When exploration and production companies sense that they are doing well, they go for the kill through expansion efforts. Kodiak
In expansion mode
The Denver-based company will acquire 25,000 net mineral acres in McKenzie County, North Dakota for $85.5 million in cash and stock. As a result, the company will also acquire working interest in two active wells, which are currently producing 200 net barrels of oil equivalent per day. However, that's just the small picture.
At the end of the first quarter this year, Kodiak had a two-rig drilling program in the Williston Basin. Today, the company is currently mobilizing its third rig, and has contracted for a fourth. Now, with the completion of this transaction, a fifth rig gets added to the company's arsenal.
Kodiak's capital expenditure for 2011 went up by 15% to $230 million. This type of confidence excites me. Along with Continental Resources
Right now, Kodiak's balance sheet looks pretty healthy, with a cash balance of $76 million, which has been progressively increasing every quarter. Debt-to-equity stands at a healthy 13.6% -- nothing to worry about. In short, Kodiak is good to go for this acquisition.
As for the stock, I'm not unduly concerned about recent movements. To echo Warren Buffet: "If a business does well, the stock eventually follows." I'm confident that this holds for Kodiak, too.