HIGHLIGHTS
- Fourth quarter production increased 8% over the third quarter,
averaging a record 43,941 barrels of oil equivalent (“Boe”) per
day. Production approximated the midpoint of guidance despite
higher than forecasted curtailments
- Full year 2019 production increased 51% over 2018, averaging
38,604 Boe per day
- Fourth quarter capital expenditures of $134.6 million,
including $45.3 million in ground game and associated D&C
capital
- 2019 year-end proved reserves of 163.3 million Boe, up 21% from
2018 year-end
- Senior Secured Notes balance reduced to $341.0 million as of
March 10, 2020, down from $695.1 million at 2018 year-end
- Revolving Credit Facility borrowing base increased to $800
million, from $425 million
- 2020 oil production expected to be over 75% hedged at $58 per
barrel (“Bbl”) average price in the current environment
- 2020 capital expenditures anticipated at approximately $200
million in the current environment, down over 55% vs. 2019
- 2020 free cash flow projected to be significant even assuming
$30 per barrel WTI price
- Due to current macro environment, Northern delaying decision on
commencing common stock dividend and will reassess in the second
quarter
Northern Oil and Gas, Inc. (NYSE American: NOG) (“Northern”)
today announced the company’s fourth quarter and full year 2019
results.
MANAGEMENT COMMENTS
“2019 was another transformational year in terms of scaling our
business and the consummation of our plan driven to reduce interest
expense and increase capital flexibility,” commented Nick O’Grady,
Northern’s Chief Executive Officer. “We enter into 2020 already
delivering on those goals regardless of current depressed commodity
prices. Continued weak commodity pricing will create even more
opportunity for Northern, given our strong oil price hedge book,
balance sheet, and free cash flow profile.”
“As we move into 2020, we will adhere to our strict hurdle rates
necessary to deploy capital,” commented Adam Dirlam, Northern’s
Chief Operating Officer. “While the current macro environment is
undoubtedly challenging, we are optimistic that it will also
provide opportunities specific to Northern’s business model as a
minority working interest owner to invest capital into value
accretive projects for the benefit of our shareholders.”
FOURTH QUARTER AND FULL YEAR FINANCIAL RESULTS
FINANCIAL RESULTS
Fourth quarter net loss was $107.9 million or $0.27 per diluted
share. Fourth quarter Adjusted Net Income was $21.5 million or
$0.05 per diluted share, down from $94.8 million or $0.25 per
diluted share in the prior year. Adjusted EBITDA in the fourth
quarter was $114.2 million compared to $124.9 million in the fourth
quarter of 2018, driven by 14% lower average realized prices and
higher lease operating expense, offset partially by a 21% increase
in production volumes.
Full year 2019 net loss was $76.3 million or $0.20 per diluted
share. Full year 2019 Adjusted Net Income was $120.9 million or
$0.31 per diluted share, down from $140.7 million or $0.59 per
diluted share in 2018. Full year 2019 Adjusted EBITDA was $454.2
million compared to $349.3 million in 2018. Average realized prices
were down approximately 9% year over year, offset by a 51% increase
in production volumes. (See “Non-GAAP Financial Measures”
below.)
PRODUCTION
Fourth quarter production increased 21% from the prior year and
8% from the prior quarter to 4.0 million Boe or 43,941 Boe per day,
toward the middle of the guidance range. Shut-ins and curtailments,
which Northern had forecasted would be approximately 2,400 barrels
per day in the fourth quarter, were significantly higher at
approximately 3,650 barrels per day. Strong fourth quarter well
performance largely offset the negative impact from shut-ins. Full
year 2019 production increased 51% from 2018 to 14.1 million Boe or
38,604 Boe per day.
PRICING
During the fourth quarter, NYMEX West Texas Intermediate (“WTI”)
crude oil averaged $56.85 per Bbl, and NYMEX natural gas at Henry
Hub averaged $2.40 per million cubic feet (“Mcf”). Northern’s
unhedged net realized oil price in the fourth quarter was $49.20,
representing a $7.65 differential to WTI prices. For the year,
Northern’s realized oil differential was $6.28 per Bbl, within the
stated guidance range. Northern’s fourth quarter unhedged net
realized gas price was $0.47 per Mcf, representing approximately
20% realizations compared with Henry Hub pricing. For the year,
Northern’s realized gas price was $1.60, which was 63% of the
average Henry Hub price.
