Northern Reports 1Q2011 Results, Updates Operations
Northern Oil and Gas today announced record first quarter oil and gas sales of approximately $27.0 million. Excluding the effect of unrealized, mark-to-market of oil hedges, Northern Oil had net income of $5.9 million, representing $0.09 per fully diluted share. Including the effect of unrealized mark-to-market of oil hedges, Northern Oil had a first quarter net loss of $7.1 million, representing a $0.11 loss per share.
2011 QUARTERLY RESULTS
Oil and gas sales for the first quarter of 2011 were $27.0 million compared to $8.4 million for the first quarter of 2010, representing a 223% increase. These results represent a 13% increase in oil and gas sales during the first quarter of 2011 compared to the fourth quarter of 2010.
Production volumes for the first quarter of 2011 were a quarterly record of 356,622 barrels of oil equivalent ("BOE"), representing a 185% increase compared to the first quarter of 2010 and a 5% increase compared to the fourth quarter of 2010. The first quarter production volumes represent Northern Oil's thirteenth consecutive quarterly increase in production.
First quarter 2011 production consisted of approximately 94% crude oil and 6% associated natural gas and other liquids. Northern Oil exited the first quarter of 2011 with production volumes of approximately 5,413 BOE per day ("BOEPD"). Northern Oil does not include flared and unsold gas volumes in its production figures. During the first quarter of 2011, Northern Oil spud approximately 9.8 net wells and added production from 55 gross (4.98 net) wells. Northern Oil has maintained a 100% drilling success rate in the Williston Basin Bakken and Three Forks trends since the company's inception.
Northern Oil's average realized crude oil sale price for first quarter 2011 was $74.10 per barrel, after taking into account a $9.73 per barrel loss due to the settlement of crude oil derivative contracts. This compares to an average $70.49 per barrel realized price in the fourth quarter of 2010, which took into account a $4.25 per barrel loss due to the settlement of crude oil derivative contracts.
Production expenses for first quarter 2011 were $5.24 per BOE on an accrued basis, compared to $3.15 per BOE on an accrued basis for the first quarter of 2010 and $3.69 per BOE on an accrued basis for the fourth quarter of 2010. The increase in production expense is primarily due to the continued addition of producing oil and gas properties, exposure to new operators and new development areas, an increase in working interests, mature wells utilizing artificial lift and the general aging of our production.
Depletion expense for first quarter 2011 was $6.9 million, or $19.25 per BOE. As such, Northern Oil's first quarter 2011 depletion expense was consistent with its peer group in the Bakken and Three Forks play.
General and Administrative (G&A) expense, net of share based compensation, for first quarter 2011 was $1.4 million, compared to $1.1 million in the fourth quarter of 2010. Share based compensation for the first quarter 2011 was $1.9 million, compared to $835,363 in the fourth quarter of 2010. The increase in share based compensation was primarily due to share issuances related to amended and restated employment agreements which included the extension of non-compete terms from one to three years along with various other modifications.
Adjusted EBITDA for the first quarter 2011 was $18.6 million, or $0.29 per diluted share, which represents a 190% increase over Adjusted EBITDA of $6.4 million, or $0.14 per diluted share for the first quarter 2010 and a 2% increase compared to the fourth quarter of 2010.
Northern Oil defines Adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation, depletion and amortization, (iv) accretion of abandonment liability, (v) pre-tax unrealized gain and losses on commodity risk and (vii) non-cash expenses relating to share-based payments recognized under Accounting Standards Codification (ASC) Topic 718. Net income excluding unrealized mark-to-market hedging gains or losses and Adjusted EBITDA are non-GAAP measures. A reconciliation of these measures to GAAP is included in our accompanying financial tables found later in this release. Northern Oil's management believes the use of non-GAAP financial measures provides useful information to investors to gain an overall understanding of current financial performance. Specifically, management believes the non-GAAP results included herein provide useful information to both management and investors by excluding certain expenses, unrealized commodity gains and losses, and a depletion adjustment that management believes are not indicative of Northern Oil's core operating results. In addition, these non-GAAP financial measures are used by Northern Oil's management for budgeting and forecasting as well as subsequently measuring Northern Oil's performance, and management believes that Northern Oil is providing investors with financial measures that most closely align to its internal measurement processes.
