Northern Oil & Gas, Inc. (NOG) Q3 2026 Earnings Call Transcript

site at NOGInc.com. We will be filing our September 30th, 2026 10Q with the SEC within the next few days. I'm joined this morning by our Chief Executive Officer, Nick O'Grady, our President, Adam Durlum, our Chief Financial Officer, Chad Allen, and our Chief Technical Officer, Jim Evans. Our agenda for today's call will be as follows. Chad will provide an overview of our financial performance, followed by Adam, who will share an overview of NOG's operations and business development activities, and NIP will close with remarks about NOG's positioning and value proposition. After our prepared remarks, the team will be available to answer any questions. Before we begin, let me remind you of our safe harbor language. Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by our forward-looking statements. Those risks include, among others, matters that we've described in our earnings release as well as in our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements. During today's call, we may discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow. Reconciliations of these measures to the closest gap measures can be found in our earnings release or earnings presentation on our website. With that, I'll turn the call over to Chad.

Thanks, Evelyn. The power of the NOG platform was evident in the third quarter as the company set new quarterly records for both adjusted EBITDA and production. Adjusted EBITDA was up 11% from the second quarter and 15% from a year ago. Total production was up 7% sequentially and 19% year-over-year. Oil volumes were up 10% from the second quarter, and natural gas set another record, up 39% from a year ago. Production expenses ran a bit higher in the quarter, above our full-year guidance range. That largely reflects elevated processing costs, primarily in the Williston Basin, which run higher with stronger NGL prices. Year-to-date, we're at $9.77 per BOE, and our updated guidance range of $9.75 to $9.85 implies a fourth quarter in line with a third. Higher production expenses didn't hold back our results. Cash margin and adjusted EBITDA both improved in the quarter. Contributing to the improvement in margins were tighter oil differentials, which came in under $3 per barrel. While gas realizations improved significantly to 98% of Henry Hub, up from 90% from the second quarter. The improvement was led by the Permian, where gas realizations recovered to 85% of Henry Hub, compared to 39% in the second quarter, as Waha pressure eased. The improvement of realizations added about $12 million in the quarter, or about 85 cents per BOE. More than twice the increase in our production expense rate. Cash margin per BOE improved sequentially to $30.74. Budgeted capital expenditures were $247.3 million, including $190.7 million on organic DNC and $56.5 million on ground game activity. The increase from the second quarter reflects the pickup and activity we discussed last quarter. Free cash flow was up 25% from the third quarter of last year, even while funding that higher level of activity. On an LTM basis, we have generated $381 million of free cash flow, up from $351 million at the end of the second quarter. Just as an aside, the third quarter of 2026 marks the 27th consecutive quarter of positive free cash flow for NOG, exceeding $2.3 billion. Over the same time period. Moving on to the balance sheet, we ended September with over $1.6 billion of total liquidity. In August, we issued $500 million of 7.5% senior notes due 2034 and used the proceeds to pay down our revolver, which ended the quarter at $223 million. Total debt came down by just over $100 million. And net debt to LQA adjusted EBITDA was sub one and a half times, within our stated range, one quarter ahead of our year-end goal. On shareholder returns, we purchased about 668,000 shares in the quarter at an average price of $23.96, giving about $227 million on our authorization. Our board declared a $0.45 per share dividend for the quarter. We're about $48 million paid on October 30th. Our dividend remains well covered, with third quarter free cash flow exceeding the payout by more than three times. Turning to our guidance, with three quarters behind us, we are updating our full year 2026 outlook. Given the record third quarter volumes and strong wall performance, we are raising our annual production guidance to $147,000 to $150,000 BOE per day. We are also updating our cost guidance, including production expenses, tax G&A, and production taxes. Stronger realizations year-to-date allowed us to tighten our oil differential guidance and raise gas realizations. Our capital budget remains $850 to $900 million, and given higher activity and continued ground game success, we expect to land toward the high end of that range. You can find additional details on the guidance page of our earnings presentation. With that, I'll turn the call over to Adam.

