Most exploration and production companies strive to meet guidance established for oil and gas production during a reporting period, as this tends to reduce stock price volatility and reassures investors regarding the performance of management. Despite this goal, a number of operators have reported production that was less than published production guidance. (To know more about oil and gas, read Oil And Gas Industry Primer.)

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No Surprises
Oasis Petroleum (NYSE:OAS) reported average daily production of 10,724 barrels of oil equivalent (BOE) per day in 2011, up more than 100% from 2010. While this growth established Oasis Petroleum as one of the fastest growing public exploration and production companies, it fell short of the production guidance range of 11,000 to 12,500 BOE per day.

This miss should not have been a surprise to investors that follow Oasis Petroleum closely, as the company announced in late October 2011 that full-year production would be at the low end of its range.

Investors that are able to look past short term production issues with Oasis Petroleum should take some comfort in the company's production guidance for 2012. The company expects production for the full year to average between 18,000 and 22,000 BOE per day, implying another year of 100% growth for the company.

Falling Short
Kodiak Oil and Gas
(NYSE:KOG) also fell short of production guidance. The company reported average production of 7,195 BOE per day in the fourth quarter of 2011, and 3,922 BOE per day for the full year. This fell slightly short of the production guidance range of 7,500 and 8,000 BOE per day for the fourth quarter and 4,500 and 5,000 BOE per day for the full year.

The production miss was caused by two issues that impacted the company's operations in the Williston Basin. Kodiak Oil and Gas experienced problems during the fourth quarter with liners on the horizontal laterals of six wells on its properties. The company is working on the issue and the wells are expected to be put onto production in the first quarter of 2012.

Kodiak Oil and Gas also had difficulty securing enough workover rigs to perform maintenance on wells purchased in an October 2011 acquisition. The delay kept many of these wells off line for longer than the company expected.

Despite this slight bump, Kodiak Oil and Gas had a good year as even the missed 2011 production represented growth of more than 200% over 2010 levels. This growth was generated from an aggressive development program and acquisitions during the year.

Companies to Watch
Another company active in the Bakken that investors should watch during earnings season is Northern Oil and Gas (NYSE_AMEX:NOG), which is due to report in February 2011. The company expects its 2011 production exit rate to be 10,000 BOE per day.

One company that didn't have a problem with guidance is Magnum Hunter Resources (NYSE:MHR), which reported production above its guidance range. The company was producing in excess of 12,500 BOE per day as its exited 2011, well above its previous guidance of 10,000 BOE per day.

The Bottom Line
Investors tend to overreact when companies miss production guidance, setting up a possible buying opportunity for those market players that have the luxury of a longer term time horizon. (For additional reading, check out A Guide To Investing In Oil Markets.)