This memorandum is for informative purposes only. SISM is an investment research firm without any investment banking activities and is publishing research reports with respect to the securities
of its clients. The information contained in these reports is based on sources that we consider reliable but is not guaranteed by us, nor do our reports represent a solicitation to buy or sell the
securities discussed therein. While the information contained has been obtained from sources believed to be reliable, we do not represent that it is accurate or complete and it should not be relied
upon as such. Kodiak Energy, Inc. pays SISM Research $1,750 per month over a two-year period solely to ensure independent coverage. We do not own any stock of KDKN (and/or options or
warrants relating thereto). SISM Research & Investment Services, Erlenweg 15, 8302 Kloten Switzerland. Phone: +411 881 2020 Fax: +411 881 20 24 All rights reserved.
Industtry:: Gas Expllorattiion & Producttiion
Kodiiak Energy,, Inc.. US$ 1..70
WE REAFFIRM OUR 12-MONTH TARGET PRICE OF US$ 4..00 SISM
Research & Investtmentt Serviices
September 16,, 2006
Anallyst: Ernest C.. Schllotter
Tellephone: +411 881 2020
Kodiak Energy Inc. (OTC BB: KDKN) is an active acquirer of oil and natural gas properties
in Alberta, the Northwest Territories of Canada and in Montana in the United
States. The Company has begun to develop its leaseholds, in Manyberries, Alberta. It
has drilled, cased, and completed the first two wells and one re-completion and is now
in the process of testing the wells to prove if they are commercially viable. So far,
judging by what we have seen in Manyberries, we are cautiously optimistic that the
Company can unlock its full, risk-adjusted potential of approx. 180 Bcf over the years to
come. Using an acquisition price of $2.00/Mcf of reserves, our asset valuation for the
Company exceeds $360 million. Last week, Kodiak demonstrated its strong capability
to acquire world-class projects and successfully signed a major project in the Northwest
Territories of Canada. This could become a company-making asset for Kodiak Energy.
Based on its strong business affiliates, excellent drilling prospects, strong commodity
prices, and experienced management team with a proven track record of operating
performance, we recommend Kodiak as a long term Speculative Buy/4.
Kodiiak Energy,, Inc..
Condensed Ballance Sheet Estiimatiion as of June 30,, 2006
Current Assets $2,059,001
Current Liabilities $259,935
Long Term Debt $53,632
Shareholders Equity $3,023,607
Total Assets $3,337,174
Source: Company reports, business plan, SEC filings
Fiinanciiall Data
FY 2006 Ends December 31, 2006
Market Capitalization US$ 212,7 million
Shares outstanding (06.30.2006) 89,758,428
Book Value/ Share (June 30 2006) $0.03
Price/Book Ratio N/A
Est. 5 Year Earning Growth N/A
Stock Data
52-Week Range $2.75 – 0.20
Symbol / Exchange OTC BB:KDKN
1-Year Return 267.5 %
Reserve Data
Year-End 2005 N/A
Proven Reserves N/A
PV-10 N/A
% Proved Developed N/A
% Natural Gas N/A
One Year Stock Performance
INVESTMENT HIGHLIGHTS::
♦ Last week, Kodiak demonstrated its strong capability to acquire
world-class projects when it successfully signed a major
project in the Mackenzie River basin in the Northwest Territories
of Canada. Based on certain conditions, Kodiak can earn up to a
56.25% working interest on the Exploration License (EL) 413,
which covers 200,000 acres. Subsurface geological studies indicate
excellent conditions for the accumulation of large oil and natural
gas reserves. Based on the agreement, Kodiak must commence exploring
the leaseholds by acquiring 2D seismic for approx. $5 million
prior to June 30, 2007. After completion of the initial seismic
program, it is anticipated that Kodiak will drill two test wells the
following winter to prove the assets.
! Testing the wells to evaluate commercial success in Manyberries
has begun. Kodiak has drilled, cased, and completed the first
two wells and one re-completion and is now in the process of testing
the wells to prove if the wells are commercially viable. If reserves
are sufficient, the Company will build a system of pipelines
and tie in the wells to an existing sales system that should be completed
during 2Q2007. The Company wants to drill five more wells
by the year-end and ramp-up production in 2007 by drilling between
seven and ten wells.
! In its Province, South Alberta leasehold, Kodiak and its operating
partner successfully drilled the first well which is now in production
with a current flow rate of approx. 375 Mcf/d with good
pressure and no decline. In Hill County, Montana, the Company
has identified three drilling locations and is currently in the process
of obtaining the last license. We expect drilling to commence at
any time.
