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When building a successful portfolio, it is not always the big dogs that end up winners. In the world of oil and gas stocks, the little pups, comparatively, may be the ones to buy and hold for the long haul. Kodiak Oil & Gas (KOG) is one of those puppies. This Denver, CO-based company is making itself attractive by taking smart advantage of the oil boom and implementing a hard-charging expansion strategy. With control of a 24-hour dedicated completion crew, land lease expansions, new wells, and an ambitious plan, Kodiak is beginning to bark like a big dog.

Kodiak is still a little dog in the Bakken compared with Continental Resources (CLR), which now has 1,578 net productive wells, is gaining steam, and has moved ahead of Samson Oil & Gas (SSN), which managed to produce only 64,000 barrels of oil in 2011. While both of these companies have significant natural gas assets, Kodiak is mainly focused on oil production. In a recent NASDAQ article, Kodiak Chairman and CEO Lynn Peterson stated," As we have increased our rig count from two operated rigs in early 2011 to six operated rigs currently, we anticipate that 2012 should be another year of robust growth in all areas." Because management plans to bring on 51 net wells this year, it is targeting a rate of 30,000 barrels of oil equivalent per day - double what it was last year.

Kodiak's growth has been phenomenal: increasing proven oil reserves 255% in the latest year to 35.6 million barrels, drilling 25 net new wells, and acquiring 88,000 new acres that included 25 net productive wells. In the span between mid-October and January, Kodiak put on line eight gross operated wells averaging 1,682 barrels of oil equivalent per day. It currently has a working interest in five non-operated wells in Dunn County that have been completed. In addition, thanks to the Williston Basin acquisition, the company ended January with a production rate of about 15,000 Boe/d - up from 10,100 Boe/d at the end of 2011, creating about a 50% increase in one month.

In a January press release, Kodiak reported average daily sales volumes of 7,195 barrels of oil equivalent per day (BOE/d) for the fourth quarter 2011, representing a 422% increase over sales volumes of 1,783 BOE/d for the fourth quarter 2010 and an 82% increase over third quarter 2011 sales volumes of 3,953 BOE/d. Crude oil accounted for 94% of fourth quarter sales volumes. The company reported average daily sales volumes of 3,922 BOE/d for the year-ended December 31, 2011, representing a 204% increase over average daily sales volumes of 1,290 BOE/d during 2010.

In order to eliminate the expiration of its leasehold due to non-production from the land, Kodiak's management has set its ambitions to develop its entire 155,000 net acreage in Williston by mid-2013. The company is raising 2012 capital expenditure some 133% to $585 million and using its 24-hour fracking crew already in place, Kodiak expects to drill 73 gross new wells. The company is also putting aside $25 million for investments in infrastructure. Once production picks up, this reserve will help with the connection process to Enbridge's (ENB) network of pipelines.

Kodiak's stock has gained over 3,000% since 2008. The company's share price has increased more than 42% in the past year, and has generated 10 times the revenue in 2011 that it did just two years ago. It has a trailing P/E of 50.6 with a forward P/E of 9.3. The company's anticipated sales growth this year is 425% (with this quarter expected to be at 800%!). Comparatively, Whiting Petroleum (WLL) is expected to grow sales by only 17% this year, and Continental Resources, only 28%. And although for the last quarter, 2011, gross margin was 75.7%, 290 basis points worse than the prior-year quarter, operating margin was 33.1%, 7,330 basis points better than the prior-year quarter. Net margin was -61.4%, 2,180 basis points worse than the prior-year quarter, but I believe 2012 to be the start of a banner 3-year run for Kodiak, based on projections and management's full-steam-ahead approach.

Kodiak has grown production 171% and revenue 226% over the past two years, with the company racking up revenue of $120 million last year. In February, 15 analysts polled by S&P Capital IQ foresaw fourth quarter revenue of $59.9 million. GAAP reported sales were much higher than the prior-year quarter's $11.0 million. Next quarter's average estimate for revenue is $123.0 million. The average EPS estimate is $0.18, and next year's average estimate for revenue is $652.8 million. The average EPS estimate is $1.01.

In a statement in early February, Chairman and CEO Lynn A. Peterson stated: "Our team made great strides in January on both new drilling and completion activities as well as in routine maintenance operations. With mild winter conditions in North Dakota, all operations are running efficiently allowing Kodiak to best execute on our 2012 program."

The Kodiak bear, the symbol for Kodiak Oil and Gas, is the largest bear in the world. I believe the company's logo is a sign of the growth expected from this little giant. Making an investment decision based on the current situation is only part of the equation. I believe that after factoring in all future prospects, and examining the figures, Kodiak's production is leaning toward strong growth during the next few years.

Kodiak could be a worthwhile buy for new investors as well. Kodiak has been growing very quickly. Revenue is expected to grow from $120 million in 2011 to $675 million in 2012. With its current stock price, Kodiak is trading at 8.3 times 2012 earnings. I expect earnings to grow at a faster pace through 2015.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Kodiak Oil & Gas: A Winner In 2012