonstrate our capability to deliver what we promised quarter-after-quarter. The company is going to continue to get larger, bigger. So as we become more -- a larger organization, maybe more noticeable. And then finally, we do need to have a shareholder transformation, so transition of some shareholders. We are proud of all the acquisitions we made last year. It was necessary and strategic to get our balance sheet, to get to exactly where we wanted to cash flow positive. It’s the critical mass that we have been talking about. Having said that, we also recognize that we -- with all the exchanges and all of the transactions we did using our currency, we have a tremendous amount of unnatural shareholders. It’s going to take several more months, but no later than end of the third quarter, early fourth quarter, these shareholders will be transitioned to the long-term shareholders. And I believe that that totally will change the market’s perception of this company. So patience is a virtue for us. We’re going to keep our head down and focus on our strategy, execute what we have been doing, and once again, I love this company, and I am proud of this team.

Neal, it’s Brandon, and I’ll tag onto what Bahram said. As you know, I mean, I think we’ve laid out a strategy that we think fits this business model. It’s the right path. I think, we are absolutely on the right course. I think, we’re allocating capital as well as we’ve ever done. So I think we’re going to -- as Bahram said, we’re going to stay the course. We don’t appreciate the market valuation, but as you know, we’ve been doing this a while. You know that companies and management teams got to put their head down and keep delivering what they say they’re going to deliver and keep pushing forward. And I think, that’s what we’re going to do.

Great response guys. Thanks so much.

Thanks, Neal.

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

Hey, guys. How are you doing today?

Good, Lenny.

So on the release and prepared remarks you talk about increased cost in the first part of the year appearing to be transitory and then also that you don’t see the curtailment coming of into normal levels into the third quarter. From a modeling perspective, like should we be modeling to LOE come in line with what we saw in the first quarter? Or there will be some reduction in that in the second quarter and trends went down as the year progresses all the way? Nick O’Grady: I think -- Lenny, it’s Nick. I think you’ll see it start to come down some -- throughout the quarter -- throughout the second quarter and into the third quarter and then eventually it will reach its baseline within our guidance. So if you think about the socialization on those costs, obviously, we bore the brunt of that in the first quarter we expected again it’s probably a little bit higher than we might have hoped for, but at the same time, nothing there. That’s why we guide the way we do. But overall, we know where the sort of terminal value of that is, which is well within that range. And so you should see it get to that within the next few quarters. And maybe just in terms of capital, I want to address this because I am -- as a former institutional investor, typically I would see some of the company report and the first two things I look at their EBITDA and their CapEx and then just decide what that means. But that’s the policy of quarterly reporting, which is that we are -- we accrue for our CapEx. And so if you -- a farmer plants the seeds in his fields and then they grow later, right? And so it’s no different for us, which is that we accrue for wells and processes, and they don’t necessarily sync with the completions from a quarter-to-quarter basis. I think that’s something just to keep in mind as you model that out, which is that on our annual numbers, they will stay quite consistent. But in terms of the timing of how those accruals work, it’s not necessarily timed up with the number of net wells that come on in any particular quarter.

That’s very good color.

Lenny, it’s Brandon. I will put a little bit on that too, which is again, if you look back our results over the years, it’s not uncommon to have our 1Q first quarter LOE be the highest quarter for the year, even in the normal year. And I think you’d -- you know from all the operators that have reported, I would say 1Q was a little bit tougher than normal. So, again, not uncommon. Yeah, we probably should have done a better job coming out of 4Q to get that number a little bit higher in our guidance. But again, to Nick’s point, we feel really comfortable that it’s not that much out of normal, but it’s not going to get us back into our guidance and trend for the year.

That was great. And one more for you all. You have kind of talked about with Neal a second ago, but with the working interest that you are picking up from as operators shedding theirs to come within capital budget. Is this something that we’ll be seen throughout the entire year that you think you’ll have opportunity? Or this is more of a first quarter phenomena, is it slowdown?

Lenny, this is Adam. I mean, Q1 picked where Q4 left off. And we’re still seeing the opportunities. So obviously, that could change. But as far as what we see right now, there’s – we’re as busy looking at those deals as we ever have on a ground-game basis. And that gives us availability to be picky too, right? So, we’re going to take look at the best opportunities and deploy capital that way. So to get back to your question, I don’t see the opportunities necessarily slowing down at least in the short-term.

And Lenny, let me hit it one more time. And these are clearly some outstanding investment opportunities. We’re talking about 40%-plus IRR type prospects with obviously wells that are coming on sooner. It’s not an acreage that we’re buying that could be developed in a couple of years. These are near-term drilling opportunities with very, very high IRRs. And again, to all of our points, we’ve made it over and over; we know there’s a sensitivity around CapEx. But if you and I were sitting in a room together, running a private company, these -- this is the kind of capital you would obviously want to have an opportunity to invest.

And maybe just to add one more thing. The interest that we picked up from the operator represented a third of the transactions that we did, right? So, we’re getting insourcing opportunities from a myriad of different entities and individuals. They could be the middle owner who can’t necessarily handle the cash call of pad drilling. It could be private entities that’s more focused in another basin. So, there’s handful of different opportunities and sellers out there then necessarily just the operators cutting these CapEx opportunities.