Thanks, Chad. Our third quarter results demonstrate our ability to allocate capital across the portfolio, driving record total and natural gas volumes, and with oil production up nearly 10% from the second quarter. The Uintia again beat our internal expectations on oil, and Permian volumes rebounded as Waha takeaway constraints eased. In Appalachia, our 2025 Joint Development Program culminated with strong performance and expected returns well above our underwriting, while our jointly owned Ohio assets with Infinity are gaining momentum. Our recently closed Duvernay position is also running ahead of initial expectations, with well productivity, D&C costs, and operating expenses all outperforming. Activity picked up modestly relative to our expectations. We turned in line 23.9 net wells during the quarter, nearly doubled out of the second quarter, and almost all within our oil-weighted basins. We also added 18.1 net wells to our DNC list and well costs remain in check. Recent normalized AFE costs are down 3% quarter over quarter and more than 5% below our 2025 average as drilling efficiencies are realized and lateral lengths continue to increase. Turning to business development and our ground game, NOG's execution has been exceptional as we continue to expand our opportunity set and allocate capital to compelling investments. During the quarter, we closed on 19 transactions, bringing our year-to-date ground game to 15.4 net wells and over 8,500 net acres. Large M&A opportunities have also accelerated, and the team has been evaluating roughly 14 asset packages across seven different regions with an estimated total value of over $15 billion. This expansive opportunity set gives us the ability to be discerning. We will only focus on the opportunities that command a compelling risk-adjusted return net to NOG. Whether through acquisitions, divestitures, or trades, our focus will always be to enhance NOG's overall portfolio, take a returns-first approach, and allocate capital that will drive long-term value. With that, I'll turn it over to Dan.

Thanks, Adam, and thanks, everyone, for joining us this morning and for your continued interest in our company. I will cover four pillars that reinforce the strength of our business and build on Chad's and Adam's comments. Number one, record results. Our third quarter results speak for themselves. We delivered record total production and record adjusted EBITDA, a testament to the depth and quality of our portfolio we have assembled over the past several years. We generated approximately $150 million of free cash flow and we did so even as capital spending rose, which tells you something important. Our assets are funding their own growth while still generating substantial excess cash. Margins expanded as well, driven by improved pricing differentials and record gas production. Rising volumes combined with better realizations is exactly the operating leverage our model was built to cash. Number two, a strong balance sheet. We have used our balance sheet to acquire high-quality assets over the past several years, and we know debt levels have been a focus for investors. We are delivering on our commitment to improving our leverage metrics. Total debt fell by more than $100 million in the quarter, and our net debt to EBITDA ratio is now below one and a half times. Aided by our recent notes offering, total liquidity stands at approximately $1.6 billion, giving us the flexibility to act when opportunities arise, whether that's in the form of acquisitions or share repurchases. We enter the final quarter of the year with a strengthened balance sheet and significant firepower. Number three, games are won on the ground. The headline transactions get the attention. But a great deal of our value is created at the ground game level, one acre, one well, and one trade at a time. We continue to optimize our assets region by region, adding, trading, or executing small asset purchases that enhance our overall holdings. For instance, in Canada, we see line of sight to significantly growing our existing footprint. In the Uinta and Appalachia, our teams delivered significant ground game success. Expanding our position in two basins we believe have long, price-resilient runways ahead. These are capital-efficient additions that rarely make headlines, but they compound into meaningful inventory and value over time. Importantly, our team is hitting the proverbial Q4 ground running, with this period often the most seasonally productive time of the year in what's already been a very strong year for our BD efforts. Number four, portfolio optimization on multiple fronts. Guidance is increasing for the year while capital efficiency shines. Activity across our portfolio is stable to increasing, and every one of our regions is performing well. This is momentum we expect to carry the next year. At the same time, we remain relentlessly focused on optimizing our portfolio, which could include a myriad of strategies, including divestitures that bring value forward. Additionally, we maintain an unyielding focus on the ground to add value to our existing asset base, while also evaluating longer-term strategic acquisitions that improve our portfolio and add financial benefit to investors. We also continue to invest in our own shares, repurchasing additional shares of stock in the third quarter at prices below $24 per share. We continue to view our shares as one of the most compelling investments available to us today. Like many upstream companies, our shares traded a deep discount to the underlying after-tax marketable value of our assets. We do not see that as a setback. We see that as an opportunity and one we intend to seize. We have the assets, the balance sheet, and the team to close that gap, and we will take deliberate steps. We believe the best is still ahead for us, and there's a great deal. That NOG is planning. Specific details on exact time and location will be shared soon, but we're looking forward to using this event as an opportunity to connect with the investment community and share a deep dive on our business and our business. With that, we can turn the call over for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Neil Dingman with William Blair. Your line is open. Please go ahead.

