Northern Oil & Gas, Inc 8-K/A, filed Jun 11, 2021
Northern Oil & Gas, Inc. (NOG)
About this 8-K/A
Northern Oil & Gas, Inc filed this 8-K/A on June 11, 2021, reporting on events of April 1, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
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EXPLANATORY NOTE
On April 1, 2021, Northern Oil and Gas, Inc. (the “Company”) completed the acquisition of certain oil and gas properties, interests and related assets (the “Acquired Assets”) from Reliance Marcellus, LLC (the “Reliance Acquisition”).
This Amendment No. 1 on Form 8-K/A is being filed by the Company to amend its Current Report on Form 8-K filed with the Securities and Exchange Commission on April 6, 2021 (the “Original Report”), solely to provide the disclosures required by Item 9.01 of Form 8-K that were omitted from the Original Report, including the required financial statements of the Acquired Assets and the required pro forma financial information. Except as otherwise provided herein, the disclosures made in the Original Report remain unchanged.
| Item 9.01. | Financial Statements and Exhibits. |
(a) Financial Statements of Businesses Acquired.
The statement of revenues and direct operating expenses of the Acquired Assets for the year ended December 31, 2020, are filed as Exhibit 99.2 hereto and incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma financial statements of the Company as of and for the year ended December 31, 2020, giving effect to the Reliance Acquisition, are furnished as Exhibit 99.3 hereto and incorporated herein by reference.
(d) Exhibits.
| Exhibit No. | Description | |
| 23.1 | Consent of Deloitte Haskins & Sells LLP | |
| 23.2 | Consent of Cawley, Gillespie & Associates, Inc. | |
| 23.3 | Consent of Cawley, Gillespie & Associates, Inc. | |
| 99.2 | Statement of Revenue and Direct Operating Expenses of the Acquired Assets for the year ended December 31, 2020 | |
| 99.3 | Unaudited Pro Forma Financial Statements as of and for the year ended December 31, 2020 | |
| 104 | The cover page from this Current Report on Form 8-K, formatted in Inline XBRL. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: June 11, 2021 | NORTHERN OIL AND GAS, INC. |
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| By | /s/ Erik J. Romslo |
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| Erik J. Romslo | ||||||||
| Chief Legal Officer and Secretary | ||||||||
EXHIBIT 23.1
CONSENT OF DELOITTE HASKINS & SELLS LLP
We consent to the incorporation by reference in Registration Statement Nos. 333- 225828, 333-225832, 333-225835, 333-227945, 333-255065, and 333-255066 on Form S-3, Registration Statement No. 333- 216887 on Form S-4, and Registration Statement Nos. 333-188999, 333-205617, 333-212929 and 333- 227948 on Form S-8 of Northern Oil and Gas, Inc. of our report dated June 11, 2021, relating to the Statement of Revenues and Direct Operating Expenses of certain Oil and Gas Assets in Marcellus Shale Play held by Reliance Marcellus LLC appearing in this Current Report on Form 8-K dated June 11, 2021.
/s/ Deloitte Haskins & Sells LLP
Mumbai, India
June 11, 2021
EXHIBIT 23.2
CONSENT OF CAWLEY, GILLESPIE & ASSOCIATES, INC.
Northern Oil and Gas, Inc.
601 Carlson Pkwy – Suite 990
Minnetonka, Minnesota 55305
We hereby consent to the inclusion in or incorporation by reference into the Registration Statements on Form S-3 (File Nos. 333-255065; 333-255066) of Northern Oil & Gas, Inc. (the “Company”), of our report dated January 31, 2021, relating to estimates of the Company’s oil and gas reserves as of December 31, 2020, as referenced in, and filed as Exhibit 99.2 to, the Company’s Current Report on Form 8-K filed on February 3, 2021. We also hereby consent to all references to our firm or such report included in or incorporated by reference into such Registration Statements.
CAWLEY, GILLESPIE & ASSOCIATES, INC.
/s/ Matthew K. Regan, P.E.
Vice President
Austin, Texas
June 10, 2021
EXHIBIT 23.3
CONSENT OF CAWLEY, GILLESPIE & ASSOCIATES, INC.
Northern Oil and Gas, Inc.
601 Carlson Pkwy – Suite 990
Minnetonka, Minnesota 55305
We hereby consent to the inclusion in or incorporation by reference into the Registration Statements on Form S-3 (File Nos. 333-255065; 333-255066) of Northern Oil & Gas, Inc. (the “Company”), of our report dated January 22, 2021, relating to estimates of the oil and gas reserves as of December 31, 2020 for the Reliance Marcellus, LLC assets to be acquired by the Company, as referenced in, and filed as Exhibit 99.3 to, the Company’s Current Report on Form 8-K filed on February 3, 2021. We also hereby consent to all references to our firm or such reports included in or incorporated by reference into such Registration Statements.
