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Rating Action: Moody's changes Northern Oil and Gas' outlook to positive, assigns Caa1 to new notesGlobal Credit Research - 04 Feb 2021New York, February 04, 2021 -- Moody's Investors Service (Moody's) changed Northern Oil and Gas, Inc.'s (NOG) rating outlook to positive from stable. Concurrently, Moody's affirmed NOG's B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR). Moody's assigned a Caa1 rating to NOG's proposed $500 million senior unsecured notes due 2028. The Caa1 rating for the existing second lien secured notes remains unchanged and will be withdrawn upon repurchase or redemption. NOG's Speculative Grade Liquidity (SGL) rating remains SGL-3.NOG plans to use proceeds from the new unsecured notes to repurchase or redeem the outstanding second lien notes and repay the unsecured VEN Bakken note, as well as boost liquidity to help fund the acquisition of certain Marcellus Shale assets. The acquisition has an effective date of July 1, 2020 and is expected to close in April 2021, subject to the satisfaction of customary closing conditions."The positive outlook reflects Northern Oil & Gas' leverage metrics likely gradually improving as the company's near-term free cash flow is used to pay down more debt or acquire additional assets and enhance cash flow," said Amol Joshi, Moody's Vice President and Senior Credit Officer. "The proposed notes offering will extend debt maturities while the acquisition of Marcellus Shale assets should also increase the company's scale and diversification."Assignments:..Issuer: Northern Oil and Gas, Inc.....Senior Unsecured Regular Bond/Debenture, Assigned Caa1 (LGD5)Affirmations:..Issuer: Northern Oil and Gas, Inc..... Probability of Default Rating, Affirmed B3-PD.... Corporate Family Rating, Affirmed B3Outlook Actions:..Issuer: Northern Oil and Gas, Inc.....Outlook, Changed To Positive From StableRATINGS RATIONALEThese rating actions follow NOG's  agreement to acquire certain non-operated natural gas assets in the Appalachian Basin from Reliance Marcellus, LLC. NOG's positive outlook reflects the company's ability to generate free cash flow in 2021 likely leading to gradually improving leverage metrics, while the Marcellus Shale acquisition should provide exposure to a prolific natural gas basin. The acquisition cost, net to NOG, consists of $175 million in cash and approximately 3.25 million warrants, expected to be funded through a combination of equity and debt financings. In addition to the new notes, NOG is selling 12.5 million shares through a public offering, while also granting the underwriters a one-month option to buy up to an additional 1.9 million shares.NOG's proposed senior unsecured notes are rated Caa1, one notch below the company's B3 CFR despite the priority claim of its relatively large revolver in the capital structure. The Caa1 rating for the senior unsecured notes is believed to be more appropriate than the rating suggested by Moody's Loss Given Default for Speculative-Grade Companies Methodology because of the sound asset coverage provided by the company's reserve base and modest expected decline in debt balances. Moody's has considered the pro forma debt structure comprised of borrowings under its first lien secured revolving credit facility and $500 million in senior unsecured notes.NOG's B3 CFR reflects the company's moderate leverage, while the acquisition should improve its scale and provide basin and commodity diversification. The company's legacy Williston Basin asset base is oil-weighted and benefits its unleveraged cash margins and cash flow. Significant reinvestment of capital and acquisition of producing assets in the Williston Basin had allowed NOG to deliver growth in production volumes through 2019, although 2020 production has fallen materially because of production shut-ins and lower drilling of new wells in response to the coronavirus induced collapse in oil prices. NOG hedges a meaningful portion of its oil and gas production into 2022 and the company will likely add significant natural gas hedges related to its acquisition, reducing volatility in its revenue and cash flow. Moody's expects NOG's retained cash flow (RCF) to debt ratio to remain robust relative to its rated peers in 2021. NOG's credit profile continues to be challenged by its relatively modest scale. While NOG manages a well-diversified portfolio of non-operated working interests in numerous producing assets, it relies on the operating performance of its partners. The company's growth strategy is focused on participating in operator initiated wells and executing bolt-on acquisitions, requiring a high degree of financial flexibility.NOG's adequate liquidity is reflected by its SGL-3 rating, and is supported by its ability to generate positive free cash flow in 2021. At September 31, 2020, NOG had $1.8 million of cash and $571 million of revolver borrowings. The company reduced its revolver borrowings in the fourth quarter, but those borrowings should approach $600 million pro forma for paying down $65 million of the VEN Bakken note in early January. The company's revolver borrowing base was cut to $660 million in July, significantly reducing availability under the revolver. Pro forma revolver borrowings should decline modestly after giving effect to proceeds from the equity and debt offerings. NOG's revolver borrowing base could modestly increase after considering the acquisition assets, providing some additional liquidity. The revolver's financial covenants include a maximum net debt to EBITDAX ratio of 3.5x (with cash netting limited to $50 million), and a minimum current ratio of 1x. The current ratio calculation allows certain adjustments and the inclusion of unused amounts of the total bank commitments. The new notes will extend debt maturities after repaying the second lien notes and the remaining VEN Bakken note. NOG's next debt maturity will be when its secured revolver matures in November 2024. Substantially all of the company's assets are pledged as security under the credit facility, which limits the extent to which asset sales can provide a source of additional liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if NOG sustains its production above 50 thousand barrels of oil equivalent per day in an improving commodity price environment, its RCF/debt is sustained over 30% and the company's liquidity is adequate or better. The ratings could be downgraded if production volumes materially decline, RCF/debt falls below 20% or liquidity deteriorates.Northern Oil and Gas, Inc., headquartered in Minnetonka, Minnesota, owns non-operated working interests in oil and gas wells and acreage primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana.The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.REFERENCES/CITATIONS Form 8-K (SEC), Northern Oil and Gas, Inc., 03-Feb-2021Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. 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