Please ensure Javascript is enabled for purposes of website accessibility

Why Northern Oil and Gas Stock Popped 11% Today

By Rich Smith - Updated Feb 5, 2021 at 1:22PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The unprofitable oil maker is raising cash by selling stock.

What happened

Shares of Northern Oil and Gas (NOG 1.47%) jumped 11.2% as of 12:30 p.m. EST Friday, after the Minnesotan oil producer set the pricing last night on an offering of 12.5 million shares that was first announced Wednesday.

Those shares, plus up to 1.9 million more shares covered by underwriters' overallotment option, will be sold for $9.75 each.

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

Northern Oil stock initially declined in price (yesterday) in response to the announcement of the share offering (and, presumably, uncertainty about the offer price) and of an accompanying offering of $500 million worth of senior notes (i.e., debt).    

It's rising again today, and indeed surpassing its closing price before the equity and debt offerings were announced, on new details such as:

  • Northern Oil's explanation that it plans to use the money raised to pay for "the Company's recently announced pending acquisition of certain non-operated natural gas assets in the Appalachian Basin from Reliance Marcellus, LLC."
  • If the Reliance Acquisition should fail to happen, Northern Oil will use the cash "to repay or redeem outstanding indebtedness and for general corporate purposes."

Now what

Investors seem to feel reassured today, knowing that the shares are being offered at "only" an 18% discount to current share prices; that the oil company isn't (necessarily) running out of cash, but just ensuring it will be able to proceed with its announced acquisition; and -- maybe -- that the $140 million or so raised from the stock offering might be directed toward paying down Northern Oil's sizable $985 million debt load.

That seems reasonable. While nobody's a fan of stock dilution from stock offerings, Northern Oil currently isn't making any money selling oil (it's actually lost $872 million over the past 12 months). Given these circumstances, raising cash from selling stock seems the move most likely to keep this company solvent.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Northern Oil and Gas, Inc. Stock Quote
Northern Oil and Gas, Inc.
$27.63 (1.47%) $0.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.