Northern Oil & Gas has reported that the first quarter revenues were adversely impacted by lower commodity prices and increased differentials. In addition, production volumes were impacted by several wells being shut-in, choked back or delayed in completion due to the difficult pricing environment and extreme weather conditions. Subsequent to March 31, 2009, Northern Oil & Gas has observed a significant recovery in oil prices coupled with a tightening of differentials due to seasonal factors as well as the increase in take away capacity.
As of the current date, most wells have been opened up to normalized choke/flow levels and realized oil prices have improved substantially. In addition, several of Northern Oil & Gas’ high working interest wells that were delayed in the first quarter have been scheduled for completion in late May 2009 and early June 2009.
Actual sales in the first quarter were $1,046,199 after subtracting a one-time true up of accrued production from 2008. Despite the production disruptions and completion delays in the first quarter, Northern Oil & Gas increased its actual production volume by about 37% quarter-over-quarter, the fifth consecutive quarterly increase in production. General and administrative expense was $568,635, a decrease of 30% from the fourth quarter of 2008.
Northern Oil & Gas produced 27,560 barrels of oil and 2,043 Mcf of associated natural gas during the first quarter of 2009, compared to 3,143 barrels and 4 Mcf during the first quarter of 2008. The realized price per barrel of oil, including hedges, was $38.16, ($37.52 excluding hedges) versus first quarter average pricing of $42.91 for WTI Cushing spot oil.
Realized prices, including the effect of hedges, were over 49% lower in the first quarter 2009 compared to the fourth quarter of 2008 as a result of lower commodity prices and a decreased amount of production subject to cash flow hedges. Northern Oil & Gas’s lease operating expense in the first quarter of 2009 was $5.26 per barrel of oil, inclusive of severance taxes, $3.42 per barrel of oil excluding severance taxes. To-date, Northern Oil & Gas has developed about 4% of its total acreage inventory and has maintained its 100% drilling success rate during 2008 and 2009.
As previously announced, during the first quarter Northern Oil & Gas secured a $25 million revolving credit facility with CIT Capital USA Inc. (CIT), to provide working capital for exploration and production. Northern Oil & Gas plans to use this facility throughout 2009 to fund continued developmental drilling of its core Bakken position. As of March 31, 2009, Northern Oil & Gas had borrowed $6 million under the facility at a weighted average interest rate of 6.2%.
Northern Oil & Gas’s chief executive officer, Michal Reger commented, “We have a substantial position of core Bakken acreage and continue to develop our inventory. Given the significant decline in drilling and completion costs, coupled with rising oil prices, we have seen a vast improvement in the economics of our wells. We have completed recent wells for under $4 million and expect this trend to continue.”
“Our strategy consists of continuing to develop our core Bakken acreage at a very low cost and seek strategic opportunities to grow our presence in the play. As we recently announced, we successfully drilled and completed a third Red River well in Sheridan County, Montana and 15 additional completions in the North Dakota Bakken and Three Forks trend. Since that announcement, we have completed three additional Bakken wells, bringing our current number of producing wells to 56.”
