Northern Oil And Gas Inc : Raymond James Raises Target Price To $57 From $51

Northern Oil and Gas, Inc. NOG reported third-quarter 2024 adjusted earnings per share of $1.40, which beat the Zacks Consensus Estimate of $1.26. The outperformance indicates strong production. However, the bottom line declined from the year-ago reported figure of $1.73 due to weaker realized prices from crude oil and natural gas and a 17.5% increase in operating expenses.

Oil and natural gas sales of $514 million missed the Zacks Consensus Estimate of $535 million. The top line increased from the year-ago figure of $512 million.

Northern Oil and Gas, Inc. Price, Consensus and EPS Surprise

Northern Oil and Gas, Inc. price-consensus-eps-surprise-chart | Northern Oil and Gas, Inc. Quote

NOG’s adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) was $412.4 million compared with $385.5 million in the year-ago period. Additionally, the figure beat our estimate of $376.8 million.

The oil and gas exploration and production company repurchased 397,301 shares of common stock at an average price of $36.38 per share, including commissions, in the open market in this quarter. Year to date, NOG has repurchased a total of 1,841,733 shares at an average price of $37.64, including commissions.

In July 2024, the company’s board of directors concluded the previous stock repurchase program, which had been nearly exhausted, and authorized a new program to repurchase up to $150 million of its outstanding common stock.

In August 2024, NOG's board of directors declared a quarterly cash dividend of 42 cents per share on its common stock, indicating a 5% increase from the previous rate. The dividend was payable to its stockholders of record as of Sept. 27, 2024, and was paid on Oct. 31.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

NOG’s Q3 Production Details

The third-quarter production increased 19% year over year to 121,815 Boe/d. Additionally, the figure beat our estimate of 121,700 Boe/d.

While oil volume totaled 70,913 Boe/d (up 12% year over year), natural gas (and natural gas liquids) amounted to 305,413 thousand cubic feet per day (up 31%). Our model estimate for oil volume and natural gas production was pegged at 70,800 Boe/d and 305,100 thousand cubic feet per day, respectively.

The average sales price for crude was $71.82 per barrel, indicating a 10% decrease from the prior-year quarter’s level of $79.48. However, the figure missed our expectation of $74.55 per barrel.

The average realized natural gas price was $1.60 per thousand cubic feet compared with $2.19 in the year-earlier period. Our model estimate for the same was pinned at $1.58 per thousand cubic feet.

NOG’s Costs & Expenses

Total operating expenses in the quarter rose to $319.7 million from $271.5 million in the year-ago period.This was mainly on account of a surge in production expenses, depletion, depreciation, amortization and accretion (DD&A) and other expenses.

In particular, the company’s lease operating expenses increased to $9.54 per Boe from the year-ago figure of $8.76. Meanwhile, depreciation outlay increased 17% year over year on a per-barrel basis. However, the figure missed our projection of $359.4 million.

NOG’s Capital Expenditures

During the third quarter, the company reported capital expenditures (CapEx) of $198 million (excluding non-budgeted acquisitions and other costs). This total included $187 million for drilling and completion (D&C) activities on organic and Ground Game assets, as well as $11.1 million for Ground Game-related activities, including pre-closing development costs. D&C spending aligned closely with expectations, caused by significant spud activity and healthy growth in the list, despite a lower number of turn-in lines. The company's weighted average gross authorization for expenditure in the third quarter was $9.1 million, slightly lower than the $9.4 million recorded in second-quarter 2024.

Of the total CapEx, 56% was allocated to the Permian Basin, 41% to the Williston Basin and 3% to the Appalachian Basin. On the Ground Game acquisition front, NOG completed six transactions during the quarter, acquiring a total of 1,259 net acres and 0.1 net current and future development wells through various deal structures.

NOG’s Financial Position

Cash flow from operations totaled $385.8 million. Excluding changes in net working capital, cash flow from operations amounted to $377.1 million, up 9% from that recorded a year ago. The company’s free cash flow for the quarter totaled $177.1 million.

