Meeting, and welcome to the NOG First Quarter 2024 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Evelyn Infurna, Vice President, Investor Relations. Thank you. You may begin.

Good morning. Welcome to NOG's First Quarter 2024 Earnings Conference Call. Earlier this morning, we released our financial results for the first quarter. You can access our earnings release and presentation on our Investor Relations website at noginc.com. Our Form 10-Q will be filed 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; our Chief Financial Officer, Chad Allen; and our Chief Technical Officer, Jim Evans. Our agenda for today's call is as follows: Nick will provide his remarks on the quarter and our recent accomplishments, then Adam will give you an overview of operations and business development activities. Chad will review our financial results, and 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 the expectations contemplated by our forward-looking statements. Those risks include, among others, matters that have been 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 today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and free cash flow. Reconciliation of these measures to the closest GAAP measures can be found in our earnings release. With that, I'll turn the call over to Nick.

Thank you, Evelyn. Welcome, and good morning, everyone, and thank you for your interest in our company. I'll get right to it with 4 key points: Number one, coming out strong right out of the gates. We saw a significantly better-than-expected results in the first quarter, driven by 2 primary factors: strong well performance and a pull forward of activity with more wells turned in line than we expected. We had highlighted strong well performance last quarter as well, but it was less noticeable in Q4 results due to higher level of curtailments. With the ramp at Mascot full swing, our other JVs performing well and higher oil prices, we are seeing organic activity accelerate, which bodes well for our 2024 production overall. The larger-than-expected TIL count increased our overall capital but was more than made up for by higher cash flow and production that will benefit us as we head into the second quarter. We expect modest additional pull forward in the second quarter, though not to the same extent as good pricing continues to bring value forward for our investors. This highlights one of the greatest facets of our nonoperated business model, which is the alignment with our operators. When prices are high, we typically see the economic incentives work their magic to bring forward value into the higher price periods like it did here. And additionally, as we talk about the asymmetry of hedging, we produce more barrels when prices are higher, leaving us more on hedge than we expected in a higher-priced period. While we've seen development accelerate into the highest price period of the strip for the year, boosting our profits for the quarter, our plans for all of 2024 remain largely unchanged with only very modest changes to the pace. Our hope would be…

Thanks, Nick. I'll come to some commentary on the first quarter's operational highlights and then shift gears to provide some additional color on what we're seeing on the M&A front. The first quarter picked up were '23 left off with continued acceleration of development and marking the fifth consecutive quarter of record production for NOG. Production increased 4% quarter-over-quarter driven by well productivity and a pull forward in the Permian, which accounted for 3/4 of our well additions in Q1. Partnering with top-tier operators across all of our respective basins with the likes of Novo, Permian Resources, Ascent and Continental that helped drive the beat on production. Unpacking this further, we saw 2023's ground game investments had nearly 5,000 barrels a day of production over the fourth quarter, while also seeing outperformance on our Novo and Utica assets. Turning lines topped expectations with 25.3 net wells added in Q1 as the Mascot project pulled forward 2.4 net wells that were expected to come online in the second quarter. The wells were added late in March, and as they clean up, we expect to receive the production benefit in the second and third quarters of the year. With higher conversions in Q1, we had an expected drag to our wells in process and ended the quarter with 52.4 net wells in process, 40 of them in our oil-weighted basins. The Permian now makes up 60% of our oil-weighted wells in process and our exposure to top-tier operators remains consistent across all of our basins. Pace of AFEs was as active as in the fourth quarter, and we are seeing a healthy backlog of well proposals as we head into Q2. At the end of the quarter, well proposals not yet spud totaled 24.7 net wells. During the quarter, we were validated…

