Kodiak Oil & Gas's (KOG) CEO Lynn Peterson On Q2 2014 Results - Earnings Call Transcript

Aug. 1.14 | About: Kodiak Oil (KOG)

Kodiak Oil & Gas Corp (NYSE:USA) (NYSE:KOG)

Q2 2014 Earnings Conference Call

August 1, 2014 11:00 AM ET

Executives

Lynn Peterson - CEO

Jimmy Henderson - CFO

Analysts

Operator

Good morning. My name is Ed and I will be your conference facilitator today. I would like to welcome everyone to the Kodiak Oil & Gas Corporation Second Quarter ending on June 30, 2014 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. Please be advised that our remarks today, includes statements that we believe to be forward-looking statements within the meaning of Private Securities Litigation Reform Act.

These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those risks include among others matters that we have described in our financial and operating results news release issued yesterday, and our filings with Securities and Exchange Commission.

We disclaim any obligation to update these forward-looking statements. While the Company believes that these forward-looking statements are reasonable, they are subject to factors such as commodity prices, competition, technology and environmental and regulatory compliance. Our drilling schedules, capital plans and other factors may cause our results to differ materially.

I would now like to turn the conference over to Mr. Lynn Peterson, Kodiak’s Chairman and CEO. Mr. Peterson, please go ahead.

Lynn Peterson

Thank you and good morning to everyone, and welcome to our second quarter earnings call. I’m joined for this morning’s call by Jimmy Henderson, our Chief Financial Officer, as well as other members of our management team.

Please reference the news release and our filing on Form 10-Q, both of which were made available last evening for further details and full disclosure of the topics we are discussing today. Our announced combination with Whiting is moving ahead in an orderly manner and we expect the transaction to close in the fourth quarter of this year. We remain very pleased with the combination and believe it will benefit all of our shareholders.

Although this transaction will bring change to our staff, the entire Kodiak team remains focused on maintaining the positive operational momentum we experienced in the second quarter. I commend and thank our entire staff on their dedication to their everyday job as well as to the extra work that is required as we concurrently work towards closing the Whiting transaction. As a result of the announced combination, we’ll not be taking Q&A this morning, but as always we’ll make ourselves available to all of our stakeholders.

Kodiak is pleased to report strong production growth during the second quarter of 2014. The Company reported production of approximately 38,300 barrels of oil equivalent representing a 12% increase in average production versus the first quarter of 2014. I'm also pleased to report that we have made great strides increasing percentage of our produced gas that is captured and sold. We’re currently capturing approximately 70% to 75% of our produced gas and we expect continued improvement in this measure throughout the year as one of our largest midstream partners faces an additional compression online later this summer.

With these efforts we expect to meet all gas capturing requirements laid out by the regulatory agencies by year end. On the drilling side, we continue drilling on our Polar 2.0 Pilot down spacing program that is testing approximately 650 feet space in between wellbores. Completion efforts have commenced on one of the pads and we will continue until all wells are stimulated. We continue to feel good about the results we’re seeing but want to remind people that more data is still needed. However maximizing NPV per drill spacing unit has always been a key goal to pilot programs and the data received to date shows we are meeting our objectives.

We are mobilizing our first Unit Corp BOSS rig into the basin. We’re currently operating five drilling rigs and we’ll be back to six in the coming days and should be back up to our seven level by early fourth quarter when we get the second BOSS rig mobilized.

Let me now turn it over to Jimmy Henderson to discuss some of our financial results.

Jimmy Henderson

Thanks Lynn and good morning to everyone. Kodiak continues to be an oily story as crude oil accounted for approximately 93% of our revenues recorded in the period. Last evening we reported fully diluted GAAP earnings per share of $0.08 for the quarter ended June 30, 2014. We also reported adjusted EBITDA of $197 million for the second quarter driven by oil and gas sales of 300 million which represents a 73% growth over the year ago period of $173 million.

During the second quarter of 2014, we continue to see robust oil price realizations with our average oil price before the effects of hedging of $91.72 per barrel. The average differential in the quarter was about 11.64 as compared to WTI. This continues to drive solid economics from our drilling program with cash margins nearing $63 per BOE. In the first and second quarters of 2014 we have seen a trend toward higher LOE costs with that average for the first half about [$8.40] per BOE. We have experienced an upward trend as our asset base has grown and we’ve seen -- have a higher percentage of older wells.

Obviously as production declines on these wells and we continue to incur fixed cost the overall LOE on a per unit basis increases. We’ve also continued to see higher expenses coming out the winter including incremental cost to prepare our operations for future cold temperature operations.

Lastly we have incurred cost, replaced pumping units with down holepumps that we believe are more effective. This effort has improved production rates, so we continued to change out additional wells. With all that said, we believe the LOE should moderate and should trend flat to downward as we move through the second half of the year.

With that let me turn the call back to Lynn.

Lynn Peterson

Thanks Jimmy. I know this call, this morning is much shorter than previous quarterly calls and I hope that you all understand. The entire Kodiak staff continues to work hard for our shareholders during this period of change. Again, I can’t express my appreciation for their effort being given during this time. With that we want to thank our listeners for joining us on the call. If you have questions please feel free to give us call directly, and we appreciate all the support. Thank you very much.

Operator

The conference is now concluded. Thanks for attending today’s presentation. You may now disconnect.

Question-And-Answer Session

[No Q&A Session for this Event].

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Kodiak Oil & Gas (NYSE:KOG): Q2 EPS of $0.08 misses by $0.10. Revenue of $277.9M (+60.2% Y/Y) misses by $5.33M.