Thursday, August 04, 2011
Kodiak O&G Corp.
Kodiak O&G announced its second quarter 2011 financial and operational results. The Company also provided an interim operations update on its Williston Basin drilling and completion activities.
Highlights Include:
- 2Q 2011 Earnings of $8.2 Million, Before Unrealized Derivatives Gain
- Oil & Gas Sales of $22.1 Million, a 261% Increase
- Equivalent Sales Volumes 238,000 BOE, a 149% Increase
- Adjusted EBITDA of $13.7 Million, 377% Growth
- Two New Bakken Well Completions in McKenzie County, N.D.
Second Quarter 2011 Financial Results
The Company reported net income for the second quarter 2011 of $14.0 million, or $0.08 per basic and diluted share, compared with net income of $621,000, or $0.01 per basic and diluted share, for the same period in 2010. Included in the second quarter 2011 net income calculation are unrealized derivative gains of $5.8 million attributed to the non-cash change in the value of derivatives utilized for commodity price risk management. Excluding the effect of unrealized derivative gains, a non-cash credit, Kodiak would have reported adjusted net income (a non-GAAP measure) of $8.2 million for the second quarter 2011, or $0.05 per basic share and $0.04 per diluted share.
For the quarter-ended June 30, 2011, the Company reported oil and gas sales of $22.1 million, as compared to approximately $6.1 million during the same period in 2010, a 261% increase and a Company record. Crude oil revenue accounted for approximately 97% of second quarter 2011 oil and gas sales, and crude oil constituted 94% of sales volumes for the quarter. Kodiak posted a 157% increase in oil sales volumes and a 72% increase in gas sales volumes for an overall 149% increase in quarter-over-quarter equivalent sales volumes of 238,000 barrels of oil equivalent (BOE).
Adjusted EBITDA, a non-GAAP measure, was $13.7 million for the second quarter 2011, as compared to $2.9 million in the same period in 2010, a 377% increase and another Company record. Kodiak defines Adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depletion, depreciation, amortization, and accretion (iv) impairment, (v) non-cash expenses relating to share based payments recognized under ASC Topic 718, (vi) pre-tax unrealized gains and losses on foreign currency, and (vii) pre-tax unrealized gain and losses on commodity price risk management activities. A reconciliation of Adjusted EBITDA to net income is included in the financial tables later in this earnings release.
Kodiak reported record net cash provided by operating activities for the second quarter 2011 of $16.3 million, as compared to $7.2 million in the same period in 2010. The Company reported cash used in investing activities of $116.8 million during the second quarter of 2011, of which approximately $30.6 million was invested for the drilling and completion of wells and for infrastructure in its Williston Basin drilling program. The Company also invested $85.8 million during the second quarter 2011 to acquire an additional 25,000 net acres and producing properties in the Williston Basin which closed on June 30, 2011.
Second Quarter 2011 Expense Analysis
For the quarter-ended June 30, 2011, general and administrative (G&A) expense was $4.2 million, as compared to $2.6 million for the same period in 2010. The increase in total G&A is attributed primarily to the hiring of new personnel as the Company continues to expand its operations. The Company had 52 employees at June 30, 2011, as compared to 27 employees at June 30, 2010. Included in the second quarter 2011 G&A expense is a non-cash, stock-based compensation charge of $947,000 million, as compared to $866,000 for the same period in 2010.
Kodiak's lease operating expense (LOE) for the second quarter 2011 was $4.4 million, as compared to $1.5 million during the same period in 2010. The increase in LOE is attributed to additional production expense associated with a growing number of producing wells. Severance taxes were also higher due to increased oil and gas revenues during the 2011 period, as compared to the 2010 period.
Depletion, depreciation, amortization, and accretion (DD&A) expense for the second quarter 2011 was $4.5 million, as compared to $1.5 million for the same period in 2010. The increase is primarily due to the increase in sales volumes and, to a lesser extent, an increase in the per-unit charge.
Williston Basin Operations Update
Kodiak's four operated drilling rigs are presently drilling ahead on multi-well drilling pads. Two rigs are drilling in McKenzie County, and two rigs are drilling in Dunn County. The Company anticipates that the fifth operated drilling rig will be mobilized to McKenzie County when construction of the rig is completed in the fourth quarter of 2011.
As previously announced, the Company's completion activities are progressing according to schedule, and Kodiak expects to complete or commence completion operations on 10 gross and 7.5 net operated wells in the Williston Basin during the third quarter of 2011, including the Koala wells. In addition, the Company expects to participate in the completion of four gross (2.0 net) non-operated wells in the third quarter of 2011.
Management Comment
Commenting on second quarter 2011 results, Kodiak's Chairman and CEO Lynn A. Peterson said, "Kodiak's second quarter results were the strongest in Company history. We reported robust growth in several of the metrics that we monitor to assess our progress and performance. The results from our Koala project area wells are very encouraging and further demonstrate the productive potential in this prolific area of the Williston Basin. The four Koala wells that we have completed to date are all very strong wells with production established from middle Bakken as well as the Three Forks. The wells were drilled in a manner which continues to test the density of well bores and the communication between reservoirs. Well performance will be monitored over the coming quarters.
"As we look at the anticipated ramp-up in our production, combined with the $160 million of cash obtained from the public offering of common stock, the Company is in its strongest financial position ever. We announced the expansion of our borrowing revolver recently and we anticipate that the facility will continue to expand as we bring additional wells on during the remaining months of 2011 and beyond. We expect to selectively add to our Williston Basin acreage position and expect increased drilling and completion activity in the upcoming quarters. We believe we now have ample liquidity through our cash balances, operating cash flow and access to our credit facilities to fund our expanding drilling program."
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