Greetings, and welcome to the NOG First Quarter 2022 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Mike Kelly, Chief Strategy Officer. Please go ahead, sir.

Good morning, and thank you for joining us for NOG's first quarter 2022 earnings conference call. Yesterday after the market closed, we released our financial results for the first quarter. You can access our earnings release on our Investor Relations website and our Form 10-Q we filed with the SEC in the next few days. We also posted a new investor deck on the website last night. I'm joined here this morning with NOG's CEO, Nick O'Grady; our President, Adam Dirlam; CFO, Chad Allen; and our EVP and Chief Engineer, Jim Evans. Our agenda for today's call is as follows: Nick will start us off with his comments regarding our first quarter and our business strategy; after Nick, Adam will give you an overview of our operations; and then Chad will review our Q1 financials and updates to our 2022 guidance. After the conclusion of our prepared remarks, the executive team will be available to answer any of your questions. Before going further though, 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 the risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward-looking statements. Those risks include, among others, matters that we have described in our earnings release as well as in our filings with the SEC, including our Annual Report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During our conference call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow. Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued this morning. I would now like to turn the call over to our CEO, Nick O'Grady.

Good morning everyone and thanks for participating in today's call. During this call, we'll be focusing on six key points. Number one, the first quarter of 2022 was a record breaker for NOG. We generated a monstrous $256.6 million of adjusted EBITDA and over $145 million of free cash flow. That is more than double the free cash flow we generated just one quarter earlier in Q4 2021. We produced over 70,000 Boe per day with only two months of Veritas included in this production. Production beat our internal forecast by about 5% as a result of better than expected well performance. We also received a slight contribution in March from a few Q2 completions that were ahead of schedule. Despite this, we had in-line spending. We are increasing our free cash flow target for the year to greater than $425 million from $375 million prior on better production and better realized pricing. Number two, consistent outperformance. We are a proven and disciplined acquirer. We have successfully integrated our 2021 deals on time and they're performing better than expected. As we mentioned on last quarter's conference call, we are conservative on development timing and the assumptions we utilize in acquiring assets. We are seeing more production on our assets than anticipated, especially on the Veritas properties. Number three, our diversified model continues to shine. For the quarter, Permian volumes made up approximately 20% of our production volumes with only about two months of Veritas contribution. I would like to reiterate that we want a low leverage diversified capital allocation model and we're delivering that in spades. Our leverage in this quarter is at a run rate of about 1.1 times, well ahead of schedule, and we believe we're on a path to less than one times in 2022. When this management team came onboard four years ago, one of the major goals was to improve and deleverage NOG's balance sheet. We believe that goal has been accomplished and is permanently in the rearview mirror, which will allow for further shareholder returns as I'll discuss next. Number four, shareholder returns. During Q1, we delivered over 40% of our free cash flow back to shareholders in the form of dividends and preferred buybacks, a record percentage and a record in terms of absolute returns. Even with the strong shareholder returns, we still ended the quarter with less debt than we had forecasted. We also increased and accelerated our dividend plan, which included another 36% increase to the quarterly dividend. Throughout this year our goal is to keep all options open to deliver more shareholder returns and improve our discounted absolute and relative valuation. As we have previously discussed, we believe we have a premium business model that will continue to provide great returns to our shareholders. As noted in our release, management is recommending another 32% dividend increase next quarter that would take the annual dividend to $1 per annum. The Board has also approved the buyback plan for our senior notes as well as increasing the authorizations for preferred and common stock repurchases. Number five, the future. We are seeing robust organic activity on both our Permian and Williston properties as we approach mid-year. We hope and expect to see development towards the high end of our 48 to 52 well count this year, which should boost exit volumes for 2022 and set us up for significant production and free cash flow growth in 2023. As I mentioned last quarter, we see inclining volumes on our assets throughout this year. Recent severe storms in North Dakota will be a minor blip in April, and while it will flatten out Q2 growth, the trajectory for 2022 is actually materially improving, with accelerating growth throughout 2022. This has allowed us to increase our full-year production guidance. Additionally, ground game activity is booming, and we expect our free cash flow to significantly outperform our prior expectations. Small scale ground game competition has picked up, but we are getting significant traction in larger scale wellbore development projects that may be too large for our competitors to handle. If successful, we'll update you as always. Number six, bolt-on. Legendary World War II General Omar Bradley was famous for saying that amateurs talk strategy, but professionals talk logistics. To that point, we have not done M&A as part of just some pie-in-the-sky strategic thinking. We have done it to definitively increase returns to our shareholders as the results speak to you today. The strategic benefits are a residual benefit of smart financial decisions. The number of bolt-on properties coming to market has accelerated dramatically since we last reported, and we're evaluating a robust pipeline. As always, we're evaluating top quality accretive prospects in our core areas. As one would expect with commodity prices higher and upside convexity for the buyer being more limited, we will be cautious in our underwriting approach. Furthermore, you can expect our hedging strategy, upon success, will be geared towards locking in the majority of the PDP value. I'm optimistic we can close on meaningful value-added M&A this year. As I've mentioned previously, we do not expect these acquisitions to require Northern to access the public common equity markets, given our current leverage levels. As is typical, I will remind you, this is not a cheesy tagline; we take it seriously when we say we are a company run by investors for investors. I want to thank each and every one of you for taking the time to listen to us today. I now like to turn the call over to Adam and Chad to provide more details on operations and financials. Adam?

