Executive Summary / Key Takeaways

• The "Holy Grail" Emerges: Comstock has invested over $1 billion to assemble 525,000 net acres in the Western Haynesville, a play management describes as potentially "a triple" or better, with initial wells showing 32-41 MMcf/d IP rates that validate the geological thesis of higher pay thickness and pressures yielding significantly more resource per section than the Legacy area.

• Balance Sheet Repair Meets Strategic Clarity: After surviving 2024's gas price collapse ($1.98/Mcf realized) by suspending dividends, cutting rigs, and raising $500 million in equity and debt, Comstock has used improved 2025 prices ($2.75/Mcf Q3) to resume growth while divesting non-core assets ($430M Shelby Trough sale pending) to deleverage toward a 1.5x target, with Jerry Jones' 71% ownership providing crucial backing throughout.

• Midstream Integration as a Cost Moat: The Pinnacle Gas Services JV with Quantum Capital ($300M commitment) and the Marquez plant startup (doubling treating capacity to 400 MMcf/day) create a self-funding midstream system that reduces gathering costs to $0.36/Mcfe and enables direct sales to Gulf Coast LNG and data center customers, a structural advantage over pure-play E&Ps.

• Positioned for the Demand Supercycle: With 100 miles of high-pressure pipelines across its Western footprint, Comstock is "perfectly situated" for the 71 Bcf/day of new gas demand projected from AI/data centers and LNG exports, while Appalachian constraints and Permian oil-price dependence limit competing supply sources.

• Execution Risk Defines the Asymmetric Payoff: The Western Haynesville remains "virtually undeveloped" with only 19 producing wells; success requires proving the 3,332-location inventory over an 18-24 month learning curve while managing 10,000-foot laterals at 19,000-foot depths and 400-degree temperatures, making this a high-conviction but high-risk bet on management's operational expertise.

Setting the Scene: A Century-Old Company Reinvented for the Gas Age

Comstock Resources, incorporated in 1919 and headquartered in Frisco, Texas, spent most of its 100-year history as a conventional gas explorer until a transformative pivot began in 2018. That year, Jerry Jones and his family began supporting and investing in the company, eventually becoming the majority stockholder with 71% ownership. This backing proved crucial as Comstock embarked on a strategy that would define its future: rather than pursuing expensive M&A to grow drilling inventory, the company chose to organically delineate an entirely new play.

The company's sole formally reported business segment is exploration and production in the Haynesville and Bossier shales, but this simplicity masks a two-pronged strategy. The Legacy Haynesville area—302,000 net acres with 895 producing wells and 1,300 remaining locations—generates steady cash flow from mature, low-cost operations. The Western Haynesville—525,000 net acres with just 19 producing wells and an estimated 3,332 gross locations—represents a calculated bet on what management calls the "holy grail" for long-term shareholder value. This bifurcation provides Comstock a self-funding mechanism: the Legacy area's low-cost operations generate the cash needed to prove the Western's potential.

The industry structure has shifted dramatically in Comstock's favor. Natural gas has become "the go-to energy source in the United States," driven by record LNG exports (18.7 Bcf/day) and the push to generate power for AI and data center development. The Haynesville Shale sits "on the front line to deliver the gas supply," with Comstock's acreage positioned 100 miles from Dallas and Houston and close to the LNG corridor. This location advantage translates directly to basis differentials: while Q2 2025 realized prices reflected a $0.42 discount to NYMEX, the company's pipeline network allows it to capture premium pricing from direct sales to end-users, avoiding the constraints that plague Appalachian producers.

Technology, Products, and Strategic Differentiation: The Western Haynesville Moat

The Western Haynesville's geological superiority is not theoretical—it is measurable in well performance and cost trends. The play features higher pay thickness and pressures, with the expectation of yielding significantly more resource potential per section than the Legacy Haynesville. The Olajuwon well, turned to sales in April 2025, demonstrates this potential: located 24.4 miles from the nearest producing well in Freestone County, it achieved a 41 MMcf/day IP rate from a 10,306-foot lateral, confirming that the geological model extends far beyond the initial core area.

