Energy Prospectus

Dan:

You like a lot of companies that are active in the Bakken Shale, but one company that hasn't made it to your Sweet 16 is Northern Oil & Gas (NOG). I was wondering if you or anyone else has an opinion on NOG.

Some of the folks on VF like it a lot. I've atgtached a buy rating from VF for your info

Thanks,

MrMuileh

(updated 06/07/09)
NOG was an HGSI pick at $12.40. I liked the company so much that I ended up moving NOG into my core energy holdings. NOG is a non-operator with extensive leaseholds in the Williston Basin Bakken/Three Forks area.

The company holds royalty interests and shares drilling costs so it comes without a large overhead and fixed costs. It has lots of cash, a freshly negotiated $100 million line of credit, and no debt. It is growing reserves and production at a very fast rate! Management has been involved for four generations and owns 13% of the company. They closed a 5.75 million share secondary at $15 with hardly a blip in the stock price.

Their April 12 presentation makes the case for NOG better than I can and it is well worth the time:

http://www.northernoil.com/pdf/2010_IPAA_OGIS_NY2.pdf

They also have a very educational video which explains horizontal drilling here:

http://www.northernoil.com/drilling.php

NOG ran to $18.00 on April 6 and has dropped 24% in the market decline; however the stock has been very strong on up days and shows little distribution relative to the price decline. With no debt, NOG remains well situated to navigate any market credit issues and they continue to add to production. Wells are achieving payout in 3-4 months.

In short, this is an crude oriented energy company which will do exceptionally well in growing earnings regardless of what the market does. It was 16.26 when I rated it a buy and I paid as much as 16.46 for shares. I continue to accumulate this stock on weakness, most recently at $12.20. I wish it paid a dividend but it does not so I write covered calls.

With patience to wait out a market correction, I believe this is a $20+ stock.

Earl

I did look at NOG late in 2009 when I was selecting the Sweet 16. I did not like the fact that they were a non-operator. Plus, at the time it seemed over valued. 2009 EPS only 8 cents.

They are doing much better today and seem to be keeping up with their cash calls. Remember, as a non-operator they have minimal control over the capital expenditure programs so their is always the risk they can't keep up. So far it is working out for them.

Right now I'm looking hard at companies in the Eagle Ford as I believe that play will get a lot of press next year. See my report on ROSE. I'm looking at PetroHawk now. EOG has a huge stake in the Eagle Ford.

BTW, Hess bought AEZ today and they are about to leap into the Eagle Ford as well.

Dan

Dan:

Thanks for your reply.

I recently started a position in NOG and have had a decent sized position in HK since the action heasted up in the Haynesville Shale. Unfortunately, I'm still underwater with HK due to weak gas prices. I like HK, but we need higher gas prices for HK and the other gassers to have a worthwhile move.

I'll check out ROSE as you suggested.

Thanks,

Phil (MrMuileh)