HIGHLIGHTS
- First quarter production increased 28% over the prior year,
averaging 43,735 barrels of oil equivalent (“Boe”) per day
- Cash flow from operations, excluding $7.1 million from changes
in working capital, totaled $93.6 million, which was a 7% increase
over the prior year and exceeded first quarter capital expenditures
of $86.7 million
- Senior Secured Notes reduced by $90.2 million in the first
quarter; signed agreements to retire an additional $6.1 million
subsequent to quarter-end
- Over 27,000 barrels per day of remaining 2020 oil production
hedged at over $58 per barrel (“Bbl”) average prices
- Approximately 20,000 barrels per day of 2021 oil production
hedged at over $55 per Bbl average prices
- 2020 total capital expenditures now anticipated between $175 -
$200 million, down 56% at the midpoint vs. 2019 D&C and ground
game capital expenditures
Northern Oil and Gas, Inc. (NYSE American: NOG) (“Northern”)
today announced the company’s first quarter results and provided
2020 guidance.
MANAGEMENT COMMENTS
“Many companies are reacting quickly to the COVID-19 pandemic
and the unprecedented fall in commodity prices,” commented Nick
O’Grady, Northern’s Chief Executive Officer. “Northern is
different. Instead of reacting to this calamity, we actually
prepared in advance for it. The steps we have taken to improve our
balance sheet over the past several years, our vastly superior
multi-year risk management, and our strict capital allocation
standards put us in a position of strength despite the current
outlook. Over the next two years, we project generating free cash
flows that approximate our entire current equity market
capitalization. We will continue to ratchet down our debt levels,
take advantage of market dislocations, and seek out distressed
acquisitions that provide strong upside convexity.”
FIRST QUARTER FINANCIAL RESULTS
First quarter net income was $368.3 million or $0.74 per diluted
share, driven in large part by a $345.1 million mark-to-market gain
on unsettled commodity derivatives. First quarter Adjusted Net
Income was $21.7 million or $0.04 per diluted share, down from
$27.8 million or $0.07 per diluted share in the first quarter of
2019. Cash flow from operations, excluding $7.1 million from
changes in working capital, was $93.6 million in the first quarter
compared to $87.5 million in the prior year. Adjusted EBITDA in the
first quarter was $108.0 million compared to $104.8 million in the
prior year. (See “Non-GAAP Financial Measures” below.)
PRODUCTION
First quarter production increased 28% from the prior year and
inline with the prior quarter to 4.0 million Boe or 43,735 Boe per
day. Oil production represented 79% of total production at 34,488
Bbls per day. Production remained resilient in the first quarter
despite only 7.3 net wells turned online during the quarter, which
was 50% lower than the 14.6 net wells turned online in the fourth
quarter of 2019. Additionally, material curtailments began in March
within the basin, yet first quarter results remained roughly
inline. Gas capture continues to improve in the Williston as
infrastructure improvements have come online, which has helped
improve overall gas sales volumes.
PRICING
During the first quarter, NYMEX West Texas Intermediate (“WTI”)
crude oil averaged $45.57 per Bbl, and NYMEX natural gas at Henry
Hub averaged $1.91 per million cubic feet (“Mcf”). Northern’s
unhedged net realized oil price in the first quarter was $37.07,
representing a $8.50 differential to WTI prices. Northern’s first
quarter unhedged net realized gas price was $2.75 per Mcf,
representing approximately 144% realizations compared with Henry
Hub pricing.
OPERATING AND G&A COSTS
Unit LOE costs increased to $9.38 per Boe in the first quarter
compared to $8.84 per Boe in the fourth quarter of 2019 driven by
increased processing costs and to a lesser extent higher workover
expense. The increase in processing costs did have a positive
impact on gas realizations in the quarter, which as noted in the
pricing section above, rose notably sequentially. First quarter
general and administrative (“G&A”) costs totaled $4.9 million,
including stock-based compensation. Cash G&A expense totaled
$3.8 million or $0.95 per Boe in the first quarter.
