Northern Oil and Gas, Inc. (NOG): A Resilient Non-Operator Delivering Consistent Returns

Published on September 24, 2024 | Ticker: NOG

Northern Oil and Gas, Inc. (NYSE: NOG) is a real asset company with a primary strategy of acquiring and investing in non-operated minority working and mineral interests in the premier hydrocarbon producing basins within the contiguous United States. The company has demonstrated its ability to consistently deliver strong financial and operational results, even in a volatile commodity price environment.

Financials

For the full year 2023, NOG reported annual net income of $922,969,000, annual revenue of $1,907,009,000, annual operating cash flow of $1,183,321,000, and annual free cash flow of -$661,931,000. The company's strong performance was driven by its focus on high-quality assets, strategic partnerships with top-tier operators, and a disciplined capital allocation strategy.

First Quarter 2024 Results

In the first quarter of 2024, NOG continued to build on its momentum, reporting impressive results. The company's average daily production reached a new record of 119,436 Boe per day, a 37% increase compared to the first quarter of 2023. This growth was primarily driven by the strong well performance and the pull-forward of activity, which resulted in 25.3 net wells being added to production during the quarter.

NOG's oil production mix remained consistent at just over 70,000 barrels per day, while natural gas and NGLs contributed a larger portion of the total volumes. The company's adjusted EBITDA for the first quarter of 2024 was $387 million, up 19% year-over-year, despite lower average realized prices per Boe. Free cash flow for the quarter was $54 million, lower sequentially and from the same period last year, due to the pull-forward of activity.

The company's oil differentials were in line with expectations at an average of $3.99 per barrel, while natural gas realizations were 118% of benchmark prices for the first quarter, driven by better winter NGL prices and in-season Appalachian differentials. NOG expects natural gas realizations to moderate in the second quarter as the heating season comes to an end.

Outlook

Looking ahead, NOG has provided guidance for the second quarter of 2024, expecting production to be flat compared to the first quarter at 117,500 to 119,500 Boe per day. The company anticipates a significant improvement in free cash flow in the second quarter as the wells added in the first quarter begin to contribute to production and revenue.

Business Overview

NOG's business model as a non-operator provides the company with a unique advantage in navigating the industry's challenges. By partnering with top-tier operators across its core basins, NOG is able to benefit from the expertise and efficiencies of its operating partners, while maintaining a flexible and capital-light approach to development.

The company's focus on high-quality assets and conservative underwriting has paid off, as evidenced by the better-than-expected well performance across its portfolio. NOG's engineering team works closely with its operators to set and meet conservative expectations, often resulting in positive surprises for the company.

NOG's geographic diversification across the Williston, Permian, and Appalachian basins further enhances its resilience. The company's production mix is well-balanced, with oil accounting for approximately 59% of total volumes in the first quarter of 2024, providing exposure to the strong oil market while benefiting from the cash flow generated by its natural gas and NGL assets.

The company's capital allocation strategy is designed to maximize total shareholder returns. In the first quarter of 2024, NOG repurchased 549,356 shares of its common stock for $20 million, demonstrating its commitment to returning capital to shareholders when market conditions warrant. The company also continues to evaluate strategic acquisition opportunities, with a focus on high-quality, cash-flowing assets that can enhance its dividend potential over time.

Liquidity

NOG's liquidity position remains strong, with $32.5 million in cash and $987 million available under its revolving credit facility as of March 31, 2024. The company's net debt to EBITDA ratio was 1.25x at the end of the first quarter, and it expects this ratio to trend down throughout 2024 as it continues to generate significant cash flow.

The company's management team is highly aligned with shareholders, with a focus on maximizing total returns through disciplined capital allocation and operational excellence. NOG's unique business model, diversified asset base, and strong financial position position it well to navigate the industry's challenges and capitalize on future growth opportunities.

Conclusion

Overall, NOG's first quarter results demonstrate the resilience and consistency of its business model. The company's focus on high-quality assets, strategic partnerships, and prudent capital management have enabled it to deliver strong financial and operational performance, even in a volatile commodity price environment. As NOG continues to execute on its strategy, the company is well-positioned to generate sustainable value for its shareholders in the years to come.

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