Brandon Elliott - EVP, Corporate Development and Strategy Thomas Stoelk - CEO & CFO.

Neal Dingmann - SunTrust Nate Streicher - Amtrust Scott Hanold - RBC Capital Markets Jason Wangler - Imperial Capital Sean Sneeden - Guggenheim John Aschenbeck - Seaport Global.

Good day everyone and welcome to the Northern Oil and Gas Incorporated Second Quarter 2017 Earnings Results Conference Call. This call is being recorded. With us today from the company is Northern interim Chief Executive Officer and Chief Financial Officer, Tom Stoelk and Executive Vice President Brandon Elliott.

At this time I’d like to turn the call over to Brandon, please go ahead..

Thank you. Good morning everyone. This is Brandon Elliott. We are happy to welcome you to Northern’s second quarter 2017 earnings call. I will read our Safe Harbor language and then turn the call over to Tom Stoelk for his opening comments and discussion of the financial results for the quarter.

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 including 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. With the disclosures out of the way, I will turn the call over to Tom..

Thanks Brandon, good morning and thank you for joining the call today. I'd like to begin the call with a few operational and financial comments, to provide some color to review our earnings release, and then get to your questions. Production for the second quarter exceeded our expectations due to a couple of key factors.

We had more net well additions than anticipated during the quarter and also have continued to see improvements in well efficiency. For the quarter production averaged 13,794 Boe per day sequential increase of approximately 4% over the first quarter.

I was excited about the growth we’re seeing is being driven through a combination of both improved performance from enhanced completions as well as our bread and butter ground game of acquiring additional well interest.

During this quarter we certainly saw the impact of improved completions from a number of our operators, one example, is in Burlington’s quarrel quick unit where 14 gross wells have been completed so far in 2017 with those tracking in 900 Mboe type curve which is a significant improvement over past wells.

The improved results from Burlington and other operator were complimented by our acquisition activity for example, our acquisition of additional well interest in [indiscernible] unit located in McKenzie County added 11 gross wells which contributed to our production growth during this quarter.

Drilling activity in the basin has increased with approximately 58 active rigs running today. The higher activity level led to a course funding increase in a number of well proposals or AFEs that we processed during the quarter.

We participated in just over 90% of the well proposals we received during the quarter with almost all of these wells being designated for enhanced completions. Our well elections continue to be focused in the core of the play in a very high quality.

We estimate that the wells we elected to participate in during the quarter had a weighted average EUR of 850 Mboe. Based on the improved results we’re seeing in initial production ratio in EUR we remain optimistic about the 16.1 net wells in our in process inventory at quarter end.

During the quarter we added 4.5 new wells to in process inventory and reduced that inventory by 4.3 net wells were added to production.

As we previously mentioned, over half of our wells and process are operated by continental resources who had indicated their intent to begin completing those wells during the second half of 2017 and first quarter of 2018.

Clearly the pace of which our backlog of in process wells are completed will affect our spending and production levels in the second half of 2017.

Should some of our operators accelerate addition to the second half we could see a higher net well addition number which will result in a bit higher capital expenditure budget but at present we’re still guiding to 12 completed net wells with annual production flat to slightly above 2016 levels.

Capital expenditures totaled 30.7 million for the second quarter bringing year-to-date spending to approximately 57% of the 2017 capital expenditure budget. The spending is associated with the 6.3 net wells added to production during the first half of 2017 and the 2.7 net well growth on our inventory of in process since year end 2016.

We continue to focus on return base capital allocation process which allows us to flex our capital spending based on the best investment opportunities.

This non-operated capital allocation advantage has allowed to adapt quickly to changing and relative conditions well at the same time remaining disciplined in our balance sheet and liquidity management. We continue to manage our commodity risk and protect our future cash flows from down size risk to lower prices.

We now have approximately two-thirds of our 2017 forecasted oil production hedge and have approximately 2.2 million warehouse hedged in 2018 with a combination of swaps and costless colors. Crude oil differentials during the second quarter of 2017 were $6.86 per barrel below the average NYMEX price and came in slightly better than our expectations.

With the Dakota access pipeline operation, the overall increase in basin has lower differentials and we believe that differentials in the second half of the year will range between $6.50 to $8.50 per barrel. Lease operating expense for the second quarter came in at $9.67 per Boe compared to $8.74 for the same period a year ago.

The increase this quarter was largely due to higher work over and maintenance spend on wells that were previously operated by financially stressed companies.

