Northern Oil and Gas, Inc. Announces 2012 Second Quarter Results of Operations and an Updated 2012 Drilling and Acreage Plan

WAYZATA, Minn., Aug. 9, 2012/PRNewswire/ -- Northern Oil and Gas, Inc. (NYSE MKT: NOG) ("Northern Oil") today announced 2012 second quarter results of operations and an updated 2012 drilling and acreage plan.

2012 SECOND QUARTER HIGHLIGHTS

• Quarterly production of 947,468 barrels of oil equivalent ("Boe"), or 10,412 average Boe per day
• Oil and Gas Sales of $70.4 million, representing a 99% year-over-year increase
• Net Income of $43.6 million, or $0.70per diluted share
• Adjusted EBITDA of $53.1 million, representing a 134% year-over-year increase
• 136% year-over-year production growth compared to 2011 second quarter
• 22% sequential quarter-over-quarter production growth compared to 2012 first quarter
• 15.8 net wells completed and placed into production during 2012 second quarter, resulting in 87.6 total net producing wells as of June 30, 2012

ACREAGE UPDATE

As of June 30, 2012, Northern Oil controlled approximately 180,000 net acres in the WillistonBasin Bakken and Three Forks plays. During the second quarter of 2012, Northern Oil acquired or earned through farm-in arrangements leasehold interests covering an aggregate of 7,060 net mineral acres in its key prospect areas, for an average cost of approximately $2,184per net acre.

As of June 30, 2012, Northern Oil controlled approximately 109,000 net acres that were developed, held by production, held by operations or permitted, which represented approximately 61% of Northern Oil's total Bakken and Three Forks position.

During the second quarter of 2012, Northern Oil had leases expire covering approximately 1,400 net acres. Northern Oil currently controls approximately 865 undeveloped net acres that are prospective for the Bakken and Three Forks and could potentially expire in the remainder of 2012, representing approximately 0.5% of Northern Oil's overall WillistonBasin position.

DRILLING AND COMPLETIONS UPDATE

During the second quarter of 2012, Northern Oil participated in 162 gross (15.8 net) wells that were completed and placed into production. As a result, Northern Oil's producing wells totaled 955 gross (87.6 net) as of June 30, 2012. In addition to these wells, Northern Oil was participating in 150 gross (10.8 net) Bakken or Three Forks wells drilling or awaiting completion at June 30, 2012. Northern Oil participated in approximately 266 gross (22.5 net) wells that were spud during the first half of 2012.

UPDATED 2012 DRILLING AND ACREAGE PLAN

In the first half of 2012, Northern Oil participated in the spudding of 22.5 net wells and reaffirms its expectation to participate in the spudding of approximately 44 net wells for the year. Based on current drilling and completion costs reflected on authorizations for expenditures received from operating partners, Northern Oil estimates the average completed well cost will be $8.8 millionduring 2012, which represents an increase from a previously estimated $8.2 millionper well. As a result, Northern Oil expects capital expenditures related to 2012 spud wells will approximate $387 million, an increase of approximately $27 millionfrom previous estimates.

In the first half of 2012, Northern Oil spent $25.1 millionon acreage acquisitions and expects to spend a total of $50 millionthroughout 2012 on acreage acquisitions. This represents a reduction in previous guidance of $60-$80 millionin acreage acquisition costs for 2012.

Northern Oil expects to fund future capital expenditures through cash flow and its available borrowing capacity. Northern Oil ended the second quarter of 2012 with approximately $25 millionin cash and no borrowings under its $300 millionrevolving credit facility.

MASTER LIMITED PARTNERSHIP UPDATE

Based on the current profile of Northern Oil's production base and the decline in oil prices, management has determined that the present time is not appropriate to achieve optimal valuation through utilization of a master limited partnership structure. As such, Northern Oil has determined to re-evaluate this strategy in mid-2013 and continue at this time to focus on executing its existing business plan.

SECOND Quarter 2012 OPERATING AND FINANCIAL RESULTS

The following tables summarize Northern Oil's second quarter operating and financial results for 2012 as compared to 2011:

In the second quarter of 2012, oil, natural gas and natural gas liquids (i.e., NGL) sales increased 99% as compared to the second quarter of 2011, driven primarily by a 136% increase in production and partially offset by a 2% decrease in realized prices taking into account the effect of settled crude oil derivatives. Higher oil differentials in the second quarter of 2012 lowered the average realized price in the second quarter of 2012 as compared to the same period in 2011. Oil differential during the second quarter of 2012 was $13.72per barrel, as compared to $7.42per barrel in the second quarter of 2011.

As a result of forward oil price changes, Northern Oil recognized mark-to-market non-cash derivative gains of $49.8 millionin the second quarter of 2012 compared to non-cash gains of $20.8 millionin the second quarter of 2011. Additionally, as a result of crude oil derivative settlements, Northern Oil incurred a net cash loss of $1.1 millionin the second quarter of 2012, compared to a loss of $5.6 millionin the second quarter of 2011.

Production expenses were $7.3 millionin the second quarter of 2012 compared to $2.6 millionin the second 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 $6.52per barrel sold in the second quarter of 2011 to $7.70in the second quarter of 2012. This increase was primarily due to increased water production and increased costs associated with water trucking and disposal.

Northern Oil pays production taxes based on realized oil and gas sales. These costs were $6.7 millionin the second quarter of 2012, compared to $3.3 millionin the second quarter of 2011. Production taxes were 9.5% in the second quarter of 2012 and 9.3% in the second quarter of 2011. The second quarter of 2012 average production tax rate was higher than the second 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 $4.4 millionfor the second quarter of 2012, compared to $2.7 millionfor the second quarter of 2011. General and administrative expense net of non-cash share based compensation was approximately $2.3 millionfor the second quarter of 2012, compared to $1.2 millionfor the second quarter of 2011. This increase was primarily a result of increased staffing to support Northern Oil's growth.

