Northern Oil & Gas (NOG) Q4 Results - Feb 23

[dan_s]

I will update my NOG forecast/valuation model tomorrow morning.
----------------------------------
FOURTH QUARTER HIGHLIGHTS

Production of 78,854 Boe per day (59.5% oil), a 23% increase from the fourth quarter of the prior year. < Below my forecast of 81,667 Boepd.

GAAP cash flow from operations of $287.4 million. Excluding changes in net working capital, cash flow from operations was $234.4 million, an increase of 48% from the fourth quarter of the prior year. < Compares to my forecast of $253.5 million cash flow from operations.

Capital expenditures of $142.9 million, excluding previously-announced non-budgeted acquisitions.

Increased Free Cash Flow (non-GAAP) by 23% to $87.1 million from the fourth quarter of the prior year.

Closed on three major Permian acquisitions for approximately $400 million in total value.

Closed upsized MPDC acquisition in the Midland Basin in January 2023 for $320.0 million in cash.

Increased Revolving Credit Facility borrowing base to $1.6 billion from $1.3 billion.

Issued $500 million of 3.65% Senior Unsecured Convertible Notes due 2029.

Exercised the mandatory conversion rights under the Series A Preferred Stock.

SHAREHOLDER RETURN HIGHLIGHTS

Declared $0.34 per share common dividend for the first quarter of 2023, an increase of 13% from the fourth quarter of the prior year.

Declared $0.30 per share common dividend for the fourth quarter of 2022, an increase of 20% from the third quarter.

Repurchased $25.8 million principal amount of 8.125% Senior Unsecured Notes at an average price of 96.7% of par value during 2022.

Reduced common shares outstanding at year-end by approximately 5% through repurchases of common and preferred stock during 2022.

MANAGEMENT COMMENTS

"2022 was a defining year for our Company," commented Nick O’Grady, NOG’s Chief Executive Officer. "NOG generated record production, Adjusted EBITDA and Free Cash Flow enabling a 275% increase in its common dividend. The $927 million of M&A announced in 2022 will directly contribute to our estimated 23% production growth in 2023."

Mr. O’Grady continued, "We start 2023 with increased scale and superior technical underwriting ability in the non-operated space. Through our consistent and disciplined strategy, we have established NOG as the preferred, most reliable and well-capitalized counterparty for both our operating and non-operating partners. The Company continues to develop a well-balanced portfolio of assets, delivering steady profit growth and shareholder returns, with significant opportunities for further growth still ahead of us."

NOG
+4.02%

Thu, February 23, 2023 at 3:17 PM CST
In this article:

NOG
+4.02%

FOURTH QUARTER HIGHLIGHTS

Production of 78,854 Boe per day (59.5% oil), a 23% increase from the fourth quarter of the prior year.

GAAP cash flow from operations of $287.4 million. Excluding changes in net working capital, cash flow from operations was $234.4 million, an increase of 48% from the fourth quarter of the prior year.

Capital expenditures of $142.9 million, excluding previously-announced non-budgeted acquisitions.

Increased Free Cash Flow (non-GAAP) by 23% to $87.1 million from the fourth quarter of the prior year. See "Non-GAAP Financial Measures" below.

Closed on three major Permian acquisitions for approximately $400 million in total value.

Closed upsized MPDC acquisition in the Midland Basin in January 2023 for $320.0 million in cash.

Increased Revolving Credit Facility borrowing base to $1.6 billion from $1.3 billion.

Issued $500 million of 3.65% Senior Unsecured Convertible Notes due 2029.

Exercised the mandatory conversion rights under the Series A Preferred Stock.

SHAREHOLDER RETURN HIGHLIGHTS

Declared $0.34 per share common dividend for the first quarter of 2023, an increase of 13% from the fourth quarter of the prior year.

Declared $0.30 per share common dividend for the fourth quarter of 2022, an increase of 20% from the third quarter.

Repurchased $25.8 million principal amount of 8.125% Senior Unsecured Notes at an average price of 96.7% of par value during 2022.

Reduced common shares outstanding at year-end by approximately 5% through repurchases of common and preferred stock during 2022.

MINNEAPOLIS, February 23, 2023--(BUSINESS WIRE)--Northern Oil and Gas, Inc. (NYSE: NOG) ("NOG") today announced the company’s fourth quarter and full year 2022 results and provided 2023 guidance.

