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Kodiak Oil & Gas (UNKNOWN: KOG.DL ) gave its investors a little taste of what to expect when it reports earnings on Oct. 31. The company announced that its production jumped 54% to 35,400 barrels of oil equivalent per day, or BOE/d. Even better, the company expects to end the year producing 42,000 BOE/d.
Kodiak Oil & Gas really has come a long way over the past few years. It's remarkable to think that in 2010 Kodiak produced an average of 1,250 BOE/d. Further, after producing an average of 14,400 BOE/d last year, Kodiak should more than double that to an average of about 30,000 BOE/d this year. Kodiak is really riding the Bakken production wave.
Bakken earnings ahead
Kodiak's most recent results suggest that peers like Oasis Petroleum (NYSE: OAS ) and Whiting Petroleum (NYSE: WLL ) should both report really good quarters. Production from the Bakken had been held back earlier this year due to rough weather. But completion crews have been busy all summer, which led to surging production from the region.
Whiting Petroleum will be the first of the trio to report as its earnings are expected Oct. 24. The company has been shifting its focus to concentrate on its higher growth prospects like the Bakken. After selling some of its slow-growth enhanced oil recovery assets, Whiting is reinvesting $300 million of that capital to boost its capex budget to $2.5 billion. Half of those funds will be focused on growing Bakken oil production. Bottom line, given how good the Bakken has been this year, Whiting Petroleum should have good things to say about it when it reports this week.
The same can be said for Oasis Petroleum, which reports on Nov. 7. The company has aggressively drilled the Bakken and has seen its production grow from just 5,200 BOE/d in 2010 to an average of up to 35,800 BOE/d this year. In addition to its aggressive drilling program, Oasis has been building its position by acquisition. It actually beat Whiting and Kodiak in bulking up on the Bakken this year with the largest deal of the trio. That deal should help fuel its results this quarter as well as those still to come.
What's really interesting is how much better these companies are getting at developing the Bakken. Production growth is nice, but investors want to see profits growing. For Kodiak, that'll come in two forms. First, the company is really starting to benefit from higher oil prices. The price it's realizing per barrel has actually jumped 10% quarter over quarter. That's going to have a nice impact on its bottom line.
Further, Kodiak is getting much better at keeping its costs down. Despite using 100% ceramic proppants, Kodiak is seeing well costs as low as $9.2 million apiece. That's down 10% from earlier this year. While it's still above $8 million per well that Oasis Petroleum is targeting this year, given the added production and estimated ultimate recoveries that Kodiak sees from ceramic proppants, it's a justifiable increase in cost.
The bottom line here is that Kodiak Oil & Gas should report a really solid quarter this Halloween. Its production is up, the price it's realizing for its oil is higher, and its costs are trending lower. That's the recipe for increased profits.
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