CAPITAL EXPENDITURES
Capital spending for the first quarter was $86.7 million, made
up of $64.9 million of organic D&C capital and $21.8 million of
total acquisition spending and other, inclusive of ground game
D&C spending. As mentioned above, Northern added 7.3 net wells
to production in the first quarter, and wells in process increased
modestly to 27.2 net wells versus 25.8 net wells at the end of the
prior quarter. On the ground game acquisition front, Northern
closed on 12 transactions during the first quarter, the majority of
which stemmed from commitments made, but not closed, in the fourth
quarter. These transactions yielded 3.6 net wells, 965 net mineral
acres and 61 net royalty acres (standardized to a 1/8 royalty
interest).
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2020, Northern had $8.5 million in cash and
$590.0 million outstanding on its revolving credit facility.
Northern had total liquidity of $218.5 million as of March 31,
2020, consisting of cash and borrowing availability under the
revolving credit facility.
As of March 31, 2020, Northern had additional debt outstanding
consisting of a $130.0 million 6% Senior Unsecured Note and $327.5
million of 8.5% Senior Secured Notes. During the first quarter,
Northern strengthened its balance sheet through several negotiated
agreements and open market purchases aimed at reducing the
principal amount of the 8.5% Senior Secured Notes. In the
aggregate, the company retired $90.2 million in principal amount of
these notes during the first quarter. Furthermore, and as noted in
a Form 8-K filed on May 8th, Northern has continued to execute on
the reduction of its secured debt in the second quarter and has
entered into agreements to retire an additional $6.1 million of
8.5% Senior Secured Notes. Upon closing of these transactions, the
outstanding principal amount on the 8.5% Senior Secured Notes will
be reduced to $321.4 million.
2020 GUIDANCE COMMENTARY
Given the rapid deterioration in oil prices during the COVID-19
pandemic, Northern’s operators continue to curtail and shut-in
production in response to low wellhead prices. These plans are
fluctuating and the timeframe for them is fluid. However, given
Northern’s strong oil hedge position, regardless of current
production volatility and the overall cumulative volumes for 2020,
Northern anticipates $350 to $410 million in Adjusted EBITDA(1) for
2020. Factors that will drive this range are primarily overall
levels of production, in-basin pricing differentials, lease
operating expenses for curtailed production, and derivative gains
or losses based on the average WTI prices over these periods.
Northern expects $55 to $60 million of total book interest expense
for 2020. In addition, Northern anticipates approximately $175 to
$200 million in total capital expenditures for 2020, 43-49% of
which in this range has already been accounted for in the first
quarter. Northern will additionally earmark, in the event of a
substantial rise in commodity prices north of $40 WTI,
approximately $50 million of “reserve capital” for completions of
its drilled but uncompleted inventory. Based on the current forward
strip, Northern does not anticipate the reserve capital being
accessed at this time. In the interests of accelerating debt
repayment, Northern’s Board of Directors has elected to defer
payment of the dividends on its Perpetual Preferred Stock and any
potential common stock dividends until oil returns to economic
levels. This should save the Company approximately $15 million for
2020. Northern continues to anticipate that it will generate
significant free cash flow in 2020 and 2021.
_____________
(1)
Adjusted EBITDA is a non-GAAP financial
measure. Northern’s 2020 Adjusted EBITDA guidance range was
estimated using (i) actual results for the first quarter of 2020
and (ii) strip prices for oil and natural gas as of May 8, 2020,
which represents an average WTI oil price of approximately $26.90
per barrel and an average Henry Hub natural gas price of $2.34 per
Mcf, for April through December 2020. See “Non-GAAP Financial
Measures” below.
FIRST QUARTER 2020 RESULTS
The following tables set forth selected operating and financial
data for the periods indicated.
