St. Anthony: Minnesota's Northern Oil grows steadily beyond North Dakota

Northern Oil and Gas, remembered best for mercurial performance and controversial departures of top executives, has quietly rebuilt itself into a cash-pumping machine.

The swagger, silver belt buckles and former Wayzata Bay headquarters gave way to a new CEO, a team approach and strong financial returns in a volatile industry.

Today's stock price is off NOG's euphoric 2010-13 highs and oversold expectations for fracking and the North Dakota-Montana Bakken reservoir. NOG detractors made millions betting against the stock, aided by subsequent energy market declines.

"We have tried to professionalize the organization," said CEO Nick O'Grady, 44, a former Wall Street analyst and oil and gas investor who joined the company as chief financial officer in 2018. "It's one team, one dream. We are a collegial culture and results-oriented business."

The results have drawn investor attention for the Minnetonka-based firm. Northern Oil has attracted hundreds of millions of debt and equity capital, and profitably expanded from North Dakota to the Permian Basin in Texas and Pennsylvania's Marcelles fracking fields.

The major investors, once mostly distressed debt hunters, now include blue-chip names like Fidelity, Vanguard, Blackrock and Invesco.

Last Friday, the company reported record 2022 production. Net revenue was $1.57 billion, a 216% increase over 2021, and net earnings were $773.2 million, up from $6.4 million earned in 2021.

The company's success, including acquisitions since 2020, has cash flowing and debt declining; enabling a 275% increase in its dividend to an attractive 5% yield. O'Grady predicted that last year's $927 million in acquisitions will contribute to an estimated 23% production growth in 2023.

Northern Oil's stock price has traded around $32 per share recently; a $2.7 billion valuation. The price swooned to less than $4 in 2020 amid the collapse of the energy market during the COVID-19 economic downturn. Yet the company has outperformed by 60% the S&P Oil & Gas Exploration & Production ETF since 2018.

"All in all, we see updated 2023 guidance as directionally positive given what seems to be a conservative plan where NOG is setting itself up to potentially exceed expectations," Bank of America's energy research team said in an investor note on Friday.

Northern Oil could hit $45 per share this year, according to the median estimate of analysts.

The company hedges up to 60% of its portfolio to protect against mercurial energy prices.

The company is more investor than a traditional gas and oil producer. It invests in promising tracts as minority partner to the likes of huge Devon Energy, Exxon and EQT. Its typical position averages 10%. It shares in expenses and profits.

Northern Oil started emerging from its checkered past in 2018.

That year, former company president Ryan Gilbertson was convicted of securities fraud and other criminal charges brought by the federal government involving the former Dakota Plains, a North Dakota oil and sand transport operation he started in 2012 with former Northern Oil CEO Michael Reger.

Shareholders sued Gilbertson and Reger in 2017, claiming they and other insiders intentionally manipulated the price of Dakota Plains stock. Reger, who left Northern Oil in 2019, paid nearly $8 million to settle related SEC charges in 2016. Last year, he was found guilty by a jury in New York in a civil trial brought by Dakota Plains shareholders.

Bahram Akradi, founder of Life Time fitness, became the company's chair in 2018 after joining the board in 2017. He had invested substantially since 2016. He remained chair as the company stabilized and scaled under O'Grady.

"Most of the employees have never seen an oil well," O'Grady quipped.

Northern bought about $1.7 billion in energy properties at huge discounts during 2020 and 2021 that already have paid for themselves. Net profits were enhanced by the use of "net operating losses" from earlier years.

O'Grady joined Northern Oil after 20 years as an East Coast energy analyst, investment banker and investor. He knew the company and became its chief financial officer in 2018 backed by a group of very concerned creditors. His 2021 realized compensation was $1.75 million.

"I always thought NOG was a good idea," said O'Grady, surrounded in a conference room Friday by several executives he inherited in engineering, finance and law.