Northern Oil & Gas, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The company is a U.S. oil and gas producer focused on non-operated minority interests in the Williston, Permian and Appalachian basins. Its financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Oil and gas sales, before derivative gains/losses | $1,985.8 million | $975.1 million |
| Total revenue, including commodity derivatives | $1,570.5 million | $496.9 million |
| Net income | $773.2 million | $6.4 million |
| Net income (loss) attributable to common stockholders | $727.7 million | ($8.4 million) |
| Basic / diluted EPS | $9.26 / $8.92 | ($0.13) / ($0.13) |
| Cash from operating activities | $928.4 million | $396.5 million |
| Cash used in investing activities | $1,402.8 million | $634.4 million |
| Cash from financing activities | $467.4 million | $246.1 million |
| Average daily production | 75,511 Boe | 53,792 Boe |
Oil and gas sales rose 104%, reflecting production growth of 40% and higher realized prices. Commodity derivatives generated a net loss of $415.3 million, including $455.5 million of settled losses and a $40.2 million unrealized gain. Accordingly, sales growth and total revenue growth differ materially. The filing does not provide a clear operating-margin measure; reported operating income was $853.2 million on total revenue of $1,570.5 million.
Production was 59% oil in fourth-quarter 2022, averaging 78,854 Boe per day, versus 64,155 Boe per day in fourth-quarter 2021. Full-year production growth was driven substantially by acquisitions and increased drilling.
Debt, liquidity, reserves and capital returns
- Year-end debt principal was $1.543 billion: $319.0 million drawn on the revolving facility, $724.2 million of 8.125% senior notes due 2028 and $500.0 million of 3.625% convertible notes due 2029. Net carrying debt was $1.525 billion.
- Liquidity was $683.5 million, comprising $681.0 million of committed revolver availability and $2.5 million of cash. Working capital was negative $24.5 million. The company reported compliance with its revolving-credit financial covenants.
- Proved reserves increased 15% to 330.8 MMBoe; 65% were developed and 35% undeveloped. Reserve PV-10 was $7.902 billion and the GAAP standardized measure was $6.437 billion. PV-10 is a non-GAAP measure, based on SEC pricing, and is not a fair-value estimate.
- Under a separate $70 oil / $3 gas flat-price case, estimated proved reserves were 312.4 MMBoe and PV-10 was $4.483 billion, versus 330.8 MMBoe and $7.902 billion under SEC pricing.
- The company completed more than $955 million of 2022 acquisitions and closed the $320 million MPDC acquisition in January 2023. It issued $500 million of convertible notes and used proceeds for revolver repayment, acquisitions and general corporate purposes.
- 2022 capital spending was $1.355 billion, including $958.8 million for acquisitions and $392.5 million for drilling and development. Cash from operations less this investing spend was approximately negative $474 million; investing also included a $43 million acquisition deposit and other items.
- 2022 shareholder returns included $54.5 million of common-stock repurchases, $81.2 million of preferred-stock repurchases, $24.9 million paid to retire $25.8 million of senior notes, and common dividends. The Series A preferred stock was fully converted in November 2022. A $0.34-per-share common dividend was declared for payment in April 2023.
Changes, outlook and material risks
- Production, oil and gas sales, operating cash flow and proved reserves increased substantially year over year. The company expanded beyond its legacy Williston focus through acquisitions in the Permian and Appalachian basins.
- Management budgeted $737–$778 million of 2023 capital expenditures, including development and smaller “ground game” acquisitions. It expected 5–10% higher drilling, completion and related costs in 2023, and planned to use a significant portion of expected free cash flow to reduce revolver borrowings, targeting leverage near 1.0x Debt / Adjusted EBITDA. The filing does not provide a clear numerical 2023 production or commodity-price forecast.
- Management said it expected sufficient liquidity for budgeted spending and operating needs for at least 12 months, subject to commodity prices, operating results and access to capital. It noted that capital spending is discretionary and may be adjusted.
- Commodity prices, differentials, inflation, service costs and interest rates can materially affect results. The company hedges a substantial, varying share of production; 68% of oil production was hedged in 2022. Settled hedge losses reduced realized prices, while derivatives also create mark-to-market earnings volatility and can limit upside.
- The company is a non-operator and depends on third parties for drilling, production, marketing and transportation. Dakota Access Pipeline litigation could threaten a key Williston Basin outlet. Gas gathering and processing constraints, weather, and operator financial or performance problems are additional risks.
- About 35% of proved reserves were undeveloped. The plan calls for drilling 138.2 net PUD wells by the end of 2027 at an estimated $1.026 billion; development timing depends on operators, returns, financing and other factors.
- Firm Appalachian gas delivery commitments total 40.6 Bcf through 2025. Failure to deliver may trigger deficiency payments; the company paid $8.5 million in 2022.
- Other disclosed exposures include evolving environmental and methane rules, climate-related transition and physical risks, potential lease expirations, and a North Dakota riverbed mineral-title dispute. An adverse outcome in the title dispute could require reversal of approximately $3.2 million of accrued revenue. Management said ordinary-course legal matters were not expected to have a material financial impact.
- No proved-property impairment was recorded in 2022 or 2021; a $1.067 billion impairment was recorded in 2020. The company maintains a full valuation allowance on deferred tax assets, while noting a possible release within 12 months if sufficient positive evidence emerges. Its federal NOL carryforward was approximately $520.7 million, subject to limitations.
Important facts for investors to verify
- Reconcile reported oil and gas sales with total revenue and cash flows, distinguishing settled from unrealized derivative effects.
- Check 2023 production, capital spending and acquisition outcomes against the budget, including the completed MPDC transaction and expected cost inflation.
- Track debt, revolver availability, covenant headroom and progress toward management’s leverage target; the filing does not state actual Debt / Adjusted EBITDA.
- Assess reserve assumptions and PUD conversion, including sensitivity to commodity prices and the five-year development schedule.
- Monitor hedge coverage, realized-price differentials, Dakota Access Pipeline developments, gas delivery commitments and the riverbed title dispute.
- Confirm the sustainability of dividends and repurchases against free cash flow, debt restrictions and capital requirements.