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Northern (NOG) Signs Three Agreements to Purchase Permian Acres

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Northern Oil and Gas, Inc. NOG entered three definite agreements to obtain nearly 2,900 core acres of non-operated interests in the Permian basin for $102.2 million.

The assets are located at the center of Reeves County, TX, as well as New Mexico Counties of Lea and Eddy in the Delaware basin of the Permian shale formation. Notably, EOG Resources EOG, Mewbourne Oil Company, ConocoPhillips COP and Colgate Energy are the primary operators of the acquired assets.

The transaction comprises 5.3 net producing wells, 5.0 net wells in progress and an additional 23.1 net undrilled locations belonging to the core areas. Importantly, the additional undrilled locations involve the Wolfcamp A, Wolfcamp B and 1st through 3rd Bone Spring units.

In May 2021, the resources involved in the acquisition produced nearly 2,200 barrels of oil equivalent per day (boed). Notably, the company expects total production of 3,700 boed for the second half of this year, assuming an Aug 1 closing.

Moreover, Northern plans to increase production to nearly 6,500 boed in the coming years, depending on the development plans on the properties. The company expects the assets to generate more than $100 million of cumulative free cash flow through 2025 as an outcome of the development strategy.

Northern already acquired a portion of the assets in June and expects to complete the remaining acquisition in the third quarter of 2021. Notably, the effective date for the majority of the transaction value is Apr 1, 2021.

The company believes that the combined properties will incur about $35 million of development capex this year, which includes estimated purchase price adjustments at closing. Despite this, Northern’s total capital expenditure is expected to increase only $15-20 million, once the deal closes.

Notably, the company’s improved capital efficiencies along with the additional cash flows from the acquired assets are expected to strengthen Northern’s estimated free cash flow profile at current strip prices.

The acquisition is expected to be funded through a combination of a common equity offering of 5 million shares of its common stock or cash on hand/borrowings under the company’s revolving credit facility as required.

Company Profile & Price Performance

Headquartered in Minneapolis, MN, Northern is an upstream company, which has a primary strategy of investing in non-operated minority working and mineral interests in oil & gas properties.

Shares of the company have outperformed the industry in the past six months. Its shares have gained 109.7% compared with the industry’s 72.3% growth.

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Zacks Investment Research

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Zacks Rank & Stock to Consider

The company currently carries a Zack Rank #3 (Hold).

One better-ranked player in the energy space is Suncor Energy, Inc. SU, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, the Zacks Consensus Estimate for Suncor’s 2021 earnings has been raised by 55.1%.

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