Wrap – Week Ended 07/11/14



All questions under the wrap will be addressed in the Subscriber Mailbag section of the Monday post. 

If you have questions about ZEB please email them to us at zman@zmansenergybrain.com

wrap 071114

22 Responses to “Wrap – Week Ended 07/11/14”

  1. 1
    Baylor Says:

    Is brent at the lowest levels for the year? 

  2. 2
    zman Says:

    re 1 – no, not yet:


  3. 3
    zman Says:

    WLL buys KOG at $13.90; good deal for WLL


  4. 4
    zman Says:

    Full color commentary on the KOG acquisition in the Monday post. 

  5. 5
    Mark Wetzler Says:

    I wonder if there is a no shop provision in the WLL/KOG deal.

  6. 6
    Stewart Says:

    Kog take under.. Very disappointing.

  7. 7
    zman Says:

    re 6 – it's all stock, the stock is at it's all time highs. I'm not disappointed given the valuation but those that take the view that a premium must be paid in all cases I guess will be. Detailed notes in the morning post. 

  8. 8
    nrgyman Says:

    RE 7:  I'm looking forward to your comments in the morning.  Most M&A deals with attractive assets receive a control premium in a takeover.  KOG sold out for a control discount.  Maybe there are reasons for it, but with KOG having among the most prime leasehold assets in the Bakken this was unexpected.  Sure KOG is selling near all time highs, but so is WLL.  I remember when BEXP sold out for a price that appeared to be low, but at least it was a premium to the closing price when announced.  This deal is at a discount to Friday's close.  Perhaps the market has over-valued KOG's assets and undervalued WLL.  By the look of it, KOG's management and Board would agree.  If that is the case, then holding WLL (with KOG aboard) should offer more upside appreciation than holding KOG alone.  At any rate, I'm eager to read your comments on this deal.

  9. 9
    zman Says:

    re 8 – see, I don't care much about a premium vs the recent price or Friday's closing price, if they are taking stock in the deal, in light of the move the name has had over the last 6 to 12 months. A lot of the good news was already in the name as it's very near its all time high. Just breaking it down, at $13.90, that's $157,600 per 2Qe BOEpd, $35,100 per acre and about $36 per prove BOE.  None of those are cheap. So yeah, they didn't get a premium but by taking stock and by having WLL not grossly over pay there's more potential for WLL to spin this well in the morning and take their stock higher in the coming weeks … taking KOG along with them, espeically when they talk about syneriges and Basin diversification for KOG shareholders who will be getting exposure to Redtail. We've owned it for six years now and when I think about where it can go it's with an eye towards forward valuation (TEV/EBITDA), generally a year out, so each year that bar gets higher (unless oil prices retreat substantially). Personally, I'm sad to see them go.  $15 or $16 or $18 wouldn't make much difference to me in that regard.  We don't own anything in the ZLT however for takeout purposes.  We note that the deal makes OAS look expensive on a flowing barrels basis but super cheap on acreage and in line with current levels on a reserves basis.  And for TPLM, the deal makes the company look cheap across the board. Anyway, comments and comp table will be in the morning post.   

  10. 10
    Stewart Says:

    re 7,8..appreciate your perspectives.  I would have expected a control premium thus my disappointment.  I worry the lack of a premium affects the other names in the group as well.  It may create some opportunities.  Of course, this is a short -term perspective.  Longer term Z, I would agree with you.  Looking forward to reading your full thoughts tomorrow. 

  11. 11
    zman Says:

    re 10 – understood, tune in early as that call is at 8 pm EST and we'll post before it starts and then have running comments. 

  12. 12
    sc4 Says:

    Z 9  in terms of valuing the deal. You say that oas is  expensive on a flowing barrels basis and cheap on an acreage basis which of the two metrics is most important.?  Ideally cheap on both is ultimately bast but without that which would you be more concerned about.  Does this mean that BCEI looks even more attractive as opposed to 0as? tia

  13. 13
    zman Says:

    re 12 – will address tomorrow as we are in public space here. 

  14. 14
    Paul in Kansas City Says:

    My thoughts are with the hot money leaving anyway those weak shareholders are motivated sellers. Z;appreciate your thoughts on valuation metrics.  

  15. 15
    sea bull Says:

    re 9 – On Monday can you elaborate on the not owning anything for takeout purposes thought?  I'm thinking HK is something that is being built for that purpose but maybe I don't understand the term.  thanks.  

  16. 16
    zman Says:

    re 15 – sure

  17. 17
    nrgyman Says:

    More color on the Kodiak deal:



  18. 18
    nrgyman Says:

    RE 9, 12:  Another metric frequently used for valuation is TEV/Ebitda.  At the merger price, Kodiac had a TEV around $6B and a TEV/Ebitda (ttm) of about 8.8x (according to Bloomberg and Yahoo Finance).  "That compares with a median of 11.6 times Ebitda for U.S. oil and exploration deals since 2009 valued at more than $1 billion, according to data compiled by Bloomberg."  Using that metric, KOG received a price significantly below the median of deals priced over $1B in the last 5 years.  This suggests that KOG insiders felt strongly shareholders would benefit more by being part of WLL than staying alone.  From the Times article in 17:  Mr. Peterson said it was a good deal for Kodiak shareholders.  “There’s tremendous upside, that’s why we were comfortable with a stock transaction,” he said. “We wanted to give our shareholders an opportunity to participate in the upside.”



  19. 19
    zman Says:

    re 18 – I'd like to see the list of deals on that.  Deals over $1 B vs deals over $5 B are going to be looked at differently.  But it's really about the land and the reserves. If you look at all the Williston Basin deals this is one of the highest price on $/acre and $/ production adjusted acre, and $/proved BOE. 

  20. 20
    nrgyman Says:

    One of the key takeaways for me is that KOG insiders really like the upside potential aligned with WLL more than staying alone and holding out for a higher price from someone else.  They took stock in WLL instead of cash as confirmation of that belief.  And they were willing to merge at a price that looks favorable to the stock of WLL–which KOG shareholders will now own about 29% of.  The combined company has a new TEV of about $17.6B.  This compares to CLR with a TEV of about $33B (87.5% higher than the new WLL).  Yet the new WLL produced 107,000 Boe from the Bakken in Q1, which is about 10% more than CLR.  Of course, CLR has over 1 million acreas in the Bakken compared to new WLL at 855,000 acres and CLR has the Cana/SCOOP with WLL owning "another Bakken inside" of its Niobrara/Red Tail holdings in the DJ Basin.  Still, the quality of WLL's Bakken acreage just got a big upgrade to considerably narrow the Bakken differential between it and CLR.  WLL has a big potential upside when comparing it with CLR.  The growth metrics have been a big differentiator between the two, but now the comparisons may be changing.  I'll be very interested in your take on the WLL pro-forma growth metrics for production, reserve growth and ebitda.  

  21. 21
    zman Says:

    Monday post will be up at 7:50 EST. 

  22. 22
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