Northern Continues Williston Consolidation With Largest Acquisition To Date

Northern Oil and Gas Inc. (AMEX: NOG) said July 31 it extended its Williston Basin holdings with its largest acquisition to-date as the nonop-focused E&P aims to be the basin’s “natural consolidator.”

As part of a cash-and-stock transaction, Minneapolis-based Northern will acquire 10,600 net acres in the Williston core with an estimated 6,750 boe/d of production from W Energy Partners, a portfolio company of Crestview Partners.

In exchange, W Energy, based in Dallas, will receive $100 million cash and 56.37 million shares of Northern common stock, which will be subject to an equity lock-up feature, for a total estimated value of about $292.8 million.

“The W Energy acquisition will add robust drilling inventory under some of the best acreage in the Williston Basin,” Mike Reger, Northern’s founder and president, said in a statement.

John Aschenbeck, senior analyst for Seaport Global Securities, billed Northern’s acquisition as transformational and attractively priced. He estimates Northern inked the acquisition at PDP value with the more than 10,000 net core nonop Bakken acres “picked up for free.”

“Assuming yesterday’s closing price of $3.42, we estimate the price reflects a PDP multiple of about $43,000 per flowing boe, with little to no PUD value ascribed,” he said in a July 31 research note.

Northern has been an active acquirer this year as it builds upon its nonop position in the Williston Basin’s Bakken and Three Forks play in North Dakota and Montana. The company holds about 143,000 net acres of nonop assets in the Williston Basin, according to a February investor presentation.

However, Reger said he believes his company is the “natural consolidator of nonoperated working interests in the Williston Basin.”

Including its purchase from W Energy, Northern has spent roughly $511 million in cash-and-stock acquisitions to bolster its Williston nonop position so far in 2018. As a result of its purchases, the company said it expects to exit 2018 generating substantial free cash flow and expects to have approximately $100 million of cash on hand at year-end.

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The W Energy acquisition, in particular, is expected to generate roughly $95 million in cash flow in 2019, with an estimated 2019 base capital plan of about $42 million, representing a 17% free cash flow yield based upon purchase price.

“Northern’s significant free cash flow outlook provides it with ample dry powder to continue to participate in attractively priced nonop Bakken deals—which we believe is currently a multibillion-dollar opportunity set,” Aschenbeck said.

In addition, Northern also announced its preliminary production results on July 31 for the second quarter.

During the quarter, the company’s production averaged over 21,000 boe/d, which Aschenbeck said beat Street estimates by more than 13%.

“Management attributes the beat to recent well productivity gains in the Bakken,” he said. “Although not mentioned in the release, we think that Northern consenting to additional AFEs may have played a factor, as well. In this regard, we think the company could be positioned for a fiscal-year 2018 guidance raise on both the production and capex fronts.”

Northern’s current production guidance is between 18,650 and 19,240 boe/d and its capex is set at $185 million to $200 million for 2018.

The company said it expects to close the W Energy acquisition in about 60 days, with an effective date of July 1.

Faegre Baker Daniels LLP was Northern’s legal counsel for the transaction. W Energy was advised by RBC Richardson Barr with Vinson & Elkins LLP as legal counsel.

Emily Patsy can be reached at epatsy@hartenergy.com.