Face Off: Kodiak Oil & Gas Vs. Whiting Petroleum

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Includes: KOG, RDS.A, RDS.B, REPYY, WLL
by: Michael Fitzsimmons

In a Wall Street Journal article yesterday, Spanish oil company Repsol SA (OTCQX:REPYY) is reportedly on the prowl for a North American oil company. Two companies mentioned in the article were Bakken producers Whiting Petroleum (NYSE:WLL) and Kodiak Oil & Gas (NYSE:KOG). This article compares the two companies and suggests which is the more likely takeout candidate for Repsol.

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References:

WLL Q2 earnings; KOG Q2 earnings

WLL 2012 annual report; KOG 2012 annual report

Comparison

As can be seen by the table above, Whiting is a much larger company than Kodiak:

  • 2x+ the market cap
  • 5x the 2012 revenue
  • 10x the EPS
  • 3x+ the Bakken acreage
  • ~4x+ the proven reserves
  • 4x the Q2 production

Whiting also has significant acreage outside the Bakken and Three Forks: primarily in Texas and Colorado's Niabrara.

Takeover Price

The market cap + total liabilities for the two companies is:

  • WLL = $10.8 billion
  • KOG = $4.7 billion

Based on current market valuation, Whiting appears to be a much better buy: its P/E is almost half of KOG's, the market cap is half, and proven reserves are 4x as is current production. Taking these metrics into account, it is conceivable WLL would command a 30-40% premium while KOG would likely get something more on the order of 15-20%. This would put a WLL takeout price ~$71.55 per share. For KOG, ~$12.93 per share. Taking into account total current liabilities, the total price tag estimate for WLL would be $12.9 billion. For KOG, the total takeover price estimate is $5.2 billion.

Summary & Conclusion

Whiting Petroleum is the much better buy but Kodiak would be more affordable. Both companies would fetch higher valuations on a takeout had they been able to push more revenue down to the bottom line and had lower debt levels.

The WSJ article reports that Repsol is expected to reap $4.4 billion (before taxes) from the sale of its LNG business to Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) and may sell all or part of its stake in a Spanish natural gas utility worth almost $6 billion. Combining these assets sales with a market cap of over $23 billion euros, Repsol could pull off a purchase of either company, but Whiting would be a stretch.

After failing to reach a deal in 2012, Whiting's management was rumored to be asking for too high a price ($15 billion). Combine that with the company's employee production participation plan ("PPP"), and I doubt Repsol would be willing to pay-up for WLL. My guess is that were a deal to go down, Repsol will buy Kodiak Oil & Gas for around $13/share.

WLL Chart
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WLL data by YCharts

Disclosure: I am long WLL. 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. I am an engineer, not a CFA. The information and data presented in this article was obtained from company documents and/or sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for investment decisions you make. Thanks for reading and good luck!