In an effort to increase production the new operators are reworking these wells, recently work over and maintenance cost spending has declined with unit lease operating expense coming at $9.26 per Boe. We expect our second half LOE to range between $9.25 and $9.50 per Boe.

General and administrative expense in the second quarter of 2017 was $4.4 million driven primarily by decrease in compensation expense offset by an increase in legal and professional expenses. Second half 2017 general and administrative expense is expected to range between $3.25 and $3.50 per Boe.

Based on our borrowing base of $325 million we had available of 174 million quarter end comprised of approximately 4 million of cash on hand and 170 million of revolving credit facility availability. We remain well within our covenants and strongly position from a liquidity perspective.

In conclusion, we will continue to use our flexible capital allocation process to protect the value of our asset and seek the highest returns available to us. The increase that we’re seeing in well productivity in EUR has given confidence for 2017 and beyond.

As we continue to evaluate avenues to strengthen our balance sheet, our focus and discipline should position us well to take advantage of future opportunities for value creation as the industry environment improves. Alright, at this time we will turn the call over to the operator for Q&A.

Operator if you could please give the instructions for the Q&A portion of the call..

[Operator Instructions] Our first question comes from the line of Neal Dingmann of SunTrust, your line is now open..

Just a question on what are the cadence that’s coming up is the working interest there, is that going to be kind of normal what you’ve seen for the first half or any color you can give us on that?.

I think, it’s going to range probably between 5% and 6% somewhere there, is right that Neal..

Neal, the D&C list about a 5.5% working interest for that 16.1..

Okay. And then, obviously continental we’ve seen a few guys now use type of words, really talk about, really two things. One obviously, improvement in the differentials but then more importantly continental last night nicely boosted their type curve.

You talked about returns and here I’m just wondering is that sort of based on, maybe Tom has walked through with sort of that based on and is there upside into that return potential based on here, what we’re hearing on improved economics of these wells?.

Neal, I think there is upside effectively, we’re pretty optimistic, I mean, we’ve got over 16 wells in, my commentary in the script today and I mentioned over half of that was continental. Most of those wells – are probably type curve in a high 800s probably 900, I think I saw something we put out in connection with our call today.

They bumped them over to about 1.1 and we’re pretty excited about that and I think it does provide upside not only in our EUR but as well as rate of returns..

Very good, thanks guys..

[Operator Instructions] Our next question comes from the line of Nate Streicher of Amtrust. Your line is now open..

Hey guys, how are you?.

Good morning..

A quick question. I mean, we've been seeing some pretty good prints in the Whiting, in North Dakota recently on a stiff linear where you guys produced. I'm curious how you guys think of asset sales going forward..

I think we think more about inbound assets coming to us kind of a ground game is to pick it up. I think that we've seen a couple of larger packages out there a couple of months ago, larger meaning greater than a 100 million. I think at that time I just want a timing with respect to that where those packages got pulled.

You saw that propped in the 45 range and wasn’t much lift from the curve kind of on the back end. It's not something I think that we're actively considering at this point.

It's obviously an option we have but the bigger packages clearly weren’t bringing out and we use that opportunity basically to acquire just what we call our small ball, that kind of the singles and doubles to acquire very attractive rates of return.

When you take a look at the rates of return for us and there's a slight presentation I hope everybody has a chance to take a look at on our website today. You take a look at the AFEs that we've elected to over the last four quarters, the average I think maybe a low of 32% over that period of time.

So, if you think of us, you need to think about big word Capital allocators. EURs are certainly important, the enhanced completions are really driving that today. But on a sale side, we're just not looking at that real hard. It's something that's an option but based on kind of where we're headed and what we're trying to do. It's not a priority..

Okay, thank you..

Thanks..

Thank you. Our next question comes from the line of Scott Hanold of RBC Capital Markets. Your line is now open..

Thanks, good morning..

Good morning, Scott..

Good morning. A couple of questions and you all talked about obviously Continental ramping things up a little bit. And this quarter looks like you like to do a few more wells and made some selective acquisitions.

How do you balance between that increased activity level, where your cash flows are? Does it like you're probably going to continue to outspend at least in the visible future here. How do you think about that, is there some goal at some point that kind of bridge that gap a little bit.

Maybe if you can give your view on how you look at leverage and capital spending?.

Yes. I think there is a balance. I'm answering, great question. This year we hold or right now we're holding our guidance kind of a 12 you saw. Continental reduced number of completion rates for about seven to four, they make up about half of are in process list. And you are correct.

