Northern Oil and Gas, Inc. has announced the completion of its reverse stock split and other business updates.
REVERSE STOCK SPLIT
Northern completed the previously announced 1-for-10 reverse split of its common stock. This process has been designed to reduce costs for ownership, improve Northern’s ability to participate in broad market indices, and to better represent its financial health to prospective and existing investors. The reverse split became effective at 11:59pm on September 18, 2020 and Northern’s common stock will start trading on a split-adjusted basis today.
STRATEGIC OUTLOOK
Northern’s unique non-operated model affords the Company the ability to be highly selective in its capital allocation process, both on its existing organic footprint and throughout a multitude of day to day Ground Game acquisition opportunities.
With capital becoming increasingly scarce across the E&P industry, operators and non-operators alike are turning to external parties to solve their non-operated working interest budget needs. Given this environment, Northern has a superior opportunity set to deploy capital in high return prospective projects. The pipeline of visible investment opportunities currently stands in the hundreds of millions of dollars, both in the Williston Basin as well as the Permian Basin, where Northern announced its initial acquisition on September 10th. In addition, Northern continues to expect to end 2020 with approximately 30 net wells in process.
Management remains focused on investing in assets that are in preeminent oil and gas basins, operated by best-in-class teams, and projected to meet stringent economic thresholds. To this point, any investment currently under consideration is required to be accretive to Northern’s peer leading 2019 return on capital employed (ROCE).
Armed with a growing opportunity set and a rigorous investment methodology, Northern continues to execute on its multi-year path to generate free cash flow, reduce debt, improve margins, and grow the business in a responsible manner.
RISK MITIGATION AND HEDGING UPDATE
Northern has amongst the best hedging programs in the industry. The Company remains hedged on the majority of its oil production through 2021 at attractive oil prices. Specifically, Northern has hedged an average of 24,787 barrels of oil per day for the fourth quarter of 2020 at approximately $58 per barrel and 21,393 barrels per day in 2021 at approximately $55 per barrel. This hedge profile supports management’s confidence in the Company’s ability to generate free cash flow in 2020 and beyond, underpinned by a sustaining capital program and not just a reduction of spending below maintenance levels.
With its surplus cash, Northern plans to continue to reduce outstanding borrowings. Year-to-date Northern has aggressively reduced its highest cost debt, the Senior Secured Notes, by approximately $130.0 million through exchanges and open market repurchases. As previously announced, management does not anticipate additional debt-for-equity exchanges in 2020, instead debt reduction will be driven from the Company’s cash flow. Additionally, Northern expects steady reductions to its revolver borrowings at year-end 2020 and continuing throughout 2021, inclusive of scheduled maturities.
OPERATIONS REVIEW
As previously announced on September 10th, Northern’s operations continue to improve. Northern raised its production guidance for the third quarter of 2020, with production steadily returning to sales. Pricing differentials have improved, and lease operating unit costs are expected to be down substantially since the peak of the coronavirus crisis in the second quarter of 2020. Consistent with previous guidance, Northern expects cash flow from operations to exceed that of total capital expenditures in both the third quarter and fourth quarter, as well as for the entirety of 2021. Northern’s conservative budgeting for 2020 has allowed for capital to be deployed to bolt-on acquisitions which will serve to increase cash flows and production in 2021 and beyond at high returns on capital employed.
MANAGEMENT COMMENTS
“As a company we are well aware of the challenges for energy equities,” commented Mike Kelly, EVP of Finance. “But Northern’s unique, high return business model, visible free cash flow profile, strong hedge protection, and an incredible investment opportunity set is at odds with our current equity valuation by the markets.”
“Furthermore, with a record number of high-quality wells in process we continue to position the Company for a strong recovery that can be measured through reduced indebtedness, sustained high-levels of free cash flow, and measured growth when appropriate over a multi-year period.”