Thanks, Nick. The first quarter finished on a high note, as elevated activity levels across our entire position have been encouraging in the Permian, leading the way. Completions for the quarter came in above expectations as we added 10.6 net wells to production. The trend in a pull forward of activity remained a theme during the quarter with the acceleration coming from our Williston completions. The Permian assets performed up to expectations with the Veritas asset accounting for roughly 20% of the net additions during the quarter. While completions were above expectations, we also saw the base asset outperform internal production forecasts. Our private operators in both the Permian and the Williston were the main contributors to that outperformance with continued improvements to well efficiency. Our Marcellus assets have also been performing well, and we have been encouraged by the shallower declines in connection with the change in well design. With roughly nine months of production under our belt, our first completed set of wells are outperforming by 15% and we expect that outperformance to increase as we gather additional production data. As we look to the second quarter, Williston shut in significant gross volumes during April. However, based on our areas of concentration and our operators working diligently to bring wells back online, the net effect on NOG was not nearly as impactful. In addition, our Permian assets have helped to partially mitigate the interruption. We expect to navigate the late winter weather effects moving through the second quarter. On the drilling side, activity levels remained strong. We saw a build in our D&C list which has sitting with almost 50 net wells in process, up from 42.5 net wells, when we entered the quarter. As anticipated, the activity levels during the winter months shifted from the back into the Permian, as the Permian made up 45% of our total oil wells in process compared to about a third when we finished the year. Continuing with that theme, the Permian also accounted for two-thirds of the 13.3 net well proposals that we elected to during the quarter. We've been pleasantly surprised with the number of wells being proposed on our large Permian acquisitions and also saw consistent development from our other ground game acquisitions that closed in 2021. In the Williston, as the rig count has jumped to a two-year high, AFE activity has risen for the fourth consecutive quarter, and elections are up over 250% versus the first quarter of last year. In totality, the acceleration in both the Williston and the Permian provided us with a 40% increase in net well elections quarter-over-quarter. We will continue with our barbell approach of high quality elections and opportunistic ground game acquisitions. And while there will be monthly variations, we expect our current Williston and Permian assets to grow roughly in balance over the year. We've also been keeping a close eye on inflationary pressures, and I've been impressed with the operators that we actively choose to partner with. Per well costs on new proposals remain well within the range of what we are modeling with average well costs effectively flat quarter-over-quarter at $7 million a piece. This has not necessarily been the case for some of the other smaller operators that we have been observing through our ground game evaluation process. Many of the deals that we have screened have shown elevated AFE costs and partnering with the right operators during this period has been imperative to retaining capital efficiency. On the ground game front, deal flow remains at all-time highs. Despite the commodity price volatility and the variability in quality, we've remained disciplined in our approach. During the quarter, we closed 10 deals for 1.3 net wells, 326 net acres, and 73 net royalty acres. The acquisitions were fairly balanced between the Williston and the Permian during Q1. We continue to see some very compelling opportunities in both basins as we move into the second quarter. The larger M&A opportunities continue to come to market both in formal auctions and off-market sales. No different than the ground game deals that we evaluate, we're looking for quality assets and seeking to deal with realistic sellers. There remains a concentration of quality non-op deals in both the Permian and the Williston, and we are currently screening a number of them. Operators have also been approaching us on potential partnerships, and to the extent we can put something together, those mutually beneficial, we will remain opportunistic on that front. Discipline and creativity are essential in this environment and we are focused on layering in quality assets, only to the extent that they are accretive to the enterprise. The beauty of getting this done, what we were able to do last year with over $800 million in acquisitions, is that we don't have to do anything. It cannot be assets we tucked in due to work for us. With that, I'll turn it over to Chad.

