Northern Oil and Gas, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 12, 2021. Although the request metadata references Q4, this is an annual report. Northern is primarily a non-operated oil and gas interest owner, concentrated in the Bakken and Three Forks formations of the Williston Basin. Fourth-quarter average production was 35,738 Boe per day, approximately 76% oil.
Financial and operating results
| Metric | 2020 | 2019 |
|---|---|---|
| Oil and gas sales, before derivatives | $324.1 million | $601.2 million |
| Total revenue, including derivative gains/losses | $552.2 million | $472.4 million |
| Net income (loss) | $(906.0) million | $(76.3) million |
| Cash provided by operations | $331.7 million | $339.8 million |
| Cash used in investing activities | $283.9 million | $569.1 million |
| Average daily production | 33,078 Boe/d | 38,604 Boe/d |
- 2020 total revenue included $188.3 million of settled commodity-derivative gains and $39.9 million of unrealized gains. Derivative results were a $128.8 million loss in 2019, making total revenue comparisons substantially affected by mark-to-market movements.
- The net loss chiefly reflected a $1,066.7 million non-cash full-cost ceiling impairment. Adjusted EBITDA, a non-GAAP measure, was $351.8 million versus $454.2 million in 2019; adjusted net income was $96.0 million versus $120.9 million.
- Production fell 14%. Realized price including settled derivatives declined to $42.32 per Boe from $45.82; production expense rose to $9.61 per Boe from $8.44. The filing does not provide a clear standalone operating-margin figure.
- Developmental capital expenditures were $162.8 million, down 56% from 2019. Cash spending on drilling, development, and acquisitions was $283.6 million.
- At year-end, proved reserves were 122.6 MMBoe, down 25%; proved undeveloped reserves were 38.5 MMBoe. SEC-case pre-tax PV-10 was $712.5 million, a non-GAAP reserve measure and not fair value.
- Year-end cash was $1.4 million; available revolver capacity was $128.0 million, for reported liquidity of $129.4 million. Working capital deficit was $56.8 million and stockholders’ equity was negative $223.3 million.
- Year-end debt principal totaled $949.8 million: $532.0 million under the revolving facility, $287.8 million of 8.50% second-lien notes due 2023, and $130.0 million on the 6.0% VEN Bakken note. The company reported compliance with revolving-facility financial covenants at year-end.
- Unpaid cumulative dividends on 6.5% Series A preferred stock were approximately $16.3 million at year-end; the arrears restrict common dividends and could give preferred holders additional board-election rights if another semiannual period goes unpaid.
Material changes, outlook, and risks
- COVID-19 demand disruption and the 2020 oil-price collapse led operators to curtail production and defer drilling. Management estimated production reductions of approximately 16,800 Boe/d in Q2, 11,000 Boe/d in Q3, and 4,200 Boe/d in Q4 from curtailments and shut-ins.
- Reserve revisions reduced proved reserves by 36.9 MMBoe, primarily due to lower SEC pricing; the year-end oil price used for reserve estimates was $32.69/Bbl after differentials, versus $50.53 in 2019. Lower prices and activity also cut planned PUD locations.
- Management expected cash from operations and revolver availability to cover liquidity needs for at least 12 months. Its PUD plan included 58.8 net wells through 2025 at estimated development cost of $341.0 million, subject to prices, returns, operator activity, and funding. The 2021 capital budget was approved, but the filing text does not provide a clear total budget value.
- After year-end, Northern completed a $132.4 million net common-stock offering and issued $550.0 million of 8.125% senior unsecured notes due 2028. It repaid the remaining $65.0 million VEN Bakken note and tendered $272.1 million of second-lien notes, leaving $15.7 million outstanding immediately afterward. These transactions are subsequent events, not year-end balances.
- A proposed Appalachian Basin acquisition from Reliance was expected to close in April 2021. Northern agreed to acquire a 70% interest, with an initially stated company cash amount of $175.0 million plus warrants; preferential purchase rights reduced the estimated cash amount by $48.6 million to $126.4 million before further closing adjustments. Completion and asset performance remained uncertain.
- Key risks include commodity-price volatility, reliance on third-party operators, Williston Basin concentration, gathering and transportation limits, possible Dakota Access Pipeline disruption, further reserve or impairment changes, borrowing-base reductions, debt covenants, lease expirations, environmental and climate regulation, and acquisition execution. Hedging supports cash flows but can limit upside and exposes the company to counterparty, volume, and basis risks.
Important facts for investors to verify
- Reconcile the reported loss with the $1.07 billion non-cash impairment and assess sensitivity to commodity prices and future ceiling tests.
- Review liquidity, covenant headroom, borrowing-base redeterminations, and the effect of the February 2021 refinancing on total debt and interest costs.
- Confirm the Reliance acquisition’s final purchase price, closing status, asset exclusions, financing use, and expected contribution to production and cash flow.
- Assess whether the PUD drilling schedule and $341.0 million estimated cost are achievable given operator decisions, capital availability, and commodity prices.
- Evaluate hedge coverage and terms, including counterparty extension options, basis hedges, and how realized cash settlements differ from non-cash fair-value gains or losses.
- Track the DAPL litigation and other transportation constraints, as well as the $16.3 million preferred-dividend arrearage and related common-dividend restrictions.