Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 8, 2018
 

NORTHERN OIL AND GAS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
001-33999
95-3848122
(State or other jurisdiction
of incorporation)
(Commission File Number)
(IRS Employer
Identification No.)

601 Carlson Parkway, Suite 990 
Minnetonka, Minnesota
55305
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code   (952) 476-9800
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17CFR §240.12b-2).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





Item 2.02.    Results of Operations and Financial Condition.

On November 8, 2018, Northern Oil and Gas, Inc. issued a press release announcing 2018 third quarter financial and operating results. A copy of the press release is furnished as Exhibit 99.1 hereto.


Item 9.01.    Financial Statements and Exhibits.

Exhibit Number
 
Description
  
  
  
  
Press release of Northern Oil and Gas, Inc., dated November 8, 2018.







SIGNATURES

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: November 8, 2018
NORTHERN OIL AND GAS, INC.
By /s/ Erik J. Romslo                                 
Erik J. Romslo
Executive Vice President, General Counsel and Secretary





Exhibit


Exhibit 99.1

Northern Oil and Gas, Inc. Announces Third Quarter 2018 Results,
Increases Fourth Quarter 2018 Guidance and
Reactivates Stock Repurchase Program

Third quarter production averaged 26,708 Boe per day, an increase of 74% year-over-year and 27% sequentially.
Increasing fourth quarter production guidance to a range of 35,000 - 36,000 Boe per day, an increase of over 100% year-over-year and 30% sequentially.
Northern has reactivated its existing stock repurchase program, which had $108.3 million in remaining authority. Northern has agreed to repurchase 7.36 million shares from certain shareholders in the fourth quarter.
Third quarter net income was $19.0 million, and adjusted net income was $34.5 million. Adjusted EBITDA increased 174% year-over-year and 39% sequentially to $97.9 million (non-GAAP).

MINNEAPOLIS, MINNESOTA - November 8, 2018 - Northern Oil and Gas, Inc. (NYSE American: NOG) today announced that third quarter 2018 production averaged 26,708 barrels of oil equivalent (“Boe”) per day, totaling 2,457,119 Boe, comprised of 84% crude oil. Third quarter 2018 net income increased to $19.0 million, or $0.06 per diluted share, compared to a loss of $16.1 million, or ($0.26) per diluted share in the third quarter of 2017. Third quarter 2018 adjusted net income increased to $34.5 million, or $0.11 per diluted share, from $2.2 million or $0.04 per diluted share in the third quarter of 2017. Adjusted EBITDA increased to $97.9 million, compared to $35.7 million in the third quarter of 2017. (See “Non-GAAP Financial Measures” below for additional information.)

Northern’s third quarter 2018 crude oil differential was $4.16 per barrel below the NYMEX daily average for the period, compared to $6.22 in the third quarter 2017, an improvement of $2.06 per barrel. Lease operating expense (“LOE”) of $7.39 per Boe for the quarter declined 17% year-over-year and 3% sequentially, bringing year-to-date LOE at the low end of the company’s 2018 guidance. General and administrative (“G&A”) expense of $1.90 per barrel increased 12% sequentially due primarily to costs associated with recent significant transactions.

As detailed later in the press release, Northern has entered into crude oil derivative basis swaps for 2019 covering 10,000 barrels of oil per day at a weighted average differential price of $2.41 per barrel. In addition the company now has 20,166 barrels of oil per day hedged in the fourth quarter of 2018 at an average price of $63.66 per barrel and 18,769 barrels of oil per day hedged for 2019 at an average price of $63.32 per barrel.

MANAGEMENT COMMENT

“The third quarter was another outstanding quarter for Northern as we reduced unit costs, increased margins and generated significant debt adjusted growth for our shareholders,” commented Northern’s Chief Executive Officer, Brandon Elliott.  “Our success year-to-date has put us in an incredible position to continue to execute on our strategy; to take advantage of dislocations in the markets, including the pursuit of bolt-on acquisitions, or the opportunity to repurchase our stock at a significant discount to its intrinsic value.  We look forward to closing out 2018 in a very strong financial position.”

GUIDANCE

Northern is raising its fourth quarter 2018 production guidance to 35,000 - 36,000 Boe per day as a result of increased activity on our legacy and newly acquired acreage and better than expected production results. The company now expects to add approximately 7 net organic wells to production during the fourth quarter, bringing total organic net well additions for 2018 to between 28 - 31. This is an increase of 3 - 4 additional net wells for the year, with a drilling and completion (“D&C”) budget of between $230 and $250 million.

