Northern Oil and Gas(NOG) - 2022 Q4 - Annual Report

Part I Business Northern Oil and Gas, Inc. (NOG) is an independent energy company focused on non-operated oil and gas interests across key basins, driving growth through acquisitions and strategic hedging - The company's business strategy focuses on diversifying risk through non-operated participation, pursuing acquisitions, maintaining a strong balance sheet (targeting 1.0x Debt/Adjusted EBITDA), systematic hedging (targeting 60%+ of next 18-month production), and delivering stockholder returns through dividends and repurchases[72] - Acquisition activity was a significant driver of production growth, increasing from 64,155 Boe per day in Q4 2021 to 78,854 Boe per day in Q4 2022[67] - Operations are subject to extensive federal, state, and local regulations concerning environmental protection, including the Clean Air Act (CAA), Clean Water Act (CWA), and rules related to hydraulic fracturing and greenhouse gas (GHG) emissions[85][94][103] - As of December 31, 2022, the company had 33 full-time employees[115] Asset Summary by Basin (as of December 31, 2022) | Basin | Net Acres | Productive Wells (Gross) | Productive Wells (Net) | Average Daily Production (Boe/day) | Proved Reserves (MBoe) | % Oil | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Williston Basin | 182,168 | 7,487 | 608.0 | 44,028 | 186,165 | 70% | | Permian Basin | 17,616 | 818 | 92.8 | 22,696 | 53,116 | 62% | | Appalachian Basin | 59,186 | 367 | 98.5 | 12,130 | 91,528 | —% | | Total | 258,970 | 8,672 | 799.3 | 78,854 | 330,809 | 49% | Risk Factors The company faces significant risks from volatile commodity prices, reliance on third-party operators, acquisition integration, substantial debt, and evolving environmental regulations - The most material risks are categorized as: Risks Related to Business and the Oil, Natural Gas and NGL Industry; Risks Related to Financing and Indebtedness; Risks Related to Legal, Regulatory and Environmental Matters; and Risks Related to Common Stock[126][127] - Oil and natural gas price volatility is a primary risk, affecting revenues, cash flows, profitability, reserve values, and access to capital[128] - The company's non-operator model means its success is extensively dependent on the performance and decisions of third-party operators, creating risks related to operational control, timing of development, and operator solvency[146][147][148] - The company's debt agreements, including the Revolving Credit Facility and Senior Notes Indenture, contain restrictive covenants that limit its ability to pay dividends, incur more debt, and sell assets[182][183] - Climate-related transition risks, including potential legislation, changing consumer demand, and negative investor sentiment towards the fossil fuel industry, could increase operating costs and reduce demand for the company's products[172][174][175] Unresolved Staff Comments No unresolved staff comments from the SEC are reported - None[234] Properties Details oil and gas properties and reserves, showing 330.8 MMBoe total proved reserves and a $7.9 billion pre-tax PV-10 value as of year-end 2022 - As of December 31, 2022, the company had approximately 258,970 net acres, of which 227,887 (88%) were developed[268][269] Estimated Net Proved Reserves (MBoe) | Reserve Category | Dec 31, 2022 (MBoe) | % of Total | Dec 31, 2021 (MBoe) | | :--- | :--- | :--- | :--- | | Developed | 214,602 | 65% | 170,598 | | Undeveloped | 116,207 | 35% | 117,084 | | Total Proved | 330,809 | 100% | 287,682 | Reconciliation of PV-10 to Standardized Measure (as of Dec 31, 2022) | Metric | Amount (in thousands) | | :--- | :--- | | Pre-Tax PV10% | $7,902,154 | | Future Income Taxes, Discounted at 10% | $(1,465,257) | | Standardized Measure of Discounted Future Net Cash Flows | $6,436,897 | Change in Proved Undeveloped Reserves (PUDs) in 2022 | Category | MMBoe | | :--- | :--- | | PUDs at 12/31/2021 | 117.1 | | Converted to Proved Developed | (18.1) | | Added from Extensions and Discoveries | 18.5 | | Purchases of Minerals in Place | 12.7 | | Removed for 5-Year Rule | (14.3) | | Revisions | 0.3 | | PUDs at 12/31/2022 | 116.2 | Production and Average Sales Prices | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Production (Boe) | 27,561,596 | 19,634,015 | | Average Daily Production (Boepd) | 75,511 | 53,792 | | Average Oil Sales Price (per Bbl) | $91.65 | $62.94 | | Average Gas & NGL Sales Price (per Mcf) | $7.43 | $4.57 | Legal Proceedings The company is subject to ordinary course litigation and regulatory proceedings, none of which are currently deemed materially adverse - The company is subject