MANAGEMENT COMMENTS

"2022 was a defining year for our Company," commented Nick O’Grady, NOG’s Chief Executive Officer. "NOG generated record production, Adjusted EBITDA and Free Cash Flow enabling a 275% increase in its common dividend. The $927 million of M&A announced in 2022 will directly contribute to our estimated 23% production growth in 2023."

Mr. O’Grady continued, "We start 2023 with increased scale and superior technical underwriting ability in the non-operated space. Through our consistent and disciplined strategy, we have established NOG as the preferred, most reliable and well-capitalized counterparty for both our operating and non-operating partners. The Company continues to develop a well-balanced portfolio of assets, delivering steady profit growth and shareholder returns, with significant opportunities for further growth still ahead of us."

FINANCIAL RESULTS

Oil and natural gas sales for the fourth quarter were $445.6 million, an increase of 34% over the prior year period. Fourth quarter GAAP net income was $133.3 million or $1.63 per diluted share. Fourth quarter Adjusted Net Income was $122.5 million or $1.43 per diluted share, an increase of $35.5 million or $0.37 per diluted share over the prior year period. Adjusted EBITDA in the fourth quarter was $264.8 million, an increase of 51% over the prior year period. (See "Non-GAAP Financial Measures" below.)

Oil and natural gas sales for full year 2022 were $2.0 billion, an increase of 104% over full year 2021. Full year 2022 GAAP net income was $727.7 million or $8.92 per diluted share. Full year 2022 Adjusted Net Income was $565.6 million or $6.53 per diluted share. Full year 2022 Adjusted EBITDA was $1.1 billion, an increase of 100% over the prior year. (See "Non-GAAP Financial Measures" below.)

PRODUCTION

Fourth quarter production was 78,854 Boe per day, a 23% increase from the prior year period. Oil represented 59.5% of production in the fourth quarter. NOG had 19.9 net wells turned in line during the fourth quarter, compared to 16.2 net wells turned in line in the third quarter of 2022. NOG saw production outperform internal expectations for the first two months of the fourth quarter, but experienced significant weather related disruptions in December 2022. Full year 2022 production was 75,511 Boe per day, within NOG’s 2022 guidance.

PRICING

During the fourth quarter, NYMEX West Texas Intermediate ("WTI") crude oil averaged $82.65 per Bbl, and NYMEX natural gas at Henry Hub averaged $6.10 per Mcf. NOG’s unhedged net realized oil price in the fourth quarter was $80.23 per Bbl, representing a $2.42 differential to WTI prices. NOG’s fourth quarter unhedged net realized gas price was $5.64 per Mcf, representing approximately 92% realizations compared with Henry Hub pricing.

For full year 2022, NOG’s realized oil price differential was $2.73 per Bbl. NOG’s full year unhedged net realized gas price was $7.43 per Mcf, representing approximately 113% realizations compared with Henry Hub pricing.

OPERATING COSTS

Lease operating costs were $73.0 million in the fourth quarter of 2022, or $10.06 per Boe, an increase of 6.9% on a per unit basis compared to the third quarter. The increase in unit costs was primarily driven by modest operating cost inflation, the natural aging of wells, and fixed cost absorption from the weather disruptions. NOG expects seasonal normalization for unit costs in 2023 as storm-related production was restored.

Fourth quarter general and administrative ("G&A") costs totaled $15.0 million, which includes non-cash stock-based compensation. Cash G&A costs totaled $13.6 million or $1.87 per Boe in the fourth quarter, which included certain significant legal, advisory and diligence costs associated with the Permian acquisitions. Excluding approximately $6.3 million of transaction costs, remaining cash G&A was $7.3 million, or $1.01 per Boe.

CAPITAL EXPENDITURES AND ACQUISITIONS

Capital spending for the fourth quarter, excluding non-budgeted acquisitions, was $142.9 million, down approximately $9.6 million from the prior quarter. This was comprised of $118.3 million of organic drilling and completion ("D&C") capital and $24.6 million of total acquisition spending, inclusive of ground game D&C spending. NOG had 19.9 net wells turned in line in the fourth quarter. Wells in process totaled 55.4 net wells as of December 31, 2022. On the ground game acquisition front, NOG closed on four transactions during the fourth quarter totaling 1.2 net wells and 127 net acres. Total 2022 capital expenditures, excluding non-budgeted acquisitions were $511.1 million, slightly above NOG’s guidance for 2022 driven by significant ground game opportunities executed and an acceleration of completion activity in the third and fourth quarters.

