HIGHLIGHTS
- Northern’s ground game acquisition activity remains robust,
generating high quality, cash flow positive drilling opportunities
to support the goal of returning capital to shareholders
- Northern’s ground game continues to add to its acreage
footprint and long-term inventory at cost efficient levels
- Organic drilling and completion capital expenditures for second
quarter 2019 estimated to be $73.9 million, approximately in line
with first quarter 2019 levels
- Northern estimates second quarter 2019 production of 34,965
barrels of oil equivalent (“Boe”) per day, near the middle of its
guidance range despite significant curtailments during the
quarter
- Northern repurchased $10.1 million of its Senior Notes in the
open market in the second quarter 2019
Northern Oil and Gas, Inc. (NYSE American: NOG) today announced
a midyear update on its ground game acquisition strategy (“Ground
Game”), which is Northern’s regular acquisition activity excluding
larger, separately announced deals such as the recent VEN Bakken
acquisition. As part of this update, Northern is seeking to enhance
its capital expenditures disclosure by providing both the
acquisition capital spent to close Ground Game deals, as Northern
has historically done, and also breaking out the incremental
drilling and completion (“D&C”) capital generated by Ground
Game deals, to distinguish it from previously budgeted organic
D&C capital. Northern is also providing a preliminary second
quarter 2019 operations and balance sheet update.
GROUND GAME UPDATE
Volatility in oil prices in late 2018 and 2019 has led to a rich
environment of Ground Game opportunities in the Williston Basin.
Northern has committed to or closed on approximately 40 Ground Game
acquisitions in the second quarter and third quarter-to-date of
2019, consisting of approximately 6,325 net acres, 0.2 net wells
currently producing, and 6.1 net wells in process. In total,
Northern expects these wells in process to produce approximately
2,000 Boe per day in 2020, with additional significant long-term
development potential on the leasehold.
During the second quarter of 2019, Northern spent approximately
$8.0 million in Ground Game acquisition capital and incurred an
additional $14.0 million in associated D&C capital. Northern
has closed or committed to $6.3 million in Ground Game acquisition
capital in the third quarter to date (through July 15, 2019). As a
result of these second quarter and third quarter-to-date Ground
Game acquisitions, Northern expects to incur associated D&C
capital of approximately $17.9 million in the second half of 2019
and $19.9 million in 2020. In aggregate, all sources of capital,
including all acquisition costs and capital expenditures associated
with these acquisitions, are expected to equate to a multiple of
less than 2.7x expected 2020 cash flow from operations (unhedged)
just for the wells in process at current strip prices, with upside
remaining for the undeveloped locations and acreage acquired. These
assets are expected to produce substantial cash flow in 2020 as
Northern continues to build its “cash stack” towards shareholder
returns. Supported by strong deal flow and high expected returns on
capital employed, Northern’s board of directors has increased its
authorization for 2019 Ground Game acquisition capital from $25
million to $50 million, as Northern seeks to allocate capital to
drive the highest returns for shareholders and to increase the cash
flows available for future returns of capital.
The following table sets forth Northern’s current expectations
and estimates for the second quarter and third quarter-to-date
Ground Game acquisitions described in this release. These estimates
are based on internally generated development schedules and other
internal assumptions, actual timing and results may differ
materially.
2Q 2019E
2H 2019E
2020E
Expected Production (2-stream) (Boe per
day)
~30
~1,150
~2,000
Net Wells Added to Production
0.5
2.2
3.6
Ground Game D&C Capital Expenditures
(millions)
($14.0)
($17.9)
($19.9)
Expected Cash Flow from Operations
(millions) (1)
$0.1
$7.6
$24.5
____________
(1) Expected cash flow from operations based on current
commodity strip prices as of 7/22/2019, estimated on an unhedged
basis and excluding G&A.
OPERATIONS UPDATE
As previously disclosed, growth in the Williston Basin has been
constrained in the first half of 2019 due to infrastructure
bottlenecks, primarily associated with gas gathering and processing
infrastructure. Multiple midstream systems are scheduled to go in
service in late 2019 and early 2020. These constraints reduced
Northern’s production levels relative to our assets’ overall
capability and led to higher per unit operating costs. Despite
these issues, Northern expects its second quarter 2019 production
to be near the middle of its guidance range, approximately 34,965
Boe per day, 80.5% oil, with LOE per unit costs modestly higher
than the first quarter of 2019. Northern expects second quarter
2019 average unhedged realized oil prices of approximately $54.60
per barrel and natural gas prices of approximately $2.70 per Mcf,
representing improved pricing differentials compared with the first
quarter of 2019.
Northern estimates that curtailments reduced its production by
approximately 2,800 Boe per day in the first quarter of 2019 and
2,500 Boe per day in the second quarter of 2019. Northern now
expects similar levels of curtailment to persist through the third
quarter and likely well into the fourth quarter of 2019, longer
than previously anticipated. However, Northern expects a robust
completion schedule, Ground Game additions and the closing of the
VEN Bakken acquisition to drive sequential growth in the second
half of 2019 and into 2020. The ultimate timing and scale of
Northern’s production growth will be driven in part by the timing
of major gas processing systems scheduled to come online in late
2019 and early 2020. Northern estimates that it added approximately
8.1 net wells to production in the second quarter and, aided by
Ground Game activity, Northern’s net wells in process continue to
grow. Northern expects second quarter organic D&C capital
expenditures of approximately $73.9 million, similar to first
quarter levels, as expected.
