Quarterly / Earnings Reports | Third Quarter (3Q) Update

Northern Oil & Gas Talks Q3 2019 Results

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Northern Oil and Gas, Inc. announced the company's third quarter results.

Third quarter 2019 production totaled 3.8 million Boe and averaged 40,786 Boe per day, a 53% increase from the prior year and a 17% increase sequentially. Oil and gas sales in the third quarter totaled $158.0 million. Net income in the third quarter was $94.4 million or $0.24 per diluted share. Adjusted Net Income in the third quarter was $36.3 million or $0.09 per diluted share. Adjusted EBITDA totaled $124.4 million in the third quarter, a 27% increase from the prior year. (See "Non-GAAP Financial Measures" below.)

Brandon Elliott, Chief Executive Officer, said: "Strong net well additions from our organic well opportunities and the success we have had in our ground game acquisitions generated strong production growth during the quarter. While well performance and net well additions have remained robust, they did not completely offset 4,500 Boe per day of shut-ins and curtailments during the quarter. The good news is we expect the well performance and net well additions to remain strong while we expect the infrastructure issues to begin to subside as we close out 2019. Future cash flows will support plans to reduce debt ratios and return capital to shareholders in 2020."

Production and Operating Costs

Total third quarter production was 3.8 million Boe, driven by the closing of the VEN Bakken acquisition and an additional 13.3 net wells added to production during the quarter. Strong well results were offset by continued infrastructure-driven constraints. Midstream system expansions, while beginning to come online, did not offset the negative effects on production and natural gas and NGL prices during the quarter. Oil price differentials averaged $5.48 per barrel, a 4% increase from the second quarter of 2019. Ongoing production curtailments resulted in a 5% sequential increase in lease operating expenses ("LOE") to $8.62 per Boe in the third quarter. General and administrative expenses were $1.12 per Boe in the third quarter.

2019 Capital Allocation and Ground Game Activity

Northern continues to focus capital to the highest returns on capital employed in an effort to grow cash flow as it prepares to begin returning capital to shareholders in 2020. During the third quarter, Northern spent $80.1 million on organic development capital and an additional $32.9 million related to its ground game acquisition strategy ("Ground Game"), which is Northern's regular acquisition activity excluding larger, separately announced deals such as the recent VEN Bakken acquisition. Of the total Ground Game spend, $9.9 million was acquisition capital and an additional $23.0 million was associated development capital.

The third quarter was extremely active for Northern's Ground Game. With many operators and non-operating participants seeking to reduce their short term capital obligations, the landscape for high return opportunities, particularly for near term drilling, has been robust. In the third quarter, Northern acquired approximately 3,100 net acres and 4.4 net wells in process. Of those net wells in process, approximately 2.0 net wells came online in the third quarter, 1.1 of which came online ahead of schedule late in the quarter. Northern's Ground Game success in 2019 will allow it to moderate its acquisition activity in 2020, as the Company looks to harvest cash flows from its 2019 acquisitions. Northern will, however, continue to monitor and evaluate potential acquisitions for distressed and high-return opportunities.

2019 Production Guidance Updated

Northern expects to add 33 - 34 net organic wells to production in 2019. Due to Ground Game success over the last 12 months and an acceleration in development activity, Northern expects to add an additional 5 - 7 net wells to production from the Ground Game, for a total of 38 - 41 total net wells added to production during 2019.

Additional information regarding Northern's current expectations are included in the tables below.

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Q3 Result Summary

The following tables set forth selected operating and financial data for the periods indicated.

Hedges

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 tables summarize Northern's open crude oil derivative and basis swap contracts scheduled to settle after September 30, 2019.

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Liquidity

As of September 30, 2019, Northern had $1.9 million in cash and $327.0 million outstanding on its revolving credit facility. Northern had total liquidity of $99.9 million as of September 30, 2019, consisting of cash and borrowing availability under the revolving credit facility.

Capital Expenditures & Drilling

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 nine months ended September 30, 2019 are reflected in the amounts incurred year-to-date for drilling and development capital expenditures.

Acreage

As of September 30, 2019, Northern controlled leasehold of approximately 183,518 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.