Northern Oil and Gas (NOG)

Non-operated oil producer Northern Oil and Gas (NYSE:NOG) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, but sales fell by 8.9% year on year to $523.8 million. Its non-GAAP profit of $0.83 per share was 7.6% above analysts’ consensus estimates.

Company Overview

Taking the path less traveled in the oil industry by choosing not to operate its own wells, Northern Oil and Gas (NYSE:NOG) acquires minority stakes in oil and gas wells operated by other companies across major U.S. shale basins.

US shale oil producers extract crude from tight rock formations using horizontal drilling and hydraulic fracturing (fracking) techniques, primarily in basins like the Permian, Bakken, and Eagle Ford. Tailwinds include short-cycle investment flexibility allowing rapid production adjustments, technological improvements enhancing well productivity, and proximity to refining and export infrastructure. Capital discipline has improved financial returns. Headwinds include commodity price sensitivity affecting drilling economics, accelerating well decline rates requiring continuous capital investment, and increasing regulatory and ESG scrutiny. Water usage, induced seismicity concerns, and evolving environmental regulations present ongoing operational challenges.

Northern Oil and Gas competes with other non-operated oil and gas companies like Sitio Royalties (NYSE:STR) and Kimbell Royalty Partners (NYSE:KRP), as well as traditional exploration and production companies that also acquire non-operated interests.

The size of the revenue base is a way to assess topline, and it tells an investor whether an Energy producer has crossed the line between being a more vulnerable commodity taker and a durable operating platform. Scaled businesses tend to produce and generate revenue from many wells, pads, takeaway routes, and geographies, not just a single field or drilling program. Northern Oil and Gas’s $2.3 billion of revenue in the last year lacks scale in an industry where it matters.

A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. Thankfully, Northern Oil and Gas’s 35% annualized revenue growth over the last five years was incredible. Its growth surpassed the average energy upstream and integrated energy company and shows its offerings resonate with customers, a great starting point for our analysis.

Energy cycles can be long enough that a single five-year period can still reflect one price environment, which is why an additional, decade-long view can help capture through-cycle performance. Northern Oil and Gas’s annualized revenue growth of 28.9% over the last ten years is below its five-year trend, but we still think the results suggest decent demand.

While looking at revenue is important, it can also introduce noise around commodity prices and M&A. Analyzing production, on the other hand, highlights what is happening inside the asset base and whether the economic footprint of a company is expanding. Over the last two years, Northern Oil and Gas’s total oil volume per day - Upstream averaged 25.4% year-on-year growth while natural gas volume per day - Upstream averaged 12.9% year-on-year growth, which was good.

This quarter, Northern Oil and Gas’s revenue fell by 8.9% year on year to $523.8 million but beat Wall Street’s estimates by 1.6%. This quarter, Northern Oil and Gas reported robust year-on-year production growth of 23.7%, and its 36,079 Mboe (thousand barrels of oil equivalent) of production topped Wall Street estimates by 9.4%.

In any given year, energy gross margins are heavily influenced by prices, hedging, and cost inflation, but over a full cycle these gross margins reveal which producers are structurally advantaged through superior “rock” quality, infrastructure access, and cost position.

Northern Oil and Gas, which averaged 81% gross margin over the last five years, exhibits enviable unit economics in the sector. It means the company will remain profitable at lower commodity prices than peers with inferior gross margins and serves as an advantaged starting point for ultimate operating profits and free cash flow generation.

This quarter, Northern Oil and Gas’s gross profit margin was 77.1%, down 2.6 percentage points year on year.

Northern Oil and Gas has been a well-oiled machine over the last five years. It demonstrated elite profitability for an upstream and integrated energy business, boasting an average EBITDA margin of 63%.

Looking at the trend in its profitability, Northern Oil and Gas’s EBITDA margin rose by 19.2 percentage points over the last year, as its sales growth gave it immense operating leverage.

In Q4, Northern Oil and Gas generated an EBITDA margin profit margin of 32.5%, down 26.2 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue. This adjusted EBITDA fell short of Wall Street’s estimates.

As mentioned above, adjusted EBITDA ignores capital structure and drilling expenditure decisions. These are two huge aspects of an Energy producer, so in order to understand a comprehensive picture of business quality, an investor needs to account for these. Said differently, adjusted EBITDA margins could be solid but free cash flow is abysmal because decline rates of the asset are extreme and the drilling is expensive. Free cash flow tells you about not only the economics of the production that has happened but how much it costs to stay in business as well (further drilling or extraction).

Northern Oil and Gas has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging 25.6% over the last five years.

While the level of free cash flow margins is important, their consistency matters just as much.

Northern Oil and Gas’s ratio of quarterly free cash flow volatility to WTI Crude price volatility over the past five years was 2.2 (lower is better), indicating unusually strong insulation from commodity swings. This stability supports superior capital access in downturns and positions Northern Oil and Gas to act as a consolidator when weaker peers are forced to retrench.

You may be asking why we wait until the free cash flow line to perform this stability analysis versus commodity prices. Why not compare revenue or EBITDA to WTI Crude prices in the case of Northern Oil and Gas? Because what ultimately matters is not how much revenue or profit you earn when prices are high but how much cash you can generate when prices are low. Free cash flow is the superior metric because it includes everything from hedging prowess to growth and maintenance capex to management behavior during good times and bad.

Northern Oil and Gas’s free cash flow clocked in at $44.06 million in Q4, equivalent to a 8.4% margin. The company’s cash profitability regressed as it was 8.5 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

Free cash flow shows how much money a producer generated, while ROIC shows how efficiently that money was earned. ROIC measures the operating profit produced for each dollar of capital invested, whether from debt or equity. Cash generation measures quantity while ROIC measures the quality of value creation.

We at StockStory like to look at ROIC over a ten-year period because energy investment cycles can involve up to five years of ramping production and another five years of harvesting. A decade view captures buying, extracting, and monetizing rather than just part of that picture. Northern Oil and Gas’s management team makes decent investment decisions and generates value for shareholders. Its nine-year average ROIC was 10.4%, slightly better than typical energy upstream and integrated energy business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Northern Oil and Gas’s ROIC has unfortunately decreased significantly. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Northern Oil and Gas reported $14.3 million of cash and $2.4 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.06 billion of EBITDA over the last 12 months, we view Northern Oil and Gas’s 2.2× net-debt-to-EBITDA ratio as safe. We also see its $172.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Northern Oil and Gas blew past analysts’ production expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA missed. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 1.5% to $28.44 immediately after reporting.

Updated: March 12, 2026 at 12:31 AM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Northern Oil and Gas, you should also grasp the company’s longer-term business quality and valuation.

Northern Oil and Gas is a rock-solid business worth owning. For starters, its revenue growth over the last five years was top-tier for the sector. And while its diminishing returns show management's recent bets still have yet to bear fruit, its revenue growth over the last ten years was top-tier for the sector. On top of that, Northern Oil and Gas’s admirable gross margin indicates excellent unit economics.

Northern Oil and Gas’s P/E ratio based on the next 12 months is 9.6x. Analyzing the energy upstream and integrated energy landscape today, Northern Oil and Gas’s positive attributes shine bright. We like the stock at this bargain price.

Wall Street analysts have a consensus one-year price target of $31.11 on the company (compared to the current share price of $27.78), implying they see 12% upside in buying Northern Oil and Gas in the short term.