! We are maintaining our Speculative Buy/4 Rating for Kodiak
Energy Inc. with a 12-month price target of $4.00 per share. Our
positive investment rating is based on Kodiak’s extensive resources
and its connections to the North America oil and gas patches that
offer investors tremendous opportunities for growth. In our view, a
failure to raise sufficient Capex money reflects the biggest risk for
the Company to fail in its ambitious drilling and development program
during 2006/2007. After we learn more about Kodiak’s expansion
to the Northwest Territories, we will provide more information
on estimated potential resources for the Company. So far,
judging by what we have seen in Manyberries, we are cautiously
optimistic that the Company can unlock its full risk-adjusted potential
of approx. 180 Bcf over the years to come. Using an acquisition
price of $2.00/Mcf, our asset valuation for the Company exceeds
$360 million. Assuming these assets were on Kodiak’s books, the
Company’s stock might be expected to trade at $4.00 per share. We
believe an investment in KDKN offers investors significant
growth, but it is recommended that shares of KDKN be purchased
only by investors who can tolerate above average risk.
OVERVIEW
Kodiak Energy Inc. (OTC BB:KDKN), based in Calgary, Alberta,
Canada is an active acquirer of oil and natural gas properties in
Alberta, and recently in the Northwest Territories of Canada and in
Montana in the US. The Company could be on the verge of establishing
core holdings that appear to hold a ten-plus year inventory of
low-risk drilling locations capable of significantly increasing the
Company’s net asset value per share over the next few years, while
generating multi-year, double-digit production growth. The Company
has recently begun to develop its leaseholds in Manyberries,
Alberta. It has drilled, cased, and completed the first two wells and
one re-completion, and is now in the process of testing the wells to
prove if they are a commercially viable. If reserves are sufficient,
the Company will build a system of pipelines and tie in the wells to
an existing sales system that should be completed during 2Q2007. In
its Province, South Alberta leasehold, Kodiak and its operating
partner successfully drilled the first well which is now in production
with a current flow rate of approx. 375 Mcf/d with good pressure
and no decline. In Hill County Montana, the Company has identified
three drilling locations and is currently in the process of obtaining
the last license. We expect drilling to commence at any time.
Just one week ago, Kodiak demonstrated its strong capability to
acquire world-class projects when it successfully signed a major
project in Grandview Hills in the Northwest Territories of Canada,
in the Mackenzie River basin. Based on certain conditions, Kodiak
can earn up to a 56.25% working interest on Exploration License
(EL) 413, which covers 200,000 acres. Subsurface geological studies
indicate excellent conditions for the accumulation of large oil
and natural gas reserves. More specifically, Kodiak’s “Little Chicago
Exploration Project” has the potential to become the largest
and most important oil accumulation in North America. Kodiak will
become the initial operator and will commence exploring the leaseholds.
After completion of the initial seismic program, it is anticipated
that Kodiak will drill two test wells the following winter at
approximately $5 million each.
KODIAK ENERGY PLANS FOR LONG--TERM
VISIBLE GROWTH – DRILLING ACTIVITIES
Drilling programs during 2006 are focused across the Southeast
Alberta Prospect, with the majority of work being allocated to activities
in the Manyberries Project and Hill County, Montana’s
Shallow Gas Project. In Province - Southeast Alberta, Kodiak will
accelerate its aggressive drilling program in 2006 and on into 2007.
Major exploration work is expected to kick in in its “Little Chicago
Prospect” in the Northwest Territories of Canada before June 2007,
with an aggressive development program starting in 2008 and extending
beyond. All of these programs will drive production and
reserve growth for the next several years.
STATUS ON KODIAK’S PROPERTIES
MANYBERRIES – ALBERTA,, SHALLOW GAS - Kodiak has
drilled, cased, and completed the first two wells and one recompletion
in Manyberries and is now in the process of testing the
wells in the Milk River zone, to prove if they are commercially
viable. Primary estimation calls for a production flow of between
200 and 300 Mscf/d (thousand standard cubic feet per day). The
Company is planning to drill five more wells before the end of the
year, bringing the potential daily production output to approx. 2.1
Mmscf/d (million standard cubic feet per day) or 350 Boe/d (barrels
of oil equivalent per day). During the last three months, Kodiak has
also purchased and processed a substantial amount of 2D seismic
information to further evaluate and prove both the shallow gas and
the deeper oil plays. There is a major target zone at 3,600 feet for
crude oil. If reserves are sufficient, Kodiak is planning to build a
gathering system facility, which is a system of pipelines with an
initial capacity of 7 Mmscf/d. This facility will include gas compressions
and a sales line. Total costs are estimated to be approx.
