The global energy landscape has experienced significant changes due to geopolitical uncertainties, environmental concerns, and the COVID-19 pandemic, increasing commodity prices and demand. 

Northern Oil and Gas (NOG), an independent oil and gas producer, benefits from these trends. 

NOG’s non-operated model allows for low maintenance costs while generating production revenues, with assets in key oil and gas-rich regions. 

The company has achieved industry-leading returns and strong asset growth but faces market concerns about energy price instability and regulatory pressures. 

High commodity prices and rising natural gas demand, especially from Europe, present promising opportunities for Northern’s future profitability.

Investor Essentials Daily:
Tuesday News-based update
Powered by Valens Research

The global energy landscape has undergone significant changes in recent years.

Geopolitical uncertainties, rising environmental concerns, and the COVID-19 pandemic have all contributed to volatility in commodity prices and shifts in long-term demand trends.

These factors enabled the energy sector to resurge, driven by the rising demand for oil and natural gas and the overall strength of the current commodity cycle.

One company that benefits from this trend is Northern Oil and Gas (NOG), an independent oil and gas producer.

The company owns non-operated mineral, royalty, and working interests across more than 10,000 gross wells and 1,000 net wells, with an average production of 119.4 MBOE/day, and an oil production volume of 70,000 barrels per day.

Northern’s non-operated model has significant advantages – it requires low maintenance capital to hold acreage versus drilling/completing new wells.

This means the company receives production revenues without operational responsibilities or capital expenditure commitments.

Northern’s assets are concentrated in all oil and gas-rich regions of the Permian, Williston, and Marcellus basins. This diversification mitigates risk and ensures steady production levels.

Furthermore, these reservoirs have multi-decade drilling inventories and well-understood geology

These characteristics have allowed Northern to generate industry-leading returns while maintaining a strong balance sheet.

The company has leveraged a strong oil cycle to achieve a 16% Uniform return on assets ”ROA” and 21% asset growth last year.

However, the market has concerns about energy price instability and regulatory pressures, reflected by Northern’s low 6x Uniform P/E.

One of the critical factors for the company’s potential for future profitability is the current high commodity prices. If oil and natural gas prices remain elevated, Northern is poised to benefit significantly.

Moreover, natural gas presents a particularly promising opportunity for Northern.

The demand for natural gas is on the rise, driven by its role as a crucial energy source for generating electricity, especially powering artificial intelligence (AI).

In addition to the domestic demand for natural gas, the European market offers another significant tailwind for the company.

Europe has been increasing its reliance on American natural gas as part of its energy transition strategy, seeking to reduce dependence on Russia.

Considering Northern’s past performance and multiple favorable tailwinds, the firm can be much more profitable than the market expects.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research