As of Sept. 30, Northern had $34.4 million in cash and cash equivalents. The company had a long-term debt of $2 billion, with a debt-to-capitalization of 45.8%.

2024 Guidance for Northern Oil and Gas

The company has reiterated its capital expenditure and production guidance, with adjustments made to certain line items. For 2024, capital expenditures are expected between $825 million and $900 million. Production taxes have been updated to indicate revised expectations for the remainder of the year. Production expenses are expected to be in the range of $9.15-$9.40 per Boe, while production taxes are anticipated to be 8.5% to 9% of oil and gas sales. DD&A is expected to range from $15.5-$17.5 per Boe.

Adjustments to natural gas realizations and oil differentials are being made based on year-to-date results. Additionally, per-unit cash general and administrative (G&A) expenses are being reduced, due to lower external costs and the continued benefits of higher production volumes. G&A expenses, excluding transaction costs, are expected to be between 72 cents and 77 cents per Boe, with 25 cents to 27 cents of this being non-cash.

Annual oil production is anticipated in the range of 73,000-76,000 barrels per day, while total production is expected to reach between 120,000 Boe/d and 124,000 Boe/d.

NOG currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Important Energy Earnings So Far

Right in the middle of earnings season, there have been a few key energy releases so far. Let us glance through a couple of them.

Liberty Energy LBRT, the Denver-CO-based oil and gas equipment company, announced an adjusted net income of 45 cents per share, which missed the Zacks Consensus Estimate of 55 cents. This was primarily due to poor equipment and services execution and lower activity in the reported quarter. Additionally, the bottom line declined from the year-ago quarter’s reported figure of 86 cents due to a year-over-year increase in costs and expenses.

Ahead of the earnings release, LBRT’s board of directors announced a dividend of 8 cents per common share payable on Dec. 20, to its stockholders of record as of Dec. 6. This dividend represents a 14% increase from the prior regular quarterly dividend of 7 cents per share. In the quarter, Liberty returned $51 million to its shareholders through a combination of share repurchases and cash dividends.

Energy infrastructure provider,Kinder Morgan, Inc. KMI reported third-quarter adjusted earnings per share of 25 cents, which missed the Zacks Consensus Estimate of 27 cents. The bottom line was flat year over year. The weakness in quarterly results was caused by lower contributions from the Products Pipelines and CO2 business segments.

KMI also announced a quarterly cash dividend of 28.75 cents per share for the third quarter of 2024 (annualized dividend of $1.15), implying a 2% increase from the third-quarter 2023 level. The dividend is payable on Nov. 15, 2024, to its shareholders of record as of Oct. 31.

Schlumberger Limited SLB, a Houston, TX-based oil and gas equipment and services provider announced third-quarter earnings of 89 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate of 88 cents. The bottom line also increased from the year-ago quarter’s 78 cents. The strong quarterly earnings were primarily driven by broad-based earnings growth and margin expansion, especially in the Middle East, Asia and offshore North America. Additionally, cost optimization, greater adoption of digital solutions and contributions from long-cycle deepwater and gas projects played significant roles.

SLB reported a free cash flow of $1.81 billion in the third quarter. As of Sept. 30, the company had approximately $4.46 billion in cash and short-term investments. At the end of the quarter, it registered a long-term debt of $11.86 billion.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 8, 2024 – Today, Zacks Equity Research discusses Civitas Resources CIVI, Northern Oil and Gas NOG, California Resources CRC and Amplify Energy AMPY.

Industry: U.S. Oil & Gas - E&P

Link: https://www.zacks.com/commentary/2365990/a-closer-look-at-the-us-upstream-oil-gas-industry

The Zacks Oil and Gas - Exploration and Production - United States industry faces growing headwinds. With potential Republican-led policies encouraging increased domestic production, U.S. output could see a rise, expanding supply and likely softening oil prices. Additionally, China's slowing oil demand, despite government stimulus efforts, may contribute to weaker global prices, especially if OPEC+ production cuts don't offset the lagging demand.

