Jordan Blum, editorial director, Hart Energy: We're here at Hart Energy's A&D Strategies and Opportunities Conference in Dallas. I'm joined for this Hart Energy LIVE Exclusive Interview by Nick O'Grady, the CEO of Northern Oil & Gas. Northern isn't quite just northern anymore, the last two, three years you've been expanding a lot in the Permian. Can you take me through that evolution?

Nick O’Grady, CEO, Northern Oil & Gas: From the moment I got there in 2018? I think internally we viewed it as some sort of inevitability. I think we felt that there were still life left in the Williston and there were still things to do, and I think we prosecuted significant M&A buying a lot of our higher quality peers over the next couple of years. But the law of large numbers is real, and I think we recognized we had this massive data set that gave us advantages in North Dakota, but we could only take it so far. And we had really long meetings from a business plan perspective with our board of directors, and we started in that kind of same period, just sort of shadowing the Permian Basin in 2018 and looking deal by deal, wellbore by wellbore, building up that data, looking but not touching until ultimately we felt like the pandemic really normalized it a bit because really you saw the whites of the eyes of everybody in 2020 as things got really ugly.

And I actually remember in maybe February of 2020 doing an interview with Hart and they said, “well, how are you going to react to it?” And I said, we're going to buy a lot of stuff. And we've done that. We started out small, to spend $1.5 million, we had a full board call, went through every line item from the geology to the engineering to make them understand what we were doing and that we knew what we were doing, and then it was sort of a walk before you run and we sort of slowly built momentum. And I tell you personally, I don't know if we think it would grow the way it has, but I think it's pretty soon it will surpass the Williston, even as our Williston program has continued to grow, which is incredible when you think about it.

JB: So you've been in the Permian for almost three years now, but your two most recent deals are more unique partner deals.

NO: Yeah, I think, again, in both cases there were existing relationships we had. We had gotten on the Vitol team, we had actually purchased some non-operated properties from them in 2022 and had discussed this idea largely, we had talked through a number of potential acquisitions, and it's always a question of are they the right fit? Getting all the people to agree, which is, as I mentioned on stage, really challenging. In the case of Novo, I think it was pretty obvious to us it was directly in the center of the fairway of where our top assets were and Earthstone was surrounding them. And so it made a lot of sense, and I think we felt like we were the logical partner.

Of course, there are other ways they could have financed or done it. They could have borrowed more money or raised more money, but we felt like we were right sizing it for them. I mentioned all the time, we try to be a reasonable and pretty good partner. And I think that's really what it takes to be a good non operator is the ability to take that risk alongside the operator and I think we've been recognized by that. I wouldn't make the assumption that this is going to be the norm going forward. I do think these may come up but I hope we can transact on them again, but there are a lot of stars that have to align for it.

JB: And now Earthstone is being acquired by Permian Resources, so you'll have a new partner there.

NO: That's right. We have a strong relationship with the Permian guys going into this. So if you were going to pick a suitor, I mean, we had absolutely no idea what was happening. And I credit both teams. They had really good poker faces. We’d literally been sitting down with the Permian guys a week beforehand, had no idea.

But I couldn't pick a better partner, I think, than Permian. I also think that just as they scale their business, we will be a direct beneficiary of that, which is that ultimately in this stage in Shale, it's about costs. That's how you drive higher returns. And the larger you are, the more economies of scale, I think Permian will be running almost 16 rigs that's three times more than Earthstone was. And that should leverage down well costs, that should be a benefit for us. In terms of the transaction itself, all of the documentation, all the governance, all the kind of rules and regulations, they're directly in the JOA or joint operating agreement, so they run with the land. So from our perspective, from a deal structure, it doesn't change anything. But I do think we'll definitely see some benefits. It's going to take some time, but I think we'll see some cost savings.

JB: Great. Obviously you're busy with integration work now, but what's kind of next beyond that? Is it focusing on more Permian growth, both the Midland and Delaware basins? How do you see that?

NO: I definitely think the Permian is going to be busy. I think candidly, some of our Appalachian properties are starting to be an area of focus just because it's a period of time where natural gas prices are weaker, and so your convexity increases when you can buy during periods where it's lower. Obviously the strip is significantly higher, so those sellers aren't necessarily, they're going to get some value for that feature gas, so they're not selling at the bottom or anything like that. But I think we'd love to grow our gas properties if we could, and it feels like a better environment certainly this year than last year. Complicated. The Appalachian basement is, from a land perspective, from a midstream perspective, very complicated, but I think you're going to continue to see the growth in the Permian.

While I think that, as I mentioned on stage, the huge volume of transactions you've seen, I think is not likely to be matched, but there's still a lot of smaller scale stuff going on, and we find ourselves in more rooms than ever. And I think that that's really what's important is that if you can build that reputation, it means every time there's an auction, whether it's appropriate for you or not, somebody's calling you on it so you don't really feel like you miss things. And I think that to have a seat at that table just increases optionality. Even if our batting average doesn't improve much.

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