Northern Oil and Gas, Inc. announces 2012 third quarter results of operations
Friday, Nov 09, 2012

WAYZATA, Minn., Nov. 8, 2012 /PRNewswire/ -- Northern Oil and Gas, Inc. (NYSE MKT: NOG) ("Northern Oil") today announced 2012 third quarter results of operations.

2012 THIRD QUARTER HIGHLIGHTS

Quarterly production of 1,037,972 barrels of oil equivalent ("Boe"), or 11,282 average Boe per day

96% year-over-year production growth compared to 2011 third quarter

Oil and Gas Sales including the impact of settled derivatives of $82.4 million, representing a 97% year-over-year increase compared to 2011 third quarter

10.9 net wells completed and placed into production during 2012 third quarter, resulting in 98.5 total net producing wells as of September 30, 2012

Adjusted Net Income for the third quarter of 2012 was $16.7 million, or $0.27 per diluted share.  This compares to $0.22 per diluted share for the second quarter of 2012.  Adjusted Net Income for the third quarter of 2012 excludes the impact of unrealized mark-to-market losses on derivative instruments and severance expenses in connection with the departure of our former president.  Northern Oil's GAAP net income for the third quarter of 2012 was $0.3 million, or less than $0.01 per diluted share, as compared to $43.6 million, or $0.70 per diluted share, in the second quarter of 2012.

For the third quarter of 2012, Northern Oil's oil and gas sales including the impact of settled derivatives was $82.4 million, a sequential increase of 19% as compared to the second quarter of 2012.  Adjusted EBITDA for the third quarter of 2012 was $63.1 million, a sequential increase of 19% as compared to the second quarter of 2012.

ACREAGE UPDATE

As of September 30, 2012, Northern Oil controlled approximately 184,000 net acres in the Williston Basin Bakken and Three Forks plays.  During the third quarter of 2012, Northern Oil acquired or earned through farm-in arrangements leasehold interests covering an aggregate of 3,815 net acres in its key prospect areas, for an average cost of approximately $2,060 per net acre.

As of September 30, 2012, Northern Oil controlled approximately 114,000 net acres that were developed, held by production, held by operations or permitted, representing approximately 62% of Northern Oil's overall Williston Basin position.  Approximately 72% of Northern Oil's acreage position in North Dakota was developed, held by production, held by operations or permitted as of September 30, 2012.

DRILLING AND COMPLETIONS UPDATE

During the third quarter of 2012, Northern Oil participated in 149 gross (10.9 net) wells that were completed and placed into production.  As a result, Northern Oil's producing wells totaled 1,104 gross (98.5 net) as of September 30, 2012.  In addition to these wells, Northern Oil was participating in 153 gross (10.1 net) Bakken or Three Forks wells drilling or awaiting completion at September 30, 2012.  Northern Oil participated in approximately 418 gross (32.7 net) wells that were spud during the first nine months of 2012.

In the third quarter of 2012, oil, natural gas and NGL sales, including the effect of settled derivatives, increased 97% as compared to the third quarter of 2011, driven primarily by a 96% increase in production.  Higher oil price differentials in the third quarter of 2012 lowered the average realized price in the third quarter of 2012 as compared to the same period in 2011.  The oil price differential during the third quarter of 2012 was $10.18 per barrel, as compared to $4.91 per barrel in the third quarter of 2011.

As a result of forward oil price changes, Northern Oil recognized mark-to-market non-cash derivative losses of $22.3 million in the third quarter of 2012 compared to non-cash gains of $27.1 million in the third quarter of 2011.  Additionally, as a result of crude oil derivative settlements, Northern Oil incurred a net cash gain of $1.7 million in the third quarter of 2012, compared to a loss of $1.8 million in the third quarter of 2011.

Production expenses were $8.7 million in the third quarter of 2012 compared to $3.9 million in the third quarter of 2011.  Northern Oil experiences increases in aggregate operating expenses as it adds new wells and maintains production from existing properties. On a per unit basis, production expenses per Boe increased from $7.40 per barrel sold in the third quarter of 2011 to $8.42 in the third quarter of 2012.  This increase was primarily due to increased saltwater disposal costs and production-enhancing workover activities.