LIQUIDITY, CAPITAL RESOURCES, AND RECENT ACQUISITIONS

As of December 31, 2022, NOG had $2.5 million in cash and $319.0 million of borrowings outstanding on its revolving credit facility. NOG had total liquidity of $683.5 million as of December 31, 2022, consisting of cash and committed borrowing availability under the revolving credit facility. Additionally, NOG had $43.0 million in an escrow account as of December 31, 2022, as a deposit on the MPDC Mascot acquisition that was signed in October 2022 and closed in January 2023.

In October 2022, NOG executed a convertible senior debt offering. NOG issued $500.0 million principal amount of 3.625% Senior Unsecured Convertible Notes due 2029 (the "Convertible Notes"). NOG also purchased a forward "Capped Call" which boosted the conversion price to a 75% premium to the offering price, and additionally the Company repurchased 1.0 million shares of common stock simultaneously with the pricing of the offering. With the net proceeds from the offering, NOG retired debt under its existing revolving credit facility and, ultimately, closed on the subsequent acquisitions described below.

On January 5, 2023, NOG closed on its previously announced acquisition of non-operated interests in the Mascot Project from Midland Petro D.C. Partners, LLC ("MPDC"). At closing, NOG acquired a 39.958% working interest in the Mascot Project. The initial closing settlement was $320.0 million in cash, which included a $43.0 million deposit paid at signing in October 2022.

On December 16, 2022, NOG closed its previously announced acquisition of Delaware Basin properties from a private seller. The closing settlement was $131.6 million in cash.

On December 1, 2022, NOG closed its previously announced acquisition of properties from Alpha Energy Partners. The closing settlement was $155.1 million in cash.

On October 3, 2022, NOG closed its previously announced acquisition of non-operated properties in the Midland Basin. The closing settlement was $110.1 million in cash.

SHAREHOLDER RETURNS

In February 2023, NOG’s Board of Directors declared a regular quarterly cash dividend for NOG’s common stock of $0.34 per share for stockholders of record as of March 30, 2023, which will be paid on April 28, 2023. This represented a 13% increase from the fourth quarter.

In November 2022, NOG’s Board of Directors declared a regular quarterly cash dividend for NOG’s common stock of $0.30 per share for stockholders of record as of December 29, 2022, which was paid on January 31, 2023. This represented a 20% increase from the third quarter.

During the fourth quarter of 2022, the Company repurchased 1,103,178 shares of common stock at an average price of $29.92 per share. For the full year 2022, the Company repurchased 1.91 million common shares at an average price of $28.55 per share, for a total of $54.5 million. Additionally, the Company repurchased and retired $57.5 million of its Series A Perpetual Preferred Stock during 2022, with all remaining shares fully converted to common stock during the fourth quarter. The Preferred Stock repurchases reduced the fully diluted share count by 2.6 million shares, based on the final conversion ratio. On a combined basis, common and preferred stock repurchases reduced the fully diluted share count by 4.5 million shares in 2022, or approximately 5% of the current shares outstanding. The Company has $95.5 million of availability remaining on its existing common stock repurchase authorization.

As of December 31, 2022, the Company has retired $25.8 million of its 8.125% Senior Unsecured Notes (the "Notes") at an average of 96.7% of par value. There were $724.2 million par value of Notes outstanding at year-end with $24.2 million of capacity remaining on the Company’s existing notes repurchase authorization.

2023 ANNUAL GUIDANCE < This will be key to my valuation.

NOG anticipates approximately 91,000 - 96,000 Boe per day of production in 2023, an increase of approximately 23% at the midpoint from 2022 levels. NOG currently expects total capital spending in the range of $737 - $778 million for 2023 with approximately 46% of its 2023 budget to be spent on the Williston, 53% on the Permian, and de minimis capital on the Appalachian and other. < ~63% of 2023 production is expected to be crude oil, which is above what I used in my 2023 forecast.