Northern Oil & Gas (NOG) Update - Oct 25

[dan_s]

NOG Provides Preliminary Financial and Operational Updates for the Third Quarter of 2023

HIGHLIGHTS < Nothing in this press release impacts my valuation. Slightly higher DD&A rate will lower reported net income, but has no impact on operating cash flow. Additional hedges might have a slight impact on 2024.

Strong organic and Ground Game activity driving additional development
Q3 Ground Game transactions expected to add 5.7 net in-process and future drilling locations, and approximately 514 net acres
Year-to-date NOG has closed 31 Ground Game transactions, expected to add 24.9 net in-process and future drilling locations, and approximately 1,823 net acres
Well proposals accelerated in late Q3 driven by improved commodity prices
Gross consents were up over 35% sequentially in Q3 compared to Q2, and up over 15% in the first nine months of 2023 compared to the same period of 2022
Expect Q3 capital expenditures in the range of $215 to $218 million, driven primarily by Ground Game success and pull-forwards of organic development < CapEx is more than covered by operating cash flow of close to $350 million per my forecast.
Providing update on realized and mark-to-market hedge changes for the third quarter and select other operational items

MINNEAPOLIS--(BUSINESS WIRE)-- Northern Oil and Gas, Inc. (NYSE: NOG) (the “Company” or “NOG”) today announced an update on Ground Game acquisitions and certain other financial and operational items for the third quarter of 2023.

GROUND GAME AND ACTIVITY UPDATE

The Company closed on eight Ground Game transactions during the third quarter of 2023, concentrated in the Permian Basin. The transactions are expected to add 5.7 net in-process and future drilling locations and approximately 514 net acres. The majority of the wells from these transactions have already spud by the end of the third quarter and are expected to turn in-line in 2024. Year-to-date, NOG’s Ground Game has added an estimated 24.9 net in-process and future drilling locations, along with approximately 1,823 net acres across 31 transactions with attractive full cycle returns.

NOG also experienced accelerated well proposal activity in the third quarter, driven by improved commodity prices. Gross consents were up over 35% sequentially in the third quarter compared to the second quarter, and up over 15% in the first nine months of 2023 compared to the same period of 2022.

The Company turned in-line an estimated 22.6 net wells during the third quarter compared to 13.8 net wells in the second quarter, a 64% sequential increase. NOG estimates that its D&C list, or wells in process, increased to a new record of 74.2 net wells, up 6.2 net wells from the end of the second quarter. Changes to the D&C list, combined with the levels of completion on those wells-in-process (“WIPs”), can significantly impact capital expenditures in any given quarter. Higher capital expenditures in the third quarter were in part driven by both atypically higher completion status for the WIPs combined with the D&C list increasing by over 9% during the quarter.

Ground Game success and the increase in development activity are expected to result in capital expenditures in the range of $215 to $218 million for the third quarter, excluding non-budgeted acquisitions and other, lower than the second quarter, but higher than previously expected. The increased capital spending in the third quarter, both organic and Ground Game, was primarily focused on 2024 turn-in-line activity.

THIRD QUARTER FINANCIAL UPDATE

For the third quarter, the DD&A rate is expected to be $14.20 - $14.25 per Boe. The increase to the DD&A rate versus the second quarter is primarily driven by the closing of the Novo acquisition in the third quarter, and is in line with prior expectations.

The Company enters into derivative agreements to hedge a portion of its commodity pricing exposure and makes mark-to-market fair value adjustments each quarter to the unrealized value of its unsettled commodity derivative portfolio. For the third quarter of 2023, mark-to-market losses on unsettled commodity derivatives are estimated to be approximately $205 million. Total net gains on settled commodity derivatives for the third quarter are estimated to be approximately $5.0 million.

Since its second quarter earnings release, NOG has added hedges for approximately 2.4 MMBoe of oil and 10.9 MMBtu of natural gas in the form of puts, costless collars and swaps for Q4-2023 through 2026, in addition to region-specific basis hedges.

MANAGEMENT COMMENTS

“As we enter the fourth quarter, we continue to focus capital on growth opportunities for next year and beyond,” commented Nick O’Grady, NOG’s CEO. “Our singular focus remains on executing on high return opportunities. In keeping with our practice, we have used recent commodity price strength to layer in additional oil and natural gas hedges, along with additional basis hedges, to protect our underwritten returns as we deploy capital.”

“We had significant, counter-seasonal success in the Ground Game, especially early in the third quarter when oil prices were significantly lower,” commented Adam Dirlam, NOG’s President. “These projects should, at today’s pricing, deliver significantly higher returns than we originally underwrote. Additionally, we’ve seen notable increases in our Permian well proposal activity as commodity prices have improved. All of this points to increased growth prospects for 2024 and beyond.” < This is good news that should improve 2024 results.

ABOUT NOG

NOG is a real asset company with a primary strategy of acquiring and investing in non-operated minority working and mineral interests in the premier hydrocarbon producing basins within the contiguous United States. More information about NOG can be found at www.northernoil.com.