Kodiak (NYSE:KOG) has been one of the best performers in the sector - the stock has gained over 35% since the start of the year. The company holds strong growth opportunities with the largest asset base in the high-yielding area of Bakken - we have highlighted the growth potential of the company in our previous articles and have been bullish about this stock.
It was only a matter of time before a major oil company came to acquire Kodiak or Merge with it as the company has some of the best assets in the sector. Whiting Petroleum Corporation (NYSE:WLL) is in the process of acquiring Kodiak for $6 billion and the acquisition will be finalized by the fourth quarter of the current year. The stock continues to enjoy further lift from the Whiting transaction announcement. This acquisition will be beneficial for both companies as the new entity will have the largest liquid acreage in Bakken formations.
Whiting and Kodiak announced an agreement according to which Whiting will acquire Kodiak in an all-stock transaction valued at $6.0 billion, including Kodiak's net debt of $2.2 billion. The resulting company will create the largest Bakken/Three Forks producer as both companies collectively produced over 107,000 barrels of oil equivalent per day of production, in Montana and North Dakota, by the first quarter of 2014, with 855,000 combined net acres and an inventory of 3,460 net future drilling locations.
Under the agreement, Kodiak will receive 0.177 of a share of Whiting stock in exchange for each of its common stock, based on Whiting's closing common stock's price on July 11; this equals to $13.90, representing a premium of approximately 5.1 % to the volume weighted average price of Kodiak for the last 60 trading days.
Whiting Petroleum is an independent exploration and production company, with a liquid heavy asset portfolio. The company's oil focused asset portfolio allowed it to control one of the largest acreage positions in the Bakken. Moreover, Whiting has assembled over 120,000 net acres in the highly productive liquid plays of the Niobrara trend in the U.S.
The transaction will be closed by the fourth quarter of 2014 - the two companies recently cleared another regulatory hurdle in the way of the merger. Both companies announced to receive notification of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 related to the acquisition. This regulatory process completion satisfies another condition in the final transaction closure planned to take place by the end of this year.
Kodiak has been increasing its production at an impressive rate, and the company is currently working on 7 drilling rigs with 38,000-40,000 barrels a day of production. However, the first quarter production results are somewhat disappointing for the company due to the weather conditions. Moreover, the company is anticipating strong growth from its Polar Pilot projects in the Middle Bakken and Three Forks region. The second quarter production results also reported a substantial increase, in both crude oil and natural gas segments, during the period. Kodiak reported total oil and gas revenues equaling $300 million in the second quarter, up 73% compared to $173.5 million in the same period last year. The long term production growth of the company is intact and the company is on track to increase its production levels along with decreased production costs.
Further, Whiting Petroleum also adds significant value to the stock, as the company holds the second largest acreage in the Bakken Shale formations. The company reported its total production to a record 10 million barrels of oil equivalent [MMBOE], of which 88% was crude oil/natural gas liquids. This increase is mainly due to the significant double digit increase in the Bakken and Niobrara regions. Moreover, the company believes that it has plenty of room in the Williston Basin, specifically in its new completion techniques and downspacing programs.
Source: Whiting Petroleum Corporation, First Quarter Earnings Release
Moreover, Kodiak also adds some high yielding acreage to Whiting Petroleum, including Dunn, McKenzie, Mountrail, and William Counties in North Dakota. With such high yielding portfolio, the company is improving its asset base by removing unprofitable acreage from the asset portfolio such as Grizzly/Wildrose acreage.
The acquisition will make Whiting one of the major players in the region and it will have the most desirable acreage in its portfolio. The mode of transaction shows that the Kodiak management has a strong belief in the success of Whiting - usually, the company being acquired pushes for a stock-based compensation if the management is confident in the success of the merger/acquisition. It is clear that the acquisition will result in a company with some of the best placed and highly productive assets. We believe this deal will be beneficial for both the companies and the shareholders will benefit substantially.
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