Thanks, Adam. I'll start by reviewing our first quarter results and provide additional color on our operations. Average daily production in the quarter was more than 119,000 BOE per day, up over 5,000 BOE per day compared to Q4 and up 37% compared to Q1 of 2023, establishing a new NOG record. Oil production mix of our total volumes was in line with our guidance at just over 70,000 barrels a day and gas was a larger contributor as compared to the past, reflecting 2.3 net wells in Appalachia and a full quarter's contribution from the Utica acquisition. Adjusted EBITDA in the quarter was $387 million, up 19% over the same period last year, but modestly lower than the last quarter, mainly due to lower average realized prices per BOE in the quarter. Free cash flow of $54 million in the quarter was lower sequentially and from the same period last year due to the pull forward of activity in the quarter. But the peak of this growth capital should crest as we reach midyear. We anticipate an acceleration of free cash flow in the second quarter as TIL come online and begin to contribute to production and revenue. Adjusted EPS was $1.28 per diluted share. Oil differentials were in line with our expectations at an average of $3.99 at the lower end of our guidance. Williston differentials range from a low of $6.60 in January to a high of $6.95 in February, while premium differentials saw a market widening from $0.69 in January to $2.26 in February on the heels of higher production from areas with higher deducts within the basin. We still expect oil differentials to moderate and have begun to see some evidence of that in late March and in April. For natural gas realizations were 118%…

[Operator Instructions]. And your first question comes from the line of Neal Dingmann of Truist securities.

Nick, maybe to you my first question is just on what I would classify as maybe cycle time. It seems like your capital on the ground maybe has increased a little bit, but the setup, I think as you and Adam, the guys described it to me, it sounds like the future setup is better than ever. Is this just a product of cycle time for some of the producers being a little bit longer or what's driving this? Because again, it does seem like I think your second half and 25 look as good, if not better than ever. It seems like a little bit in the fourth quarter and the first quarter that was a little more on the ground. So if you can just maybe hit on that a little bit.

I mean, look, Neal, this is a little bit of what we are and a little bit of how things are changing. We're a returns-based organization. And obviously, as a nonoperator, the timing of capital expenditures can shift markedly. But as I said last quarter, and I'll say again, the total capital expenditures are the same. And to the extent it increases from one quarter to next is because we're getting more activity if we're getting more activity that meets our return holders, that's a good thing. What we've experienced in the last 9 months is an acceleration of development. I would tell you, in the last 18 months, our average spud TIL timing has gone from 234 days to 110 days. That's a significant move, and that's hard to perfectly model. I'd say the difference between last quarter and this quarter is that this quarter's acceleration also came with more tilt, which obviously translated into significantly more production. So you've got a lot more cash flow and benefit from it than last quarter. So it was a little bit less obvious last quarter. But I'd also say because we're an accrual shop and because these accruals roll off over an extended period of time, and as these invoices are received, it's not something that's done quarter-to-quarter, and we don't run the business quarter-to-quarter nor is the capital spent quarter-to-quarter. It's spent over the life of the wells. And so over a 12-month period, generally, the capital and the returns you can see from our standout corporate returns tends to play out. And I want to be clear, this is a good thing. Corporate Finance would tell you bringing capital forward is ultimately bringing net present value forward. That's corporate finance model one. We just brought forward significant production into the highest-priced part of the strip. And yes, they brought forward some CapEx. Is the same CapEx that would have been spent later in the year at a backwardated strip, I would argue this isn't a bad pay at all.

And then just a quick follow-up on capital allocation. You haven't mentioned just the shots on goal, and I continue to think you all have more opportunities than almost anybody. How do you balance that in shareholder return given you have more prospects than I think any company out there?

I'd say the same thing we always would say I don't think we view them as mutually exclusive. And I think I would also add that we look at a lot of acquisitions as things that can enhance shareholder returns. So most of the assets that we're looking at are generally cash flowing acquisitions. So a lot of the assets that we look at, we think can enhance our dividends over time. But I would tell you that specifically, we would pay a stock buyback as an example versus -- and the potential long-term benefits of that versus an acquisition and we weigh those against each other every single day of the week. And there are times where one might look more attractive long term, but we're in the -- like we talk about it might sound cliche, but it's not. When we talk about maximizing total return, we really are serious about it, and we're paid to be serious about it. And so we have to think about over a 3-, 5-, 7-year period of those decisions that we make today and what are the long-term implications of those things. And that's how for the equity and what those acquisitions versus the decision to buy back stock today are going to make on that. But I would tell you, the answer is there's one for both. Adam, I don't know if you want to add to that.

No. I mean, I think you touched on it in your prepared comments in terms of dynamic capital allocation. We're always actively managing the portfolio, reviewing what's in front of us, and we're going to alert capital according to what dislocations perceive.

