Drilling & Completions | Quarterly / Earnings Reports | Second Quarter (2Q) Update | Deals - Acquisition, Mergers, Divestitures | Financial Results | Capital Markets | Capital Expenditure | Capex Increase

Northern Oil Second Quarter 2022 Results

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   |    Monday,August 08,2022

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

2Q Highlights:

• Record quarterly production of 72,689 Boe per day (57% oil), an increase of 33% from the second quarter of 2021

• Second quarter GAAP cash flow from operations of $210.2 million. Excluding changes in net working capital, cash flow from operations was $252.2 million, an increase of 7% sequentially from the first quarter of 2022

• Total capital expenditures of $131.8 million during the second quarter, driven by accelerated activity and strong Ground Game execution

• Free Cash Flow of $114.3 million during the second quarter, an increase of 147% from the second quarter of 2021. See "Non-GAAP Financial Measures" below

• Announced $170 million core Williston Basin acquisition in June 2022, which is scheduled to close in mid-August 2022

• Reiterates 2022 production and capital expenditure guidance and adjusts operating cost and pricing differential guidance

Shareholder Return Highlights:

• Repurchased and retired $21.2 million of Preferred Stock during the second quarter and $57.5 million year-to-date (approximately 2.6 million, or 3%, of total diluted common shares outstanding on an as-converted basis)

• Declared $0.25 per share common dividend for third quarter of 2022, an increase of 32% from the second quarter

• Repurchased $12.8 million common shares in the second quarter, and an additional $7.2 million in July, for $20.0 million or 756,177 shares in total year-to-date (approximately 0.9% of total diluted shares outstanding)

• Retired $13.4 million of Senior Unsecured Notes at a discount to par value, and reduced total debt by $17.4 million, during the second quarter

CEO Nick O'Grady commented: "NOG delivered another strong quarter, as our diversified strategy is showing its strength. We reported record Adjusted EBITDA, growing production, accelerating shareholder returns, and declining leverage ratios, all of which make NOG an increasingly attractive investment opportunity."

2Q Financial Results

Oil and natural gas sales for the second quarter were $549.6 million, an increase of 20% over the first quarter of 2022. Second quarter GAAP net income was $251.3 million or $2.90 per diluted share. Second quarter Adjusted Net Income was $149.4 million or $1.72 per diluted share, an increase of 9% from the first quarter of 2022. Adjusted EBITDA in the second quarter was $272.5 million, an increase of 6% from the first quarter of 2022. See "Non-GAAP Financial Measures" below.

Production

Second quarter production was 72,689 Boe per day, an increase of 2% from the first quarter of 2022 and an increase of 33% from the second quarter of 2021. Oil represented 57% of total production in the second quarter. Oil production was 41,777 Bbl per day, a slight decrease from the first quarter of 2022 but a 25% increase over the second quarter of 2021. NOG had 10.1 net wells turned in-line during the second quarter, compared to 10.6 net wells turned in-line in the first quarter of 2022. Production increased quarter over quarter, despite severe storms in North Dakota in April 2022, which temporarily reduced Williston Basin volumes by nearly half over a multi-week period. NOG's Permian production made up approximately 24% of volumes in the second quarter, reflecting a full quarter impact from the Veritas acquisition. Marcellus production was up 11% from the first quarter, a reflection of strong results from the most recent development pad, and made up 18% of total volumes.

Pricing

During the second quarter, NYMEX West Texas Intermediate ("WTI") crude oil averaged $108.59 per Bbl, and NYMEX natural gas at Henry Hub averaged $7.50 per million cubic feet ("Mcf"). NOG's unhedged net realized oil price in the second quarter was $106.26, representing a $2.33 differential to WTI prices. NOG's unhedged net realized gas price in the second quarter was $8.63 per Mcf, representing approximately 115% realizations compared with Henry Hub pricing.

Operating Costs

Lease operating costs were $64.6 million in the second quarter of 2022, or $9.77 per Boe, an increase on a per unit basis compared to the first quarter of 2022. The increase in unit costs was driven primarily by the payment of annual firm transportation costs for NOG's Marcellus properties. These costs will not reoccur in the second half of 2022. Second quarter general and administrative ("G&A") costs totaled $8.1 million or $1.22 per Boe. This includes $0.5 million of legal and transaction expenses primarily in connection with acquisitions and $1.4 million of non-cash stock-based compensation. NOG's cash G&A costs excluding these amounts totaled $6.1 million or $0.93 per Boe in the second quarter, up slightly from the prior quarter.

