NOG Announces First Quarter 2023 Results, Including Record Quarterly Production

FIRST QUARTER HIGHLIGHTS

• Record quarterly production of 87,385 Boe per day (62% oil), an increase of 23% from the first quarter of 2022.
• Net income of $340.2 million and record Adjusted EBITDA of $325.5 million. See “Non-GAAP Financial Measures” below.
• Cash flow from operations of $269.3 million. Excluding changes in net working capital, cash flow from operations was $296.2 million, an increase of 26% sequentially from the fourth quarter of 2022.
• Generated $83.9 million of Free Cash Flow, despite increased development activity and volatility in commodity prices during the quarter. See “Non-GAAP Financial Measures” below.
• Closed on the acquisition of a 39.958% non-operated working interest in the MPDC Mascot project in January 2023, for $319.9 million.

SHAREHOLDER RETURN HIGHLIGHTS

• Paid $0.34 per share common dividend for the first quarter of 2023, an increase of 13% from the fourth quarter of 2022, and declared $0.37 per share common dividend for the second quarter of 2023, representing a 9% increase from the first quarter.
• Repurchased $8.0 million, or 287,751 common shares in the first quarter at an average price of $27.82 per share.
• Repurchased and retired $19.1 million principal amount of 8.125% Senior Notes at an average price of 96.4% of par value.
• Increased the Senior Notes repurchase authorization by $100 million.

Northern Oil and Gas, Inc. (NYSE: NOG) (“NOG” or “Company”) today announced the Company’s first quarter results.

MANAGEMENT COMMENTS

“NOG is realizing the benefits of our successful growth efforts as we generated record production in the first quarter, ahead of internal expectations. While the team was primarily focused on the integration of our recent acquisitions, we did close on several substantive Ground Game opportunities,” commented Nick O’Grady, NOG’s Chief Executive Officer. “Our demonstrated ability to structure mutually beneficial transactions with operators and other parties has resulted in record levels of potential acquisition opportunities. We are excited about NOG’s prospects for 2023. We will continue our measured approach toward growth investments and shareholder returns as the year progresses to support our primary goal of maximizing total shareholder returns over the long term.”

FIRST QUARTER FINANCIAL RESULTS

Oil and natural gas sales for the first quarter were $426.2 million. First quarter GAAP net income was $340.2 million or $3.98 per diluted share. First quarter Adjusted Net Income was $149.9 million or $1.76 per diluted share, an increase of 17% from the fourth quarter of 2022. Adjusted EBITDA in the first quarter was $325.5 million, an increase of 23% from the fourth quarter of 2022. See “Non-GAAP Financial Measures” below.

PRODUCTION

First quarter production was 87,385 Boe per day, an increase of 11% from the fourth quarter of 2022 and an increase of 23% from the first quarter of 2022. Oil represented 62% of total production in the first quarter with 53,864 Bbls per day, an increase of 15% from the fourth quarter of 2022 and a 27% increase over the first quarter of 2022. NOG had 13.1 net wells turned in-line during the first quarter, compared to 19.1 net wells turned in-line in the fourth quarter of 2022. Production increased quarter over quarter, driven primarily by growth in NOG’s Permian production, which made up approximately 35% of volumes in the first quarter. Additionally, Williston volumes recovered from weather-related shut-ins experienced in the fourth quarter. Marcellus production was down 2% from the fourth quarter.

PRICING

During the first quarter, NYMEX West Texas Intermediate (“WTI”) crude oil averaged $75.98 per Bbl, and NYMEX natural gas at Henry Hub averaged $2.75 per million cubic feet (“Mcf”). NOG’s unhedged net realized oil price in the first quarter was $73.31, representing a $2.67 differential to WTI prices. NOG’s unhedged net realized gas price in the first quarter was $3.91 per Mcf, representing approximately 142% realization compared with Henry Hub pricing.

OPERATING COSTS

Lease operating costs were $78.1 million in the first quarter of 2022, or $9.93 per Boe, a 1% decrease on a per unit basis compared to the fourth quarter of 2022. The decrease in unit costs was driven primarily by increased lower cost Permian production, offset by higher processing costs associated with better than expected NGL prices. Additionally, service and maintenance costs and workover expenses were also slightly higher on a sequential quarter basis. First quarter general and administrative (“G&A”) costs totaled $13.0 million or $1.65 per Boe. This includes $3.5 million of legal and transaction expenses in connection with bolt-on acquisitions and $2.2 million of non-cash stock-based compensation. NOG’s cash G&A costs excluding these amounts totaled $7.4 million or $0.94 per Boe in the first quarter, down 7% from the prior quarter on a unit basis.