All right guys. That’s all I have today and thank you.

Thanks Lenny. Appreciate it.

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

Good morning guys. Sticking on the ground-game conversation. Can you just touch it all on the valuation side of things? Has that market changed at all drastically either way? And I guess, I’m kind of thinking about if operators were kind of changing their strategies on the non-op side. Is that -- does them coming into the market, change the valuations that you guys have been seeing at all?

What I tell you is it our methodology. Our methodology is completely unchanged. So, we analyzed these the same way with our same hurdle rates. What I would say is that I don’t want to mince words here, but I would say that, look, the gauntlet -- everyone on the phone here is keenly aware the gauntlet of capital discipline is upon the oil and gas. It’s has been a decade of underperformance. People are furious with oil companies pouring money into the ground and returns on capital are very low. And we have very candid conversations to the operations, which they say it’s quite painful for their non-op because they might believe their internal well is 60% rate of return and the non-op well that they’re getting validate is also 60% rate of return, but they have to choose because they’re afraid of missing their CapEx forecast from the street. And so therefore, those bells get parsed out. And -- so ultimately for our methodology, I would say that it’s exactly the same it’s always been. I would say, from a competitive landscape, the main difference is that there’s been a game of Whac-A-Mole where there is less and less capital available, and it has made us more of a clearinghouse and more competitive over time.

One other thing I would add too is, the opportunity that we’re seeing are well proposals, right? And so you have a limited number of days in order to evaluate that and that’s something where Jim’s team comes into play with the 300-plus type curves. We might already be evaluating these wells with the interest that we have in it. And so it gives us the ability to move quickly and a lot of times the purchase price is important, but certainly the closest is even more important when these parties are trying to get out of that capital call. And so you’ve got a finite number of days to kind of make this happen and that’s where Northern’s competitive advantage comes into play.

Yes. That’s definitely a great point on that. And for my follow-up, I was curious on the completion front. It looks like you guys are roughly guiding, to call it, flat number of wells on a year-over-year basis. But 1Q looks to be up a little bit; ground game sounds great, wells in process, Brandon you said, highest ever. So, how do you guys kind of think about the potential of putting more wells online than what you’ve guided to right now and obviously, ramping up CapEx? But returns are good, so I guess, just kind of wondering how you guys are evaluating that potential trade-off as the year progresses?

Yes. This is Brandon. I think as Adam and those guys are looking at these additional opportunities on the ground-game stuff. Some of that stuff at this point in the year, if we’re just getting started on and it is really going to be stuff that gets added, probably early next year or at the very soonest, very late in this year. So I think, that’s why we feel comfortable with our CapEx guidance where it, is because the ground game stuff that we’re seeing now is much more of our of a 2020 activity base load as it is a 2019 addition, at this point.

All right, I understood. I appreciate the details that I get.

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

Thanks. Good morning all.

Good morning, Derrick.

Perhaps for Brandon, Mike or Adam on this one, building on the question, the setup that you guys have outlined on your ground game opportunities. Certainly make sense from an investment perspective. Just for the benefit of those listening. Could you comment on the magnitude of the inflation, you’re seeing relative to past years?

Yeah. I mean obviously, Adam mentioned, the busiest ever. And I think, as Nick mentioned and the fact that, operators are shedding some of that -- wanting to shed some of that non-op capital. I think it’s a continues to be robust. Quantifying it as far as pickup over year-over-year on a net well basis, I’m looking at Adam to see if he’s got, maybe data in front of him. I’m just quantifying it. Nick O’Grady: I mean -- Hey, Derrick, it’s Nick. I’ll just give you a comment. I’d seen three material ground game dealer shop to meet that in aggregate would represent, over $150 million of capital. And I don’t want to make it clear that, that’s not $150 million capital that we want to spend or is just the magnitude of number of transactions that are out there in the scale and size of some of them.

Again, so keep going back to rate of return, that’s what we’re focused. And so, that rate of return might be on smaller working interest, it might be on larger ones, kind of the overall landscape we’re seeing is, with the operators shedding that, it’s definitely larger than it has. And maybe in the first half of 2018, we saw that start to pick up in Q3, Q4 of 2018 and it’s kind of stayed consistent with that opportunity set through today.

And Derrick that is obviously, as you know, with all this pad drilling and big CapEx come down, that excludes some even more of that interest. And again, with this much opportunity coming at us, we’re obviously being pretty damn selective on what we’re willing to bid at and look at.

That’s very helpful. And as my follow-up perhaps for Nick, in your prepared comments, you noted a higher entity completions and longer laterals. Are you guys seeing completions with proper intensity in excess of £1,000 per foot in model links in excess of 2 miles? Nick O’Grady: I’ll let Evans he is engineer, who answer that question.

