Northern Oil & Gas (NOG) Update - Jan 27

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Northern Oil & Gas (NOG) Update - Jan 27

Post by dan_s »

This great news and it should draw a lot of attention to NOG: "Northern Oil and Gas Inc. (NYSE: NOG) will replace South Jersey Industries Inc. (NYSE: SJI) in the S&P SmallCap 600 effective prior to the opening of trading on Thursday, February 2."
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NOG should report more than a 3,000 Boepd increase in production from Q3 to Q4.

If their guidance for 2023 matches my forecast of another 11,000 Boepd increase this year (to 94,000 Boepd), this stock should move up at least 50% by mid-year. Revenues went from $807 million in 2021, to $1,560 million in 2022 and should top $2 billion this year.

Take a look at operating cash flow per share on row 52 of my updated forecast, which you can find under the Sweet 16 tab on the EPG website.

I have been following NOG since it was a tiny non-op company in North Dakota over ten years ago. This is quite an American success story.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Northern Oil & Gas (NOG) Update - Jan 27

Post by dan_s »

Note from Raymond James

Thoughts on the Quarter

4Q22 Outlook: We are forecasting capital expenditures of ~$139M (Street $135M), modeled oil volumes of ~48.5 Mbo/d (consensus 50.1), and total production of ~80 Mboe/d (Street 82.5 mboe/d). We are bringing our estimates slightly lower thanks to the winter storm that knocked out a substantial portion of Bakken production, an event that almost certainly had adverse effects on NOG. Production and capex next year will ramp considerably thanks to the Mascot project, pushing production north of 90 mboe/d and 56 mbo/d.

Small cap valuation with a large cap risk profile. NOG is still valued like a traditional small cap E&P despite having a far different risk profile. Small cap E&P’s would suffer individual project risk, where underperformance on a single pad has an outsized impact on overall company results. Additionally, NOG benefits from the purchasing power of their much larger operating partners to help minimize oilservice cost inflation relative to small-cap peers. NOG’s broad-based, non-op business model greatly reduces such risk factors and as such deserves a much higher multiple than the paltry ~2.9x EV/EBITDA they are currently receiving. < This is KEY to my higher valuation of $62/share.

Base Dividend Growth Plan: NOG has made shareholder returns its top priority by installing a framework for a rapidly growing base dividend. Given the minimal competition they face given their position as the largest non-op, further consolidation is a near certainty that would only enhance that dividend growth profile.

RECOMMENDATION
Making it unique among other traditional E&Ps, Northern's non-operator business model allows it to run on a bare-bones cost structure, continue to add to its best-in-class dataset, and achieve a historic ROCE via enhanced capital allocation. Adding to this, the non-op acreage/interests on the auction block should grow meaningfully over the next few years as tightened E&P budgets force the larger players to focus on the operated portions of their acreage. As such, we reiterate our Strong Buy rating and maintain our target price of $55/share.

VALUATION
Our new $55 target price is based on a discounted cash flow model. We believe a DCF approach is the most appropriate method of valuing E&Ps given the industry’s focus on free cash flow and shareholder returns.
Dan Steffens
Energy Prospectus Group
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