Northern Oil and Gas, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Northern is a U.S. oil and gas company focused on non-operated minority working and mineral interests. It reported 57,647 Boe per day of third-quarter production, approximately 59% oil.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Oil and gas sales | $259.7 million | $73.7 million | $642.7 million | $224.5 million |
| Net commodity derivative gain (loss) | $(128.2) million | $(26.4) million | $(465.0) million | $277.6 million |
| Total revenue | $131.5 million | $47.3 million | $177.7 million | $502.1 million |
| Income (loss) from operations | $27.0 million | $(218.7) million | $(112.3) million | $(712.5) million |
| Net income (loss) | $12.6 million | $(233.0) million | $(168.4) million | $(763.9) million |
| Net income (loss) per common share, diluted | $0.13 | $(5.44) | $(2.97) | $(18.53) |
| Operating cash flow | Not separately stated | Not separately stated | $263.4 million | $258.7 million |
- Third-quarter production increased 98% year over year and 5.5% from Q2 2021. Nine-month production rose 56% year over year to 13.7 million Boe.
- Q3 realized sales price before settled derivatives was $48.96 per Boe; after settled derivative effects it was $38.34 per Boe. Production expense was $8.15 per Boe, down from $9.04; DD&A was $6.77 per Boe, down from $11.52.
- Reported revenue and earnings were heavily affected by mark-to-market derivative losses, which are generally non-cash until settlement. Q3 settled derivative losses were $56.3 million; the nine-month settled loss was $91.5 million. The company said these derivative effects can be offset by higher future wellhead revenues as contracts settle.
Balance sheet, liquidity and capital allocation
- At September 30, cash was $2.0 million and total debt was $858.4 million carrying value ($869.0 million principal). Debt comprised $319.0 million drawn on the revolving facility and $550.0 million of 8.125% unsecured notes due 2028.
- Reported working capital deficit was $187.6 million, including substantial derivative liabilities. The company reported total liquidity of $343.0 million: $341.0 million of revolver availability and $2.0 million cash. The revolver borrowing base was raised to $850 million and elected commitments to $750 million on November 3, after quarter-end; at September 30, those amounts were $725 million and $660 million.
- Net cash used in investing was $364.8 million for the first nine months, including $246.3 million for oil and gas property acquisitions and $118.2 million for drilling and development. Operating cash flow was $263.4 million.
- The company issued $550 million of 2028 notes and completed two common-stock offerings with combined net proceeds of approximately $228.2 million. It retired the $130 million VEN Bakken note and all $287.8 million principal of second-lien notes, and reduced revolver borrowings by $213 million from year-end 2020.
- Stockholders’ deficit improved to $157.7 million from $223.3 million at year-end 2020. The company had 66.2 million common shares outstanding at quarter-end; 2.2 million Series A preferred shares remained outstanding.
Material changes, outlook and risks
- The Reliance Appalachian acquisition and Permian acquisition expanded the asset base. The Reliance deal included approximately 61,712 net acres and 95.3 net producing wells; the Permian deal included approximately 2,285 net acres and 6.5 net producing wells. Recent acquisitions contributed to higher production and geographic diversification.
- The company reported no proved-property impairment in 2021, compared with $199.5 million in Q3 2020 and $962.2 million for the first nine months of 2020. The prior-year impairment materially affects the comparison.
- No specific production, earnings or capital-spending guidance is provided in the supplied filing text. Management said development and acquisition spending is discretionary and may be adjusted for projected commodity prices, cash flows and returns.
- Key exposures include volatile oil and gas prices, hedge-related earnings and cash-flow variability, dependence on third-party operators, concentration in the Williston Basin, and potential infrastructure constraints. The filing highlights litigation and regulatory risks related to the Dakota Access Pipeline.
- A North Dakota riverbed mineral-title dispute could require reversal of approximately $4.1 million of accrued revenue if resolved adversely. Management said other ordinary-course proceedings were not expected to have a material impact, while noting outcomes remain uncertain.
- The company maintained a full valuation allowance on deferred tax assets and reported compliance with its revolving-credit financial covenants at September 30. It also disclosed $5.4 million of undeclared accumulated Series A preferred dividends.
Investor verification priorities
- Review hedge volumes, prices, settlement obligations and the potential cash-flow effect of the $339.4 million net derivative liability at quarter-end.
- Assess liquidity and covenant headroom, including the difference between quarter-end revolver commitments and the post-quarter November 3 increase.
- Examine whether acquisition-driven production growth and cash generation can support investment needs, debt service and preferred and common dividends.
- Track operator activity, basin concentration, DAPL developments and the outcome of the North Dakota mineral-title dispute.