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Northern Oil & Gas - The Only Reason For The Insider Buying Is Because It's Undervalued

Trading Alpha profile picture
Trading Alpha


  • Insiders are about to invest $40mm or 22% into this small but dynamic oil and gas producer.
  • The company is undergoing a recapitalization that will reduce risk and allow it to ramp up growth.
  • The bond market agrees with these changes, as its bonds have gone from 60% of par to 90% in the last six months.
  • The company is positioned to grow in a big way. While oil prices above $60 might add to your returns, oil price appreciation isn't required to get the stock to $6 per share.
  • The company is under-followed and waiting to be discovered.

Northern Oil & Gas (NYSE:NOG) is making a long overdue recovery, and I believe it's headed from $2 to $6 over the next year due to recent funding, a recapitalization, strength in production, declining costs and increasing oil prices. Its performance will be a catalyst for discovery by The Street, and an out-of-favor company will return to being in favor by rewarding long investors.

Insiders are leading a $40mm injection of new capital into the company. This represents 22% of the pro forma post-money valuation based on the closing market cap of $140mm on March 5, 2018. This is on top of the current 37% held by insiders, as per Yahoo Finance (29% post-money, pre-debt conversion). Contrary to most insider positions of this size, this represents shares about to be purchased or purchased in the last few years at prices actually higher than today's closing price of $2.15. Another $38mm will be sought for incremental cash and equity investments in the company. Furthermore, another $78mm of stock for oil and gas property might be issued.

When was the last time you could get in on such a large insider purchase before it happens? This is very unusual, so why is it happening? The company is going through a recapitalization and in addition to $40mm of new capital coming in, there is another $38mm of equity expected to be raised plus $156mm of existing debt that will be converted into equity from a mixture of insiders and key debt holders. The targeted price is $3 per share, but the final price will be what the market supports and the insiders are doing their best to talk up the company's prospects before the deal is priced. That indicates to me that the common shareholders will get a fair shake in the transaction. I think there is plenty of upside to go around and the

This article was written by

Trading Alpha profile picture
I am a professional business adviser with a degree in accounting from a Big 10 school. As an investor of thirty years, I have served in the financial services and professional services industries. I am a past holder of various securities licenses and CPA. I am also an active personal investor. I feel strongly that people need to think for themselves.

Analyst’s Disclosure: I am/we are long NOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have been a shareholder in NOG for over three years, and built this into my largest position while the stock was less than $2 per share, buying as low as $0.70 per share.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

So May 15th is D day..no deal they file..80mm needed from Stifel..
Managment just did a fine job destroying this stock
Why its required by the bondholders, they announced this month ago...
2live4divs profile picture
nog is headed north this morning! any news out,as to why?
Bikerron1 profile picture
Being looked at as a BO.
Who is the effective president now ? Michael Reger?
The bond holders have a support agreement aside from what was mentioned here to also not convert their bonds into any other type of debt individually without permission of the entire group which owns over 2/3rds of the debt. So if this equity raise doesn't happen, they will pre-pack this with no way to stop it. That is your risk. At this point they really don't care what happens cause they will own the company. In my mind why even put up the additonal equity if you can just sit here and take the company via the debt. No chance this debt can be refied at maturity which is why they are doing this deal. I own only the debt, wouldn't touch the common until the deal is done.
Chamazza profile picture
Seems management is SELLING, not buying as Elliot has dumped over 11,000 shares abd Rouslo has dumped 13,000!
So those shares are worth ~22k and ~26k. That's virtually nothing.
need oil price to go up. nothing else matter.
I entered NOG (staggered) and it is a very large position for me as well. However, the credit rating agency took a negative view on the "transaction" you mentioned above and that is what sent the stock down from $2.40 to $2. Bummer. Also, I really liked Tom Stoelk, the "interim" Pres, who I think is now gone.

Anyway, I agree that this is a little gem, and will turn into a "big one" (if not purchased for its acreage by Hamm/CLR first) as it has tier 1 Bakken assets, and is going to be a cash flow machine this year. I agree on the $6, but first, lets make it to $4.

Live long and prosper.
Tier 1 bakken inventory is dwindling though. And a lot of what they have is not Tier 1.

I doubt they are a takeover candidate from any operator, especially Continental. Too spread out with too many minor interests that would bog down staff managing. Maybe within Continental operated DSUs...
2live4divs profile picture
when abouts do you think it will get to 6$.
2live4divs profile picture
good news I hope!
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