Northern Oil and Gas, Inc. (NYSE: NOG) (“NOG” or “Company”) today announced the Company’s second quarter results.
MANAGEMENT COMMENTS
“NOG made meaningful strides in expanding its exposure to high-quality, low-breakeven acreage in the second quarter by executing on two highly accretive large-scale acquisitions with Forge and Novo. It was also a banner quarter for the Ground Game, completing 13 transactions that are expected to add over 16 net wells to production over the next several years,” commented Nick O’Grady, NOG’s Chief Executive Officer. “For the remainder of the year, we see potential for record levels of production and elevated cash flow from operations and free cash flow, as we begin to harvest our first half investments.”
SECOND QUARTER FINANCIAL RESULTS
Oil and natural gas sales for the second quarter were $416.5 million. Second quarter GAAP net income was $167.8 million or $1.88 per diluted share. Second quarter Adjusted Net Income was $132.9 million or $1.49 per diluted share. Adjusted EBITDA in the second quarter was $315.5 million, a 16% increase from the same period a year ago. See “Non-GAAP Financial Measures” below.
PRODUCTION
Second quarter production was 90,878 Boe per day, an increase of 4% from the first quarter of 2023 and an increase of 25% from the second quarter of 2022. Oil represented 60% of total production in the second quarter with 54,738 Bbls per day, an increase of 2% from the first quarter of 2023 and an increase of 31% from the second quarter of 2022. NOG had 13.8 net wells turned in-line during the second quarter, compared to 13.1 net wells turned in-line in the first quarter of 2023. Production increased quarter over quarter, driven primarily by growth in NOG’s Williston basin production, which grew approximately 10% from the prior quarter and represented record quarterly volumes in the basin for the Company.
PRICING
During the second quarter, NYMEX West Texas Intermediate (“WTI”) crude oil averaged $73.68 per Bbl, and NYMEX natural gas at Henry Hub averaged $2.32 per Mcf. NOG’s unhedged net realized oil price in the second quarter was $71.03, representing a $2.65 differential to WTI prices. NOG’s unhedged net realized gas price in the second quarter was $3.18 per Mcf, representing approximately 137% realization compared with Henry Hub pricing. Oil differentials remained consistent from the prior quarter, with in-basin prices in both the Williston and Permian basin at better than seasonal average levels. Natural gas realizations were better than expected due to higher than forecast natural gas liquids pricing and lower than expected in-basin gas differentials.
OPERATING COSTS
Lease operating costs were $84.4 million in the second quarter of 2023, or $10.20 per Boe, a 3% increase on a per unit basis compared to the first quarter of 2023. This increase in unit costs was driven primarily by the annual firm transportation charge in the Marcellus, partially offset by lower processing and salt water disposal charges. Second quarter general and administrative (“G&A”) costs totaled $12.4 million or $1.50 per Boe. This includes $3.6 million of legal and transaction expenses in connection with bolt-on acquisitions and $1.2 million of non-cash stock-based compensation. NOG’s cash G&A costs excluding these amounts totaled $7.6 million or $0.92 per Boe in the second quarter, down 2% on a per unit basis compared to the first quarter of 2023.
CAPITAL EXPENDITURES AND ACQUISITIONS
Capital expenditures for the second quarter were $232.8 million (excluding non-budgeted acquisitions) representing 31% of NOG’s initial annual capital expenditure guidance range at the midpoint. This was comprised of $210.0 million of total drilling and completion (“D&C”) capital on organic and Ground Game assets, and $22.8 million of Ground Game acquisition spending and other items. D&C spending was higher than the prior quarter due to an increase in development activity and workover expense incurred in the period and significant Ground Game success. NOG has seen well cost inflation moderate in the second quarter of 2023. NOG’s weighted average gross authorization for expenditure (or AFE) elected to in the second quarter was $9.0 million, compared to $9.6 million in the first quarter of 2023 and $7.2 million in the second quarter of 2022.
NOG’s Permian Basin spending was 57% of the total capital expenditures for the second quarter, the Williston was 39%, the Marcellus was 3% and other items were 1%. On the Ground Game acquisition front, NOG closed on thirteen transactions through various structures during the second quarter totaling 16.7 net current and future development wells and 942 net acres, a marked increase from the first quarter.
