Northern Oil's Hedge Strategy Evaluated: Analyst Sees Strong Production And Capital Spending Avenues

RBC Capital Markets analyst Scott Hanold reiterated the Outperform rating on Northern Oil And Gas, Inc. NOG with a price target of $46.

Hanold doesn't anticipate buybacks in Q3, although management could be opportunistic. 

M&A remains a core strategic growth option and could be picking up a bit, notes the analyst. 

Hanold thinks the key investor debates are the pace of bank debt repayment, future M&A activity, progress on existing JVs, and opportunities for production growth beyond 2024.

NOG has seen the pipeline of M&A activity picking up following a quieter mid-summer, with opportunities covering the gamut from small traditional non-op to joint ventures.

The analyst's 3Q23 EPS/CFPS estimates increase by $0.14/$0.22 to $1.77/$3.62, reflecting final commodity prices and slightly better oil production.

The analyst models production at 101.9 Mboe/d (62% oil), up 12% QtQ from the Forge & Novo acquisitions and higher Permian completions. 

Hanold's estimates are a touch above the 101.5 Mboe/d (63% oil) consensus and the midpoint of the 99-103 Mboe/d guidance. 

The analyst expects Q3 capital spending at $195 million, above the $174 million consensus estimate.

Approximately 69% of oil and 70% of natural gas production is hedged in Q3, providing a $5.5 million cash settlement gain, the analyst adds. 

NOG continues to actively hedge and has added positions in 2024-2026, with more focus on near-term periods, Hanold adds.

Price Action: NOG shares are trading higher by 1.27% to $41.01 on the last check Tuesday.