Whiting gets an amazing deal for Kodiak - too good to be true?


Shares of Whiting Petroleum (WLL +7.8%) surge to a new all-time high as analysts agree that WLL pulled off a great deal for Kodiak Oil & Gas (KOG +4.6%), paying ~2% less than KOG's Friday close and just 5% above the 60-day average (earlier).

WLL’s story grows even more compelling with an accretive deal that gives it a premier position in both the Bakken and Niobrara that should boost growth dramatically, likely with improved metrics across the board that already are at compelling levels vs. peers, Wunderlich says in reiterating its Buy rating.

In raising its price target to $102, Brean Capital says it would not be surprised to see a competing bid for KOG, but assuming the deal closes as currently constituted, its opinion of WLL is only enhanced as the most attractive opportunity in its coverage universe (Briefing.com).

Meanwhile, KOG’s decision to sell now is “curious,” according to Sterne Agee's Tim Rezvan, with a Q2 earnings miss possibly explaining the move; KOG has not set a date to release Q2 results.

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Comments (9)
  • Philip Marlowe
    , contributor
    Comments (1581) | Send Message
     
    KOG has missed on earnings in about five quarters in a row (according to my count). Management was probably fearing for their safety in the face of another miss.
    14 Jul 2014, 03:50 PM Reply Like
  • chuck215
    , contributor
    Comments (61) | Send Message
     
    I agree with Phillip's comments. Five quarterly misses in a row, with 3 misses of more than 20%. Raising questions about the competency of the KOG management team. A big miss for the 2nd quarter would probably have resulted in a big drop in the stock price. So, perhaps the "bargain sails price" was related to this upcoming reality.

     

    Also, EOG now has a map of the oil-rich sections of the Bakken as part of the standard "presentation" on its website. Comparing the KOG acreage (from their monthly presentation) and the EOG map leads to the conclusion that much of the KOG acreage is outside of the oil-rich area of the Bakken. I wonder if part of the reason for the sale and the "bargain" sales price is that the KOG acreage is less appealing than has generally been considered.

     

    Disclosure: I am long EOG and OAS.
    14 Jul 2014, 05:20 PM Reply Like
  • Clair Zirnhelt
    , contributor
    Comments (2) | Send Message
     
    Great performance over the last year, but those levels had been achieved before. Great acreage, but poor execution on forecasts.
    14 Jul 2014, 05:21 PM Reply Like
  • chuck215
    , contributor
    Comments (61) | Send Message
     
    I agree with Phillips comment. Five quarterly misses in a row, with 3 misses of more than 20%. Others have commented on SA that a 6th consecutive loss in the 2nd quarter would probably hurt the stock price badly. WLL would have been aware of the 2nd quarter situation as part of its due diligence, so perhaps an impending miss contributed to the willingness of KOG to sell.

     

    An additional consideration: The EOG monthly presentation on its website now includes a mapping of the oil-rich areas of the Bakken. A comparison of KOG acreage against this this map shows a disappointing percentage outside this prime region. So, perhaps the bargain price just represent the true status of the KOG acreage.

     

    Bottom line: I doubt that WLL got a bargain. A more probable explanation of the price is that this is what the KOG acreage is really worth.

     

    Disclosure: I am log EOG and OAS
    14 Jul 2014, 05:34 PM Reply Like
  • Sensible Investor
    , contributor
    Comments (475) | Send Message
     
    I think the deal makes sense given the poor management execution, apparently, and the ability for shareholders to own shares in a firm with far greater scale than KOG. The fact that Kog sold for a perceived discount implies that post earnings, KOG shareholders would have seen their shares tumble. The chart for Whiting is also compelling, with a target of 102, and with that, a split, potentially. All in all, take the shares and run. The acquirer is a far better firm with a better long term potential than KOG. Obviously, Whiting understands that they're getting a good value for the issues that KOG has. That's what smart investors do. Then, the shareholders get a better a company in the acquirer.
    14 Jul 2014, 07:15 PM Reply Like
  • PalmDesertRat
    , contributor
    Comments (3791) | Send Message
     
    Other than buying KOG on the cheap, what will we WLL shareholders get out of this deal? I haven't read about any synergies or new growth prospects which will come along with KOG

     

    Chuck215, above, makes the point that much of KOG's land is outside the prime area, WLL might not have bot that land on its own,even if it had the chance.
    14 Jul 2014, 07:42 PM Reply Like
  • badbernanke
    , contributor
    Comments (394) | Send Message
     
    With the multiple benches that WLL is drilling and which probably underlay much of KOG's holdings, WLL could end up with a drilling bonanza.
    16 Jul 2014, 03:26 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (7058) | Send Message
     
    Don't know about you, but I'm buying (NYSE:WLL) now. May be a little pricey, but I think (WLL) sees value in (NYSE:KOG). Maybe (WLL) has more advanced drilling technology to extract what (KOG) can't. Obviously there is a reason why (WLL) bought (KOG). And (KOG) is about 4/10 the size of (WLL). Many years ago, (NYSE:CF) bought Terra Industries, a company 1/3 (CF)'s size, to position itself as the largest nitrogen fertilizer company in the world. Maybe (WLL) is trying to become the biggest Bakken/Niobrara producer and positioning it better to compete with (NYSE:EOG).
    14 Jul 2014, 09:08 PM Reply Like
  • PalmDesertRat
    , contributor
    Comments (3791) | Send Message
     
    You might have bot some of my WLL today. I started my position in June of last year at 45.01, thought I'd cash in a bit today. But I still have a lot left.
    14 Jul 2014, 10:10 PM Reply Like
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