US$3.5 million. Construction to build the system should commence
in 1Q2007 and tie in to the existing system is estimated in 2Q2007.
In addition, if Manyberries is a commercial success, Kodiak will
then further ramp-up production from this leasehold and drill seven
to ten more wells before year-end 2007. The Company will then
have approx. fifteen wells in production with a total production flow
between 3 Mmscf/d and 4.5 Mmscf/d, the equivalent of between
500 and 750 barrels per day. The success rate for shallow gas in
wells drilled on adjacent blocks by CNRL, Enerplus, and Encana
has exceeded ninety-eight percent with steady flow rates, minimal
water, and a reservoir life of an average of fifteen years. Kodiak
estimates recoverable reserves to be between 2 Bcf – 3 Bcf per well.
There is also a major target zone at 3,600 feet for crude oil. Estimated
Capex to develop Manyberries is estimated to be $900,000 in
2006 and $5 million in 2007. Negotiations are underway on adjacent
properties to expand the Company’s land base. Kodiak has made an
offer on twenty-six sections of land and is close to signing a threesection
farm-in in its pipeline right-of-way.
Manyberries Field Dates:
Kodiak’s Acreage (09.16.2006) 5,760
Operator Kodiak Energy Inc.
Kodiak’s average Working Interest 100%
Proved Reserves 09.16.2006 N/A
Drill Depth 1, 000 – 4,000 feet
Drilling time 1-2 days
Potential wells to drill 144
Estimated reserves per well 2.0 – 3.0 Bcf
Initial production per well 300 Mcf/d
Estimated dry hole costs C$300,000
PROVINCE – SOUTH ALBERTA,, SHALLOW GAS - Kodiak
Energy, Inc. and High Plains Energy Inc. successfully drilled its first
well, the Granlea, on its 1,280-acreage property. This well is now in
production with a current flow rate of approx. 375 Mcf/d with good
pressure and no decline. After a steady production of approx. six
months, the Company intends to drill to the original target zone, the
Glocomonite. Capital expenditures for 2007 are estimated to be
US$500,000.
Province Field Dates:
Kodiak’s Acreage (09.16.2006) 1,280
Operator High Plains
Kodiak’s average Working Interest 50%
Proved Reserves 09.16.2006 N/A
Drill Depth 2,500 feet
Drilling time 4 days
Potential wells to drill 8
Estimated reserves per well 1 Bcf
Initial production per well net to Kodiak 200 Mcf/d
Estimated dry hole costs C$ 150,000
HILL COUNTY,, MONTANA - SHALLOW GAS - Kodiak, and
the operator of the project, Griffon Petroleum Inc., have identified
three drilling locations and are currently in the process of obtaining
the last license. In addition, equipment has been sourced. We expect
drilling to commence at any time. Subsequent to the drilling,
any successful wells will be tied into existing facilities during the
first quarter of 2007. The expected initial gross production rates are
1– 2 Mmcf/d and 500 Mcf/d per well net to Kodiak, with recoverable
gross reserves of 1 to 2 Bcf per well. In 2006, the Company
allocated approx. $400,000 for drilling and completion costs and
Capex for 2007 is estimated to be US$600,000.
Kodiak’s Acreage (09.16.2006) 105,000
Operator Griffon Petroleum Inc.
Kodiak’s average Working Interest 50%
Proved Reserves 09.16.2006 N/A
Drill Depth 2,000 – 3,000 feet
Drilling time 2 days
Potential wells to drill 210 - 420
Estimated reserves per well 1.0 – 2.0 Bcf
Initial production per well net to Kodiak 250 – 500 Mcf/d
Estimated dry hole costs US$100,000
KODIAK MOVES TO THE MACKENZIE
RIVER VALLEY IN NWT OF CANADA
Kodiak has signed a major project in the Mackenzie River Valley in
the Northwest Territories of Canada that holds the potential of the
giant Prudhoe Bay in Alaska. This is an area were subsurface geological
studies indicate excellent conditions for the accumulation of
large oil and natural gas reserves. The Northwest Territories have
high oil and natural gas potential but the area is relatively unexplored.
