NOG Announces Largest Aquisition In Its History -- 10,600 Acres For $300,000,000

Updates

October 1, 2018: NOG announces that acquisition of W Energy has closed.

The acquired assets consist of approximately 27.2 net producing wells and 5.9 net wells in progress, as well as approximately 10,633 core net acres in North Dakota, which the company estimates will provide approximately 51.9 net future drilling locations. 

 Closing consideration consists of approximately $114.8 million in cash and 51,476,961 shares of Northern common stock.

Original Post

 

Please go to link instead of reading this post -- this link takes you to the press release.

Breaking: after announcement, in pre-market trading, NOG is up over 4% after being up over 5% yesterday.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship decisions based on anything you read here or think you may have read here.

Disclaimer: please go to link instead of reading this post. I have combined notes from the press release with my own calculations. I am known to make simple arithmetic errors and make assumptions that are incorrect, or misread something. I will adjust the data below as more information becomes available. In a long note like this there will be typographical and factual errors. 

Press release. Data point

• definitive agreement with W Energy Partners
• largest acquisition in NOG's history
• 6,750 boepd production ($40 x = $270,0000 daily, or about $8 million / month)
• 10,600 net acres "in the core of the Williston Basin"
• $100 million and 56.37 million shares
• $3.40 x 56.37 million = $191 million, let's call it $200 million
• $300 million / 10600 =  $28,000 / acre (compare with previous acquisition, upwards of $40,000 / acre)
  
• with recently announced Pivotal acquisition "will allow NOG to generate significant free cash flow and substantially reduce leverage" --Pivotal acquisition? See below.
• currently 295 million shares outstanding 
• 56.37/295 = 19%
• cash on hand: $90 million
• debt: about $1 billion 
• current revenue: about $238 million
• announcement prior to market open; futures not yet posted for NOG
• it's very possible, W Energy picked up their acreage in ND for $2,500 / acre or less than $30 million total, and now selling / flipping for $300 million

2Q18 production

• preliminary estimate of production exceeded expectations
• increased 52% year-over-year
• increased nearly 17% sequentially
• now averaging approximately 21,045 boepd

CY18 cash

• expects to exit 2018 with free cash flow
• expects to have approximately $100 million in cash at end of year

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The Pivotal Acquisition 

From the blog, July 18, 2018 -- just earlier this month

NOG: announces acquisition of producing wells, about 4,100 boepd; $68.4 million in cash plus 25.75 million shares (x $3.40 = $88 million) for a total of about $150 million. Net acreage not mentioned. Recently, NOG paid upwards of $40,000 / acre. NOG also announced it has reduced annual interest payments by over $5 million and will reduce overall debt by over $63 million through a new deal and other agreements. The most recent deal: exchange 8% senior unsecured notes due 2020 by issuing over 3 million shares of common stock; this will reduce debt by almost $10 million. In pre-market trading, NOG was up almost 5%, trading near $3.40. It's 52-week high is $3.72.

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The Seller

W Energy Partners: from Oil & Gas Journal, June 8, 2016:

W Energy Partners has been formed as an exploration and production company seeking to acquire nonoperating working interest in acreage and production in the Williston basin.

Crestview Partners III LP, New York, and affiliated private equity funds will invest as much as $150 million in W Energy, which is based in Dallas.

John Wunderlick, the new company’s chief executive officer, formed a predecessor company, W North Fund LP, in 2011. Earlier he worked in land and business development at Petro-Hunt LLC.

Shane Hannabury, W Energy president, was a partner in the predecessor company and earlier worked as an investor at EnCap Investments.

Comment: in late 2014, and extending through 2016, only recovering in early 2017, the Saudis made their $1 trillion mistake, flooding the market with oil. The price of oil plummeted and the oil sector in the Williston Basin went into a tailspin. It seems to me that W Energy Partners came together at exactly this time to take advantage of a huge, huge opportunity, buying mineral rights, acreage, assets at rock-bottom prices. If my hunch is correct four thoughts:

• these guys were really, really paying attention
• these guys knew the underlying value in the Williston Basin
• these guys knew that the "recession/depression" in the Williston Basin was going to be short-lived 
• comparisons with the Permian begin again

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Since 2012

NOG (from "Bakken Operators")

