Kodiak O&G to Acquire Additional Acreage in Williston Basin

Kodiak O&G has entered into definitive purchase and sale agreements with a private oil and gas company and its financial partners ("Sellers") to acquire additional producing properties and undeveloped leaseholds in the Williston Basin. The purchase price for the asset package is $540 million in cash and $50 million in common shares of Kodiak priced at the five-day weighted average of the shares prior to the second business day prior to closing. The purchase price is subject to adjustment including, but not limited to, adjustments for certain title and environmental defects, if any, as well as customary adjustments to reflect the operation of the properties following the effective date and prior to the closing. Kodiak will also assume the Seller's contract for a drilling rig. Terms and financing of the transaction are discussed below.

Upon completion of the transaction, Kodiak would acquire two blocks of contiguous acreage totaling approximately 50,000 net leasehold acres in Williams and McKenzie Counties, N.D. The southernmost lands, approximating 30,000 net acres, are adjacent to the Company's core Koala Project area and are contiguous to the lands acquired as part of the acquisition that recently closed in October 2011 . The remaining leasehold is located in northern Williams County near the Nesson Anticline in an area actively being developed.

Net oil and gas production included in the pending acquisition is currently approximately 3,500 barrels of oil equivalent per day (BOE/d). Production is expected to increase before closing as there are four gross (3.1 net) wells waiting on completion. Completion operations are currently underway on one of these wells.

Also included in the pending acquisition are 19.7 million barrels of oil equivalent in proved reserves, 81% of which are crude oil and 28% of which are categorized as proved developed. The proved reserves were estimated by Kodiak's internal reservoir engineers and were assigned a PV-10 value of $464 million based upon SEC pricing guidelines as of October 31, 2011 .

The transaction will expand Kodiak's total acreage position in the Williston Basin to approximately 155,000 net acres.

The transaction includes a working interest in 17 gross (13.5 net) operated producing wells and 10 gross (1.3 net) non-operated wells. As indicated above, the acquisition also includes four gross (3.1 net) wells that have been drilled and are waiting on completion and one gross (0.6 net) well that is currently drilling ahead.

Based upon Kodiak's internal evaluation of the production profile and history from the wells drilled within the southern acreage block in Williams and McKenzie Counties, the Company projects an average per-well estimated ultimate recovery of 750,000 to 900,000 BOE from the Bakken Formation. No wells have been drilled on these lands testing the Three Forks Formation. However, it is the Company's belief that this formation should be productive based upon the Company's early completion results on the Koala Project Area to the southwest and based upon recent activity from other industry well results. Internal evaluation of the northern acreage block yields per-well estimated ultimate recoveries of 350,000 to 450,000 BOE. If both formations are productive, the Company believes that the acquired lands could allow for nearly 300 additional operated locations providing Kodiak with a total of 800 net (~ 1,100 gross) estimated Williston Basin locations.

Included in the acquisition are certain surface equipment and gas pipeline connection facilities that tie into a regional third-party natural gas gathering system. Three water disposal wells have been drilled on the acquired lands. The southernmost operated lands are proximate to a crude oil railway terminal and interstate pipeline interconnect that is expected to be fully in-service during 2012.

The acquisition is expected to close in early January 2012 and is subject to the completion of customary due diligence and closing conditions. The effective date for the transaction is September 1, 2011 , with any purchase price adjustments to be calculated as of the closing date.

Financing of the Transaction

Kodiak today announced contemporaneously with the announcement of the acquisition discussed above, the commencement of concurrent financing transactions. In addition, the Company has obtained $650,000,000 of bridge loan commitments, the availability of which is subject to the satisfaction of certain conditions precedent. The bridge loan commitment was provided by affiliates of Credit Suisse Securities ( USA ) LLC, Wells Fargo Securities, LLC, KeyBanc Capital Markets Inc. and RBC Capital Markets, LLC.

Management Comment

Commenting on the transaction, Kodiak's Chairman and CEO Lynn Peterson said, "The majority of the lands in today's pending acquisition are offsetting our Koala Project by a few miles and are immediately adjacent to the assets we acquired in October 2011 . Upon closing, we will have amassed a significant position in a part of the play with which we are intimately familiar due to our ongoing operations that are yielding excellent well performance. We expect improved field-level efficiencies in trucking, rig moves, personnel management, access to oilfield services and proximity to midstream infrastructure due to the highly concentrated nature of our McKenzie and Williams County assets.

"The acquisition includes 3,500 BOE/d of net production, as well as three net wells awaiting completion. Wells drilled by the seller have demonstrated strong results indicating similar quality reservoir to our core areas in Williams and McKenzie counties. While the additive production will bolster our cash flow, we see great additional value in the undeveloped leasehold where we can drill wells that we believe will provide robust future growth in production and cash flow and predictable reserves additions.

"Concurrent with this announcement, we furnished our 2012 preliminary Capex budget of $585 million , which includes accelerated plans for development drilling in each of our core Williston Basin operating areas throughout 2012. We would like to extend our appreciation to the banking group that is providing the bridge financing commitment that allowed us to efficiently execute the transaction."


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