Kodiak Touts 175% Increase in 2010

Kodiak announced its fourth quarter and full-year 2010 financial and operational results.

  • Highlights Include:
    • Record Annual Oil & Gas Sales of $31.0 Million, a 175% Increase
    • Record Annual Adjusted EBITDA of $16.1 Million, 301% Growth

2010 Financial Results

For the year-ended December 31, 2010, the Company reported oil and gas sales of $31.0 million, as compared to approximately $11.3 million during the same period in 2009, a 175% increase and a Company record. Crude oil revenue accounted for approximately 98% of 2010 oil and gas sales, and crude oil constituted 94% of sales volumes during the year. Kodiak posted a 137% increase in oil sales volumes and a 26% decrease in gas sales volumes for an overall 110% increase in year-over-year equivalent sales volumes of 460,000 barrels of oil equivalent. Bakken production accounted for approximately 88% of Company-wide equivalent sales volumes. Comprehensive production and sales volumes for the fourth quarter and full-year 2010 were previously announced by the Company and are also referenced in the Company's filing on Form 10-K for the year-ended December 31, 2010. Note that sales volumes have been adjusted from the total that was previously announced due to the final analysis of the purchase price adjustment related to the fourth quarter acquisition.

Adjusted EBITDA, a non-GAAP measure, was $16.1 million for 2010, as compared to $4.0 million in 2009, a 301% increase and another Company record. Kodiak defines Adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation, depletion and amortization, (iv) impairment, (v) non-cash expenses relating to share based payments recognized under ASC Topic 718, (vi) pre-tax unrealized gains and losses on foreign currency, (vii) accretion of abandonment liability and (viii) pre-tax unrealized gain and losses on commodity risk management activities. A reconciliation of Adjusted EBITDA to net income is included in the financial tables later in this news release.

Kodiak reported record net cash provided by operating activities for 2010 of $10.3 million, a 10% increase as compared to operating cash flow in 2009 of $9.4 million. The Company reported cash used in investing activities of $200.0 million during 2010. During 2010, approximately $67.0 million was invested for the drilling and completion of wells in its Williston Basin drilling program and $128.8 million was invested in leasehold acquisitions. During 2010, Kodiak spud or participated in 22 gross wells (10.9 net) and completed 16 gross wells (6.5 net), 11 of which were operated Bakken wells (6.0 net).

The Company reported a net loss for the year-ended December 31, 2010 of $2.4 million, or $0.02 per basic and diluted share, compared with a net loss of $2.6 million or $0.02 per basic and diluted share, for the same period in 2009. Included in the 2010 net loss calculation are unrealized derivative losses of $5.7 million attributed to the non-cash change in the value of derivatives utilized for commodity price risk management. The Company did not hedge its production during the comparative period in 2009. Excluding the effect of unrealized derivative losses, a non-cash charge, Kodiak would have reported adjusted net income (a non-GAAP measure) of $3.3 million for 2010, or $0.03 per basic and diluted share.

As of December 31, 2010, the Company's total current assets were $135.3 million, its cash and equivalents position was $101.2 million and it had prepaid expenses, consisting of tubular goods and surface equipment, of $18.2 million. As of December 31, 2010, Kodiak had a $200.0 million credit facility with Wells Fargo, of which $50.0 million was available for borrowing. There are currently no borrowings under the facility. Long-term debt as of December 31, 2010 was $40.0 million and constitutes borrowings under the Company's second lien term loan credit facility with Wells Fargo.

Under Accounting Standard Codification 805, "ASC 805," revenues, net of operating costs, associated with the Company's Smokey/Polar acquisition, prior to the closing but subsequent to the effective date, of approximately $5.0 million were recorded as an adjustment to the purchase price.

