Brandon Elliott - Interim President Chad Allen - Interim CFO and CAO Michael Reger - Chairman Emeritus Bahram Akradi - Chairman of the Board.

Neal Dingmann - SunTrust Jason Wangler - Imperial Capital Derrick Whitfield - Stifel Ron Mills - Johnson Rice.

Good day, ladies and gentlemen, and welcome to Northern Oil and Gas Inc., First Quarter 2018 Conference Call. Currently, at this time, all participants are in a listen only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time.

[Operator Instructions] Also a reminder, this conference call is being recorded. I'd now like to turn the call over to your host to Brandon Elliott. Sir, you may begin..

Thanks, Glenn. Good morning everyone. This is Brandon. We are happy to welcome you to Northern's first quarter 2018 earnings call. Before we get to the results, let me cover our Safe Harbor language.

Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward-looking statements.

Those risks included among others matters that we have described in our earnings release, as well as in our filings with the SEC, including our Annual Report on Form 10-K, and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements.

During this conference call, we may discuss certain non-GAAP financial measures, including adjusted net income and adjusted EBITDA. Reconciliations of these measures to the closest GAAP measure can be found in the earnings release that we issued earlier this morning. Okay, here is our plan for the day.

I'll cover some highlights of the first quarter and then I will turn the call over to Chad Allen to walk you through the financials then we will turn the call over to Michael Reger to talk about acquisitions and our consolidation strategy and then, Bahram Akradi, Chairman of the Board will talk about overall strategy and the state of the Company.

And finally will get to your questions. Let me start off by saying the first quarter of 2018 resulted in a very strong operating results including us adding more net wells to production than anticipated and going for an extracted production growth. Importantly, the net wells we are adding continue to be some of the best wells we have participated in.

We added 5.8 net wells to production during the first quarter, which drove production above our guidance coming in at approximately 18,000 barrels of oil equivalent per day, a 35% increase year-over-year and 7.5% increase sequentially.

The momentum we saw building as we exited 2017 carried into the first quarter, not only did we add more wells to production than we anticipated, we exited the quarter with 19 net wells in process after adding the 5.8 net wells to production and 6.5 net wells for drilling and completing list.

Our wells in process continues to be complimented by many of the best-in-class operators in the Williston Basin with Continental Resource leading the way with 30% of our in process inventory.

Continental recently announced their all-time best 30 day rate Bakken wells of which Northern has a working interest in four of the top five and eight of the top 10. In addition to Continental, we continue to see excellent wells from our other operating partners.

During the first quarter, the rate of return on wells that Northern elected to participate in, our asset made it to average approximately 60%. The wells on our in process list are expected to produce over 1 million barrel EURs on average. We are now expecting to have between 22 and 24 net wells to production for the year.

As a result of that and the great performance of our wells, we are again increasing our 2018 production guidance and now expect production growth of between 26% and 30% for the year. In addition to the outstanding results we're seeing from our disciplined capital allocation process, we also had some other accomplishments that I want to recap.

In February, we announced that we had entered into an exchange agreement with a group of bondholders, representing approximately $500 million of our bonds. One of the key conditions to closing that exchange is a requirement that we raised an additional $140 million of new equity capital.

In April, we raised 93 million in an underwritten common stock offering and combined with the additional equity that will come in at the closing of bond exchange we will satisfy the equity raise condition and are working toward closing the exchange by May 15th.

In addition to the bond exchange, we also recently announced the largest acquisition in Northern's history when we entered into a definitive agreement to acquire producing assets and acreage in the core of the play from Salt Creek Oil and Gas.

We feel this acquisition demonstrates Northern's position as the natural consolidator of non-op working interest in the Williston Basin.

We will continue to take advantage of the strengths of our non-operated business model with a strict focus on capital allocation, continue to execute on our acquisition ground game, and look to A&D market to accelerate our growth strategy.

This quarter should demonstrate the momentum we are achieving and we look forward to updating you as we continue to execute on the strategy. With that, let me turn the call over to Chad Allen to go over our financials..

Thanks, Brandon. We generated $56 million of adjusted EBITDA in the first quarter and 89% increase over the first quarter of 2017 that was driven by a significant increase in production and improved commodity pricing.

Our first quarter production increased 35% year-over-year and 7.5% sequentially to an average of approximately 18,000 barrels of oil equivalent per day. The 5.8 net well additions in the first quarter coupled with the increased well performance that has continued to exceed our expectations has set us up nicely for the remainder of 2018.

