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Tuesday, April 19, 2011

KOG: Highlights Re-Posted

With all the information that comes out of the Bakken on a given day, it is easy to lose sight of some of the more interesting announcements/information. In today's KOG press release, it was too easy to focus on the nice IPs and miss the other announcements. So, re-posting six items here:
  • First: KOG will double the number of rigs it has; from two to four
  • Second: KOG will have a dedicated frac team for 14 days/month
  • Third: KOG is putting four horizontals in one section (two TF and two MB)
  • Fourth: upped its cash to $75 million from its revolving credit facility
  • Fifth: results of two recent wells support theory that MB and TF do not communicate
  • Sixth: 4-well pads
Comparison of OAS and KOG

Net acreage in the North Dakota Bakken
  • OAS: 303,000 net acres
  • KOG: 70,000 net acres
Market cap
  • OAS: $2.75 billion
  • KOG: $1.24 billion
Number of rigs
  • OAS: five
  • KOG: four by the end of the year; currently 2; a third next month (May, 2011)
Comments:
It is obvious that KOG is increasing the pace of its drilling (increasing its cash and increasing the number of rigs significantly). OAS has 300,000 acres and 5 active rigs; KOG will have 4 active rigs for one-fourth the acres (70,000). KOG might have "better" acreage, but with a market cap of $2.75 billion for 300,000 acres (OAS) and a market cap of $1.24 billion for 70,000 acres (KOG), OAS is either under-valued or KOG is over-valued, based on net acreage only, comparatively speaking. They could both be over-valued or both under-valued, also.  [On acreage alone, investors are valuing KOG at $18,000/acre; and, OAS at $9,000/acre.]

Fracking remains the bottleneck in the Bakken, but it appears that KOG is addressing this by negotiating for a dedicated frack team for 14 days/month.

By putting four wells on one pad and simul-fracking, a dedicated frack crew for half a month may be adequate. The delay is no longer due to fracking, but due to waiting for the fourth well to reach total depth before fracking all four wells. 

For investors, this is either concerning or exciting: valuation of the companies based on net acreage alone (OAS, $9,000/acre; and, KOG, $18,000/acre). KOG's acreage is more contiguous; KOG's acreage is closer to the core Bakken; KOG's infrastructure may be more robust (a pipeline in place); KOG has an interesting "partner," in XOM. In addition, KOG, with its 4-well pads, is now putting in four horizontals in some sections.

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