to litigation from time to time in the ordinary course of business[280] Mine Safety Disclosures This section is not applicable to the company's operations - None[281] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NOG common stock trades on NYSE, with an active dividend policy and a $150 million stock repurchase program initiated in May 2022 - The company's common stock trades on the New York Stock Exchange under the symbol "NOG"[284] - The company has an active dividend policy, with the most recent dividend declared on February 6, 2023, for $0.34 per share, payable on April 28, 2023[292] - In May 2022, the board of directors approved a stock repurchase program to acquire up to $150 million of outstanding common stock[297] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | Value Remaining in Program | | :--- | :--- | :--- | :--- | | Oct 2022 | 1,006,373 | $29.81 | $98.5 million | | Nov 2022 | — | — | $98.5 million | | Dec 2022 | 96,805 | $31.01 | $95.5 million | | Total Q4 | 1,103,178 | $29.92 | $95.5 million | [RESERVED]](index=52&type=section&id=Item%206.%20%5BRESERVED%5D) This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2022 financial performance, highlighting 104% sales growth, 134% cash flow increase, liquidity, capital expenditures, and critical accounting estimates - The company's primary revenue is from the sale of oil, natural gas, and NGLs. It uses derivative instruments to hedge a substantial portion of production to achieve more predictable cash flows[302] - Principal costs include production expenses, production taxes, DD&A, G&A, and interest expense. The company uses the full cost method of accounting, capitalizing all costs associated with exploration and development[303][304] - The weighted average gross AFE cost for wells the company participated in increased from $6.9 million in 2021 to $8.0 million in 2022, reflecting inflationary pressures[308] 2022 Financial and Operating Highlights | Metric | 2022 | % Change vs 2021 | | :--- | :--- | :--- | | Oil and Natural Gas Sales | $1,985.8 million | +104% | | Cash Flows from Operations | $928.4 million | +134% | | Proved Reserves (Year-End) | 330.8 MMBoe | +15% | Results of Operations Oil and gas sales increased 104% to $1.99 billion in 2022, driven by higher volumes and prices, despite significant derivative losses and increased expenses - The 104% increase in oil and gas sales was driven by a 40% increase in production volumes and a 45% increase in realized prices (excluding derivatives)[318] - The company realized a loss on settled commodity derivatives of $455.4 million in 2022, compared to a $165.8 million loss in 2021, due to higher market prices relative to hedged prices[322] Selected Operating Data Comparison | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Production (Boe) | 27,561,596 | 19,634,015 | | Total Revenues (in thousands) | $1,570,535 | $496,899 | | Realized Price per Boe (incl. settled derivatives) | $55.53 | $41.21 | | Production Expenses (per Boe) | $9.46 | $8.70 | | DD&A (per Boe) | $9.12 | $7.17 | Liquidity and Capital Resources The company's liquidity was $683.5 million at year-end 2022, with $955 million in acquisitions and $500 million in convertible notes, budgeting $737-$778 million for 2023 capex - As of December 31, 2022, the company had total liquidity of $683.5 million, comprising $681.0 million of availability under its Revolving Credit Facility and $2.5 million of cash[340] - The 2023 planned capital expenditure budget is approximately $737 to $778 million, excluding larger acquisitions[361] Cash Flow Summary (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $928,418 | $396,467 | | Net Cash Used for Investing Activities | $(1,402,777) | $(634,434) | | Net Cash Provided by Financing Activities | $467,367 | $246,059 | Capital Expenditures (in millions) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Drilling and Development | $392.5 | $180.8 | | Acquisition of Oil and Natural Gas Properties | $958.8 | $410.4 | | Total | $1,355.2 | $593.2 | Critical Accounting Estimates Critical accounting estimates include proved oil and gas reserves and the full cost method, which requires subjective assumptions and quarterly impairment testing - The most significant accounting estimates are proved oil and natural gas reserves, future development costs, and the fair value of derivative instruments[369] - The company uses the full cost method of accounting, capitalizing all costs associated with acquiring, developing, and exploring for oil and gas reserves. These costs are depleted using the unit-of-production method[374][375] - A quarterly ceiling test is performed