This year I think we'll outspend, we got a CapEx budget of approximately 102. I think our outspend will probably be about 30 million in connection with that. We're watching a pretty close, we still have plenty of liquidity with over a 174 million at the end of the quarter. But it's kind of a balance.

I think you'll see a little bit of growth from us this year but we'll be mindful of it. Probably try to stay at or near cash flow. I think post '17, we got a pretty heavy wells in process list right now. We'll see other place out.

My earlier comments talked about how optimistic they were with respect to the waiting to Continental and kind of the results we're seeing. I think we have limited completion results from them. During the first half but I think on the ones that we did see, they were over a million MBoe with respect to that.

So, keep a close eye on it at or near probably post '18, '17 probably, a modest outspend of about 30 million is kind of like impairment..

Okay, great. And along maybe along lines of some of these more intense completions, it seems like the EURs and the initial productivity be pretty strong. You talked about the weighted average AFE in your I guess consent that being up to 7.8 million from 7.1.

Where do you see that going like over the say the next six months?.

In this quarter, one of the things that really grow that weighting up is we elected to some very some higher working interest wells that were spaced on 1920s. So, that really grow it up if you eliminated the CapEx in connection with those stream lateral is you kind of got back to like a 7.1. We take a look at our July AFEs inbound.

They were a little under 7 million. I sort of think it's going to be 7.2 to 7.4 kind of average. You see a weighted average cost right now. I think in our inventory we're about 7.4. I don’t really have any reason to think it's going to be much different than that. Hearing a lot of operators talk about 5% to 10% increases.

But it really drives, I mean, what capital allocators we allocate based on rate of return. So, depending on the mix of wells that come in, you'll see it bounce around quite a bit. I mean, it was 6.6, Q1 7.8 this quarter, kind of average in 7.1, kind of average in our wells and process about 7.4. But 7.2 to 7.4 is short answer..

Yes. How did those that was a three mile lateral, how do those look.

I mean, were those some pretty good wells?.

They just bought in in July..

Okay..

So, I don’t have a lot of information yet. It's a torpedo well from Slauson is one we're referring to..

Got it. No, I appreciate the color there, thanks..

You bet. Thanks, Scott..

Thank you. Our next question comes from the line of Jason Wangler of Imperial Capital. Your line is now open..

Well, good morning guys..

Good morning, Jason..

Good morning..

Was just curious, you mentioned that you can spend it on 9%. Could you just talk to that 10% that you were staying, I know that you got to obviously look at the economics of these. Were they known and completions, were they out of kind of the core focus in the area.

Just curious what you're saying is still getting out there that you guys are saying thanks to..

Really a bit of both. Somewhat more nonenhanced completions but I think some of them were just really step outs that we were really unwilling to kind of look in our crystal ball and figure out they were going to be better. We'll watch them obviously. We don’t lose our interest in those units because they're held by production.

But we'll take a wade and see because in the prior question we're just watching capital. That's one of the things we do is make decisions like that. But a little bit of step out and the ones that fell below, I don’t think we're unusually weighted to nonenhanced completions, I think that's more driven by kind of the area that they were proposing..

Yes, and that's why. I appreciate the color, thank you..

Thanks, Jason..

Thank you. And our next question comes from the line of Sean Sneeden of Guggenheim. Your line is now open..

Hi, good morning. Thank you --.

Good morning..

Good morning..

For taking the questions..

Sure..

Tom, you maybe talk a little bit about your kind of ongoing discussions on the revolver I think clearly becomes current in a couple of months here.

And how would you characterize conversation with the banking group at this point and how do you kind of envision this going forward?.

Yes. We're having discussion with the banks now and our focus really over this last quarter has been extending the term of the credit facility from September 2018 to something kind of further out with respect to it.

Our first choice would be to get up, with the to get a revolver, it's with a matured extensions, obviously the lowest cost of capital for us to do that. Haven't had any discussions with respect to the borrowing base you had. It's a little early on their price tag but our mid-year reserves have showed a lot of nice improvement.

SEC reserves from year-end were up about 26%. So, not so much concerned on the borrowing base. The focus has really been to talk about on extension. So, I've had a number of conversations really with respect to that..

Okay, that's helpful. I guess, maybe two things on that. I guess 1) is how much pushback if at all has there been from the group just what's the bond maturity in 2020. Presumably you'd want to move the revolver maturity kind of beyond that. How much will impairment, I guess our bonds that.