OPERATING AND G&A COSTS
Unit LOE costs came in slightly higher quarter over quarter, at
$8.84 per Boe, which was driven by higher than expected
curtailments as well as higher work over expense. Fourth quarter
general and administrative (“G&A”) costs totaled $8.1 million,
including stock-based compensation. Fourth quarter cash G&A
expenses of $4.4 million included $0.8 million of costs related to
the departure of Northern’s former chief executive officer.
Excluding these amounts, cash G&A costs were approximately $3.6
million, or $0.91 per Boe.
CAPITAL EXPENDITURES
Capital spending for the fourth quarter was $134.6 million, made
up of $85.6 million of organic D&C capital and $45.3 million of
total acquisition and other spending, inclusive of ground game
D&C spending. Northern added 14.6 net wells to production in
the fourth quarter, approximately 2.0 net wells above guidance.
These additional net well additions came online in late December
and had a minimal impact on fourth quarter production. In addition,
Northern’s wells in process rose to 25.8 net wells, up over 1.5
wells from the prior quarter. The accelerated development, driven
by rising pricing in the fourth quarter, was the primary driver of
Northern’s higher than forecast capital spending. On the ground
game acquisition front, Northern closed on 14 transactions and
committed to an additional nine during the fourth quarter. The
majority of fourth quarter commitments that were not closed during
2019 will be closed in the first quarter, after which, Northern
expects ground game activity to moderate significantly in 2020 as
it moves to cash harvesting.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2019, Northern had $16.1 million in cash and
$580.0 million outstanding on its revolving credit facility.
Northern had total liquidity of $236.1 million as of December 31,
2019, consisting of cash and $220.0 million of borrowing
availability under the revolving credit facility. Total debt net of
cash was reduced by $31.9 during the fourth quarter.
As of December 31, 2019, Northern had additional debt
outstanding consisting of a $130.0 million Senior Unsecured Note
due 2022 and $417.7 million of Senior Secured Notes due 2023.
As previously announced, in the fourth quarter of 2019, Northern
completed a consent solicitation, exchange, subscription, and
partial tender process. Northern issued 1,500,000 shares of newly
issued 6.50% Perpetual Cumulative Convertible Preferred Stock
(“Preferred Stock”), and retired $270.8 million of its 8.5% Senior
Secured Notes due 2023. Northern also expanded its senior secured
revolving credit facility from $425 million to $800 million and
extended the term one year to November 2024. The terms of these
transactions served, among other things, to improve hedging
flexibility, modify certain covenants in the Senior Secured Notes
to allow for expanded restricted payments, and substantially reduce
interest expense.
Also as previously announced, in January 2020, Northern executed
on additional transactions to further reduce debt. In aggregate,
Northern retired an additional $76.7 million of Senior Secured
Notes for 794,702 shares of Preferred Stock and $2.5 million in
cash. The current outstanding principal amount on the Senior
Secured Notes as of March 10, 2020 is $341.0 million.
PROVED RESERVES AS OF DECEMBER 31,
2019
SEC Pricing Proved
Reserves(1)
Reserve Volumes
PV-10(3)
Reserve Category
Oil (MBbls)
Natural Gas
(MMcf)
Total
(MBoe)(2)
%
Amount (In
thousands)
%
PDP Properties
71,276
109,503
89,527
55
%
$
1,251,429
69
%
PDNP Properties
5,884
7,342
7,107
4
109,093
6
PUD Properties
54,594
72,473
66,673
41
461,502
25
Total
131,754
189,318
163,307
100
%
$
1,822,024
100
%
____________
(1)
The SEC Pricing Proved Reserves table
above values oil and natural gas reserve quantities and related
discounted future net cash flows as of December 31, 2019 based on
average prices of $55.69 per barrel of oil and $2.58 per MMbtu of
natural gas. Under SEC guidelines, these prices represent the
average prices per barrel of oil and per MMbtu of natural gas at
the beginning of each month in the 12-month period prior to the end
of the reporting period. The average resulting price used as of
December 31, 2019, after adjustment to reflect applicable
transportation and quality differentials, was $50.53 per barrel of
oil and $2.12 per Mcf of natural gas.
(2)
Boe are computed based on a conversion
ratio of one Boe for each barrel of oil and one Boe for every 6,000
cubic feet (i.e., 6 Mcf) of natural gas.