Based on the improved results we're seeing with initial production rates in the EURs, we are very optimistic about the composition of our in-process drilling and completing well inventory. Our capital expenditures were 55.9 million for the first quarter.

This is higher than we originally anticipated, but not surprising given the large number of net well adds we had to production and the growth in our in-process well inventory, which we expect to drive strong results going forward.

We now expect to add 22 to 24 net wells to production during the 2018 using an updated total capital expenditure budget of the 185 to 200 million, which includes the ground game acquisitions, workovers and capitalized cost.

With this budget and the quality of wells that are exceeding, we are also increasing our guidance on 2018 annual production, which we now expect to increase approximately 26% to 30% over 2017 levels. Our realized price for the first quarter included the effects of our settled derivatives was 90% higher than the same period a year ago.

The increase was driven by was driven by higher commodity prices and the lower oil differential. Our oil price differential during the first quarter averaged $4.46 per barrel, which was 45% lower than the first quarter of 2017.

We are starting to see some widening in our differential as the price of oil moves higher and production continues to increase in the basin. That being said, we now expect our oil differential for 2018 to range between $4.50 and $5.50 per barrel.

Lease operating expenses in the first quarter came in at $7.71 per Boe compared to $9.75 for the same period a year ago. The decrease this quarter is largely due to higher production over which fixed costs are spread.

We now expect our 2018 lease operating expense per Boe to range between $7.75 and $8.75 and our production tax as a percentage of our oil and gas sales to be approximately 9.2%. General and administrative expenses were $1.7 million in the first quarter 2018 compared to $3.6 million in the first quarter of 2017.

The decrease was due to a $1.6 million reduction in compensation expenses primarily driven by 1.2 million reversal of non-cash share based compensation expense. On the hedging front, our term loan credit agreement requires us to maintain certain levels of hedging over a three year period.

We provided our current hedge book in our earnings release, so I won't recite the numbers, but I do want to point out that our minimum hedging requirements are based on percentages of our proved develop producing volumes from our most recent reserve report.

As opposed to total expected production volumes which will include production from coming future drilling. As a result, especially in the out years, we retain significant upside to the potential of an improved commodity price environment.

With that, I'll turn the call over to Mike Reger, our Founder just to talk about acquisitions and our consolidation strategy..

Thanks Chad. I would like to spend a few minutes talking about acquisitions and our strategy in general. As the founder of Northern and having been named Chairman Emeritus last fall, I was eager to help the board and management team change the trajectory of the Company coming into 2018.

In January, I was asked by the board to act as a special advisor to help raise capital, complete the bond exchange and pursue more substantial acquisition. I was more than happy to do this, not as a shareholder but as a friend of the Company.

During the recent equity capital raise, we spent a lot of time discussing our acquisition and consolidation strategy within the core of the Bakken and Three Forks play. Currently, we are evaluating quite a few core Bakken acquisitions ranging anywhere from 2 million to several hundred million.

The advantage Northern has is that we are the largest non-operator in the Williston and the natural consolidator of non-op assets in the basin. More importantly, the amount of data we have in the basin is unparalleled utilizing the substantial database we have amassed from participating in over 3,700 wells.

Our opportunity to scale as a non-operator has never been better. If we were an operator, the opportunity to add the drilling inventory in the core would be very limited as we have seen recently several of our Bakken operating partners have had to see core drilling inventory in other basins. This isn’t the case for Northern.

In addition to our ground game of acquiring additional AFEs and off-market working interest in the core, there are new non-operated assets for sale every week and we continue to aggressively evaluate each opportunity.

With the completion of the equity rate and the bond exchange which will result in several hundred million in cash, we will be uniquely positioned to execute on this consolidated strategy.

The execution of the consolidation strategy has already begun, less than two weeks ago we announced the largest acquisition in the Company's history Salt Creek Oil and Gas. This asset is in the core of the play comes with substantial drilling inventory and currently produces approximately 1380 barrels of oil equivalent per day.

If you assume value of roughly $37,500 per point barrel for the production, we acquired the core acreage in drilling inventory for free. More importantly the transaction consist a 40 million in cash which is approximately two times the operating cash flows we're acquiring and another 6 million shares of Northern Oil stock.

With the completion of the bond exchange, Northern's net debt to annualized first quarter EBITDA will be under three times. This will further enable Northern to use our equity as currency with sellers as we look to the A&D market to accelerate our growth. With that, I'll turn the call over to Northern's Chairman of the Board, Bahram Akradi..

