Kodiak Oil & Gas Corp (USA) (NYSE:KOG) has shown excellent growth in production and revenue, though growth in earnings has not been commensurate. I will examine Kodiak Oil & Gas Corp (USA) (NYSE:KOG) as an investment in the context of the company’s recently announced preliminary operational data.
Kodiak Oil & Gas Corp (USA) (NYSE:KOG) operates primarily in the Williston Basin of North Dakota. The company has announced preliminary unaudited operational data for the fiscal year ended Dec. 31, 2012. The estimated total proved reserves as of Dec. 31, 2012 amounted to roughly 94.8 million barrels of oil equivalent (MMBoe) in comparison to 39.8 MMBoe as of Dec. 31, 2011. The 2012 number represents a 138% increase year-on-year and is made up of 80.9 million barrels of crude oil and 83.1 billion cubic feet (Bcf) of natural gas. The 2012 reserve mix consists of 85% crude oil together with 15% associated natural gas.
Roughly 46% of the 2012 total proved reserves can be classified as proved developed and producing, while an abundance of 54% can be categorized as proved undeveloped. Virtually all of the estimated proved reserves are held in the Williston Basin. For these reserves, estimated future cash flows, discounted at a rate of 10% per annum before income taxes, was $1.9 billion for proved reserves at the end of 2012 as compared to $850.7 million year-on-year, reflecting an increase of 126%. Approximately $1.4 billion of the value can be attributed to proved developed producing reserves.
During the year, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) spent approximately $810 million in capital expenditures related to drilling and completing new wells, inclusive of facilities on the surface and pipeline connections, compared to the guidance previously provided of $738 million. According to the company, the increased spending can be attributed to more wells drilled as a result of additional drilling efficiencies, non-operated activity, and unseasonably good weather during the fourth quarter. The drilling operations are continuing with seven operated rigs, four of which are in the Polar project area in southern Williams County, and one rig each in the Smokey and Koala project areas in McKenzie County and Dunn County.
Kodiak Oil & Gas Corp (USA) (NYSE:KOG) achieved average daily sales volumes of 18,200 barrels of oil equivalent per day (BOE/d) for the fourth quarter of 2012, representing an increase of 153% on sales volumes of 7,200 BOE/d for the same quarter of the previous year, and a 15% increase over sales volumes of 15,850 BOE/d in the preceding quarter. Crude oil made up 89% of fourth quarter 2012 sales volumes.
Average daily sales volumes of 14,400 BOE/d for the year 2012, represented 267% increase over average daily sales volumes of 3,900 BOE/d for the year 2011. The company states that it’s in the best ever financial position since its inception, with current liquidity of more than $400 billion made up of cash on hand and the un-utilized balance of its credit facility. This, combined with the expected cash flow generation from operations in 2013, should enable the company to execute its proposed drilling program. In addition, because of the increase in the reserve base, the company expects to enhance its revolving credit line in April 2013.
Kodiak Oil & Gas Corp (USA) (NYSE:KOG) has reduced well costs to a range of approximately $9.5 million to $10.2 million per well, and expects to bring costs down further because of increased drilling efficiency. The ongoing expenditure on infrastructure in the Williston Basin is resulting in more gas being sold and processed, and higher volumes of crude being transported by rail to points in the US and Canada where prices are strongest. Because of the proliferation of rail terminals and enhanced access to premium markets, the company is now experiencing historically low Williston Basin differentials, which are expected to continue and thus benefit all operators.
Another company that has done well in the Bakken Shale is Continental Resources, Inc. (NYSE:CLR), which has seen production grow just under 60% year-on-year to an average of 106,831 barrels of oil equivalent per day by the end of the fourth quarter. It’s the largest producer in that area, but is now moving into the South Central Oklahoma Oil Province, which includes three of the top oil-producing counties in Oklahoma. It’s an area rich in liquids and the company has around 200,000 acres, of which 20% is held by production.