(3)
Pre-tax PV10%, or “PV-10,” may be
considered a non-GAAP financial measure as defined by the SEC and
is derived from the standardized measure of discounted future net
cash flows, which is the most directly comparable GAAP measure. See
“Non-GAAP Financial Measures” below.
2020 GUIDANCE COMMENTARY
Given the rapid deterioration and volatility in commodity
prices, Northern has elected to defer its formal 2020 guidance. At
the latest, Northern will provide this on its first quarter
conference call. Assuming oil prices remain under $40 per Bbl for
the majority of 2020, Northern anticipates a total capital budget
of approximately $200 million, which represents more than a 55%
decrease year-over-year. In this scenario Northern would expect to
have more than 75% of its oil production hedged at an average price
above $58 per Bbl. This capital plan, and the likely production
range associated with it, would likely deliver even higher levels
of free cash flow for 2020 than Northern’s previously anticipated
$45-50 WTI base plan. Additionally, in an environment where
uncertainty prevails and preserving capital is a priority, Northern
is delaying its decision on commencing a common stock dividend and
will reassess in the second quarter.
FOURTH QUARTER 2019 RESULTS
The following table sets forth selected operating and financial
data for the periods indicated.
Three Months Ended
December 31,
2019
2018
% Change
Net Production:
Oil (Bbl)
3,218,885
2,745,700
17
%
Natural Gas and NGLs (Mcf)
4,942,194
3,540,439
40
%
Total (Boe)
4,042,584
3,335,773
21
%
Average Daily Production:
Oil (Bbl)
34,988
29,845
17
%
Natural Gas and NGL (Mcf)
53,720
38,483
40
%
Total (Boe)
43,941
36,258
21
%
Average Sales Prices:
Oil (per Bbl)
$
49.20
$
49.15
—
%
Effect of Gain on Settled Derivatives on
Average Price (per Bbl)
2.71
3.80
Oil Net of Settled Derivatives (per
Bbl)
51.91
52.95
(2)
%
Natural Gas and NGLs (per Mcf)
0.47
4.97
(91)
%
Realized Price on a Boe Basis Including
all Realized Derivative Settlements
41.91
48.86
(14)
%
Costs and Expenses (per Boe):
Production Expenses
$
8.84
$
6.43
37
%
Production Taxes
3.92
4.10
(4)
%
General and Administrative Expense
2.01
1.49
35
%
Depletion, Depreciation, Amortization and
Accretion
15.69
14.48
8
%
Net Producing Wells at Period
End
458.7
325.1
41
%
FULL YEAR 2019 RESULTS
The following table sets forth selected operating and financial
data for the periods indicated.
Years Ended December
31,
2019
2018
% Change
Net Production:
Oil (Bbl)
11,325,418
7,790,182
45
%
Natural Gas and NGLs (Mcf)
16,590,774
9,224,766
80
%
Total (Boe)
14,090,547
9,327,643
51
%
Average Daily Production:
Oil (Bbl)
31,029
21,343
45
%
Natural Gas and NGL (Mcf)
45,454
25,273
80
%
Total (Boe)
38,604
25,555
51
%
Average Sales Prices:
Oil (per Bbl)
$
50.74
$
57.78
(12
)%
Effect of Gain (Loss) on Settled
Derivatives on Average Price (per Bbl)
3.92
(2.94
)
Oil Net of Settled Derivatives (per
Bbl)
54.66
54.84
—
%
Natural Gas and NGLs (per Mcf)
1.60
4.74
(66)
%
Realized Price on a Boe Basis Including
all Realized Derivative Settlements
45.82
50.50
(9)
%
Costs and Expenses (per Boe):
Production Expenses
$
8.44
$
7.15
18
%
Production Taxes
4.10
4.86
(16)
%
General and Administrative
Expenses
1.68
1.56
8
%
Depletion, Depreciation, Amortization and
Accretion
14.92
12.84
16
%
Net Producing Wells at
Period-End
458.7
325.1
41
%
HEDGING
Northern hedges portions of its expected production volumes to
increase the predictability of its cash flow and to help maintain a
strong financial position. The following table summarizes
Northern’s open crude oil derivative contracts scheduled to settle
after December 31, 2019.