Capital Expenditures and Acquisitions

Capital spending for the second quarter was $131.8 million. Spending was comprised of $119.1 million of total drilling and completion ("D&C") capital on organic and ground game assets, and $12.7 million of ground game acquisition spending and other items. The primary drivers of increased spending from the first quarter were increased development activity (wells-in-process increased by 8.0 net wells) and significant Ground Game success in June 2022. NOG has experienced moderate well cost inflation in 2022, but well within prior expectations. The weighted average AFE elected to in the second quarter was up only modestly to $7.2 million and has been well within NOG's stated guidance for the year.

NOG's Williston Basin spending was 38% of the total capital expenditures for the quarter, the Permian was 56%, the Marcellus was 5% and other items were 1%. On the Ground Game acquisition front, NOG closed on four transactions during the second quarter totaling 4.2 net well locations, a significant increase from the first quarter and a significant driver of increased spending.

On June 7, 2022, NOG announced a definitive agreement to acquire core Williston Basin properties for $170 million in cash, plus $5 million of contingent payments in the event certain oil prices are achieved at year-end 2022. These properties are expected to produce more than 2,500 Boe per day (83% oil) over the next twelve months and include 3,500 acres and 17.5 net undeveloped locations. NOG expects the acquisition to close in mid-August 2022.

Liquidity and Capital

NOG had total liquidity of $484.5 million as of June 30, 2022, consisting of cash of $1.5 million, and $483.0 million of committed borrowing availability under the revolving credit facility. Additionally, NOG had a restricted cash deposit of $17.0 million which will be used to partially fund the pending Williston acquisition.

As of June 30, 2022, NOG's total debt was $1,103.6 million, a decrease of $17.4 million since March 31, 2022. The change in debt was driven by repayments on NOG's revolving credit facility and open market repurchases of NOG's Senior Unsecured Notes, funded by internal free cash flow, slightly offset by placing the $17.0 million deposit for the pending Williston acquisition.

As of June 30, 2022, there were $736.6 million of 8.125% Senior Unsecured Notes due 2028 outstanding, a decrease from $750.0 million at December 31, 2021. There is $164.4 million of liquidation preference value of 6.5% Series A Perpetual Convertible Preferred Stock outstanding, a decrease from $221.9 million at December 31, 2021.

Shareholder Returns

On May 3, 2022, NOG's Board of Directors declared a regular quarterly cash dividend for NOG's common stock of $0.19 per share for stockholders of record as of June 29, 2022. This represented a 36% increase from the prior quarter.

On August 1, 2022, NOG's Board of Directors declared a regular quarterly cash dividend for NOG's common stock of $0.25 per share for stockholders of record as of September 29, 2022, which will be paid on October 31, 2022. This represents a 32% increase from the prior quarter.

In the second quarter of 2022, NOG repurchased approximately $12.8 million shares of common stock, and an additional $7.2 million in early July 2022, for a total of $20.0 million. In total, NOG has repurchased and retired 756,177 shares at an average price of $26.45. The repurchase plan remains active, and $130.0 million remains available on the current common stock repurchase authorization.

In the second quarter of 2022, NOG repurchased and retired $21.2 million of liquidation preference value of its 6.500% Series A Perpetual Cumulative Convertible Preferred Stock, for a total year-to-date of $57.5 million liquidation preference value. These repurchases are expected to reduce NOG's annual preferred dividend payments by $3.7 million and additionally reduced NOG's diluted common stock share count by approximately 2.6 million shares, based on the current conversion ratio. $32.5 million remains available on the current preferred stock repurchase authorization.

In the second quarter of 2022, NOG repurchased and retired approximately $13.4 million of its 8.125% Senior Unsecured Notes due 2028. The average purchase price was 98% of Par Value. The repurchase plan remains active, and $36.6 million remains available on the current repurchase authorization.

2022 Full Year Guidance

(all forecasts are provided on a 2-stream production basis)

NOG increased production and capital expenditure guidance on June 7, 2022, with the announcement of its pending Williston Basin acquisition. NOG is updating production expense guidance to account for higher processing costs associated with higher than expected NGL prices received year-to-date. Additionally, production expense guidance has been adjusted to reflect slightly higher operating costs on the properties from the pending Williston acquisition versus NOG's corporate average. The higher than expected gas realizations year-to-date from higher NGL prices, as well as better realized oil prices in both the Williston and Permian basins, have led to improved annual guidance for oil differentials and gas realizations.