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КОрпорация Кодиак Ойл & Газ Message Board

  • billisacubsfan billisacubsfan Apr 27, 2012 11:16 AM Flag

    Earnings Analysis after today's buying gift

    The KOG board has been active since yesterday's release of flow rates in advance or earnings, with many posters lamenting the disappointing flow rate of 10,600 vs. the 15,000 noted by KOG at the end of February. I waited to post this until this morning, becuase I was looking forward to adding to my KOG position with some cheap shares under $9.00 this morning.

    The reality is that KOG likely leaked this information to seperate the knee-jerk reaction to the flow rates from what will likely be an earnings beat on May 3rd. They'll probably have unrealized hedge losses again at $87 per barrell vs. $85 per barrell sales prices in the 4th quarter, but that's not what the street looks at anyway.

    In 4Q 2011 they lost $33.8MM, but $31.7MM was attributable to hedge losses, with only $2MM of the loss, or $.01 per share, from operations. In addition, there was $11.5MM in one-time interest expense from unused bridge financing costs, and another $2.4MM in costs from extinguishing a second lien credit facility that won't be repeated in 2012 ($13.9Mm total).

    The beauty of yesterday's release is that not only did it panic some KOG holders into selling shares cheap, but it basically gave you the rough tools to calculate their 3/31/12 income statement and earnings. If you look at the past 4 quarters earnings on yahoo and yesterday's release, here's the match for the beat (excluding hedge losses, of course):

    Oil & Gas revenue will round down to $79.9MM at volumes and pricing released (you do the math on O&G sales vs. $87 and $6 prices). If you apply the lowest gross margin in the past 4 quarters of 75.69% to that revenue figure, we're looking at about $60.48MM in gross profit for the quarter.

    On the expense side, operating expenses have been relatively similar the past 4 quarters, but for the spike in Q4 from the previously mentioned credit facilities: If we start with and subtract actual Q4 expenses of $23.4MM from the new gross profit, add back the $13.9MM in one-time credit costs, then subtract out an added $13.2MM in interest costs on the new $650MM 8.125% senior debt recently issued, we get to a net income, excluding unrealized hedge gains or losses, of $37.78MM. Apply that against 263MM in oustanding shares and you get a gain of $.15 per share vs. a street estimate of $.14.

    A week or so back there was huge bullish options action on May calls for KOG, and this is probably why. Sure, 1Q production near $80MM is at the low end of estimates, but now you have a company that has huge acerage, increased production by 400% over Q1 2011 and 47% over Q4 2011, that also managed to beat on earnings.

    KOG is coming into its stronger production season, pipelines are being worked on that will only improve revenue and reduce expenses, and most investors (especially institutions) will look at the fact production was stronger ending the quarter vs. sluggish early quarter numbers, and know that will translate into even higher volumes in Q2 and Q3. And, of course, KOG is a US-based oil source and things will likely never be right in Iran and the Middle East, so geopolitical risk only enhances the value of KOG's holdings for both investors and possible larger players like Chevron and Exxon/Mobil, who are always looking for new reserves.

    The "bad news" is now out of the way, since everyomne knows what the revenue figure will be, and KOG should pop nicely next week on an upside surprise on earnings. You can see it in the stock's action today - it wouldn't revisit the recent $8.45 low, despite "bad news," and has recovered on strong volume from a low of $8.56 to the $8.90's as I write.

    My guess is that, baring a market meltdown in the next week, KOG tracks back into the $9.50 range before earnings and then pop's into the $10.25 - $11.00 range immediately after earnings.

    Good luck to all.

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