2011 DRILLING AND PRODUCTION GUIDANCE
As of May 9, 2011, Northern Oil held working interests in a total of 395 gross (34.08 net) producing wells. As of May 9, 2011, Northern Oil was also participating in 138 gross (12.94 net) Bakken or Three Forks wells drilling, awaiting completion or completing, meaning Northern Oil has participated in a total of 533 gross wells since its inception.
Northern Oil affirms that it expects to spud approximately 40 net wells throughout 2011 and reaffirms its guidance to produce an average of 6,500 to 7,100 BOEPD in 2011.
Northern Oil continues to develop its core Bakken and Three Forks acreage position at an accelerating pace. According to the North Dakota Industrial Commission, 178 rigs are currently drilling in North Dakota. The significant rig increase in the play continues to accelerate the development of Northern Oil's core acreage position.
2011 CAPITAL EXPENDITURES
Northern Oil expects to drill approximately 40 net wells in 2011 with drilling capital expenditures approximating $252 million. Based on current, yet evolving, conditions in the field, Northern Oil expects to continue to deploy additional funds toward further strategic acreage acquisitions during 2011. Northern Oil currently expects to fund all 2011 drilling commitments using cash-on-hand, cash flow and its undrawn credit facility.
During first quarter 2011, Northern Oil acquired leasehold interests covering an aggregate of 11,514 net mineral acres for an average of $1,601 per net acre and an aggregate of $18.4 million. Of the acquired 11,514 net acres, 3,417 net acres were permitted, under the bit or began producing as of March 31, 2011.
As of March 31, 2011, Northern Oil had 37,226 net acres either held by production or under the bit, which represents approximately 25% of Northern Oil's total Bakken and Three Forks position. Northern Oil expects that approximately 50% of its current acreage will be held by production or under the bit by the end of 2011.
CONTINUING THREE FORKS DELINEATION
Northern Oil recently participated in the Water Moccasin #1-34H, a successful Three Forks test well operated by Slawson Exploration in the southern Mountrail County Windsor project area. Northern Oil controls a 44.14% working interest in the well, which had an initial production rate of 1,490 BOEPD. The well had an initial tubing pressure of 2,800 psi on a 12/64th choke.
On the same drilling pad as the Water Moccasin #1-34H, yet different spacing unit, Slawson Exploration recently completed the Vagabond #1-27H well. The well is a Bakken producer in which Northern Oil controls a 49.04% working interest. The well had an initial production rate of 1,229 BOEPD and an initial tubing pressure of 3,100 psi on an 11/64th choke.
Michael Reger, Chief Executive Officer, commented: "The Water Moccasin and Vagabond results confirm the expanding productivity of the Three Forks formation and the efficiencies gained from pad drilling. Slawson Exploration has received approval from the North Dakota Industrial Commission to drill six wells per spacing unit in the Windsor project area."
STOCK REPURCHASE PROGRAM
Northern Oil also today announced that its board of directors approved a stock repurchase program to acquire up to $150 million of Northern Oil's outstanding common stock. The stock repurchase program will allow Northern Oil to repurchase its shares from time to time in the open market and in negotiated transactions.
Michael Reger, Chief Executive Officer, commented, "With over 25% of our Bakken and Three Forks position developed or under the bit, we believe we are moving ahead at an excellent pace. Importantly, we continue to acquire acreage at prices significantly below levels indicated in recent publicly-announced transactions conducted by other industry participants. We believe our expertise and specialty in non-operated interests continues to yield excellent results and look forward to continuing to add to our acreage inventory throughout 2011. With no debt, cash, receivables and short-term investments of approximately $150 million, we are well positioned to fund the development of our core acreage position in the Bakken and Three Forks play."
Northern Oil and Gas, Inc. is an exploration and production company based in Wayzata, Minnesota. Northern Oil's core area of focus is the Williston Basin Bakken and Three Forks play in North Dakota and Montana.