Why Kodiak Oil & Gas Shares Jumped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Kodiak Oil & Gas (NYSE: KOG  ) jumped as much as 11% before finishing the day with an 8% gain, after reporting second-quarter earnings.

So what: Kodiak smashed earnings estimates, making $0.35 cents a share on expectations of just $0.10, though $0.25 of that gain was related to hedging activities and a non-cash deferred income-tax expense. Revenue came in well under expectations, as received oil prices were down nearly 20% from a year ago, but the company sharply curtailed costs, including reducing lease-operating expense per barrel from $7.46 to $5.60, and cutting general and administrative expenses per barrel thanks to an acquisition in the Bakken in January. Management cited "significant strides in driving down unit costs based on improvements in water handling charges" as part of the reason for the cost reductions.

Now what: Kodiak wisely hedged its bets this quarter, but investors can't count on those gains every time around, and while its expected growth looks promising, the company also bears a heavy debt burden. This still looks like an expensive stock relative to its industry, and I don't see a compelling reason to choose it over some of its more affordable peers. If oil prices rise, Kodiak will surely benefit, but it looks like there are better ways to play that possibility.

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Fool contributor Jeremy Bowman holds no positions in the companies in this article. We Fools don't 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. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

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  • Report this Comment On August 04, 2012, at 8:34 AM, JJButlerISA wrote:

    KOG is a play on explosive growth for the second half of 2012. Their high debt and relatively small acreage position is a concern.

  • Report this Comment On August 04, 2012, at 8:02 PM, TruffelPig wrote:

    This is probably the best Bakken oil stock imo. Location, location, location. Their wells produce. After BEXP was acquired by STO this is probably the next candidate to be acquired and this also drove share prices up. NOG is cheaper though and I hold it as well.

  • Report this Comment On October 25, 2012, at 10:05 AM, mitchjl wrote:

    I sold NOG for a profit and bought more KOG as i am looking for maximum oil product in the 3rd Q. !5,000 BOPd is possible.

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Related Tickers

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KOG.DL $0.00 Down +0.00 +0.00%
Kodiak Oil and Gas CAPS Rating: *****