Kodiak Oil & Gas (NYSE:KOG) focuses primarily on the exploration, acquisition, exploitation, development, and production of oil and natural gas in the Rockies region of the United States. The company has proven, solid reserves of 1.2 billion cu. ft of natural gas and 344,000 barrels of oil. The stock is currently selling for $8.58 and has a 52-week range of $3.59 to $10.90. The company has a market cap of $2.095 billion and a Price to Earnings ratio of 135.44.
Back on June 19, Raymond James downgraded Kodiak (along with a dozen other oil companies) from an "underperform" rating to a "market performance" rating. This rating comes as the financial advisers seem to think that oil prices will average $65/bbl in 2013. Several other financial advising corporations seem to have the same opinion of Kodiak and the oil market and have recommended "buy" ratings. This bodes well for Kodiak as well as the entire oil industry and seems to be a sign that things may be moving in a more positive direction.
Based on ratings released on May 3, 2012, Kodiak Oil & Gas has a 500.8% increase in revenue. Analysts predict $0.18 in earnings per share next quarter. Kodiak has previously found itself in oversold territory, making some investors look for entry points on the buying side of the market. According to some analysts, this might be a great time to get in with this company. Kodiak may prove to be a force to be reckoned with.
The company is leveraged on both the upside and downside of the oil market. Based on the uncertainty of the Euro and the debts of other European countries, oil prices continue to be volatile. As the dollar rises, commodities priced using the dollar fall. While there is new leadership in Greece, we will still have to wait and be patient to see any stable, long-term results. Furthermore, the geopolitical situation in Iran has played an important factor as well as the country has become more cooperative in sanction negotiation. Prices had initially skyrocketed due to a feared shortage that the Iran situation would not play out peacefully or favorably.
As of March 31, 2012, Kodiak Oil & Gas has a $585 million capital expenditure budget and claims to have $400 million in available liquidity (this is important to note because if oil prices decline too much, Kodiak will use most of its available liquidity to keep their rigs going). The company will want to avoid falling into a debt trap, and as long as energy stays strong, Kodiak will be alright. The company's languishing stock can be attributed to the general trends across the oil market - these are uncertain times, and prices are not really all that great for anybody. And while supply may be increasing, demand continues to fall. OPEC production has increased by 10%, but global oil consumption has fallen from 90.4 million barrels per day in 2011 to 8.5 million barrels as of April of this year.
Almost all of Kodiak's production falls in the realm of oil rather than natural gas. The company owns the mineral rights to 157,000 acres of Bakken shale in the Williston Basin in the North Dakota area. Like many of its competitors, lack of manpower and equipment are presenting as the biggest challenges for capitalizing on all their resources (they are waiting for the human resources to arrive to tap into thirteen brand new wells). Kodiak is working in an area with copious amount of potential, as geologists believe there will be up to 4.3 bboe that could be recoverable out of the Bakken shale. If this holds true, Kodiak is definitely in the right place at the right time. As soon as they are able to tap into all their resources and receive revenue from such, they will be headed on the right track.
According to analysts, the company does show strong promise for future gains. After abundant acquisitions in 2011 and success in the Bakken shale, the company is truly growing and maturing. A major segment of their financial strategy right now is commodity hedging, where it is planning on hedging 85-95% of its production. However, regulations from the Commodity Futures Trading Association (CFTA) stating that companies have to place caps on the number of contractors they have could negatively affect Kodiak's business in part to rising costs and restrictions on involvement. Kodiak will have to follow the outcomes of the CFTA regulations to see where that will leave them.
Kodiak Oil & Gas is a small company, but they are acting with a sense of knowing they are on the right track and making the right decisions. When you factor in growth prospects to their 2011 financials, the results are astonishing. Their most recent quarterly reviews were 84% about their revenue for this time and quarter one year ago. Kodiak's primary competitors are Double Eagle Petroleum (NASDAQ:DBLE), Gasco Energy (GSX), and Marathon Oil (NYSE:MRO).
Yes, the oil market is in flux. This is nothing new. Now that there are new politicians in power in Greece we will have to watch Europe closely to see how they pull themselves out of their troubles. Hopefully this new leadership is the start of positive change for the international markets. Now that definite change appears to be in the works, the markets will optimistically start recovering. As previously mentioned, Kodiak is a smaller oil, gas, and energy corporation, but with their untapped resources, financial planning, and previous increases in revenue, they are an excellent one to watch. Most analysts seem to have positive feelings about this company and where they are headed, and with all of Kodiak's possibility, they are definitely one to watch.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.