Infinity Natural Resources, Inc. (NOG) Earnings Call Transcript & Summary

Welcome to the Northern Oil and Gas, Ohio Utica Joint Acquisition Call. I'll now turn the call over to our host, Evelyn Infurna, Vice President of Investor Relations at Northern Oil and Gas.

Thank you, operator, and good morning, everyone. Earlier today, we announced an Ohio Utica joint acquisition with Infinity Natural Resources for $1.2 billion of which NOG's interest is 49% or $588 million. On the call today are Nick O'Grady, NOG's CEO, who will share his thoughts about the strategic value of the acquisition; Adam Dirlam, NOG's President; and Jim Evans, NOG's Chief Technical Officer, who will discuss the structure of the joint acquisition and the unique nature of the asset, respectively. We will not be taking Q&A on this call but are available at any time today, December 8 and over the coming days to discuss details with you. Please feel free to reach out to me to schedule a meeting with the team. I'll now hand the call over to Nick.

Thank you all for joining today's call. I'd like to begin by outlining the strategic rationale behind our latest transaction. NOG is focused on executing deals that add long-term value to our platform. Partnering with Infinity Natural Resources to acquire a significant stake in the Ohio Utica assets is a testament to our commitment to growth and resilience. This transaction is the largest in our history and further strengthens our Appalachian portfolio, providing vertical integration and a clear visible growth path well into the next decade. Alignment with Infinity sets the stage for a successful partnership, enhancing shareholder value and positioning NOG as a leader in nonoperated working interest in premier hydrocarbon basins. This asset features 35,000 acres net to NOG over 100 dose identified undeveloped locations with significant running room for expansion and approximately 65 million cubic feet per day equivalent of first year expected production. This production base is extremely low decline, rich in liquids at high margin and with a single rig program is poised to grow at a 30-plus percent CAGR well past the end of the decade just on what is identified today. With an estimated breakeven price below $2 per MMBtu, this asset immediately competes with this partnership's capital and will prove to be resilient throughout the cycle. We are equally excited about the midstream, comprised of over 140 miles of low- and high-pressure gathering pipelines. The system was built to handle a larger amount of volumes which will reduce the near-term capital needs of the asset. And importantly, it materially improves control and margins by owning both. Time and time again, we talk to our investors about being focused on the long term about being strategic in nature about focusing on resiliency and returns. This asset checks all those boxes. It will grow. It is resilient to low price environments, and we see multiple avenues on the development side for better cost and performance and other synergies with our partner, INR. And finally, as always, the key is not just short-term accretion or simple multiples, but multiyear high-return growth that will drive NOG's profits per share for the long run on a risk-managed basis and a focus on driving total return. In terms of funding the transaction, as we discussed during our third quarter results, we have taken significant steps to prepare for this throughout 2025, building a war chest of liquidity, enhancing our maturity wall and extending our bank facility. With that bank extension, we were able to meaningfully lower our cost of borrowings. By executing on interest rate swaps, we will both lower as well as fix those rates. And as a result, we were able to use a very low mid-single-digit cost of capital to purchase these assets, which will accrete directly to the shareholder without adding undue risk. While leverage will increase modestly in the short term, as the asset grows and converts to generating free cash flow, NOG will see a steady reduction in its leverage ratios in the coming years. A prudent hedging strategy has been undertaken and is ongoing to derisk the balance sheet and these assets further by adding basis hedges, swaps and 2-way collars as far out as 2029. With the addition of this asset, NOG now owns over 90,000 acres in Appalachia with decades of inventory, positioning the company to participate in the growing demand for gas. With that, I'll turn it over to Adam.

Thanks, Nick. The Utica transaction is another example in our track record of executing on large-scale accretive investments, marking our fifth major joint acquisition and our largest in company history. While we're getting milestones in terms of individual acquisitions, NOG continues to become even more diversified across commodity and resource plays. This is a testament to NOG's unrivaled and scaled nonoperated business model, with a total addressable market spread across the entirety of the upstream E&P industry and now making inroads into the midstream space. Given the number of opportunities available to us, we have the unique ability to be selective, only targeting assets that will compete for capital in an organization with deep low breakeven inventory and peer-leading returns. The Utica asset checks those boxes, and we are eager to partner with another technically superior operator with Infinity as they drive operational synergies. This joint acquisition comes with the same alignment and governance that we're accustomed to, including our longest drilling commitment to date given the multiyear inventory on the asset. In addition to the drilling commitment, we've established our customary area of mutual interest, providing an avenue to extend laterals, grows up our interest and further drive returns. Our enhanced informational rights will only bolster NOG's proprietary intelligence platform developed to maximize data and accelerate decision-making while ensuring scalability and precision. As Nick mentioned earlier, our Utica acquisition brings NOG's Appalachian position to the forefront at over 90,000 net acres, representing a 60% increase and puts NOG squarely in the macro tailwinds of growing demand driven by data centers and LNG exports. With that, I'll turn it over to Jim.

Thanks, Adam. The acquired assets are located in the core of the Utica play in Monroe, Noble, Guernsey and Belmont Counties in Eastern Ohio and include approximately 35,000 net acres. The acreage spans the condensate, rich gas and dry gas windows providing us with commodity optionality. There are currently 255 producing wells with a sub-15% first year decline rate. We have identified over 100 gross long-lateral undeveloped locations that breakeven below $2 per MMBtu, providing nearly a decade of high-quality development and growth at a 1-rig pace. There's all significant opportunity to grow the footprint over time, adding potential locations along the development plan with an annual CapEx spend of around $100 million, inclusive of land capital, the asset is expected to average approximately 65 million cubic feet equivalent per day in 2026 and grow at a 30-plus percent CAGR through the end of the decade. As we mentioned, the acquired assets also include an integrated midstream system that consists of approximately 104 miles of low- and high-pressure gas gathering lines along with 6 compressor facilities with throughput capacity of 600 million cubic feet per day, the system is built to support multiyear growth on the asset as well as provide an opportunity to generate additional revenue from third-party gathering. The system has direct access to REX Zone 3, providing enhanced gas realizations. The midstream system also includes approximately 90 miles of water lines and 12 water storage facilities. The system helps lower breakeven costs by $0.70-plus per Mcf to reduce operating expenses as well as development costs. In addition, these properties offset Infinity's nearby Guernsey assets, which should create additional synergies on the asset and lower breakeven costs even more. I'll now turn the call back over to Evelyn.

Thanks again for joining this morning. We look forward to speaking with you. Please reach out to me at [email protected] to schedule a follow-up call. Thanks again.