An updated Net Income & Cash Flow Forecast model has been posted under the Watch List Tab.
I've gone very conservative in my forecast and I still come up with a valuation of $37.70 per share, compared to First Call's Price Target of $28.53. These guys are focused on increasing their Eagle Ford oil production this year and I think it will be in great shape by year-end.
Comstock's cash flow from operations will be close to $9.00/share this year. It closed on Friday at barely over 2X CFPS, which is ridiculous for a company with this much running room. Wall Street still thinks CRK is a "gasser". 72% of this year's revenues will be from crude oil sales.
Comstock Resources (CRK)
Comstock Resources (CRK)
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Comstock Resources (CRK)
"Gasser" will be no epithet if Joe Bastardi's temperature scenario for this winter proves to be correct. Spec hedge funds are buying the NG futures, not oil.
Re: Comstock Resources (CRK)
dan, you have any details on this downgrade?
DOWNGRADE: Comstock (CRK) downgraded by Stifel from Buy to Hold.
BRIEFING.COM 6:53 AM ET 10/1/2014
DOWNGRADE: Comstock (CRK) downgraded by Stifel from Buy to Hold.
BRIEFING.COM 6:53 AM ET 10/1/2014
Re: Comstock Resources (CRK)
I haven't seen their specific comment on CRK, but I know Stifel lowered their long term natural gas price assumption on Sept. 28 to $4.25 and passed it through their coverage universe, lowering NAV's in the process. They may have done the same for oil this week too though I haven't found it yet.
Re: Comstock Resources (CRK)
Comstock's natural gas production is on decline and oil production is ramping up as they now focus a very high percentage of their capital program on the Eagle Ford. Take a look at the bottom of my forecast model (found under the Watch List Tab) and you will see what I mean. You can also see it in their recent presentation (CRK website).
BTW my forecast and valuation assumes $4.00/mcf gas price for 2015 anyway.
BTW my forecast and valuation assumes $4.00/mcf gas price for 2015 anyway.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Comstock Resources (CRK)
I got the Stifel report this morning. Here is what it says. The term "transferring coverage" is interesting. I think Stifel is going to stop covering the E&P sector because the daily reports I get from them had no energy stocks for October 1 or October 2. I will check that out.
As you read this remember that CRK is primarily focused on the Eagle Ford. My forecast has zero in it for the TMS.
Transferring Coverage With a Hold Rating
We are transferring coverage of Comstock Resources (CRK) and are downgrading
the shares to a Hold rating. CRK shares are currently trading at 3.4x 2015E
EBITDA and 77% of our NAV estimate, a 40% discount and 1% premium,
respectively, to our peer group averages. Equally weighting these two measures,
CRK shares are currently trading at a 20% discount to our peer group average. We
feel this discount is warranted as the company remains in the early stages of
development in the emerging TMS and East Texas Eagle Ford.
Leveraged To Emerging Plays, Exploration Successes Could Boost NAV
Comstock is among the most levered (net acres/market cap) to successful
development of the emerging East Texas Eagle Ford and TMS ( Exhibit 2).
Bar Set High For First Two Comstock TMS Wells
Comstock’s first two TMS wells, the CMR Foster Creek 28-40 #1H and 30-31 #1H,
are both located approximately two miles from Goodrich Petroleum Corporation's
(GDP) Crosby 12-1H, the best well drilled in the TMS to date (Exhibit 23). The well
is expected to be completed in mid-October, so initial results during its upcoming
conference call on November 4, 2014 are unlikely.
Issues drilling or completing the well (which have been notoriously common for first
time TMS operators), or rates substantially below GDP’s Crosby 12H-1 (which had
a 24-hour IP rate of 1,300 Boe/d and 30-day average of 1,137 Boe/d), will be
viewed as a disappointment for Comstock (and the play as a whole), in our
opinion. On the upcoming conference call, we expect to receive an update on how
the drilling and completion process is coming along. We expect management to
announce initial production results in late November/early December.
East Texas Eagle Ford Holds Vast Potential, But Economics Look Skinny
In August, Comstock announced positive initial results from its first East Texas
Eagle Ford well, The Henry A #1, which had a 24-hour IP rate of 1,267 Boe/d and
30-day average of 744 Boe/d. The company’s second and third wells encountered
completion issues (rates have yet to be reported). Street expectations are low for
both wells. The company’s fourth well, the Currington A#1, was drilled and
completed using a similar well design as the first three. The company’s fifth well,
the Kovar A#1H, was drilled with a thicker casing design to mitigate the potential
for casing issues. As the operations ramp, we are estimating the play will generate
IRRs in the high 20% range at $90/bbl and $4/MMBtu
As you read this remember that CRK is primarily focused on the Eagle Ford. My forecast has zero in it for the TMS.