Thanks, Adam. I'll start by reviewing some of our key first quarter results, which was the strongest quarter in company history. Our Q1 average daily production increased 11% sequentially over Q4 and increased 85% compared to Q1 of 2021. Our adjusted EBITDA was $256.6 million, up 46% over last quarter, and our free cash flow more than doubled to $146 million compared to last quarter. Both metrics well ahead of Wall Street analyst and internal expectations. Our adjusted EPS was $1.58 per share in Q1, well above consensus estimates. Oil differentials were better than expected in Q1 and came in just under $4 per barrel, due to strong Bakken pricing and having more barrels weighted towards the Permian, which has a sub-$2 oil differential. Gas realizations continue to remain strong in Q1, but I want to point out as higher gas prices persist and the ratio of natural gas liquid prices tighten, we would expect our gas realizations to fall back in line with our guidance. These operating costs were $54.5 million in the first quarter, were $8.50 per BOE. Effectively flat on a per unit basis compared to the fourth quarter, and towards the bottom end of our guidance. As I mentioned on our last call, specifically related to our firm transport commitments on our Marcellus assets, that LOE will be elevated in the second quarter, as we make any required payments compared to our annual production expense guidance. Cash G&A adjusted for one-time acquisition costs related to our Veritas acquisition was $0.86 per BOE. Capital spending for the first quarter was $85.6 million excluding non-budgeted corporate acquisitions which was below Street expectations, despite a pull-forward in completion activity and additional ground game opportunities in Q1. Our Williston Basin spending made up 16% of the total capital expenditures for the quarter. The Permian made up 35%, the Marcellus made up 4%, and other items made up the remainder. The balance sheet is in great shape. We paid out nearly $85 million on the revolver after closing the Veritas acquisition in late January. We currently have approximately $361 million drawn on the revolver, leaving approximately $390 million in availability. Given the cash flow we expect to generate, we forecast our revolver to be undrawn in Q1 of next year. All of that could certainly move depending on commodity prices, how we use our free cash flow, and other factors. As we finalize our spring redetermination, our current asset base would support a substantially higher borrowing base, should we desire more liquidity. On the hedging front, we've opportunistically added volumes north of $80 since our last report, most of it filling our targets in 2023 and 2024, and the top-up volumes from our Veritas acquisition. We continue to target hedging 60% to 65% of production on a rolling 18-month basis, with select longer-dated hedging tied to corporate acquisitions. With respect to updated 2022 guidance, our production guidance is up 1,000 BOE per day to a range of 71,000 to 76,000 BOE per day. We expect our production to ramp as we move through the year and exit closer to the higher end of our range. We will see some slowing of growth at the beginning of Q2 due to severe storms in North Dakota but expect a strong catch-up as we enter the third quarter. As a reminder, Q1 is typically our slowest quarter. So in terms of the cadence of our capital spend, we expect it to be more weighted towards the last three quarters of the year. As I mentioned earlier, oil differentials were better than expected, so we're updating our guidance to $5.25 to $6. This outlook should generate more than $425 million on free cash flow after our preferred stock dividend and would result in modestly increased production volumes and consistent growth in our common stock dividend. As Nick mentioned, the steady volume ramp we expect throughout 2022 also bodes well for a strong setup for 2023. With that, I'll turn the call back over to the operator for Q&A.

Our next question is from Neal Dingmann from Truist Securities. Your line is now live.