And I guess 2) would you envision that or is the goal that kind of keep your current cap structure that you have in place today. So, kind of revolver plus unsecured bonds.

`Basically, the same or do you envision any of that changing going forward?.

Well, ultimately we would keep at the same but we'd still have a revolver just because it's a lower cost of capital on that end. Any event that wasn’t possible, there are a number of alternative providers out there that could do it. But that's going to be really at a higher cost.

One of our goals obviously is to reduce our leverage and position ourselves to kind of capitalize on the growth and consolidation opportunities that we kind of expect to see in the ways. We're a natural consolidator kind of given our size and our history. It's kind of what we do, it's what built Northern and it’s kind of how we grow.

We spend a great deal of time really evaluating our options. I've had discussions and continue to have discussions with some of our note holders about the possibility of exchanges. And the market will be the first one to know if we are allowed to kind of complete that, that would help us produce not only a debt but our interest expense.

But that's just one of the options that we have. But my vision if you will is to continue to work hard and try to extent the revolver and then probably have some senior notes kind of behind that. And in the event that that isn’t possible, we'll have to look at other alternatives which might include alternative financing..

Okay, that makes sense. Maybe just one last one..

Sure..

So, I guess, you guys mentioned the inventory that you guys have in the queue there with at least 30% IRRs on the dots.

How do you think about allocating capital to that versus bond buybacks at this point with yield on the bonds kind of in that 25% plus context?.

Yes. Go ahead..

Well no, go ahead..

Well, I think that at present, in order to cash rate cash flow is obviously directed to the development our wells and believe that the rates of return that we're seeing from the enhanced completions indicate the really solid opportunities and that where we all be directing on. Obviously the bonds are trading in the mid-60s right now.

So, there's certainly attractive. So, although I wouldn’t rule it out, I have to say our focus at present is to stay with the development of the wells and we'll be continued be watchful of that..

Okay, that's helpful. Thank you, very much..

Yes, thanks, Sean..

[Operator Instructions] our next question comes from the line of John Aschenbeck of Seaport Global. Your line is now open..

Good morning, John..

Good morning..

Good morning..

Thanks for taking my question. One of the good ones had already been addressed. But did have a follow-up in terms of potential M&A transactions come particularly in terms of your comments. You'd rather be a buyer than a seller.

I just wanted to kind of get your thoughts on how you'd finance that type of deal because obviously plenty of liquidity right now. But maybe a little difficult to justify a significant outspend given the current leverage situation.

But was curious what that type of deal would look like or you have a PDP component perhaps in equity component with it or a combination of those two?.

Yes, good question. I think it's we'd evaluate it very carefully, it would be what I'd say. But size would definitely be a factor with respect to it. We have had and continued to have discussions with capital providers that have suggested joint venture type things. So, you might enter into a kind of a side car sort of situation with respect to it.

If the transactional size were let's say 50 million or below, I think we probably look pretty hard. It's probably trying to do most of it internally possibly going to the equity market with respect to that. Equities got and suffered recently, obviously.

But I think hopefully our improved performance and when people look at the quality of really our assets, the deep inventory of wells that we have done, high average IRRs really demonstrated over about over the period.

The mix of kind of what we're participating in is, is enhanced completions which are really driving the returns and the EURs participating in, you know a lot of the best wells in the basin. So, I think that the, if it were of a larger size, we probably have to bring a partner in with respect to that..

And John, you mentioned would there be a PDP component. Yes, there probably would be a PDP component. So, hopefully would bring with it some EBITDA into that equation as well..

Right..

Got it. It's really helpful. That's it for me guys, thanks..

Great. Thanks, John..

Thanks..

[Operator Instructions] I'm showing no further questions at this time. I'd like to hand the call back over to Brandon Elliott for any closing remarks..

Great, Nicole I appreciate it. At this time you can give the instructions for the replay. And we certainly look forward to talk to you guys out on the road or again at the next quarter. Thanks..

Ladies and gentlemen, this conference will be available for replay after 1PM Eastern Time today, through August 16, 2017, 11:59PM Eastern Time. You may access your more replay at any time by dialing 800-585-83-67 or 404-537-3406 and entering the access code of 61127013. Those numbers again are 800-585-83-67, 404-537-3406. Access code, 61127013.

That does conclude our conference today. Thank you, for your participation. You may now disconnect.

Everyone have a great day!.