Increased production and activity exiting 2018 would allow Northern to maintain fourth quarter 2018 average daily production volumes flat for 2019 with a drilling and completion budget of approximately $245 million, assuming the addition of between 29 and 31 net wells to production during the year. Utilizing 2018 cost assumptions for 2019, at the current commodity strips, the company would generate between $145 - $200 million of operating cash flow net of all D&C capital expenditures, representing a free cash flow yield of up to 17% based on current market capitalization. Additional information regarding Northern’s current expectations are included in the tables below.





2018 Production:
Boe Per Day
 
Year/Year
Increase
1st Quarter - Actual
17,995
 
35%
2nd Quarter - Actual
21,046
 
53%
3rd Quarter - Actual
26,708
 
74%
4th Quarter - Estimate
35,000 - 36,000
 
109% - 115%
Annual - Estimate (average Boe per day)
25,240 - 25,500
 
71% - 72%
 
 
 
 
2019 Initial Guidance Ranges:
Low
 
High
Net Wells Added to Production
30
 
36
Production (Boe per day)
35,500
 
37,500
Drilling & Completion Capital (D&C) Expenditures (millions)
$245
 
$292
D&C Capital Expenditures, Including Workovers and Capitalized Expenses (millions)
$260
 
$307

Operating Expenses Guidance:
2018
 
Change at Midpoint
    Production Expenses (per Boe)
$7.50 - $7.75
 
$(0.375)
    Production Taxes (% of Oil & Gas Sales)
~ 9.2%
 
 
    General and Administrative Expense (per Boe):

 
 
        Cash
$1.25 - $1.375
 
$(0.063)
        Non-Cash
$0.25 - $0.50
 
 
 
 
 
 
Average Differential to NYMEX WTI
 $4.75 - $5.75
 
 


THIRD QUARTER 2018 RESULTS

The following tables set forth selected operating and financial data for the periods indicated.
 
Three Months Ended September 30,
 
2018
 
2017
 
% Change
Net Production:
 
 
 
 
 
Oil (Bbl)
2,064,092

 
1,186,814

 
74
%
Natural Gas and NGLs (Mcf)
2,358,162

 
1,336,124

 
76
%
Total (Boe)
2,457,119

 
1,409,501

 
74
%
 
 
 
 
 
 
Average Daily Production:
 
 
 
 
 
Oil (Bbl)
22,436

 
12,900

 
74
%
Natural Gas and NGLs (Mcf)
25,632

 
14,523

 
76
%
Total (Boe)
26,708

 
15,321

 
74
%






 
Three Months Ended
September 30,
 
2018
 
2017
Net Sales:
 

 
 

Oil Sales
$
135,006,253

 
$
50,309,088

Natural Gas and NGL Sales
10,409,445

 
3,948,503

Gain (Loss) on Settled Derivatives
(12,922,603
)
 
3,395,117

Total Oil, Natural Gas and NGL Sales Including all Derivative Settlements
132,493,095

 
57,652,708

 
 
 
 
Average Sales Prices:
 

 
 

Average NYMEX Price (per Bbl)(1)
$
69.61

 
$
48.20

Oil Differential (per Bbl)(2)
(4.16
)
 
(6.22
)
Oil (per Bbl)
65.45

 
42.39

Effect of Gain (Loss) on Settled Derivatives on Average Price (per Bbl)
(6.26
)
 
2.86

Oil Net of Settled Derivatives (per Bbl)
59.19

 
45.25

Natural Gas and NGLs (per Mcf)
4.41

 
2.96

Realized Price on a Boe Basis Including all Realized Derivative Settlements
53.96

 
40.90

 
 
 
 
Operating Expenses:
 

 
 

Production Expenses
$
18,160,937

 
$
12,605,513

Production Taxes
13,579,169

 
5,064,761

General and Administrative Expense
4,674,467

 
7,985,719

Depletion, Depreciation, Amortization and Accretion
30,258,089

 
15,357,685

 
 
 
 
Costs and Expenses (per Boe):
 

 
 

Production Expenses
$
7.39

 
$
8.94

Production Taxes
5.53

 
3.59

General and Administrative Expense
1.90

 
5.67

Depletion, Depreciation, Amortization and Accretion
12.31

 
10.90

 
 
