Northern Oil and Gas, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company is an independent U.S. oil and gas producer focused on non-operated interests, primarily in the Williston, Permian and Appalachian basins. Financial statements are unaudited.
Business context and operating performance
- Average production was approximately 119,436 Boe per day, up 37% from Q1 2023; oil accounted for approximately 59%. Production growth reflected acquisitions and new wells. The company added 25.3 net wells to production.
- At quarter-end, it had 9,953 gross (985.3 net) producing wells and approximately 272,046 net leased acres, about 90% developed.
- In January, the company closed its Delaware Basin acquisition for $147.8 million cash plus 107,657 shares. The acquired properties contributed approximately $11.2 million of revenue and $4.7 million of operating income from closing through quarter-end.
Financial highlights
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Oil and gas sales, before derivatives | $532.0 million | $426.2 million |
| Total revenue, including commodity derivatives | $396.3 million | $582.2 million |
| Operating income | $52.3 million | $360.6 million |
| Net income | $11.6 million | $340.2 million |
| Diluted earnings per share | $0.11 | $3.98 |
| Cash provided by operating activities | $392.1 million | $269.3 million |
| Cash used for investing activities | $407.1 million | $461.2 million |
- Oil and gas sales grew 25%, mainly due to 38% higher production, partly offset by lower realized prices. Reported total revenue fell 32%, primarily because the company recorded a $138.5 million net commodity-derivative loss, versus a $153.7 million gain in Q1 2023. The 2024 derivative result included a $157.6 million non-cash mark-to-market loss and $19.1 million of realized settlement gains.
- Production expenses rose 35% to $105.4 million, while production cost per Boe declined 2% to $9.70. Production taxes increased to $51.2 million. DD&A rose 84% to $174.0 million; depletion per Boe increased 33% to $15.91, primarily reflecting acquisitions and higher production.
- Interest expense increased to $37.9 million from $30.1 million, reflecting higher debt and floating rates. Income tax expense was $2.8 million, with a 19.7% effective rate, versus $0.7 million and 0.2% in the prior-year quarter.
- Calculated margins on reported total revenue were approximately 13.2% operating and 2.9% net. These margins are affected by non-cash derivative mark-to-market accounting.
- Cash capital expenditures on oil and gas properties were $407.0 million. Operating cash flow less cash capital expenditures was approximately negative $14.9 million; this is a simple calculation, not a company-reported measure. Capitalized costs incurred for oil and gas properties, excluding non-cash consideration, were $447.2 million.
Debt, liquidity and capital returns
- March 31 total debt principal was $1.968 billion: $263.0 million under the revolving facility, $705.1 million of 2028 senior notes, $500.0 million of 2029 convertible notes and $500.0 million of 2031 senior notes. Debt net of unamortized items was $1.939 billion. Cash was $32.5 million.
- Liquidity was reported at $1.020 billion, comprising $987.0 million of committed revolving availability and $32.5 million cash. On April 29, 2024, the borrowing base was reaffirmed at $1.8 billion and elected commitments increased from $1.25 billion to $1.5 billion.
- Working capital was negative $15.2 million at March 31, compared with positive $123.6 million at December 31, 2023, partly due to changes in derivative values and working-capital balances. The company reported compliance with its revolving-facility financial covenants.
- Q1 financing cash flow included $102.0 million of net revolving-credit borrowings, $20.0 million of share repurchases and $40.1 million of dividend payments. The company declared a $0.40-per-share dividend, paid April 30. It repurchased 549,356 shares for $20.2 million and had $67.5 million remaining under its repurchase authorization at quarter-end.
Outlook, risks and unusual items
- No specific production, earnings or capital-spending guidance for the full year is stated in the provided filing text. Management said cash, operating cash flow and borrowing capacity should be sufficient to fund budgeted capital expenditures and operating expenses for at least the next 12 months, while noting additional capital may be sought and is not assured.
- Management was not budgeting for significant changes in per-well drilling, completion and related costs in 2024 compared with 2023. The weighted-average gross well AFE for wells elected in Q1 was $9.5 million, versus $9.6 million for wells elected in 2023.
- The company hedged approximately 71% of Q1 oil production and 61% of natural gas and NGL production. Derivatives are not designated for hedge accounting; mark-to-market changes affect reported earnings, while cash flows are affected upon settlement. The quarter-end net derivative liability was $193.8 million, versus $36.2 million at December 31, 2023.
- Principal risks include commodity-price and basis volatility, regional infrastructure and transportation constraints, the Dakota Access Pipeline dispute or shutdown risk, cost inflation, acquisition execution, and dependence on third-party operators. All wells are operated by third parties; the top four operators represented 37% of Q1 oil and gas sales.
- The company reported no proved-property impairment in Q1. It said ordinary-course litigation was not expected to have a material financial impact, while noting outcomes are uncertain. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How much of the reported revenue and earnings decline reflects non-cash derivative remeasurement versus realized settlements and underlying operating performance.
- The borrowing availability and covenant headroom after the April 29 commitment increase, and the effect of revolving borrowings and interest rates on liquidity and interest expense.
- Whether operating cash flow can fund planned development, acquisitions, dividends and repurchases, particularly with negative working capital and high capital spending.
- The company’s hedge volumes, terms and potential settlement obligations, including exposure to counterparties and basis differentials.
- Production and cost performance of acquired properties and the decisions of third-party operators, given the company’s non-operated business model.