Executive Summary / Key Takeaways

• Northern Oil and Gas (NOG) operates a differentiated non-operated model focused on acquiring minority working and mineral interests in premier U.S. basins, providing inherent flexibility and lower operational overhead compared to traditional operators.
• Strategic acquisitions across the Permian, Williston, Appalachian, and Uinta basins have significantly scaled and diversified the company, driving robust production growth (12% year-over-year in Q1 2025) and establishing a deep inventory runway.
• The company demonstrated strong financial performance in Q1 2025, generating $136 million in free cash flow and a record $435 million in Adjusted EBITDA, supported by increased production volumes and effective cost management despite volatile commodity prices.
• NOG maintains a solid balance sheet with $0.9 billion in liquidity as of March 31, 2025, and a net debt to LQA EBITDA ratio around 1.3x, providing capacity for continued investment and resilience in various market environments.
• A commitment to shareholder returns is evident through a consistent dividend policy ($0.45/share declared for Q1 and Q2 2025) and an active share repurchase program ($15 million repurchased in Q1 2025), balancing returns with strategic growth and debt management.

The Power of the Non-Operated Model in a Volatile Market

Northern Oil and Gas, Inc. (NYSE: NOG) stands apart in the dynamic U.S. energy landscape through its focused strategy as a non-operator. Rather than drilling wells itself, NOG acquires minority working and mineral interests in high-quality oil and natural gas properties operated by third parties across prolific basins like the Permian, Williston, Appalachian, and Uinta. This model, purposefully built over the past seven years, offers distinct advantages: no direct exposure to the fixed costs and logistical complexities of operating rigs or frac crews, inherent flexibility to adjust capital allocation, and the ability to participate selectively via non-consent rights.

The cyclical nature of the oil and gas industry, marked by inherent price volatility and operational disruptions, underscores the strategic value of NOG's approach. While traditional operators face significant commitments, NOG's model allows it to dynamically allocate capital based on real-time marketplace dynamics and expected returns, focusing singularly on profitability. This adaptability is a core competitive differentiator, enabling the company to potentially leverage downturns for counter-cyclical investments in acreage and working interests when capital becomes scarce for others.

NOG's competitive positioning is further enhanced by its scale and expertise in identifying and executing accretive acquisitions. While direct E&P competitors like Devon Energy (DVN), Continental Resources (CLR), EOG Resources (EOG), and ConocoPhillips (COP) operate integrated, often technologically advanced, businesses, NOG carves out a niche by partnering with these very operators or other private entities. NOG's acquisition strategy allows for rapid market entry and diversification across basins, providing a broader opportunity set than basin-focused players like CLR and potentially faster portfolio adjustments than larger, globally diversified firms like COP.

The company leverages proprietary data and technology, supported by expanding internal teams in data science, engineering, and geology, to enhance its competitive edge. This technological application is not about inventing new drilling techniques but about superior information processing and analytical rigor. It enables NOG to accurately screen a high volume of opportunities (over 500 screened in 2024), glean deeper insights from its extensive well data (10,000+ wells), optimize its underwriting process, and identify additional value within its owned acreage. While lacking the cutting-edge operational tech of leaders like EOG, NOG's strength lies in applying data analytics to capital allocation and risk management, aiming for superior risk-adjusted returns.

Performance Reflecting Strategic Execution

The first quarter of 2025 provided a clear illustration of NOG's model in action, delivering robust results despite a challenging commodity price environment marked by declining oil prices extending into April 2025. Total average daily production reached approximately 134,959 Boe per day, a 13% increase compared to Q1 2024. This growth was primarily fueled by production from recent acquisitions, including contributions from the Uinta Basin (7% of total Boe mix in Q1 2025 vs. 0% in Q1 2024) and Appalachian Basin (14% of total Boe mix), alongside new wells added to production (27.3 net wells in Q1 2025).

Financial performance metrics underscored the operational strength. Adjusted EBITDA hit a record $435 million in Q1 2025, demonstrating the profitability of the asset base. Free cash flow remained strong at $136 million, marking the 21st consecutive quarter of positive free cash flow for the company. This consistent cash generation is a direct result of NOG's ability to acquire and develop interests in productive wells while managing its cost structure effectively.

Revenue dynamics in Q1 2025 reflected the shifting production mix and commodity price environment. Total oil and gas sales (excluding derivatives) increased by 8% year-over-year to $577 million. Oil sales saw a slight decrease (-1%) to $459.7 million, while natural gas and NGL sales surged by 77% to $117.3 million. Realized prices were impacted by market factors; the average oil price differential to NYMEX WTI widened to $5.79 per barrel in Q1 2025 (vs. $3.99 in Q1 2024), primarily due to the addition of the Uinta Basin's higher transportation costs. Conversely, the net average realized gas price improved significantly to $3.86 per Mcf (100% of Henry Hub) in Q1 2025, compared to $2.47 per Mcf (118% of Henry Hub) in Q1 2024, influenced by basin-specific pricing and NGL realizations.

