Northern Oil and Gas Inc (NOG) 2017 Q4 法說會逐字稿

Good day, everyone, and welcome to Northern Oil and Gas, Inc.'s Fourth Quarter and Year End 2017 Earnings Results Conference Call. This call is being recorded.

With us today from the company is Northern's Interim President, Brandon Elliott; and Interim Chief Financial Officer, Chad Allen.

At this time, I'll turn the call over to Brandon. Please go ahead, sir.

All right. Thanks, Jonathan. Good morning, everyone. We are happy to welcome you to Northern's Fourth Quarter and Year-end 2017 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 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 this conference call, we may discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA and PV-10 value. Reconciliations of these measures to the closest GAAP measures can be found in the earnings release that we issued last night.

All right. With that out of the way, here is our plan for today. I will cover 2017 and our strong finish to the year. I will then cover how some of the strategic initiatives we have undertaken over the past several years are contributing to our current momentum. I will also cover the proposed bond exchange we recently announced and how this would position Northern's balance sheet going forward and the opportunities it could open up to us.

I will then turn the call over to Chad Allen, our Interim CFO and Chief Accounting Officer, to walk you through the financials. Then, we will turn the call over to Bahram Akradi, Chairman of the Board, who has joined us today and he can give you his perspective of the strategy, not only as our Chairman, but also as a significant shareholder. And finally, we will get to your questions.

Let me start off by saying December capped off an outstanding fourth quarter, which was the capstone to a very good year for Northern operationally. We added 7.1 net wells to production during the fourth quarter, which drove our nearly 10% sequential production growth. Differentials to WTI decreased 45% sequentially to $3.51 per barrel, which was a 53% decrease year-over-year. We saw a reduction in cash operating costs of 5% per barrel. All of these combined to drive a 40% sequential increase to adjusted EBITDA to $48.5 million for the quarter.

The fourth quarter performance is setting up a great start to 2018 and allowing us to increase our 2018 production guidance. We now expect production growth of between 16% and 20% for the year based on our expectation that we will add between 20 and 22 net wells to production this year.

Now let me put 2017, and especially the fourth quarter, in context of what we have accomplished over the last several years and how that has not only set up the results I just mentioned, but also setting us up for things to come.

As we began 2015, we indicated to you that we wanted to protect and preserve our liquidity. The hedges we had in place at the time certainly helped us to do that as did the program that we initiated to dramatically reduce our capital spending, which helped us to cut our CapEx by over 75% in 2015. This allowed us to be one of the early free cash flow generators of the downturn during the second half of 2015.

As we entered 2016, we were allocating capital to only those wells that would generate strong rates of return in a very low commodity price environment. During the second half of 2016, we saw drilling costs falling and the early signs that new enhanced completions designs were driving higher returns and had the potential to materially increase ultimate oil recovery estimates. Most importantly, the gains in well productivity began to stabilize our production base despite our significantly reduced spending levels.

We began 2017 with the belief that the results and returns we were seeing were getting markedly better, and activity was also picking up compared to 2016. Our list of wells in process became some of the best wells we had ever consented to in the Williston Basin.

In order to provide certainty around our liquidity position going forward, in November 2017 we announced that we had entered into a new 5-year, $400 million first lien facility with TPG to replace our prior revolving credit facility. The TPG facility provided not only the extension of our available capital but the assurance we needed to continue rebounding the business.

This brings me back to the fourth quarter of 2017. The fourth quarter really was an outstanding finish to 2017. In addition to the highlights I mentioned earlier, we also saw a significant ramp-up of activity in 2017 with 16.9 net wells brought online and an additional 18.3 net wells in process at year-end. Production and expenses were all better than the guidance we laid out to you at the beginning of the year. We are also witnessing IRRs and EURs from both wells added to production and wells in process reaching new highs.

Let me also touch briefly on reserves. As you can see in our release, we saw 100% increase in our Ryder Scott SEC PV-10 value in 2017. As most of you know, SEC reserves provide a conservative set of constraints, primarily a limitation of only 5 years of drilling inventory in the future, which per Northern's report, was comprised of only 52.1 net wells over the next 5 years. This compares to the 20 to 22 net well additions we are expecting to add to production during 2018 alone.

