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Northern Oil and Gas Fourth Quarter, Full Year 2021 Results

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   |    Tuesday,March 01,2022

Northern Oil and Gas Inc. announced the company's fourth quarter and full year 2021 results.

Highlights:

• Fourth quarter production of 64,155 Boe per day (59.2% oil), an increase of 11% from the third quarter of 2021

• Fourth quarter GAAP cash flow from operations of $133.1 million. Excluding changes in net working capital, cash flow from operations was $158.0 million, an increase of 29% from the third quarter of 2021

• Total capital expenditures of $83.7 million during the fourth quarter, excluding previously-announced non-budgeted acquisitions

• Free Cash Flow (non-GAAP) of $70.7 million during the fourth quarter, post-preferred stock dividends, increased 28% from the third quarter of 2021. See "Non-GAAP Financial Measures" below

• Closed Veritas acquisition in the Permian Basin, largest acquisition in NOG's history, on January 27, 2022

• Announced a Base Dividend Growth plan in December 2021, highlighted by planned 20% average dividend growth per quarter through 2023

• Retired $7.2 million in face value of Convertible Preferred Stock

Nick O'Grady, NOG's Chief Executive Officer, said: "2021 was a truly transformational year for NOG. We enter 2022 with a stronger asset base and balance sheet, and with a formalized plan of increasing shareholder returns. We are an increasingly diversified, balanced business, with opportunities to self-fund accretive growth while steadily increasing returns to our shareholders."

Financial Results

Oil and natural gas sales for the fourth quarter were $332.4 million, an increase of 28% over the third quarter. Fourth quarter GAAP net income was $171.1 million or $2.13 per diluted share. Fourth quarter Adjusted Net Income was $87.0 million or $1.06 per diluted share, an increase of $35.7 million or $0.64 per diluted share over the prior year. Adjusted EBITDA in the fourth quarter was $175.3 million, an increase of 29% over the third quarter.

Oil and natural gas sales for full year 2021 were $975.1 million, an increase of 201% over full year 2020. Full year 2021 Adjusted Net Income was $256.3 million or $3.49 per diluted share. Full year 2021 GAAP net loss was $8.4 million or $0.13 per diluted share. Full year 2021 Adjusted EBITDA was $543.0 million, an increase of 54% over the prior year. (See "Non-GAAP Financial Measures" below.)

Production

Fourth quarter production was 64,155 Boe per day, an 11% increase from the third quarter. Oil represented 59.2% of production in the fourth quarter. NOG had 12.1 net wells turned online during the fourth quarter, compared to 6.5 net wells turned online in the third quarter of 2021. NOG saw production outperform internal expectations in the fourth quarter, most notably in its Appalachian properties. Full year 2021 production was 53,792 Boe per day, above the high end of NOG's 2021 guidance.

Pricing

During the fourth quarter, NYMEX West Texas Intermediate ("WTI") crude oil averaged $77.31 per Bbl, and NYMEX natural gas at Henry Hub averaged $4.74 per Mcf. NOG's unhedged net realized oil price in the fourth quarter was $71.67 per Bbl, representing a $5.64 differential to WTI prices. NOG's fourth quarter unhedged net realized gas price was $5.68 per Mcf, representing approximately 120% realizations compared with Henry Hub pricing.

For full year 2021, NOG's realized oil differential was $5.15 per Bbl. NOG's full year unhedged net realized gas price was $4.57 per Mcf, representing approximately 119% realizations compared with Henry Hub pricing.

Operating Costs

Lease operating costs were $50.6 million in the fourth quarter of 2021, or $8.57 per Boe, an increase of 5% on a per unit basis compared to the third quarter. The increase in unit costs was primarily driven by the acquisition of higher unit cost production in the Williston Basin. Continued high NGL prices, which results in higher processing charges, also increased unit costs, but was more than offset by higher natural gas revenues.

Fourth quarter general and administrative ("G&A") costs totaled $10.5 million, which includes non-cash stock-based compensation. Cash G&A costs totaled $9.1 million or $1.54 per Boe in the fourth quarter, which included certain transaction costs associated with our Permian and Williston acquisitions. Excluding approximately $2.0 million of such transaction costs, remaining cash G&A was $7.1 million, or $1.20 per Boe.

