Chesapeake Energy Corporation (CHK): Should You Be Worried about Kodiak Oil & Gas Corp (USA) (KOG)’s Debt Levels?

So given these high margins, what’s the next step that any reasonable management would want to do? Obviously, it would want to increase production. The pad-drilled wells have so far yielded excellent results. Not only have production costs come down, but the initial production rates have been promising.

Am I worried about the debt levels? Not exactly.The best thing management could do right now is increase capital spending and ramp up volumes. Also at the moment, I would prefer debt financing over raising additional equity. Diluting the stock now may send a wrong signal to investors.

A fair comparison with Chesapeake Energy?

Natural gas producer Chesapeake Energy Corporation (NYSE:CHK) had been notorious for reaching alarming debt levels, and the story is all too well documented. However, as fellow Fool Tyler Crowe points out, investors should be aware that Kodiak’s debt financing has been funding direct operations, unlike Chesapeake Energy Corporation (NYSE:CHK), which was more interested in grabbing acreage without any immediate development involved. In contrast, Kodiak’s management has so far acted within rational limits.

With oil-heavy assets in the premier Bakken Shale play under its belt, Kodiak’s strategy has so far looked good. Given the fast-growing company’s performance so far, I won’t be too surprised if this upstream company is acquired soon. With crude oil above $100 per barrel, investors should keep a close watch on Kodiak.

The article Should You Be Worried about Kodiak’s Debt Levels? originally appeared on Fool.com and is written by Isac Simon.

Fool contributor Isac Simon has no position in any stocks mentioned. The Motley Fool has the following options: long January 2014 $30 calls on Chesapeake Energy.

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