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Comstock Resources, Inc. (CRK): Navigating the Challenging Natural Gas Landscape with Strategic Acreage and Operational Excellence
Published on September 24, 2024 | Ticker: CRK

Comstock Resources, Inc. (CRK) is a leading independent natural gas and oil producer, focused on the development of the prolific Haynesville Shale in East Texas and North Louisiana. Comstock Resources has navigated the challenging natural gas price environment with strategic moves to strengthen its balance sheet, optimize operations, and position itself for long-term growth.

Financials

In the fiscal year 2023, Comstock Resources reported annual revenue of $1,565,109,000, a net income of $211,894,000, and annual operating cash flow of $1,016,846,000. However, Comstock Resources' annual free cash flow was negative $408,240,000, reflecting its ongoing investments in exploration and development activities.

During the first quarter of 2024, Comstock Resources' financial performance was impacted by the continued weakness in natural gas prices. Comstock Resources reported quarterly revenue of $335,772,000 and a net loss of $14,474,000. Despite the challenging market conditions, Comstock Resources generated $171,539,000 in operating cash flow, demonstrating the resilience of its operations.

Business Overview

One of Comstock Resources' key strategic initiatives has been the development of its Western Haynesville acreage. In the first quarter of 2024, Comstock Resources added 198,000 net undeveloped acres to its Western Haynesville position, increasing its total acreage in the play to over 450,000 net acres. This vast acreage position provides Comstock Resources with a significant long-term growth opportunity, as Comstock Resources continues to de-risk and develop this promising asset.

Comstock Resources' Western Haynesville wells have demonstrated impressive performance, with initial production (IP) rates ranging from 35 million to 38 million cubic feet per day. Comstock Resources has also made significant progress in improving the cost efficiency of its Western Haynesville operations, reducing drilling days from 80 to 54 on its most recent well. As Comstock Resources continues to optimize its drilling and completion techniques, it expects to see further improvements in the cost structure of its Western Haynesville development.

In addition to its Western Haynesville assets, Comstock Resources maintains a strong position in the core Haynesville Shale, where it has a deep inventory of high-quality drilling locations. Comstock Resources' legacy Haynesville assets have consistently delivered solid operational and financial performance, contributing to the overall strength of Comstock Resources' portfolio.

Recent Developments

To navigate the current low natural gas price environment, Comstock Resources has taken several proactive measures. Comstock Resources has reduced its rig count from 7 to 5 and its frac fleet from 3 to 2, resulting in a 33% to 41% reduction in capital expenditures for 2024 compared to 2023 levels. Additionally, Comstock Resources has suspended its quarterly dividend, saving approximately $140 million per year, and has significantly increased its hedge position, targeting a 50% hedge level on its expected production.

Liquidity

Comstock Resources' strong financial position has been further bolstered by a $400 million senior notes offering completed in April 2024, which increased Comstock Resources' liquidity to over $1.3 billion on a pro forma basis. This enhanced liquidity, combined with Comstock Resources' low-cost structure and disciplined capital allocation, positions Comstock Resources to weather the current natural gas price environment and capitalize on the anticipated growth in natural gas demand, particularly from the expanding LNG export market in the region.

Outlook

Looking ahead, Comstock Resources' guidance for 2024 reflects its focus on capital discipline and operational efficiency. Comstock Resources expects its full-year 2024 capital expenditures for drilling and completion activities to be in the range of $750 million to $850 million, a significant reduction from the 2023 level. Comstock Resources' operating cost guidance, including lease operating expenses, gathering and transportation costs, and production taxes, remains unchanged from its previous outlook.

Comstock Resources' commitment to environmental stewardship is also noteworthy. Comstock Resources has reported a 1% improvement in greenhouse gas intensity and an 11% improvement in methane emission intensity in 2023 compared to the prior year, despite its increased focus on the higher-intensity Western Haynesville play. Comstock Resources' use of natural gas-powered frac fleets and dual-fuel drilling rigs has contributed to these emissions reductions.

Conclusion

Comstock Resources is navigating the challenging natural gas landscape with a strategic focus on its Western Haynesville acreage, operational excellence, and a strong financial position. Comstock Resources' vast acreage position, cost optimization efforts, and disciplined capital allocation provide a solid foundation for long-term growth, positioning Comstock Resources to capitalize on the anticipated increase in natural gas demand in the years ahead.

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