Drilling these wells requires solving extreme technical challenges. The operations team must drill 10,000-foot horizontal wells at vertical depths of up to 19,000 feet where temperatures exceed 400 degrees. This is why the Western Haynesville has remained undeveloped—few operators possess the expertise. Comstock's progress shows in the numbers: average drilling days improved to 52 days in Q3 2025, down 3 days from Q2 and 7 days from the 2024 full-year average of 59 days. Drilling costs per lateral foot fell 24% to $1,385 in Q3, while completion costs averaged $1,622 per foot. These improvements narrow the cost gap with the Legacy area, where drilling costs are $558 per foot and completions $671 per foot.

The midstream integration creates a structural cost advantage that pure-play E&Ps cannot replicate. In late 2023, Comstock partnered with Quantum Capital Solutions to create Pinnacle Gas Services, contributing its existing gathering and treating system while Quantum committed up to $300 million to fund expansion. The Marquez gas treating plant started operations in July 2025, more than doubling treating capacity to 400 MMcf/day. Gathering and transportation costs fell 26% to $40 million in Q3 2025 due to lower third-party dependence; gas services revenue surged 178% to $141.3 million as Comstock captured more of the value chain; and the system is self-funding, with Quantum's equity covering the $130-150 million in expected 2025 midstream expenditures.

The horseshoe lateral design exemplifies Comstock's operational innovation. By combining two separate and adjacent shorter laterals into a longer single lateral, the company achieves approximately 35% savings in drilling costs for a 10,000-foot lateral compared to a 5,000-foot sectional well. The Legacy inventory includes 118 horseshoe locations, providing a capital-efficient way to maintain production while allocating the majority of growth capital to the Western play. This demonstrates Comstock can generate superior returns even in mature areas, funding the Western delineation without external capital.

Financial Performance & Segment Dynamics: From Crisis to Recovery

The 2024 natural gas price crisis tested Comstock's strategy and balance sheet. Realized gas prices before hedging averaged $1.98 per Mcf, forcing decisive action: the company reduced capital spending by releasing two rigs and one frac spread, suspended its quarterly dividend, and strengthened its financial position with a $100.5 million equity private placement from Jerry Jones and a $400 million senior notes offering. These actions preserved liquidity while competitors struggled, positioning Comstock to resume growth when prices recovered.

The 2025 recovery validates this discipline. Q3 2025 natural gas and oil sales grew 22% to $308.6 million, driven by a 45% increase in realized prices to $2.75 per Mcf. More importantly, the company achieved this while production intentionally declined 16% to 111.8 Bcf, reflecting the decision to defer completions in early 2024. This production sacrifice demonstrates capital discipline—Comstock refused to grow volumes into a weak price environment, preserving inventory value for the recovery.

Segment performance reveals the strategic balance. In the Legacy Haynesville, Comstock turned 28 wells to sales year-to-date through Q3 2025 with an average IP rate of 25 MMcf/day and drilling costs of $558 per lateral foot—an industry-leading figure that generates 40-50% returns at current prices. The company now runs four rigs in the Legacy area to stabilize production as the Western grows, a shift from three rigs in Q1. This shows Comstock can maintain base production with minimal capital, freeing resources for the Western delineation.

The Western Haynesville is still in the investment phase. Eight wells turned to sales year-to-date averaged 32 MMcf/day IP rates, with the three newest wells averaging 8,566-foot laterals. Drilling costs averaged $1,385 per foot in Q3, down 24% from Q2, but still 2.5x higher than Legacy costs. This cost differential explains why Comstock is deliberately pacing Western development—each well requires $12-15 million in D&C costs, and the company needs to prove the 3,332-location inventory before committing full capital. The 18-24 month timeline to confirm well performance means investors must tolerate near-term spending without immediate production gains.

Gas services revenue surged 190% to $371.4 million in the first nine months of 2025, while expenses rose 190% to $385.2 million, essentially breaking even on a net basis. This shows Comstock is building a midstream business that can eventually generate material cash flow as volumes scale. The 400 MMcf/day Marquez capacity supports up to 2 Bcf/day of gross production over the next 5-7 years, aligning with the Western development timeline.