Transferring Coverage With a Hold Rating
We are transferring coverage of Comstock Resources (CRK) and are downgrading
the shares to a Hold rating. CRK shares are currently trading at 3.4x 2015E
EBITDA and 77% of our NAV estimate, a 40% discount and 1% premium,
respectively, to our peer group averages. Equally weighting these two measures,
CRK shares are currently trading at a 20% discount to our peer group average. We
feel this discount is warranted as the company remains in the early stages of
development in the emerging TMS and East Texas Eagle Ford.
Leveraged To Emerging Plays, Exploration Successes Could Boost NAV
Comstock is among the most levered (net acres/market cap) to successful
development of the emerging East Texas Eagle Ford and TMS ( Exhibit 2).
Bar Set High For First Two Comstock TMS Wells
Comstock’s first two TMS wells, the CMR Foster Creek 28-40 #1H and 30-31 #1H,
are both located approximately two miles from Goodrich Petroleum Corporation's
(GDP) Crosby 12-1H, the best well drilled in the TMS to date (Exhibit 23). The well
is expected to be completed in mid-October, so initial results during its upcoming
conference call on November 4, 2014 are unlikely.
Issues drilling or completing the well (which have been notoriously common for first
time TMS operators), or rates substantially below GDP’s Crosby 12H-1 (which had
a 24-hour IP rate of 1,300 Boe/d and 30-day average of 1,137 Boe/d), will be
viewed as a disappointment for Comstock (and the play as a whole), in our
opinion. On the upcoming conference call, we expect to receive an update on how
the drilling and completion process is coming along. We expect management to
announce initial production results in late November/early December.
East Texas Eagle Ford Holds Vast Potential, But Economics Look Skinny
In August, Comstock announced positive initial results from its first East Texas
Eagle Ford well, The Henry A #1, which had a 24-hour IP rate of 1,267 Boe/d and
30-day average of 744 Boe/d. The company’s second and third wells encountered
completion issues (rates have yet to be reported). Street expectations are low for
both wells. The company’s fourth well, the Currington A#1, was drilled and
completed using a similar well design as the first three. The company’s fifth well,
the Kovar A#1H, was drilled with a thicker casing design to mitigate the potential
for casing issues. As the operations ramp, we are estimating the play will generate
IRRs in the high 20% range at $90/bbl and $4/MMBtu
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Comstock Resources (CRK)
After looking at the Stifel report, I really don't get the reasoning behind the downgrade. Stifel is actually forecasting strong cash flows per share that are slightly higher than my forecast for 2014.
Year EPS CFPS
2013A $0.88 $5.23 < EPS include the large gain on the sale of their Permian assets to Rosetta
2014E $0.51 $8.99 < Compares to my CFPS forecast of $8.89
2015E $0.99 $10.40 < Compares to my CFPS forecast of $10.89
Both Stifel's forecast and my forecast have no production in them for TMS. Therefore, how is a downgrade justified when you had zero value on the acreage already?
I see no justification for CRK to be trading below 2X this year's CFPS. Their balance sheet is in decent shape (after Permian sale) and they have a lot of running room in the Eagle Ford. On top of that, they have some nice acreage blocks in what appears to be the heart of the TMS where drilling by other companies is proving up the acreage. IMO Stifel is putting way too much weight on Comstock's East Texas Eagle Ford and TMS leasehold.
Prior to the downgrade, Stifel's price target was $33.00 compared to my valuation of $37.70.
In my forecast for 2015, even if I assume $3.00 for natural gas and $85 for oil: CRK's cash flow per share would still be over $8.50 next year.
Year EPS CFPS
2013A $0.88 $5.23 < EPS include the large gain on the sale of their Permian assets to Rosetta
2014E $0.51 $8.99 < Compares to my CFPS forecast of $8.89
2015E $0.99 $10.40 < Compares to my CFPS forecast of $10.89
Both Stifel's forecast and my forecast have no production in them for TMS. Therefore, how is a downgrade justified when you had zero value on the acreage already?
I see no justification for CRK to be trading below 2X this year's CFPS. Their balance sheet is in decent shape (after Permian sale) and they have a lot of running room in the Eagle Ford. On top of that, they have some nice acreage blocks in what appears to be the heart of the TMS where drilling by other companies is proving up the acreage. IMO Stifel is putting way too much weight on Comstock's East Texas Eagle Ford and TMS leasehold.
Prior to the downgrade, Stifel's price target was $33.00 compared to my valuation of $37.70.
In my forecast for 2015, even if I assume $3.00 for natural gas and $85 for oil: CRK's cash flow per share would still be over $8.50 next year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Comstock Resources (CRK)
well, hell, so much for stifel------------
they obviously can't handle the work load.
they obviously can't handle the work load.
Re: Comstock Resources (CRK)
I'm amazed that CRK has retraced 100% of its gain going back to mid-January.
Re: Comstock Resources (CRK)
Bought a little at $16.25