Northern Oil and Gas Company (NOG) - PowerPoint PPT Presentation

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Northern Oil and Gas Company (NOG)

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  1. Northern Oil and Gas Company(NOG)

  2. Brief history of recent US oil boom • US has been aware of massive shale oil deposits since 1960s • Didn’t become economically viable to drill them until around 2005 (hydraulic fracturing and horizontal drilling) • US oil production grew on average 45% between 2005 and 2010 • Growth expected to continue, US expected to be a net exporter by 2020 • US passed Russia in November 2012 to become world’s leading natural gas producer

  3. Global view • IMF just upgraded world economic growth to 3.7% for 2014 • BNY Mellon: 3.5-3.75% for 2014 • Vanguard: 3.4% for 2014, first time they’ve seen cyclical growth indicators since the financial crisis • Merrill Lynch projects strongest growth year for US since financial crisis, emphasizes cyclical industries (such as oil) • Citi predicts 3.1% growth for global economy and a doubling in growth of advanced economies

  4. Domestic/Industry view • US expected to be a net exporter of oil by 2020 • Domestic oil production rose 15% in 2013

  5. Domestic/Industry view • US domestic oil industry is highly fractured • Mostly made up of Exploration and Production companies (E&P) who buy land on oil-rich shale formations, assess the land for oil, drill wells, and produce oil from those wells • E&P companies are generally much smaller than traditional multinational oil companies (BP, Exxon) and much more abundant (notable players include NOG, EOG, KOG, OAS, CLR, WLL, etc.)

  6. Domestic/Industry view • Oil prices reached a recent high of $96.73 today, narrowing the WTI/Brent spread to $11, the smallest gap since Dec. 19th • Current prices are expected to continue to rise • Freezing weather in the East (another cold front is expected) • Turmoil in North Africa, the Middle East, and Eastern Europe • Increasing transportation infrastructure and refinery capacity

  7. Domestic/Industry Overview

  8. NOG • NOG has a unique business model in the domestic oil landscape • Rather than actually drill wells and produce the oil themselves, NOG specializes in leasing acreage on which other companies drill • Often do this by taking a working interest in the well, taking a direct cut of the revenues it produces • Years of experience make them experts in land assessment • Land acquisition strategy (small leases) has proven effective • By taking a working interest in a diverse range of drilling companies, NOG spreads risk

  9. Selected Financials

  10. Selected Financials • Increased total production by 95% in 2012 • Increased proven reserves by 44% in 2012 • Participated in completion of 563 wells in 2012, with 100% success rate • 64% of acreage held in 2012 was either in production, being developed, or permitted for drilling • Total liquidity was $240m

  11. Selected Financials • Current ratio = .64 • Debt ratio = 1.7 • P/E: 17.24 • Peer average: 23.01 • Free cash flows inconsistent, but positive in 2012 and on track to be positive for 2013

  12. Risks • WTI/Brent differential • Decreasing oil prices? • Bakken oil safety regulations