Northern Oil & Gas, Inc.
January 31, 2021
Page 2
Future revenue is prior to deducting state production taxes and ad valorem taxes. Future net cash flow is after deducting these taxes, future capital costs and operating expenses, but before consideration of federal income taxes. In accordance with SEC guidelines, the future net cash flow has been discounted at an annual rate of ten percent to determine its “present worth”. The present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties.
The oil reserves include oil and condensate. Oil volumes are expressed in barrels (42 U.S. gallons). Gas volumes are expressed in thousands of standard cubic feet (Mcf) at contract temperature and pressure base.
Our estimates are for proved reserves only and do not include any probable or possible reserves nor have any values been attributed to interest in acreage beyond the location for which undeveloped reserves have been estimated.
Hydrocarbon Pricing
The base oil and gas prices calculated for December 31, 2020 were $39.57 per barrel and $1.99 per MMBTU, respectively. As specified by the SEC, a company must use a 12-month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. The base oil price is based upon WTI-Cushing spot prices (EIA) and the base gas price is based upon Henry Hub spot prices (Platt’s Gas Daily), during 2020.
Adjustments to oil and gas prices were applied based upon calculations derived from regional averages or provided by your office. Oil price differentials include adjustments for basis differential, transportation, and/or crude quality corrections. Gas Price differentials include adjustments for basis differential and the BTU heating value of gas.
After these adjustments, the net realized prices over the life of the proved properties was estimated to be $32.693 per barrel for oil and $1.606 per MCF for gas. All economic factors were held constant in accordance with SEC guidelines. All pricing adjustments were supplied by NOG and reviewed by CG&A for accuracy and completeness.
Economic Parameters
Ownership was accepted as furnished and has not been independently confirmed. CG&A reviewed oil and gas price differentials, gas shrinkage, ad valorem taxes, severance taxes, lease operating expenses and investments calculated and prepared by NOG. Lease operating expenses were calculated based on historical lease operating statements. All economic parameters, including lease operating expenses and investments, were held constant (not escalated) throughout the life of these properties.
SEC Conformance and Regulations
The reserve classifications and the economic considerations used herein conform to the criteria of the SEC. The reserves and economics are predicated on regulatory agency classifications, rules, policies, laws, taxes and royalties currently in effect except as noted herein. NOG’s operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include matters relating to land tenure, drilling, production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of reserves actually recovered and amounts of income actually received to differ significantly from the estimated quantities.
This evaluation includes 1,633 proved undeveloped locations, of which 817 are commercial based on SEC pricing. Each of the commercial drilling locations proposed as part of NOG’s development plans conforms to the proved undeveloped standards as set forth by the SEC. The PDNP consists of new wells and a large number of wells that were shut-in during 2020 for various reasons that were not back online as of the effective
