Exploration & Production | Quarterly / Earnings Reports
Northern Oil Averages 10,896 BOE/d in Bakken Production
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Northern Oil and Gas, Inc. has reported 2013 second quarter results of operations.
Highlights:
- Second quarter 2013 production of 991,563 barrels of oil equivalent (Boe), or 10,896 average Boe per day
- Northern added 83 gross (5.7 net) wells to production during the second quarter of 2013
- As of June 30, 2013, Northern was participating in 218 gross (17.4 net) wells drilling or awaiting completion
Northern's Chairman and Chief Executive Officer, Michael Reger, commented: "As we indicated on our conference call at the beginning of the year, we were expecting 2013 production growth to be weighted to the second half of the year. The number of wells added to our producing wells in the first half of the year was below our original expectations. However, we are encouraged by the build this quarter in the number of net wells we have drilling or awaiting completion and by the level of completion activity subsequent to the end of the quarter. We also continue to expand our acreage position in the basin at very attractive prices and we have an outstanding liquidity position as we begin the second half of the year."
Northern's Adjusted Net Income for the second quarter of 2013 was $14.6 million, or $0.23 per diluted share. Adjusted Net Income excludes the impact of unrealized mark-to-market gains and losses on derivative instruments. GAAP net income for the second quarter of 2013 was $25.0 million, or $0.39 per diluted share. Adjusted EBITDA for the second quarter of 2013 was $58.2 million.
Acreage Update
As of June 30, 2013, Northern controlled approximately 182,400 net acres targeting the Williston Basin Bakken and Three Forks. During the second quarter of 2013, Northern acquired leasehold interests covering an aggregate of 4,476 net mineral acres at an average cost of $1,057 per net acre.
As of June 30, 2013, approximately 61% of Northern's total acreage position, and approximately 71% of Northern's North Dakota acreage position, was developed, held by production or held by operations.
Drilling & Completions
During the second quarter of 2013, Northern participated in 83 gross (5.7 net) wells that were completed and placed into production. As a result, Northern's producing wells totaled 1,438 gross (121.5 net) as of June 30, 2013. In addition to these wells, Northern was participating in 218 gross (17.4 net) wells drilling or awaiting completion at June 30, 2013.
Subsequent to the end of the second quarter, through July 31, Northern has completed 62 gross (6.4 net) wells and spud 62 gross (5.7 net) wells. Northern was participating in 218 gross (16.7 net) wells drilling or awaiting completion at July 31, 2013.
CapEx & Liquidity Update
During the second quarter of 2013, Northern incurred $93.5 million of capital expenditures on drilling and completion costs. Capital expenditures in the second quarter include a percentage of completion allocation for wells on the current drilling or awaiting completion list, which increased over the prior quarter. In addition, during the second quarter Northern incurred $4.2 million on acreage and related activities, and $3.8 million on other capital expenditure activities.
During the second quarter, Northern issued an additional $200 million of 8.0% senior unsecured notes at a price of 105.25%, to yield 6.75%. The proceeds were used to repay the Company's revolving credit facility and for other working capital requirements. At June 30, 2013, Northern had $400 million of undrawn, committed liquidity under its $750 million revolving credit facility and approximately $18.1 million in cash, resulting in liquidity of approximately $418 million.
Revised Production Guidance
As a result of lower net well additions during the first half of 2013 (15.3 net), Northern is revising its 2013 full year estimates of net well additions and production. Northern now estimates that it will add approximately 36 net wells to production during the year and that 2013 full year production will be approximately 4.3 million barrels of oil equivalent.
Northern estimates that weighted average drilling and completion costs will total approximately $9.1 million for the wells it added to production during the first six months of 2013. The weighted average AFE estimate for the wells in process as of June 30, 2013 is $8.8 million.
In the second quarter of 2013, oil, natural gas and NGL sales, including the effect of settled derivatives, increased 14% compared to the second quarter of 2012, driven by a 5% increase in production due to net wells added during the quarter and a 9% increase in realized prices per Boe.
As a result of oil price derivative activities, Northern incurred a net cash settlement loss of $0.5 million in the second quarter of 2013, compared to a loss of $1.1 million in the second quarter of 2012. As a result of forward oil price changes, non-cash mark-to-market derivative gains were $17.0 million in the second quarter of 2013 compared to non-cash gains of $49.8 million in the second quarter of 2012.
Production expenses were $10.4 million in the second quarter of 2013 compared to $7.3 million in the second quarter of 2012. On a per unit basis, production expenses increased to $10.49 per Boe in the second quarter of 2013 from $7.70 per Boe in the second quarter of 2012. This 36% increase was driven by higher water hauling and disposal costs and workover expenses. Over the past twelve months, we have had significant net well additions in areas that have high levels of water production and a less developed water hauling and disposal infrastructure. In addition, during the second quarter of 2013 we experienced an unusually high level of workover activities on wells shut in as a result of completion activity on nearby pads.
Average production tax rates on oil and gas sales were 9.5% in the second quarter of 2013 and 9.5% in the second quarter of 2012. Production tax expense was $7.6 million in the second quarter of 2013, compared to $6.7 million in the second quarter of 2012.
General and administrative expense was $3.9 million for the second quarter of 2013 compared to $4.4 million in the second quarter of 2012. On a per unit basis, second quarter 2013 general and administrative expenses were $3.95 per Boe, a 15% reduction when compared with the $4.66 per Boe for the second quarter of 2012.
Depletion, depreciation, amortization and accretion ("DD&A") was $26.6 million, or $26.79 per Boe, in the second quarter of 2013, compared to $25.6 million, or $27.07 per Boe, in the second quarter of 2012. Depletion expense, the largest component of DD&A, was $26.66 per Boe in the second quarter of 2013, compared to $26.93 per Boe in the second quarter of 2012.
Interest expense was $7.8 million for the second quarter of 2013 compared to $2.7 million in the second quarter of 2012. The increase in interest expense is due to the issuance of $300 million in senior notes during the second quarter of 2012 and an additional $200 million issuance of senior notes during the second quarter of 2013.
Net income was $25.0 million in the second quarter of 2013, compared to $43.6 million in the second quarter of 2012. Diluted net income per common share was $0.39 for the second quarter of 2013 and $0.70 for the second quarter of 2012.
Adjusted Net Income for the second quarter of 2013 was $14.6 million, or $0.23 per diluted share, as compared to $13.6 million, or $0.22 per diluted share, for the second quarter of 2012. Northern defines Adjusted Net Income as net income (loss) excluding unrealized gain (loss) on derivative instruments, net of tax.
Adjusted EBITDA for the second quarter of 2013 was $58.2 million, which represents a 10% increase over Adjusted EBITDA of $53.1 million for the second quarter of 2012.