Morning, Evelyn and the rest of the team. Nick, my first question is for you or Adam. I'm just wondering, how often would you say northern these days goes non-consent versus a historical average? I guess what I'm trying to figure out is twofold. First, are there areas you own that you believe still don't compete for capital and you'd rather not have operators drill? And secondly, you believe that there's some well costs that are too high even in today's environment, and you'd rather not have the operators drill those.

Yeah, so our non-consent rates are around 3%, Neal. It's largely focused to what I would describe as some of the weaker operators in areas in the Williston. And so, you know, on a net basis, it's relatively well. We spent a lot of time on the front end. We spent a lot of time on the front end buying, you know, buying properties that we know will be competitive. What I would say, though, is if you think about... The stack of returns, we obviously benchmark everything on a risk-adjusted basis versus our own cost of capital or our own return thresholds, but there are some that are lower in that stack than others, and so oftentimes there is the ability to potentially trade some of the ones that are in the lower quartile of that stack for those that are in the higher.

Yeah, Neil, I think the only thing I'd add there is, you know, a lot of these wells that are non-consented, I think it's less than a handful, frankly, were delineation-type wells, more science experiments, and, you know, we're taking a look at the AFEs that are coming across mine and Jim's desk on a daily basis and comparing that way and that against the ground in, and if we're able to source. Significantly better returns on the ground than that trade we're going to make all day.

And that's what I was thinking, Adam. You have a much bigger portfolio, so I figure you could be a little bit fusser these days. But my second question, Nick, is for your chat on capital allocation. Specifically, has the capital allocation strategy changed now that you've reduced debt, certainly to more than a manageable level? And, you know, the dividend yield, you know, obviously continues to be over 8%. Would love to hear your thoughts on the allocation.

Yeah, I mean, open window opens on Monday, Neil. And so, as I mentioned in my prepared comments, our equity is as compelling as it's ever been. And look, markets are what they are at any given point in time. You know, I've been watching the last few days of what's been going on, and I have to remind myself that oil is still 90, and when I look at what's happened with the equities. But at the same time, what I tell you is, look, we want to take leverage down further, and we'll do that. So it's all about doing everything in life, doing it in moderation. But I think the equity is a very – we've increased our buyback authorization on purpose, which is really to give us the flexibility to take advantage of periods like this. Look, I mean, you mentioned the yield, you know, the cost of the equity and where it is today, you know, our dividend represents, you know, and it has, if you go back over the last three years, you know, roughly a third of the cash that we've been generating, and it doesn't really foot with where the yield is today, and ultimately that creates a big advantage for us. Thank you. Neil, just to quote our chairman, you know, he would tell you, high stock price, happy face, low stock price, happy face, because it creates an opportunity.

Your next question comes from Scott Hanold with RBC Capital Markets. Your line is open. Please go ahead.

Yeah, I appreciate it. Thanks. You know, Nick, I think some of the, you know, turbulence in NAG stock, especially this week, is related to you and then in what the operator said, you know, about it. I'll look there and performance. Now, can you just give us a sense of like how that impacts Northern and how you go about like putting things like that in your guidance? And I guess that wouldn't only apply to the Uinta, but like all your assets, just to give us some comfort in your outlook.

I mean, number one, Scott, the UENTA represents about 8% of our total production. Number two, if you've watched carefully, we've done about $150 million of additional acquisitions in the UENTA since we acquired those properties outside of our partner. And so our numbers aren't necessarily directly tied to theirs. And three, each company risks their potential performance accordingly. And I just say that we take great pains as a nod to try to risk that. So I don't think this is, quite frankly, from our perspective, are you into performance in the third quarter? And as we head into the fourth, it's right on track of where we caught it. The final thing I'd just say, and I've had the time now, I've been traveling, but to read through those comments, this is a transitory issue. There's massive expansion going on there. So even if it slows the basin down for a quarter or two, by first quarter, we're going to be, frankly, we're increasing our rig activity. So if you can look beyond 90 days, we're going to be seeing significant growth in that basin, something we never underwrote when we acquired it.