BALANCE SHEET UPDATE
Despite Northern’s increased Ground Game activity, debt
reduction has remained a priority. During the second quarter of
2019, Northern reduced the outstanding principal amount of its
Second Lien Notes due 2023 by $8.5 million. This was the net result
of $10.1 million of open market repurchases partially offset by
$1.7 million in the expected final PIK interest payment on the
notes.
In addition, although the outstanding borrowings on Northern’s
revolving credit facility increased by $26.0 million during the
second quarter of 2019, this included a $31.0 million draw for the
upfront deposit on the VEN Bakken acquisition that closed shortly
after the end of the quarter. Net of that acquisition deposit,
Northern’s borrowings on its revolving credit facility would have
been reduced by $5.0 million during the second quarter.
MANAGEMENT COMMENT
“The challenging spending environment for oil and gas companies
and other non-operated entities continues to deliver excellent
ground game opportunities for Northern,” commented Adam Dirlam, EVP
of Land. “While others cut capital and sell acreage in an effort to
balance their cash flows, we are able to tap into a portion of our
free cash flows to acquire those available properties, with a focus
on near-term drilling and high returns on capital employed. With
volatile commodity prices, Northern continues to capture
opportunities to invest counter-cyclically and to be a strong
partner for operating and other non-operating participants as a
provider of capital.”
PRELIMINARY FINANCIAL INFORMATION
The foregoing preliminary unaudited financial and operating
information and estimates, including with respect to Ground Game
acquisitions, acquisition capital, D&C capital, production,
lease operating expenses, realized commodity prices, net well
additions, debt balances and other matters, is based on estimates
and subject to completion of Northern’s financial closing
procedures and external audit processes. Such information has been
prepared by management solely on the basis of currently available
information. The preliminary unaudited information does not
represent and is not a substitute for a comprehensive statement of
financial and operating results, and Northern’s actual results may
differ materially from these estimates because of final
adjustments, the completion of the company’s financial closing
procedures, and other developments after the date of this
release.
ABOUT NORTHERN OIL AND GAS
Northern Oil and Gas, Inc. is an exploration and production
company with a core area of focus in the Williston Basin Bakken and
Three Forks play in North Dakota and Montana.
More information about Northern Oil and Gas, Inc. can be found
at www.NorthernOil.com.
SAFE HARBOR
This press release contains forward-looking statements regarding
future events and future results that are subject to the safe
harbors created under the Securities Act of 1933 (the “Securities
Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).
All statements other than statements of historical facts included
in this release regarding Northern’s financial position, business
strategy, plans and objectives of management for future operations,
industry conditions, and indebtedness covenant compliance are
forward-looking statements. When used in this release,
forward-looking statements are generally accompanied by terms or
phrases such as “estimate,” “project,” “predict,” “believe,”
“expect,” “continue,” “anticipate,” “target,” “could,” “plan,”
“intend,” “seek,” “goal,” “will,” “should,” “may” or other words
and similar expressions that convey the uncertainty of future
events or outcomes. Items contemplating or making assumptions about
actual or potential future sales, market size, collaborations, and
trends or operating results also constitute such forward-looking
statements.
Forward-looking statements involve inherent risks and
uncertainties, and important factors (many of which are beyond
Northern’s control) that could cause actual results to differ
materially from those set forth in the forward-looking statements,
including the following: changes in crude oil and natural gas
prices, the pace of drilling and completions activity on Northern’s
properties and properties pending acquisition, infrastructure
constraints and related factors affecting Northern’s properties,
Northern’s ability to acquire additional development opportunities,
risks associated with the closing of pending acquisitions, changes
in Northern’s reserves estimates or the value thereof, general
economic or industry conditions, nationally and/or in the
communities in which Northern conducts business, changes in the
interest rate environment, legislation or regulatory requirements,
conditions of the securities markets, Northern’s ability to raise
or access capital, changes in accounting principles, policies or
guidelines, financial or political instability, acts of war or
terrorism, and other economic, competitive, governmental,
regulatory and technical factors affecting Northern’s operations,
products, services and prices.
Northern has based these forward-looking statements on its
current expectations and assumptions about future events. While
management considers these expectations and assumptions to be
reasonable, they are inherently subject to significant business,
economic, competitive, regulatory and other risks, contingencies
and uncertainties, most of which are difficult to predict and many
of which are beyond Northern’s control. Northern does not undertake
any duty to update or revise any forward-looking statements, except
as may be required by the federal securities laws.
Source: Northern Oil and Gas, Inc.
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version on businesswire.com: https://www.businesswire.com/news/home/20190724005825/en/
Nicholas O’Grady Chief Financial Officer (952) 476-9800
ir@northernoil.com
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