Overview: A guide to the Whiting-Kodiak transaction (Part 9 of 9)
The table below summarizes the positives for Kodiak (KOG) and Whiting (WLL) shareholders from this deal.
The new company will have higher production rates and become the largest Bakken producer based on individual 1Q14 Bakken productions.
Reduced well costs is a major positive for KOG. Kodiak has been making progress on improving its well costs, moving from over $10.5 million per well to under $9 million in 2014. This is possibly because of the success it has received on its downspacing initiatives. Nevertheless, KOG’s well costs are still higher compared to its peers.
Whiting has lower well costs at $7–$8.5 million thanks to its new well completion technology. Access to this technology is likely to help reduce KOG’s well costs further, in addition to its continued downspacing efforts.
Whiting’s biggest win from the deal is the accretive cash flows, earnings, and production it expects from in the years to come.
With greater production comes greater bargaining power with various service providers such as railroad companies. It’s one of the major transportation options out of the Bakken that’s crucial for producers there.
Lack of pipeline infrastructure has made Bakken producers increasingly dependent on railways. Our Market Realist series Why Bakken’s crude-by-rail transportation is here to stay has covered this in greater detail.
Companies with greater bargaining power like WLL-KOG and Continental Resources (CLR) are able to transport higher volumes given their higher negotiating power as opposed to other producers, and thereby earn higher margins.
Key stocks and exchange-traded funds (or ETFs)
It’s important to note that CLR, WLL, and KOG are all components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares U.S. Energy ETF (IYE).
Browse this series on Market Realist:
- Part 1 - Must-know: Details of Whiting’s Kodiak acquisition
- Part 2 - Why Whiting is set to become the largest Bakken producer
- Part 3 - Why Bakken growth fuels corporate wedding
- Oil, Gas, & Consumable Fuels