Kodiak Oil & Gas (NYSE: KOG) is out with its third-quarter earnings. After reporting a production surge leading into the report, the only thing investors still needed to know is how much money the company was able to make. While bears might point to the headline numbers as a sign of weakness, a quick drill down on those numbers shows that it was a strong quarter for Kodiak Oil & Gas.

Looking past the headlines
The headline numbers showed that Kodiak Oil & Gas produced earnings of $31.2 million or $0.12 per share on revenue of $299 million. While the revenue number beat estimates, and was up 167% over last year, earnings per share were only half of what analysts wanted to see. But the earnings per share number masks the company's underlying strength.

Oil and gas accounting can be confusing at first glance. For example, Kodiak's earnings were affected by a $60.1 million loss on commodity hedges on the quarter which masked the fact that the company delivered net cash provided by operating activities of $152.6 million. That's up 71% over last year. It's also only $50 million less than the company delivered in the first nine months of last year. So, the bigger pictures shows that Kodiak Oil & Gas is delivering solid cash flow growth.

Benefiting from high oil prices
One of the reasons for this is because the company was able to get 20% more for its oil and gas than it was just a year ago. In fact, Kodiak realized 12% more for its oil and gas than just last quarter. Clearly the company is seeing the benefits of higher oil prices hitting its bottom line and improving its cash flow.

This is something that's not unique to Kodiak Oil and Gas. Fellow Bakken producer Whiting Petroleum (NYSE:WLL) saw the price it realized per barrel of oil equivalent jump 19% over the last year. That helped Whiting deliver stellar results, including record discretionary cash flow of $450.5 million on the quarter.

This suggests that investors of Continental Resources (NYSE:CLR) and Oasis Petroleum (NYSE:OAS) are in for a solid quarter when those companies report earnings. Higher realized oil prices should flow to the bottom lines of both companies, especially given that both are focused on keeping costs low to improve returns. Investors won't have to wait long for those results as Continental Resources and Oasis Petroleum both report earnings on Nov. 6 after markets close.

One area to watch
Kodiak Oil & Gas had one area of weakness on the quarter, which was that its lease operating expense jumped 9% from last year, though it is down 1% from the prior quarter. The company is spending too much money on produced water disposal costs. But it plans to spend heavily in the quarter ahead on the infrastructure required to get its wells connected to water disposal wells. Investors should keep an eye on this as it could yield improved profits in the future.

Investor takeaway
Kodiak Oil & Gas delivered a really solid quarter. While its earnings fell a bit short of expectations, the long-term growth story remains intact. Kodiak continues to thrive on America's energy boom.

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