Comstock Resources Inc (CRK) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...

• Revenue: $336 million in Q1 2024, down 14% from Q1 2023.

• Net Income: Adjusted net loss of $8.5 million, or $0.03 per share in Q1 2024.

• EBITDAX: $230 million in Q1 2024.

• Cash Flow from Operations: $182 million in Q1 2024.

• Liquidity: Increased to $1.3 billion post-financial activities.

• Production: 1.5 Bcfe per day, up 10% from Q1 2023.

• Drilling Activity: 16 successful operated wells drilled; 18 turned to sales.

• Capital Expenditure: $256 million on drilling and development in Q1 2024.

• Hedging: Approximately 50% hedged for Q4 2024, about 1/3 for 2025 and 2026.

• Warning! GuruFocus has detected 5 Warning Sign with CRK.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Comstock Resources Inc (NYSE:CRK) successfully closed an acquisition adding 198,000 net acres to its Western Haynesville play, enhancing its drilling inventory and operational scope.

• The company reported strong initial production rates from new wells in the Western Haynesville, with IP rates reaching up to 38 million cubic feet per day, indicating high potential in the area.

• Comstock Resources Inc (NYSE:CRK) has maintained a robust liquidity position, with $1.3 billion available, bolstering its financial stability.

• Significant investments from stakeholders, including a $100.5 million stock purchase by Jerry Jones, demonstrate strong external confidence in the company's strategy and management.

• The company has made strides in reducing operational costs and improving efficiency, such as reducing drilling days to 54 and operating with a lower cost structure compared to peers.

Negative Points

• Despite increased production, Comstock Resources Inc (NYSE:CRK) reported a decline in oil and gas sales revenue by 14% compared to the previous year, primarily due to weak natural gas prices.

• The company recorded an adjusted net loss of $0.03 per share for the quarter, indicating financial pressures from the current market conditions.

• Comstock Resources Inc (NYSE:CRK) faces challenges with natural gas price volatility, which continues to impact profitability and operational planning.

• The company's drilling and completion costs have seen fluctuations, with some costs increasing due to operational challenges in deeper and more complex geological formations.

• While the company has a large drilling inventory, the current weak natural gas price environment may limit its ability to fully capitalize on this asset in the short term.

Q & A Highlights

Q: Given the depressed price environment, how should we think about the capital efficiency of the investment in the Western Haynesville asset relative to the industry? A: Roland O. Burns, President and CFO of Comstock Resources, acknowledged that the Western Haynesville development is more expensive but highlighted the larger reserves and longer-term investment perspective. He indicated that the returns are comparable to the best parts of their traditional Haynesville operations. CEO Miles Jay Allison added that the early performance of the Western Haynesville wells is promising, showing good IP rates and stable EURs, with drilling and operational costs decreasing over time.

Q: How should we think about the amount of activity required to protect the resource in light of your recent leasing success in the Western Haynesville? A: CEO Miles Jay Allison explained that about 95% of the newly acquired 198,000 net acres are held by production (HBP), which does not necessitate increased drilling to retain the acreage. He emphasized that there is no pressure to add rigs to HBP the acreage, allowing for strategic growth without aggressive drilling schedules.

Q: Is there any interest at Comstock in taking a direct long-term agreement with a data center or similar facility, particularly in light of potential data center demand? A: Roland O. Burns discussed the potential for direct customer relationships in the future, including data centers seeking reliable power supply. He mentioned that the Western Haynesville's development might lead to direct sales to various customers, leveraging their midstream venture for necessary infrastructure.

Q: Could you provide insights into the operational strategies to reduce drilling costs in the Western Haynesville? A: Daniel S. Harrison, COO, detailed several strategies to reduce drilling costs, including improvements in bit technology for better rate of penetration and adjustments in casing design. He noted significant progress in handling high temperatures during drilling, which has been a major challenge in the area.

Q: With the move to more spot frac fleets, what are the cost savings and flexibility benefits for your operations? A: Daniel S. Harrison mentioned that reducing the number of frac crews aligns with the decreased need due to fewer rigs. He highlighted that current market conditions have allowed them to negotiate better pricing with frac service providers, enhancing cost efficiency.

Q: As you continue to develop the Western Haynesville, what are your expectations for pad sizes once you move beyond held-by-production needs? A: Daniel S. Harrison indicated that current operations are focused on two-well pads, but future development could involve larger pads with multiple wells, potentially drilling in both directions to maximize acreage coverage. This strategy is expected to enhance operational efficiencies significantly.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.