Ran into an old oily buddy I haven't seen in 15 years and here's his take on NOG: NOG's non-operator model literally makes them a captive of their operator/partners. The publicized acceleration of development by BEXP and the quiet acceleration of development by CLR, HES, WLL and other major Bakken E&Ps just might put a cash squeeze on NOG such that they must curtail acreage acquisition which is one kiss of death, or, they will not be able to participate and will have to take the lease bonus and ORRI, another kiss of death, instead of participating. I said no problem; they'll issue another secondary. He said their recent announcement of a $150M buyback makes a secondary just about impossible. NOG's 2011 estimated CAPEX is ~$252M; they've got about $150M on hand, a $100M line of credit and net income last year was about $7M so, let's double that for kicks to $14M. Where does that put NOG on 12/31/2011 if their operator partners accelerate 25%; BEXP moved up their drilling schedule by 6 months; CLR, WLL, HES, etc. ain't sayin'. Add another 25% to expected CAPEX and you get $314M. Where's the money going to come from to participate or acquire acreage? Production cannot possibly be fast enough to make up the short fall. Increasing their line of credit, or, issuing debt just eats up EPS. NOG's PPS will plummet and the Regers will take the company private with the help of the Slawsons or the Anschutz family.
Is this NOG's future?
sandon;at long last an intelligent post that is so true.nog has a good record and so does brigham.these guys put some thought into how to do it and carried a lot of dummies with them.my daughter has most of her retirement funds with these two along with gold and silver etfs ...Coe
When borrowing money from the lenders viewpoint it's all about the company and collateral; from the borrower's viewpoint money is fungible; the only issue is cost. The pps does not matter unless the lender requires a sweetheart deal to do the financing. Look at ETFC and Citadel's deal in 2007 that kept E*Trade out of bankruptcy and it's related bank out of FDIC's hands. It was basically a high interest loan convertible to equity at Citadel's discretion. Now, that's what I'll call private financing. Now if you're talking about Cap One floating an issue of say senior unsecured notes to a few "sophisticated" investors the issue for the borrower is still the same...cost. The pps still doesn't play a part unless, again, it's part of the compensation to the investment bank selling the deal to their customers. Isn't Canaccord NOG's main book runner?
Thanks for the mention -- it's nice to know you are reading my posts. I'm not sure who would have followed you anywhere, but your commentary has been rather useless here. I have been short since the low 19's. I watched the ridiculous run-up and jumped on after CEO Reger started dumping. You can read my posts to see my position. Those who think there is magic in this business model are idiots. You are one of them. If you want to invest in oil, look beyond this company and also the CEOs brother's company, VOG. Do a little background research on these characters and you will realize being long in NOG is a waste of money and time.
I attended their ANNUAL MEETING yesterday.
Reger said their plans were to drill 40 net wells and to lease $20,000,000 a quarter.
There was no mention of any share buyback program.
Average JOE investors still skeptical. Money guys still believe!
Let me be clear to all my readers who followed me over the years:
Ignore those two posters, the one with an oily buddy, and strato whose ignorance and desperation for some real education was apparent.
They are a waste of time and space for all who are honest and decent investors/human beings.
Oh, there was more from the idiot:
"It appears to me they place their bets based on matters extraneous to the core economics of E&Ps."
It was clear, not "appears to" some liar, that the poster was rubbing of off his/her oily buddy's ignorance, and made the nonsense even more absurd.
I rarely come to this board, but the start of this topic was interesting enough for me to comment. What was that:
"Ran into an old oily buddy I haven't seen in 15 years and here's his take on NOG: NOG's non-operator model literally makes them a captive of their operator/partners."
First, it's typical of liars who must try to borrow some sort of "credibility", as if some newbies would actually be fooled. How about "ran into god who tried to make a decent human being out you"?
Secondly, the non-operator model is indeed a better model for its lower cost structure, and thus better margin as a result.
Thirdly, "NOG's non-operator model literally makes them a captive of their operator/partners." Hah??
The partnerships were defined by contractual agreements, which benefit all parties. But the poster came up with that nonsense, as if he/she had a "clever" way of saying it with a negative tone to the partnerships. Yes, you're an idiot and it's time to stop pretending you know something for real.
"ran into an oily buddy"?! Gosh, what a typical liar's way to open the nonsenses.
You need to get on NOG's site and see how they work. Your statement, i.e.:
"The partnerships were defined by contractual agreements, which benefit all parties. But the poster came up with that nonsense, as if he/she had a "clever" way of saying it with a negative tone to the partnerships."
is certainly not the way it works. There are no partnerships defined by any agreement. Here's how it goes: NOG gets an AFE; they send their check to the operator for their % interest according to the AFE. The operator and NOG sign an "operating agreement" along with all the other participants in the well. The closest that arrangement can come to a partnership is a "joint venture" which is a partnership for one and only one specific project; thus my terminology "operator/partner". Check out NOG's site and find out how it works for yourself. Listen to Mike Reger say we get an AFE, write the check and shut up. That's why they are captive and can easily run into money problems when the AFEs come in faster than their checkbook can stand.
Let me suggest that you read the full thread and learn a little about E&Ps before you go spouting off. Your lack of knowledge of O&G is readily apparent.
It's probably best if you don't come this board because you are providing no value. It seems your message is "liar, liar, pants on fire." Yes, I'm sure there are a lot of liars on this board.
As for this inexpensive "non-operator model" stuff. First, we know that drillers allocate the drilling expenses to NOG. I assume they are smart enough to get the full costs included -- depreciation on equipment, etc. So, the Gross Profit Margin per well is no better with NOG. As for General and Administrative expenses -- NOG does not employee lawyers, but certainly have plenty of legal expenses. They don't employee some of the prospecting folks, but I would argue the per well costs of some of these expenses are small and that some expenses are included in the drilling expenses that are passed along. NOG has it's own negatives when compared to the drillers -- the one I don't like is the inability to time drilling with land acquisition and/or lease expiration -- less efficient than drillers and higher percent of land leases that expire.
The other big problem is the significant shareholder dilution seen in the NOG non-operator model.
Bet they told you just what you wanted to hear. That's why they have an IR guy, Erik ???. If you really want to know what's going on in the field you go to the cafe nearest the well being drilled that you're interested in about 5:00 A.M. and listen to the breakfast chatter. As far as financials, a secondary, issuance of debt, cash on hand, AFEs they got, etc. you won't get that kind of information over the phone. I have never seen an E&P that did not say it was flush with cash, acreage and drilling prospects right up until and even after they've filed their Chapter 11; not that that would happen to NOG barring world catastrophe. Just think about SEC and inside info. You're not going to hear anything over the phone that is not already public knowledge; they simply cannot divulge anything else. As far as CLR goes Harold Hamm is a great guy and even when you talk to him on the street in Enid or OKC you just hear how great the Bakken is; how the estimated EUR is way off; how well CLR is doing, but nothing really specific. Oilys have always been secretive, clannish and close to the breast. You don't think for a minute with the tripe being put out by Hempton and Davis that you're going to hear anything but a rosey spin on public knowledge over the phone, do you? I may nit pick NOG a little just to get a thread going with a swap of ideas but I know for certain NOG is neither naieve nor stupid and divulges nothing truly informative over the phone.