Northern Oil & Gas (NYSE:NOG) is a rare oil producer in the energy space which holds significant acreage in the Bakken shale field, but doesn't operate any of its wells. Its future outlook may appear grim since NOG's earnings and cash flows might come under pressure due to the weakness in oil prices, which could be especially bad for the Minneapolis, Minnesota-based company operating under a mountain of debt. However, I believe Northern Oil & Gas can withstand weak oil prices, deliver strong free cash flows, and may appeal to those investors who can tolerate a bit of risk.
Image: Northern Oil & Gas Investor Presentation
Northern Oil & Gas is a unique energy company. It owns non-operating, minority interest in thousands of wells in the Bakken and Three Forks shale plays in North Dakota and Montana. Northern Oil's wells are majority owned and operated by more than two dozen leading independent oil producers such as ConocoPhillips (COP), EOG Resources (EOG), Continental Resources (CLR), and Hess Corp. (HES). This means that unlike a vast majority of oil and gas producers, Northern Oil neither drills nor operates any wells. The company essentially provides financing by acquiring the minority interest in acreage that is about to be drilled, and its partners do the heavy lifting.
Northern Oil has interest in almost 152,000 net acres in the Bakken shale, primarily in North Dakota. Its share of production was 26,700 boe per day, which was mostly crude oil. The company has participated in the drilling of more than 2,800 wells so far and holds more than 135 million barrels of oil equivalent reserves. These reserves are valued at $2.18 billion at SEC pricing formula, which is based on trailing twelve-month prices ($65.56/bbl oil and $3.10/ MMbtu gas) and $1.59 billion at a flat $55 oil and $2.70 gas price. On paper, Northern Oil appears like any