I mean I think even as it pertains to the stock buyback and admittedly, we had a relatively narrow window in the first quarter. We spent a lot of time about the mechanics and just with the Board of Directors about how we would do it and about what rules and regulations would be around it? And what would be the nuances about that and how we would weigh that against potential M&A and just the opportunity cost and to make sure we left red for that. But I would just say this that we're not short of opportunities, that's for sure.

Your next question comes from the line of Phillips Johnston of Capital One.

So just a follow-up on the CapEx for the year, possibly landing in the upper half of the range, assuming oil prices and activity remains elevated. Chad, you sort of alluded to this in your comments, but would you think that your net well count and your production volume for the year might also be a little bit biased to the upper half of the range? Or do you think it's a little bit too early to tell just with the lag effects and whatnot.

Phil, this is Nick. I think I read your note, and I have to object to one of the things you said I think you misconstrued what we were saying. We're not suggesting that our CapEx assumes that oil prices will stay high for the rest of the year. It's quite the opposite. What we were saying was that since oil prices have increased, we've seen an increase of AFE activity on our acreage and that AFE activity would translate into CapEx theoretically at later in the third and the fourth quarters of the year. And our comment was that we're returns driven, right? So our consent activity on those AFEs is driven by oil prices and underwriting those returns. And so if oil prices stay high, we'll consent to that activity and ultimately then the CapEx would be higher, not the other way around. So we also know to be flexible because our business model, obviously inherently is more flexible than an operated on. And so to the extent that oil prices were to change, obviously, we pivot quickly. We're just suggesting that if things stayed as they are, we wanted to guide investors accordingly based on our status quo. So I would tell you that if oil prices stayed high, we would probably expect to see continued elevated AFE activity because what we noticed was that as oil prices rallied early in this year, we started to see a notable pickup in activity, and that's going to translate particularly. That activity you see today is really going to be activity that's going to translate into well proposals that are going to start to come online towards the end of this year and point towards 2025. And so it would be turning lines that would likely be towards the end of this year in chatter.

And that dovetails into your comments in terms of the spud I mean right now, we're getting well proposals, especially with elevated working interest and depending on who those operators are and how they're developing it, whether it's a one to 2-well development program or if it's a full cube development program, and that's going to dictate building and so kind of on that trust as we see things socialized and development progresses, that's where we're at right now.

We're not deciding to spend the money and hoping oil prices are going to stay high. We're saying that if oil prices stay high, we're likely to see that kind of activity. That's what we were suggesting.

Shifting over, I guess, to your views on the gas market. We've seen 25 and 26 strip prices actually creep up since you guys reported Q4 despite super high inventories and weak pump prices. I saw your NYMEX gas hedges for '25, '26 are unchanged, But are you tempted to sort of layer in any more activity in the out years?

Yes. I think it's been proven time and time again that contango is a bearish formation, right? And I think we will probably act accordingly. And I think when the curve wanted to see contango over 2024 last year, we began to hedge and I think you'll probably see us act accordingly. So I think the answer is yes. I mean I think contango tends to give a perverse incentive to producers, right? So it will tell them to keep producing. I know you're seeing curtailments right now, but curtailments are not necessarily a panacea because ultimately, you just turn something off that you can turn right back on and you keep drilling like if you'll notice most natural gas producers right now are not cutting CapEx. They're actually still drilling and curtailing production. So effectively, they're going to be able to turn it back on at a moment's notice that's not feeling the market in my opinion. And so to me, it does not make me feel overly bullish on the market like the market seems to want to be. And a backwardated market is a much healthier market. And so what it's telling me is that you likely want to sell in that market. I think gas is going to be $1.80 or $2, that's not a sustainable price. Those high prices are likely and those are obviously very profitable levels for us. And so I think we'd be very happy to sell into those levels.

Philips, just on the hedging comment, I think we have been adding some call options out in those years. So flip that in the 10-Q. But yes.

Your next question comes from the line of Scott Hanold of RBC.

Look, I'm going to kind of come back to the CapEx conversation, if we could, but take a little bit different angle on it. I guess, correct me if I'm wrong, but your back half CapEx, the implied quarterly run rate is around $160 million to $170 million. And could you just give us a high-level view, I think your production probably is going to peak somewhere in that 120-plus range in the third quarter. And when you fundamentally think about like what CapEx run rate needs to occur to maintain production by your non-ops, is $160 million to $170 million adequate? Or does that sort of create a little bit of a tail off in production heading into the '25?

