Northern Oil and Gas, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide a clear set of standalone fourth-quarter revenue, profit, or cash-flow figures.
Business context and reporting period
NOG is an independent U.S. oil and gas company focused on non-operated minority interests, primarily in the Williston, Permian, and Appalachian basins. It reported one operating segment. Its growth strategy combines well-by-well participation with acquisitions; more than $1.0 billion of bolt-on acquisitions closed in 2023.
Full-year average production was 98,822 Boe per day, up 31% from 2022. Fourth-quarter average production was 114,363 Boe per day, up 45% from 78,854 Boe per day in fourth-quarter 2022. Approximately 60% of fourth-quarter production was oil.
Financial and operating metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue, including derivative gains | $2.166 billion | $1.571 billion |
| Oil and gas sales, before derivative gains/losses | $1.898 billion | $1.986 billion |
| Income from operations | $1.122 billion | $853.2 million |
| Net income | $923.0 million | $773.2 million |
| Operating cash flow | $1.183 billion | $928.4 million |
| Cash used in investing activities | $1.862 billion | $1.403 billion |
| Production expenses per Boe | $9.62 | $9.46 |
Reported total revenue includes a $259.3 million net gain on commodity derivatives in 2023, versus a $415.3 million loss in 2022. The derivative gain comprised $57.9 million of settled gains and $201.3 million of non-cash mark-to-market gains. Oil and gas sales excluding settled derivatives fell 4%, as 31% production growth was more than offset by lower realized prices. Realized price per Boe including settled derivatives was $54.22, compared with $55.53 in 2022.
Net interest expense rose to $135.7 million from $80.3 million, reflecting higher debt and borrowing rates. DD&A increased to $486.0 million from $251.3 million, principally because of production growth and a higher depletion rate. The company recorded $77.8 million of income tax expense, compared with $3.1 million; the 2023 provision reflected release of most of its valuation allowance and recognition of deferred tax liabilities.
Cash used in investing activities exceeded operating cash flow, mainly reflecting acquisitions and development. Cash capital spending on drilling, development, acquisitions, and other items was $1.861 billion. Year-end cash was $8.2 million.
Debt and liquidity: Year-end debt principal was approximately $1.866 billion: $161.0 million under the revolving facility, $705.1 million of 8.125% notes due 2028, $500 million of 3.625% convertible notes due 2029, and $500 million of 8.750% notes due 2031. The company reported $1.097 billion of total liquidity, including $1.089 billion of available revolving capacity. Working capital was a $123.6 million surplus, versus a $24.5 million deficit in 2022. NOG reported compliance with its revolving-credit financial covenants at year-end.
Material changes versus 2022
- Production increased 31% for the year; oil volumes rose from 16.1 million to 22.0 million barrels, and total production reached 36.1 million Boe.
- Oil and gas sales declined despite higher volumes, as lower commodity prices weighed on realized prices. Average NYMEX oil and gas prices fell 18% and 59%, respectively.
- Derivative results swung from a $415.3 million loss to a $259.3 million gain, materially affecting reported revenue and earnings.
- Proved reserves increased 3% to 339.7 MMBoe. However, year-end standardized measure of discounted future net cash flows fell to $4.156 billion from $6.437 billion, with lower prices and negative reserve revisions among the drivers.
- Debt principal increased, while the company issued $500 million of 2031 notes and raised approximately $515 million net through two common-stock offerings. Shares outstanding rose from 85.2 million to 100.8 million at year-end.
- Quarterly common dividends rose from $0.30 per share in fourth-quarter 2022 to $0.40 in fourth-quarter 2023.
Outlook, risks, and unusual items
- 2024 spending: Management budgeted approximately $825–$900 million of capital expenditures, including development and routine “ground game” acquisitions, but excluding larger acquisitions. Management expects to fund this with operating cash flow and, if needed, revolving borrowings; spending may change with prices, costs, returns, and activity.
- Production and development: The company planned about 90.9 net PUD wells for 2024, within a five-year plan to drill approximately 146 net PUD wells at an estimated cost of $1.2 billion. Execution depends substantially on third-party operators.
- Dividends: Management said it currently anticipates maintaining a $0.40 quarterly dividend through 2024. Future payments remain subject to board discretion, financial conditions, and debt restrictions.
- Commodity hedging: NOG targets hedging at least 60% of anticipated production over the next 18 months. Hedges reduce some downside exposure but can limit gains, create earnings volatility, and expose the company to counterparty and production-volume risks.
- Reserves and impairment: About 31% of proved reserves were undeveloped. The company recorded no full-cost ceiling impairment in 2023 or 2022; lower prices, reserve revisions, or higher development costs could cause future non-cash write-downs. Reserve estimates are sensitive to assumptions and operator development plans.
- Other exposures: Risks include oil and gas price volatility, inflation and interest costs, infrastructure and transport constraints, potential Dakota Access Pipeline disruption, evolving methane and climate regulation, and dependence on third-party operators. Appalachian gas delivery commitments total 21.6 Bcf for 2024–2025; shortfalls may trigger deficiency payments. A North Dakota mineral-title dispute could require reversal of approximately $2.4 million of accrued revenue if decided adversely.
- Subsequent event: In January 2024, NOG completed a Delaware Basin acquisition for $147.0 million in cash plus 107,657 shares, subject to customary closing adjustments.
- Controls and audit: Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified proved-reserve estimates and the five-year development plan as a critical audit matter. The company reported no material cybersecurity incidents in the prior two fiscal years.
Important facts for investors to verify
- Separate recurring operating performance from derivative mark-to-market gains and losses; reconcile the $259.3 million 2023 derivative gain to cash settlements and future hedge positions.
- Assess acquisition returns and funding needs against the $1.861 billion of 2023 cash investment, higher debt, and share-count dilution.
- Review the 2024 capital budget, operator drilling plans, and the pace and cost of converting PUD reserves into producing reserves.
- Monitor commodity-price assumptions, realized differentials, reserve revisions, and the decline in standardized reserve value.
- Confirm available borrowing capacity and covenant headroom after the January 2024 acquisition, and review maturities, interest costs, and dividend restrictions.
- Track the Dakota Access Pipeline proceedings, the Missouri River title dispute, and potential costs or operational effects of environmental and methane rules.