Further, rising renewable energy and electric vehicle adoption continue to challenge long-term oil consumption, with countries like China advancing electrification efforts, leading to an earlier-than-expected peak in its oil imports. However, Middle East tensions could push prices up quickly if conflicts threaten critical supply routes. Amid these dynamics, select companies like Civitas Resources, Northern Oil and Gas, California Resources and Amplify Energy stand out, offering solid fundamentals and strategic positioning.

About the Industry

The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market, focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc. The economics of oil and gas supply and demand are the fundamental drivers of this industry.

In particular, a producer's cash flow is primarily determined by the realized commodity prices. In fact, all E&P companies' results are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns and causes them to alter their production growth rates. The E&P operators are also exposed to exploration risks where drilling results are comparatively uncertain.

4 Key Trends to Watch in the Oil and Gas - US E&P Industry

Potential Increase in U.S. Oil Production: With the U.S. election results favoring a Republican administration, policies supporting increased hydrocarbon production may be enacted. Such an approach could lead to a significant rise in U.S. oil output, adding to global supply and putting downward pressure on oil prices. Increased domestic production would reduce dependency on foreign oil, potentially leading to a price reduction as supply levels rise.

Impact of Weakening Chinese Consumption: China's demand for crude oil remains a key determinant in global oil prices. Although government stimulus measures aim to boost economic growth, recent signs of slower demand growth from China have prompted OPEC+ production cuts. If demand from China does not recover as expected, global oil prices could remain subdued due to a combination of ample supply and restrained demand.

Geopolitical Tensions in the Middle East: Escalating conflict between Israel and Iranian-backed forces could disrupt oil supplies if it spreads to critical areas like the Persian Gulf or Straits of Hormuz. Such disruptions could spark sharp price spikes due to potential threats to Iran's oil production or logistical chokepoints. Any intensification of hostilities would heighten supply fears, driving oil prices upward amid increased volatility.

Growing Renewables and EVs Threaten Oil Demand: The global shift to renewable energy and electric vehicles (EVs) presents a long-term challenge for oil demand. While renewable infrastructure growth is gradual, advancing technology and rising EV use are expected to reduce reliance on fossil fuels, potentially lowering oil prices. In China, rapid electrification is driving oil demand to peak earlier, with imports at 11.4 million barrels per day in 2023 projected to plateau by 2026 and then decline, furthering the global supply surplus and pressuring prices downward.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - US E&P industry is a 32-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #237, which places it in the bottom 6% of more than 250 Zacks industries.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group's earnings growth potential. While the industry's earnings estimates for 2024 have gone down 27.7% in the past year, the same for 2025 have fallen 26.5% over the same timeframe.

Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it's worth taking a look at the industry's shareholder returns and current valuation first.

Industry Underperforms S&P 500 & Sector

The Zacks Oil and Gas - US E&P industry has fared worse than the Zacks S&P 500 composite as well as the broader Zacks Oil – Energy sector over the past year.

The industry has moved down 1.8% over this period compared with the broader sector's increase of 5.3%. Meanwhile, the S&P 500 has gained 32.2%.

Industry's Current Valuation

Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 5.99X, significantly lower than the S&P 500's 17.30X. It is, however, above the sector's trailing 12-month EV/EBITDA of 3.35X.

Over the past five years, the industry has traded as high as 10.81X, as low as 3.29X, with a median of 5.99X.

4 Stocks to Consider

Civitas Resources: Based in Denver, Civitas Resources focuses on the DJ Basin in Colorado and the Permian Basin across Texas and New Mexico. With strong well returns and a valuable midstream component, Civitas is positioned for growth. The company has become a leading consolidator in the DJ Basin and offers substantial returns to shareholders, with a balanced production mix of 37% oil, 34% NGLs, and 29% natural gas.

The 2024 Zacks Consensus Estimate for Civitas Resources indicates 53.1% year-over-year revenue growth. With a Zacks Rank #3 (Hold), the oil and natural gas producer has a market capitalization of $5 billion. CIVI's shares have lost 20.7% in a year.