Well, our decline rate is moderating as we had our overall maintenance capital is coming down to, right? So like we're losing about what [Indiscernible] 5 points of decline rates throughout the year. So as the year progresses, our overall maintenance capital is coming down mainly. So the answer to your question is it's a little bit of a fuzzy number, but I'd say that it really depends from a pull-forward perspective in terms of the capital. But the answer is we have not determined within the year exactly how -- obviously, we haven't determined where we want to go for '25 at this point in time. I mean, obviously, we have a long and story history of growing. And we're incentivized to grow. So I would make every assumption that we would plan to find ways and paths to grow as we move towards next year. But I think the answer to your question is that as it pertains to this year from a pathway, I think the answer to this year is that, yes, effectively, through the path, our overall capital can step down throughout the year and production would peak and then slightly decline in the fourth quarter, but not meaningfully, even though the capital falls off materially. And remember, but it's not a meaningful amount is to... It's just not a meaningful step.

You all had discussed in some of your prepared comments that some of the stronger production results was due to some pull-in of activity, but also some well outperformance. Could you be a little more specific on that? I mean you obviously have a couple of large joint ventures with Mascot and Novo. Can you kind of qualify or quantify what you're seeing with some of those wells? And is that what's really driven the performance? Or is it more broad-based than that?

I think it's a combination of the 2. As far as the projects go, they're all at or above expectations in terms of new development activity that we've been seeing of Novo with the New Mexico assets, our Utica assets are outperforming. We've seen some meaningful performance in Williston as well with the likes Continental and Conoco and exposure to Slawson Marathon, they're all kind of sticking into the core where we've got some outsized working interest. So it seems to be a combination of all the above.

Your next question comes from the line of Charles Meade of Johnson Rice.

I want to pick up perhaps right where we just left off on the source of the production bit. But I wondered if you could look at it or try to answer it in this framework. In late February, you guys thought that there's going to be a slight decline until you came in with, call it, a 4% growth on the quarter. So was there a specific -- I think this is -- I guess he already asked about the geographies. I guess what changed in March that led to that led to that result that was different from what you guys saw at the end of February.

Well, I think if you're talking about what changed in what we were seeing. I think it's going to be a combination of what wells came online in March as well as these wells are cleaning up in January and February, you've got very limited data in terms of what you're seeing. And so you've got to let it play out over an extended period of time. And then, Jim, I don't know if you want to comment on anything else in particular.

Yes, Chad obviously, we saw a full forward of activity as well, right? So we had 3 extra net wells that we weren't really accounting for. So that added some production there, too. Like Adam mentioned the used assets, they continue to clean up, performed better than we had expected at that time. As well as we have some new wells come online kind of mid-February on the Novo asset that has significantly outperformed our expectations. So that's another driver as well. And then as we showed in the Williston on new Continental wells that looked really good compared to our expectations. So just kind of a combination of all those things really cannot drove Q1 performance versus what we were modeling kind of that mid late February time frame.

Yes, on just a lag of information, right? I mean we might be getting this information on a daily basis, but you need to be able to bring it in, how [Indiscernible] it against the model and then put all the pieces together. Because you're going to have pushes in bold everywhere. And then it's just going to depend on what your working interests are and the timing of that development and information.

And there are certain things too, Charles, like from an assumption perspective, like using the fleet up event in the bulletin. We were very concerned not necessarily about the fees off of that in and of itself, we had a pretty good handle of that, but we were pretty concerned that it was going to push particularly a lot of the completions out. So we have scheduled the assumption that a lot of the completions will be pushed out multiple weeks. And then later on in February and March came to find out that a lot of that stuff had actually come right on schedule, right? So then you're going back and rejiggering that as you actually get the well status and reports in. So a lot of the stuff we had anticipated kind of getting the playpen of not being delayed. So then ultimately, it's not just the TILs themselves having more TIL themselves. But even within the quarter, cans being more on time and being accelerated in than you thought. So you're getting the benefit of time within a quarter, not just the actual additional activity on top of that. And just I will tell you like I mentioned this in my prepared comments, we are just seeing to better well performance. I mean you saw that in our times. And you may not see it because obviously, our Permian mix this year is more Midland basin so is obviously maybe a bit lower than our average last year year-to-date, but certainly better than what our internal forecast has been. And so in general, we've been doing a bit better than we anticipated coming out of the gate.

