(By Balaseshan) Oppenheimer & Co. analyst Daniel Katzenberg increased his earnings estimates for Kodiak Oil & Gas Corp. (NYSE:KOG) reflecting the updated company guidance and NYMEX oil and gas future prices. The brokerage reiterated its "Outperform" rating and $12 price target on shares of KOG.
Despite a slow start to 2012, KOG provided much needed clarity on the conference call on how it would be able to achieve its year-end exit rate of 27,000 boe/d. With eight wells being completed in May, and 12 wells planned for 2Q-2012, Katzenberg believes volumes could average as much as 15,000 boe/d in the second quarter.
With the drilling focus shifting to core acreage, combined with average working interest per well that KOG estimates to be above 80% (versus 60%-70% on recent wells) for the remainder of this year, the analyst believes production volumes will ramp-up sharply going forward and full-year guidance will be achieved.
During the conference call management provided a clear outline to achieving full-year production targets. Drilling focus now shifts to the center of its core acreage where it will have over 80% WI on the remaining wells this year. Katzenberg believes this outline provided an optimistic outlook for the remainder of 2012.
1Q-2012 production averaged just 10.5 mboed as shortages of workover rigs resulted in delays in bringing wells to production. During March, production averaged 12,500 boe/d, driven primarily by its Charging Eagle wells, which appear to be stronger than anticipated.
The production guidance range was reduced to 17-21 mboed, down from 19-21 prior, but the year-end exit rate was maintained at 27 mboed. Following last week's operations update, the analyst adjusted his 2012 production to 19 mboed, which still reflects year-over-year growth of nearly four-fold.
KOG plans to add a 7th rig this month and has an option for an 8th rig for later this year if necessary. It will also add a second frac crew to speed up completion rates. Based on these additions, Katzenberg believes KOG can complete 14-15 wells/quarter.
Given slow start to 2012, KOG has considerable ground to make up. However, the analyst believes drilling plans provided by management for remainder of 2012 should result in expectations being met. Further, as KOG moves into development drilling production growth should become more predictable.
The brokerage raised its 2012 EPS estimate to $0.83 from $0.71 and its 2013 estimate to $1.05 from $0.81.
KOG is trading up 5.66% at $9.14 on Monday.