This Bear Simply Won't Go Into Hibernation

Kodiak Oil & Gas proves itself once again with its recent operations update.

Feb 25, 2014 at 12:07PM

Growing average daily output by more than 100% is just a walk in the park for a company like Kodiak Oil & Gas (NYSE:KOG). It has been growing output by triple-digits over the past few years. 2013 was no different, with average daily production up 103% over last year.

Then and now
Kodiak Oil & Gas was able to leave 2013 with an average production rate of 36,100 barrels of oil equivalent per day (boepd) in the fourth quarter, up 98% year over year. Being that Kodiak Oil & Gas operates in the prolific Bakken/Three-Forks area, 89% of its production is weighted toward crude oil.

To maintain future growth, Kodiak has made sure to invest in reserve development. At year-end 2012, Kodiak had 94.7 million barrels of oil equivalent in proven reserves. Through extensive capital expenditures, Kodiak was able to boost its proven reserves by 77% to 167.3 million barrels of oil equivalent by year-end 2013.

Where we're headed
While Kodiak plans to spend $60 million less on capital expenditures this year, it's still going to grow output by somewhere around 45%. This isn't the same gangbuster level of growth as seen in the past, but keep in mind continuous triple-digit growth creates a much bigger company. The larger the company, the harder it is to maintain the same rate of growth.

By spending less and maintaining output growth, Kodiak Oil & Gas can shore up its balance sheet as the bottom line expands. 2013 was a good year for Kodiak Oil & Gas, and 2014 should be even better. February 28 should highlight this as Kodiak will update investors further on what 2013 looked like and how management plans to remain a premier Bakken operator going forward.

Kodiak's stock was up on the day the interim update came out, and the company could surprise to the upside when earnings are announced. For a company that is going to grow output by 45% while spending less, on top of trading at just 24 times trailing-12 month earnings, investors might be missing something. 

Less here, more there
While Kodiak spends less, Berkshire Hathaway's (NYSE:BRK-B) BNSF Railway is spending more on North Dakota.

To compensate for the surge in output and unusual weather that is causing major delays in North Dakota, Berkshire Hathaway will add 5,000 railcars and 125 temporary locomotives to the area through BNSF. By adding 5,000 workers systemwide, with 250 specifically for North Dakota, Berkshire Hathaway thinks it can alleviate the transportation constraints while boosting revenue at its BNSF unit.

This is a great move and will allow Berkshire Hathaway to possibly gain market share in a rapidly growing industry. As shale formations boost oil and gas output all over America, sometimes there just aren't any pipelines nearby to take away the production. Controversies like the one over the Keystone XL pipeline aren't helping either, which is why oil producers are turning to rail.

By shipping its crude via rail to more profitable markets, Kodiak can get better prices for its crude. It's likely that Berkshire Hathaway's BNSF division will face increased levels of competition from pipelines due to the lower cost of transporting crude that way, but for now, it is making a good bet on a great US shale play.

Foolish conclusion
Over the past several years, Kodiak has been able to prove time and time again that it can effectively utilize the best drilling techniques to keep boosting output while saving on costs. While Kodiak pushes up production, it keeps searching for more buried treasure to tap into. By accessing the bottom benches of the Three-Forks through downspacing and deeper laterals, Kodiak is making the most of each well while maximizing its reserves. If history is any indicator, the sky's the limit for Kodiak.

Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Callum Turcan owns shares of Kodiak Oil & Gas. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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