KOG

[dan_s]

“Sweet 16 member Kodiak Oil & Gas (KOG) announced they have picked up 14,494 net acres in North Dakota. This acreage all has Bakken Shale oil potential. KOG now holds 72,000 net acres in the Bakken.”

Here is why we like KOG (Note that NFX, BEXP and CLR are all in out Sweet-16):
• Bought: 14,494 net Williston Basin acres in 2 new areas. This is core Bakken acreage, not moose pasture.
o Location:
 Smokey (Bear): McKensie County, ND - 11,742 net acres - located between their acreage on the reservation and their newer Koala Project area and just to the west of the southern tip of the Nesson anticline. This area includes 4 producing wells with net production of 500 bopd. This is in an area NFX is currently active in (what they call Aquarium / Watford) and where they've drilled some 2,500 BOEpd IP wells.
 Polar (Bear): Northern Divide County and southern Divide County - 2,752 net acres - Aptly named, this new area is just north of BEXP's Rough Rider area. CLR has 3 rigs running here and NFX is active just to the west.
 The acquired acres and wells come from a private firm, almost certainly Peak based on the position.
o Paid: Total value of $110 mm or $7,600 per acre, paid in two pieces:
 $99 mm in cash
 and another $11 mm in stock in the form of 2.75 mm shares issued at $4.
• The Simple Math:
o KOG now has 72,000 net Williston acres; 35,000 in the FBIR and the rest in its less developed areas.
o Using KOG's assumptions for 3 Bakken and 2 Three Forks Sanish completions per 2 section unit, this puts KOG's potential locations at about 280.
o To be conservative put the Bakken well EUR's at 600,000 and the TFS wells EURs at 400,000 BOE.
o That comes to a grand total of 146 mm BOE in potential reserves, almost all of it oil.
o Assume only 3/4 of it works for one reason or another; that comes down to 110 mm BOE.
o Compare that to their booked proved reserves at YE2009 of 4.5 mm BOE and you have what's known as considerable upside.
o Put $15 per barrel as in the ground acquisition prices and you have $1.645 B in value.
o Compare that to the company's closing TEV last night (pro forma this deal) of approximately $625 mm and you have a bargain. We won't get there all at once unless they get bought, but over time this figure, which equates to a share price of $10.70, represents an upper bound based on the EURs and risking used. In general, I expect the EURs to climb as they come up the completion's learning curve.
o Note that some players like WLL and BEXP have concluded that the well count per unit may be a lot higher than 5 and you would have even more value.
• Balance Sheet Impact: For once KOG is taking on a little debt which isn't always a bad thing, in fact, it's sound financial structuring and in this case both overdue and easily managed. Given management's past aversion to it, I think it goes to management's increasing confidence regarding their performance in the play. After considering the impact of the recent deal and the newly issued equity, KOG's net debt to equity is still low, about 11%, with net debt of about $20 mm.

[dan_s]

KOG up 10% on very high volume this morning. I'm expecting an impressive jump in production.

[dan_s]

IMO the selling based on this report is now over done. His report was actually quite positive. If the shares dip below $4.00 it goes back to a BUY.
If you value KOG based strictly on today's CFPS it does appear to be very expensive. However, a "Pure Play" on the Bakken like this needs to be looked at differently. IMO Kodiak is a prime Takeover Target and it would go for $8-$10 share in a bidding war. They have a very nice block of acreage in the Bakken.
Dan
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DETROIT (AP) -- Shares of gas exploration and production company Kodiak Oil & Gas Corp. fell Wednesday after an analyst downgraded the stock.

THE SPARK: Stifel Nicholaus analyst Michael Scialla lowered his rating on Kodiak from to "Hold" from "Buy" based on a conclusion that the stock is trading at a 33 percent premium to peer companies.

THE BIG PICTURE: The company is showing improved performance at wells in Dunn County, N.D., there's emerging potential from the Three Forks Formation and to a lesser extent acreage recently acquired from Peak Grasslands, Scialla wrote in a note to investors.

But Scialla believes another equity offering could be looming after the company's recent $110 million acreage purchase to raise needed capital.

THE ANALYSIS: Scialla writes that Kodiak's operational performance makes it one of the best resource buys in North America, but he contends the shares are fairly valued already.