Northern Oil and Gas (NOG)

Northern Oil and Gas, an exploration and production company in the North American market. Northern focuses its operations in North Dakota and Montana, specifically in the Williston Basin, but also has activities in the Marcellus shale region of Pennsylvania and West Virginia, and in the Permian Basin on the Texas-New Mexico border.

Like Marathon above, Northern’s recent Q3 results show that solid production numbers are underlying sound results. The company produced 79,123 barrel of oil equivalent per day in Q3, a company record, for a 37% increase from the year-ago period. Of the total, 57% was oil, and the rest was natural gas and natural gas products.

Northern realized $276.8 million in GAAP cash flow during the quarter, with cash from operations coming in at $269.3 million. This was up 7% quarter-over-quarter, and included $110.6 million in free cash flow. The FCF was up 99% year-over-year.

During Q3, Northern closed on a major acquisition in the Texas Delaware Basin. The company picked up properties from Alpha Energy Partners, for a settlement of $155.1 million in cash. This is a bolt-on acquisition, with expected production next year of 3,000 to 3,500 barrels of oil equivalent per day.

For return-minded investors, we should note that Northern started paying dividends in the June quarter of last year, at 3 cents per common share; the company has increased the payment in every quarterly declaration since then, and the most recent, for 30 cents per common share, represents an increase of 20% over the last payout. The 30-cent div is scheduled for payment on January 31, 2023. At that rate, it will annualize to $1.20 and yield 3.7%.

Freeman notes that Northern saw higher-than-expected capital expenditures during Q3, mainly related to the company’s recent acquisition moves. Looking ahead, he writes of Northern’s capital guidance: “NOG’s capital guidance was bumped substantially with full year up 11% to $485M at the midpoint. The bump isn’t without benefits, as net spuds increased by 3% and net wells added to production increased by 6.5%. It also stands to reason that NOG has had a bit more ground game success this year than they had forecast.”

“The company has made substantial additions to wells in progress every quarter this year, from 49.1 in Q1 to 61.5 in Q3. We aren’t naive enough to think NOG will be insulated from inflationary pressures, but 5% increase in AFEs from last quarter stands up pretty well to industry peers,” Freeman added.

To this end, Freeman rates NOG a Strong Buy, while his $60 price target suggests an 85% price gain in the year ahead.

Overall, Northern Oil and Gas gets a Strong Buy rating from the analyst consensus, based on 10 recent reviews which break down 9 to 1 in favor of Buy over Hold. With a trading price of $31.32 and an average price target of $50.30, Northern has an average upside potential of ~61% for the coming year.