Kodiak Oil and Gas (KOG) at a crucial juncture

Here’s the graph of Kodiak Oil and Gas (KOG). As you can see, it has gone up a lot and has recently consolidated:

We’re now (February 13, 2011, the graph self-updates) at $6.06 and at a technically crucial point, as you can see. If the stock corrects further, the uptrend, in place since September last year, will be broken. If it bounces off, it will soon bounce on the upper bound of the downtrend in place since the beginning of this year. It could easily break through as well.

Since there is little to base a prediction on (we’ll have to wait what actually happens), we’ll look at some of the fundamentals:

• The company is an oil play mainly in The Bakken, with production rising sharply from 300 BOE in 2008 to an expected 6000 BOE in 2011
• Update from Their properties Jan. 5. In Williston Basin, their production will be 2100 BOE/d (average a little down due to a few down days as bad weather struck) and they’ll have a third rig by Q1/2011. Some delays in the Bakken also due to bad weather
• They had a 20M shares placement in December, upped to 25M shares on high demand, priced at $5.50
• They have enough liquidity to fund their capex ($200M) this year, and if the 6000 BOE/d production predicted from 2011 materializes, they should be ok for 2012 as well.

No clear answer here either. All depends on whether they can maintain the clipper rate in production. We think there is some reason for pause if even a big fan of the company says things like this:

They should be able to draw enough income from current wells to cover upcoming costs. If done well, they will not have to cut shares to cover upcoming 2012 capital expenditures.

The potential is certainly there, but we don’t expect another a significant upward move until a more clearer picture emerges. On the other hand, we don’t expect a dramatic fall either, the consolidation (with perhaps a light uptrend with the market and/or oil) seems in order. Writing short-term options is one way to profit from that.