Northern Oil and Gas: Northern Oil and Gas' core operations are focused on three leading basins of the United States — the Williston, Permian and the Appalachian. The upstream operator employs a unique nonoperating business model, which helps it to keep costs down and increase free cash flow.

Carrying a Zacks Rank #3, the 2024 Zacks Consensus Estimate for NOG indicates 18.3% year-over-year revenue growth. Northern Oil and Gas delivered a trailing four-quarter earnings surprise of roughly 13% on average. The company's shares have gone up 15.1% in a year.

California Resources: It is a California-based independent oil producer with a strong focus on conventional, shallow oilfields, producing around 60% oil. Alongside its core E&P operations, CRC is expanding into carbon capture and storage. The company actively partners with CO2 emitters to permanently sequester CO2 in its depleted reservoirs, positioning itself as both an energy and carbon management leader in the state.

California Resources' expected EPS growth rate for three to five years is currently 11.8%, which compares favorably with the industry's growth rate of 8.3%. CRC delivered a trailing four-quarter earnings surprise of roughly 13.1% on average. The Zacks Rank #3 (Hold) company's shares have gained 13.4% in a year.

Amplify Energy: The Houston, TX-based operator has a strong presence in Oklahoma, Southern California and Texas, and has stakes such as Bairoil in the Rocky Mountains. Amplify Energy's diversified operations — spread over five U.S. basins — mitigates pricing and operational disruptions, while its long-life, long-production assets generate sustainable cash flows.

The 2024 Zacks Consensus Estimate for Amplify Energy indicates 3.1% year-over-year revenue growth. With a Zacks Rank of 3, the oil and natural gas producer has a market capitalization of $267.5 million. AMPY's shares have increased 19.6% in a year.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research

The Zacks Oil and Gas - Exploration and Production - United States industry faces growing headwinds. With potential Republican-led policies encouraging increased domestic production, U.S. output could see a rise, expanding supply and likely softening oil prices. Additionally, China’s slowing oil demand, despite government stimulus efforts, may contribute to weaker global prices, especially if OPEC+ production cuts don’t offset the lagging demand. Further, rising renewable energy and electric vehicle adoption continue to challenge long-term oil consumption, with countries like China advancing electrification efforts, leading to an earlier-than-expected peak in its oil imports. However, Middle East tensions could push prices up quickly if conflicts threaten critical supply routes. Amid these dynamics, select companies like Civitas Resources CIVI, Northern Oil and Gas NOG, California Resources CRC and Amplify Energy AMPY stand out, offering solid fundamentals and strategic positioning.

About the Industry

The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market, focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc. The economics of oil and gas supply and demand are the fundamental drivers of this industry. In particular, a producer’s cash flow is primarily determined by the realized commodity prices. In fact, all E&P companies' results are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns and causes them to alter their production growth rates. The E&P operators are also exposed to exploration risks where drilling results are comparatively uncertain.

4 Key Trends to Watch in the Oil and Gas - US E&P Industry

Potential Increase in U.S. Oil Production: With the U.S. election results favoring a Republican administration, policies supporting increased hydrocarbon production may be enacted. Such an approach could lead to a significant rise in U.S. oil output, adding to global supply and putting downward pressure on oil prices. Increased domestic production would reduce dependency on foreign oil, potentially leading to a price reduction as supply levels rise.

Impact of Weakening Chinese Consumption: China's demand for crude oil remains a key determinant in global oil prices. Although government stimulus measures aim to boost economic growth, recent signs of slower demand growth from China have prompted OPEC+ production cuts. If demand from China does not recover as expected, global oil prices could remain subdued due to a combination of ample supply and restrained demand.

Geopolitical Tensions in the Middle East: Escalating conflict between Israel and Iranian-backed forces could disrupt oil supplies if it spreads to critical areas like the Persian Gulf or Straits of Hormuz. Such disruptions could spark sharp price spikes due to potential threats to Iran’s oil production or logistical chokepoints. Any intensification of hostilities would heighten supply fears, driving oil prices upward amid increased volatility.

