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No need to grin and Bear it: KODIAK Oil & Gas (KOG)

posted Dec 21, 2011, 11:58 PM by Jeff Davies   [ updated Dec 22, 2011, 9:14 PM ]
After more than doubling their Bakken acreage in 2011 to 155k net acres, KOG is roaring to go in 2012 with a 51 net well program.  Growth is surely being priced into the name after a run from the low 4s to 9+ since early Oct., but the production growth will likely be at the top of the group next year at over 450%.  Valuation remains surprisingly reasonable at 5.8x, 4.4x and 3.4x EV/ 2012-2014 EBITDA.  Based on simple assumptions, the $585 million 2012 capex program will leave a roughly $75mm hole, but the company has ample cash and revolver liquidity.  If anything, we could see KOG pull the trigger on more acreage in the not too distant future.  Debt appears to be ~ 1.25x '12 EBITDA, dipping below 1x in 2014 with no additional issuance, $85 oil and assumed growth.  The KOG 8.125s were issued at par but trade around 103.5 for a 7.4% yld.  With the US gas market in the shitter for the foreseeable future, contiguous, operated, oil acreage is the holy grail of relative performance.  Despite the recent run, KOG is easy to justify owning with mostly oil production, huge growth and still reasonable valuation.

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Note:  I am using 270mm fully diluted shares to calc market cap which seems to be in the right ballpark adjusted for the shoe, shares issued for Jan '12 acquisition and employee awards,
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