Over the weekend Kodiak, a Bakken pure play energy producer, merged into Whiting Petroleum at a discount to the current share price.
Takeout rumors have swirled around KOG all year, and it was up 30% year to date vs 16% for the energy producer ETF XOP. However, in such hot, highly acclaimed acreage, 0 premium makes little sense.
There is the idea floating around the deal makes the two companies a more attractive takeover target by a mega cap like Exxon. Pffff! This isn't a gift basket we're talking about!
Kodiak is highly levered, with little in tangible assets. It's likely their existing well yields were dropping off. That gave them two options: either do a huge offering or sell and get backing from Whiting. If that was the case, it was a reasonable choice.
To monitor the situation, you'll want to watch the other Bakken plays OAS and CLR. As of this writing, they're both down 5% since the news. XOP is down 2.7%
Trade 'em well and don't huff the fumes(for too long)
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