Kodiak Oil & Gas Management Discusses Q2 2012 Results - Earnings Call Transcript

Kodiak Oil & Gas (KOG)

Q2 2012 Earnings Call

August 03, 2012 11:00 am ET


Lynn Alan Peterson - Chairman, Chief Executive Officer and President

Russell A. Branting - Executive Vice President of Operations

James P. Henderson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance, Treasurer and Secretary

Russ D. Cunningham - Executive Vice President of Exploration

James Ernest Catlin - Executive Vice President of Business Development and Director

Wally O'Connell


Brian M. Corales - Howard Weil Incorporated, Research Division

William B. D. Butler - Stephens Inc., Research Division

Dan McSpirit - BMO Capital Markets U.S.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

Welles W. Fitzpatrick - Johnson Rice & Company, L.L.C., Research Division

Hsulin Peng - Robert W. Baird & Co. Incorporated, Research Division

Mark Lear - Crédit Suisse AG, Research Division

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

David Deckelbaum - KeyBanc Capital Markets Inc., Research Division

Paul Grigel - Macquarie Research



Good morning, my name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kodiak Oil & Gas Corp Second Quarter 2012 Financial and Operating Results Conference Call. [Operator Instructions] Please be advised that our remarks today, including answers to your questions, include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those risks include, among others, matters that we have described in our financial and operating results, news release issued yesterday and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. While the company believes these forward-looking statements are reasonable, they are subject to factors, such as commodity prices, competition, technology and environmental and regulatory compliance. Our drilling schedules, capital plans and other factors may cause our results to differ materially. I would now like turn the call over to Lynn Peterson, Kodiak's Chairman and CEO for today's prepared remarks.

Lynn Alan Peterson

Thank you, Christie, and good morning to everyone. As always, we will take your questions at the end of this call. Before we begin, let me introduce some members of our management team that are on the call today. James Catlin, Jimmy Henderson, Russ Branting and Russ Cunningham. We have also asked Wally O'Connell, our Reservoir Engineer to join us this morning.

We appreciate your time this morning as we discuss our second quarter results. Given the positive response in the format of our call from our last quarter, we again will attempt to keep our scripted comments to a minimum to leave plenty of time for Q&A.

As always, please reference the news release, and our filing on Form 10-Q, both of which were made available last evening, for further details and full disclosure of the topics we are discussing today. We're not going to recite all the financial numbers that we issued, since we know all of you can read them directly off our news release and 10-Q.

Last evening, we reported earnings per share of $0.10, which is in line with the consensus expectations of second quarter 2012. We also reported adjusted EBITDA numbers of $68 million, driven by oil and gas sales of $86 million. These are solid results that we expect to improve during the second half of 2012.

Also, a couple of weeks ago, we reported our second quarter average daily sales volumes of 12,700 barrels of oil equivalent per day, which represents a 20% growth from the first quarter of 2012 volumes of 10,600 barrels of oil equivalent per day.

We've provided an update on our completion activity in yesterday's earnings release, where we announced initial rates on 3 wells with 2 additional wells just beginning flow back. All of our wells down through the core area of the play continue to perform very consistently.

I would note that we completed one Three Forks well in our block of acreage in northern Williams County that had initial rate of 225 barrels of oil per day equivalent. This was the well that had been drilled by the prior owner of the acreage that was acquired in January 2012. The well was stimulated utilizing white sand tailed in with resin-coated sand, which brought our completion cost down by nearly $2.5 million. Looking at overall economics per well drilled in this area, we believe we can achieve an internal rate of return of approximately 20%, assuming a completed well cost of $7 million to $7.5 million, with ultimate estimated of recovery of approximately 300,000 barrels of oil at an 82% net revenue interest.

While these wells did not meet the returns we're achieving on our other blocks of acreage, the wells are certainly economic. However, with that said, at this time, we do not anticipate further activity in these area in 2012 beyond the possible completion of one more well that, again, was drilled by the previous owner that awaits stimulation.

From our operations standpoint, we are seeing improvement in both drilling and completion operations. We have evolved from 3 rigs, a year ago, to our current 7-rig count. A large part of the drilling gains can be attributed to increased drilling crew stability and the crew's growing interaction with our corporate staff that has developed by working together for 6 months, to a year, in some cases.

We are gaining efficiencies by consistently running rigs in certain geographic areas where we have improved geologic knowledge, as well as further refining our drilling procedures. We believe that this reduced drilling time will allow us to maintain our current rig count, yet drill the number of wells we set out in our original CapEx budget.

Read the rest of this transcript for free on seekingalpha.com