Good morning. First question is based on strategy guys, a good detail so far. Nick, I like the layout. Specifically I'd call you all know the leaders in the small-cap clubhouse when it comes to shareholder returns. So Nick for you as the team, I'm just wondering do you all believe going forward that larger shareholder payouts are key for you and other small caps, or do you prefer to build scale, or what is the optimal plan?

Good morning, Neal. I think there is solid logic to both M&A and obviously shareholder returns. M&A is important and we believe energy is the natural consolidator. Energy benefits from continuing to scale in the public markets; we see huge synergies from getting larger to our cost structure, our cost of capital, diversification, as today’s results speak to, make for a better non-op portfolio. So to sum that up, the analysis that we do internally still shows that M&A creates the most long-term value creation at least financially. We can grow our per share profits with few limits, given the marketplace and opportunities out there. It's impossible to manage the stock price day-to-day, but we can control and grow our business and profitability and let the market do its magic. But I’d say the current plan is an all of the above strategy – take securities, grow, and improve profits. That being said, I was a fundamental securities investor for 15 years. So, I’m not going to mince my words here. I think we are terribly undervalued today, even if the strip gap down $25. That means that repurchasing our own securities and other forms of returns are as competitive as ever with any use of capital. We're generating massive free cash flow; we've got significant authorizations in place for potential common preferred bond repurchases. Making sure the market values us appropriately is part of my job. And while there is only so much you can do, I do take it really seriously. So if this market situation sticks around, we certainly don't intend to stand around and shrug our shoulders.

It's great to hear about the buybacks and how they serve as a potential backstop; I completely agree. Regarding capital markets, you mentioned closing some timely acquisitions last year, but I think part of the underperformance at the start of the year stemmed from concerns about possible additional equity coming in or further deals. I'm curious about your current position. We estimate that you should have a strong balance sheet by the end of the year. Given that, how are you thinking about future financings or considering further deals, now that your financial situation will be significantly improved in the coming months?

Yeah, I would say, based on historic valuations that we're paying when we acquire properties, if we were to be successful. I think we can do upwards of $900 million in cash acquisitions without having any material impact on our overall credit metrics. And I would say, our Board of Directors to be clear, our profits are up about 80% since the fall, and our stock is roughly in the same place. So that means our valuation has compressed, and I would say our Board is very, I would say, not to mince words here, but I don't think the Board is terribly excited about issuing common equity if the market is not going to value its property and we just frankly don't need to.

Thank you. Next question is coming from Scott Hanold from RBC Capital Markets. Your line is now live.

Thank you, everyone. I appreciate the enthusiasm; it sounds like things are going well. First, I’d like to discuss the operating cost aspect. It appears that in the first quarter, your operating expenses looked solid. Chad, you mentioned that the trend might be shifting up slightly. If you could provide some details on that, it would be helpful. Additionally, from a broader perspective, could you assist us in understanding how the lease operating expenses will evolve over time as the Permian region becomes a larger part of your operations?

Yeah. So, this is Nick. I'll let Chad talk a bit on the logistics for this year. The one thing in terms of our FT commitments in the Marcellus as an annual thing we pay, we can't spread it out, you pay one and done. Yeah.

The benchmark to consider is the fair value we established when acquiring the Marcellus properties in the first quarter of 2021. We needed to set that fair value, and any subsequent increases will be incorporated as they arise. I estimate the associated costs for this will be around $5 million to $7 million in the second quarter.

Yeah. Scott, the reason it’s a concern this year compared to last year is that we paid it at closing last year. We still incurred the costs, just as part of the transaction's capitalization. Regarding LOE in the Permian, it's evident that Permian growth is primarily gassier, which typically results in lower operating costs from a productivity standpoint. Additionally, it's closer to the market, so when we record our GP&G costs in LOE, those costs tend to be lower. As Bakken production matures, LOE per unit for any well naturally increases over time. Therefore, our objective is to ensure that as we gradually grow our volumes and the mix shifts, our LOE remains fairly stable.

Okay. And that's relatively static to say that, the $850 million number you guys posted in the first quarter, is that sort of a good benchmark?

