Northern Oil & Gas (NOG) Valuation Update - May 17

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

Northern Oil & Gas (NOG) Valuation Update - May 17

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On May 15th Northern Oil & Gas (NOG) announced an agreement for a joint acquisition with Vital Energy, Inc. ("Vital") of certain assets (the "Forge Assets") of Forge Energy II Delaware, LLC, an EnCap portfolio company ("Forge")
> NOG purchasing a 30% undivided stake in the Forge Assets (the "Acquired Assets") for $162 million in cash
> The Acquired Assets include ~3,400 Boe per day (excluding NGLs, 79% oil) of recent production and ~10,200 net acres, located primarily in Ward and Reeves Counties, TX
> Cash flow from operations on the Acquired Assets expected to be >$65 million in the next twelve months (starting 7/1/2023), based on recent strip prices, representing a transaction multiple of < 2.5x
> Strong free cash flow profile with ~$38 million expected capital spend in the next twelve months

On May 16th Northern Oil and Gas, Inc. (NYSE: NOG) (the "Company" or "NOG") announced that it has priced its previously announced underwritten public offering of 6,650,000 shares of its common stock for gross proceeds of approximately $199.5 million (the "Offering"). The Company has granted the underwriters a 30-day option to purchase up to an additional 997,500 shares from the Company. The Offering is expected to close on May 18, 2023, subject to the satisfaction of customary closing conditions. < I am modeling that all 7,647,500 shares will be sold, with total proceeds more than enough to cover the Forge Energy Asset Acquisition.

The Company intends to use the net proceeds from the Offering (i) to fund the cash purchase price of the Company’s recently announced pending acquisition of certain oil and gas properties, interests and related assets located in the Delaware Basin (the "Forge Acquisition") and (ii) for general corporate purposes, which may include the repayment of a portion of the outstanding borrowings under its revolving credit facility. Pending the use of proceeds to fund the cash purchase price of the Forge Acquisition, the Company may temporarily apply such portion of the net proceeds from the Offering to repay outstanding borrowings under its revolving credit facility. The consummation of the Offering is not conditioned upon the completion of the Forge Acquisition and the consummation of the Offering is not a condition to the completion of the Forge Acquisition. If the Forge Acquisition is not consummated, the Company intends to use the net proceeds of the Offering for general corporate purposes, which may include the repayment of outstanding indebtedness.
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My current valuation of NOG increases by $1 to $58 per share.
> The Forge Acquisition will put NOG on a clear path to production of more than 100,000 Boepd in Q4 2023 with a 2023 exit rate near 105,000 Boepd.
> NOG's production mix will be better balanced at year-end, ~65% crude oil.
> By using an equity offering to fund the acquisition, it will improve NOG's balance sheet ratios at year-end.
> Heading into 2024, NOG should have a strong balance sheet and lots of running room.


TipRanks: After the Forge Acquisition was announced, on May 16th three 5-Star analysts have adjusted their price targets for NOG
> Neal Dingmann at Truist Financial rates NOG a BUY with a price target of $58.00
> Scott Hanold at RBC Capital rates NOG a BUY with a price target of $45.00
> Lloyd Byrne at Jefferies rates NOG a BUY with a price target of $41.00
Keep in mind that a lot of analysts will not update their models until after an acquisition closes.

At the time of this post NOG was trading at $30.50.
Dan Steffens
Energy Prospectus Group
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