Crude Oil Derivative Price
Swaps
Contract Period
Volume (Bbls)
Weighted Average Price
(per Bbl)
2020:
1Q
2,664,356
$57.93
2Q
2,568,278
$57.67
3Q
2,501,348
$58.47
4Q
2,372,362
$58.03
2021(1):
1Q
1,712,550
$56.74
2Q
1,610,708
$57.24
3Q
1,418,410
$54.35
4Q
1,409,506
$54.37
2022(2):
1Q
453,780
$53.07
2Q
312,280
$52.30
3Q
306,576
$52.33
4Q
300,230
$52.35
_____________
(1)
We have entered into crude oil derivative
contracts that give counterparties the option to extend certain
current derivative contracts for additional periods. Options
covering a notional volume of 0.3 million barrels for 2021 are
exercisable on or about December 31, 2020. If the counterparties
exercise all such options, the notional volume of our existing
crude oil derivative contracts will increase as follows for 2021:
(i) for the first quarter of 2021, by 112,500 barrels at a weighted
average price of $57.78 per barrel, (ii) for the second quarter of
2021, by 113,750 barrels at a weighted average price of $57.78 per
barrel, (iii) for the third quarter of 2021, by 46,000 barrels at a
weighted average price of $58.00 per barrel, and (iv) for the
fourth quarter of 2021, by 46,000 barrels at a weighted average
price of $58.00 per barrel.
(2)
We have entered into crude oil derivative
contracts that give counterparties the option to extend certain
current derivative contracts for additional periods. Options
covering a notional volume of 2.4 million barrels for 2022 are
exercisable on or about December 31, 2021. If the counterparties
exercise all such options, the notional volume of our existing
crude oil derivative contracts will increase as follows for 2022:
(i) for the first quarter of 2022, by 830,250 barrels at a weighted
average price of $55.01 per barrel, (ii) for the second quarter of
2022, by 839,475 barrels at a weighted average price of $55.01 per
barrel, (iii) for the third quarter of 2022, by 365,700 barrels at
a weighted average price of $55.15 per barrel, and (iv) for the
fourth quarter of 2022, by 365,700 barrels at a weighted average
price of $55.15 per barrel.
CAPITAL EXPENDITURES & DRILLING
ACTIVITY
Fourth Quarter
2019
Full Year 2019
Capital Expenditures Incurred:
Organic Drilling and Development Capital
Expenditures
$85.6 million
$313.6 million
Ground Game Drilling and Development
Capital Expenditures
$40.5 million
$77.5 million
Ground Game Acquisition Capital
Expenditures
$4.8 million
$29.8 million
Acquisition of Oil and Natural Gas
Properties and Other
$3.7 million
$333.0 million
Net Organic Wells Added to Production
14.6
43.0
Net Producing Wells (Period-End)
458.7
Net Wells in Process (Period-End)
25.8
Increase in Wells in Process over Prior
Period
1.5
3.0
Weighted Average AFE for Wells Elected to
Year-to-Date
$8.1 million
$8.0 million
Capitalized costs are a function of the number of net well
additions during the period as well as changes in wells in process
from beginning to end of period. Capital expenditures attributable
to the 1.5 and 3.0 increase in net wells in process for the fourth
quarter and year, respectively, are reflected in the amounts
included for “Drilling and Development Capital Expenditures” in the
table above.
ACREAGE
As of December 31, 2019, Northern controlled leasehold of
approximately 182,854 net acres targeting the Williston Basin
Bakken and Three Forks formations, and approximately 91% of its
total acreage position was developed, held by production or held by
operations.
FOURTH QUARTER 2019 EARNINGS RELEASE CONFERENCE CALL
In conjunction with Northern’s release of its financial and
operating results, investors, analysts and other interested parties
are invited to listen to a conference call with management on
Thursday, March 12, 2020 at 10:00 a.m. Central Time.
