Northern Oil and Gas, Inc. (NOG)

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Northern Oil and Gas (NOG)

Q3 2012 Earnings Call

November 08, 2012 10:00 am ET


Michael L. Reger - Co-Founder, Chairman and Chief Executive Officer

Thomas W. Stoelk - Chief Financial Officer and Principal Accounting Officer


Ryan Oatman - SunTrust Robinson Humphrey, Inc., Research Division

Jean-Baptiste Jouve - RBC Capital Markets, LLC, Research Division

Peter Kissel - Howard Weil Incorporated, Research Division

Marshall H. Carver - Capital One Southcoast, Inc., Research Division

Curtis Ryan Trimble - Global Hunter Securities, LLC, Research Division



Good day, and welcome to the Northern Oil and Gas Incorporated Third Quarter 2012 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Michael Reger. Please go ahead.

Michael L. Reger

Good morning, my name is Michael Reger. I'm the Chairman and Chief Executive Officer of Northern Oil and Gas. Also with me today is Tom Stoelk, our Chief Financial Officer. We're happy to welcome you to the 2012 third quarter earnings call for Northern Oil and Gas.

Before we begin this morning's call, you should be aware that certain statements made during this call may contain forward-looking statements that are based upon management's expectations, estimates, projections and assumptions and that involve certain risks and uncertainties. We encourage you to review the various risk factors relating to our business, which we most recently updated in our Form 10-Q that we filed with the SEC.

These forward-looking statements relate to our future plans, objectives, expectations and intentions. Our actual results could differ materially from those contemplated by these statements, partially as a result of the various assumptions relied upon in making such statements.

During this conference call, we will also make references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures can be found in the earnings release that we put out this morning.

Third quarter of 2012 was another record quarter for us in terms of production, oil and gas sales, and adjusted EBITDA. Northern Oil third quarter production was up 96% compared to the same period last year. Our total production for the quarter was 1,038,000 barrels of oil equivalent or BOE, and our average daily production for the quarter was approximately 11,300 BOE. During the quarter, we added 149 gross, 10.9 net wells to our production base, as drilling and completion activity remain strong in North Dakota and Montana. Through the first 9 months of 2012, the total number of wells completed and added to our production base was 440 gross or 40.6 net wells. That raised our total producing wells as of the end of the third quarter to 1,104 gross wells or 98.5 net wells. In addition, we have participated in approximately 32.7 net wells that were spud during the first 9 months of 2012, which leads us on track to spud approximately 44 net wells for the year as previously estimated.

We have also continued to grow our acreage position, which is as of September 30, 2012, stands at approximately 184,000 net acres in the Williston basin. During the third quarter of 2012, we acquired leasehold interest covering 3,815 net acres for an average cost of just over $2,000 per acre. We have approximately 114,000 net acres, either developed, held by production, held by operations or permitted in the Williston basin. That represents 62% of our total acreage position. Also 72% of our total North Dakota acreage position was developed, held by production, held by operations or permitted at the end of the third quarter. And we expect very limited acreage expirations throughout the remainder of 2012.

At this point, I'm going to turn the call over to Tom Stoelk, our Chief Financial Officer, to discuss that some financial highlights from the third quarter.

Thomas W. Stoelk

Thanks, Mike. This morning, we reported GAAP net income of $300,000 for the third quarter, however, this included a $13.4 million unrealized non-cash loss on mark-to-market derivative instruments net of tax, and $3 million of severance charges net of tax in connection with the departure of our former President. Excluding these items, we reported adjusted net income of $16.7 million or $0.27 per diluted share. As Mike mentioned, our earnings release includes a reconciliation of the non-GAAP numbers to net income and net income per share.

We continue to see strong cash flow growth in the third quarter. We reported adjusted EBITDA of $63.1 million for the third quarter, that's a 98% year-over-year increase compared to the third quarter of 2011, and is a 19% sequential increase when compared to the second quarter of this year. Adjusted EBITDA growth in the third quarter 2012 was compared to the second quarter 2012, was fueled by increased production levels and higher realized prices per BOE.

During the third quarter of 2012, oil and gas sales including derivative settlements reached $82.4 million, that represents a 97% year-over-year increase compared to the third quarter of 2011, and a $13 million or 19% higher on a sequential quarter-over-quarter basis.

Comparing the third quarter of 2012 versus the third quarter of 2011, oil and gas sales growth was driven by a 96% increase in production. Realized pricing for the third quarter 2012 including a $1.7 million gained from settled derivatives was $79.38 per BOE. That's up just $0.16 from a year ago. Compared to last quarter, realized pricing increased $6.19 per BOE or 8%. In addition to realized hedging gains during the quarter, the sequential quarter improvement of realized pricing was driven by a drop in Bakken crude oil differentials. Comparing the second quarter of 2012 to the third quarter of 2012, the average oil differentials declined by $3.54 and averaged $10.18 per barrel of oil equivalent. We remain highly oil-weighted with 92% of oil production being crude oil during the third quarter.

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