Comstock Resources (CRK) Update - Oct 7

[dan_s]

I will be updating my forecast/valuation models for CRK and NOG today. They will be available for download from the EPG home page by this afternoon. This sale was expected and I expected NOG (in our Small-Cap Growth Portfolio) to be the Buyer.
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FRISCO, TX, Oct. 07, 2021 (GLOBE NEWSWIRE) -- Comstock Resources, Inc. ("Comstock" or the "Company") (NYSE: CRK) announced today that it has entered into an asset purchase agreement with Northern Oil & Gas, Inc. ("NOG") to sell its assets in the Bakken shale for $154 million in cash, subject to adjustment and customary closing conditions. The properties being sold include non-operated interests in over 400 producing wells (65.9 net) with recent production of greater than 4,500 net barrels of oil equivalent per day (approximately 65% oil). The sale is expected to close in the fourth quarter and will have an effective date of October 1, 2021. Comstock expects to recognize a pre-tax loss of $130-$140 million on the divestiture. EnergyNet is acting as exclusive advisor to Comstock on the sale.

This is good news: Comstock plans to re-invest the proceeds from the property sale into its Haynesville shale development program, including the acceleration of completing 13 (9.4 net) drilled and uncompleted wells which were originally budgeted to be completed in 2022. Comstock may also use a portion of the proceeds to acquire additional leasehold and to fund additional drilling activity in 2022.

About Comstock Resources

Comstock Resources is a leading independent natural gas producer with operations focused on the development of the Haynesville shale in North Louisiana and East Texas. The Company's stock is traded on the New York Stock Exchange under the symbol CRK.

[dan_s]

TipRanks: "Truist Financial analyst Neal Dingmann raised the firm's price target on Comstock Resources to $12 from $7 and keeps a Hold rating on the shares as part of a broader research note on Exploration and Production names in the Energy sector. The analyst is increasing his oil price deck estimates by over 6% for Q4 of 2021 to 2023 period and natural gas prices by over 34%. Dingmann adds that consensus estimates continue to trend below rising spot and forward prices, creating an environment whereby free cash flows should for the most part be able to surprise to the upside."

[Fraser921]

NOG shareholders seem to like it, almost up 8 %

[dan_s]

I have updated my forecast/valuation model for CRK. My valuation increases by $3 to $24.
Why?
> Not including the sales proceeds of $154 million in Q4, CRK is on track to generate over $1Billion of operating cash flow in 2021.
> Their free cash flow should be approximately $400 million.
> Q4 cash flow including the sales proceeds should be close to $500 million.
> Looking ahead to 2022 the Bakken sale will lower their lease operating expenses and lower interest expense.
> A big increase in proved reserves at year-end 2021 will lower their DD&A expense.
> The restructured balance sheet is in good shape and the increased well completions in Q4 will more than offset the production sold in the Bakken.
> I have increased my valuation multiple from 4.5 to 5.0X annualized operating cash flow per share.

CRK is now close to a "pure gasser" and pure play on the Haynesville Shale Play in Louisiana. Plus, upside in the Bossier.
Production will be approximately 1.5 Bcfe per day by year-end with ~99% being natural gas and NGLs, which they report on a combined basis.
There seems to be a "paradigm" that CRK has a debt problem. They don't have any near-term debt maturities. See sides 16 & 17 of their Sept presentation.
CRK had $945 of liquidity at 6-30-2021 that should increase to over $1Billion by 12-31-2021.
What the market seems to be overlooking is their 1,900 valuable development drilling locations, which in my old job at Hess would make them a "Screaming Takeover Target".
If HH gas averages $5.00 in Q1, CRK is going to have a great start to 2022.

[CreativeEquity]

Any idea what type of premium a takeover would offer assuming their current financial and production profile ?

[Fraser921]

3 bucks, if prices hold here maybe 20 next year

[dan_s]

Since Jerry Jones is the controlling seller, a buyer would just have to negotiate with him. I would advise him to set my valuation as his asking price. Actually, all of my valuations are what I believe the company would sell for today in an arms length negotiation.

[CreativeEquity]

thank you guys !

[KGardiner]

I'm a Comstock fan, very good to know FMV should be the starting point for a takeover offer.