Operating expenses showed expected trends tied to increased activity and production. Production expenses rose by 8% to $114 million, largely in line with the 12% increase in production volumes and 15% increase in net producing wells. On a per-Boe basis, production expenses slightly decreased to $9.39 (vs. $9.70 in Q1 2024). Production taxes decreased by 30% to $36.1 million, and the rate as a percentage of sales fell to 6.3% (vs. 9.6% in Q1 2024), primarily due to a higher proportion of production coming from the Permian, which has a lower average tax rate. General and administrative expenses increased by 27% to $14.5 million ($1.19/Boe), driven by higher personnel headcount and professional fees as the company scales its internal capabilities. Depletion, depreciation, amortization, and accretion (DDA) increased by 18% to $205.7 million, reflecting the higher production volumes and a higher depletable cost base resulting from recent acquisitions. Interest expense rose by 16% to $43.9 million, net of capitalization, due to higher debt levels incurred to fund acquisition activities.

NOG's capital allocation strategy balances investment in organic development, ground game acquisitions, debt reduction, and shareholder returns. In Q1 2025, capital expenditures on oil and natural gas properties totaled $259.7 million. The weighted average gross AFE cost for wells elected in Q1 2025 was $10.5 million, up from $9.5 million in Q1 2024, partly influenced by a 23% increase in lateral lengths driving improved returns. The company's liquidity remained strong at $0.9 billion as of March 31, 2025, comprising $33.6 million in cash and $0.9 billion in committed borrowing availability under its $1.8 billion Revolving Credit Facility (elected commitment increased to $1.6 billion in April 2025). Total debt stood at $2.34 billion, with a net debt to LQA EBITDA ratio around 1.3x, well within the company's stated target range of 1x to 1.5x.

Outlook and Strategic Trajectory

Management maintains its previously issued 2025 guidance, anticipating annual production in the range of 130,000 to 135,000 Boe per day, including 75,000 to 79,000 barrels per day of oil production. The production cadence is expected to see a relatively flat profile through the first half of the year, with a significant ramp towards the end of 2025. This back-half weighting is driven by a substantial build-up in the wells in process (D&C list) and the timing of completions, particularly from larger joint venture projects and longer-lateral wells in the Uinta, which push production contributions later into the year.

The 2025 capital expenditure budget is set in a range of $1.05 billion to $1.2 billion. This includes $200 million to $300 million earmarked as growth capital, which can be reallocated depending on the commodity price environment, implying a maintenance capital level of $850 million to $900 million. Approximately 25% of the budget is allocated to ground game acquisition and development, and 10% to the Appalachian drilling partnership. This flexible capital program, coupled with the non-operated model, allows NOG to adjust spending if commodity prices weaken without necessarily impacting production levels materially, unless significant curtailments occur.

Strategic initiatives continue to focus on expanding and optimizing the asset base. The company remains highly active in the ground game, evaluating numerous smaller transactions (over 90 reviewed in April 2025) to bolt on acreage and wellbore interests, particularly in core areas and counter-cyclically when opportunities arise. Larger M&A remains a focus, with active engagement in processes ranging from $50 million to over $500 million, and bilateral conversations exploring creative structures like joint development agreements and co-purchases. Management sees a potential wave of divestitures from larger operators post-consolidation, presenting further opportunities.

Technological application, while not involving proprietary drilling hardware, is critical to NOG's strategy. The investment in data science, engineering, and geology teams aims to enhance the ability to identify value, optimize capital allocation decisions, and improve underwriting rigor. The focus is on leveraging data analytics to gain insights from its vast well portfolio and evaluate opportunities more effectively than competitors who may lack NOG's scale or specialized non-op focus. Operational efficiencies, such as increased lateral lengths (up 23% in Q1 2025 elections) and cost savings from strategic partnerships (like the Uinta sand mine), are direct outcomes of this data-driven approach and partnership model.

Key risks include the dependence on third-party operators, who control the pace and nature of development and may not always align with NOG's interests. Concentration risk exists in the core basins, exposing NOG to region-specific operational or regulatory challenges. Commodity price volatility remains a significant factor, although NOG's hedging program (over 60% of expected 2025 production hedged) is designed to mitigate downside exposure and protect capital deployment. Inflationary pressures on costs, while potentially easing in a lower price environment, could still impact margins. Geopolitical events and broad macroeconomic conditions also pose risks to demand and pricing.

NOG is committed to returning capital to shareholders. The company declared a cash dividend of $0.45 per share for Q1 and Q2 2025. The board approved a $100 million increase to the share repurchase authorization in March 2025, bringing the total available under the current program to $195.3 million as of March 31, 2025. In Q1 2025, the company repurchased 499,100 shares for $15 million. Shareholder returns are balanced against funding growth initiatives and maintaining a strong balance sheet, with management expecting leverage to trend towards the lower end of its target range by the end of 2025.

Conclusion

Northern Oil and Gas has successfully leveraged its differentiated non-operated model to build a scaled, diversified, and financially resilient energy company. The strategic focus on acquiring high-quality interests in premier basins, coupled with operational flexibility and a return-driven capital allocation approach, positions NOG to generate substantial free cash flow and deliver per-share growth across commodity cycles. While challenges such as operator dependence, market volatility, and regional risks persist, the company's robust balance sheet, active hedging program, and ongoing investment in data-driven capabilities provide a solid foundation to mitigate these factors. The outlook for 2025, characterized by a significant ramp in production towards year-end and a flexible capital program, underscores the potential for continued value creation. NOG's ability to execute its acquisition strategy and capitalize on opportunities in various market environments, supported by its unique competitive position and disciplined financial management, forms the core of its compelling investment thesis.