CAWLEY, GILLESPIE & ASSOCIATES, INC.
/s/ Matthew K. Regan, P.E.
Vice President
Austin, Texas
June 10, 2021
Exhibit 99.2
Independent Auditors’ Report
To the Board of Managers of
Reliance Marcellus LLC.
We have audited the accompanying Statement of Revenues and Direct Operating Expenses of certain Oil and Gas Assets in Marcellus Shale Play held by Reliance Marcellus LLC which comprise the revenues and direct operating expenses of certain oil and gas properties as defined in Note 1 (the “Properties”), for the year ended December 31, 2020 and the related notes (the financial statement).
Management’s Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of the financial statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statement that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statement referred to above present fairly, in all material respects, the
Regd. Office: Indiabulls Finance Centre. Tower 3.27th - 32nd Floor, Senapati Bapat Marg, Elphinstone Road (West), Mumbai - 400 013, Maharashtra, India,(LLP Identification No. AAB-8737)
revenues and direct operating expenses of the Properties for the year ended December 31, 2020, as described in Note 1 to the financial statement, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
We draw attention to Note 1 to the financial statement, which describes that the accompanying financial statement were prepared for the purpose of complying with the rules and regulations of the United States Securities and Exchange Commission for inclusion in Northern Oil and Gas’s Form 8-K/A and are not intended to be a complete presentation of the Properties. Our opinion is not modified with respect to this matter.
/s/ Deloitte Haskins & Sells LLP
Mumbai, India
June 11, 2021
Statement of Revenues and Direct Operating Expenses of
certain Oil and Gas Assets in Marcellus Shale Play held by Reliance Marcellus LLC
(in USD thousands)
| Year Ended | ||||
| December 31, 2020 | ||||
| Revenues |
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| Natural gas and Condensate revenues |
39,533 | |||
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| Total Revenues |
39,533 | |||
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| Direct Operating Expenses |
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| Production expenses |
3,957 | |||
| Production taxes |
1,773 | |||
| Other direct expenses |
22,667 | |||
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| Total Direct Operating Expenses |
28,397 | |||
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| Revenues in excess of direct operating expenses |
11,136 | |||
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The accompanying notes are an integral part of the statement of revenues and direct operating expenses.
Notes to Statement of Revenues and Direct Operating Expenses of certain Oil and Gas Assets in Marcellus Shale Play held by Reliance Marcellus LLC
1. Basis of Presentation
On April 6, 2021, Northern Oil and Gas Inc., (“NOG”) filed a Current Report in Form 8-K (the “Closing Report”) to report that NOG completed the acquisition of certain Oil and Gas Assets (“Assets”) in Marcellus Shale Play held by Reliance Marcellus LLC (“RMLLC”, the “Company”) pursuant to the purchase and sale agreement (the “PSA”), dated as of February 3, 2021. The accompanying Statement of Revenues and Direct Operating Expenses (“the Statement”) represent the direct undivided interests in the revenue and direct operating expenses associated with the Assets acquired by NOG under PSA.
The Statement of Revenues and Direct Operating Expenses has been derived from the historical financial records of RMLLC that were originally not prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and has been duly adjusted for compliance with US GAAP. The Statement varies from a complete income statement in accordance with US GAAP in that they do not reflect certain incomes realized from derivative contracts, sub-lease of assets & other miscellaneous income. The Statement also does not reflect certain expenses incurred in connection with the ownership and operation of the Assets, including but not limited to depreciation, depletion and amortization, impairments, provisions for future obligations on certain contracts relating to transportation demand and minimum volume commitments, general and administrative expenses incurred by the Company, finance costs and federal and state income taxes. Furthermore, no balance sheet has been presented for the Assets because the Assets were not accounted for as or operated as a separate subsidiary or division of RMLLC and complete financial statements thereof are not available, nor has information about the Assets’ operating, investing and financing cash flows been provided for similar reasons. Accordingly, the Statement is presented in lieu of the full financial statements as required under Item 3-05 of the Securities and Exchange Commission’s Regulation S-X. In addition, the Statement is not indicative of the results of operations for the Assets on a go forward basis.
The Statement is prepared by the Company for the purpose of submitting it to NOG pursuant to the PSA and for their required filing to United States Securities and Exchange Commission. NOG has confirmed that the acquisition under the PSA meets the definition of significance test in accordance with Regulation S-X Rule 3-05 of the United States Securities and Exchange Commission, and therefore, the preparation of Statement is for the purpose of meeting the legal requirement. The Company has determined that the application of the above financial reporting framework and presentation of the Financial Information is an acceptable basis in the United States of America (US). NOG has also confirmed that under the SEC Financial reporting manual, the Company need not provide a full set of financial statements.
