Kodiak Oil & Gas is Spending More & Lowering Guidance

Kodiak Oil and Gas Bakken Shale Map
Kodiak Oil and Gas Bakken Shale Map

Kodiak Oil & Gas lowered its production guidance for 2012 last week, but beat earning expectations today. The company expected to average 17,000-21,000 boe/d in 2012, but has lowered its production expectation to 15,500-17,500 boe/d. The company still reported a 300% increase in sales volumes year over year for Q3 and expects to hit its 2012 exit rate of more than 27,000 boe/d. My understanding is the company got a little ahead of itself with early projections and is being saved now by better realized prices. Better oil prices led the company to an earnings beat even though production volumes were lower than expected.

The company is also spending $165 million more than initially planned, while completing 66 net wells compared to 51 planned. The total capital budget was planned with $585 million in expenses, but 2012 spending is going to fall closer to $750 million. Almost $80 million of the outspend is due to non-operated areas being developed more quickly than expected. The other $85 million is due to higher costs than expected across the board. The company has spent about 20% more than expected on drilling and completing wells, salt water disposal facilities, and leasehold acquisitions.

The outspend isn't troubling considering the company is completing almost 30% more wells, but lower production guidance suggest wells aren't performing quite as strong nor are they coming online as quickly as the company expected. Kodiak expects to complete 26 net wells in the fourth quarter. That represents almost 40% of total activity for the year.

KOG's CEO commented:

"Kodiak continues to make progress in growing its production, as demonstrated by the 50% increase in average quarterly sales volumes for the third quarter of 2012 compared to the first quarter of 2012. With a large number of wells scheduled to be completed in the fourth quarter, we should see that same upward trajectory continue over the coming quarters. We completed 10 gross (9.3 net) wells during the month of October, and with two completion crews working steadily through year end, we expect to meet or exceed our stated 2012 exit rate guidance of 27,000 BOE/d."

Kodiak also expects well costs to fall below $10 million in the coming year. Current wells are running approximately $10.5 million to drill and complete, but pad drilling should allow the company to drill more wells with fewer rigs.