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Major Fourth-Quarter Developments for Kodiak Oil & Gas Corp (USA) (KOG)

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Kodiak Oil & Gas Corp (USA) (NYSE:KOG) is an oil and gas junior with operations focused almost exclusively in North Dakota’s Williston Basin. Over the past couple of years, the company has seen a rapid acceleration in its production growth — a trend it hopes will continue.

When Kodiak Oil & Gas Corp (USA) (NYSE:KOG) reported earnings on February 28, it missed Wall Street’s estimates for both revenue and earnings, but a closer look shows promising developments in a few key areas.

Kodiak Oil & Gas Corp (USA) (NYSE:KOG)Revenue
For the fourth quarter, Kodiak Oil & Gas Corp (USA) (NYSE:KOG)’s revenue from oil and gas sales soared 138% to $130.9 million, up from $55 million in the year-earlier period. Sales volumes for the quarter averaged 18,200 barrels of oil equivalent per day, up from an average of 7,200 barrels of oil equivalent per day in the same quarter the previous year.

For the full year, total oil and gas sales came in at $408.7 million, which is three and half times more than last year’s $120 million. Crude oil made up the vast majority of the company’s sales revenue.

For the fourth quarter, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) reported net income of $33.3 million, or $0.12 per diluted share, up from a net loss of $33.8 million, or $0.15 per diluted share, in the fourth quarter of the previous year. This figure includes the impact of an unrealized loss related to the company’s use of derivative instruments for hedging purposes, as well as non-cash deferred income tax expenses.

Adjusted EBITDA for the quarter rose more than threefold to $106.6 million, up from $35 million a year earlier. Improvement in full-year earnings was even more impressive, with a more than fourfold increase in adjusted EBITDA, from $76.4 million in 2011 to $317.1 million in the year just ended.

Important developments
Kodiak Oil & Gas Corp (USA) (NYSE:KOG) reported significant growth in total crude oil reserves, which increased 138% over the previous year’s estimates to $95 million barrels of oil equivalent. As a result, the company raised its estimates of these reserves’ PV-10 value — a commonly used metric that represents the present value of estimated future revenues from the production of a company’s proved reserves, net of estimated production and future development cost — to $1.9 billion before income taxes.

According to Kodiak Oil & Gas Corp (USA) (NYSE:KOG)’s estimates, the company has drilled and converted roughly a tenth of its potential drilling locations to proved, developed producing reserves. This is important since it should provide the company with plenty of drilling opportunities over the next several years.

Drilling program and hedges
Kodiak is currently operating seven drilling rigs. Given high oil prices, the company plans on keeping the seventh rig operating into at least the second quarter. For 2013, the company has allocated the vast majority of its capital budget to drilling and completing operated wells.

It plans to spend some $600 million on this purpose, with the remainder of its capital budget going toward non-operated drilling and completion activities ($140 million) and other items such as acquisitions, water disposal wells, and well connections ($35 million).

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