• July 31, 2018: NOG to aquire 10,600 acres for $300 million; $28,000 / acre; W Energy deal
• July 18, 2018: NOG to acquire "large package of producing wells" from Pivotal Petroleum Partners; appears no acreage involved?
• April 26, 2018: NOG acquires 1,300 incredibly good Bakken acres for an incredible $49 million ($40 million in cash; 6 million shares in NOG)
• March, 2018: $120 million public offering; NOG to raise $120 million in new public offering? Mostly for acquisition and drilling program. If acquisition alone, in North Dakota, back-of-the-envelope: $120 million / $2,000-acre = 60,000 acres. My last update shows NOG with 145,000 net acres (2017); has had as much as 180,000 net acres (2012)
• 3Q17: 145,749 net acres; link here;  16,285 bopd in 2015; 165,000 net acres in 2015;
• 1Q17: 13,299 boepd; EURs tracking 1 million boe; 30-day IPs now (2016) average 1,485 boepd; net income for 1Q17 was $16.9 million; adjusted net income was a loss of $0.1 million; adjusted EBITDA for the quarter was $29.6 million
• 1Q14: 13,287 boepd (20% increase q/q); 185,000 net acres (company's press release);
• 2013 average: 12,261 boepd; 187,000 acres.
• 3Q13 press release: 13,000 boepd;
• March, 2013 update: 12th largest leaseholder in the Bakken; 180,000 net acres; 106 net wells; currently drilling 157 gross (12 net) wells); proved reserves, 68 million boe; still says has potential to acquire 3,000 to 5,000+ acres/quarter; I don't see much change since last presentation.
• 4Q12 update: 10,000 boepd; 106 net wells; 
• November, 2012, corporate presentation: 184,000 net acres;
• 2Q12: 180,000 net acres; average cost: $2,184/acre for most recent 7,060 net acres in key prospect area; 16 net wells in 2Q12;
• June corporate presentation: 177K acres; average cost: $1,832; $15 - $20 million/quarter in 2012 for acreage acquisition
• 1Q12 results: 173,000 net acres; average cost: $1,672/acre; acquired 10,278 net acres in 1Q12; 

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Comments / Back-of-the-Envelope Calculations Re: The W Energy Partners Deal

NOG says it will have positive cash flow by end of 2018 and $100 million in cash due to the new acquisition, if I recall correctly.  Is that possible -- cash flow positive?

Disclaimer: I know very little about reading financial statements, balance sheets. It's possible I mis-read / did not understand the corporate presentation. Some assumptions were made.

NOG's February, 2018, corporate presentation at this link. At the link, click on the February, 2018 presentation for the PDF.

The numbers:

• production
• before the transaction, NOG said it was producing 21,000 boepd 
• NOG says the W Energy transaction adds 6,750 boe
• adds up to about 28K boe; let's say 30K boepd
• revenue
• revenue: $50/boepd x 30,000 boepd = $1.5 million / day  = $550 million / year
• debt
• debt before the announced W Energy Partners deal: $980 million
• cash for W Energy Partners deal: $100 million
• debt after the deal: $1.080 billion
• debt servicing
• 8% x total debt = $86 million -- slide 28 of the February, 2018, corporate presentation says NOG's interest expense is $70 million
• 2018, after recently announced acquisition: $90 million (my estimate)
• 2018, before newest acquisition: $86 million (my estimate)
• 2017, $70 million (NOG presentation)
• 2016, $65 million (NOG presentation)
• 2015, $58 million (NOG presentation)
• 2014, $42 million (NOG presentation)
• 2013, $33 million (NOG presentation)
• non-debt annual costs
• capital expenditures, 2018 guidance range (slide 14 of February, 2018, presentation): $150 million
• LOE and G&A: $11/boe * 30K boepd = $120 million
• so, recapping those number -- major expenses, yearly, roughly:
• CAPEX: $150 million
• LOE, G&A: $120 million
• Debt servicing: $90 million / year
• total, major expenses: $360 million  / year
• revenue: $550 million /year
• this is all before taxes 
• shares
• outstanding, before the W Energy transaction: 295 million shares
• W Energy acquisition adds 56 million shares
• total outstanding shares after the W Energy acquisition: 350 million shares
• P/E
• EPS: [revenue before taxes ($550 million) - major costs ($360 million)] / 350 million shares
• $190 million / 350 million shares = 55 cents / share
• P/E = shares today / EPS = $3.70 / $0.55 = 7 
• obviously this is way, way off, but it gives me a starting point from which to work
• Oasis (OAS) has a P/E of 30 (July 31, 2018)