In recent months Kodiak Oil & Gas Corp. (NYSE:KOG) an independent energy company focused on the exploration, acquisition, and production of crude oil and natural gas in the United States has received some negative feedback due to rumors that hedge funds are apparently losing interest in the company. The following article will discuss the company's future potential as well as delve into the legitimacy of these supposed rumors.
Over the course of the last 12 months Kodiak Oil has risen 11.74% in share value, which is lower than the overall gains of the S&P 500 (NYSEARCA:SPY) as well as Dow Jones (NYSEARCA:DIA) during the same period. That being said, the company has displayed consistent quarterly and yearly growth for the last 48 months as well as had some major buy-ins by key investors. Among these investors were Ken Griffen's Citadel Investment Group (16,312,093 SHS held), John Paulson's Paulson & Co. (14,958,400 SHS held), Robert Atchinson's Adage Capital Management (3,950,167 SHS held) as well as minor positions held by Jacob Doft's Highline Capital Management and Charles Clough's Clough Capital Partners.
However, after a recent report by Insider Monkey stipulating that "Hedge Funds Aren't Crazy About Kodiak Oil & Gas Corp Anymore" a string of online articles have come out attempting to argue that the company is losing high profile investors due to a lacking overall stock performance. On Friday, the stock itself closed down almost 2% by the end of the trading session. The problem with these rumors is that they are founded on almost no tangible data with the exception of two sales; one of them being by Jeffrey Vinik's, Vinik Asset Management, which sold off $17.3 million in stock and Louis Bacon's fund, Moore Global Investments, which sold $15.5 million worth of stock as well. One thing to consider is that this behavior is not unusual, and could have happened for any multitude of reasons. In addition, both funds don't hold major institutional stakes in the company itself; in layman's terms this was not a major portion of either fund's 13F portfolio.
If there is anything to consider about Balkan-based oil stocks such as KOG it is that they are purely long-term energy plays and should not be considered in any such way as short term, profit-taking positions. Taking this into consideration, we should analyze the health of the company's future. One obvious factor contributing to many analysts' weariness towards KOG as a position is their mountain of debt, which totals to just over a billion, as well as their revised capital expenditure program for 2013, which adds up to $1 billion dollars in comparison to the originally intended amount of $775 million. That being said, this recent increase in their expenditure program may not be something to be concerned about, as it is all a part of management's ambitious goal over the course of the remaining year.
In the remaining months of 2013 Kodiak seeks to finish constructing over 100 net wells as well as increase average daily production to 30,000 barrels of oil proportional per day and 34,000 boepd for 2013. This is an extremely ambitious goal, which requires production in the second half of this year to be approximately 37,500-45,000 boepd in order for them to meet this target. Keeping that in mind it is important to note that current average daily sales volumes are around 22,500 barrels of oil for the first six months, meaning that production volumes must increase 66-100% during the second half of the year. In order to successfully achieve these ambitious plans Kodiak has issued debt financing. However, the company's debt to equity is currently at 130% already and therefore the market reaction to this news has only resulted in more uncertainty within the investing community. Taking everything into account KOG appears to be taking many ambitious steps towards a successful and stable future position, however simultaneously investors should maintain caution in how the company directs itself in coming months as Kodiak's largest potential downfall will be spreading itself too thinly.
Out of 22 analysts polled about KOG, 8 analysts have rated the company a buy, 5 have given it an outperform, and 9 have ranked it as a hold.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KOG over the next 72 hours. 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.