Okay, that's good to hear. You obviously talked about the analyst day coming up, and within that, I guess, you know, we'll hear more about the opportunities to, you know, at least look at your portfolio and what makes sense to, you know, optimize. You mentioned divestitures and potentially other ways of optimizing the portfolio beyond divestitures. Like, are there other ways that you could evaluate, you know, optimizing that just at a high level?

Yeah, I mean, I think I will reserve some comment on this in the sense that we have a number of private Things we're going through today that aren't ready for prime time, but there are numerous ways, everything from how we source our capital to how we partner to how we trade and divestitures are certainly part of that. But we also, you know, we are an analytically driven place, right? And so when we do these evaluations, we don't do it lightly. You know, what I would tell you is that many companies, when they feel they're undervalued, will sell a high value asset and they'll show accretion to Wall Street. But ultimately, they might have just sold their best asset or sold something in which they've given away a lot of future upside that they're not being paid for even in that scenario. So the key thing about all this stuff is to do the research, to do it right, and to do it in a way that ultimately creates the most long-term value.

Okay, appreciate that. It sounds like there's that next evolution of the NOG business model then.

Yeah, look, we have built tremendous scale, you know, and I don't think it's fully appreciated. You know, as a non-operator, we benefit from diversity. You know, I think it's harder for an operator to efficiently allocate capital in multiple places, but for us, it creates a huge flywheel effect. The statistic I would give you that we gave to our board in midyear is that on the small and large asset transactions, because we are as broad as we are, our footprint was up 48% and 58% in those two categories, respectively, year over year. And so where I'm going with this is that the best way to be able to efficiently allocate capital over time is to have more shots on goal. And that is exactly what's happened as we've expanded the footprint. So we want to make the business better. We want to grow our profits per share, but there are a lot of ways to do that. That can be through reducing share count. That can be through acquisitions. It can be through the drill bit. But at the end of the day, what we're really looking at, whether it's divestitures, acquisitions, or anything else, is making the business better and more capital efficient as we grow those profits per share.

Your next question comes from Charles Mead with Johnson Rice. Your line is open. Please go ahead.

Yes, Scott, good morning, Nick, to you and your whole team there. Adam, you made some comments, or you offered some details in your prepared remarks about Thank you. If he's being down, and Nick, I think you mentioned that activity in most of your basins is stable to up. I wonder if you guys could talk about what you're seeing, what you expect to see for 2027 across all your different operating areas and operators, and particularly, Nick, maybe you can. Wrap in, you know, there have been a lot of shocking things in the market, but one of them is that the 27 gas drip is 290 now, and so I would think they'd have to buy us activity lower in some gas bases, but I wonder if you could just give us what 27 looks like to you right now.

Yeah, I mean, I think as we've prosecuted 2026, we've seen a shift, you know, expectedly so from, you know, maybe some of the gas-weighted, you know, activity more towards the oil-weighted activity, you know, looking at the AFEs that we consented just here in the third quarter, the Williston was leading the way. I think some of that is a function of, you know, concentrated working interest. And, you know, when you think about, you know, AFB costs, the Williston has been, you know, one of the leaders in terms of kind of reduction on a normalized cost per foot. So I would expect, you know, the permeate will continue to be as active as it ever has been. You know, Williston, you know, will continue to be steady as it goes in the DuVernay. You know, while it's early days, you know, the conversations that we've been having there has been accelerating ahead of kind of expectations. And so I think we continue to see that, you know, obviously notwithstanding any sort of. material change in commodity prices. I don't think you're necessarily going to see a massive acceleration from any of our operators, at least from the conversations that we've had. Maybe some of the privates lead in a little bit more than the public, but that's effectively what we're seeing on the ground right now. I expect that to continue.

Yeah, and I would just say seasonally, Charles, as you head towards the end of the year, things tend to slow down a little bit, and that's just because people are getting close to exhausting their budgets, and to the extent that they're ahead, they will move that activity into next year, so, you know, it's not totally linear, right, and you're also going to go into, like, a seasonal period in the back end where it's always slower in terms of completions, but where I'm going with that is that If you actually look at the rate count in our basins, you know, quarter to quarter, month to month, it can vary, but the overall activities continue to rise. Are you into, as Adam mentioned, are you into Canadian operations, are poised for growth? I think our Permian and Williston are steady as they go. As for Appalachia and gas, I think the one thing you have to take in mind, it may mean that you don't see tremendous growth, but keep in mind that in Appalachia, our cost, one of the reasons we acquired those properties is that our cost basis, meaning that our break-even levels are some of the lowest in the industry, and so they'll be very resilient, and so you're not necessarily going to see a huge variability in activity like you might in the Hainesville or some of the higher cost plays.

