How Kodiak Earnings Could Gush Higher

Kodiak Oil & Gas (NYSE: KOG  ) will release its quarterly report tomorrow, and investors remain enamored of the major player in the Bakken shale play. But some smart strategic moves could really push Kodiak earnings higher both in tomorrow's report and in the quarters to come.

Kodiak has gone from being an almost unknown company to a household name among energy investors who've paid any attention to the upsurge in Bakken production in recent years. Yet while larger exploration and production companies seek to diversify their holdings in order to hang onto their long-term growth, Kodiak has instead concentrated on what it believes are its best prospects. Let's take an early look at what's been happening with Kodiak Oil & Gas over the past quarter and what we're likely to see in its quarterly report.

Stats on Kodiak Oil & Gas

Analyst EPS Estimate

$0.13

Change From Year-Ago EPS

30%

Revenue Estimate

$180.82 million

Change From Year-Ago Revenue

111%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Can Kodiak earnings really grow as fast as analysts expect?
In recent months, analysts have actually reined in their expectations on Kodiak earnings, cutting $0.03 per share from their June-quarter estimates and twice that from their full-year 2013 consensus figures. The stock, though, has kept soaring, with gains of almost 25% since late April.

The Bakken has been a huge source of growth for the companies fortunate enough to have acreage there. Kodiak tripled its production between 2011 and 2012 and posted an increase in proved reserves that more than doubled its former level.

Another way that Kodiak has achieved earnings gains is by cutting the costs of its drilling operations. Last year, Kodiak reported a 15%-20% decline in well costs, dropping to a range of around $9.7 million-$10.2 million. And while that's still roughly $1.5 million-$2 million more expensive than the $8.2 million figure that rival Continental Resources (NYSE: CLR  ) posted, it nevertheless adds up to huge savings for Kodiak.

Kodiak signaled its intent to double-down on the success of the Bakken in early June, when it paid $660 million to private Liberty Resources for 42,000 acres in the play. By adding another 5,700 barrels per day to its already quickly growing production, Kodiak hopes to compete with Whiting Petroleum (NYSE: WLL  ) , which was the biggest oil producer in the region last year, as well as Continental and Hess (NYSE: HES  ) , both of which produce at nearly the same level as Whiting at roughly three times Kodiak's pace. With anticipated growth and combined with a more recent boost in capital expenditures, Kodiak could narrow the gap and get more than halfway to Whiting's production levels.

In the Kodiak earnings report, watch to see if adverse weather conditions hurt the company's results. With late snows and a wet spring, load restrictions have been in place that could affect costs. Still, with long-term prospects still looking good, it appears that Kodiak has further to run in growing its business to new heights.

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