Thanks Mike. I'm excited to join this great team again this quarter on the call and give you my perspective on, not only what we have accomplished in the last several months, but also reemphasizing what we're planning to accomplish as we continue to move this company forward.

As we mentioned last quarter, we are focusing our energy on improving the balance sheet and growing our EBITDA, towards the end of 2017 we are looking at a debt to EBITDA metrics on a trailing 12 month basis at something over five times, and we indicated that we wanted to reduce that to sub three times in the near-term and approaching two times long-term.

This quarter, we made some significant progress on that front. First, we continue to participate in some of the best wells being drilled in the Bakken, or any basin for that matter, which is driving the great results that this team has already described.

Our agreement to acquire the Salt Creek asset is another significant step forward as we look to grow EBITDA through acquisitions. The bond exchange agreement is also a major step forward in improving our balance sheet. It allows us to reduce debt by equalizing 155 million of unsecured bonds.

In addition, it will also extend the maturity on the portion of the bonds that are being exchanged for the new second lien notes from 2020 to 2023. We will further enhance the balance sheet with the 140 million equity raise required under exchange agreement, including the 93 in equity proceeds that we already had in April.

With all that, we've been doing I feel we are really just getting started. We will continue to work to improve our balance sheet to both our regular capital allocation process and ongoing pursuit of additional accretive acquisitions. Thank you for participating on the call today and I will now turn the call back over to Brandon..

All right, with that we will turn the call over to the operator for Q&A. Elam, if you could please give the instructions for the Q&A portion of the call..

[Operator Instructions] Our first question comes from Neal Dingmann of SunTrust..

What are you currently looking at? Now as you just said 24 deals ranging from 2 to 24 million.

Just wondering kind of as you see the landscape today, for you Bahram, Mike, all the guys, just how busy -- is there really M&A deals out there?.

Neal, this is Mike. I think some of the deals that you are seeing that are marketed that are fairly high profile. We're actively evaluating all of those deals and currently in negotiations on several of them. There are another dozen or so off-market deals that are in that same NOI ranging category several million to several hundred million.

So, we continue to evaluate all of these deals and as we look forward similar to the Salt Creek acquisition will be looking to use a mix of both cash and our equity to make acquisition..

And then again for you guys first, I think when the year started, had thought it would've been a little more back-end way. But now with all of these opportunities, it's nice to see all this actually coming fruition earlier. I guess my question Brandon for just spending for us to get a gauge.

And again, you certainly after this deal, it's not a liquidity issue or anything like that, but how do foresee? I mean I guess with that new CapEx, does that take us through the end of the year? Or how fluid is that I guess is the question?.

Yes, Neal, I think really what we did see is as you mentioned, we saw -- we normally come into the year, thinking about we're a 40% kind of 60% front-half, back-half loading on the net wells add, but we've got off to a fantastic start here in the first quarter.

It looks like weather in the basin is probably a little bit better than average, so we think we could see that 40 to 60 shift a little bit and maybe more 50-50. So that CapEx comes in a little bit quicker on the front, but we think the new guidance includes that additional two net wells adds that were more are now guiding to.

So overall I think we feel pretty good about it..

And then just lastly, the percentages you are seeing on some of these working interest you are coming in.

Is that you are able to -- sounds like you are able to kind of walk that up a little bit more than you have in the past?.

Percentages on the return, Neal?.

No, just on what working interest you are able to take, like on this Continental you mentioned on some of these real nice Continental wells kind of percentage that you are working interest there?.

Yes, I think we're, I mean it goes to the we've been preaching the ground game for a long time, and I think it goes to that ground game of where we see opportunities to add additional working interest into wells that we are already in.

We obviously have a good opinion on what we think the returns are going to be and how great the wells are going to be. So, we actively looked at additional working interest in those wells day in day out..

Our next question comes from Jason Wangler of Imperial Capital. Your question please..

You guys talked about obviously getting pretty close to wrapping up the bond exchange.

Just wanted to understand I think the only two things left is the holder consent and the shareholder approval and I believe the vote is tomorrow, in fact, was that kind of the two things we should be watching for is we get this wrapped up?.

Yes, the vote is slated for tomorrow, and so we are headed there to get that vote. And….

We already have enough..

Yes, we think we are in really good shape, have the votes in we need. So yes, that’s all that’s needed and then we will proceed quickly to closing and hopefully have that done on or before May 15th..

Maybe Mike for you just on the M&A conversation you were having maybe even what Neal was asking you. As you are looking at these deals and I’d agree you guys are the natural consolidator up there.