Under the PSA, NOG acquired, RMLLC’s title, interest in oil and gas properties, rights, and related assets that are defined and described as “Assets’ in the PSA, for an aggregate purchase price of USD 250 million in cash and warrants that give entitlement to purchase 3,250,000 common shares of NOG at an exercise price of $14.00 per common share in seven years from Closing. The sale is subject to certain preferential rights, assignment rights and customary purchase price adjustments. Pursuant to the Section 4.6 of the PSA, preferential rights were exercised by other working interest owner for an unadjusted purchase price of USD 69.4 million in cash. Pursuant to the Section 13.7 of the PSA, 30% of remaining assets have been assigned to Arch Investment Partners LLC for an unadjusted purchase consideration of USD 59.5 million in cash; and thus NOG retained 70% of remaining assets at an unadjusted purchase consideration of USD 138.7 million comprising of USD 121.1 million in cash and warrants giving entitlement to purchase 3,250,000 common shares of NOG as described above. Accordingly, the accompanying Statement represent NOG’s 70% of the direct undivided interests in the revenues and direct operating expenses associated with the Assets acquired by NOG under the PSA.
Aside from the Assets being sold to NOG, RMLLC presently has investments in RIL USA Inc, Reliance Eagleford Upstream GP LLC, Reliance Eagleford Upstream Holding LP and Reliance Digital Health USA Inc.
2. Summary of Significant Accounting Policies
Use of Estimates:
The Statement is derived from the historical operating statements of RMLLC, duly adjusted for compliance with US GAAP, which requires management to make estimates and assumptions that affect the amounts reported in the Statement. Actual results could be different from those estimates.
Revenue Recognition:
Revenue is recognized based on the delivery of performance obligation and assessment of when control of promised goods is transferred to a customer, at an amount that reflects the consideration to which the Company is expected to be entitled to in exchange for those goods. Revenue is measured at the amount of the transaction price allocated to that performance obligation. Revenue from the production of oil and gas in which the Company has an interest with other producers is recognized based on the Company’s working interest (the entitlement method).
The performance obligation in case of sale of products is satisfied at a point in time as per the terms of agreement with the individual customer.
Revenue is recognized net of royalties.
Direct Operating Expenses:
Direct operating expenses are recognized when incurred and consist of the direct expenses of operating the Assets. Direct operating expenses include production expenses, production taxes and other direct expenses. Further, production expenses include lease operating expenses; production taxes include Pennsylvania impact fees; and other direct expenses include transportation expenses, marketing expenses, commitment charges towards transportation demand and minimum volume commitments to the extent applicable to the period being reported, operator’s general and administrative expenses, overheads charges and other expenses. Lease operating expenses include well repair expenses, wastewater disposal costs, facility maintenance expenses, and other field-related expenses. Lease operating expenses also include expenses directly associated with support personnel, support services, equipment and facilities directly related to oil, natural gas, and NGL production activities. Other expenses include expenses incurred in connection with insurance, lease renewals, exploration costs and expenses in connection with abandoned wells.
3. Commitments and Contingencies
Effective with the acquisition of the Assets, NOG has assumed certain contracts that provide gathering and firm transportation services on the gathering and pipeline systems respectively, associated with the production from the Assets. The remaining term of these contracts range from 28 months to 58 months from the Effective Date of the PSA.
Accordingly, NOG will be obligated to transportation demand charges for its proportionate share for the term of transportation contracts regardless of the amount of pipeline capacity it utilizes. Additionally, the gathering contracts, for their remaining term, requires NOG to pay annual deficiencies related to certain compressor expansion projects, only if the annual deliveries remain lower than the annual volume commitments through these compression stations.
The activities of the Assets may become subject to potential claims and litigation in the normal course of operations.
4. Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is a non-operator and the Operator of the asset is the key counterparty. Any asset related credit risks are managed through various provisions of joint operating agreements dealing with counterparty default and delays in payments.
5. Subsequent Events
The Company has evaluated subsequent events through June 10, 2021, the date the Statement of Revenues and Direct Operating Expenses were available to be issued, and has concluded that no events need to be reported in relation to this period.