In reality, enhanced completions and the outstanding well results we saw in 2017 have significantly increased the economic drilling locations and expected performance across Northern's entire acreage position. Early next week, we plan to provide, via presentation, some additional information on total reserve estimates that includes more economic locations as a result of the recent well results we are seeing. We hope this will better layout the value inherent in our acreage position.

Earlier this month, we announced that we had entered into an exchange agreement with a group of bondholders holding just under $500 million of our existing bonds. Under the proposed exchange, we would exchange approximately $345 million of the existing bonds that are due in 2020 for new second lien notes that would be due in 2023. Another $155 million of the existing bonds would be exchanged for common stock, and we would also bring in additional new equity in the form of cash and/or assets.

When that agreement and all the conditions necessary for it to close are completed, we will be entering a new phase for Northern, one where our strengthened balance sheet will allow us to accelerate growth and reestablish Northern as the natural consolidator of nonoperated working interest in the Williston Basin. We will look to continue to take advantage of the strengths of our nonoperated business model, including utilizing the substantial database we have amassed from participating in over 3,500 wells in the basin, a strict focus on capital allocation, continuing to execute on our ground game acquisition strategy and looking to the A&D market in order to further improve our total debt-to-EBITDA metrics with the long-term goal of getting Northern to be in a position where we can harvest the value of this business model and begin to return capital to shareholders.

With that, let me turn the call over to Chad Allen to go over our financials.

Thanks, Brandon. Our fourth quarter production increased 22% year-over-year and 9% sequentially to an average of 16,742 barrels of oil equivalent per day, totaling approximately 1.45 million Boe. This resulted in total 2017 production increasing by 8% over 2016. The 7.1 net well additions in the fourth quarter, coupled with increased well performance from enhanced completions and our bread-and-butter ground game of acquiring additional well interest, has set us up nicely for 2018 and beyond.

Based on the improved results we're seeing with initial production rates and EURs, we continue to be very optimistic about the composition of our in-process well inventory. As of December 31, 2017, we had 18.3 net wells in process, which is our highest quarter-end numbers since 2014.

Our Williston process inventory continues to be complemented by many of the best-in-class operators in the Williston Basin with Continental Resources leading the way with 1/3 of our in-process inventory. Continental just recently announced their top 5 all-time 30-day rate Bakken wells, all of which Northern has a working interest in.

Our capital expenditures were $57.3 million in the fourth quarter and $156 million for the year. The capital spending increase over our initial plans was driven by a higher-than-expected number of net wells that we added to production as well as the growth of our in-process well inventory, which we expect to drive strong results in 2018.

We are currently expecting to add 20 to 22 net wells to production during 2018 using the capital expenditure budget of $165 million to $180 million. We expect our 2018 total annual production to increase approximately 16% to 20% over 2017 levels.

In last evening's press release, we provided our 2017 year-end proved reserves prepared under the guidelines prescribed by the SEC, which totaled 75.8 million barrels of oil equivalent. 61% of those year-end are classified as proved developed reserves and 83% are from crude oil. Our year-end 2017 proved reserve volumes were 40% higher than year-end 2016 proved reserves, which was primarily due to higher commodity prices and increased drilling activity in the Williston Basin.

The number of proved undeveloped net well locations included in our year-end proved reserves included 52.1 net wells in 2017 due to the 5-year rule requirements in the SEC regulations applicable to booking proved undeveloped reserves.

As a nonoperator, we are more limited in booking proved undeveloped reserves than operating companies because our development plans are based more on historical development activities as opposed to future expectations.

The key point I want to make is that we believe our undeveloped properties are far greater than 52.1 net wells contained in our Ryder Scott SEC proved reserves. For example, based on our engineering -- internal engineering estimates and using pricing assumptions of $50 per barrel of oil and $3 per MMBtu of natural gas, which is close to the pricing used in preparing our proved reserves under SEC guidelines, we believe we have 500 -- over 500 economic net undeveloped locations as compared to the 52.1 net undeveloped locations contained in the year-end SEC reserves.