Capital Expenditures & Acquisitions

Capital spending for the fourth quarter, excluding non-budgeted acquisitions, was $83.7 million. This was comprised of $49.1 million of organic drilling and completion ("D&C") capital and $34.6 million of total acquisition spending and other items, inclusive of ground game D&C spending. NOG had 12.1 net wells turned online in the fourth quarter. Wells in process totaled 42.5 net wells as of December 31, 2021. On the ground game acquisition front, NOG closed on 9 transactions during the fourth quarter totaling 9.6 net wells, and 317 net mineral acres. Total 2021 capital expenditures, excluding non-budgeted acquisitions, were $253.4 million, slightly above NOG's guidance for 2021 driven by significant ground game opportunities executed and an acceleration of completion activity in the fourth quarter.

Reserves

Total proved reserves at December 31, 2021, increased 135% from year-end 2020 to 287.7 million barrels of oil equivalent (59% proved developed) with an associated pre-tax PV-10 value of $3.3 billion (72% proved developed) at SEC Pricing. Total reserve replacement ratio was 270%, excluding acquired reserves. NOG's PV-10 and proved reserve values at year-end 2021 do not include the recently closed Veritas transaction. The Veritas assets had an audited year-end 2021 proved reserve PV-10 value of $428 million at SEC Pricing. NOG's year-end 2021 proforma PV-10 inclusive of Veritas was $3.8 billion. The reserves are calculated under SEC guidelines relating to both commodity price assumptions and a maximum five year drill schedule. The SEC Pricing used as of December 31, 2021, after adjustment to reflect applicable transportation and quality differentials, was $62.25 per barrel of oil and $3.37 per Mcf of natural gas, significantly below current price levels. See "Non-GAAP Financial Measures" below regarding PV-10 value.

Liquidity & Capital Resources

As of December 31, 2021, NOG had $9.5 million in cash and $55.0 million of borrowings outstanding on its revolving credit facility. NOG had total liquidity of $704.5 million as of December 31, 2021, consisting of cash and committed borrowing availability under the revolving credit facility. Additionally, NOG had $40.7 million in an escrow account as of December 31, 2021, as a deposit on the Veritas acquisition that was signed in November 2021 and closed in January 2022.

In November 2021, NOG executed both common equity and senior debt offerings. NOG issued 11.0 million shares of common equity for gross proceeds of $220.0 million. NOG also raised $213.5 million of gross proceeds, plus accrued interest, by issuing $200 million of principal amount of 8.125% Senior Unsecured Notes due 2028 at 106.75% of par value. With the net proceeds from these transactions, NOG retired debt under its existing revolving credit facility and, ultimately, closed on the Comstock and Veritas acquisitions described below.

On November 16, 2021, NOG paid the adjusted cash purchase price of $154.0 million to close its Comstock acquisition, funded by the $7.7 million deposit previously paid, cash on hand and borrowings on its revolving credit facility. The cash consideration included typical closing adjustments, and remains subject to final post-closing settlement between NOG and the seller.

On January 27, 2022, NOG paid the adjusted cash purchase price of $419.4 million to close its Veritas acquisition, funded by the $40.7 million deposit previously paid, cash on hand and borrowings on its revolving credit facility. The cash consideration included typical closing adjustments, and remains subject to final post-closing settlement between NOG and the seller. NOG also issued approximately 1.9 million common stock warrants to Veritas as additional purchase consideration.

Stockholder Returns

On November 11, 2021, NOG's Board of Directors declared a regular quarterly cash dividend for NOG's common stock of $0.08 per share for stockholders of record as of December 30, 2021, which was paid on January 31, 2022. This represented a 78% increase from the prior quarter.

On February 1, 2022, NOG's Board of Directors declared a regular quarterly cash dividend for NOG's common stock of $0.14 per share for stockholders of record as of March 30, 2022, which will be paid on April 29, 2022. This represented a 75% increase from the fourth quarter.

In February 2022, NOG repurchased $7.2 million of liquidation preference value of its 6.500% Series A Perpetual Cumulative Convertible Preferred Stock from three separate holders. These repurchases are expected to reduce NOG's annual preferred dividend payments by approximately $467,000 and additionally reduce NOG's diluted common stock share count by approximately 316,000 shares.