Comstock Resources (CRK) Update - June 10

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Comstock Resources (CRK) Update - June 10

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By Dallas Business Journal on June 10, 2019

Comstock Resources Inc. (NYSE: CRK) has entered into an agreement to acquire Covey Park Energy in a cash and stock transaction valued at about $2.2 billion, according to a news release issued Monday.

The move grows Comstock's position in the Haynesville shale and is expected to help the Frisco oil company get closer to its goal of sustainable free cash flow generation and reduced leverage, in addition to pushing operating efficiencies and having a combined drilling program.

The deal includes the assumption of Dallas-based Covey Park's outstanding debt and the retirement of its existing preferred units, which total about $1.1 billion in the aggregate.

Comstock CEO M. Jay Allison will lead the company following the transaction, through the management team is expected to include representation form both Comstock and Covey Park.

Dallas Cowboys owner Jerry Jones became the majority stake of Comstock last year. With the Covey Park transaction, Jones plans to invest an additional $475 million in cash for 50,000,000 newly issued shares of Comstock stock. Jones will remain the company's largest shareholder with 75 percent ownership interest and a cumulative investment of about $1.1 billion.

"This combination is another step toward completing my vision to create an industry-leading natural gas company," Jones said in a prepared statement.

With 16 percent common stock ownership interest, private equity firm Denham Capital will become the company's second-largest shareholder.

The deal has already been unanimously approved by both company's boards of directors. The transaction is expected to close July 31 pending regulatory approvals and customary closing conditions.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Comstock Resources (CRK) Update - June 10

Post by dan_s »

Note just received from John White at Roth Capital (6-10-2019 at 10:30 AM CT). John's valuation of GDP is $23/share, which is the same as my valuation.

GDP: CRK’s Haynesville Acquisition Metrics Very Favorable for GDP

By our analysis the acquisition metrics for Haynesville Shale play’s Covey Park point to a range of share price for GDP between $18.50 per share and $24.82 per share.

Comstock Resources (CRK-NC) and Covey Park Energy (Private) announced that CRK has entered into an agreement under which CRK will acquire Covey Park in a cash and stock transaction valued at approximately $2.2 billion, including the assumption of Covey Park's outstanding debt.

Covey Park’s assets are in the core of the Haynesville Shale play, offsetting and in near proximity to GDP’s assets and operations.

In CRK’s presentation detailing the Covey Park acquisition, the implied production is 705 MMcfe per day which in relation to the $2.2 billion purchase price equals $3,120/Mcfe per day. Applying this metric to the consensus estimate for GDP’s 2019 production of 139,440 Mcfe per day equals an implied EV of $435 million. Subtracting our estimated 2019 GDP debt of $85 million gives a market capitalization of $350 million. Dividing this figure by the 14.1 million of diluted GDP shares outstanding yields an implied GDP share valuation of $24.82.

In CRK’s presentation detailing the Covey Park acquisition, the implied EBITDA figure is $547 million which in relation to the $2.2 billion purchase price equals a EV/EBITDA multiple of 4.0x. Applying this metric to the consensus estimate for GDP’s 2019 EDITDA of $86.6 million equals an implied EV of $346 million. Subtracting our estimated 2019 GDP debt of $85 million gives a market capitalization of $261 million. Dividing this figure by the 14.1 million of diluted GDP shares outstanding yields an implied GDP share valuation of $18.50.

Mr. Jerry Jones, CRK’s largest shareholder with a 75% ownership interest, is investing an additional $475 million in CRK, bringing his total investment to about $1.1 billion. Mr. Jones is also the owner of the Dallas Cowboys Football Club Ltd.
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MY TAKE: The acquisition announced by CRK today will draw a lot more analysts coverage to both CRK and GDP.
Dan Steffens
Energy Prospectus Group
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