Growing Renewables and EVs Threaten Oil Demand: The global shift to renewable energy and electric vehicles (EVs) presents a long-term challenge for oil demand. While renewable infrastructure growth is gradual, advancing technology and rising EV use are expected to reduce reliance on fossil fuels, potentially lowering oil prices. In China, rapid electrification is driving oil demand to peak earlier, with imports at 11.4 million barrels per day in 2023 projected to plateau by 2026 and then decline, furthering the global supply surplus and pressuring prices downward.

Zacks Industry Rank Indicates Bearish Outlook

The Zacks Oil and Gas - US E&P industry is a 32-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #237, which places it in the bottom 6% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2024 have gone down 27.7% in the past year, the same for 2025 have fallen 26.5% over the same timeframe.

Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Underperforms S&P 500 & Sector

The Zacks Oil and Gas - US E&P industry has fared worse than the Zacks S&P 500 composite as well as the broader Zacks Oil – Energy sector over the past year.

The industry has moved down 1.8% over this period compared with the broader sector’s increase of 5.3%. Meanwhile, the S&P 500 has gained 32.2%.

One-Year Price Performance

Industry's Current Valuation

Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.

On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 5.99X, significantly lower than the S&P 500’s 17.30X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 3.35X.

Over the past five years, the industry has traded as high as 10.81X, as low as 3.29X, with a median of 5.99X.

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio (Past Five Years)

4 Stocks to Consider

Civitas Resources: Based in Denver, Civitas Resources focuses on the DJ Basin in Colorado and the Permian Basin across Texas and New Mexico. With strong well returns and a valuable midstream component, Civitas is positioned for growth. The company has become a leading consolidator in the DJ Basin and offers substantial returns to shareholders, with a balanced production mix of 37% oil, 34% NGLs, and 29% natural gas.

The 2024 Zacks Consensus Estimate for Civitas Resources indicates 53.1% year-over-year revenue growth. With a Zacks Rank #3 (Hold), the oil and natural gas producer has a market capitalization of $5 billion. CIVI’s shares have lost 20.7% in a year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: CIVI

Northern Oil and Gas: Northern Oil and Gas’ core operations are focused on three leading basins of the United States — the Williston, Permian and the Appalachian. The upstream operator employs a unique nonoperating business model, which helps it to keep costs down and increase free cash flow.

Carrying a Zacks Rank #3, the 2024 Zacks Consensus Estimate for NOG indicates 18.3% year-over-year revenue growth. Northern Oil and Gas delivered a trailing four-quarter earnings surprise of roughly 13% on average. The company’s shares have gone up 15.1% in a year.

Price and Consensus: NOG

California Resources: It is a California-based independent oil producer with a strong focus on conventional, shallow oilfields, producing around 60% oil. Alongside its core E&P operations, CRC is expanding into carbon capture and storage. The company actively partners with CO2 emitters to permanently sequester CO2 in its depleted reservoirs, positioning itself as both an energy and carbon management leader in the state.

California Resources’ expected EPS growth rate for three to five years is currently 11.8%, which compares favorably with the industry's growth rate of 8.3%. CRC delivered a trailing four-quarter earnings surprise of roughly 13.1% on average. The Zacks Rank #3 (Hold) company’s shares have gained 13.4% in a year.

Price and Consensus: CRC

Amplify Energy: The Houston, TX-based operator has a strong presence in Oklahoma, Southern California and Texas, and has stakes such as Bairoil in the Rocky Mountains. Amplify Energy’s diversified operations — spread over five U.S. basins — mitigates pricing and operational disruptions, while its long-life, long-production assets generate sustainable cash flows.

The 2024 Zacks Consensus Estimate for Amplify Energy indicates 3.1% year-over-year revenue growth. With a Zacks Rank of 3, the oil and natural gas producer has a market capitalization of $267.5 million. AMPY’s shares have increased 19.6% in a year.

Price and Consensus: AMPY

Zacks Investment Research