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Northern Oil Defers 2020 Guidance Until Q1 Call; Reports 2019 Results

Share Print Bookmark    |    Friday,March 13,2020

Northern Oil and Gas, Inc. announced the company's fourth quarter and full year 2019 results.

Nick O'Grady, Northern's Chief Executive Officer, said: "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. 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."

Defers 2020 Guidance Plan Until Q1 Call

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.

2019 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.

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 & Capital

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.

Acreage Summary

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.