Northern Oil and Gas(NOG) - 2020 Q3 - Quarterly Report

Glossary of Terms Glossary of Terms This section defines key technical terms for oil quantities, well interests, and reserve classifications - Key definitions provided include[8] - Quantities: Bbl (barrel), Boe (barrel of oil equivalent), Mcf (thousand cubic feet)[9][13] - Interests: Working interest, Net acres, Gross wells[26][29][37] - Reserves: Proved reserves (including PDPs and PUDs), Probable reserves, and Possible reserves[39][40][43] PART I – FINANCIAL INFORMATION Item 1. Condensed Financial Statements (unaudited) This section presents unaudited condensed financial statements as of September 30, 2020, including a notable 1-for-10 reverse stock split Condensed Balance Sheets The balance sheet reflects a significant asset decrease due to property impairment, leading to a stockholders' deficit of $83.7 million Condensed Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $183,749 | $133,037 | | Total Property and Equipment, Net | $823,002 | $1,748,593 | | Total Assets | $1,025,524 | $1,905,465 | | Total Current Liabilities | $170,455 | $203,477 | | Long-term Debt | $918,327 | $1,118,161 | | Total Liabilities | $1,109,255 | $1,346,822 | | Total Stockholders' Equity (Deficit) | ($83,731) | $558,643 | Condensed Statements of Operations The company reported a Q3 2020 net loss of $233.0 million, driven by a large impairment charge and a 54% drop in oil and gas sales Q3 2020 vs Q3 2019 Statement of Operations (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Oil and Gas Sales | $73,680 | $157,989 | | Gain (Loss) on Commodity Derivatives, Net | ($26,361) | $75,892 | | Total Revenues | $47,322 | $233,883 | | Impairment Expense | $199,489 | $0 | | Total Operating Expenses | $265,975 | $112,784 | | Net Income (Loss) | ($233,004) | $94,381 | Net Income (Loss) Per Share (Adjusted for reverse stock split) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Net Income (Loss) Per Common Share – Basic | ($5.44) | $2.38 | | Net Income (Loss) Per Common Share – Diluted | ($5.44) | $2.38 | Condensed Statements of Cash Flows Net cash from operations was $258.7 million for the nine-month period, with significantly lower cash used for investing activities Nine-Month Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $258,652 | $269,323 | | Net Cash Used for Investing Activities | ($249,552) | ($417,948) | | Net Cash (Used for) Provided by Financing Activities | ($23,365) | $148,169 | | Net Decrease in Cash | ($14,265) | ($456) | Notes to Condensed Financial Statements Notes detail the impact of COVID-19, a reverse stock split, a $962.2 million impairment charge, and the company's debt and derivative positions - On September 18, 2020, the company executed a 1-for-10 reverse stock split of its common stock, with all share and per-share data retroactively adjusted[77][134] - Due to a significant decline in commodity prices, the company recognized a non-cash ceiling test impairment of its oil and gas properties totaling $962.2 million for the nine months ended September 30, 2020[80][101] Long-Term Debt Composition (in thousands) | Debt Instrument | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Revolving Credit Facility | $571,000 | $580,000 | | Second Lien Notes due 2023 | $287,755 | $417,733 | | Unsecured VEN Bakken Note | $130,000 | $130,000 | | Total Principal | $988,755 | $1,127,733 | Net Gain (Loss) on Commodity Derivatives (in thousands) | Period | Gain on Settled Derivatives | Gain (Loss) on Unsettled Derivatives | Net Gain (Loss) | | :--- | :--- | :--- | :--- | | Q3 2020 | $43,837 | ($70,198) | ($26,361) | | Q3 2019 | $18,386 | $57,506 | $75,892 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impacts of COVID-19, including reduced spending, production curtailments, and a significant impairment charge Overview and COVID-19 Impact The company responded to the pandemic and oil price decline by significantly reducing 2020 capital spending and curtailing production - The company reduced its 2020 capital spending forecast to a range of $175.0 – $200.0 million, a reduction of 53% – 59% compared to 2019 actuals[191] - A full-cost ceiling test impairment charge of $199.5 million was recorded for Q3 2020, bringing the year-to-date total to $962.2 million[192] - Average daily production in Q3 2020 was 29,051 Boe per day, a 22% increase from Q2 2020 as shut-in production returned, but still impacted by curtailments[188] Results of Operations Q3 2020 results show