And then, Nick, another question on the CapEx. And I want to get the benefit because I'm sure you participated in a lot of internal discussions. And I want to make sure I understand what you're saying and I'm thinking about the right implications going forward. I mean, in 4Q, you guys had a big CapEx, it came in a lot higher expected you pre-released that. We got another one here this quarter. If I understood you correctly, the 2 main drivers appear to be reduced cycle time, so increased pace and a higher oil price, which leads to more AFE proposals. And if that's correct, what are those 2 vectors? Are they flat going forward?

I'm not sure I followed Charles.

If those are the 2 big drivers, you go a different direction, if you want. But the question is, as we look at 2Q and 3Q, are those errors still pointed up or are we going to have further decreased cycle time? The oil price isn't going up, but is there a building wave of AFEs? Or is this kind of a [indiscernible] that's given.

I got a question like 2018 when I first started here being like, okay, it's a productivity improvement in the Bakken done because well cost wells have done so much better and [indiscernible] gotten so much better. And then every single year, they found ways to make wells better. And I got the same question last year and I got the same question a year before. And the answer is the industry is amazing. They found ways to go faster and faster and faster. And frankly, the onus is on us Look, we have candidly struggled to keep up with the pace. I mean, I don't view it necessarily as a bad thing, but the speed at which our operator has gone has obviously taken a smart surprise to some degree. But at the same time, I don't really see this as the total cap line on our weighted average cost of a well. We're not blowing through, we're not having inflationary pressures. If you look at the overall capital delta, we drilled 3 extra wells this quarter, right? And you saw it in the top line results. Again, I don't really see a major disconnect here. The delta of last quarter is masked by the fact that ultimately, it's really a percentage of completion things as opposed to additional TILs. But ultimately, yes, you're seeing cycle times. Can I predict if the operators are going to stop going faster? I don't know if I can make that prediction because that would be predicting something that I don't control. And I would say operators are incentivized to make more and more money. So I'd say whether oil prices are going up or down, I'd say if oil prices go down, they're going to still try to find a way to make more money. So they're going to find a way to go faster and faster and make more money. So I would say, no, they're going to still find ways to bid faster.

And it's just going to depend on the operator mix and the development and the working interest that we're getting in the door, right? And you don't necessarily have that view of AFEs because they might balance to AFEs 1 week and then they followed up with 6 more and they all end up being on the same path. So those are things that we need to digest and truly understand. I think the AFE activity has picked up. We've seen that in March and April, and we would expect in this environment, all things remain the same that development cadence and everything else will continue, but that can change on a ton.

Your next question comes from the line of Derrick Whitfield with Stifel.

Regarding the larger asset packages, how would you characterize the competition you're experiencing in that market at present? Aside from the quality and wider bid-ask spreads you saw in Q1, is that still a robust market and opportunity for you?

Yes. It's a larger package, Derrick. I don't think we felt like there's a ton of -- I mean we've certainly seen bankers try to give the illusion of competition in a couple of cases, but we haven't really seen much competition in reality. I think where the challenge has been more that I think there's been, I think, of late, it's been harder for us to find assets that we really wanted to lean in on meaning like where you knew the clearing price and would we really feel like they were assets that we would be willing to pay what you knew it was required to take it home.

I guess bringing it up a different way for you. I mean we're certainly seeing more entrants from family offices and private equity groups and to cross over from the minerals side, which is obviously validating in terms of other sources recognizing the power of the business model, but that's largely limited to smaller funds. And so where I think you see maybe a little bit more of an elevation in competition is on the smaller ground game side. We're playing in different sandboxes. When you're starting to talk about asset packages that are north of $150 million in terms of funds that are being raised and being able to handle potential concentration, those types of things. And so I think what we're seeing in that regard is generally status quo. Obviously, that can also change. But based on kind of what we're seeing and the feedback that we're getting, I don't see a material change on the large.

I'd say where we see people we've definitely seen buyers of PDP centric assets. And that we're very happy to see that because it's just not where we're generally focused.

From time to time, I think we see some groups that raise capital, deploy it in a meaningful way. It was one group that we saw ended up paying north of 75% of where we were coming out at and we're happy to let them have it. And frankly, they shut their on an only bullet and we haven't heard from them again. So they can digest that for as long as they do. And then if they want to sell it, and maybe at that point, it's worth taking another look at it, but not at those prices.

