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Northern Oil First Quarter 2021 Results

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Northern Oil and Gas, Inc. reported its Q1 2021 results.

Nick O'Grady, Northern's Chief Executive Officer, said: "The first quarter performance was above our internal expectations across all metrics as our core Williston & Permian properties continued to deliver. The Company generated $41.7 million of Free Cash Flow, approximately 6% of our total quarter end market capitalization - in a single quarter. I am also very excited that we were able to continue to improve our liquidity and balance sheet with the completion of our financings in February. These transactions along with the continued growth of our business should provide us with sufficient cash flow to continue our strategy of making additional accretive acquisitions, reducing debt and providing returns to our stockholders. Our first ever quarterly dividend is the culmination of a tireless multi-year effort to put the Company in a position to return cash to its stockholders. As we achieve our targets, we believe we can provide meaningful cash returns to investors over the coming years."

Q1 Financials

Oil and natural gas sales for the first quarter were $157.3 million. First quarter GAAP net loss, inclusive of a $128.6 million non-cash net mark-to-market loss on derivatives, was $90.4 million or $1.66 per diluted share. First quarter Adjusted Net Income was $40.2 million or $0.62 per diluted share, up from $21.7 million or $0.44 per diluted share in the prior year. Adjusted EBITDA in the first quarter was $98.8 million. See "Non-GAAP Financial Measures" below.

Production

First quarter production was 38,417 Boe per day, a 7.5% increase from the fourth quarter of 2020. Oil represented 76% of total production in the first quarter. Northern estimates that curtailments and shut-ins still reduced the Company's average daily production by an average of approximately 2,000 Boe per day in the first quarter, but that was a significant improvement from the fourth quarter of 2020. Northern had 6.7 net wells turned online during the first quarter, compared to 6.9 net wells turned online in the fourth quarter of 2020.

Pricing

During the first quarter, NYMEX West Texas Intermediate ("WTI") crude oil averaged $58.13 per Bbl, and NYMEX natural gas at Henry Hub averaged $3.37 per million cubic feet ("Mcf"). Northern's unhedged net realized oil price in the first quarter was $51.57, representing a $6.56 differential to WTI prices. Northern's unhedged net realized gas price in the first quarter was $4.37 per Mcf, representing approximately 130% realizations compared with Henry Hub pricing.

Operating Costs

Lease operating costs were $34.3 million in the first quarter of 2021, or $9.92 per Boe, up 15.6% on a per unit basis compared to the fourth quarter of 2020. This is consistent with Northern's prior commentary of extensive workover expense related to bringing curtailed and shut-in production back to sales, and is expected to be transitory in nature. First quarter general and administrative ("G&A") costs totaled $6.8 million or $1.96 per Boe. This includes $2.5 million of legal and other transaction expenses in connection with the Reliance acquisition and $0.8 million of non-cash stock-based compensation. Northern's G&A costs excluding these amounts totaled $3.5 million or $1.01 per Boe in the first quarter. Northern expects approximately $2.5 - $3.5 million in additional non-recurring advisory and other transaction costs related to the Reliance acquisition to be incurred in the second quarter of 2021.

Capital Expenditures

Capital spending for the first quarter was $38.1 million, made up of $33.1 million of organic drilling and completion ("D&C") capital and $5.0 million of total acquisition spending and other items, inclusive of ground game D&C spending. Northern added 6.7 net wells to production in the first quarter, and wells in process decreased to 22.7 net wells, down 5.4 net wells from the prior quarter as well completions accelerated. On the ground game acquisition front, Northern closed on 6 transactions during the first quarter totaling 1.3 net wells and 186 net mineral acres.

Marcellus Acquisition

On February 3, 2021, Northern announced a definitive agreement to acquire assets from Reliance Marcellus, LLC, a subsidiary of Reliance Industries, Ltd., for $175.0 million in cash plus 3.25 million common stock warrants. The acquisition has an effective date of July 1, 2020 and closed on April 1, 2021. EQT Corporation, the operator of substantially all the assets, elected to exercise its preferential purchase right on a portion of the assets, which (together with the exercise of other preferential purchase rights) reduced the cash purchase price, net to Northern, by approximately $48.6 million, or 28%. Northern retained approximately 99% of the inventory on the assets. Northern has provided guidance for the acquired assets in the guidance section below, identical to what was provided in its fourth quarter 2020 earnings release.

Liquidity

Northern had total liquidity of $417.2 million as of March 31, 2021, consisting of cash of $2.7 million, the Reliance acquisition deposit of $17.5 million, and $397.0 million of borrowing availability under the revolving credit facility.

On January 4, 2021, Northern retired $65 million, or 50% of its VEN Bakken Note. In February 2021, Northern additionally strengthened its balance sheet through common equity and debt transactions alongside of its announcement of the Reliance Marcellus acquisition. Northern issued 14.3 million shares of common equity for gross proceeds of $140.3 million. Northern also issued $550 million of 8.125% Senior Unsecured Notes due 2028. With the net proceeds from these transactions, Northern retired the remaining $65 million of its VEN Bakken Note and retired $272.1 million, or 95% of its remaining Senior Secured Notes due 2023 on February 18, 2021. Northern will call the remaining $15.7 million of 2023 Notes on or about May 15, 2021. Northern used the remainder of the proceeds to retire debt under its revolving credit facility and for cash on hand.

On April 1, 2021, upon closing of the Reliance acquisition, Northern funded the adjusted cash purchase price of $120.9 million with cash on hand, the $17.5 million deposit made during the first quarter, and borrowings under its credit facility. The cash purchase price included typical closing adjustments, including a reduction for the net cash flows already received by Reliance from the properties since the effective date, which was July 1, 2020. Northern expects additional cash purchase price reductions to be received over the next several months for net cash flows generated after the effective date, but not received by Reliance prior to the closing date.

Dividends

On April 23, 2021, Northern's Board of Directors declared all current and accrued cash dividends for Northern's Series A Preferred Stock, to be paid on May 15, 2021 in the total amount of $22.0 million.

On May 6, 2021, Northern's Board of Directors declared its first ever regular quarterly cash dividend for Northern's common stock of $0.03 per share for stockholders of record as of June 30, 2021, payable July 30, 2021.