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Bakken-Focused Kodiak Raises Spending, Production Guidance

Denver-based Kodiak Oil & Gas Corp., which is focused on the Bakken Shale in North Dakota's Williston Basin, grew oil and gas sales volumes by 83% during the second quarter compared to a year ago; crude oil accounted for 87% of second quarter sales. The company has raised capital spending and production guidance for the remainder of the year.

Average daily sales volume was 23,200 boe/d during the second quarter, up from 12,700 boe/d one year ago and an 8% increase over first quarter sales of 21,700 boe/d, the company said.

During the second quarter, Kodiak completed 25 gross (21.5 net) operated wells and participated in completing 23 gross (2.5 net) nonoperated wells. Beginning in late May, Kodiak operated with two full-time, 24-hour/day completion crews. The company said it intends to maintain the second crew through most of the this year and utilize a third crew on a temporary basis on recently acquired acreage. Kodiak said it expects to complete 30 gross (25 net) operated wells during the third quarter.

After releasing one rig in June, Kodiak had six operated rigs prior to its acquisition of 42,000 net acres in the Williston Basin and associated production for $660 million in cash from Liberty Resources LLC (see Shale Daily, July 15). Kodiak assumed Liberty's contract on an additional rig and now operates seven rigs. Three rigs are operating in the Polar project area in southern Williams County, ND; two rigs are in the Smokey project area; one rig is in the Koala project area in McKenzie County, ND, and one rig is in Dunn County, ND.

Current net production is about 34,000 boe/d, consisting of 28,500 boe/d from legacy sources and 5,500 boe/d from recently acquired properties.

Kodiak is continuing a program to test 12 wells within a 1,280-acre drilling spacing unit in the Polar and Smokey operating areas. All wells in the Polar area in southern Williams County have been completed with eight of the wells on production, while the remaining four wells are undergoing drill-out procedures on flow-through plugs, the company said. In the Smokey area in central McKenzie County, five wells have been completed and are on production, and three wells are undergoing fracture stimulation. The remaining four wells are on a separate drilling pad with drilling operations are nearly complete. Infrastructure buildout has been completed in both areas, the company said.

The downspacing program has been successful so far, Wells Fargo Securities LLC said, citing recent conversations with Kodiak management. Wells Fargo has an "outperform" rating on Kodiak shares, and Wunderlich Securities Inc. rates them "buy."

As of June 30 and pro forma for the Liberty acquisition, Kodiak had estimated proved reserves of 123.9 million bbl of oil and 120.7 Bcf of natural gas, or 144 million boe. Reserves are 86% crude oil and 14% gas. The June 30 proved reserves estimate prior to the addition of acquired reserves reflect a 28% increase over year-end 2012 proved reserves of 94.8 million boe.

Average daily production for full-year 2013 is expected to be 30,000-34,000 boe/d, the company said, which is an increase from prior guidance of 29,000-31,000 boe/d. Kodiak raised its fully-year capital budget to a range of $950 million to $1 billion with the expectation of completing 100 net wells for the full year.

"We believe the Street is likely to be disappointed with the capex increase, but the production guidance range should offset," Wells Fargo said.

Kodiak began building its position in the Bakken through three separate deals in 2011. It acquired 25,000 net acres in McKenzie County for $85.5 million in May, followed by 13,500 net acres in Williams County for $235 million in October, and 50,000 net acres for $590 million in November (see Shale Daily, Nov. 23, 2011; Oct. 3, 2011; May 24, 2011).

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