6. The Statement has been signed by an authorized signatory on behalf of the Company.
For Reliance Marcellus LLC
/s/ Walter Van de Vijver
Walter Van de Vijver
Director
Place: Houston
Date: June 10, 2021
Supplemental Natural Gas and Oil Reserves Information (UNAUDITED)
Oil and Natural Gas Reserve Information
The reserve estimates at December 31, 2020 presented in the table below were based on internal estimates prepared by internal reserve engineers, in accordance with guidelines established by the Securities and Exchange Commission. All of the natural gas and oil producing activities of the Properties were conducted in the United States. Prior year reserve studies were not made for the Properties, as such, Northern Oil and Gas, Inc. prepared a reserve study for the most recent period presented and computed reserves for prior periods using historical production amounts. There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact.
| Natural Gas | ||||
| (Mmcf) | ||||
| Total proved reserves: |
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| Balance, December 31, 2019 |
453,993 | |||
| Production |
(29,801 | ) | ||
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| Balance, December 31, 2020 |
424,192 | |||
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| Proved developed |
222,947 | |||
| Proved undeveloped |
201,245 | |||
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| Balance, December 31, 2020 |
424,192 | |||
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Future Net Cash Flows
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves (Standardized Measure) is a disclosure requirement under Accounting Standards Codification 932. The Standardized Measure does not purport to be, nor should it be interpreted to present, the fair market value of the proved oil and natural gas reserves of the Properties, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used. An estimate of fair market value would also take into account, among other things, the recovery of reserves not presently classified as proved, the value of unproved Properties, and consideration of expected future economic and operating conditions.
For the December 31, 2020 calculation in the following table, estimated future cash inflows were computed using a 12-month unweighted average first-day-of-the-month price estimated to be $1.50 per MCF, with no escalation in future years. Operating costs, production, and future development costs are based on current costs with no escalation in future years. The estimated future net cash flows are then discounted at a rate of 10%. No deduction has been made for general and administrative expenses, interest expense, depreciation, depletion and amortization or for federal or state income taxes.
The following table sets forth unaudited information concerning future net cash flows for oil and natural gas reserves.
| (In thousands) | At December 31, 2020 | |||
| Future Cash Inflows |
$ | 635,715 | ||
| Future Production Costs |
(412,318 | ) | ||
| Future Development Costs |
(120,372 | ) | ||
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| Future Net Cash Flows |
103,025 | |||
| 10% Annual Discount for Estimated Timing of Cash Flows |
(51,791 | ) | ||
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| Standardized Measure of Discounted Future Net Cash Flows |
$ | 51,234 | ||
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The following table sets forth the principal sources of change in discounted future net cash flows associated with the Properties for the year ended December 31, 2020 (in thousands).
| Beginning of Year |
$ | 60,433 | ||
| Sales, net of production costs |
(15,242 | ) | ||
| Accretion of discount |
6,043 | |||
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| End of Year |
$ | 51,234 | ||
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EXHIBIT 99.3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS AND OTHER DATA
On April 1, 2021 (the “Closing Date”), Northern Oil and Gas, Inc. (the “Company”) completed its previously announced acquisition (the “Reliance Acquisition”) of certain oil and gas properties, interests and related assets pursuant to that certain purchase and sale agreement (the “PSA”), dated as of February 3, 2021, by and between the Company and Reliance Marcellus, LLC (“Reliance”). In connection with the entry into the PSA, on February 3, 2021, the Company entered into a cooperation agreement (the “Cooperation Agreement”) with an unaffiliated third party, Arch Investment Partners, LLC (“Arch”). Pursuant to the Cooperation Agreement, the Company assigned an undivided 30% interest in and to the PSA, including the right to acquire an equivalent share of all assets transferred under the PSA, to Arch, with Arch assuming the obligation to fund 30% of the aggregate cash purchase price payable to Reliance under the PSA. As a result, on the Closing Date, the Company acquired an undivided 70% interest in the assets transferred under the PSA (the “Acquired Assets”). In accordance with the PSA and the Cooperation Agreement, the Company paid closing consideration to Reliance with respect of the Acquired Assets consisting of $120.9 million in cash (which included a $17.5 million cash deposit previously paid by the Company upon the execution of the PSA and held in escrow in accordance with the terms of the PSA) and 3,250,000 common stock warrants. The cash portion of the consideration is net of preliminary and customary purchase price adjustments and remains subject to final post-closing settlement between the Company and Reliance. At closing of the Reliance Acquisition, the Acquired Assets acquired by the Company consisted of approximately 95.3 net producing wells and 24.9 net wells in progress, as well as approximately 61,712 net acres in Pennsylvania.
The following unaudited pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, as amended by the final rule, Release No. 33-10786 (“Article 11”). The unaudited pro forma financial statements of the Company are adjusted to give pro forma effect to the Reliance Acquisition and the public offering of 12,500,000 shares of common stock, par value $0.001 per share, of the Company, of which approximately 90% was used to fund the Reliance Acquisition (the “Equity Offering”). In accordance with Article 11, the historical financial statements may be adjusted in the unaudited pro forma financial statements to give pro forma effect to provide for “Transaction Accounting Adjustments” reflecting only the application of required accounting for the transaction. The Company has not included any Management Adjustments as defined under Release No. 33-10786.
