Northern Oil and Gas, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results; comparison is with Q1 2021 unless otherwise stated. Northern is a U.S. non-operated oil and gas company with interests in the Williston, Permian and Appalachian basins.
Key financial and operating metrics
Amounts are in millions of dollars unless noted.
| Metric | Q1 2022 | Q1 2021 / prior period |
|---|---|---|
| Oil and gas sales, before derivative gains or losses | $456.5 | $157.3 |
| Commodity derivative loss, net | $(489.4) | $(135.9) |
| Total revenues, including derivatives | $(32.9) | $21.4 |
| Operating expenses | $156.2 | $85.8 |
| Loss from operations | $(189.1) | $(64.4) |
| Net loss | $(206.6) | $(90.4) |
| Net loss attributable to common stockholders | $(224.5) | $(94.2) |
| Basic and diluted loss per share | $(2.92) | $(1.73) |
| Cash provided by operating activities | $154.0 | $62.8 |
| Cash used in investing activities | $(417.6) | $(52.7) |
| Cash provided by / (used in) financing activities | $257.4 | $(8.8) |
| Cash and cash equivalents at period-end | $3.3 | $9.5 at Dec. 31, 2021 |
| Long-term debt, net | $1,119.5 | $803.4 at Dec. 31, 2021 |
- Average production was approximately 71,255 Boe per day, up 85% year over year and 11% from Q4 2021; about 60% was oil. Production increases reflected acquisitions and new wells.
- Realized sales price including settled derivatives was $54.78 per Boe, up 26% year over year. Production expense was $8.50 per Boe, down from $9.92; DD&A was $8.29 per Boe, down from $9.03. The filing does not provide a margin measure that isolates operating performance from derivative mark-to-market effects.
- Operating cash flow rose with higher production and realized prices, partly offset by working-capital movements. Working-capital and other items used $81.0 million of cash.
- Cash capital spending was $417.5 million, including $361.5 million for oil and gas property acquisitions and $54.6 million for drilling and development. Capitalized property costs incurred were $488.8 million.
- Debt comprised $371.0 million drawn on the revolving facility and $750.0 million principal of 8.125% senior notes due 2028. The facility had $379.0 million of committed availability; with cash, reported total liquidity was $382.3 million.
- Working-capital deficit was $302.1 million, versus $112.2 million at year-end 2021. Current assets were $323.5 million and current liabilities $625.5 million. Stockholders’ equity was a deficit of $35.3 million.
Material changes and unusual items
- Oil and gas sales before derivatives increased 190% year over year, reflecting 85% higher production and a 56% increase in realized prices excluding settled derivatives. NYMEX average oil and gas prices were $95.17 per barrel and $4.63 per Mcf, respectively.
- Derivative losses were $489.4 million, including $105.2 million of cash losses on settled contracts and $384.2 million of non-cash mark-to-market losses. The mark-to-market loss reflects commodity price movements and is not equivalent to current-period cash outflow. At quarter-end, derivatives were a net liability of $660.6 million, compared with $277.7 million at Dec. 31, 2021.
- The January 2022 Veritas Permian acquisition closed for estimated consideration of $408.8 million: $390.9 million cash and warrants valued at $17.9 million. Its post-closing results contributed approximately $45.4 million of revenue and $31.7 million of operating income. Acquisition-related costs included $6.8 million in G&A.
- Debt increased primarily due to $316.0 million of net revolving-credit advances, used alongside operating cash to fund investment and other needs. The company also repurchased $50.2 million of preferred stock, recording a $15.0 million premium that increased the loss attributable to common stockholders.
- The company declared a $0.14-per-share common dividend, paid April 29, 2022. It had 1.86 million Series A preferred shares outstanding at quarter-end, with $4.6 million of undeclared accumulated dividends.
Outlook, risks and contingencies
- Management said operating cash flow and revolving-credit availability were expected to fund budgeted capital expenditures and operating expenses for at least the next 12 months. This is a liquidity outlook, not a quantified production or earnings forecast; no specific production or capital-spending guidance is provided in the supplied filing text.
- Management expected higher oilfield materials, services and personnel costs in 2022 than in 2021. Capital spending is discretionary and could be reduced if cash flows fall below expectations, potentially lowering future production.
- The company hedged approximately 59% of Q1 production. Management noted that hedging can limit benefits from rising prices while reducing exposure to falling prices. Open contracts and counterparties create price, settlement and credit risks.
- Key exposures include volatile oil and gas prices, price differentials and transportation capacity, cost inflation and supply-chain disruption, weather and infrastructure constraints, regulatory matters and potential Dakota Access Pipeline disruption. Northern is a non-operator and depends on third-party operators for development and production decisions; its top four operators accounted for 43% of Q1 sales.
- The revolving-credit covenants require total net debt to EBITDAX of no more than 3.50:1 and a specified current ratio of at least 1.00:1; the company reported compliance at March 31, 2022. A 1% increase in short-term rates was estimated to add approximately $2.7 million of annual interest expense.
- Management said ordinary-course litigation was not expected to materially affect financial position, results or cash flows, while noting outcomes are uncertain. The company maintained a full valuation allowance on net deferred tax assets and recorded $0.8 million of state income tax expense. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Separate the $456.5 million of oil and gas sales from derivative losses when assessing realized economics, and review cash settlements versus non-cash mark-to-market changes and the $660.6 million net derivative liability.
- Track liquidity and working capital, including the $302.1 million deficit, receivable collection timing, capital commitments and revolver availability after future borrowing-base redeterminations.
- Assess the Veritas acquisition’s contribution, integration and returns against its cash cost, warrant dilution and associated transaction expenses.
- Review debt service, floating-rate exposure, covenant headroom, and the cost and sustainability of common and preferred dividends and preferred-stock repurchases.
- Monitor operator activity, production growth and decline, geographic concentration, cost inflation, and the volume and terms of future hedges.