To be conservative, I would think we're within our guidance range. It's important to note that our booking process differs from some peers, as we combine everything into one. We also need to consider that liquid prices are currently very high, which means processing costs will fluctuate with overall NGL prices. As a result, these costs are elevated right now. While we are generating revenue that exceeds these costs, the LOE will decrease if prices drop significantly. Conversely, if propane prices rise to $2 a gallon, the costs may increase slightly due to the presence of various top contracts.

Understood. Nick, you mentioned that the ground game is thriving. Could you provide us with more details about what's happening and the size of the opportunity for your team? What has driven the recent increase in this opportunity?

Yeah. I mean, I think what's really changed in the dynamic is that, if you go back five to seven years ago when prices were high operators generally would consent to all of their non-operated properties and just spend extra money. What's unique about it is that we're in a $100 world and they still want to spend money drilling their own wells and that stuff is still coming off. So what I would describe to you is, we’re not – what we're seeing is instead of a quarter of a net well here with some acreage or 0.5 a net well there, we’re seeing pad developments with up to 40% working interest that could be five to seven net wells. Well, at today's prices that could be $50 million to $75 million worth of capital. And I don't want to scare anyone that we're going and spending money like crazy. But I would just say the size of the transactions as well as the small stuff, which still exists is larger than we've seen in past transactions. Adam, you should have...

We will focus our efforts on the size of the transaction relative to the rate of return, especially in relation to its competition. We have a working interest of 2% to 3% that is being pursued by many others. Those smaller deals are not going to significantly impact our overall performance. Therefore, we are looking at a few buyers who can generally offer slightly better pricing.

As you consider your full-year guidance, did you take into account the possibility of increased ground game activity throughout the year? Could that be seen as potential upside to your current outlook?

Potentially. I mean, I think we take it, each one in stride, I mean, I think as you know, Scott, we budget for a good portion of this within the year, every year. And so we've tried to be very careful, so that when we are successful, this is not just additions to the capital and I’d say we feel very confident in our capital outlook. We've been very, very cautious in terms of that. So I wouldn't make the assumption that it necessarily is incremental capital, so to speak. One thing I would say that is an interesting trend we've noticed in the past 18 months, we had a discussion with our own Board about this week. Which is that, the conversion timing has been compressing, meaning that in past years we would see six to nine months lead times from AFE to sales. And we've been seeing things compressed to sometimes less than three months. What's good about that is, it means you're not carrying on a percentage of completion those costs on your D&C list for a long time. It tends to make your capital efficiency a bit higher because the money is coming in and going out and converting very, very quickly. It means you don't necessarily carry as many wells in process as you might have in the past but that your capital is highly productive and turning much quicker.

Thank you. Your next question is coming from John Freeman from Raymond James. Your line is now live.

When I look at, you're close to achieving the target of being below that one times leverage. And given that the preferred stock is your most expensive cost of capital, would it maybe make some sense to shift more of that incremental free cash flow toward accelerating the repurchase of preferreds relative to paying off the revolver by Q1 '23, just given how much cheaper that cost of capital is?

I believe we should look at all three securities. Each has its own advantages, and given our strong free cash flow, we don't need to focus on just one. We've prioritized the preferred stock first because it represents our highest cost of capital. We're evaluating all options, as they come with different factors to consider. The corporate finance modeling indicates that the preferred stock is our most costly option and is currently very favorable. That's why we've tackled it first. Regarding our bonds, if the Fed's actions allow us to retire debt, it would be beneficial since we issued bonds at around 107% of PAR, which could save us money. For common stock, ensuring the market values us correctly is crucial and should not be overlooked. Also, the preferred stock affects common stock since it is now in the money. While retiring bonds could save interest and decrease risk, the preferred stock impacts our returns the most. Reducing the float from common stock might also improve our stock price and enhance returns. We have multiple options available and will approach this thoughtfully and cautiously.

Okay. I appreciate the thought process. And then on the CapEx front, as you're rightly pointed out, I mean you're literally the only small cap, I can think of during earnings it was able to maintain the CapEx budget. And I guess what I'm trying to think about is, well, I guess first like on the AFE’s that you're giving today, are you not seeing those move meaningfully higher from 1Q levels? I'm just trying to get a sense of the confidence shelf guide in being able to maintain that budget because it is pretty remarkable what you've done so far.