I would just say this, I don't think there's been an asset that we've coveted yet that we really felt was very attractive to us that we haven't built out we were match for when we really of the quality that you've seen us execute on where we really had to stretch or go out of our comfort zone 4. And I think that that's a testament to where we are in the marketplace.

And as my follow-up, really thinking about Permian macro. Regarding the pipeline outages and tighter Egress you expect industry to adjust turn-in-line activity to match supply growth with Egress Group?

You're definitely seeing especially for some of the smaller operators, they're having to navigate around it. I think we're blessed with the fact that most of our operators in the Permian are bigger operators with more integrated midstream systems and better access points. But even they have to navigate around these issues, Derrick. And so it's not a small issue, and I don't want to sugar coat it. And I would like to say we were geniuses, but we basically have almost 0 exposure this year. Financially speaking, at least, we effectively hedged all of it away. And I'd love to say we did it completely on purpose, but we just really we were a little bit concerned coming into the year, and I think we just had a heavy hand on it when we were hedging it probably because we're so acquisitive last year. But I think that it's going to take some time to make some of it if you rightly highlighted some of it is it's been made worse by maintenance. But I don't think it's necessarily going to get magically better this year. So next year, I think it's still going to be a wide issue for some time. I think it's going to take a couple of years, you're going to need more and more to be built out. So I do think it's going to limit some growth, particularly in the Delaware for the next year or so.

Your next question comes to the line of Donovan Schafer of Northland Capital.

So I want to ask about -- and I know we've already had a couple of people ask about the better-than-expected well performance. So it's like beating a dead horse. But I kind of want to -- should we care? Let's forget about the welding pulled forward or whatever, if we're just talking about on like a well versus your own expectations, if we just focus on that, and you said, I think, Nick, you said flat out better well performance. Who gets sort of the credit for that. Is it just a chance phenomenon and there's a statistical distribution, and it just happens to be that the roles of the guys were better at this time around? Or can you identify changes in sort of well design? Or do you feel like this supports strength like a matter of conservative underwriting? Another way to put it is, should this be seen as an achievement of some kind, somehow tied to a human agency? Or is this just a matter of chance. And if it's some sort of like achievement, who gets that credit? Is it a reflection of your business model? Is it a reflection of your operators?

I mean I think I would certainly want to give credit to the operators for their great performance. I mean, certainly, they do all the hard work, and I don't want to not give credit where credits do. But to our engineering team, we work really hard to set a standard and underwrite accordingly and then try to meet and beat those expectations. And so I think that we try to -- and then obviously, for you guys to under promise and over deliver, and it's not to lowball or anything like that, but you really do, is this a risky business. It is a risky business and well the oil and gas business is still with optimists. And I always joke that as a nonoperator, you really need to be pessimistic because you find out that many operators they make a change in well design and they see better IPs and they carry it forward and think everything is going to be better or they do a one refrac is good, and they think all refracs is going to be better, and it turns out that it's locational. And so we try really hard to take a skeptical lens and be conservative about this. And I think that's why generally, our reserves have been conservative, and we tend to do well. So I want to give a lot of credit to our team that we tend to see better results, but also it comes down to a philosophy, and I talked about this in my prepared comments, of assets Novo, which is that you can't engineer bad assets, which is that you can try to pay a high discount rate for really bad assets. But at the end of the day, those assets aren't going to be resilient. And when I was a stock analyst back in the day, I would always rather pay a premium for a really good management team and a really good company than pay a low price for a really bad stock because the chances were over time that bad stock or that cheap stock is something bad is going to happen because it was a bad company, and it was not going to be resilient. And it goes the same thing for oil gas assets, which is that you buy really high-quality reservoirs and really high-quality operators and he really focuses on here, which is focus on the best operators in the best areas, and you tend to be pleasantly surprised. I don't know, Jim, if you want to add to that?