As previously announced, on June 30, 2023, NOG completed its Forge acquisition with a $167.9 million cash settlement at closing.
LIQUIDITY AND CAPITAL RESOURCES
NOG had total liquidity of $1.01 billion as of June 30, 2023, consisting of $1.00 billion of committed borrowing availability under the Revolving Credit Facility and $14.8 million of cash. The Company also had $37.5 million held in escrow as of June 30, 2023, as a cash deposit for the pending Novo acquisition.
In May 2023, NOG completed an upsized offering of $500 million of 8.750% Senior Notes due 2031. Net proceeds from the offering were used to reduce the outstanding balance on the Company’s revolving credit facility and for general corporate purposes.
In May 2023, NOG completed an underwritten public offering of its common stock for net proceeds of $224.7 million, issuing 7,647,500 shares. Proceeds from the offering were used for the Forge acquisition and for general corporate purposes.
On August 2, 2023, NOG completed its semi-annual redetermination of its Revolving Credit Facility. The Borrowing Base will increase to $1.8 billion (from $1.6 billion) and the Elected Commitment Amount will increase to $1.25 billion (from $1.0 billion), subject to the closing of the Novo acquisition and other customary conditions. In addition, the Company added two new lenders to the syndicate, increasing the number to sixteen banks.
As of June 30, 2023, NOG had total debt of $1,705.1 million, a decrease of $69.0 million from the end of the first quarter. The total debt consisted of no outstanding borrowings under the Revolving Credit Facility, $705.1 million of outstanding 8.125% Senior Notes due 2028, $500.0 million of outstanding 3.625% Convertible Notes due 2029, and $500.0 million of outstanding 8.750% Senior Notes due 2031.
SHAREHOLDER RETURNS
In May 2023, NOG’s Board of Directors declared a regular quarterly cash dividend for NOG’s common stock of $0.37 per share for stockholders of record as of June 29, 2023, which was paid on July 31, 2023 in the total amount of $34.3 million. The per share dividend represents a 9% increase from the prior quarter, and a 95% increase from the second quarter of 2022.
On August 1, 2023, NOG’s Board of Directors declared a regular quarterly cash dividend for NOG’s common stock of $0.38 per share for stockholders of record as of September 28, 2023, which will be paid on October 31, 2023. This represents a 3% increase from the prior quarter, and a 52% increase from the third quarter of 2022.
2023 ANNUAL GUIDANCE*
On July 25, 2023, NOG issued a press release containing updated 2023 guidance to reflect recent acquisitions and other matters, as set forth in the table below.
Current | ||
Annual Production (Boe per day) | 96,000 - 100,000 | |
Q3 2023 Production (Boe per day) | 99,000 - 103,000 | |
Oil as a Percentage of Production | 62.0% - 63.0% | |
Total Budgeted Capital Expenditures (in millions) | $764 - $800 | |
Net Wells Turned-in-Line (“TIL”) | 75 - 78 | |
Operating Expenses and Differentials: | ||
Production Expenses (per Boe) | $9.35 - $9.55 | |
Production Taxes (as a percentage of Oil & Gas Sales) | 8.0% - 9.0% | |
DD&A Rate (per Boe) | $13.00 - $13.80 | |
Average Differential to NYMEX WTI (per Bbl) | ($3.25) - ($4.25) | |
Average Realization as a Percentage of NYMEX Henry Hub (per Mcf) | 85.0% - 95.0% | |
General and Administrative Expense (per Boe): | ||
Non-Cash | $0.20 - $0.25 | |
Cash (excluding transaction costs on non-budgeted acquisitions) | $0.80 - $0.85 |
________________ |
*All forecasts are provided on a 2-stream production basis. Assumes 8/15/2023 closing date for Novo acquisition. |
SECOND QUARTER 2023 RESULTS
The following tables set forth selected operating and financial data for the periods indicated.