I made Bloomberg Intelligence retract an article from last year because I pointed out that small-cap companies would face cost inflation. We are a small-cap firm but operate like large-cap companies. The most well-funded and active operators are our focus for capital efficiency. Last year, many companies benefitted from lower-cost wells by reducing expenses. In contrast, we kept our costs consistent and flat. While one operator may experience inflation, another may not; we monitor everything. I reject the notion that we lack visibility compared to other operators. In fact, we have better insight because we track all costs. We noticed that smaller companies had significant cost increases early last fall.

John, the other way I frame it up, if you look at our D&C list just the percentage of private SMID cap large operators and look at it from a Williston and Permian standpoint, obviously EQT is operating 100% of our Marcellus asset. But you've got large cap operators operating 47%, the other 47% is private concentrated a true private, and so exposure to SMID cap operators is roughly 6%.

Got you. Well, I would say that you clearly done a good job choosing your partners because we've had a number of large cap companies that have blown through their budget discerning season as well. So you've clearly done the job of choosing their partners. But great quarter and I appreciate all the thoughts.

Yeah. I mean, John, I feel like a broken record because I tell everyone this over and over but we are more conservative than our own operators in many cases on performance, timing, and costs. It doesn't mean we won't be wrong from time to time, it doesn't mean we won't choose to spend less or more from time to time. But it does mean we're pretty careful and over the long term are pretty accurate.

Thank you. The next question is coming from Charles Meade from Johnson Rice. Your line is now live.

Nick, I have to say that, that Omar Bradley quote you had reach pretty deep in the back for that one?

I got it from my mom, actually.

I have to admit that the metaphor references World War II are a bit unclear to me, but I did find the security aspect impressive. However, I would like to ask a straightforward question regarding your quarterly production schedule. I believe Adam mentioned a slight increase in the second quarter. Was that comment related to a preliminary production outlook, or does it indicate that you're experiencing a slight decline in the additional month of Veritas, and is that what's resulting in the increase?

The storms in North Dakota were significant, especially in parts of April. We performed much better than the average due to our location, but this will affect the timing of our sales. Essentially, all the oil is being stored in local tanks and will be sold in May once it's ready. So within this quarter, we might see some surprises. While the storms impacted April, it's more of a timing issue where we might just be delaying production. Overall, this situation will only increase our production later in the second or third quarter.

That's helpful. Picking up on the topic of inflation, Adam touched on this earlier. Since you have insights across various sectors, can you share any observations regarding different pressures across the country? Are there varying types of pressures related to completions or differences among operators? What do these insights suggest about the outlook for 2023?

Yeah, in terms of certain basins. We are certainly seeing a difference between the Bakken and the Permian and the larger Bakken operators that we are exposed to, as well as the privates are doing a lot better. You have a function of a steady state rigs, long-term contracts if people are going back to the well service providers are going to try to reach up those contracts. And so our operators in North Dakota are certainly seeing conservative in that regard, albeit a two-year highs in the Permian. It's a function of what kind of rig program you're running, I mean, there is a handful of operators, smaller ones and choosy guys that are running one to two rigs and they are the ones that we're seeing struggle the most. You've got frac crews that are potentially not showing up, sand that's not showing up, those types of things. And so that's where we're actively getting in front of the larger privates, as well as the larger publics in that regard, in order to mitigate things. And then as far as kind of '23 is shaping up, but I don't know how much capacity there is to add rigs at this stage in the game, in terms of availability, and so in terms of moving things forward. I think it's going to be steady state, and then it's just going to depend on rig contracts, how long those are win those roll-off and effectively the price of oil.

Yeah. And I would say, you know, there is lots of sand in the world and it's not that hard to make a steel pipe. So I think those shortages will be relatively shortly led that would anticipate by 2023 those capacity issues. Those are more easily solvable than the physical number of rigs or the people who work on them. So I think those are shorter-term bottlenecks. Does that make sense?

Yeah. But just to clarify, Adam. And your comments, Nick, about adding rigs, you're talking about for the industry in aggregate, if I understand.

Correct.

Correct.

Thank you guys.

Yeah. I mean, Charles, the one thing to think about as a non-op if we wanted to double our output next year, it doesn’t. We don’t add any net rigs; we don’t add any net production, it’s simply working interest in existing. So we don’t have the same types of issues about ramping up or down that an operator does.