Yes. I think the other thing to think about, too, is that operators are always trying to innovate and be more efficient. So it's not just about getting more EUR more reserves out of it. They're also trying to optimize their artificial lift operations. So that's constantly changing, and we're constantly updating our tide curve based on what the operators are doing. So some of it is they're just getting oil out faster. It's not necessarily that they're going to get more EUR over the life of it. They just found a way to get more of, which is a big driver of NPV and IRR, which is what we want. And so we're constantly taking that into down like I said, we want to make sure that more often than not the wells healthy. And we do constant look backs on performance, how wells are doing versus what we originally underwrote. And over the last 3, 4 years, we've been less than 5% off in terms of that. So we feel very confident about our underwriting here. This is just a pleasant surprise by some of our operators in really good areas, and they come to a way to just do better than what we had expected.

And then as a follow-up. So Nick, in your prepared remarks, you called out, and I thought this was a good thing to call out and a good insight, is the potential for increased the volatility. And you're talking about with respect to your own positioning as a company and the importance of kind of financial flexibility because of opportunities. But I'm curious just specifically because I think you were saying, well, with such low gas prices and also I think maybe you mentioned just that it's an election year or maybe it's like a setup that we could see more volatility between now and November, December. And so I'm curious, were you specifically talking about like in terms of thinking about what might happen with the volatility of stock and like other securities you could potentially bring in? Or are you talking more broadly like any type of wild swings around anything like that? I want to be clear because I thought that was a good point. But I'm just curious with your thinking, what things are the volatility you're talking about, price commodities, stocks, bonds, all of it.

I think volatility means volatility, I think that we bought our stock. We have bought assets, that we bought gases, we bought oil assets. We've done a lot of -- I would say, we spent $200 million buying distressed assets during 2020, it was 90% of our capital. Our organic capital basically went to 0 during 2020. And so I think you want to be in a position to be able to act if extreme point in terms of the ore in terms of asset pricing or you haven't seen distress certainly in gas for the assets themselves necessarily, to the extent we see a change in the interest rate cycle or things like that, we could definitely see things happen. And so I think we have to see what happens with the overall economy and that it is an election year and typical. And so I think we just always want to be in a position to pack. And I always use that term dynamic, and I think it's because we want to have the flexibility to make changes to those decisions. And that's why to have that cash flow to be able to make those dynamic decisions and make changes. We've been able to buy our bonds in the low 90s. Now they trade well north of par. You have those abilities.

Your next question comes from the line of Lloyd Byrne of Jefferies .

Talking about the CapEx differently. It seems like there's a lot of concern. But if I look at the CapEx versus the TILs, it feels like the AFEs are either in line or coming down? And maybe you can comment on that. And then also, you talked about a little bit of deflation at Mascot and Novo. And so maybe you can just comment on that as well.

Lloyd this is Adam. Made some comments in my prepared remarks, we're definitely seeing it across the board, both from an absolute and normalized on a lateral foot basis. And we've certainly seen that with our Mascot assets as well as our Novo assets. And I think that's both the function of what we're seeing in terms of drilling as well as just kind of spud to fill timing as well. I think some of the tangibles chasing those types of things are still pretty sticky, but operators are doing a pretty good job of being able to pick away around the edges and see that persisting.

And then, Nick, just remind us more free cash flow going forward, debt targets?

Yes. I mean we still target around 1x. And I think we're about 1.1% last quarter. We're about just over 1.2 this quarter, and that's just a function that we closed our Northern Delaware acquisition. So we did that. We should see, absent any material changing again, we're already close to May here, a material step down this quarter, again, after some unforeseen change in commodity prices over the next couple of months. But just given the fact that CapEx is scheduled to step down some, so we should see a material have down the revolver balances in the second quarter. So we said we should be right now on the trend within the quarter or 2.

Your next question comes from the line of Paul Diamond of Citi.

Just a quick one on the M&A purchase cadence. So you had a pretty good except in Q1. Are you seeing the take-up of opportunity given current pricing levels and as you look forward through with expect to be a relatively volatile period in the market.

There's certainly no shortage of opportunities. I think it's always about balancing the risk. It's just about, I think, I would just tell you, the lower the price goes, I think our risk appetite increases. I think the higher the price of oil go is probably the more wary we're going to become. So you have sort of, I'd say, from a $65 to $85 range, it's probably a better rate than above those, I'd say, below $70. I think you're going to find that sellers are probably going to dry up because they're going to feel that they're not getting good value for their assets. But I think that in that range, that's sort of a good enough environment from a pricing perspective. I think that we're in a relatively decent market, I think that, again, the beginning of the year is always a tricky. If you look at our pattern, generally, we've done less M&A in the first half of any year, historically speaking, for whatever reason. It's just if you go back historically speaking, done very little stuff in the calendar going back my time here. So it tends to be something that happens towards the middle or the back half of the year. So stay tuned. But I do think that we're not short opportunities. I can tell you that no, I don't know if I have that.

