Still A Best Of Bakken Bet

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 |  About: Kodiak Oil & Gas Corp (KOG)
by: Activist Stocks

Since our last outline for Kodiak Oil & Gas (NYSE:KOG), back in April, the stock is up nearly 25%. Our buy thesis is still intact. As noted back in April...

KOG is delivering production increases like clockwork. These guys are dependable and know what they are doing in the Bakken/Three Forks. Along with increased drilling activity, they will also be improving their drilling efficiency and lowering LOE by continuing to build out their basin-wide midstream infrastructure.

Quick overview

Kodiak Oil & Gas, a public independent energy company, engages in the exploration, development, and production of crude oil and natural gas in the United States. It owns an interest in approximately 228,200 gross (154,000 net) acres in the Williston Basin; and has oil and natural gas reserves and operations in the Green River Basin of Wyoming and Colorado. As of December 31, 2012, the company had estimated proved reserves of 80.9 MMbbls of oil and 83.1 bcf of natural gas (~13.8 MMboe). Kodiak Oil & Gas Corporation was incorporated in 1972, and has its headquarters in Denver, Colorado.

Follow up

  • Operational results for 2Q were strong:
    • Revenues for the quarter were $173 million, a 102% increase year over year
    • EBITDA of $131 million, 94% increase y-o-y
    • KOG closed on a private offering for $400 million in senior notes due in 2022. This gives it more flexibility for its drilling and down spacing program within its Bakken acreage.

Earlier this year the company added over 40,000 in North Dakota and 5.7 MBoe/d of production with the acquisition of assets from the Riverstone-sponsored entity. This adds over 70 MMBoe of proved reserves. During the initial testing, the company found the wells produced an average 24-hour IP rate of over 2,500 Boe/d, in line with historical IP rates.

The company also increased its CapEX plans to $1 billion, from the previous $950 million guidance. Yet, the CapEx appears to be well funded. The company issued $400 million high-yield senior unsecured notes, and now the company has $500 million of available liquidity. This should easily cover its $130 million funding gap through June 2014. The company is also on pace to become cash flow positive during 3Q 2014.

Recommendation

These guys are top notch; good money managers with know-how to drill assets and growth that's off the charts. We believe the company is bound to get bought at some point, but it better happen before it gets too expensive.

Going all the way back to February, we called Kodiak the Best Bakken Bet. We still stand by this, noting that Kodiak is grossly undervalued on an acreage basis. Comparing Kodiak to Oasis Petroleum (NYSE:OAS) we noted that...

Both oil & gas companies are near the bottom on a total acreage basis [in the Bakken], but the pricing of these acres, on a gross acre basis compared to market cap, suggests that Kodiak is the better value. It appears that the Bakken acres are being valued as follows: Kodiak $12,000 per gross acre, and Oasis $16,000 per gross acre.

An investor with fresh capital to spend or old money that needs to be dusted off can make a quick and real entrance into the Bakken/Williston Basin with this company.

Disclosure: I am long KOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.