In this video, Fool analyst Joel South highlights some potential problems facing Kodiak Oil and Gas.
First, the balance sheet. Kodiak has a debt-to-equity ratio of over 80%, which Joel feels is a bit high for an energy growth company. If drilling and production don't go as well as planned, this could cause problems.
Second, depletion rates. Other companies have reported significant depletion rates in Bakken shale. If Kodiak experiences similar depletion rates, it will have to drill deeper to extract oil, adding to its expenses.
Third, takeaway capacity. Pipelines cannot handle all the oil coming out of North Dakota, forcing producers to use rail. This can force producers to sell oil for $20-$25/bbl less than competitors who use pipelines. The future of pipelines is also a question. Can pipelines with an east-west orientation be built to take oil to refineries located outside of the Gulf Coast?
Joel South has no positions in the stocks mentioned above, and neither does The Motley Fool. 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.