Northern Oil & Gas (NOG) Valuation Update - Feb 23

[dan_s]

Yesterday NOG announced Q4 results that came very close to my forecast, which increases my confidence in my forecasts for 2024 and 2025. They also provided line-by-line guidance on production volumes and expenses.
I have not been a fan of the non-op business model because it is harder for them to provide accurate guidance, but NOG has been an exception to that. Plus, I believe they are going to benefit from the merger of Earthstone Energy into Permian Resources (PR) that closed on November 1st. PR is considered one of the best operating companies in the Permian Basin.

At the time of this post NOG was trading at $34.54.

I am increasing my valuation by $2 to $65 per share.

NOG is an Aggressive Growth company that reported 40.5% year-over-year production growth in 2022 and another 30.8% YOY production growth in 2023. Based on the mid-point of NOG's guidance, their production should increase another ~19% in 2024. 2024 growth does not include any additional acquisitions other than the ones that closed on 2/5/2024 which added ~6,500 Boepd (26% oil).

NOG has an active hedging program. ~70% of their 2024 natural gas is hedged at an average price of ~$3.25/mcf. They get a nice premium for their natural gas that contains a lot of NGLs, so their averaged realized natural gas price in 2024 should be over $3.00, compared to their average realized ngas price of $3.97 in 2023. Their realized oil price should be ~$75/bbl, compared to $73.81/bbl in 2023.

NOG's free cash flow should be within the range of $500 to $600 million, which is more than enough to increase dividends and fund more bolt-on acquisitions.