Quarterly / Earnings Reports | Second Quarter (2Q) Update

Northern Oil Reports Q2 2019 Results, Production

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Northern Oil and Gas, Inc. reported its second quarter results and provided updated 2019 guidance.

Second quarter 2019 production totaled 3.2 million Boe and averaged 34,965 Boe per day, a 66% increase from the prior year. Oil and gas sales in the second quarter increased 37% from the prior year to $149.8 million. Net income in the second quarter was $44.4 million or $0.12 per diluted share. Adjusted Net Income in the second quarter was $45.5 million or $0.12 per diluted share. Adjusted EBITDA totaled $110.8 million in the second quarter, a 57% increase from the prior year or 6% increase sequentially.

Brandon Elliott, Chief Executive Officer, said: "We continue to execute on our 2019 capital allocation plan, focusing on the highest returns available to us including our organic well opportunities and ground game acquisitions. This approach allowed us to remain within our production guidance despite approximately 2,500 Boe per day of curtailments due to continued basin-level infrastructure constraints. Strong well performance, the closing of our VEN Bakken acquisition and continued success in our ground game are expected to expand our free cash flow profile to support additional debt reduction along with a stable and consistent return of capital to shareholders."

Production and Operating Costs

Total second quarter production was 3.2 million Boe, driven by an additional 8.1 net wells added to production during the quarter, offset in part by continued infrastructure-driven curtailments. Midstream system expansions scheduled to come online in the second half of 2019 and early 2020 are expected to alleviate curtailments late in 2019. Oil price differentials of $5.29 per barrel are trending as expected, a 15% improvement from the first quarter of 2019. Ongoing production curtailments resulted in an increase in lease operating expenses ("LOE") to $8.21 per Boe in the second quarter. Cash general and administrative expenses were $1.13 per Boe in the second quarter, up 7% from the first quarter primarily due to transaction and legal costs associated with the VEN Bakken acquisition. Northern anticipates a one-time expense of $1.3 million for advisory fees for this transaction to be expensed in the third quarter of 2019.

2019 Cash Flow Allocation

Northern continues to closely manage its discretionary cash flow allocation in an effort to produce the highest returns on capital employed. Northern spent, in aggregate, $22.0 million in the second quarter on ground game acquisitions and associated development capital. "Ground game" refers to Northern's regular acquisition activity excluding larger, separately announced transactions such as the recent VEN Bakken acquisition. These transactions and wells in process will serve to increase Northern's production and cash flows in 2019 and 2020, and bring forth additional future drilling opportunities. Northern spent $10.5 million on Senior Note repurchases in the second quarter. Northern expects sequential production, cash flow and net income growth throughout the remainder of 2019 and into 2020, due to the strong success of the ground game, the closing of the VEN Bakken acquisition, and relief from infrastructure constraints.

2019 Production Guidance Updated for Ground Game Acquisitions, VEN Bakken and Continued Curtailments

Current Williston Basin activity levels remain stable, and Northern now expects, on an organic basis combined with VEN Bakken, to drill 33 - 34 net wells in 2019. In addition, Northern expects to add an additional 3 - 5 net wells during the year through its ground game acquisition strategy, for a total of 36 - 39 total net wells added to production during 2019. Northern now expects production (inclusive of six months of production from the VEN Bakken acquisition that closed on July 1, 2019) to average between 38,650 - 39,150 Boe per day for the full year of 2019. Northern's previous cost and capital spending plan are being adjusted as well. LOE guidance is being adjusted to account for higher unit costs driven by curtailments and the higher LOE per unit costs associated with the VEN Bakken assets. Production taxes are being raised modestly, due to weaker overall gas and NGL prices in relation to crude oil prices, as a percentage of sales. Cash G&A per Boe guidance is being lowered to reflect higher expected production volumes, but partially offset by an estimated $1.9 million in transaction costs and fees incurred or expected to be incurred in connection with the VEN Bakken acquisition.

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

Q2 Results Summary

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

Hedging

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 June 30, 2019.

Liquidity

As of June 30, 2019, Northern had $2.8 million in cash, $31.0 million in a restricted acquisition deposit, and $173.0 million outstanding on its revolving credit facility. Northern had total liquidity of $254.8 million as of June 30, 2019, consisting of cash and borrowing availability under the revolving credit facility. Northern repurchased $10.1 million in principal amount of its Senior Notes in the second quarter, offset partially by $1.7 million for the final anticipated PIK interest payment. The total amount of Senior Notes outstanding was $688.5 million as of June 30, 2019. Net of cash and the restricted acquisition deposit, Northern's total debt was reduced by $12.2 million from the prior quarter.

Spending & Drilling Activity

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 2.2 well increase in net wells in process during the six months ended June 30, 2019 are reflected in the amounts incurred year-to-date for drilling and development capital expenditures.

Acreage

As of June 30, 2019, Northern controlled leasehold of approximately 163,558 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.