2010 Expense Analysis

For the year ended December 31, 2010, general and administrative (G&A) expense was $12.2 million, as compared to $8.5 million for the same period in 2009. The increase in total G&A year-over-year is attributed primarily to the hiring of new personnel and the opening of a North Dakota field office in 2010 as the Company continues to expand its operations. The Company currently has 40 employees, as compared to 15 employees as of December 31, 2009. Included in the 2010 G&A expense is a non-cash, stock-based compensation charge of $4.5 million, as compared to $3.4 million for the same period in 2009. Also contributing to the increase were one-time costs associated with the Smokey/Polar acquisition in the fourth quarter 2010. Under ASC 805, the Company's acquisition-related costs of approximately $370,000 were expensed as G&A expense.

Kodiak's lease operating expense (LOE) for 2010 was $6.8 million, as compared to $2.2 million during the same period in 2009. The increase in LOE is attributed to additional production expense associated with a growing number of producing wells. Severance taxes were also higher due to increased oil and gas revenues during 2010, as compared to the 2009 period.

A significant component of the Company's LOE is attributed to frac water disposal costs incurred in the early months of a producing well. The addition of a third-party operated, three-phase pipeline accessing some of the Company's producing wells and its future wells is expected to result in reduced water disposal costs. Initial pipeline connections occurred during the fourth quarter 2010 and Kodiak expects to connect new wells as drilled.

Depletion, depreciation and amortization (DD&A) expense for 2010 was $8.2 million, as compared to $3.2 million for 2009. This increase is primarily due to the increase in sales volumes and, to a lesser extent, an increase in the per-unit charge. The increase in the per-unit charge is due to increased costs of the Company's wells relative to the currently estimated reserves. In 2010, the Company completed the majority of its wells using a greater number of fracture stimulation stages with increased volumes of proppant. These factors have increased the well completion costs, but the Company believes that production results, as demonstrated by 2010 results, should generate overall higher returns and should improve the estimated ultimate recovery (EUR) of total oil and gas reserves. Currently, because of the early stages of development of Kodiak's Bakken/Three Forks play and the corresponding lack of adequate historical production data, the Company's proved undeveloped reserves (PUD) do not reflect the improving EUR's. The Company believes that as its improved results are reflected in its future estimated reserves, the DDA rate per unit will decrease over time.
Fourth Quarter Financial Results

The Company reported oil and gas sales of $11.0 million for the fourth quarter 2010, as compared to approximately $4.8 million during the same period in 2009, a 131% increase and a Company record. Kodiak posted a 112% increase in oil sales volumes and a 128% increase in gas sales volumes for an overall 112% increase in quarter-over-quarter equivalent sales volumes. Crude oil revenue accounted for approximately 98% of the fourth quarter's oil and gas sales, and crude oil constituted 97% of sales volumes during the quarter.

Adjusted EBITDA, a non-GAAP measure previously defined above, was $5.3 million for the fourth quarter 2010, as compared to $2.1 million in 2009, a 149% increase and another Company record.

The Company reported cash used in investing activities of $149.3 million during the fourth quarter 2010 comprised of $35.2 million invested for the drilling and completion of wells and $114.1 million for acquisitions. During the fourth quarter 2010, Kodiak spud or participated in five gross wells (3.4 net) and completed four gross wells (1.7 net), three of which were operated Bakken wells (1.5 net).

The Company reported a net loss for the quarter-ended December 31, 2010 of $4.4 million, or $0.03 per basic and diluted share, compared with breakeven results of $0.00 per basic and diluted share, for the same period in 2009. Included in the 2010 net loss calculation are unrealized derivative losses of $4.6 million attributed to the change in the value of derivatives utilized for commodity price risk management. The Company did not hedge its production during the comparative period in 2009. G&A expense was $4.7 million for the fourth quarter 2010, as compared to $3.0 million for the same period in 2009, primarily due to additional staffing. Included in the G&A expense for the 2010 period is a non-cash stock-based compensation charge of $1.7 million, as compared to $1.3 million for the same period in 2009. Also included in G&A was $370,000 of costs related to the acquisition that were expensed under ASC 805 as described previously. Excluding the effect of unrealized derivative losses, a non-cash charge, Kodiak would have reported breakeven results of $278,000 for the fourth quarter of 2010, or $0.00 per basic and diluted share, a non-GAAP measure.

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