Three Months Ended March
31,
2020
2019
% Change
Net Production:
Oil (Bbl)
3,138,380
2,541,232
24
%
Natural Gas and NGLs (Mcf)
5,049,120
3,435,784
47
%
Total (Boe)
3,979,900
3,113,863
28
%
Average Daily Production:
Oil (Bbl)
34,488
28,236
22
%
Natural Gas and NGLs (Mcf)
55,485
38,175
45
%
Total (Boe)
43,735
34,598
26
%
Average Sales Prices:
Oil (per Bbl)
$
37.07
$
48.64
(24
)%
Effect of Gain (Loss) on Settled
Derivatives on Average Price (per Bbl)
10.04
4.94
103
%
Oil Net of Settled Derivatives (per
Bbl)
47.11
53.58
(12
)%
Natural Gas and NGLs (per Mcf)
2.75
2.64
4
%
Realized Price on a Boe Basis Including
all Realized Derivative Settlements
40.63
46.64
(13
)%
Costs and Expenses (per Boe):
Production Expenses
$
9.38
$
7.92
18
%
Production Taxes
2.99
4.02
(26
)%
General and Administrative Expense
1.22
1.94
(37
)%
Depletion, Depreciation, Amortization and
Accretion
15.53
14.49
7
%
Net Producing Wells at Period
End
464.8
332.5
40
%
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 commodity derivative contracts scheduled
to settle after March 31, 2020.
Crude Oil Commodity Derivative
Swaps(1)
Contract Period
Volume (Bbls)
Volume (Bbls/Day)
Weighted Average Price (per
Bbl)
2020:
2Q
2,568,278
28,223
$57.67
3Q
2,501,348
27,189
$58.47
4Q
2,372,362
25,787
$58.03
2021:
1Q
2,066,250
22,958
$56.18
2Q
1,860,958
20,450
$56.64
3Q
1,671,410
18,168
$54.12
4Q
1,662,506
18,071
$54.14
_____________
(1)
This table does not reflect additional
potential hedged volumes under “swaption” contracts, which are
crude oil derivative contracts entered into by Northern that give
counterparties the option to extend certain current derivative
contracts for additional periods. Based on current pricing, none of
these swaptions would be expected to be exercised.
CAPITAL EXPENDITURES & DRILLING
ACTIVITY
(In millions, except for net well
data)
Three Months Ended March 31,
2020
Capital Expenditures Incurred:
Organic Drilling and Development Capital
Expenditures
$
64.9
Ground Game Drilling and Development
Capital Expenditures
$
14.0
Ground Game Acquisition Capital
Expenditures
$
7.1
Other
$
0.7
Net Organic Wells Added to Production
7.3
Net Producing Wells (Period-End)
464.8
Net Wells in Process (Period-End)
27.2
Increase in Wells in Process over Prior
Period
1.4
Weighted Average AFE for Wells Elected to
During the First Quarter
$
7.6
Capitalized costs are a function of the number of net well
additions during the period, and changes in wells in process from
the prior year-end. Capital expenditures attributable to the 1.4
well increase in net wells in process during the three months ended
March 31, 2020 are reflected in the amounts incurred year-to-date
for drilling and development capital expenditures.
ACREAGE
As of March 31, 2020, Northern controlled leasehold of
approximately 183,245 net acres targeting the Bakken and Three
Forks formations of the Williston Basin, and approximately 90% of
this total acreage position was developed, held by production, or
held by operations.
FIRST QUARTER 2020 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
Monday, May 11, 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:
Website:
https://78449.themediaframe.com/dataconf/productusers/nog/mediaframe/37907/indexl.html
Dial-In Number: (866) 373-3407
(US/Canada) and (412) 902-1037 (International) Conference ID: 13703183 - Northern Oil and Gas,
Inc. First Quarter 2020 Earnings Call Replay
Dial-In Number: (877) 660-6853 (US/Canada) and (201)
612-7415 (International) Replay Access
Code: 13703183 - Replay will be available through May 18,
2020
UPCOMING CONFERENCE SCHEDULE
UBS Global Oil and Gas Conference (Virtual) May 18-20, 2020
RBC Global Energy and Power Executive Conference (Virtual) June
2-3, 2020
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, operating
and financial performance, 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: the effects of the COVID-19 pandemic and
related economic slowdown, changes in crude oil and natural gas
prices, the pace of drilling and completions activity on Northern’s
current properties, infrastructure constraints and related factors
affecting 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, health-related epidemics, acts
of war or terrorism, and other economic, competitive, governmental,
regulatory and technical factors affecting Northern’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.