The take-home point we're trying to make is that we have a multiyear inventory that far exceeds the undeveloped booked reserves contained in the reserve report prepared in accordance with SEC guidelines.

Our realized price for the fourth quarter, including the effects of settled derivatives, was 7% higher than the same period a year ago. The increase was primarily driven by higher commodity prices and a lower oil differential.

Our oil price differential during the fourth quarter averaged $3.51 per barrel, which was 44% lower than the third quarter of 2017.

With the Dakota Access Pipeline operational, the overall increase in basin takeaway has lowered differentials, and we expect differentials in 2018 will range between $3.50 and $4.50 per barrel.

Lease operating expenses for the fourth quarter came in at $8.65 per Boe compared to $9.31 for the same period a year ago. The decrease this quarter is largely due to a higher production over which fixed costs are spread.

We expect our 2018 lease operating expense per Boe to range between $8.75 and $9.25, and our production tax as a percentage of our crude oil and natural gas sales to range between 9.2% and 9.5%.

General and administrative expenses were $3.1 million for the fourth quarter of 2017 compared to $3.7 million for the fourth quarter of 2016. The decrease was primarily due to a $0.9 million decrease in legal and other professional expenses, partially offset by a $0.2 million increase in compensation expenses.

On a per-unit basis, we expect our 2018 general and administrative expenses to range between $2 and $2.50 per Boe.

On the hedging front, our term loan credit agreement requires us to maintain certain levels of hedging over a rolling 3-year period. We provided our current hedge book in our earnings release, so I won't recite the numbers, but I did want to point out that our minimum hedging requirements are based on percentages of our proved developed producing volumes from our most recent reserve report as opposed to total expected production volumes, which will include production from future drilling. As a result, especially in the out years, we retain upside to the potential of an improved commodity price environment.

In conclusion, we will continue to use our flexible capital allocation process to protect the value of our assets and seek the highest returns available to us. The increase we're seeing in oil productivity and EURs gives us confidence for 2018 and beyond. We have great momentum as we begin 2018 and our high-quality assets and returns-focused strategy provide a solid foundation to increase shareholder value.

With that, I'll turn the call back over to Brandon.

All right. And I'm actually going to turn the call over to Northern's Chairman of the Board, Bahram Akradi. Bahram?

Thanks, Brandon. I appreciate a few minutes of everyone's time to give you my perspective as to why I'm excited, not only as Chairman of the Northern but as a significant shareholder.

Northern was the original consolidator and clearinghouse for nonoperated working interest in the Williston Basin. Over the years, many tried to copy this strategy, which is a good thing, as we'll discuss later, but Northern has always been the largest pure play nonoperator that is also publicly held with public currency in the market, making the business itself as a going concern and natural engine for growth.

To continue to execute on our core strategy and dramatically grow the business, Northern has taken several important steps over the past few months. The first step was to term out the previous revolving credit facility with a new 5-year $400 million TPG term loan and solve the near-term maturity overhang from that revolver.

Second, with the recent announcement of the proposed bond exchange, Northern has outlined a path forward to meaningfully delever the company. Once completed, Northern will have a net debt-to-EBITDA profile of approximately 3.5x. We are working to have that agreement through all the necessary conditions to close and be approved by the shareholders as quickly as possible. This step will dramatically strengthen our balance sheet and gives Northern the necessary capital to return as an aggressive consolidator of nonop interest in the Williston Basin. The timing of this next step couldn't be better as oil prices have improved and the rates of return and recent well results have placed the Williston Basin back at the forefront of the pack as one of the most attractive oil plays anywhere in the world.

As you can tell, I am extremely excited about the future of this company. One of the things that the market might not fully appreciate is that -- is the team's ability to accurately evaluate earlier results in an ever-changing technological environment and anticipate where the new economic areas in the basin are beginning to emerge. Their ability to move quickly into areas has enabled us to execute on off-market transactions slowly, bolt on additional assets that are generating significant returns. As a result, the rates of return this team is generating through their capital allocation process are fantastic. As Brandon mentioned, the 2017 well results are causing us to reconsider the value of the acreage we have.

Those wells that we have added to production during 2017 using the strip at the time we ran a recent analysis were generating an average IRR of over 60%. And when you drill down into the more recent well proposals, those returns in the core of the play are over 80%.

