Northern Oil and Gas Inc (NOG)

[OilStockReport]

I am excited about where this one is going. Here is a little DD.

Northern Oil and Gas (NOG) had a good response to its second quarter earnings announcement. NOG did not have great numbers as it earned 33 cents/share in the second quarter, but 21 cents was unrealized gains on derivative instruments. NOG missed on both the bottom and top line as revenues were $35.5 million versus the Street's $39.07 million. The Street also expected earnings of 19 cents/share.

This was the fourth straight quarterly earnings miss and could make it difficult to make this year's earnings estimates of 89 cents/share. NOG traded as high as $18.96/share yesterday, but pulled back with the market after the Fed statement. Net income increased 30% quarter over quarter. Production volumes increased 12.5% quarter over quarter. Average daily production was 4,400 Boepd in the second quarter with 5,200 Boepd the average for June. This increase duplicates what many companies have said in the Williston Basin. April and May were slow months due to flooding in North Dakota and Montana. The large increase in production for June shows production is coming back on line.

NOG reaffirmed it will spud 40 net wells in 2011. The story for next quarter may have to do with hedged oil. As of June 30th, NOG had a total volume on open commodity swaps of 1.447 million barrels of oil at a weighted average price of approximately $88.13. It had 243,000 barrels of crude oil collared between $85 and $101.75. NOG plans to spend $20 million per quarter on acreage acquisitions. In the second quarter it purchased 12,767 net acres at an average cost of $1,995/acre. Although the numbers were not great for this company, its move in stock price has more to do with forward expectations. Northern Oil and Gas managed to keep costs in check, has hedged a large portion of production, is adding acres at low prices, has had some very good well results, and was oversold. Since most of the oil players in the Bakken had a difficult second quarter, NOG as a non-operator also did. The third quarter is looking very good for the Williston Basin, and because of this NOG should benefit.