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.
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.
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 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!