Another aspect of this company that I'm really beginning to appreciate is the incredible amount of data and information that resides with Northern and it comes from its participation in more wells and more drilling units than any other company in the basin. The knowledge that comes from being the largest participant in the basin makes us extremely precise in evaluating and making acquisitions. We have the ability to evaluate deals quickly, negotiate and create flexibility in deal structure, and importantly, to close quickly when we see an accretive opportunity. And as we begin to consolidate this basin, the knowledge advantage will grow and become more powerful.

Let me close by saying the focus of the management team has never been more acute as we execute on the current strategy.

In addition, the board has asked Mike Reger, Northern's Founder and Chairman Emeritus, to be a special adviser to assist the management with the acquisition and completion of the bond exchange. With this, we have strategy and the team in place that can grow this business and create value for all shareholders moving forward.

Before I hand back to Brandon, I'd like to thank the management team, TPG; TRT; Angelo, Gordon; Apollo; Oaktree; and the rest of the bondholders, which -- they have shown belief in this company and their cooperation has been essential to getting us to the place we are today.

And with that, I want to turn it over to Brandon. Brandon?

All right. Thanks, Bahram. I think we have covered our view from Northern. So with that, we will turn the call over to the operator for Q&A. Jonathan, if you could please give the instructions for the Q&A portion of the call.

(Operator Instructions) Our first question comes from the line of Jason Wangler from Imperial Capital.

Bahram, if I could actually ask you one question, and I appreciate the color you provided. You've been, I think, invested here for some time, but you're obviously getting much more involved of late. Just was curious if you'd be able to comment on what you're seeing that's evolving, not only with the company but yourself as strategy the moves forward? And why you specifically are coming in and be more involved not just with your money, but your time as well?

I see unique opportunity with Northern, as I mentioned. This company has completely been misunderstood. I've asked Brandon and Chad to provide a presentation to our shareholders and make an announcement hopefully early next week that would properly demonstrate the real value of the company. First of all, the company is not valued on any of its intellectual property, knowledge of the basin. It's not valued for the going concern, it's not valued for being publicly held, it's not valued for being able to execute any strategy. And when they're looking at it from just pure asset value as if a company is shutting down, even that is misunderstood because you're not valuing the opportunity, as Chad explained earlier. And once we do that, I am absolutely certain that the stock will substantially move up when people can see how much value is hidden in here. Now SEC does the right thing. They want to make sure things are measured and people cannot manipulate reports. But sometimes, unfortunately, that same type of approach backfires and the companies are completely misunderstood. This, I think, would be one of those cases. With our fiduciary responsibility to all shareholders, we are going to do everything we can to make sure the value of this company is properly presented. We can do everything within our power to make sure every shareholder is being taken care of properly and then we're going to move forward. Once we get this transaction completed, this company is uniquely positioned with -- being the only publicly held nonop company to move forward and becoming the clearinghouse. As I mentioned before, many of these companies who have copied NOG's model is actually a very good thing for us. Many of them need opportunity to get liquidity, and NOG, with the right balance sheet, the right currency will be the company that can do that. So this is a very, very unique opportunity for this company. It's a very unique time and I am super excited about what we can accomplish and this management team. And again, as I mentioned, the partners, all the bondholders have been fantastic, TPG, TRT. The alignment is great amongst everybody. Everybody is working to make sure this company can accomplish what it has the ability to do.

I appreciate the color. And Brandon, if I could ask you one follow-up. In the transactions that are ongoing, specifically, as you guys talk about wanting to be the clearinghouse, if you will, up in the Bakken, the land piece, is that -- I guess, they could be structured many ways. But as I think about it, could it simply be as easy as you guys looking at some properties and using shares to equitize that acquisition as you kind of talked about before? Or are there other ways that you're looking at that part of the deal as you go forward?

Yes. I mean, obviously, we've got 2 avenues there. Within the exchange agreement, we do have the ability to bring in assets in exchange for equity there. We also have the ability -- I mean, with that exchange agreement is a new equity component. So when you combine that with obviously the cash we have on the balance sheet as well as the relationship we have with TPG and that additional delayed draw feature of that credit facility, I think we've got plenty of capital. With a lot of capital on the balance sheet, I think we can use to go begin that kind of roll-up strategy.

