Northern Oil & Gas (NOG) Update from RBC Capital - Oct 9

[dan_s]

October 9, 2023
Northern Oil and Gas, Inc.
Quarterly Check-Up: 3Q23

Our view: We think production is skewed to the favorable end of guidance
given some activity pull forward. NOG's priority remains on its balance
sheet, where the target is to pay off the revolver by early 2024. We
do not anticipate buybacks this quarter, although management could be
opportunistic. M&A remains a core strategic growth option and could be
picking up a bit. We think the key investor debates are the pace of bank debt
repayment, future M&A activity, progress on existing JVs, opportunities for
production growth beyond 2024, and the new shareholder return pace.

Key points:

• Our 3Q23 EPS/CFPS estimates increase by $0.14/$0.22 to $1.77/$3.62
reflecting final commodity prices and slightly better oil production.
We are above the $1.75/$3.61 consensus. Oil diffs were slightly wider
compared to last quarter reflecting Bakken activity and pricing, while
LOE is a positive offset and now below $9/boe. Our 2023-2025 estimate
change also reflects RBC’s updated commodity deck.

• We model production at 101.9 Mboe/d (62% oil), up 12% QtQ from
the Forge & Novo acquisitions and higher Permian completions. Our
estimates are a touch above the 101.5 Mboe/d (63% oil) consensus and
the midpoint of the 99-103 Mboe/d guidance. There was a slight activity
pull forward that biased our production estimate above the midpoint.

• We expect 3Q23 capital spending at $195 million, above the $174 million
consensus estimate due to the aforementioned pull forward of activity.
2H23 spending shifts to more a 60/40 weighting, but overall capital
should remain within the budget. We forecast FCF generation of $153
million for the quarter.

• Approximately 69% of oil and 70% of natural gas production was hedged
in 3Q23, providing a $5.5 million cash settlement gain.

Channel Checks and Topics

• NOG has seen the pipeline of M&A activity picking up following a
quieter mid-summer, with opportunities covering the gamut from small
traditional non-op to joint ventures. Evaluation remains early stage and
management plans to stay focused on accretion and value thresholds.
Ground game acquisition activity was strong, specifically in the Permian.

• NOG continues to actively hedge and has added positions in 2024-2026,
with more focus on near-term periods.

• Following the spat of M&A, NOG has turned more priority to its balance
sheet, which it believes can be fully paid down in early 2024 at strip
commodity prices. Accordingly, we think there were no stock buybacks
during 3Q23, but management could be more aggressive if market
dislocations occurs. We expect the declared dividend unchanged but
likely increased to ~$0.40/share (quarterly) for 2024.

• It is too early for a 2024 outlook at earnings, although some color on the
pace of JV activity, gas drilling, and OFS costs are important. Recent AFE's
are showing signs of softening rig rates and consumable costs, but that
could fade if current oil strong price trends holds.

[dan_s]

All of RBC's points above are very close to my forecast for Q3. FCF for the year should be approximately $550 million.

[dan_s]

I have updated my forecast model based on the common stock offering announced today.
More shares offset by lower interest rates. Only lowers by valuation by $1 to $59.

[Fraser921]

They are issuing shares which is negative buyback