Those wishing to listen to the conference call may do so via the
company’s website, www.northernoil.com, or by phone as follows:
Dial-In Number:
(866) 373-3407 (US/Canada) and (412) 902-1037 (International)
Conference ID: 13699346 - Northern Oil
and Gas, Inc. Fourth Quarter and Year-End 2019 Earnings Call
Replay Dial-In Number: (877) 660-6853
(US/Canada) and (201) 612-7415 (International) Replay Access Code: 13699346 - Replay will be
available through March 19, 2020
UPCOMING CONFERENCE SCHEDULE
32nd Annual Roth Conference March 15 - 17, 2020, Laguna Niquel,
CA. (Now Virtual)
48th Annual Scotia Howard Weil Energy Conference March 23 - 26,
2020, New Orleans, LA (Now Virtual)
IPAA OGIS New York April 20-21, 2020, New York, NY
UBS Global Oil and Gas Conference May 18-20, 2020, Dallas,
TX
RBC Global Energy and Power Executive Conference June 2-3, 2020,
New York, NY
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 our
company’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, Northern’s ability to acquire additional development
opportunities, 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 our company’s operations, products 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.
NORTHERN OIL AND GAS,
INC.
STATEMENTS OF
OPERATIONS
Three Months Ended December
31,
Years Ended December
31,
(In thousands, except share and per
share data)
2019
2018
2019
2018
REVENUES
Oil and Gas Sales
$
160,698
$
152,566
$
601,218
$
493,909
Gain (Loss) on Derivative Instruments,
Net
(101,697
)
290,628
(128,837
)
185,006
Other Revenue
11
2
21
9
Total Revenues
59,012
443,196
472,402
678,924
OPERATING EXPENSES
Production Expenses
35,754
21,448
118,899
66,646
Production Taxes
15,827
13,669
57,771
45,302
General and Administrative Expenses
8,118
4,976
23,624
14,568
Depletion, Depreciation, Amortization and
Accretion
63,411
48,295
210,201
119,780
Impairment of Other Current Assets
(1,571
)
—
6,398
—
Total Expenses
121,539
88,388
416,893
246,296
INCOME (LOSS) FROM OPERATIONS
(62,527
)
354,808
55,509
432,628
OTHER INCOME (EXPENSE)
Interest Expense, Net of
Capitalization
(20,393
)
(20,057
)
(79,229
)
(86,005
)
Loss on the Extinguishment of Debt
(22,762
)
(73,055
)
(23,187
)
(173,430
)
Debt Exchange Derivative Gain (Loss)
—
(13,661
)
1,390
(598
)
Contingent Consideration Loss
(879
)
(28,968
)
(29,512
)
(28,968
)
Financing Expense
(1,447
)
(884
)
(1,447
)
(884
)
Other Income
69
53
158
891
Total Other Income (Expense)
(45,412
)
(136,572
)
(131,827
)
(288,994
)
INCOME (LOSS) BEFORE INCOME
TAXES
(107,939
)
218,236
(76,318
)
143,634
INCOME TAX BENEFIT
—
(55
)
—
(55
)
NET INCOME (LOSS)
$
(107,939
)
$
218,291
(76,318
)
$
143,689
Net Income (Loss) Per Common Share –
Basic
$
(0.27
)
$
0.58
$
(0.20
)
$
0.61
Net Income (Loss) Per Common Share –
Diluted
$
(0.27
)
$
0.58
$
(0.20
)
$
0.61
Weighted Average Shares Outstanding –
Basic
402,042,034
378,799,871
387,084,651
236,206,457
Weighted Average Shares Outstanding –
Diluted
402,042,034
379,401,105
387,084,651
236,773,911
NORTHERN OIL AND GAS,
INC.