The following unaudited pro forma financial statements present (i) our unaudited pro forma balance sheet as of December 31, 2020 and (ii) our unaudited pro forma statement of operations for the year ended December 31, 2020. The unaudited pro forma balance sheet has been developed by applying pro forma adjustments to our historical balance sheet to give effect to the Reliance Acquisition and Equity Offering as if they had occurred on December 31, 2020. The unaudited pro forma statements of operations have been developed by applying pro forma adjustments to our historical statements of operations to give effect to the Reliance Acquisition and Equity Offering as if it had occurred on January 1, 2020.
NORTHERN OIL AND GAS, INC.
UNAUDITED PRO FORMA BALANCE SHEET (UNAUDITED)
12/31/2020
| (In thousands, except share and par value data) | Historical Northern Oil and Gas, Inc. |
Financing Adjustments |
Reliance Acquisition Adjustments |
Pro Forma Combined |
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| Assets |
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| Current Assets: |
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| Cash and cash equivalents |
$ | 1,428 | $ | 120,175 | $ | (120,852 | )(a),(c) | $ | 751 | |||||||
| Accounts receivable, net |
71,015 | — | — | 71,015 | ||||||||||||
| Advances to operators |
476 | — | — | 476 | ||||||||||||
| Prepaid expenses and other current assets |
1,420 | — | — | 1,420 | ||||||||||||
| Derivative Instruments |
51,290 | — | — | 51,290 | ||||||||||||
| Income tax receivable |
— | — | — | — | ||||||||||||
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| Total current assets |
125,629 | 120,175 | (120,852 | ) | 124,952 | |||||||||||
| Oil and Natural Gas Properties, Full Cost Method of Accounting: |
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| Proved properties |
4,393,533 | — | 140,076 | (b) | 4,533,609 | |||||||||||
| Unproved properties |
10,031 | — | 11,288 | (b) | 21,319 | |||||||||||
| Other property and equipment |
2,451 | — | — | 2,451 | ||||||||||||
| Less accumulated depreciation, depletion, amortization and impairment |
(3,670,811 | ) | — | — | (3,670,811 | ) | ||||||||||
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| Oil and natural gas properties, net |
735,204 | — | 151,364 | 886,568 | ||||||||||||
| Other Assets: |
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| Deferred income taxes |
— | — | — | — | ||||||||||||
| Derivative Instruments |
111 | — | — | 111 | ||||||||||||
| Acquisition Deposit |
— | — | — | — | ||||||||||||
| Other noncurrent assets, net |
11,145 | — | — | 11,145 | ||||||||||||
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| Total Assets |
$ | 872,089 | $ | 120,175 | $ | 30,512 | $ | 1,022,776 | ||||||||
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| Liabilities and Stockholders’ Equity (Deficit) |
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| Current Liabilities: |
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| Accounts payable |
$ | 35,803 | — | — | 35,803 | |||||||||||
| Accrued liabilities |
68,673 | — | — | 68,673 | ||||||||||||
| Accrued interest |
8,341 | — | — | 8,341 | ||||||||||||
| Derivative instruments |
3,078 | — | — | 3,078 | ||||||||||||
| Contingent Consideration |
493 | — | — | 493 | ||||||||||||
| Current Portion of Long-Term Debt |
65,000 | — | — | 65,000 | ||||||||||||
| Other Current Liabilities |
1,087 | — | — | 1,087 | ||||||||||||
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| Total current liabilities |
182,475 | — | — | 182,475 | ||||||||||||
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| Long-Term Liabilities: |
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| Long-term debt, net |
879,843 | — | — | 879,843 | ||||||||||||
| Derivative instruments |
14,659 | — | — | 14,659 | ||||||||||||
| Contingent Consideration |
— | — | — | — | ||||||||||||
| Asset retirement obligations, net of current portion |
18,366 | — | — | 18,366 | ||||||||||||
| Other noncurrent liabilities |
50 | — | — | 50 | ||||||||||||
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| Total Liabilities |
1,095,393 | — | — | 1,095,393 | ||||||||||||
| Commitments and Contingencies |
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| Stockholders’ Equity (Deficit): |
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| Preferred stock, par value $.001; 5,000,000 authorized; 2,218,732 Shares Outstanding at 12/31/2020 |
2 | — | — | 2 | ||||||||||||
| Common stock, par value $.001; 135,000,000 authorized; 45,908,779 Shares Outstanding at 12/31/2020 |
448 | 13 | — | (a),(c) | 461 | |||||||||||
| Member’s Equity |
— | — | ||||||||||||||
| Additional paid-in capital |
1,556,602 | 120,162 | 30,512 | (a),(c) | 1,707,276 | |||||||||||
| Accumulated deficit |
(1,780,356 | ) | — | — | (1,780,356 | ) | ||||||||||
