Results from the fourth quarter are in and several names have taken a beating. The Bakken names moved up quickly from the start of the year and some were due a pullback. The first name of interest is Oasis (OAS), which was one of my top names for 2012. On December 30, it was sitting at $29.09, and saw a peak of $35.54 on January 18. Oasis' most recent completion was Helling Trust 11-15H, which produced 486 Bo/d for the first 88 days. This was not a terrible result, but this well is just west of the Sanish Field so expectations were high.
The recent downside in Oasis occurred for a few reasons. These reasons are creating short term, not long-term problems for this company. It missed 2011 production guidance. This wasn't a surprise as Oasis announced it would come in on the low end back in December. Full-year production guidance was 11000 to 12500 Boe/d. Oasis reported 10724 Boe/d. On January 19, UBS downgraded Oasis to Hold from a Buy recommendation. This downgrade was more on valuation than any negativity with the stock.
Oasis also guided 2012 production at 18000 to 22000 Boe/d, which was below market expectations. I like conservative numbers, but this was too low in my opinion. Oasis also did a seven million share secondary through Citi where private equity cashed out. The combination of these negatives have worn on the stock.
Oasis is not a value at this point, as it was priced for perfection. I still like the company as it is well run, and working hard to cut costs. I expect it will continue to cut costs in the short term. The biggest issues are with water and completion costs. These are being addressed through infrastructure and its oil service company. I am looking to buy the stock back around $28 to $29, but this stock has serious value at $26.
Kodiak (KOG) is a stock to watch closely. It has had some bad news as of late and may be due for a pullback. Kodiak recently missed its guidance of 7500 to 8000 Boe/d, with results of 7195 Boe/d. It also missed full-year company guidance. I have heard a few different reasons, one being there were problems with sliding sleeve completions. Kodiak stated it had problems at six wells, which would delay production into the first quarter of 2012. It also had difficulty in securing workover rigs, which slowed returning wells to production after maintenance.
Kodiak has reported several fourth-quarter well completions:
- Charging Eagle 15-22-15-4H (Dunn County): IP rate of 609 Bo/d and 484 Bo/d for the first 50 days.
- Skunk Creek 12-10-11-9H3 (Dunn County): IP rate of 2682 Bo/d and 543 Bo/d for the first 77 days.
- Skunk Creek 12-10-11-9H (Dunn County): IP rate of 2655 Bo/d and 756 Bo/d for the first 64 days.
- Skunk Creek 2-24-25-16H (Dunn County): IP rate of 515 Bo/d and 113 Bo/d for first 77 days.
- Koala 2-25-36-15H (McKenzie County): IP rate of 113 Bo/d
- 20711 Mildred 94 1-H (Williams County): 510 Bo/d for the first five days.
The Charging Eagle well is in Dunn County, in an area that is not as good (my opinion) as Skunk Creek. The Charging Eagle 24-hour IP rate was not very good, but production picked up nicely giving better production over the first 50 days. Of the three Skunk Creek wells, the first two were quite good with the third being poor. The Koala well had significant issues and will be focused on, as there were very high expectations.
I am not saying that Kodiak is a dead stock, but there are significant issues with execution and it could weigh on the stock. Because of this, current downside risks outweigh upside in this stock. Kodiak's 2012 production guidence was above my estimate, which is bullish for this year. Look at this as an opportunity in the near term to pick up some shares. I will be looking to buy below $8. To be clear I am still bullish Kodiak in the longer term, as it has excellent acreage and is a well-run company.
In summary, Kodiak and Oasis have seen very good stock appreciation in a very short period of time. Because of this, both were priced for perfection. Other names such as Whiting (WLL) have reported missing fourth-quarter company production guidance. There have been quite a few reports of difficulty in obtaining equipment, which is a fixable problem. I believe first-quarter numbers will improve significantly over the fourth quarter and pullbacks in these names are an opportunity.
Disclaimer: This is an article about 4th-Q production numbers, not a buy recommendation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