 
 
Net Income (Loss)
$
18,978,573

 
$
(16,087,467
)
Net Income (Loss) Per Common Share – Diluted
$
0.06

 
$
(0.26
)
 
 
 
 
Adjusted Net Income (Loss)(3)
$
34,488,715

 
$
2,243,648

Adjusted Net Income (Loss) Per Common Share – Diluted(3)
$
0.11

 
$
0.04

 
 
 
 
Adjusted EBITDA(3)
$
97,914,459

 
$
35,733,729

____________

(1)  
Based on average NYMEX WTI closing prices.
(2)  
Average oil price differential to the NYMEX WTI.
(3)  
Please see “Non-GAAP Financial Measures” below for additional information and a reconciliation to the most directly comparable GAAP Measure.









CAPITAL EXPENDITURES & DRILLING ACTIVITY
 
 
Three Months Ended
September 30, 2018
Capital Expenditures Incurred:
 
 
Drilling and Development Capital Expenditures
 
$81.6 million
Acquisition of Oil and Natural Gas Properties
 
$164.1 million
Other
 
$1.3 million
 
 
 
Net Organic Wells Added to Production
 
9.3
Net Producing Wells (Period-End)
 
284.3
 
 
 
Net Wells in Process (Period-End)
 
19.2
 
 
 
Weighted Average AFE for Wells Elected to Year-to-Date
 
$8.1 million

ACQUISITIONS & ACREAGE

On September 17, 2018, Northern closed on its previously announced Pivotal acquisition for 25.75 million shares of common stock and $60.6 million in cash, at closing. In addition, in the third quarter, Northern spent approximately $18.0 million for 2,727 net acres, 4.7 net producing wells and 4.6 net wells in process.

On October 1, 2018, Northern closed on its previously announced W Energy acquisition for 51.46 million shares of common stock and $114.8 million in cash, at closing. In the fourth quarter to-date, Northern has executed agreements on an additional 3,958 net acres, 0.9 net producing wells, and 1.3 net wells in process for an additional $9.1 million.

As of September 30, 2018, pro forma to include the W Energy acquisition, Northern controlled leasehold of approximately 151,978 net acres targeting the Williston Basin Bakken and Three Forks formations, and approximately 97% of the company’s North Dakota acreage position, and approximately 95% of its total acreage position, was developed, held by production or held by operations.

LIQUIDITY AND CAPITAL MARKETS UPDATE

In early October 2018, Northern closed on a $350.0 million tack-on issuance of additional 2023 Senior Secured Notes as well as a new 5-year Revolving Credit Facility (“RBL”) with an initial borrowing base of $425.0 million. Northern used the proceeds to retire its $360.0 million First Lien Term Loan and the remainder of its 2020 Senior Unsecured Notes.

As of November 5, 2018, Northern had $16.8 million in cash, $175.0 million outstanding on its new RBL and $695.1 million in 2023 Senior Secured Notes. Northern had total liquidity of $266.8 million as of November 5, 2018, consisting of cash and borrowing availability under the new RBL.

HEDGING

Northern hedges portions of its expected production volumes to increase the predictability of its cash flow and to help maintain a strong financial position. The following tables summarize Northern’s open crude oil derivative and basis swap contracts scheduled to settle after September 30, 2018.

Crude Oil Derivative Basis Swaps(1)
Contract Period
 
Total Volumes (Bbls)
 
Weighted Average Differential ($/Bbl)
2019
 
3,650,000
 
($2.41)
________________
(1) Basis swaps are settled using the TMX UHC 1a index, as published by NGX.






Crude Oil Derivative Swaps
Contract Period
 
Volume (Bbls)
 
Weighted Average Price (per Bbl)
2018:
 
 
 
 
4Q
 
1,855,300
 
$63.66
2019:
 
 
 
 
1Q
 
1,775,700
 
$62.89
2Q
 
1,797,250
 
$63.09
3Q
 
1,666,480
 
$63.44
4Q
 
1,612,300
 
$63.90
2020:
 
 
 
 
1Q
 
1,301,300
 
$61.67
2Q
 
1,119,300
 
$60.81
3Q
 
947,600
 
$61.11
4Q
 
817,880
 
$60.15
2021:
 
 
 
 
1Q
 
682,200
 
$60.42
2Q
 
627,900
 
$62.00

THIRD QUARTER 2018 EARNINGS RELEASE CONFERENCE CALL

In conjunction with Northern’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 Friday, November 9, 2018 at 9:00 a.m. Central Time.