to assess for impairment. No impairment was recorded in 2022 or 2021, but a $1,066.7 million impairment was recorded in 2020 due to lower commodity prices[376][377] Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price and interest rate risks through derivative contracts, with a 1% rate increase impacting annual interest expense by $2.2 million - The company's main market risks are commodity price volatility and interest rate fluctuations[383][391] - The company uses derivative contracts, including swaps and collars, to hedge a significant portion of its anticipated future oil and natural gas production to achieve more predictable cash flow[384][385] - As of December 31, 2022, the company had open crude oil derivative contracts extending into 2025 and natural gas derivative contracts extending into 2024[386][389] - A 1% increase in short-term interest rates on the company's floating-rate debt outstanding at year-end 2022 would result in approximately $2.2 million in additional annual interest expense[392] Financial Statements and Supplementary Data Presents audited financial statements, independent auditor's report, and detailed notes on accounting policies, acquisitions, debt, and derivatives Notes to Financial Statements Notes detail $955 million in 2022 acquisitions, $1.6 billion debt structure, mandatory preferred stock conversion, and derivative positions - In 2022, the company completed five significant bolt-on acquisitions (Veritas, Incline, Laredo, Alpha, Delaware) for total consideration exceeding $955 million[523] - In November 2022, the company exercised its right to force a mandatory conversion of all outstanding shares of its Series A Preferred Stock into common stock[583][359] - The company maintains a full valuation allowance of $156.3 million against its deferred tax assets as of December 31, 2022, as it determined it was more likely than not that the benefits would not be realized[510][616] Long-Term Debt Summary (as of Dec 31, 2022) | Debt Instrument | Principal Balance (in thousands) | | :--- | :--- | | Revolving Credit Facility | $319,000 | | Senior Notes | $724,235 | | Convertible Notes | $500,000 | | Total | $1,543,235 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure are reported - None[394] Controls and Procedures Management and independent auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[397] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[402] - The independent registered public accounting firm, Deloitte & Touche LLP, audited and provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[405] Other Information No other information is reported - None[412] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This disclosure is not applicable - Not applicable[413] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information regarding directors, corporate governance, and delinquent Section 16(a) reports is incorporated by reference from the company's Proxy Statement[416] - The report lists the names, ages, and positions of the five executive officers: Nicholas O'Grady (CEO), Chad Allen (CFO), Adam Dirlam (President), Erik Romslo (CLO), and James Evans (EVP and Chief Engineer)[418] Executive Compensation Executive compensation information is incorporated by reference from the 2023 Proxy Statement - Information under the headings "Executive Compensation" and "Compensation Committee Report" in the Proxy Statement is incorporated by reference[424] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Details securities authorized under equity compensation plans and incorporates other security ownership information by reference Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be issued upon exercise | Securities remaining available for future issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 77,060 | 382,520 | | Equity compensation plans not approved by security holders | — | — | | Total | 77,060 | 382,520 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Information under the headings "Certain Relationships and Related Transactions" and "Corporate Governance" in the Proxy Statement is incorporated by reference[426] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Information under the headings "Registered Public Accountant Fees" and "Pre-Approval Policies and Procedures of Audit Committee" in the Proxy Statement is incorporated by reference[427] Part IV Exhibits and Financial Statement Schedules Lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item lists all financial statements, financial statement schedules, and exhibits filed with the Form 10-K[430] Form 10-K Summary No Form 10-K summary is provided - None[436]