(Operator Instructions) Our next question comes from the line of Neal Dingmann from SunTrust.

I'd be first to say it's nice to hear that Reger is back in the fold. My question is, first, just on last year you obviously, and I think with good idea, played a bit more defensive role with the budget that you all laid out yesterday, looks like about somewhere around a 30% increase or so. Could you talk a bit about, I don't know if you want to call that offensive mode, but from a higher level, how do you sort of see, obviously you've got the opportunity -- so to many, pay would be a little more offensive, but yet until you get the bond swap done, could you kind of talk how you'll sort of walk through that?

Yes. I do think it is getting a little bit more on the offense. I think the biggest driver is really these well results we've seen. I think, as you know, in our conversations and conversations with The Street, we take a fairly conservative approach on what we think new wells are going to do. And so I think we came into '17 obviously very attuned to what was happening with these new completion designs. And I think as the year went on, we just became more and more comfortable that those returns were really pretty outstanding. And I think from an EBITDA kind of accretive standpoint and with the returns that we're seeing, I mean obviously Bahram mentioned them in his comments, it just make sense for us to continue to push that consent rate given the returns we're seeing. So yes, I would say a little bit more offensive. And then, we'll just see when we get through the bond exchange, obviously that'll give us the ability to look more at the A&D market as well.

Okay. And could you talk a bit about just what the AFE activity looks like? I mean, again, on your slides you've always shown you certainly have a material amount of acres. I guess, what I'm thinking more about is it just a participation level? I mean, it looks like it'll be a bit back half weighted. But I'm just wondering, are there new companies coming in? I guess I'm just kind of wondering on the just activity in general as it sort of unfold this year.

Yes. I mean, I think you're obviously seeing and you saw through '17 consent rate's pretty high. So we are seeing a pickup in activity there. The wells that we consented to during '17 obviously outstanding. I would say that the top guys on the list are still Whiting -- or Continental obviously leads it, Whiting, Conoco, Oasis, Marathon, Slawson Exploration is on there as well. So yes, I think it's pretty solid list of operators, some of which have picked up a little bit of activity as well as just more activity on our acreage.

And then one quick housekeeping. Did Chad say -- you talked about the operators. Did he say that Continental was 1/3, I'm just trying to reconcile between that previous slide that you showed sort of operators by percentage where clearly Slawson's been sort of #1, followed by Continental. Has that shifted much since the last update? And I just want to make sure I understand what you were saying about the Continental exposure.

Yes. Neal, Continental represents 1/3 of our in-process well inventory, followed by Whiting and Slawson. Slawson is still our largest operator, although Continental is closing the gap.

Our next question comes from the line of Park Carrere from Howard Weil.

Could you all talk about your target leverage metrics you'd like to get to? And then I think I heard you mention returning capital to shareholders. Could you maybe talk about where you think you are in the life cycle to be able to do that?

Yes. I will, I guess, target and then Bahram's going to comment as well. I mean, I think if you see us get through this exchange agreement, we're hoping to drive that solidly into the mid-3s. And then obviously, per that exchange agreement, the goal is to drive it sub-3. So yes, our target metrics is going to be to achieve that. There's obviously a pick component in our exchange agreement that goes away once we get under 3x. So our goal would be to remove that pick component. And we think, at that point, you're really in a position to reenter the kind of standard funding market, both from a bank -- traditional bank lending facility potentially as well as refinance the debt that we've taken on in those last 2 steps. We think that really puts us in a position where, as you mentioned, we can look to the next step after we've gotten through those steps to start looking to put some of this capital back in shareholders' pockets directly.