No. I think Nick you nailed it. I think it's a function of banks and organizations bringing these packages to market and what the lead time is on a lot of that stuff. You've got the smaller competition coming in with the bullish view on oil pricing, which creates some volatility in terms of the ground gain, what I'd say, I mean even just looking at some of our April activity as we've been making some pretty strong headway in that regard, being able to pick things up across all 3 of our respected basins. And then to Nick's point, it's really just going to be a balance of what that quality looks like, seller expectations can be wildly different, especially in a volatile commodity environment. And so for bone along at relatively static pricing for an extended period of time that generally level set expectations and narrowed spread, but if you have a material step up or a material step down in the short term, that's going to just widen it.

And just a quick follow-up. You've talked pretty at length about the product improvements on the oil side, what does your perspective sit on the net gas side of I know it's a much small perspective or a much smaller piece going forward? Should we expect to see the a similar cadence in your view?

Yes. I'll just tell you from my perspective and I'm not an engineer here, but our Marcellus assets have outperformed really from the get-go. They have outperformed our internal modeling. They're really every quarter since we've owned them. Literally, I think there's not a month tell me I'm wrong, but they have done a axial job and I think we've had a little bit less development than we had initially modeled. But the decline rates have been shallower. They have just consistently outperformed, no wonder if gas is $1.80, because they just simply don't decline. I don't know if you want to add to that?

Yes, that's right. At EQT, we completely changed the design of these wells from when we originally hockey assets. They've widen spacing, change the completion of time, changed the pullback methodology. So these will just continue to hang in much better than we had expected. And obviously, there's not a ton of activity that's been happening out there. And so our modeling is still based on old methodology, and we continue to update that as we go and we see more. But yes, the Marcellus stuff just continues to outperform. And the Utica be in the first quarter as well. Those wells continue to clean out better than we had expected. So that was a nice outperformance there as well.

And while it's not huge for us, if you actually model out our Appalachian asset, just how much cash flow it has generated for us over the life of its ownership, it has been an amazing investment for us. It is paid out paid out in less than a year and then just continues for very little capital investment continues even with low gas prices to generate significant cash flow for us. It's been a great investment.

Your next question comes from the line of Noel Parks of Tuohy Brothers.

Just had a couple. I was wondering, do you have any sense of maybe where incremental service cost trends are heading in your basin feel like so far in the earnings season, we've been getting sort of a mixed picture, just depending on location and type of service. So any thoughts here would be great.

I would say no, very modest deflation we've seen year-to-date, but I would imagine as oil prices have increased, I would guess that's a flattening trend.

And I was just wondering, you did mention what you've all seen was your gas in the Permian and so forth. And I believe over time, you've discussed that you are pretty vigilant about the state of infrastructure when you're looking at potential deals out there and look to steer clear of areas where you have many questions or doubts. I'm just wondering, are you getting deals brought to you that fall into that category these days?

Yes. I think specifically, a lot of assets in parts of the Delaware, you have to be very wary around, particularly as you get parts that New Mexico and other parts where they might be in. They might not have access to midstream systems and you have to understand that going into it. You need to know who your operator is. And so absolutely, all of that goes into the equation. Do you know who are your operators? Do they have firm access? Are they interruptible? Can they be kicked off the system all that stuff. That's why you hear us talk a lot about this, but knowing who your operator is knowing what kind of midstream access they're going to have is critical. I think as an issue overall, I think it's something that it's the Permian Basin. So it will, over time, get solved, but I think it's going to be chronic for some time. In the end, it's a minor economic none, meaning it doesn't really destroy the economics of the wells. It just is something that we can model in and still make the level economic, but it certainly doesn't help.

That's right. You just make sure that you're modeling it. The costs as well as the development time stand.

We were trying to buy something in helping or something like that, it might be a different equation, but that's helpful.

That concludes our Q&A session. I will now turn the conference back over to Nick O'Grady for closing remarks.

Thank you all for joining us today. We appreciate your continued support and look forward to touching base with you in the coming weeks.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.