CONDENSED STATEMENTS OF
OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
(In thousands, except share and per
share data)
2020
2019
REVENUES
Oil and Gas Sales
$
130,196
$
132,684
Gain (Loss) on Commodity Derivatives,
Net
376,581
(139,623
)
Other Revenue
8
5
Total Revenues
506,785
(6,934
)
OPERATING EXPENSES
Production Expenses
37,335
24,666
Production Taxes
11,896
12,520
General and Administrative Expenses
4,871
6,051
Depletion, Depreciation, Amortization and
Accretion
61,809
45,134
Total Operating Expenses
115,911
88,371
INCOME (LOSS) FROM OPERATIONS
390,875
(95,305
)
OTHER INCOME (EXPENSE)
Interest Expense, Net of
Capitalization
(16,551
)
(19,548
)
Gain (Loss) on Unsettled Interest Rate
Derivatives, Net
(677
)
—
Loss on Extinguishment of Debt
(5,527
)
—
Debt Exchange Derivative Gain
—
6,287
Contingent Consideration Gain
—
1,392
Other Income
—
12
Total Other Income (Expense)
(22,755
)
(11,857
)
INCOME (LOSS) BEFORE INCOME
TAXES
368,120
(107,162
)
INCOME TAX PROVISION (BENEFIT)
(166
)
—
NET INCOME (LOSS)
$
368,286
$
(107,162
)
Net Income (Loss) Per Common Share –
Basic
$
0.90
$
(0.29
)
Net Income (Loss) Per Common Share –
Diluted
$
0.74
$
(0.29
)
Weighted Average Shares Outstanding –
Basic
403,662,541
371,448,566
Weighted Average Shares Outstanding –
Diluted
497,212,614
371,448,566
CONDENSED BALANCE
SHEETS
(In thousands, except par value and
share data)
March 31, 2020
December 31, 2019
ASSETS
(Unaudited)
Current Assets:
Cash and Cash Equivalents
$
8,512
$
16,068
Accounts Receivable, Net
97,580
108,274
Advances to Operators
567
893
Prepaid Expenses and Other
2,216
1,964
Derivative Instruments
245,552
5,628
Income Tax Receivable
420
210
Total Current Assets
354,847
133,037
Property and Equipment:
Oil and Natural Gas Properties, Full Cost
Method of Accounting
Proved
4,265,534
4,178,605
Unproved
10,846
11,047
Other Property and Equipment
2,156
2,157
Total Property and Equipment
4,278,536
4,191,809
Less – Accumulated Depreciation, Depletion
and Impairment
(2,504,735
)
(2,443,216
)
Total Property and Equipment, Net
1,773,801
1,748,593
Derivative Instruments
94,329
8,554
Deferred Income Taxes
—
210
Other Noncurrent Assets, Net
14,409
15,071
Total Assets
$
2,237,386
$
1,905,465
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts Payable
$
58,447
$
69,395
Accrued Liabilities
101,302
110,374
Accrued Interest
9,308
11,615
Derivative Instruments
130
11,298
Current Portion of Long-term Debt
65,000
—
Other Current Liabilities
673
795
Total Current Liabilities
234,860
203,477
Long-term Debt
975,282
1,118,161
Derivative Instruments
547
8,079
Asset Retirement Obligations
17,416
16,759
Other Noncurrent Liabilities
273
345
TOTAL LIABILITIES
$
1,228,379
$
1,346,822
COMMITMENTS AND CONTINGENCIES (NOTE
8)
STOCKHOLDERS’ EQUITY
Preferred Stock, Par Value $.001;
5,000,000 Shares Authorized; 2,294,702 Series A Shares Outstanding
at 3/31/2020 1,500,000 Series A Shares Outstanding at
12/31/2019
2
2
Common Stock, Par Value $.001; 675,000,000
Shares Authorized; 405,803,181 Shares Outstanding at 3/31/2020
406,085,183 Shares Outstanding at 12/31/2019
406
406
Additional Paid-In Capital
1,513,516
1,431,438
Retained Deficit
(504,917
)
(873,203
)
Total Stockholders’ Equity
1,009,007
558,643
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
$
2,237,386
$
1,905,465
Non-GAAP Financial Measures
Adjusted Net Income and Adjusted EBITDA are non-GAAP measures.
