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What: Shares of Kodiak Oil & Gas
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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