For Investors Only: Update On KOG

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

A big "thank you" to a reader who sent this to me.

From SeekingAlpha:

With the Polar pilot test program, Kodiak gambled on lower short-term production growth and higher cap-ex in an effort to improve the company's long term enterprise value. It was a risky bet, yet the results prove the gamble was a resounding success. As a result, the company could reach a watershed inflection point in 2014: cash flow breakeven while actually reducing cap-ex YOY.

There is one caveat: oil prices. Barron's headline article this week is Here Comes $75 Oil. Yet KOG is in a much better position to handle weaker oil prices than it was a year or two ago. Note that at $75 oil, the company estimated its 800 MMBOE EUR Bakken wells have an IRR of 43%. Also, it should be noted the Barron's piece predicted a significant reduction in drilling costs would accompany such a downdraft in oil prices. And of course KOG is well hedged going forward to protect its cash flow. Lastly, production is expected to climb 47% this year, so cash flow will continue to ramp up even as cap-ex will be relatively flat YOY.

There is an incredible amount of information in this article. It's a must-read for anyone interested in the Bakken. I particularly appreciated this data point:

In addition, the company continues to increase drilling efficiencies. As of Q4 Kodiak reported it had used zipper-fracs to reduce its average frac time from 7.5 days to 5.4 days per well. The record time so far is 2.7 days per well. The zipper frac technique also allows the optimization of KOG's water management.

Incredible, huh?

I've blogged about zipper fracks before and there is a tag at the bottom of the blog, "ZipperFracs."