Kodiak Oil & Gas Corp (USA) (NYSE:KOG) recently provided its quarterly sales update to investors. This pre-earnings report is always a good first look at how the quarter is shaping up for the fast-growing oil company. Let’s drill down into the report and see what’s new at Kodiak.
Kodiak announced that its first-quarter sales volume is up to 21,700 barrels of oil per day. That’s up 105% quarter over quarter, and up 19% over last quarter. One thing to point out is that this is still well below the 29,000-31,000 barrels of oil per day of average production the company is expecting this year. That means that there’s a lot more growth to come.
Overall, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) is still a smaller Bakken producer. Its production is well below top producer Continental Resources, Inc. (NYSE:CLR) which saw an average of almost 68,000 barrels of oil per day last quarter. However, Kodiak is growing its production a lot faster as evidenced by its triple-digit, quarter-over-quarter, production growth.
Kodiak has several wells moving into completion and all are on track. During the first quarter the company participated in the completion 18 net wells and it intends to participate in the completion another 23 net wells in the upcoming quarter. These wells will add to Kodiak Oil & Gas Corp (USA) (NYSE:KOG)’s sales as they come online over the next few months.
For the full year, Kodiak is planning to drill 75 net wells at a cost of $740 million. The company is well on its way to that goal, which when complete should easily enable the company to hit its 2013 production goal.
Balance sheet update
Kodiak had its semi-annual credit facility redetermination and the lenders agreed to increase the company’s borrowing base from $450 million to $650 million. However, the company elected to limit it to $550 million. With just a hundred million in current borrowing, Kodiak believes that it has more than enough funds when combined with its projected cash flow to fund its capital spending plans for this year. Kodiak isn’t yet cash flow positive, but it continues to get closer.
One area the bears are watching
Tucked in Kodiak Oil & Gas Corp (USA) (NYSE:KOG)’s release is notice that the company completed the drilling and equipping of three disposal wells in the quarter. The company noted that these wells are part of an ongoing effort to reduce its operating costs. It has earmarked $35 million of capital for water disposal systems, well connections, and smaller acreage acquisitions.
Other than the potential to cause earthquakes, disposal wells are not the best solution for all that oily frack water. The industry as a whole needs to do a better job of treating and recycling frack water, and companies like Heckmann Corporation (NYSE:HEK) are at the forefront of providing that solution. While it’s not the cheapest solution, it is a full-cycle environmental solution which is something the industry needs to embrace in order to clean up the image of fracking.