Is it mostly private equity that you are seeing that is the competition or just kind of competitive landscape? I guess how you're seeing that kind of shaking out as you're getting so involved in these?.

So on the larger deals that are marketed, we find that private equity as typically are competition on those deals. The smaller deals say sub 50 million, sub 75 million specially the off-market deal, that’s where we see very little composition.

And then on the ground game just to take a second on that, our ground of acquiring additional interest in buying AFEs and building our working interest in existing wells, existing units that ground games never been better.

So we have always been more successful on the off-market deals but we are very actively evaluating all of deals, including some of the more high-profile marketed deals that are in the market right now..

Maybe if I could flip on just on a follow-up on that. Mike, I think there's been some conversation to that there are while you said private equity is a competitor on the buy side, I believe that there is some private equity folks trying to maybe monetize on that that there is well.

So I guess, kind of depending on the scenario so to speak, but there may be unit packages from that side coming out either now or in the future as well, is that right?.

Yes, and those are some of the deals that we are actively looking at and we consider somewhat off-market. And we know where those packages lie, who owns them. We can understood, how they were built and put together and then at this point there are several packages out there where private equity has now taken ownership of those assets.

And as oil prices improve here they are more -- we are finding them more willing to part with those assets as they start to get some of the value back with they were deploying back on oil as substantially higher. So we feel really good about a lot of those deals.

So we believe that given our specific model as a non-operator and just consolidation strategy and the new balance sheet we believe that we are the consolidator in the Williston..

[Operator Instructions] Our next question comes from Derrick Whitfield of Stifel. Your question please..

For Mike or Brandon, as you look at your 19 well backlog, are there any standouts or outsize operator developments that you expected in Q2 or Q3?.

There are handful of wells, specifically several Continental pads, Slawson pads that we are seeing in the quarter to play in Mckenzie and Montreal that are really substantial. Whiting, Continental and Slawson and had some large pads that are really meaningful to us.

Continental starting to bring online the Bird Federal Unit where we have substantial working interest 16 well pad, just an amazing feat for them. And they're bringing that on now, so we're excited to see how this all unfolds especially as the weather has turn really nice out there, and it's easier to move well around and get equipment moving around.

So we're excited about the early and mid summer here..

If you just look at our top four operators that Mike just mentioned there, Continental and obviously Slawson, Oasis and Whiting. They represent still a little over 65% of the total wells in process, so continue to be seen the best of the best on our D&C list.

And from a county perspective, the big four counties represent about 98%, almost 100% of all the wells in process, so core counties as well..

And then with regard to your decision to increase the oil differential for 2018, are you guys simply earning on the side of conservatism given your Q1 average was below the low side of your revised guidance range?.

Yes, we were looking at our -- buck over Q4, and with what we're seeing now currently with some of our other operators, we know what Whiting and Continental are doing. But some of our other non-public operators, we are starting to a lift in that differential right now.

So that's why we did bring it up mainly to earn side of the conservatism, but we also believe that it is creeping on as a little bit due to the higher oil prices. And then, again, the increase in the basin production..

Yes..

But the production up, I think that's moving it a little bit.

Our next question comes from Ron Mills of Johnson Rice..

Just a follow-up on the acquisition you did Salt Creek, is both acreage and in production, any preference for acreage deal versus production deals? Or any more prevalent that the other in an around the core areas where you I think you were potentially look to you at?.

This is Mike. I think the key for us and what we've always look towards was acreage. There are lots of deals out there that are fairly top heavy that come with substantial production and PDP value.

With the Salt Creek deal and some other deals that we're looking at that are equally as attractive as that Salt Creek acquisition where we have not only good solid production, but we were looking to buy substantial inventory in the future. So we'd rather have a better mix of production and drilling inventory.

We’re not looking to grow just for growth sake, we’re looking to build upon the asset and build on the inventory level because like we've said several times not just today but in the during the capital raise, as a non-operator there is a lot of stuff for sale in the core of the play.

We have great operating partners it is just to be difficult for them to consolidate additional core drilling inventories, that's operated. The non-operative packages are all over and so we're looking to consolidate those and we're looking for steps that's not terribly topped heavy, we're looking for drilling inventory too..

I see no further questions in the queue, at this time I'd like to turn the call back over to Brandon Elliott for closing remarks. Please go ahead..

Thank you for participation in the call and your interest in Northern Oil and Gas. We certainly look forward to talking with you again and keep you updated on the strategy as we move forward. Glenn, you can please give the instructions for the replay information. Thanks everybody..

Thank you. Thank you for participating in today's call. This concludes the program. You may all disconnect..