NOG Provides Operational Update and Guidance

This post is still being updated.

Reminder: this is where I track the recent "bear raid" on NOG. 

Lots of information here. I will come back later and clean up the post and add important data points.

Data Points of Recent Press Release

Data points from a very long and a very informative operational update and response to recent "bear raid."

• In first calendar quarter of 2011, acquired 11,100 net acres; average cost -- $1,540/net acre (remember folks; some recent core acreage has gone for $7,000 to $12,000/acre.) 
• NOG says their new acreage is in core Bakken
• Assuming six wells/1280-acre spacing unit -- huge
• Now plans to spud 40 wells in 2011; up from original plans to spud 36 -- again, huge
• Increase in number of wells due to fact more drilling rigs in North Dakota; drilling program accelerating across the board
• NOG partners with others: NOG has had 100% success rate in drilling
• Slawson is one of NOG's major partners
• Slawson recently contracted 1.5 dedicated fracking crews

Comments:

NOG says they are increasing the number of wells that they will spud in 2011 from 36 to 40. This is somewhat misleading. NOG does not spud anything. They have a working interest in wells. They partner with operators. The operators spud the wells. What matters is a) how much money NOG invests in the Bakken this year; and, b) the return on their investment.

NOG will report some huge wells this year. But if their working interest in a huge well is but one percent and their working interest on a poor well is 30 percent, that is not good.

The Press Release (portions of it)

In first calendar quarter of 2011, NOG has acquired another 11,100 net mineral acres at an average cost of $1,540/net acre in its core Bakken and Three Forks prospect areasof North Dakota and Montana.

Northern Oil controls 151,327 net acres targeting the Bakken and Three Forks prospects as of March 28, 2011.  This acreage position will allow Northern Oil to participate in approximately 709 net wells assuming six wells per 1280-acre spacing unit.

The press release continues (same link as above):

Due to accelerating drilling activity and key acreage acquisitions, Northern Oil has spud approximately 9.8 net wells in the first quarter of 2011 year-to-date and now expects to spud approximately 40 net wells during 2011, which represents an increase from previous guidance of 36 net wells.

As of March 28, 2011, Northern Oil has participated with a working interest in 343 successful Bakken or Three Forks discoveries.  Northern Oil is currently participating in 141 gross (14.17 net) additional Bakken or Three Forks wells drilling, awaiting completion or completing.  Northern Oil maintains a 100% success rate in the Bakken and Three Forks play.

According to the North Dakota Industrial Commission, approximately 173 rigs are currently drilling in the North Dakota Bakken and Three Forks play, representing a new record.  The significant rig increase over the past year is driving the continued acceleration of the development of Northern Oil's core acreage position.

Slawson Exploration, Northern Oil's operating partner in the Windsor prospect in southern Mountrail County, North Dakota, has commenced the second well in each spacing unit of that prospect.

Downspacing in the Windsor prospect to six wells per spacing unit has been approved by the North Dakota Industrial Commission.  Slawson Exploration has recently contracted 1.5 dedicated frac crews, which we expect will materially shorten the spud-to-sales timeline in this highly productive prospect.

 Northern Oil is Slawson's largest working interest partner in the prospect.

Depletion and Depreciation Amortization

In light of recent comment about NOG's accounting of depletion and depreciation amortization, this is what NOG had to say:

For the fiscal year ending December 31, 2010, Northern Oil's depletion, depreciation, amortization and accretion expense ("DD&A") on a per BOE basis was $19.22.  For comparison purposes, based on information provided in their respective annual reports on Form 10-K for the fiscal year ending December 31, 2010, Kodiak Oil and Gas reported a DD&A expense of approximately $18 per BOE, Oasis Petroleum reported a DD&A expense of $19.91 per BOE and Brigham Exploration's DD&A expense calculates to approximately $20.47 per BOE.  As such, Northern Oil's 2010 DD&A expense was in the mid-range of its peer group in the Bakken and Three Forks play.  Northern Oil anticipates its DD&A expense for the fiscal year 2011 to remain in-line with this peer group.