Northern Oil & Gas, Inc. (NOG): Are Investors Missing Something With This Company?

This model has produced substantial growth in production, reserves and cash flow for Northern. The numbers speak for themselves as annual production has gone from 51,500 barrels of oil equivalent, or boe, in 2008 to just under 3.8 MMboe last year. Reserves have jumped from just 800,000 boe in 2008 to 67.6 MMboe last year. Finally, Adjusted EBITDA has grown from only $2.5 million in 2008 to $225.3 million last year.

If there is one concern it is that the company has continued to grow its well count even as average production has remained in neutral. This could be due to the industry-wide switch to mulit-well-pad drilling, as Northern Oil & Gas, Inc. (NYSEMKT:NOG) had 12.2 gross wells either being drilled or awaiting completion. With these wells not currently producing production growth is slowing down. Take a look at the chart below and you’ll see what I mean:

Source: Northern Oil & Gas Investor Presentation (Opens in a PDF)

Once those dozen wells come on line it should boost production and give investors a clearer picture of its true output potential. The other thing to keep in mind is that production growth won’t be as rapid as the company bumps up against well decline rates as well as the law of large numbers. So, while the company won’t continue its torrid growth pace forever, it still has tremendous growth opportunities ahead of it because the Bakken is likely just 10% developed at this point.

That’s why I think investors are mistaking the recent slowdown in quarterly production as a long-term issue instead of just part of the industry’s transition to multi-well-pad drilling. That means investors could be missing out on Northern as a unique way to play the growth in oil production in the Williston; its letting other companies do all the heavy lifting. While there is a lot more to the story, Northern might be a company you’ll want to look at a bit more closely if you are interested in profiting from the Bakken.

The article Are Investors Missing Something With This Company? originally appeared on Fool.com.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.