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| Total stockholders’ equity |
(223,304 | ) | 120,175 | 30,512 | (72,617 | ) | ||||||||||
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| Total Liabilities and Stockholders’ Equity (Deficit) |
$ | 872,089 | $ | 120,175 | $ | 30,512 | $ | 1,022,776 | ||||||||
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See notes to unaudited pro forma combined financial statements
NORTHERN OIL AND GAS, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
| For the Year Ended December 31, 2020 | ||||||||||||||||
| (In thousands, except share and per share data) | Historical Northern Oil and Gas |
Historical Reliance |
Reliance Acquisition Adjustments |
Pro Forma Combined |
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| REVENUES |
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| Oil and Gas Sales |
$ | 324,052 | $ | 39,533 | — | $ | 363,585 | |||||||||
| Gain (Loss) on Derivative Instruments, Net |
228,141 | — | — | 228,141 | ||||||||||||
| Other Revenue |
17 | — | — | 17 | ||||||||||||
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| Total Revenues |
552,210 | 39,533 | — | 591,743 | ||||||||||||
| OPERATING EXPENSES |
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| Production Expenses |
116,336 | 3,957 | 22,667 | (h) | 142,960 | |||||||||||
| Other Direct Expenses |
— | 22,667 | (22,667 | )(h) | — | |||||||||||
| Production Taxes |
29,783 | 1,773 | — | 31,556 | ||||||||||||
| General and Administrative Expenses |
18,546 | — | 5,376 | (g) | 23,922 | |||||||||||
| Impairment Expense |
1,066,668 | — | 1,066,668 | |||||||||||||
| Depletion, Depreciation, Amortization, and Accretion |
162,120 | — | 9,189 | (d) | 171,309 | |||||||||||
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| Total Expenses |
1,393,453 | 28,397 | 14,565 | 1,436,415 | ||||||||||||
| INCOME (LOSS) FROM OPERATIONS |
(841,243 | ) | 11,136 | (14,565 | ) | (844,672 | ) | |||||||||
| OTHER INCOME AND EXPENSE |
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| Interest Expense, Net of Capitalization |
(58,503 | ) | — | — | (58,503 | ) | ||||||||||
| Write-Off of Debt Issuance Costs |
(1,543 | ) | — | — | (1,543 | ) | ||||||||||
| Gain (Loss) on Unsettled Interest Rate Derivatives |
— | — | — | — | ||||||||||||
| Loss on Unsettled Interest Rate Derivatives |
(1,019 | ) | — | — | (1,019 | ) | ||||||||||
| Loss on the Extinguishment of Debt |
(3,718 | ) | — | — | (3,718 | ) | ||||||||||
| Contingent Consideration Gain/(Loss) |
(169 | ) | — | — | (169 | ) | ||||||||||
| Financing Expense |
— | — | — | — | ||||||||||||
| Other Income (Expense) |
(12 | ) | — | — | (12 | ) | ||||||||||
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| Total Other Income (Expense) |
(64,964 | ) | — | — | (64,964 | ) | ||||||||||
| INCOME (LOSS) BEFORE TAXES |
(906,207 | ) | 11,136 | (14,565 | ) | (909,636 | ) | |||||||||
| — | ||||||||||||||||
| INCOME TAX BENEFIT |
(166 | ) | — | — | (f) | (166 | ) | |||||||||
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| NET INCOME (LOSS) |
$ | (906,041 | ) | $ | 11,136 | $ | (14,565 | ) | $ | (909,470 | ) | |||||
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| Cumulative Preferred Stock Dividend |
(15,266 | ) | — | — | (15,266 | ) | ||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS |
$ | (921,307 | ) | $ | 11,136 | $ | (14,565 | ) | $ | (924,736 | ) | |||||
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| Net Income (Loss) Per Common Share - Basic |
$ | (21.55 | ) | $ | (16.33 | ) | ||||||||||
| Net Income (Loss) Per Common Share - Diluted |
$ | (21.55 | ) | $ | (16.33 | ) | ||||||||||
| Weighted Average Shares Outstanding - Basic |
42,744,639 | — | 12,937,500 | (e) | 55,682,139 | |||||||||||
| Weighted Average Shares Outstanding - Diluted |
42,744,639 | — | 12,937,500 | (e) | 55,682,139 | |||||||||||
See notes to unaudited pro forma combined financial statements
Note 1. Basis of Pro Forma Presentation
These financial statements present our unaudited pro forma balance sheet as of December 31, 2020 and unaudited pro forma statement of operations for the year ended December 31, 2020. These unaudited statements have been developed by applying pro forma adjustments to our historical financial statements to give effect to the Reliance Acquisition and Equity Offering.
The unaudited pro forma financial statements have been prepared in accordance with Article 11.
The unaudited pro forma financial statements are for illustrative and informational purposes only and are not intended to represent or be indicative of what our results of operations would have been had the Reliance Acquisition occurred as of or on the dates indicated. The unaudited pro forma financial statements also should not be considered representative of our future results of operations.
