The thing is that KOG has significant disadvantages versus LNR, so LNR justifies higher key multiples than KOG's in a potential acquisition deal.
- The first one is that KOG receives discounted WTI Bakken pricing which sells at a significant discount to LNR's Premium Pricing in Eagle Ford (Light Louisiana Sweet).
- The second one is the debt. LNR's balance sheet is much stronger than KOG's.
KOG had $2.25 Billion long term debt as of June 2014, according to the company's presentation:
http://www.kodiakog.com/pdf/KOG_June2014.pdf
KOG's Net Debt is actually $2.31 billion, if we add the working capital deficiency ($60 million in Q1 2014).
So KOG had a Net Debt to 2014 EBITDA ratio at 3.1 times, while LNR's Net Debt to 2014 EBITDA ratio is just 1.6 times.
- The third one is that harsh winters and the midstream problems are a typical part of the operations for the Bakken producers, while LNR does not face any winter weather or midstream challenges in the developed and year-long sunny Eagle Ford region. This excerpt is from Kodiak's Q1 2014 report:
"In late November 2013 and continuing through February 2014, North Dakota experienced colder than normal weather. Due to these conditions, completion and workover activities on both operated and non-operated properties were slowed, resulting in lower than expected first quarter production. As conditions improved in March and continued through April, the activity and production levels have returned to the expected levels. "
and this one is from March 2014:
http://www.ogj.com/articles/print/v...es-create-us-gulf-light-sweet-crude-glut.html
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Lonestar's Gross Undervaluation and the WLL/KOG Acquisition Deal, page-3
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