Northern defines Adjusted Net Income (Loss) as net income (loss)
excluding (i) (gain) loss on unsettled commodity derivatives, net
of tax, (ii) loss on extinguishment of debt, net of tax, (iii) debt
exchange derivative gain, net of tax, and (iv) contingent
consideration gain, 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)
non-cash stock-based compensation expense, (v) loss on
extinguishment of debt, (vi) debt exchange derivative gain, (vii)
contingent consideration gain, and (viii) (gain) loss on the
unsettled commodity derivatives. A reconciliation of each of these
measures to the most directly comparable GAAP measure is included
below. Where references are pro forma, forward-looking or
prospective in nature, and not based on historical fact, the table
does not provide a reconciliation. Northern could not provide such
reconciliation without undue hardship because such Adjusted EBITDA
numbers are estimations, approximations and/or ranges. In addition,
it would be difficult for Northern to present a detailed
reconciliation on account of many unknown variables for the
reconciling items, including without limitation future income
taxes, full-cost ceiling impairments, and unrealized gains or
losses on commodity derivatives. For the same reasons, Northern is
unable to address the probable significance of the unavailable
information, which could be material to future results.
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 expenses and unrealized commodity gains and
losses 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.
Reconciliation of Adjusted Net
Income
Three Months Ended March
31,
(In thousands, except share and per
share data)
2020
2019
Net Income (Loss)
$
368,286
$
(107,162
)
Add:
Impact of Selected Items:
(Gain) Loss on Unsettled Commodity
Derivatives
(345,075
)
152,169
Loss on Extinguishment of Debt
5,527
—
Debt Exchange Derivative Gain
—
(6,287
)
Contingent Consideration Gain
—
(1,392
)
Selected Items, Before Income Taxes
(339,548
)
144,490
Income Tax of Selected Items(1)
(7,042
)
(9,506
)
Selected Items, Net of Income Taxes
$
(346,590
)
$
134,984
Adjusted Net Income
$
21,696
$
27,822
Weighted Average Shares Outstanding –
Basic
403,662,541
371,448,566
Weighted Average Shares Outstanding –
Diluted
497,212,614
372,715,932
Net Income (Loss) Per Common Share –
Basic
$
0.90
$
(0.29
)
Add:
Impact of Selected Items, Net of Income
Taxes
(0.85
)
0.36
Adjusted Net Income Per Common Share –
Basic
$
0.05
$
0.07
Net Income (Loss) Per Common Share –
Diluted
$
0.74
$
(0.29
)
Add:
Impact of Selected Items, Net of Income
Taxes
(0.70
)
0.36
Adjusted Net Income Per Common Share –
Diluted
$
0.04
$
0.07
_____________
(1)
For the three months ended March 31, 2020,
this represents a tax impact using an estimated tax rate of 24.5%,
which includes an adjustment of $90.2 million, for a change in
valuation allowance. For the three months ended March 31, 2019,
this represents a tax impact using an estimated tax rate of 24.5%,
which includes an adjustment of $25.9 million, for a reduction in
valuation allowance.
Reconciliation of Adjusted
EBITDA
Three Months Ended March
31,
(In thousands)
2020
2019
Net Income (Loss)
$
368,286
$
(107,162
)
Add:
Interest Expense
16,551
19,548
Income Tax Provision (Benefit)
(166
)
—
Depreciation, Depletion, Amortization and
Accretion
61,809
45,134
Non-Cash Stock-Based Compensation
1,079
2,751
Loss on Extinguishment of Debt
5,527
—
Debt Exchange Derivative Gain
—
(6,287
)
Contingent Consideration Gain
—
(1,392
)
(Gain) Loss on Unsettled Commodity
Derivatives
(345,075
)
152,169
Adjusted EBITDA
$
108,010
$
104,761
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200511005191/en/
Mike Kelly, CFA EVP Finance 952-476-9800
mkelly@northernoil.com
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