Thank you. Your next question is coming from Phillips Johnston from Capital One. Your line is now live.

Thanks. Nick, you mentioned inclining volumes in each quarter for the remainder of the year.

Yeah.

I wanted to get an update on the net well schedule. The original plan was approximately five to six in Q1, ramping up to around 18 in Q2, and then about 13 in each of the remaining quarters to achieve a total of 50. However, Q1 turned out to be closer to 10.5, and we've encountered some weather challenges in Q2. I'm curious about how this schedule might have changed.

I expect that with increasing volumes, there may be a stabilization in overall production in Q2. We'll need to observe how the fields recover, but there's a possibility of modest growth. From a completions standpoint, I anticipate a slight increase, remaining flat or rising in the second and third quarters. In the fourth quarter, I expect a significant rise in the number of completions. I would estimate about 10 to 12 wells a year for the middle quarters and likely over 15 in the fourth quarter. That's helpful.

Yeah. I mean, obviously there is being one more round from month to month and depending on when we're adding those wells, earlier or later in the quarter, that's obviously going to drive things too.

We have consistently been surprised; with $100 oil, people are highly motivated to take action, which has influenced sales. This marks the third consecutive quarter where we've observed some advance in activity. This will certainly be a consideration, but I don’t believe it will significantly alter the overall situation, possibly just one or two changes on the margins.

Okay. And just on a CapEx front, would that sort of trend at same level to where Q4 is probably going to be the peak or some?

I think we should see a few more completions each quarter this year, which will likely lead to an increase in CapEx. We spent less than 25% of our budget this quarter. However, I don’t expect a massive rise, as we're seeing a percentage of completion. The focus is really on the wells currently in process. Our CapEx this year isn't just based on the number of completed wells and their costs. Our drilling and completion list increased by 6.5 wells this quarter, meaning we are accounting for all those ongoing costs. Even though the fourth quarter is when most of our completions happen, some of that CapEx will also be incurred in the second and third quarters.

Okay. And then wanted to check to see what level of preferreds are trading at these days. I think the last update I had was mid-March or so when they were about 136?

I believe current prices will vary based on your delta ratio. They're quite favorable, possibly around an 85 or 100 delta. If you time it right, it could be between 135 and 150. However, the key factor to consider is the exchange ratio, which changes from about 20% to 60%. This refers to the number of shares, approximately 22.61 or 22.62. For preferred shares, if you add four years of the coupon, that will give you an estimate close to the spot price.

Thank you. Your next question is coming from Noel Parks from Tuohy Brothers. Your line is now live.

I want to check in with you on one thing. You were discussing the ground game and market activity in general. I'm curious about your thoughts on how assets are finding their way into the best hands. I think about the peak of private equity entering the sector and imagine that it might have changed things a bit, with owners holding onto assets longer than they would have to avoid taking a loss. Are we somewhat back to a normal market where activity and pricing align more closely with market conditions and fundamentals?

Let's see here. I think that $100 oil confounds people to some degree. I think that there is a lot on the market for sale, there is a lot of variability. I think on the very small scale stuff there is always competition, but I think there's probably more today. And that's a function that people are making more money than they assumed they would and they're trying to reinvest some of those dollars; you get a few kind of Johnny-come-lately and people want to chase that. Frankly, we're like a matador; we're happy to let the bull run by when that happens. In 2018, we saw a little mini version of this when oil spiked up to about $70, people loved taking risks when the price is up and they're feeling flush. But we maintain our discipline, and we're still getting plenty done. I think on the big scale stuff maybe there is a bit more competition than a few years ago, as people have raised a few dollars here and there. But I still think we manage the risk and concentration where others can't. I think everyone understands that risk plays a bigger role when prices are elevated. I think sellers are frustrated because they want to get every last dollar out based on the current strip. And I would just say at a $100 oil, the whole case always looks great. But in the end, I think sellers need to be realistic when you're in this type of environment, which is that if you held an asset and you needed to sell and monetize it might look, you might say, well why would I even do that at today's market pricing? And the answer is, because this is a cyclical business and there is a lot of risk and you can't take that for granted.

