Stock down nearly 6% as non-cash losses surprise analysts, investors.
Shares of Northern Oil & Gas dropped nearly 6 percent to $23.71 per share Wednesday after the company surprised analysts by reporting a net loss of $1.4 million, or 2 cents per share, in the fourth quarter of 2011.
The Wayzata-based company had a net loss of $1.75 million, or 3 cents per share, in the fourth quarter of 2010.
Northern Oil, which buys oil and gas drilling rights to land in North Dakota and Montana and then participates with exploration firms, said the loss resulted from "forward oil price changes, mark-to-market derivative gains" and noncash losses that totaled $23.6 million in the fourth quarter of 2011, more than double the non-cash losses of $11.4 million of the period a year earlier.
The company said net income for 2011 rose to $40.6 million, or 65 cents per share for the year, in line with analyst estimates. That compares with net income of $6.9 million, or 14 cents per share in 2010.
Revenue for 2011 increased 235 percent to $149 million.
"Operationally, our 2011 performance reflects another year of successfully executing our strategy of developing our acreage position and building a long-life reserve base," CEO Michael Reger said in a statement. "Our success enabled us to increase proved reserves by 31.1 million [barrels] in 2011, representing approximately a 1,700 percent replacement of our 2011 produced reserves.'' During 2011, production increased 117 percent to 1.9 million barrels, he said.
Northern Oil said expanded credit agreements with its lenders position the company for continued growth and expansion.
Michael Stellmacher, a portfolio manager with Sit Investment Associates, an owner of Northern Oil, noted that the fourth quarter loss was a non-cash charge that resulted from a hedge on oil prices, and that the company would have earned 21 cents per share without the unrealized loss. That's still shy of analysts' estimates.
However, Stellmacher, who is more cautious than the consensus of Wall Street analysts, still expects Northern Oil to have a breakout year in 2012 thanks to fast-growing production on Northern Oil land and increasing oil prices, which he predicts will yield earnings of about $1.20 per share.
The Wall Street consensus for 2012 is earnings of $1.45 per share, according to Thomson Financial.
Northern executives predicted they would about double production in 2012. Stellmacher expects a 65 percent increase in oil production.
Northern Oil, a speculative play on the vast Bakken oil basin, has been a controversial stock over its several-year life. The controversy gushed after heavy executive selling when the stock was at $30-plus-per-share highs in early 2011, only to be cut in half by short sellers and others who doubted management's credibility.
The company has since replaced its chief financial officer and hired a securities law expert as its general counsel.
Neal St. Anthony • 612-673-7144