a 53% drop in oil and gas sales, driven by lower production and prices, though partially offset by derivative gains Q3 2020 vs Q3 2019 Operating Metrics | Metric | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Production (Boe) | 2,672,656 | 3,752,266 | (29)% | | Realized Price (per Boe, ex-hedges) | $27.57 | $42.10 | (35)% | | Realized Price (per Boe, incl-hedges) | $43.97 | $47.00 | (6)% | | Production Expenses (per Boe) | $9.04 | $8.62 | 5% | | DD&A (per Boe) | $11.52 | $14.81 | (22)% | - The oil price differential widened to $6.54 per barrel in Q3 2020 from $5.48 per barrel in Q3 2019, further pressuring realized prices[215] - For the nine months ended Sep 30, 2020, the company recorded a non-cash ceiling test impairment of $962.2 million due to low commodity prices[243] Non-GAAP Financial Measures Adjusted Net Income and Adjusted EBITDA are presented to clarify core performance, excluding non-cash impairments and unsettled derivative effects Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Net Income (Loss) | ($233,004) | $94,381 | | Adjustments (Interest, Taxes, DD&A, Impairment, etc.) | $315,727 | $29,015 | | Adjusted EBITDA | $82,723 | $124,396 | Adjusted Net Income | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Adjusted Net Income (in thousands) | $27,490 | $36,304 | | Adjusted Net Income Per Share - Diluted | $0.51 | $0.92 | Liquidity and Capital Resources The company maintained $90.8 million in liquidity and strengthened its balance sheet by retiring $116.4 million of debt through equity exchanges - Total liquidity as of September 30, 2020 was $90.8 million[263] - During the first nine months of 2020, the company retired a total of $116.4 million in principal of its Second Lien Notes through various exchange agreements for equity[262] Nine-Month Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $258,652 | $269,323 | | Net Cash Used for Investing Activities | ($249,552) | ($417,948) | | Net Cash (Used for) Provided by Financing Activities | ($23,365) | $148,169 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages commodity price and interest rate risks through an extensive portfolio of derivative swap contracts Open Crude Oil Swap Contracts as of Sep 30, 2020 | Period | Volume (Barrels) | Weighted Avg. Price ($/Bbl) | | :--- | :--- | :--- | | Q4 2020 | 2,372,362 | $58.03 | | 2021 | 7,808,624 | $54.67 | | 2022 | 365,000 | $50.05 | Open Natural Gas Swap Contracts as of Sep 30, 2020 | Period | Volume (MMBTU) | Weighted Avg. Price ($/MMBTU) | | :--- | :--- | :--- | | Q4 2020 | 2,760,000 | $2.44 | | 2021 | 13,000,000 | $2.50 | | 2022 | 1,825,000 | $2.53 | - A 1% increase in short-term interest rates on floating-rate debt would result in approximately $3.7 million in additional annual interest expense[294] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[297] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[298] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is subject to ordinary course litigation and regulatory proceedings not expected to have a material impact Item 1A. Risk Factors This section updates risk factors, emphasizing the adverse effects of the COVID-19 pandemic and litigation concerning the Dakota Access Pipeline - The global COVID-19 pandemic and oil market developments have negatively impacted the company through reduced prices, decreased demand, and curtailed development and production activity[302][305] - The Dakota Access Pipeline (DAPL) is subject to ongoing litigation that could result in a court-ordered shutdown, which would increase transportation costs and could lead to production shut-ins, adversely affecting the company's business[309][310] - The company's business depends on third-party transportation and processing facilities, and any lack of available capacity could result in increased costs, shut-ins, or development delays[308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares of common stock were repurchased during the third quarter of 2020, leaving $68.1 million available under the program Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Avg. Price Paid | Value Remaining in Program | | :--- | :--- | :--- | :--- | | July 2020 | 0 | N/A | $68.1 million | | August 2020 | 0 | N/A | $68.1 million | | September 2020 | 0 | N/A | $68.1 million | | Total | 0 | N/A | $68.1 million | Item 6. Exhibits This section lists all exhibits filed with the report, including corporate governance documents, debt agreements, and officer certifications