BALANCE SHEETS
(In thousands, except par value and
share data)
December 31, 2019
December 31, 2018
ASSETS
Current Assets:
Cash and Cash Equivalents
$
16,068
$
2,358
Accounts Receivable, Net
108,274
96,353
Advances to Operators
893
268
Prepaid Expenses and Other
1,964
12,361
Derivative Instruments
5,628
115,870
Income Tax Receivable
210
1,205
Total Current Assets
133,037
228,415
Property and Equipment:
Oil and Natural Gas Properties, Full Cost
Method of Accounting
Proved
4,178,605
3,431,428
Unproved
11,047
4,307
Other Property and Equipment
2,157
997
Total Property and Equipment
4,191,809
3,436,732
Less – Accumulated Depreciation, Depletion
and Impairment
(2,443,216
)
(2,233,987
)
Total Property and Equipment, Net
1,748,593
1,202,745
Derivative Instruments
8,554
61,843
Deferred Income Taxes
210
420
Other Noncurrent Assets, Net
15,071
10,222
Total Assets
$
1,905,465
$
1,503,645
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts Payable
$
69,395
$
55,015
Accrued Liabilities
110,374
83,237
Accrued Interest
11,615
16,468
Debt Exchange Derivative
—
18,183
Derivative Instruments
11,298
—
Contingent Consideration
—
58,069
Asset Retirement Obligations
795
554
Total Current Liabilities
203,477
231,526
Long-term Debt, Net
1,118,161
830,203
Derivative Instruments
8,079
—
Asset Retirement Obligations
16,759
11,946
Other Noncurrent Liabilities
345
105
TOTAL LIABILITIES
1,346,822
1,073,780
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred Stock, Par Value $.001;
5,000,000 Authorized (12/31/2019 – 1,500,000 Shares Outstanding and
12/31/2018 – No Shares Outstanding)
2
—
Common Stock, Par Value $.001; 675,000,000
Authorized (12/31/2019 – 406,085,183 Shares Outstanding and
12/31/2018 – 378,333,070 Shares Outstanding)
406
378
Additional Paid-In Capital
1,431,438
1,226,371
Retained Deficit
(873,203
)
(796,884
)
Total Stockholders’ Equity
558,643
429,865
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
1,905,465
$
1,503,645
Non-GAAP Financial Measures
Adjusted Net Income and Adjusted EBITDA are non-GAAP measures.
Net income (loss) is the most directly comparable GAAP measure for
both Adjusted Net Income and Adjusted EBITDA, and tabular
reconciliations for these measures are included below. Northern
defines Adjusted Net Income (Loss) as net income (loss) excluding
(i) unrealized (gain) loss on derivatives, net of tax, (ii)
financing expense, net of tax, (iii) impairment of other current
assets, net of tax, (iv) loss on the extinguishment of debt, net of
tax, (v) debt exchange derivative (gain) loss, net of tax, (vi)
contingent consideration loss, net of tax, and (vii) acquisition
transaction costs, net of tax. Northern defines Adjusted EBITDA as
net income (loss) before (i) interest expense, (ii) income taxes,
(iii) depreciation, depletion, amortization, and accretion, (iv)
impairment of other current assets, (v) non-cash stock based
compensation expense, (vi) loss on the extinguishment of debt,
(vii) debt exchange derivative (gain) loss (viii) contingent
consideration loss, (ix) cash severance expense, (x) financing
expense, and (xi) unrealized (gain) loss on derivatives. A
reconciliation of each of these measures to the most directly
comparable GAAP measure is included below. Management believes the
use of these non-GAAP financial measures provides useful
information to investors to gain an overall understanding of
current financial performance. Specifically, management believes
the non-GAAP financial measures included herein provide useful
information to both management and investors by excluding certain
items that management believes are not indicative of Northern’s
core operating results. In addition, these non-GAAP financial
measures are used by management for budgeting and forecasting as
well as subsequently measuring Northern’s performance, and
management believes it is providing investors with financial
measures that most closely align to its internal measurement
processes.
Pre-tax PV10%, or PV-10, may be considered a non-GAAP financial
measure as defined by the SEC and is derived from the standardized
measure of discounted future net cash flows, which is the most
directly comparable GAAP measure for proved reserves calculated
using SEC pricing. PV-10 is a computation of the Standardized
Measure of discounted future net cash flows on a pre-tax basis.
PV-10 is equal to the Standardized Measure of discounted future net
cash flows at the applicable date, before deducting future income
taxes, discounted at 10 percent. Management believes that the
presentation of PV-10 is relevant and useful to investors because
it presents the discounted future net cash flows attributable to
Northern’s estimated net proved reserves prior to taking into
account future corporate income taxes, and it is a useful measure
for evaluating the relative monetary significance of Northern’s oil
and natural gas properties. Further, investors may utilize the
measure as a basis for comparison of the relative size and value of
Northern’s reserves to other companies. Management uses this
measure when assessing the potential return on investment related
to Northern’s oil and natural gas properties. PV-10, however, is
not a substitute for the Standardized Measure of discounted future
net cash flows. A reconciliation of PV-10 to the Standardized
Measure is included below.