CAPITAL EXPENDITURES AND ACQUISITIONS

Capital expenditures for the first quarter was $212.2 million (excluding non-budgeted acquisitions) representing 28% of previously disclosed annual capital expenditure guidance range at the midpoint. This was comprised of $198.7 million of total drilling and completion (“D&C”) capital on organic and ground game assets, and $13.5 million of ground game acquisition spending and other items. D&C spending was higher due to an increase in development activity and workover expense incurred in the period and significant Ground Game success. NOG has experienced moderate well cost inflation continuing into 2023, but year-to-date well costs have been within NOG’s assumptions for the year. NOG’s weighted average gross authorization for expenditure (or AFE) elected to in the first quarter was $9.6 million.

NOG’s Williston Basin spending was 66% of the total capital expenditures for the quarter, the Permian was 32%, the Marcellus was 1% and other items were also 1%. On the Ground Game acquisition front, NOG closed on ten transactions during the first quarter totaling 2.6 net wells and 369 net acres, a marked increase from the fourth quarter.

As previously announced, during the first quarter of 2023, NOG completed its Midland Basin Mascot Project acquisition with a $319.9 million cash settlement at closing. The Company’s ability to perform on numerous large acquisitions has established NOG as a preferred non-op partner; as such, NOG’s opportunity set is at record levels.

LIQUIDITY AND CAPITAL RESOURCES

NOG had total liquidity of $437.1 million as of March 31, 2023, consisting of $431.0 million of committed borrowing availability under the Revolving Credit Facility and $6.1 million of cash.

As of March 31, 2023, NOG had $569.0 million of outstanding borrowings under the Revolving Credit Facility, $705.1 million of outstanding 8.125% Senior Unsecured Notes due 2028, and $500.0 million of outstanding 3.625% Convertible Notes due 2029.

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 was paid on April 28, 2023. This represented a 13% increase from the prior quarter.

In May 2023, NOG’s Board of Directors declared a regular quarterly cash dividend for NOG’s common stock of $0.37 per share for stockholders of record as of June 29, 2023, which will be paid on July 31, 2023. This represents a 9% increase from the prior quarter.

In the first quarter, NOG repurchased $8.0 million of its common stock, or 287,751 shares at an average price of $27.82 per share.

In the first quarter, NOG repurchased and retired $19.1 million of its 8.125% Senior Unsecured Notes due 2028 at 96.4% of par value. The retirement of these notes will result in annualized interest expense savings of $1.6 million. At the end of the quarter, the Board of Directors increased the Company’s Senior Notes repurchase authorization by $100 million.

The Company also reduced the outstanding balance on its revolving credit facility by over $25 million during the first quarter, after the closing of the MPDC Acquisition.

2023 FULL YEAR GUIDANCE

(all forecasts are provided on a 2-stream production basis)

NOG is reaffirming its 2023 full year guidance for production and capital expenditures. The Company is increasing its estimates for natural gas realizations. As a result of this increase, the Company is also adjusting production expenses for the associated processing costs from higher realizations. The guidance does not contemplate potential acquisition or capital markets activity, beyond our regularly budgeted Ground Game capital.

FIRST QUARTER 2023 RESULTS

The following tables set forth selected operating and financial data for the periods indicated.

HEDGING

NOG hedges portions of its expected production volumes to increase the predictability of its cash flow and to help maintain a strong financial position. The following table summarizes NOG’s open crude oil commodity derivative swap contracts scheduled to settle after March 31, 2023.

The following table summarizes NOG’s open natural gas commodity derivative swap contracts scheduled to settle after March 31, 2023.

The following table presents NOG’s settlements on commodity derivative instruments and unsettled gains and losses on open commodity derivative instruments for the periods presented, which is included in the revenue section of NOG’s statement of operations:

CAPITAL EXPENDITURES & DRILLING ACTIVITY

FIRST QUARTER 2023 EARNINGS RELEASE CONFERENCE CALL

In conjunction with NOG’s release of its financial and operating results, investors, analysts and other interested parties are invited to listen to a conference call with management on Friday, May 5, 2023 at 10:00 a.m. Central Time.

Those wishing to listen to the conference call may do so via webcast or phone as follows:

Webcast: https://event.choruscall.com/mediaframe/webcast.html?webcastid=eaPzTdtx

Dial-In Number: (866) 373-3407 (US/Canada) and (412) 902-1037 (International)

Conference ID: 13737814 - Northern Oil and Gas, Inc. First Quarter 2023 Earnings Call

Replay Dial-In Number: (877) 660-6853 (US/Canada) and (201) 612-7415 (International)

Replay Access Code: 13737814 - Replay will be available through July 4, 2023

ABOUT NORTHERN OIL AND GAS

NOG is a company with a primary strategy of investing in non-operated minority working and mineral interests in oil & gas properties, with a core area of focus in the premier basins within the United States. More information about NOG can be found at www.northernoil.com.

