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Why Kodiak Oil & Gas Ran Low in 2012

The first half of 2012 is in the rearview mirror, and investors are gearing up for what looks to be an action-packed ending. There are bound to be some big winners -- and more than a few duds -- no matter what happens in the United States and abroad.

Will your favorite stock have its victory lap as we hit the home stretch, or will it get lapped? First-half performances can hold some clues, so let's look to the recent past to find out whether Kodiak Oil & Gas (NYSE: KOG  ) deserves a place in your portfolio going forward.

First-half recap
Kodiak's promise petered out in 2012. Its early gains (the stock is still sporting solid gains for the past 52 weeks) gave way this year due to several profit-eroding setbacks, as you can see here:

KOG Total Return Price Chart

KOG Total Return Price data by YCharts

Here are a few financial snapshots of its recent performance:

Market Cap $2.2 billion
Trailing 12-Month Revenue $187 million
TTM Net Income $13 million
TTM Free Cash Flow ($1.14 billion)
Most Recent Quarterly Revenue $80 million
MRQ Net Income $2 million
MRQ Free Cash Flow ($658 million)
MRQ Revenue / Net Income YOY Change 515.4% / 128.6%
P/E and Forward P/E 144.9 / 8.2
Motley Fool CAPS Rating (out of 5) ****

Source: Morningstar.

What the numbers don't tell you
Kodiak's weak start to the year turned around in a hurry when the company reported gangbusters growth in its 2011 annual report. That proved to be its high-water mark in 2012, as the company's first-quarter results didn't entice investors, despite a narrowly profitable bottom line.

Many smaller Bakken players have slid somewhat this year, roughly matching the slight decline in crude prices. Triangle Petroleum (NYSE: TPLM  ) resisted the decline better than Kodiak, but Samson Oil & Gas (NYSE: SSN  ) and Northern Oil & Gas (NYSE: NOG  ) have both had their stocks hurt badly by declining crude prices:

KOG Total Return Price Chart

KOG Total Return Price data by YCharts

As I pointed out earlier, there are a few other factors inhibiting Kodiak's gains. Fellow Fool Dan Caplinger notes that depreciation and hedging losses held back the bottom line this year, but those hedges might become a net positive if crude prices take a turn for the worse. Capital expenditures have been extremely high over the past year as well. Rapid growth is great, as long as it results in profitability.

Weakening economies around the world could be very bad news for Kodiak and its peers, which rely on higher crude prices to stay profitable. Shale oil, which Kodiak extracts with the help of Halliburton's (NYSE: HAL  ) hydraulic fracturing expertise, costs several times more per barrel to produce than "easier" oil, as I pointed out last year.

Crude is safely above the breakeven point today, but it's already much lower than it was for much of last year, when Kodiak's hype was highest. If Europe falters, China slows down, or America's anemic growth grinds to a halt, crude oil might not be worth its extraction costs for Kodiak any longer.

Kodiak hedges its bets, but you can do one better. Why not invest in the one company in the energy sector that can hold fast no matter what oil costs? Find out why this company has "The Only Energy Stock You'll Ever Need" in The Motley Fool's most popular free report. Click here for the inside scoop while it lasts.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

Motley Fool newsletter services have recommended buying shares of Halliburton. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2012, at 6:00 PM, clbjblk wrote:

    First there is no transportation competition in the bakken and as far as fracking the EPA is almost going to have to make a new law because the best fracking company that does not waste water is GASFRAC and they are going to blow the lid of this water scare, unless Pickens went broke the jealous mothers against frackers should all ride bikes and China says you can only have one child they are loving this American EPA joke so Canada which is our the US 'S GREAT NEIGHBOR WILL BE GETTING TANKERS OF FUEL AT A LOT BETTER PRICE EVEN WITH ALL THE TRANSPORTATION THE YANG MONEY WILL EAT OBAMA AND BEN B. PRINTING PRESS ALIVE.ENTERPRISE PRODUCTS IS THE ONLY ONE WITH THE GUTS TO FIGHT OBAMA AND THEY CAN NOT LOOSE EITHER WAY .EVERYDAY DRIVING OR WALKING YOU ARE CROSSING ONE OF THERE PIPELINES CAN'T SAY WHEN I SAW THERE LAST SPILL AND THERE BANK KNOWS IT.

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Related Tickers

12/31/1969 7:00 PM
KOG.DL $0.00 Down +0.00 +0.00%
Kodiak Oil and Gas CAPS Rating: *****
HAL $48.12 Down -0.32 -0.65%
Halliburton CAPS Rating: ****