Reconciliation of Adjusted Net
Income
Three Months Ended December
31,
Years Ended December
31,
(In thousands, except share and per
share data)
2019
2018
2019
2018
Net Income (Loss)
$
(107,937
)
$
218,292
$
(76,318
)
$
143,689
Add:
Impact of Selected Items:
Unrealized (Gain) Loss on Derivatives
110,408
(280,195
)
173,214
(207,892
)
Financing Expense
1,447
884
1,447
884
Impairment of Other Current Assets
(1,571
)
—
6,398
—
Loss on the Extinguishment of Debt
22,762
73,055
23,187
173,430
Debt Exchange Derivative (Gain) Loss
—
13,661
(1,390
)
598
Contingent Consideration Loss
879
28,968
29,512
28,968
Acquisition Transaction Costs
—
—
1,763
—
Selected Items, Before Income Taxes
133,925
(163,627
)
234,130
(4,012
)
Income Tax of Selected Items(1)
(4,497
)
40,089
(36,898
)
983
Selected Items, Net of Income Taxes
129,429
(123,538
)
197,232
(3,029
)
Adjusted Net Income
$
21,492
$
94,754
$
120,914
$
140,660
Weighted Average Shares Outstanding –
Basic
402,042,034
378,799,871
387,084,651
236,206,457
Weighted Average Shares Outstanding –
Diluted
430,565,265
379,401,105
394,805,513
236,773,911
Net Income (Loss) Per Common Share –
Basic
$
(0.27
)
$
0.58
$
(0.20
)
$
0.61
Add:
Impact of Selected Items, Net of Income
Taxes
0.32
(0.33
)
0.51
(0.01
)
Adjusted Net Income Per Common Share –
Basic
$
0.05
$
0.25
$
0.31
$
0.60
Net Income (Loss) Per Common Share –
Diluted
$
(0.25
)
$
0.58
$
(0.19
)
$
0.61
Add:
Impact of Selected Items, Net of Income
Taxes
0.30
(0.33
)
0.50
(0.02
)
Adjusted Net Income Per Common Share –
Diluted
$
0.05
$
0.25
$
0.31
$
0.59
_______________
(1)
For the 2019 columns, this represents a
tax impact using an estimated tax rate of 24.5% for the three and
twelve months ended December 31, 2019 and includes an adjustment of
$28.3 million and $20.5 million, respectively, for changes in our
valuation allowance. For the 2018 columns, this represents a tax
impact using an estimated tax rate of 24.5% for the three and
twelve months ended December 31, 2018 and does not include any
adjustments for changes in our valuation allowance.
Reconciliation of Adjusted
EBITDA
Three Months Ended December
31,
Years Ended December
31,
2019
2018
2019
2018
(in thousands)
Net Income (Loss)
$
(107,937
)
$
218,292
$
(76,318
)
$
143,689
Add:
Interest Expense
20,393
20,057
79,229
86,005
Income Tax Provision (Benefit)
—
(55
)
—
(55
)
Depreciation, Depletion, Amortization and
Accretion
63,411
48,295
210,201
119,780
Impairment of Other Current Assets
(1,571
)
—
6,398
—
Non-Cash Stock-Based Compensation
3,674
1,903
7,955
3,876
Loss on the Extinguishment of Debt
22,762
73,055
23,187
173,430
Debt Exchange Derivative (Gain) Loss
—
13,661
(1,390
)
598
Contingent Consideration Loss
879
28,968
29,512
28,968
Financing Expense
1,447
884
1,447
884
Cash Severance Expense
759
—
759
—
Unrealized (Gain) Loss on Derivatives
110,408
(280,195
)
173,214
(207,892
)
Adjusted EBITDA
$
114,225
$
124,865
$
454,193
$
349,283
Reconciliation of PV-10
The following table reconciles the PV-10 value of our SEC
Pricing Proved Reserves as of December 31, 2019 to the Standardized
Measure of discounted future net cash flows.
SEC Pricing Proved
Reserves
(In thousands)
Standardized Measure
Reconciliation
Pre-Tax Present Value of Estimated Future
Net Revenues (Pre-Tax PV10%)
$
1,822,024
Future Income Taxes, Discounted at
10%(1)
(143,964
)
Standardized Measure of Discounted Future
Net Cash Flows
$
1,678,060
____________
(1)
The expected tax benefits to be realized
from utilization of the net operating loss and tax credit
carryforwards are used in the computation of future income tax cash
flows.As a result of available net operating loss carryforwards and
the remaining tax basis of our assets at December 31, 2019, our
future income taxes were reduced.
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Mike Kelly, CFA EVP Finance 952-476-9800
mkelly@northernoil.com
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