The pro forma adjustments related to the Reliance Acquisition are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable and are subject to change. Accordingly, these pro forma adjustments are preliminary and have been made solely for the purpose of providing these unaudited pro forma financial statements. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could be material. The differences, if any, could have a material impact on the accompanying unaudited pro forma financial statements and our future results of operations.
The unaudited pro forma financial statements have been derived from and should be read together with:
| • | the accompanying notes to the unaudited pro forma financial statements; |
| • | our historical financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31 2020; and |
| • | the historical statement of revenues and direct operating expenses for the Acquired Assets for the year ended December 31, 2020 included in Exhibit 99.2 of this Amendment No. 1 on Form 8-K/A. |
The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma statement of operations are based on the weighted average number of the Company shares outstanding, assuming the Reliance Acquisition occurred at the beginning of the earliest period presented.
The pro forma adjustments related to the purchase price allocation of the Reliance Acquisition are preliminary and are subject to revisions as additional information becomes available. Revisions to the preliminary purchase price allocation may have a significant impact on the pro forma amounts. The pro forma adjustments related to the Reliance Acquisition reflect the fair values of the assets acquired as of April 1, 2021 (the closing date of the transaction). The pro forma adjustments do not necessarily reflect the fair values that would have been recorded if the acquisition had occurred on January 1, 2020.
Note 2. Estimated Consideration and Preliminary Purchase Price Allocation
The Company has performed a preliminary valuation analysis of the fair value of the Acquired Assets. Using the total consideration for the Reliance Acquisition, the Company has estimated the allocation to such assets. The following table summarizes the allocation of the preliminary purchase price as of the transaction’s closing date, April 1, 2021 (in thousands):
| Proved and Unproved Properties |
$ | 151,364 | ||||||
| Cash purchase consideration from |
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| Equity Offering Proceeds |
$ | 120,852 | ||||||
| Fair Value of Warrants |
30,512 | |||||||
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| Total purchase consideration |
$ | 151,364 |
This preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma balance sheet and statement of operation. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation is expected to be completed when the Company files its report on Form 10-Q for the quarter ended September 30, 2021 and could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include changes in fair values of property, plant and equipment.
Note 3. Pro Forma Adjustments and Assumptions
The accompanying unaudited pro forma financial statements reflect the following pro forma adjustments:
| (a) | Represents the estimated purchase price consideration for the Reliance Marcellus, LLC Acquisition totaling $151.3 million, which consist of: (i) 3,250,000 warrants to purchase common stock with an exercise price of $14.00 per warrant and a total estimated fair value of $30.5 million and; (ii) cash purchase consideration of $120.9 million from equity offering proceeds. |
| (b) | Represents the preliminary purchase price allocation for the Reliance Acquisition of $151.3 million, consisting of $140 million of proved properties and $11.3 million of unproved properties. |
| (c) | Represents the 12,937,500 shares of our $0.001 par value common stock issued in exchange for cash proceeds of $120.2 million, net of issuance cost of $0.7 million, based on the $9.75 per share closing price of our common stock on the closing date to fund the Reliance Acquisition. |
| (d) | Represents the increase in depreciation, depletion, amortization, and accretion expense computed on a unit of production basis following the preliminary purchase price allocation to proved oil and natural gas properties, as if the Reliance Acquisition was consummated on January 1, 2020. |
| (e) | Represents the impact on weighted average shares outstanding of the shares issued as consideration in the Reliance Acquisition, as if the Reliance Acquisition closed and thus the shares were issued on January 1, 2020 (rather than April 1, 2021). |
| (f) | Represents the effective tax rate of zero, due to the pro forma taxable loss and a full valuation allowance on the deferred tax assets. |
| (g) | Represents acquisition costs incurred in conjunction with the Reliance Acquisition. |
| (h) | Represents the reclassification of direct operating expenses to conform to the presentation of the Company. |
Supplemental Pro Forma Combined Oil and Natural Gas
Reserve and Standardized Measure Information (Unaudited)
The following unaudited supplemental pro forma oil and natural gas reserve tables present how the combined oil and natural gas reserves and standardized measure information of the Company and Reliance Acquisition may have appeared had the Reliance Acquisition occurred on January 1, 2020. The supplemental pro forma combined oil and natural gas reserves and standardized measure information are for illustrative purposes only. Numerous uncertainties are inherent in estimating quantities and values of proved reserves including future rates of production, exploration and development expenditures, commodity prices, and service costs which may affect the reserve volumes attributable to the Properties and the standardized measure of discounted future net cash flows.
