Monday, June 3, 2013

KOG Pays >$10,000/Acre In The Better Bakken

Updates

Later, 3:37 pm: SeekingAlpha on the KOG-LR deal:
The transaction appears to be reasonably valued, although by no means a "steal" taking into account the quality of acreage being acquired. I attribute approximately $250-$325 million M&A value to existing production and wells-in-progress included in the transaction (based on the very limited operating data disclosed and using certain decline curve assumptions). That implies approximately $335-$410 million paid for the undeveloped acreage and translates to valuation of ~$10,000-$12,500 per undeveloped acre, assuming that 80% of the acreage being acquired is undeveloped.
Conclusion of this particular writer:
Strategic rationale of the acquisition raises some concern, albeit not a major one. Given that Kodiak already has a decade plus-long inventory of drilling locations (which may prove to be even greater as Deeper Three Forks potential is unlocked), the acquisition effectively consumes the liquidity that could be used to accelerate the development of existing high-quality drilling inventory.
Some of the acquired acreage, if of inferior quality, may not be called upon for many years and would represent a "negative carry."
While the company's desire to grow its footprint is understandable, it is hard to expect that many "bargains" can be found in the Bakken's highly competitive and increasingly transparent M&A market. Having said that, it is important to note that Kodiak's management has done a formidable job in building out the company's asset base in what later proved to be the core of the play through acreage acquisition and delivering strong operating results. In the long run, this transaction may prove no different.
Overall, the transaction has neutral implications for the stock value. Some financing-related headwinds would not be a surprise.

Original Post

KOG buys Liberty Resources. Not mentioned in today's presentation at the RBC Capital Markets Conference (a pdf file).

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you read here.

First, KOG, from Yahoo!Finance which often lags.
  • operating cash flow (annual): $320 million.
  • total cash: $6 million
  • total debt: $1.2 billion; getting close to $2 billion?
  • market cap: $2.3 billion
The KOG-Liberty Resources deal:
  • $660 million cash / 42,000 net acres = $15,000/acre
  • 6,000 boepd production x $50 = $110 million. $660 million - $110 million = $550 million
  • $550 million / 42,000 net acres = $13,000/acre
  • plus a drilling rig
I've blogged numerous times: one of the problems KOG has -- a Bakken only company. The story continues.

NOTE: This was posted earlier as part of another post. To better follow this story, it was moved here as a stand-alone post.

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