Kodiak Oil And Gas Steps Up In The Bakken

By Eric Fox | April 26, 2012 AAA

Kodiak Oil and Gas (NYSE:KOG) has staked the company's future on the development of the Bakken in the Williston Basin. The company has built up a position of 157,000 net acres here and is growing both organically and through acquisitions.
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Bakken Play
Kodiak Oil is one of the many operators active here and is aggressively growing through the development of the Bakken formation in North Dakota. The company reported an average daily production of 15,000 barrels of oil equivalent (BOE) per day in February, and estimates that production will exit 2012 at a rate of 27,000 BOE per day.

Capital Spending
It has budgeted capital spending of $585 million in 2012, with 94% of the funds dedicated to drilling and completion costs. This level of spending will cover 73 gross wells during the year with the balance of the funds spent on infrastructure to process and transport production as wells as additional leasehold acquisitions.

Economics
A typical well drilled and completed into the Bakken by the company will cost $10.5 million and have an estimated ultimate recovery (EUR) of 750,000 BOE. This well will generate an internal rate of return (IRR) of 44% assuming a West Texas Intermediate oil price of $85 per barrel adjusted for differentials.

Recent Bakken wells reported by the company varied greatly and had initial production rates ranging from 2,680 BOE per day in Dunn County to 508 BOE per day in McKenzie County.

This production rate is comparable to other operators in the Bakken. Denbury Resources (NYSE:DNR) recently reported several Bakken wells with initial production rates above 2,000 BOE per day.

SEE: Oil And Gas Industry Primer

Future Development
Kodiak estimates that its acreage holds 817 potential drilling locations in the Williston Basin. This includes the Bakken and the Three Forks formation, which is also present on much of the company's acreage.

Other Operators
SM Energy (NYSE:SM) is also developing the Bakken play in North Dakota and has more than 200,000 net acres under lease. The company plans to add a fourth operated rig here and estimates that production from here will reach 8,200 BOE per day by the fourth quarter of 2012.

Marathon Oil (NYSE:MRO) has 413,000 net acres under lease and is currently operating eight rigs in the Bakken. The company expects to boost production to 27,500 BOE per day in 2012.

SEE: What Determines Oil Prices?

Infrastructure
The industry is trying to keep up with the pace of the development of the Bakken, and has increased takeaway capacity from here to an estimated 540,000 barrels of oil per day in the first half of 2011. This transport capacity is expected to increase to 1.4 million barrels of oil per day by the end of 2013.

The Bottom Line
Kodiak Oil and Gas is one of the many exploration and production companies that has chosen the Bakken as the foundation play to build and grow the company. The company's initial results from the development of this formation have been encouraging and are in line with other operators active in this leading North American oil play.

SEE: A Guide To Investing In Oil Markets

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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