Three Months Ended June 30, | |||||||||
2023 | 2022 | % Change | |||||||
Net Production: | |||||||||
Oil (Bbl) | 4,981,162 | 3,801,663 | 31 | % | |||||
Natural Gas and NGLs (Mcf) | 19,732,243 | 16,878,481 | 17 | % | |||||
Total (Boe) | 8,269,869 | 6,614,743 | 25 | % | |||||
Average Daily Production: | |||||||||
Oil (Bbl) | 54,738 | 41,777 | 31 | % | |||||
Natural Gas and NGLs (Mcf) | 216,838 | 185,478 | 17 | % | |||||
Total (Boe) | 90,878 | 72,689 | 25 | % | |||||
Average Sales Prices: | |||||||||
Oil (per Bbl) | $ | 71.03 | $ | 106.26 | (33 | )% | |||
Effect of Gain (Loss) on Settled Oil Derivatives on Average Price (per Bbl) | 1.31 | (32.53 | ) | ||||||
Oil Net of Settled Oil Derivatives (per Bbl) | 72.34 | 73.73 | (2 | )% | |||||
Natural Gas and NGLs (per Mcf) | 3.18 | 8.63 | (63 | )% | |||||
Effect of Gain (Loss) on Settled Natural Gas Derivatives on Average Price (per Mcf) | 1.05 | (2.29 | ) | ||||||
Natural Gas and NGLs Net of Settled Natural Gas Derivatives (per Mcf) | 4.23 | 6.34 | (33 | )% | |||||
Realized Price on a Boe Basis Excluding Settled Commodity Derivatives | 50.36 | 83.09 | (39 | )% | |||||
Effect of Gain (Loss) on Settled Commodity Derivatives on Average Price (per Boe) | 3.30 | (24.54 | ) | ||||||
Realized Price on a Boe Basis Including Settled Commodity Derivatives | 53.66 | 58.55 | (8 | )% | |||||
Costs and Expenses (per Boe): | |||||||||
Production Expenses | $ | 10.20 | $ | 9.77 | 4 | % | |||
Production Taxes | 4.49 | 6.63 | (32 | )% | |||||
General and Administrative Expenses | 1.50 | 1.22 | 23 | % | |||||
Depletion, Depreciation, Amortization and Accretion | 12.87 | 8.28 | 55 | % | |||||
Net Producing Wells at Period End | 872.8 | 735.0 | 19 | % | |||||
HEDGING
NOG 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 NOG’s open crude oil commodity derivative swap contracts scheduled to settle after June 30, 2023.
Crude Oil Commodity Derivative Swaps(1) | Crude Oil Commodity Derivative Collars | ||||||||||||||
Contract Period | Volume (Bbls/Day) | Weighted Average Price ($/Bbl) | Collar Call Volume (Bbls) | Collar Put Volume (Bbls) | Weighted Average Ceiling Price ($/Bbl) | Weighted Average Floor Price ($/Bbl) | |||||||||
2023: | |||||||||||||||
Q3 | 20,870 | $ | 76.73 | 1,823,989 | 1,441,613 | $ | 86.38 | $ | 71.57 | ||||||
Q4 | 20,224 | 75.67 | 1,969,252 | 1,577,676 | 85.53 | 71.44 | |||||||||
2024: | |||||||||||||||
Q1 | 10,497 | $ | 76.02 | 1,945,397 | 1,292,178 | $ | 84.84 | $ | 69.82 | ||||||
Q2 | 10,583 | 75.10 | 1,946,387 | 1,306,267 | 84.61 | 69.12 | |||||||||
Q3 | 11,451 | 73.60 | 782,056 | 630,256 | 80.43 | 68.15 | |||||||||
Q4 | 7,299 | 70.42 | 723,749 | 549,800 | 81.80 | 68.15 | |||||||||
2025: | |||||||||||||||
Q1 | 1,308 | $ | 67.92 | 323,286 | 224,849 | $ | 78.69 | $ | 66.98 | ||||||
Q2 | 1,089 | 68.01 | 273,171 | 199,233 | 75.49 | 67.63 | |||||||||
Q3 | 1,004 | 67.94 | 234,994 | 161,970 | 75.76 | 67.88 | |||||||||
Q4 | 966 | 67.81 | 208,511 | 135,487 | 76.87 | 67.63 | |||||||||
2026: | |||||||||||||||
Q1 | 430 | $ | 63.25 | 43,226 | 39,289 | $ | 70.25 | $ | 62.50 | ||||||
Q2 | 430 | 62.74 | 43,707 | 39,727 | 70.25 | 62.50 | |||||||||
Q3 | 430 | 62.28 | 44,187 | 40,163 | 70.25 | ||||||||||