Northern Oil pays production taxes based on realized oil and gas sales.  These costs were $8.1 million in the third quarter of 2012, compared to $4.3 million in the third quarter of 2011.  Production taxes were 10.0% in the third quarter of 2012 and 9.8% in the third quarter of 2011.  The third quarter of 2012 average production tax rate was higher than the third quarter of 2011 average due to greater levels of production from properties that did not qualify for reduced rates or tax exemptions during 2012.

Total general and administrative expense (including non-cash share based compensation) was $9.5 million for the third quarter of 2012, compared to $4.1 million for the third quarter of 2011. General and administrative expenses for the third quarter of 2012 include a one-time severance charge in connection with the departure of our former president comprised of $4.3 million of non-cash, share based compensation and other expenses estimated at $0.6 million.  General and administrative expenses net of non-cash share based compensation were approximately $2.5 million for the third quarter of 2012, compared to $1.9 million for the third quarter of 2011.  Excluding the one-time severance charge, the year-over-year increase in general and administrative expenses is primarily the result of increased staffing to support Northern Oil's growth.

Depletion, depreciation, amortization and accretion ("DD&A") was $28.1 million in the third quarter of 2012, compared to $10.8 million in the third quarter of 2011.  The increase in aggregate DD&A expense for the third quarter of 2012 compared to the third quarter of 2011 was driven by a 96% increase in production.  Depletion expense, the largest component of DD&A, was $26.93 per Boe in the third quarter of 2012, compared to $20.34 per Boe in the third quarter of 2011, which increase was primarily due to increased estimates of future drilling, completion and operating costs.

The provision for income taxes was $0.2 million in the third quarter of 2012, compared to $17.2 million in the third quarter of 2011.  The effective tax rate in the third quarter of 2012 was 41.6%, compared to an effective tax rate of 37.5% in the third quarter of 2011.

Net income was $0.3 million in the third quarter of 2012, compared to net income of $28.6 million in the third quarter of 2011.  Net income per fully diluted share was $0.00 in the third quarter of 2012, compared to $0.46 in the third quarter of 2011.

Adjusted Net Income for the third quarter of 2012 was $16.7 million, or $0.27 per diluted share, as compared to $11.9 million, or $0.19 per diluted share, for the third quarter of 2011.  The increase in Adjusted Net Income is primarily due to Northern Oil's continued addition of crude oil and natural gas production from new wells, which was partially offset by a higher depletion rate in the third quarter of 2012 compared to the third quarter of 2011.  Northern Oil defines Adjusted Net Income as net income (loss) excluding (i) unrealized gain (loss) on derivative instruments, net of tax, and (ii) severance expenses in connection with the departure of Northern Oil's former president, net of tax.

Adjusted EBITDA for the third quarter of 2012 was $63.1 million, which represents a 98% increase over Adjusted EBITDA of $31.9 million for the third quarter of 2011.  Northern Oil defines Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, depletion, amortization and accretion, (iv) unrealized gain (loss) on derivative instruments and (v) non-cash share based compensation expense.

Adjusted Net Income and Adjusted EBITDA are non-GAAP measures.  A reconciliation of these measures to their most directly comparable GAAP measure is included in the accompanying financial tables found later in this release.  Management believes the use of these 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 and unrealized derivatives gains and losses that management believes are not indicative of Northern Oil's core operating results.  In addition, these non-GAAP financial measures are used by management for budgeting and forecasting as well as subsequently measuring Northern Oil's performance, and management believes it is providing investors with financial measures that most closely align to its internal measurement processes.

ABOUT NORTHERN OIL AND GAS

Northern Oil and Gas, Inc. is an exploration and production company with a core area of focus in the Williston Basin Bakken and Three Forks play in North Dakota and Montana.

More information about Northern Oil and Gas, Inc. can be found at www.NorthernOil.com.

SOURCE Northern Oil and Gas, Inc.

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