Those wishing to listen to the conference call may do so via the company’s website, www.northernoil.com, or by phone as follows:

Dial-In Number: (855) 638-5677 (US/Canada) and (262) 912-4762 (International)
Conference ID: 9159627 - Northern Oil and Gas, Inc. Third Quarter 2018 Conference Call
Replay Dial-In Number: (855) 859-2056 (US/Canada) and (404) 537-3406 (International)
Replay Access Code: 9159627 - Replay will be available through November 16, 2018

UPCOMING CONFERENCE SCHEDULE

Seaport Global Securities Energy Day
November 11, 2018, San Francisco, CA

Cowen 8th Annual Energy & Natural Resources Conference
December 4 - 5, 2018, New York City, NY

Capital One Securities 13th Annual Energy Conference
December 4 - 6, 2018, New Orleans, LA

JP Morgan Global High Yield & Leveraged Finance Conference
February 25 - 27, 2019, Miami Beach, FL

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.






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’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,” “continue,” “anticipate,” “target,” “could,” “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 our company’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, the pace of drilling and completions activity on Northern’s current properties and properties pending acquisition, Northern’s ability to acquire additional development opportunities, changes in Northern’s reserves estimates or the value thereof, general economic or industry conditions, nationally and/or in the communities in which Northern conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, Northern’s ability to consummate any pending acquisition transactions, other risks and uncertainties related to the closing of pending acquisition transactions, Northern’s ability to raise or access 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 our company’s operations, products and prices.

Northern 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’s control. Northern does not undertake any duty to update or revise any forward-looking statements, except as may be required by the federal securities laws.

CONTACT:

Nicholas O’Grady
Chief Financial Officer
952-476-9800
ir@northernoil.com






CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(UNAUDITED)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
REVENUES
 
 
 
 
 
 
 
Oil, Natural Gas, and NGL Sales
$
145,415,698

 
$
54,257,591

 
$
341,343,390

 
$
151,486,819

Gain (Loss) on Derivative Instruments, Net
(43,148,073
)
 
(12,663,253
)
 
(105,622,312
)
 
20,810,662

Other Revenue
1,595

 
4,321

 
7,504

 
19,911

Total Revenues
102,269,220

 
41,598,659

 
235,728,582

 
172,317,392

 
 
 
 
 
 
 
 
OPERATING EXPENSES
 

 
 

 
 

 
 

Production Expenses
18,160,937

 
12,605,513

 
45,198,281

 
36,417,402

Production Taxes
13,579,169

 
5,064,761

 
31,633,326

 
13,965,800

General and Administrative Expenses
4,674,467

 
7,985,719

 
9,592,581

 
15,911,802

Depletion, Depreciation, Amortization and Accretion
30,258,089

 
15,357,685

 
71,484,746

 
41,868,280

Total Operating Expenses
66,672,662

 
41,013,678

 
157,908,934

 
108,163,284

 
 
 
 
 
 
 
 
INCOME FROM OPERATIONS
35,596,558

 
584,981

 
77,819,648

 
64,154,108

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE)
 

 
 

 
 

 
 

Interest Expense, Net of Capitalization
(20,438,025
)
 
(16,672,632
)
 
(65,948,159
)
 
(49,404,601
)
Write-off of Debt Issuance Costs

 

 

 
(95,135
)
Loss on the Extinguishment of Debt
(9,542,206
)
 

 
(100,375,181
)
 

Debt Exchange Derivative Gain
13,062,852

 

 
13,062,852

 

Other Income
299,394

 
184

 
837,812

 
545

Total Other Income (Expense)
(16,617,985
)
 
(16,672,448
)
 
(152,422,676
)
 
(49,499,191
)
 
 
 
 
 
 
 
 
INCOME (LOSS) BEFORE INCOME TAXES
18,978,573

 
(16,087,467
)
 
(74,603,028
)
 
14,654,917

 
 
 
 
 
 
 
 
INCOME TAX PROVISION (BENEFIT)

 

 

 

 
 
 
 
 
 
 
 
NET INCOME (LOSS)
$
18,978,573

 
$
(16,087,467
)
 
$
(74,603,028
)
 
$
14,654,917

 
 
 
 
 
 
 
 
Net Income (Loss) Per Common Share – Basic
$
0.06

 
$
(0.26
)
 
