Northern Oil and Gas

Hyper-growth continues as Q1 results were reported and the confernce call was held.  Also, they are terming out their debt.

To begin, the investor must know the company is a shit show.  Management are kids who are looting the company.  They can’t model their own simple business.  Warren Buffet:  “Invest in businesses that any idoit can run because, sooner  or later, one will.”

Yet I love the business.  Northern Oil is a finance company with minority working interests in drilling and wells in the Bakken.  Operations need not consist of more than a small amount of simple bookkeeping.  By definition, Northern ought to outperform the Bakken operators as a group because of the lower overhead, having cherry picked acreage, and no involment in the mid-stream business.

Comments on results:  Production was up 114% y/y.  At a Q1 run rate, NOG trades at 6.6 EBITDA.  After badly missing production guidance last year, I speculate management is sandbagging this year.  Differentials in Q1 stunk at -$14 to already relatively depressed WTI.  The industry is leaving an awful lot of money on the table and is working hard at making progress to fix this at no cost to NOG.  Also, as the industry advances quickly up the drilling learning curve NOG benefits.

With the high multiples income investors are willing to pay for assets, management still talks about an MLP drop down in later this year.  This event might shock the street at the value in the shares.

Debt ballooned in the recent quarter to $177.5 million.  Thus the $250 million bond.  The rate they pay will be interesting.

NOG is not financially levered up.  As good a Bakken growth story as is out there, NOG is levered to oil prices.  With decent oil pricing next year the cash flow multiple is somewhere between 2 and 3 times while still being a growth story.  Yeah.  So I overlook the shit show warts.