According to a report in The Wall Street Journal, Bakken-focused Kodiak Oil & Gas (NYSE:KOG) had hired bankers last year to explore a potential sale of the company. So far talks with potential suitors haven't ended in a deal as potential buyers have been balking at the price. With the company rumored to still be exploring a future sale, how likely is it that Kodiak investors will enjoy a big payday?
With a market capitalization of about $2.5 billion, when combined with its debt, the total price tag for Kodiak is well in excess of $4 billion. That's an enterprise value that's nearly 14 times its trailing 12 months of EBITDA, which is a pretty high multiple. That's even before factoring its recent $650 million bolt-on acquisition as well as any form of premium to its shareholders for control of the company.
For a bit of perspective, that multiple is about double that of top Bakken operator Continental Resources (NYSE:CLR). It's also almost four times the multiple of closer rival Whiting Petroleum (NYSE:WLL). That's why some of Kodiak's potential suitors viewed it as already fully valued.
According to the same story in the Journal, Whiting also had tried to sell itself last year but came up empty because buyers didn't want to meet its lofty asking price. While the Bakken has certainly been a sellers' market, there have been enough acreage packages on the market to keep buyers happy. Not only was Kodiak able to bulk up its presence, but last year Continental had its own $650 million acquisition in the play. That means that unless an acquirer is looking to make a big splash in the play, there are plenty of other opportunities available that don't require as much capital.
The other thing to keep in mind here is that Kodiak investors might actually be best served by holding onto their shares a bit longer. One of the biggest criticisms leveled against the company is that its well costs, at $10 million, are above the industry average. However, the company has been testing new drilling strategies in an effort to producer higher returns. Selling before those gains are realized could equate to leaving money on the table.
Further, with oil prices heading higher, Kodiak stands to benefit because those higher prices make it more profitable for the company to drill. With about 950 prospective drilling locations, Kodiak really does have a long growth runway. Until it finds a partner willing to pay a premium to access that growth, investors are better off keeping it to themselves.
Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.