This September, Kodiak successfully acquired the license
for its “Little Chicago Exploration Project” which is located within
the Grandview Oil and Gas Prospects. The relative shallowness of
the deposits at Little Chicago, at about 2,500 feet, make this an
extremely attractive project compared to Prudhoe Bay, Alaska,
where drilling depth is approx. 13,000 feet. The Mackenzie River
basin, and especially the Little Chicago area, has the potential for
one of the largest and most important oil accumulation in North
America, with the possibility of recoverable reserves at about 3.5
billion barrels. Total discovered and undiscovered reserves in the
Beaufort Sea/Mackenzie Delta are estimated to be approx. 75 TCF
gas and 8.5 billion bbls oil. Kodiak’s focus area is located along the
Mackenzie River between the Norman Wells Oilfield (150 miles to
the south) and the Mackenzie Delta (100 miles to the north).
Kodiak Energy has signed a farm-in agreement to earn up to a
56.25% working interest on the 200,000-acre Exploration License,
EL 413 in the Mackenzie River Valley, and centered along the
planned Mackenzie Valley Pipeline. Based on the farm-in agreement,
Kodiak will become the initial operator and will commence
exploring the leaseholds by acquiring 2D seismic for approx. $5
million prior to June 30, 2007, thus earning a 12.5% working interest
in the properties. After completion of the initial seismic program,
it is anticipated that Kodiak will drill two test wells the following
winter at approx. $5 million each. Physical exploration activity is
essentially limited to the winter months, generally November to
March, when the surface is frozen, allowing surface access for
equipment with minimal environmental impact. By drilling two test
wells on the farm-in land, Kodiak will earn an undivided 50% of
two 20,000 acre test well blocks. The Company will have a continuing
rolling option to drill additional option wells on the remaining
unearned 20,000-acre test well blocks.
Numerous surface gas seeps, oil seeps, and oil and gas shows in
wells drilled near Kodiak’s land verify the existence of hydrocarbons
in the subsurface. The Norman Wells oil field has been in
production since 1943 and produces approx. 1 million barrels per
day. It is owned and operated by Imperial Oil Limited (ESSO). The
Norman Wells oil field was discovered on the basis of such oil
seeps, and Kodiak’s prospects could have a similar potential to the
500 million-barrel Norman Wells field.
STOCK RECOMMENDATION
We are maintaining our Speculative Buy/4 Rating for Kodiak Energy
Inc. with a 12-month price target of $4.00 per share. However,
it is difficult to predict accurate revenue and income figures as
Kodiak is still a very early stage oil & gas company, and on an
operational basis, it is very new. Our positive investment rating is
based on Kodiak’s extensive resources and its connections to the
North America oil and gas patches that offer investors tremendous
opportunities for growth. In our view, a failure to raise sufficient
Capex money reflects the biggest risk for the Company to fail in its
ambitious drilling and development program during 2006/2007.
Asset value: After we learn more about Kodiak’s expansion to the
Northwest Territories, we will provide more information on estimated
reserve for the Company. So far, judging by what we have
seen in Manyberries, we are cautiously optimistic that the Company
can unlock its full risk-adjusted potential of approx. 180 Bcf over
the next years to come. Recent industry mergers and acquisitions
were closed at $2.58/Mcf of reserves. Using an acquisition price of
$2.00/Mcf, our asset valuation for the Company exceeds $360 million,
even without any anticipated value from its assets in the
Northwest Territories. Assuming these assets were on Kodiak’s
books, the Company’s stock might be expected to trade at $4.00 per
share. We believe an investment in Kodiak offers investors significant
growth, however, due to the fact that the Company’s business,
on an operational basis, is relatively new, it is recommended that
shares of KDKN be purchased only by investors who can tolerate
above average risk.
Anallyst Diiscllosure
Analyst: Ernest C. Schlotter
Ernest C. Schlotter has been an analyst in the energy field since
1998. He is a securities analyst covering energy with SISM Research
& Investment Services, Zurich, Switzerland. His areas of
focus have included all energy industry sub-sectors, with a focus on
independent companies in exploration/production. According to
the tracking firm StarMine based in San Francisco, Ernest C. Schlotter
is a four out of five star analyst for EPS estimate accuracy.
Analyst Certification:
I, Ernest Schlotter, hereby certify that the views expressed in this
research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation
was, is, or will be, directly or indirectly, related to the recommendations
or views expressed in this research report.