The balance sheet shows marked improvement. As of September 30, 2025, Comstock had $939.2 million in liquidity ($920 million unused borrowing capacity plus $19.2 million cash) versus $580 million drawn on its $1.5 billion credit facility. The leverage ratio improved to 3.0x and is expected to continue improving as 2024 results roll off. This provides Comstock the financial flexibility to execute its 2025 plan—drilling 52 total wells and turning 48 to sales—while funding the midstream buildout through the Quantum partnership.

Outlook, Management Guidance, and Execution Risk

Management's 2025 guidance reflects a deliberate balance between delineation and returns. The company plans to drill 19 wells and turn 13 to sales in the Western Haynesville, while drilling 33 wells and turning 35 to sales in the Legacy area. This split demonstrates that Comstock is not abandoning its cash-generating Legacy asset despite the Western's potential—the Legacy program funds the Western experiment, reducing reliance on external capital.

Capital efficiency improvements are central to the 2026 outlook. Management plans to drill 10 horseshoe wells in 2026, leveraging the 35% cost savings to maintain Legacy production with fewer rigs. In the Western, 8 wells are planned for the Olajuwon area, fanning out wider across the footprint. This shows the delineation program is moving from core testing to acreage validation—a critical step toward booking proved reserves in the Western play.

The midstream buildout remains on track with $130-150 million in 2025 expenditures fully funded by Quantum Capital. This preserves Comstock's liquidity for drilling while building the infrastructure needed to capture premium pricing from direct sales. The partnership structure also limits Comstock's risk if Western development proves slower than expected.

Management's commentary on capital efficiency reveals the path to free cash flow generation. Roland Burns noted that carrying an eighth rig in 2025 with no production showing until 2026 "should drive improved capital efficiency next year." This signals that 2026 could be an inflection point where production growth accelerates while capital spending moderates, enabling debt reduction toward the 1.5x target.

Execution risks are material and acknowledged. Daniel Harrison stated that choke management in the Western Haynesville requires "a minimum of a year to get an idea what it's going to do and maybe even 18 months to 2 years to really start dialing in on an exact answer." This sets realistic expectations—Western well performance remains uncertain, and aggressive drawdowns could impair EURs. The company is experimenting with conservative choke strategies, but the learning curve creates downside risk if early wells underperform.

The Shelby Trough divestiture, expected to close in December 2025 for $430 million, will improve the leverage ratio and enhance liquidity. These assets produced only 9.3 MMcf/day net to Comstock in September 2025, making them non-core. This shows management's discipline in monetizing low-return assets to fund high-return Western development, with proceeds earmarked for debt reduction.

Risks and Asymmetries: How the Thesis Can Break

Natural gas price volatility remains the primary risk. A 10% increase in market prices would decrease the fair value of Comstock's derivatives by $91.7 million, while a 10% decrease would increase it by $91.5 million. This shows the company remains exposed to price swings despite hedging 50% of 2025 production at $3.48/Mcfe. With $3.2 billion in principal debt outstanding, a sustained price decline below $2.50/Mcf could strain cash flow and covenant compliance.

Interest rate risk is concentrated in the $580 million outstanding under the bank credit facility, which is subject to variable rates tied to SOFR. Every 100 basis point increase in rates adds $5.8 million in annual interest expense, directly reducing funds available for drilling. The fixed-rate senior notes (5.88% and 6.75%) provide some protection, but the variable portion remains a vulnerability in a rising rate environment.

The NOL limitation from the 2018 change of control creates a structural tax disadvantage. With $743 million in federal NOLs and $1.8 billion in state NOLs, Comstock's ability to use these carryforwards is limited. Management estimates $740.6 million of federal NOLs and $1.2 billion of state NOLs could expire unused. This means Comstock will pay cash taxes sooner than peers, reducing post-tax returns on Western development.

Competitive dynamics in the Haynesville pose a risk to Comstock's market share. Expand Energy (EXE) produces approximately 2.9 Bcf/day in the basin with superior scale and lower unit costs. Matador Resources (MTDR) has achieved drilling costs of $835-855 per lateral foot, undercutting Comstock's Legacy costs. Gulfport Energy (GPOR) maintains pure-play discipline with lower leverage. If Comstock's Western wells underperform or costs fail to decline, larger peers could consolidate the play, leaving Comstock as a marginal participant.

