Northern Oil and Gas(NOG) - 2019 Q2 - Quarterly Report

Glossary of Terms This section defines technical terms for crude oil and natural gas quantities, well and acreage interests, and reserve classifications - Key terms related to crude oil and natural gas quantities, well and acreage interests, and reserve classifications are defined[7][8][17][39] - Crude oil and natural gas equivalents (Boe) are calculated using a 6 Mcf to 1 barrel ratio[6] PART I – FINANCIAL INFORMATION Item 1. Condensed Financial Statements Unaudited condensed financial statements for Q2 2019 show total assets decreased to $1.49 billion, liabilities increased to $1.10 billion, and a net loss of $62.8 million for the six months Condensed Balance Sheets Total assets decreased slightly to $1.49 billion as of June 30, 2019, primarily due to reduced derivative assets, while total liabilities rose to $1.10 billion Condensed Balance Sheet Summary (in thousands of US dollars) | Account | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $133,068 | $228,415 | | Total Property and Equipment, Net | $1,293,282 | $1,202,745 | | Total Assets | $1,494,391 | $1,503,645 | | Total Current Liabilities | $232,726 | $231,526 | | Long-term Debt, Net | $857,198 | $830,203 | | Total Liabilities | $1,104,742 | $1,073,780 | | Total Stockholders' Equity | $389,649 | $429,865 | Condensed Statements of Operations Net income for Q2 2019 was $44.4 million, a turnaround from a $96.5 million loss in Q2 2018, driven by derivative gains, while the six-month net loss narrowed to $62.8 million Condensed Statements of Operations Summary (in thousands of US dollars) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Oil and Gas Sales | $149,847 | $109,047 | $282,530 | $195,928 | | Gain (Loss) on Derivative Instruments, Net | $36,591 | $(42,203) | $(103,031) | $(62,474) | | Total Revenues | $186,440 | $66,846 | $179,506 | $133,459 | | Total Operating Expenses | $94,200 | $50,528 | $182,571 | $91,236 | | Net Income (Loss) | $44,399 | $(96,547) | $(62,762) | $(93,582) | | Net Income (Loss) Per Share – Diluted | $0.12 | $(0.49) | $(0.17) | $(0.71) | Condensed Statements of Cash Flows Net cash from operating activities significantly increased to $198.3 million for the six months ended June 30, 2019, while cash used in investing activities rose to $191.1 million Condensed Statements of Cash Flows Summary (in thousands of US dollars) | Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $198,300 | $63,617 | | Net Cash Used for Investing Activities | $(191,141) | $(159,679) | | Net Cash (Used for) Provided by Financing Activities | $(6,723) | $194,804 | | Net Increase in Cash and Cash Equivalents | $436 | $98,741 | Notes to Condensed Financial Statements Notes detail the company's Williston Basin operations, significant 2018-2019 acquisitions, debt structure, derivative hedging, and the VEN Bakken Acquisition completed post-quarter - The company's core business is crude oil and natural gas E&P in the Williston Basin, with crude oil comprising 81% of production and 93% of sales for the six months ended June 30, 2019[71][72] - Major 2018 acquisitions included W Energy for $341.6 million, Pivotal for $146.1 million, and Salt Creek for $60.0 million, involving cash, stock, and contingent consideration[89][90][93] - Long-term debt totaled $857.2 million as of June 30, 2019, comprising $684.2 million in Second Lien Notes and $173.0 million on the Revolving Credit Facility[98][149] - Post-quarter, the VEN Bakken Acquisition was completed on July 1, 2019, for $170.1 million cash, 5.6 million shares of common stock, and a $130.0 million promissory note[167][168] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 66% production increase in Q2 2019 due to acquisitions, higher oil and gas sales despite lower realized prices, and the use of derivatives, with Adjusted EBITDA reaching $110.8 million Results of Operations Q2 2019 production increased 66% to 3.18 million Boe, boosting oil and gas sales by 37%, while average realized oil prices declined 12%, and derivative gains led to $44.4 million net income Production and Sales Price Comparison (Three Months Ended June 30) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Production (Boe) | 3,181,835 | 1,915,230 | 66% | | Average Oil Sales Price (per Bbl) | $54.56 | $62.20 | (12)% | | Oil Price Net of Settled Derivatives (per Bbl) | $56.41 | $54.65 | 3% | | Realized Price per Boe (incl. derivatives) | $48.58 | $50.58 | (4)% | Operating Expenses per Boe (Three Months Ended June 30) | Expense Category | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Production Expenses | $8.21 | $7.60 | 8% | | Production Taxes | $4.41 | $5.29 | (17)% | | DD&A | $14.49 | $11.80 | 23% | - Production increases for both three and six-month periods in 2019 were driven by substantial acquisitions, increased development, and enhanced completion techniques[194][211] Non-GAAP Financial Measures Non-GAAP measures, Adjusted Net Income and Adjusted EBITDA, are presented to clarify core operating results, with Q2 2019 Adjusted EBITDA increasing to $110.8 million due to higher production Reconciliation of Adjusted EBITDA (in thousands of US dollars) | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $44,399 | $(96,547) | $(62,762) | $(93,582) | | Adjustments | $66,411 | $167,093 | $278,334 | $220,086 | | Adjusted EBITDA | $110,810 | $70,546 | $215,572 | $126,504 | Adjusted Net Income (in thousands of US dollars) | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Adjusted Net Income | $45,465 | $18,042 | $62,443 | $29,417 | | Adjusted Net Income Per Share - Diluted | $0.12 | $0.09 | $0.16 | $0.22 | Liquidity and Capital Resources As of June 30, 2019, liquidity totaled $254.8 million, comprising cash and Revolving Credit Facility availability, while cash flow from operations significantly increased to $198.3 million for the six months - Total liquidity as of June 30, 2019, was $254.8 million, including $2.8 million cash and $252.0 million available under the Revolving Credit Facility[236][251] - Net cash from operating activities for the first six months of 2019 was $198.3 million, a substantial increase from $63.6 million in the prior year[246] - Cash used in investing activities for the first six months of 2019 totaled $191.1 million, including $139.6 million for drilling and development[247][249] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from commodity price volatility, interest rate fluctuations, and fair value changes of derivatives and contingent liabilities, mitigated by hedging strategies Open Commodity Swap Contracts as of June 30, 2019 | Year | Oil Volume (Barrels) | Weighted Average Price ($/Bbl) | | :--- | :--- | :--- | | 2019 (Remainder) | 4,164,280 | $62.96 | | 2020 | 7,848,330 | $59.31 | | 2021 | 2,906,350 | $57.96 | | 2022 | 500,000 | $55.06 | - A 1% increase in short-term interest rates would result in approximately $1.7 million in additional annual interest expense[265] - Liabilities for contingent consideration and debt exchange derivatives totaled $37.0 million and $2.8 million, respectively, highly sensitive to common stock price[268][271] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were concluded to be effective as of June 30, 2019, by principal executive and financial officers[273] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2019[274] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings not expected to have a material financial impact - Legal proceedings incidental to normal business operations are not anticipated to have a material impact on financial position or results[131][276] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for 2018 have occurred - No material changes to risk factors from the 2018 Annual Report on Form 10-K have occurred[277] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2019, the company acquired 9,440 shares at $2.74/share for tax withholding, with $68.1 million remaining for repurchases under its program Issuer Purchases of Equity Securities (Q2 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2019 | 9,440 | $2.74 | $68.1 million | | May 2019 | 0 | N/A | $68.1 million | | June 2019 | 0 | N/A | $68.1 million | | Total | 9,440 | $2.74 | $68.1 million | - Shares purchased were for employee tax withholding on vested restricted stock awards, not part of the public repurchase program[279] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including agreements, CEO/CFO certifications, and XBRL data files