Major Announcement at the Barclays CEO Energy Conference
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Kodiak Oil and Gas (NYSE: KOG) presented last week at the Barclays CEO Energy Power conference in New York and made extensive commentary on the company’s position in the Bakken play. This conference starts off the fall conference season for the Energy Sector where dozens of companies have the opportunity to present their investment case to a large group of institutional investors.
Kodiak Oil and Gas is singularly focused on the Williston Basin in North Dakota where the company has 155,000 net acres under lease. The company is developing the Bakken and Three Forks formations on its acreage here and reported proved reserves of 70 million barrels of oil equivalent (BOE) as of the end of the second quarter of 2012.
Kodiak Oil and Gas confirmed the company’s production guidance for 2012 and expects production to average between 17,000 and 21,000 barrels of oil equivalent (BOE) per day during the year. The company is also on target to hit its 2012 production exit rate of 27,000 BOE per day.
Kodiak Oil and Gas is operating one full time completion crew in the Bakken and expects this unit to complete about five or six gross wells per month. The company is adding a second unit in October 2012 and believes that it is past the mechanical issues that impacted the company earlier in the year.
Kodiak Oil and Gas has also focused on reducing costs since entering the Bakken and has been successful, with the company reporting a decline in lease operating expense (LOE) over the last year. The company reported a LOE of $5.60 per barrel of oil equivalent (BOE) in the second quarter of 2012, compared to $10.08 per BOE in the final quarter of 2011. Kodiak Oil and Gas attributed the sharp decline in LOE to better efficiency in obtaining and disposing of water used during the completion process.
Kodiak Oil and Gas has also reduced its drilling and completion costs over time and now estimates that the average cost to drill and complete a Bakken well is approximately $10.5 million, compared to $11.5 million during the first six months of 2012. Kodiak Oil and Gas plans to operate eight rigs on its properties for the rest of 2012 and then drop one rig at the end of the year.
Kodiak Oil and Gas is currently developing only the top bench of the Three Forks formation, which lies beneath the Bakken on its acreage. The company is watching the results of wells drilled by competitors into other benches of the Three Forks and will evaluate those results before proceeding on its own.
Continental Resources (NYSE: CLR) is one of those competitors that has testing other benches of the Three Forks formation. The company reported successful completions in two benches of the Three Forks and believes that a total of four benches can produce. Continental Resources is also looking to reduce costs and has shifted nine operated rigs in North Dakota to pad drilling, resulting in a 10% reduction in drilling costs.
The development of the Bakken is growing so quickly that operators are having trouble finding enough pipeline capacity to handle production. Hess Corporation (NYSE: HES) reported that the company was shipping as much as 50,000 barrels of oil per day by railroad and receives a price premium for this crude oil which is sold outside of North Dakota. The company is investing heavily in the Bakken and expects to increase production here to 120,000 BOE per day by 2016.
EOG Resources (NYSE: EOG) has also made a large investment in the Bakken and reported production of 56,400 BOE per day from here at the end of 2011. The company has an ownership interest in a train offloading facility in St. James, Louisiana, and reported capacity of 50,000 barrels of oil per day here in July 2012. EOG Resources plans to double capacity at the St. James facility in 2013.
Burlington Northern Santa Fe Railway has been investing in extra rail capacity to handle production from the Bakken. The company reported existing capacity to transport one million barrels per day of crude oil from this region. Burlington Northern Santa Fe Railway was purchased by Berkshire Hathaway (NYSE: BRK-B) in February 2010.
Kodiak Oil and Gas believes in the Bakken and is betting the future of the company on this crude oil play in the Williston Basin. The company is focused on growing production and reserves here while looking to reduce operating costs where possible.
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