Got it. That's helpful elaboration. And then, Nick, I want to go back to a point I think you've already addressed a little bit, but I want to see if I'm understanding it correctly. I think this is about acquisitions and how you would fund acquisitions and maybe the right way to think of it as a relative priority. I think what I'm hearing is that you want debt levels to move lower, mostly maybe on an absolute or a metric basis. You kind of view your... Your equity as an expensive currency in the sense that you don't want to use your equity. So that kind of, to me at least, leads me to think that any future acquisitions would have to, you know, that some of the funding would have to be from some, you know, some kind of asset sale. Is that the right? Is that the right, you know, I don't want to say, I'm not trying to get you committed to anything, but is that kind of the right read on your posture now?

I would give that a maybe. I mean, I think, look, we, you know, our focus this year, you know, we will. We've spent roughly $150 million on the ground in an environment, in a price environment like we're in right now. You know, I talked about this yesterday. I was speaking at a Hart event, and what I tell you is that it's a tale of two cities. So when prices are low, We and everyone else would like to buy oily properties. You know, we tried very hard last year, but what tends to happen is in low-price environments, the quality of the opportunities available to you tends to be lower, so we spent a lot more money on raw land and leasehold. Bringing it forward to today, there are a lot of high-quality prospects out there. The backlog is not bigger than it's ever been, but the risk skew is not great for the acquirer, right? It doesn't mean you can't hedge all that stuff, but you take activity risk and other things alongside that. So our desire to do large-scale M&A, and when you put it into context of, yes, our equity is precious as it's always been, can you still do things accretably? Of course, but is it the level of accretion that our board deems to be? You know, fair? The answer is no. And so I think, look, we have plenty of liquidity available to us. I mean, we've got a billion six, our revolver is barely drawn, and so we certainly have the firepower to do so, but I don't think we're interested at this point in doing a levering. Thank you. And I'd say this, that, you know, we think we can do all of these things. It doesn't mean, though, the answer is yes, would an asset sale potentially provide those proceeds in order to do that? Yes, of course. You know, but getting those two stars to align at the same time also isn't something that is necessarily, you know, a given.

Right. That's helpful, Nick. Thank you.

If you would like to ask a question, please press star one, and to withdraw your question, press star one again. Your next question comes from Paul Diamond with Citi. Your line is open. Please go ahead.

Thank you. Good morning, y'all. Thanks for taking the call. I just want to touch on... You know, the trajectory of your capital expenses. You're trending towards the high end of the range and the year end. Do you see that carrying into, is it the same trend carrying into 2027, or is it too early to tell?

I think as it pertains to 2027, it's just to really tell. We're working on a number of initiatives, some which could drive significant growth, some which would be more in a maintenance model. And I think between the volatility and prices and, you know, ensuring that these projects get signed up or don't, I think it's going to really make a big difference in that outlook. So I think we're going to have to wait. What I'd say is that I don't see an outcome that's a bad one. So either, you know, either we can, you know. Maintain the status quo and everything's great, and our capital efficiency should be similar. Look, I think, in general, well costs are rising, but I'd say to Adam's point, on a per foot basis, our lateral length continues to increase. So on a normalized per foot basis, I'm not sure we're going to see anything that meaningful.

Got it. And then can you talk about, so on inflationary pressures, outside of steel and diesel, are you seeing any meaningful, I guess, movements or meaningful tailwinds into the end of the year and following the next?

I think the two places I would point to is, you know, just drilling time. I think that's probably where our operators are most focused in terms of, you know, trying to mitigate, you know, inflationary pressures that we're seeing, and then obviously lateral lengths being, you know, the biggest of the three.

Got it. Understood. Appreciate the clarity. I'll leave it there.

There are no more questions at this time. I'll now turn the call back to Nick O'Grady, CEO, for closing remarks.

Thanks, everyone, for joining us today. We're really thrilled with the Q3 results, and we look forward to delivering more. Please reach out to Evelyn with any questions.

This concludes today's call. Thank you for attending. You may now disconnect.