Permian gas supply growth presents a supply-side threat. Roland Burns acknowledged that Permian gas "has to grow to fill demand from LNG and power generation," but weak oil prices could stall drilling. If oil prices remain above $70/barrel, associated gas from the Permian could flood the market, depressing Haynesville pricing and undermining Comstock's basis advantage.

Valuation Context: Pricing in the Optionality

At $27.39 per share, Comstock trades at an enterprise value of $11.21 billion, or 6.23 times trailing revenue. This multiple reflects a significant premium to direct peers: Expand Energy trades at 3.11x, Matador at 2.33x, and Gulfport at 3.89x. The premium suggests the market is pricing in the optionality of the Western Haynesville's 3,332-location inventory.

The EV/EBITDA multiple of 11.76x similarly exceeds peers (EXE 7.44x, MTDR 3.52x, GPOR 6.43x). This shows investors are paying for expected operational leverage as Western development de-risks. If Comstock can achieve the 1.5x leverage target and generate free cash flow by 2026, the multiple could compress to peer levels, creating upside. If Western wells disappoint, the premium valuation leaves little margin for error.

Price-to-operating cash flow of 8.52x appears more reasonable, reflecting the company's ability to generate cash despite high capital intensity. This suggests the market recognizes the quality of Comstock's cash-generating Legacy assets, even while discounting the Western investment phase.

The debt-to-equity ratio of 1.22x remains elevated versus peers (EXE 0.28x, MTDR 0.57x, GPOR 0.38x). This explains why management prioritized the Shelby Trough divestiture and suspended the dividend. Until leverage approaches the 1.5x target, equity returns will be constrained by interest expense and covenant restrictions.

Trading at 3.40 times book value, Comstock's valuation hinges on proving that Western Haynesville acreage is worth substantially more than its carried cost. The $1 billion invested to build the 525,000-acre footprint implies $1,905 per acre, but successful delineation could value this resource at $5,000-10,000 per acre. The stock's premium multiple reflects the market's expectation that Comstock will create substantial value from this organic investment.

Conclusion: A Leveraged Bet on the Gas Supercycle

Comstock Resources has positioned itself as a pure-play levered to the emerging gas supercycle, with a two-pronged strategy that uses Legacy cash flow to fund Western delineation. The $1 billion invested in the Western Haynesville represents a calculated bet that this play can deliver returns "a triple" or better, supported by geological data, improving drilling costs, and a self-funded midstream system. Jerry Jones' 71% ownership aligns management with shareholders, while the 2024 crisis forced discipline that now enables growth without external dilution.

The thesis hinges on execution. The Western Haynesville's 3,332-location inventory offers massive resource potential, but each well requires $12-15 million in capital and 18-24 months to prove performance. The 19 producing wells represent less than 1% of the identified locations—this is truly an "early innings" opportunity. If Comstock can replicate Olajuwon's 41 MMcf/day performance across the acreage while driving drilling costs toward the $2,100 per foot low end, the returns will justify the current valuation premium.

The gas market fundamentals provide a supportive backdrop. With 71 Bcf/day of new demand projected from AI/data centers and LNG exports, and Appalachian and Permian supply constrained, Haynesville gas should command premium pricing. Comstock's midstream ownership and Gulf Coast proximity enable direct sales that capture this premium, creating a structural cost advantage.

The primary risk is that Comstock's smaller scale and higher leverage leave it vulnerable to price volatility and operational missteps. Expand Energy's 2.9 Bcf/day of Haynesville production provides cost advantages that Comstock cannot match with its 1.2 Bcf/day total output. If Western wells underperform or gas prices collapse, the 3.0x leverage ratio and $580 million variable-rate debt could strain liquidity.

For investors, the critical variables are Western well performance over the next 18 months, gas price sustainability above $2.75/Mcf, and management's ability to execute the 2026 capital plan while reducing leverage to 1.5x. The stock's premium valuation prices in successful delineation—any disappointment on these fronts would likely result in severe multiple compression. Conversely, if Comstock proves the Western thesis while maintaining capital discipline, the combination of resource scale, midstream integration, and Gulf Coast positioning could generate returns that justify the risk.