Let me jump in, this is the Bahram, and add a little bit to what Brandon just told you. Our long-term strategy to get this company to a net debt-to-EBITDA around 2, which would be efficient capital structure, we would like to get this company to a point where we have a natural hedge in place, which basically is low enough debt-to-EBITDA where we can be a profitable company with a $50 oil or $60 oil or $70 oil, it doesn't matter. We want to be in a position where if oil drops down, we have enough cash flow, we have enough assets on the balance sheet where we can go and acquire more opportunities at that time as well as the opportunity to grow when the oil is moving in the direction of being more expensive. So in order to do that, what we need to do is finish this transaction. We're confident we'll get it done here shortly. The large amount of equity coming in, I think that the first step for the company is to, as I mentioned earlier, is to do a great job next week, make another press release demonstrating in full charts what the company's value really should be if you look at all of our future opportunities and make that assessment. Then we'll do the transaction, complete that. We start doing acquisitions using our currency whenever appropriate, grow the company. I am less concerned about the number of shares, more concerned about the share price itself moving up and the company's total assets moving up, debt-to-EBITDA going down. And that's really what we're going to work on. Everybody is aligned. The Board of Directors is aligned. The large shareholders are aligned. And this alignment that we have today at NOG from shareholders, board members, management is really the exciting factor. We are uniquely positioned to execute on this strategy, and we're going to get it done.

Great. So would you say the priority of capital would be reduce debt, then acquisitions, then return capital to shareholders, maybe longer term?

We have both of them moving simultaneously. We have a number of discussions right now with different companies, I will obviously not be in a position to tell you whom. So don't ask. But we have a number -- we have a number of companies we're in a discussion with for doing acquisitions. Some are going to do it with cash, some are going do it with cash and stock, some are going to do it strictly for stock. So this will happen. Again, and I emphasize, a lot of hang-up has been with the price per share. Price per share for all new people coming in is almost irrelevant because we are doing so many new shares coming into the company via acquisition, accepting shares, bondholders taking shares and new equity coming in for that, that really whatever the price is that is going to come in is going to be the sticky point for the price per share. Now the only people that I'm trying to protect is the small shareholders who may not have the money to participate. For that, we will do everything we can to express the value of this company as accurately as we can, demonstrated early next week, but really this thing is going to go forward, is going to get done. And once we do that, you'll see constant action, we'll be reporting regularly with the new acquisitions that we signed up coming in the company.

Our next question comes from the line of Owen Douglas from Baird.

All right. I have quick ones. So just as you guys look to 2018, can you provide any color in terms of how you're seeing in terms of the cost per wells? Or any other kind of items around service cost inflation?

Yes, I think we're -- I mean, I guess, on an apples-to-apples basis, we are seeing or expecting that we would see a little bit of inflation going forward. You've seen our average wells on the D&C list, about 7.6 million. So again, not a whole lot of inflation built into what we're consenting now. I would expect that to lift a little bit on the completion side as we move through the year. But at this point, if you look at our presentations and our disclosures over the last couple quarters, it has been bouncing around in that 7.4 million, 7.5 million range. So not a lot built in, would expect a little bit.

Okay, that's helpful there. And let me know if I'm thinking about this wrong here, but you guys are certainly investing in the business. It's good to see production numbers trending upwards. Just wanted to get your sense for what's really the kind of point at which you say, okay, we are at a stage of production growth where we feel comfortable and we're going to try to kind of keep that growth rate somewhat steady to minimize the amount of external capital that needs to be raised. Is there sort of a minimum cash in the balance sheet number? Is there a free cash flow outspend? Just help me think about that a bit.

Yes, obviously, you know that we're very capital allocation IRR driven. So that's really going to be the determining factor. I think, as we've said, the IRRs we're seeing in the wells is going to have us commit that capital. I think, as Bahram mentioned, our goal is to really get through this exchange, get that debt reduction component done and really kind of grow the EBITDA and make accretive EBITDA decisions until we get that total debt-to-EBITDA sub-3x, and as Bahram mentioned, a long-term goal down into the 2s. I think as we get towards that point, that is the point you heard me mention, you look out down the road and say can you begin to position yourself in the kind of maybe harvest mode where you can return capital to shareholders? We've got a lot of work to do between now and then, but that, as Bahram mentioned, a debt-to-EBITDA in the 2s and sub-3s is a level that I think when we get there that's the time we can look to the next steps.

Okay. And just to make sure I'm clearing this, when is the anticipated date when this exchange agreement as well as the equity infusion will be finalized?