SAFE HARBOR

This press release contains forward-looking statements regarding future events and NOG’s future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this press release are forward-looking statements, including, but not limited to, statements regarding NOG’s dividend plans and practices, financial position, operating and financial performance, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance. When used in this press release, forward-looking statements are generally accompanied by terms or phrases such as “estimate,” “project,” “predict,” “believe,” “expect,” “continue,” “anticipate,” “target,” “could,” “plan,” “intend,” “seek,” “goal,” “will,” “should,” “may” or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about actual or potential future production, sales, market size, collaborations, cash flows, and trends or operating results also constitute such forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond NOG’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: changes in crude oil and natural gas prices, the pace of drilling and completions activity on NOG’s current properties and properties pending acquisition; infrastructure constraints and related factors affecting NOG’s properties; cost inflation or supply chain disruptions; ongoing legal disputes over, and potential shutdown of, the Dakota Access Pipeline; NOG’s ability to acquire additional development opportunities, potential or pending acquisition transactions, the projected capital efficiency savings and other operating efficiencies and synergies resulting from NOG’s acquisition transactions, integration and benefits of property acquisitions, or the effects of such acquisitions on NOG’s cash position and levels of indebtedness; changes in NOG’s reserves estimates or the value thereof; disruption to NOG’s business due to acquisitions and other significant transactions; general economic or industry conditions, nationally and/or in the communities in which NOG conducts business; changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets; risks associated with NOG’s 3.625% convertible senior notes due 2029 (the “Convertible Notes”), including the potential impact that the Convertible Notes may have on NOG’s financial position and liquidity, potential dilution, and that provisions of the Convertible Notes could delay or prevent a beneficial takeover of NOG; the potential impact of the capped call transactions undertaken in tandem with the Convertible Notes issuance, including counterparty risk; increasing attention to environmental, social and governance matters; NOG’s ability to consummate any pending acquisition transactions; other risks and uncertainties related to the closing of pending acquisition transactions; NOG’s ability to raise or access capital; cyber-incidents could have a material adverse effect on NOG’s business, financial condition or results of operations; changes in accounting principles, policies or guidelines; events beyond NOG’s control, including a global or domestic health crisis, acts of terrorism, political or economic instability or armed conflict in oil and gas producing regions; and other economic, competitive, governmental, regulatory and technical factors affecting NOG’s operations, products and prices.

NOG has based any forward-looking statements on its current expectations and assumptions about future events. While NOG’s management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond NOG’s control. Accordingly, results actually achieved may differ materially from expected results described in these statements. Forward-looking statements speak only as of the date they are made. You should consider carefully the statements under the heading “Risk Factors” in NOG’s Annual Report on Form 10-K for the year ended December 31, 2022, as updated by subsequent reports NOG files with the SEC. NOG does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements, other than as may be required by applicable law or regulation.

Non-GAAP Financial Measures

Adjusted Net Income, Adjusted EBITDA and Free Cash Flow are non-GAAP measures. NOG defines Adjusted Net Income (Loss) as net income (loss) excluding (i) (gain) loss on unsettled commodity derivatives, net of tax, (ii) (gain) loss on extinguishment of debt, net of tax, (iii) contingent consideration (gain) loss, net of tax, (iv) acquisition transaction costs, net of tax, and (v) (gain) on unsettled interest rate derivatives, net of tax. NOG defines Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, depletion, amortization and accretion, (iv) non-cash stock-based compensation expense, (v) (gain) loss on extinguishment of debt, (vi) contingent consideration (gain) loss, (vii) acquisition transaction costs, (viii) (gain) loss on unsettled interest rate derivatives, and (ix) (gain) loss on unsettled commodity derivatives. NOG defines Free Cash Flow as cash flows from operations before changes in working capital and other items, less (i) capital expenditures, excluding non-budgeted acquisitions and changes in accrued capital expenditures and other items. A reconciliation of each of these measures to the most directly comparable GAAP measure is included below.

Management believes the use of these non-GAAP financial measures provides useful information to investors to gain an overall understanding of current financial performance. Management believes Adjusted Net Income and Adjusted EBITDA provide useful information to both management and investors by excluding certain expenses and unrealized commodity gains and losses that management believes are not indicative of NOG’s core operating results. Management believes that Free Cash Flow is useful to investors as a measure of a company’s ability to internally fund its budgeted capital expenditures, to service or incur additional debt, and to measure success in creating stockholder value. In addition, these non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring NOG’s performance, and management believes it is providing investors with financial measures that most closely align to its internal measurement processes. The non-GAAP financial measures included herein may be defined differently than similar measures used by other companies and should not be considered an alternative to, or more meaningful than, the comparable GAAP measures. From time to time NOG provides forward-looking Free Cash Flow estimates or targets; however, NOG is unable to provide a quantitative reconciliation of the forward looking non-GAAP measure to its most directly comparable forward looking GAAP measure because management cannot reliably quantify certain of the necessary components of such forward looking GAAP measure. The reconciling items in future periods could be significant.

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