Depletion, depreciation, amortization and accretion ("DD&A") was $25.6 millionin the second quarter of 2012, compared to $8.4 millionin the second quarter of 2011. The increase in aggregate DD&A expense for the second quarter of 2012 compared to the second quarter of 2011 was driven by a 136% increase in production. Depletion expense, the largest component of DD&A, was $26.93per Boe in the second quarter of 2012, compared to $20.83per Boe in the second quarter of 2011, which increase was primarily due to increased estimates of future drilling and operating costs.

The provision for income taxes was $28.8 millionin the second quarter of 2012, compared to $13.1 millionin the second quarter of 2011. The effective tax rate in the second quarter of 2012 was 39.8% compared to an effective tax rate of 39.0% in the second quarter of 2011.

Net income was $43.6 millionin the second quarter of 2012, compared to net income of $20.4 millionin the second quarter of 2011. Net income per fully diluted share was $0.70in the second quarter of 2012, compared to $0.33in the second quarter of 2011.

Non-GAAP net income, excluding unrealized gain (loss) on derivative instruments net of tax, was $13.6 million(representing approximately $0.22per diluted share) for the second quarter of 2012, as compared to $7.7 million(representing approximately $0.12per diluted share) for the second quarter of 2011. The increase in non-GAAP 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 second quarter of 2012 compared to the second quarter of 2011.

Northern Oil's Adjusted EBITDA for the second quarter of 2012 was $53.1 million, which represents a 134% increase over Adjusted EBITDA of $22.7 millionfor the second 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. Net income excluding unrealized gain (loss) on derivative instruments net of tax 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.

DERIVATIVES UPDATE

The following table summarizes Northern Oil's current oil derivative contracts, by fiscal quarter:

RESERVES UPDATE

Northern Oil's internally estimated total proved reserves at June 30, 2012were approximately 57.0 million barrels of oil equivalent (MMBoe), a 22% increase as compared to 46.8 MMBoe at December 31, 2011. Approximately 48% of Northern Oil's proved reserves at June 30, 2012were categorized as either proved developed producing or proved developed non-producing, meaning behind pipe. Approximately 52% of Northern Oil's reserves were classified as proved undeveloped at June 30, 2012.

Northern Oil's estimated future cash flows, discounted at an annual rate of 10 percent before giving effect to income taxes (commonly known as Pre-Tax PV10% value), for proved reserves at June 30, 2012was $1.2 billion, a increase of 5% from 2011 year-end. Please see below for further information regarding the Pre-Tax PV10% value.

The table above assumes prices and costs discounted using an annual discount rate of 10% without future escalation, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, or federal income taxes.

The "Pre-tax PV10%" values of proved reserves presented in the foregoing table may be considered a non-GAAP financial measure as defined by the SEC. The following table reconciles the pre-tax PV10% value of Northern Oil's estimated proved reserves as of June 30, 2012to the standardized measure of discounted future net cash flows.

Uncertainties are inherent in estimating quantities of proved reserves, including many risk factors beyond Northern Oil's control. Reserve engineering is a subjective process of estimating subsurface accumulations of crude oil and natural gas that cannot be measured in an exact manner. As a result, estimates of proved reserves may vary depending upon the engineer valuing the reserves. Further, Northern Oil's actual realized price for crude oil and natural gas is not likely to average the pricing parameters used to calculate proved reserves. As such, the crude oil and natural gas quantities and the value of those commodities ultimately recovered from Northern Oil's properties will vary from reserve estimates.

MANAGEMENT COMMENT

Michael Reger, CEO, commented: "We continue to see an increased pace of completion activity and a shortening of spud to sales time as a result of an improvement in the availability of completion services in the Williston Basin. As many of our operating partners have mentioned, operational efficiencies and lower service costs are expected to drive enhanced returns in this play."

SECOND QUARTER 2012 EARNINGS RELEASE CONFERENCE CALL

In conjunction with Northern Oil's release of its financial and operating results, investors, analysts and other interested parties are invited to listen to a conference call with management on Thursday, August 9, 2012at 9:00 a.m. Central Standard Time. Details for the conference call are as follows:

Dial-In Number: (800) 753-0487 (US/Canada) and (913) 312-1375 (International)
Conference ID: 4834530 - Northern Oil and Gas, Inc. Second Quarter 2012 Earnings Call
Replay Dial-In Number: (888) 203-1112 (US/Canada) and (719) 457-0820 (International)
Replay Access Code: 4834530 - Replay will be available through August 24, 2012

ABOUT NORTHERN OIL AND GAS

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

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

SAFE HARBOR

This press release contains forward-looking statements regarding future events and future results that are subject to the safe harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). All statements other than statements of historical facts included in this release regarding Northern Oil's financial position, business strategy, plans and objectives of management for future operations, industry conditions, and indebtedness covenant compliance are forward-looking statements. When used in this release, forward-looking statements are generally accompanied by terms or phrases such as "estimate," "project," "predict," "believe," "expect," "anticipate," "target," "plan," "intend," "seek," "goal," "will," "should," "may" or other words and similar expressions that convey the uncertainty of future events or outcomes. Items contemplating or making assumptions about actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond Northern Oil's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: changes in crude oil and natural gas prices, general economic or industry conditions, nationally and/or in the communities in which Northern Oil conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, Northern Oil's ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, and other economic, competitive, governmental, regulatory and technical factors affecting Northern Oil's operations, products, services and prices.

Northern Oil has based these forward-looking statements on its current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond Northern Oil's control.

CONTACT:

Investor Relations
Erik Nerhus
952-476-9800

SOURCE Northern Oil and Gas, Inc.