$
(0.40
)
 
$
0.24

Net Income (Loss) Per Common Share – Diluted
$
0.06

 
$
(0.26
)
 
$
(0.40
)
 
$
0.24

Weighted Average Shares Outstanding – Basic
300,517,497

 
61,843,377

 
188,152,998

 
61,645,920

Weighted Average Shares Outstanding – Diluted
301,755,419

 
61,843,377

 
188,152,998

 
61,991,292







CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2018 AND DECEMBER 31, 2017 
(UNAUDITED)
 
September 30, 2018

December 31, 2017
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
112,965,907

 
$
102,183,191

Accounts Receivable, Net
90,476,380

 
46,851,682

Advances to Operators
2,552,490

 
604,977

Prepaid Expenses and Other
17,960,647

 
2,333,288

 Income Tax Receivable
785,016

 
785,016

Total Current Assets
224,740,440

 
152,758,154

 
 
 
 
Property and Equipment:
 

 
 

Oil and Natural Gas Properties, Full Cost Method of Accounting
 

 
 

Proved
3,001,638,590

 
2,585,490,133

Unproved
1,236,986

 
1,699,344

Other Property and Equipment
998,192

 
981,303

Total Property and Equipment
3,003,873,768

 
2,588,170,780

Less – Accumulated Depreciation, Depletion and Impairment
(2,185,892,937
)
 
(2,114,951,189
)
Total Property and Equipment, Net
817,980,831

 
473,219,591

 
 
 
 
Deferred Income Taxes (Note 9)
785,000

 
785,000

Acquisition Deposit
20,000,000

 

Other Noncurrent Assets, Net
5,443,131

 
5,490,934

 
 
 
 
Total Assets
$
1,068,949,402

 
$
632,253,679

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
 

 
 

Accounts Payable
$
122,279,397

 
$
93,152,297

Accrued Expenses
6,334,045

 
6,339,425

Accrued Interest
10,266,623

 
4,836,112

Debt Exchange Derivative
6,030,363

 

Derivative Instruments
61,637,192

 
18,681,891

Contingent Consideration
8,334,160

 

Asset Retirement Obligations
497,129

 
565,521

Total Current Liabilities
215,378,909

 
123,575,246

 
 
 
 
Long-term Debt, Net
789,528,047

 
979,324,222

Derivative Instruments
40,844,343

 
11,496,929

Debt Exchange Derivative
260,967

 

Contingent Consideration
1,018,570

 

Asset Retirement Obligations
10,595,758

 
8,562,607

Other Noncurrent Liabilities
112,835

 
135,225

 
 
 
 
Total Liabilities
$
1,057,739,429

 
$
1,123,094,229

 
 
 
 
Commitments and Contingencies (Note 8)


 


 
 
 
 
STOCKHOLDERS’ EQUITY (DEFICIT)
 

 
 

Preferred Stock, Par Value $.001; 5,000,000 Authorized, No Shares Outstanding

 

Common Stock, Par Value $.001; 9/30/2018 – 675,000,000 Authorized, 334,209,986 Shares Outstanding and 12/31/2017 – 142,500,000 Authorized, 66,791,633 Shares Outstanding
334,210

 
66,792

Additional Paid-In Capital
1,026,052,523

 
449,666,390

Retained Deficit
(1,015,176,760
)
 
(940,573,732
)
Total Stockholders’ Equity (Deficit)
11,209,973

 
(490,840,550
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
$
1,068,949,402

 
$
632,253,679






Non-GAAP Financial Measures

Adjusted Net Income and Adjusted EBITDA are non-GAAP measures. Northern defines Adjusted Net Income as net income (loss) excluding (i) (gain) loss on the mark-to-market of derivative instruments, net of tax, (ii) write-off of debt issuance costs, net of tax, (iii) loss on the extinguishment of debt, net of tax, (iv) debt exchange derivative gain, net of tax, and (v) certain legal settlements, net of tax. Northern defines Adjusted EBITDA as net income (loss) before (i) interest expense, (ii) income taxes, (iii) depreciation, depletion, amortization and accretion, (iv) (gain) loss on the mark-to-market of derivative instruments, (v) non-cash share based compensation expense, (vi) write-off of debt issuance costs, (vii) loss on the extinguishment of debt, and (viii) debt exchange derivative gain. A reconciliation of each of these measures to the most directly comparable GAAP measure is included below. 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 financial measures included herein provide useful information to both management and investors by excluding certain expenses and unrealized commodity gains and losses that management believes are not indicative of Northern’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’s performance, and management believes it is providing investors with financial measures that most closely align to its internal measurement processes.