The following tables provide a summary of the changes in estimated proved reserves for the year ended December 31, 2020, as well as pro forma proved developed and proved undeveloped reserves as of the beginning and end of the year, giving effect to the Reliance Acquisition as if it had occurred on January 1, 2020. The pro forma standardized measure does not include future income taxes attributable to Reliance because it is considered a pass-through entity for tax purposes.
Estimated Pro Forma Combined Quantities of Proved Reserves
| Natural Gas (Mmcf) | ||||||||||||
| Historical Northern Oil and Gas |
Historical Reliance |
Pro Forma Combined |
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| Proved Developed and Undeveloped Reserves at December 31, 2019 |
189,318 | 453,993 | 643,311 | |||||||||
| Revisions of Previous Estimates |
(21,512 | ) | — | (21,512 | ) | |||||||
| Extensions, Discoveries, and Other Additions |
8,308 | — | 8,308 | |||||||||
| Production |
(16,473 | ) | (29,801 | ) | (46,274 | ) | ||||||
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| Proved Developed and Undeveloped Reserves at December 31, 2020 |
159,641 | 424,192 | 583,833 | |||||||||
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| Oil (Mbbl) | ||||||||||||
| Historical Northern Oil and Gas |
Historical Reliance |
Pro Forma Combined |
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| Proved Developed and Undeveloped Reserves at December 31, 2019 |
131,754 | — | 131,754 | |||||||||
| Revisions of Previous Estimates |
(33,289 | ) | — | (33,289 | ) | |||||||
| Extensions, Discoveries, and Other Additions |
6,921 | — | 6,921 | |||||||||
| Production |
(9,361 | ) | — | (9,361 | ) | |||||||
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| Proved Developed and Undeveloped Reserves at December 31, 2020 |
96,025 | — | 96,025 | |||||||||
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| As of December 31, 2020 | ||||||||||||
| Historical Northern Oil and Gas |
Historical Reliance |
Pro Forma Combined |
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| Proved Reserves |
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| Developed: |
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| Natural Gas (Mmcf) |
114,060 | 222,947 | 337,007 | |||||||||
| Oil (Mbbl) |
65,135 | — | 65,135 | |||||||||
| Undeveloped: |
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| Natural Gas (Mmcf) |
45,581 | 201,245 | 246,826 | |||||||||
| Oil (Mbbl) |
30,890 | — | 30,890 | |||||||||
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| Total Proved Reserves |
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| (MBOE) |
122,632 | 70,699 | 193,331 | |||||||||
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| Pro Forma Combined Standardized Measure of Discounted Future Net Cash Flows (in thousands)
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| As of December 31, 2020 | ||||||||||||
| Historical Northern Oil and Gas |
Historical Reliance |
Pro Forma Combined |
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| Future Cash Inflows |
$ | 3,395,670 | $ | 635,715 | $ | 4,031,385 | ||||||
| Future Production Costs |
(1,747,325 | ) | (412,318 | ) | (2,159,643 | ) | ||||||
| Future Development Costs |
(416,507 | ) | (120,372 | ) | (536,879 | ) | ||||||
| Future Income Tax Expense |
(3,273 | ) | — | (3,273 | ) | |||||||
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| Future Net Cash Flows |
1,228,565 | 103,025 | 1,331,590 | |||||||||
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| 10% Annual Discount for Estimated Timing of Cash Flows |
(516,554 | ) | (51,791 | ) | (568,345 | ) | ||||||
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| Standardized Measure of Discounted Future Net Cash Flows |
$ | 712,011 | $ | 51,234 | $ | 763,245 | ||||||
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Pro Forma Combined Changes in the Standardized Measure of Discounted Future Net Cash Flows (in thousands)
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| Year Ended December 31, 2020 | ||||||||||||
| Historical Northern Oil and Gas |
Historical Reliance |
Pro Forma Combined |
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| Standardized measure, beginning of year |
$ | 1,678,061 | $ | 60,433 | $ | 1,738,494 | ||||||
| Sale of oil and natural gas produced, net of production costs |
(177,932 | ) | (15,242 | ) | (193,174 | ) | ||||||
| Extensions and discoveries |
52,232 | — | 52,232 | |||||||||
| Previously estimated development costs incurred during the period |
78,633 | — | 78,633 | |||||||||
| Net changes of prices and production costs |
(815,278 | ) | — | (815,278 | ) | |||||||
| Changes in estimated future development costs |
(150,991 | ) | — | (150,991 | ) | |||||||
| Revisions of quantity estimates |
(280,481 | ) | — | (280,481 | ) | |||||||
| Accretion of discount |
182,202 | 6,043 | 188,245 | |||||||||
| Net changes in income taxes |
143,438 | — | 143,438 | |||||||||
| Other |
2,127 | — | 2,127 | |||||||||
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| Standardized measure, end of year |
$ | 712,011 | $ | 51,234 | $ | 763,245 | ||||||
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