Firm Urges Northern Oil To Buy Back Under-Performing Stock

Clear Harbor Investment wrote a letter last week to Northern Oil and Gas’ board of directors recommending the company repurchase 13 percent of its outstanding shares to improve its market value.

Although the company ranked seventh on Forbes’ 100 fastest-growing companies list last year, Northern Gas and Oil’s stock has not been living up to expectations, according to an investment firm. Northern’s stock price dropped 21 percent over the last year, and some shareholders are getting restless.
 
Investment advisor Clear Harbor Asset Management, LLC, recently sent an open letter to Northern’s board of directors recommending that the Wayzata-based company initiate a $100 million share buyback program to increase its market value.
 
Although the company’s stock was trading up about 1.5 percent at $13.19 during afternoon trading on Monday, it is down 52 percent since the beginning of 2011.
 
Clear Harbor, a New York-based investment firm, said in its letter that it is the advisor to accounts that own 744,769 shares of Northern, which represents about 1.2 percent of the company’s outstanding shares.
 
The firm wrote that while Northern Oil’s stock has been falling, the NYSE Arca Oil Index, which measures the performance of the oil industry through a cross-section of corporations, has been increasing. Year-to-date, the Arca Oil Index is up about 11 percent while Northern is down more than 22 percent.
 
Monday calls to Northern Oil were not immediately returned.
 
Northern controls 182,000 net mineral acres throughout the fertile Bakken region of North Dakota as well as in Three Forks, Montana, and it has participated in more than 1,500 wells since 2007.

 
Clear Harbor argues that, according to its “rigorous fundamental analysis,” there is a widening gap between Northern’s “intrinsic business value” and its continually dropping market value. It estimates that when taking into account “Bakken transaction comparison, peer company valuations, estimated acreage value, and reserve engineer’s reserve reports,” the fair value of Northern’s stock is more than $21 per share, about 70 percent higher than its current trading price.
 
Clear Harbor is not the only firm that expected greater performance from Northern. In February, James Ulland of Minneapolis-based Ulland Investment Advisors told Twin Cities Business that Northern was one of the most promising stocks of 2013. At the start of the year, the stock was priced at $17.08, and Ulland predicted that it would jump to $23 and that the company’s earnings would increase 30 to 40 percent this year. So far, rather than its share price increasing $6, it has dropped by $4.
 
About 13 percent of Northern’s outstanding shares could be repurchased with $100 million, according to the letter. According to Clear Harbor, “Northern has substantial liquidity available to execute on a share buyback program without limiting its ability to meet capital expenditure plans, service debt, or opportunistically acquire additional acreage.”
 
Twin Cities Business columnist Tony Carideo in 2011 examined Northern’s financial performance and growth, as well as some of its practices and ethics. He argued that the company appeared to be operating at the edge of the ethical envelope, and that a “years-long pattern of management decision making and behavior—both professional and personal—calls into question Northern’s ability to act fully in the best interests of its shareholders.” Read the full column here.
 
Since then, Northern’s president and co-founder, Ryan Gilbertson, resigned in October and its chief operating officer, James Sankovitz, was ousted just a few weeks later.