Energy Prospectus

NOG was trading at $28.73 when this was posted. My current valuation is $63.00.

Notes below are from Neal Dingmann at Truist Financial 9-30-2022.

Northern Oil and Gas, Inc. (NOG)
Another Arrow in the Rapid FCF Growth Quiver

NOG announced a Northern Delaware bolt-on during market hours today, adding over 20
locations and notable production to the company’s rapidly growing footprint. While today's
deal price screens slightly higher on a CF/FCF basis than the mid-august Midland bolt-on, we
think the more aggressive growth profile of today’s deal provides potential upside assuming
commodity prices hold, with lower than legacy operating costs helping on the expense side.

Given the size of the deal, we don’t expect it to have much of an impact on the stock.
However, we think it could signal to the markets that NOG is not simply adding low cost
cashflow for the sake of scale, but rather is looking to build a long-term fairway with the best
operators for its distribution focused consolidation strategy. < More "running room" adds to my valuation.

Transaction Details (Per Company Guidance)
• Purchase price of $157.5mm in cash, from seller Alpha Energy Partners (private),
representing an unhedged 3.1x P/CF multiple
• ’23 production of 3.0-3.5 mboepd (68% oil), growing to >4.0 mboepd in ‘24/’25
• 2.8k net acres in Lea/Eddy/Loving counties, ~21 net future locations, and 2.8 net in-process
locations < Delaware Basin.
• ~$32mm of average capex over the next three years, no impact to FY22 capex guidance
• The company expects operating costs to be lower than legacy properties and for the
acquisition to close in late 4Q
• Potential earnout payment from NOG to seller if WTI pricing remains above $75/b, up to
$22.5mm

Updating Estimates, Price Target Unchanged at $63
We have updated our production, capex, cost, and EBITDAX estimates to account for the
transaction and the updated hedging profile. Our $63 price target is derived from two equally
weighted methodologies with the first being our ’23 EV/ EBITDAX multiple of 3.5x (vs a
peer multiple of 3.6x) applied to our 2023E EBITDAX estimate of $1,603MM ($1,462MM
consensus) and the second being a FCF/EV Yield assumption of 15.0%.

Potential Catalysts
• Additional accretive transactions, leading to increased scale
• Accelerated dividend growth and discounted debt repayment
• Limited OFS inflation impact

TipRanks: "In the last 3 months, 8 ranked analysts set 12-month price targets for NOG. The average price target among the analysts is $45.25."

I went through Neal Dingmann's forecast model line-by-line and it is very close to what I have modeled. Q3 production slightly higher.

RBC Capital published a new report on NOG 10/3 (before this week's spike in oil prices)
Their price target is $40.00

Summary of RBC's report:
"Our view: We updated our estimates to reflect the recently announced
Delaware acquisition, and other changes to our model including
incorporating final 3Q22 benchmark commodity prices and NOG's new
hedge book. Overall our 2023 EPS/CFPS estimates increase by 1-2% net of
hedge additions that cap some upside at our more robust oil price forecast
($114/bbl in 2023). We think these were highly coveted assets in the core of
the Delaware basin. The acquisition enhances NOG's asset base, improves
returns/FCF, and provides a bit of embedded growth. Our 3Q22 EPS/CFPS
estimates decline by 5-6% reflecting lower benchmark oil prices."

Raymond James take of NOG dated 10/4/2022

Northern Oil & Gas Inc. Strong Buy 1 | $55.00 target

Acquisitions Continue with Delaware Basin Bolt-On

NOG announced another material acquisition, the sixth such deal in 15 months, highlighting
the company’s rapid expansion. The deal was made for the purchase price of $157.5M
with an expected 2023 production between 3,000-3,500 Boe/d (68% oil). The 2,800 acres
associated with the deal are located in Lea and Eddy Counties, NM, as well as Loving County,
TX. The deal is expected to cash flow ~$50M at the current strip for purchase price of slightly
less than 3x cash-flow, only slightly higher than the ~2.5x multiples of the previous deals, but
given the steep pullback in oil prices it is to be expected. The deal does include a contingent
payout up to $22.5M, should oil prices exceed $87.85/bbl. The deal will be financed with
cash, including borrowings under NOG’s revolving credit facility, and has an expected close
date in December 2022. NOG remains our favorite small-cap E&P thanks to its strong FCF
and dividend growth profile.