I understand your point, and I want to confirm that while you mainly deal with larger operators, we have been hearing various pressures depending on the certainty level of each operator. However, it seems you are not experiencing any issues with the completion pace by these operators, and they are not facing problems related to sand hauling or any equipment issues, correct?

There are always cost overruns, there are always problems. The real question is, how do you underwrite it? How do you budget it? We have an entire planning group that spends all their time. As I'll say, ad nauseam, we spent a lot of time to try to under-promise and overdeliver even internally, not just what we talk to our investors about. So we are absolutely seeing cost pressures, we're absolutely seeing delays and we're seeing, as Adam mentioned, frac crews not showing up. But the best part about our business is, when your average working interest is less than 10%, no one thing means all that much. If you model it correctly, and you have engineers and planning people that are very careful about that, you're generally more pleasantly surprised than disappointed.

And then looking at the last six quarters in our weighted average fees and consents are coming in at $7 million. And we're looking at our budget for the year, especially going into this one, we're looking at call the $7 million to $8 million in order to account for those types of things.

Got it. Thanks a lot. Appreciate the description of again sort of just reminders about the planning process internally. Thanks.

Thank you. Your next question is coming from Nicholas Pope from Seaport Research. Your line is now live. Nicholas? Perhaps your phone is on mute, Nicholas. Please pickup your handset or take your phone off mute. Nicholas, if you can hear me, I can't hear you. Our next question is from John Abbott from Bank of America. Your line is now live.

Good morning, and thank you for taking my questions. I apologize if some of these topics have already been addressed; I joined the call a bit late. My question, Nick, is about deal activity. I’m sure there have been many inquiries on this, but how do you view deal activity over a multi-year horizon? At what point do you anticipate a slowdown, and what are your current thoughts on organic activity in the long term?

In my prepared comments, I mentioned our approach to stock logistics. We are opportunistic, which means our strategy isn't solely focused on expansion or continuous acquisitions. We evaluate each opportunity as it arises, and if it aligns with our goals and pricing expectations for desired returns, we pursue it. This process varies, and I believe the risk landscape now is much more pronounced than in 2021. We made our moves during a mid-cycle phase and are currently benefiting from that with oil prices at $100. However, the future is uncertain; oil might reach $150, or it could drop to $50. This variability is crucial for our Board to consider. The pipeline of opportunities is as robust as ever. Last year's performance was unusual as we completed four successful transactions, each driven by specific circumstances that facilitated our success. Generally, our success rate is quite low, but we aim to identify deals that add real value and strong returns. Our results reflect this, showcasing meaningful gains for our shareholders, even as we engage with the capital markets. That said, we cannot dictate seller motivations or expectations, and we proceed based on our methods. Success is not guaranteed, but our responsibility is to seek growth, which is essential since we are a public company. We strive to enhance our business, and if opportunities arise, we will seize them. If not, we are content with our current operations. However, it would be unfair to our shareholders not to explore potential opportunities.

Thank you. When considering the possibility of repurchasing shares, you may recognize that the stock is undervalued. However, as you evaluate performance and the shares after making significant acquisitions at favorable prices that have increased our scale, what other strategies do you think could enhance shareholder performance? You’ve had a good day in terms of the stock, but what additional actions might be taken?

I am extremely proud of how we have transformed and built this business. The results this quarter validate our efforts. I truly believe we have made the right decisions from a business standpoint. Our acquisitions over the past year have elevated us significantly. Ensuring that the market values us correctly is part of my responsibility, and I take that seriously. Given the current undervaluation, I believe my experience as a securities investor lends weight to my views. We may need to leverage this situation to generate returns on our own securities. If this market condition persists, we do not plan to remain inactive. We are generating substantial free cash flow and have significant authorizations for all our outstanding securities. If necessary, we have plenty of options available and we have the cash to support them. In simple terms, we care deeply about our stock price. Our business model is incredible, yet still, in my opinion, misunderstood and underestimated. We will work hard to make our supporters proud. There's a lot of potential for us due to in-basin pricing and overall oil market trends. As I have mentioned repeatedly for four years, market asymmetry works to our benefit. When prices are high, everything we do accelerates and yields greater results.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you all for joining us. We'll see on the next one.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.