Yeah. This is Jim. We are seeing some operators do some tests, where they are going all the way up to £2,000 per foot. We are still waiting on results from that kind of stuff, but we’re getting proposals for that already. We’ve got some of our operators that along the lake, they’re going to drill a little bit longer laterals. So they are drilling 3 mile laterals. And then we’re also seeing some test of dual laterals. So those drill one in the Bakken and one in the three ports from the same vertical location. So that’s what’s driving some of those higher costs.

High returns, but also higher cost.

And then, if I could just sneak one more in for you guys and this is really relatively question. But in recent months, we’ve noticed, you’ve linked in your message on the merits on the non-op model in your PowerPoint. Are there specific elements that you guys believe are misunderstood by this street?

I mean, I think, the guys that have followed us for a while understand the non-op and benefits and risks associated with it. I think most importantly as we are -- as Bahram mentioned earlier, we are trying to expand the shareholder base and reach farther as this industry is going to have to do to gain back some journalists and gain back some energy investors. So we just want to make sure that we take the time to really clarify what all this non-op means to those that aren’t familiar with us and help them understand -- the benefits.

And I like to add the emphasis -- this is Bahram, again. The emphasis that I want to make is that just the -- when I talked to investors, this is sort of a notion they’ve heard from somewhere non-op is good and everybody has jumped on the bandwagon. And frankly, I think there is a vast difference between a non-op that has 2,000 acres and works with the couple of operators versus a non-op the size and magnitude of Northern Oil and Gas. Our ability to flex, make decisions, participate, not participate, yet maintain our growth, yet to allocate capital correctly. It’s unmatched to any other non-op in Bakken for certain. So that is what’s misunderstood and I keep thinking that maybe at this time, the fact that we will continue to deliver what we promised will correct itself with the investors. We just need to be there, we need to be present, we need to be consistent and we need to have enough scale that the shareholders, investors, will focus, they watch maybe another quarter or two more quarters, and eventually they realize the performance is one they can count on, and that’s really what we need to continue to do. Nick O’Grady: And Eric, it’s Nick. And I just want to put a pen and say, investors seem to be fixated in the public markets with royalty businesses. What water royalty businesses do? They pay a large amount of money for royalty stream upfront and that eventually, that acreage gets developed without their control or maybe they’re earning a cash return on it. And it’s basically a PV function, whatever they pay for it and when it gets developed. We pay a small portion for the leases and the acres we buy and a small portion when the well is developed, and then we get a PV or cash flow from the streams. It’s same business and yet, I get asked constantly by the market, what should be the non-op discount relative to an operator, yet the market has no problem paying huge premiums for the royalty businessman. In the end, they are the same business. At the end of the day, it’s money in and money out, and we have no more or no less control than the royalty company does. In many cases, we have better, because we’re talking to you about the ground game, about what we do. And the scalability of our business is just as significant as that one.

Very helpful, guys. Sense a very interesting point too as well, Nick. Nick O’Grady: Thanks.

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

Good morning, Jason.

Obviously with the NGL, the natural gas issues up there. Did you guys been -- are you seeing any of the operators trying to shift to certain areas? Or is it more basin wide and it’s kind of everybody acknowledges it, and it moves on knowing that it should be…

I think it’s -- there are certainly operators that are -- or may be better positioned than others and so you do have operators that are moving, timing of completion. and timing of curtailments in conjunction of build out of additional takeaway. So you are seeing -- for the operators are good for the logistics side there, they are keeping a keen eye on the gas side of it. But it does represent a little bit of a lumpiness operator to operator, and then obviously, propane pricing during the quarter wasn’t great. We do think it’s a transitory. We do think it’s transitory, Jason, I think as we move through the second quarter, into the third quarter. I think we’ve got some additional takeaway capacity and processing on the gas side that should help us in the back half.

Nick, may be for you. You guys talk about the remainder of the year, next couple of quarters, focusing on debt reduction, obviously, there’s something outstanding on the credit facility, but also I believe you have a $50 million authorization to buy back on the second lien. Just curious how you think about weighing those two options as you move forward with the cash flow? Nick O’Grady: I think we’ll be opportunistic. I think that the month presents us an opportunity, we’ll consider prosecuting on it and we’ll also at the same time, obviously, the default is just to pay down the revolver, obviously, we’ll make a draw on the revolver when very purchase Flywheel, so that comes front and center to make sure we have liquidity at all times. But that authorization is there and real and present and we demonstrate -- we missed the window and at the end of the year we’re – demonstrated it below par wish we have been there for that, but the amendment wasn’t done yet. So we’ll keep in mind.

Thank you. It appears we have no further questions at this time. So, I’d like to pass the floor back over to Mr. Elliott for any additional concluding comments.

Thanks, Jesse. We, obviously, appreciate everyone’s participation in the call and your interest in Northern Oil and Gas. Do please take note that we have a busy schedule for the next several months at conferences around the country. Some of those details are included in our press release. So we look forward to seeing some of you on our travels, and we’ll plan on talking with you all again next quarter. Jesse, you can give the replay information, and we appreciate everyone’s time. Everyone may have a good weekend.

Thank you. To access the digital replay, please dial (877) 660-6853 or (201) 612-7415, and enter access code, 13690610. Again, we thank you for your participation, and you may disconnect your lines at this time.