It's still up in the air. I mean, May we've got to go through a shareholder's vote, so April-May time period. You'll see proxies and all that get filed that'll give you a guidepost.

(Operator Instructions) Our next question comes from the line of John Aschenbeck from Seaport Global.

I had a follow-up on the just the general comments the value of Northern being misunderstood. I think one thing that really surprised me in the prepared remarks was in regards with the average returns of the company as being over 60%. I think that's substantially higher than what the market's current perception is. So if that is indeed the case, it's certainly agreed that the value here is misunderstood. So just thinking about that and then the upcoming uptake here in the coming next week or so, what should we expect? I guess, specifically, should we expect maybe a more fulsome update in regard to your depth of inventory and the associated economics?

Yes. John, I think that's really it. I mean, I think what has caused us to really refocus on the locations and the reserve base really has been the results over this last year, and yes, some outstanding results. So I think in the light of 2017 well productivity, it's really caused us to look back at those inventory numbers and the acreage position and look at the uplift we have seen from new completion designs, enhanced completion designs and operational enhancements and performance over the last couple of years and really kind of focus in on what happened and what transpired in 2017, and applying some of the 2017 results back across obviously, specifically, the core as well as what I think people would say is on the fringe between Tier 1 and Tier 2 and out into the other areas. We've seen operators with results in what I think we would all have called maybe Tier 3 -- Tier 2, Tier 3 area that has picked up significantly over the last couple of years. So again, I think it's the well results that have caused us to really look back at our reserve base. Yes, and I think good operators. As you guys well know, the service -- the increases in the benefits the service companies provide get shared across operators eventually and so we are really seeing good operators move into the great category. So yes, I think you should expect from us an update just kind of on locations, updates on what we think the average EURs and well performances should be across some different tiers, again to give you a little bit more transparency and clarity of the results and what we think the new 2017 vintage would look like if we applied it across a broader acreage position.

Okay, great. That was great color, appreciate that. Last one for me, just from a higher level strategy standpoint. I understand the near-term plan here is to be the basin's clearinghouse, so to speak. But when you think about the longer-term game plan of the company, how do you see just the general evolution of the company playing out long term?

I think we have -- this is Bahram. We have a long runway here of opportunities that -- coming up with the strategy that we have laid out. The one thing about nonop that is completely again misunderstood, the traits that are a disadvantage to the operating companies with a misunderstanding that the company would not -- don't have control of their own destiny. That's contrary to the actual fact, if you look at the performance of this company and how promptly they have been able to actually lower the CapEx, step on the brake and/or step on the gas in terms of going back forward, I think there should be a different perspective maybe that this strategy is actually a pretty smart strategy. So I think we want to become the largest nonop publicly held company and grow that, I hope to get at least to a mid-cap sized company. Beyond that, I think we can look at the mineral opportunity. We can look at -- at some point, does it make sense to buy operating company and get into that? But for right now, we want to grow the strategy we have stated.

Okay, great. And then, I guess, kind of follow-up there, do you think it would ever make sense to potentially move into another basin?

Yes. I mean, we've talked about that. I think you see us lean on the -- and we've all mentioned it today, right, the incredible amount of data that is inherent within Northern in the Williston Basin. And that's a data and a knowledge advantage that I think would be difficult to replicate outside of this basin. And we think we've got so many opportunities within the basin now that it just seems like that's the logical place for us to focus our attention. But obviously, if we think it's accretive to shareholders and accretive to the value of the company, we maybe consider it. But for the time being, I think we have enough wood to chop inside the basin.

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Brandon Elliott for any further remarks.

All right. We certainly appreciate everybody's time and interest in Northern, and we look forward to getting together with some of you in the future.

I will take 30 seconds to make a public service announcement. We want to send a shout-out and congratulations to Minnesota native, Jessie Diggins, and her partner in the Olympics ladies team sprint final. Everyone here in the room is looking at me like what the hell am I up to. They have the first medal in Nordic skiing. I'm not sure not many of you are tuned into that, but it was an awesome event and the first medal for the U.S. and Nordic skiing in 46 years and the first gold. So a public service announcement.

I hope everyone has a great rest of the week, a good weekend and call us if you have any questions.

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