Reconciliation of Adjusted Net Income
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net Income (Loss)
$
18,978,573

 
$
(16,087,467
)
 
$
(74,603,028
)
 
$
14,654,917

Add:
 

 
 

 
 

 
 

Impact of Selected Items:
 

 
 

 
 

 
 

(Gain) Loss on the Mark-to-Market of Derivative Instruments
30,225,470

 
16,058,370

 
72,302,715

 
(15,170,174
)
Write-off of Debt Issuance Costs

 

 

 
95,135

Loss on the Extinguishment of Debt
9,542,206

 

 
100,375,181

 

Debt Exchange Derivative Gain
(13,062,852
)
 

 
(13,062,852
)
 

Legal Settlements

 
3,589,431

 

 
3,589,431

Selected Items, Before Income Taxes
26,704,824

 
19,647,801

 
159,615,044

 
(11,485,608
)
Income Tax of Selected Items(1)
(11,194,682
)
 
(1,316,686
)
 
(21,106,686
)
 
(1,222,555
)
Selected Items, Net of Income Taxes
15,510,142

 
18,331,115

 
138,508,358

 
(12,708,163
)
Adjusted Net Income
$
34,488,715

 
$
2,243,648

 
$
63,905,330

 
$
1,946,754

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding – Basic
300,517,497

 
61,843,377

 
188,152,998

 
61,645,920

Weighted Average Shares Outstanding – Diluted
301,755,419

 
62,114,238

 
188,709,068

 
61,991,292

 
 
 
 
 
 
 
 
Net Income (Loss) Per Common Share – Basic
$
0.06

 
$
(0.26
)
 
$
(0.40
)
 
$
0.24

Add:
 

 
 

 
 

 
 

Impact of Selected Items, Net of Income Taxes
0.05

 
0.30

 
0.74

 
(0.21
)
Adjusted Net Income Per Common Share – Basic
$
0.11

 
$
0.04

 
$
0.34

 
$
0.03

 
 
 
 
 
 
 
 
Net Income (Loss) Per Common Share – Diluted
$
0.06

 
$
(0.26
)
 
$
(0.40
)
 
$
0.24

Add:
 

 
 

 
 

 
 

Impact of Selected Items, Net of Income Taxes
0.05

 
0.30

 
0.74

 
(0.21
)
Adjusted Net Income Per Common Share – Diluted
$
0.11

 
$
0.04

 
$
0.34

 
$
0.03

_____________
(1) 
For the 2018 columns, this represents a tax impact using an estimated tax rate of 24.5% for the three and nine months ended September 30, 2018, which includes a $4.7 million and $18.0 million adjustment for a change in valuation allowance for the three and nine months ended September 30, 2018, respectively. For the 2017 columns, this represents a tax impact using an estimated tax rate of 37.0% and 38.6% for the three and nine months ended September 30, 2017, respectively, which includes





a $6.0 million and $5.7 million adjustment for a change in valuation allowance for the three and nine months ended September 30, 2017, respectively.

Reconciliation of Adjusted EBITDA
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net Income (Loss)
$
18,978,573

 
$
(16,087,467
)
 
$
(74,603,028
)
 
$
14,654,917

Add:
 

 
 

 
 

 
 

Interest Expense
20,438,025

 
16,672,632

 
65,948,159

 
49,404,601

Income Tax Provision (Benefit)

 

 

 

Depreciation, Depletion, Amortization and Accretion
30,258,089

 
15,357,685

 
71,484,746

 
41,868,280

Non-Cash Share Based Compensation
1,534,948

 
3,732,509

 
1,973,141

 
5,265,868

Write-off of Debt Issuance Costs

 

 

 
95,135

Loss on the Extinguishment of Debt
9,542,206

 

 
100,375,181

 

Debt Exchange Derivative Gain
(13,062,852
)
 

 
(13,062,852
)
 

(Gain) Loss on the Mark-to-Market of Derivative Instruments
30,225,470

 
16,058,370

 
72,302,715

 
(15,170,174
)
Adjusted EBITDA
$
97,914,459

 
$
35,733,729

 
$
224,418,062

 
$
96,118,627