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Kodiak’s 2014 Williston Plan: Get More from Less

Reflecting reports of decreasing well completion costs in North Dakota's Williston Basin, major Bakken Shale producer Kodiak Oil and Gas Corp. said Wednesday it expects its production to increase by 45% to near 44,000 b/d in 2014, despite decreasing its capital expenditures below the billion-dollar level of recent years.

Full-year production this year should reach 29,200 boe/d, Kodiak said, adding the caveat that this did not reflect impacts of weather on production from a severe cold snap that hit early in December.

Denver-based Kodiak's estimated $940 million capital expenditure (capex) budget and projected 42,000-44,000 boe/d sales volumes for all of 2014 may be below Wall Street's estimates, but the ultimate outcome by the end of next year will meet expectations, according to Jason Wangler, an equity research analyst with Wunderlich Securities Inc.

Noting that Kodiak is on track to narrow the gap between its cash inflows and outflows, Wangler said the Williston-focused E&P company "has a line-of-sight and the financing in place to get to the important milestone" of forging neutrality in the cash inflows and outflows.

In a recent report on the state's latest production increases, North Dakota's Lynn Helms, director of the Department of Mineral Resources, reported that the cost of completing a new well in the past year has dropped from about $11 million to $8.5-9 million (see Shale Daily, Dec. 17).

Kodiak said it has allocated $890 million next year to support drilling and completion of approximately 100 net wells and another $50 million to support infrastructure buildout. The company had a $1 billion budget this year to cover similar projects.

"Kodiak expects to fund the 2014 capex budget from existing working capital, operating cash flows and availability under its existing revolving credit facility," a Kodiak spokesperson said. "The company's cash flows are supported by an active hedging program, [under which] Kodiak currently has 2014 crude oil hedges in place on 26,150 b/d at an average price of $93.29/bbl."

Kodiak has budgeted for seven operating rigs next year, along with continued activity on its nonoperated interests.

Along with production and cost-control goals for next year, Kodiak CEO Lynn Peterson said the company's "key objective" involves determining "the optimum spacing and development blueprint" for the its substantial Williston assets.

Peterson characterized pilot programs this year as moving "a long way" toward making a determination next year on the two active pilot drilling projects in new areas of the Williston (Polar and Smokey projects). From the added data next year, he said a "long-term framework for development" should be determined with the caveat that "well bore density will vary throughout the acreage."

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