Comstock Resources (CRK) Update - Mar 16

[dan_s]

I have updated my forecast/valuation model for CRK. My valuation increases by $1 to $22/share.
At the time of this post CRK was trading at $8.98.

Comstock is a mid-cap "gasser" in our Sweet 16 Grow Portfolio. It is the closest we have to a pure gasser since 99.6% of their 2022 production will be ngas and NGLs.

Maybe because the Wall Street Gang ignores the gassers this time of year or maybe they hate Jerry Jones (owner of the Dallas Cowboys), who holds the controlling interest in CRK, but this company has very little analysts' coverage. In the last three months TipRanks shows only 4 ranked analysts who set 12-month price targets for CRK. The average price target among the analysts is $10.63. The price targets range from $8 to $14 and none of them have been updated since Feb 17.

Natural gas prices have firmed up since mid-Feb. Comstock has ~50% of their natural gas production hedged for 2022 and none of their oil is hedged (only 900 bpd). Plus, more than half of their hedges are collars with ceilings that range from $3.83 to $4.01.

If Comstock's realized natural gas price (including NGLs) averages $3.75/mcfe, the Company should generate ~$1.4 billion of operating cash flow, $6.00/share.
> Comstock has a solid balance sheet with no near-term debt problems and plenty of liquidity.
> It should generate over $600 million of FCF this year.
> It has more than 1,600 undrilled HZ drilling locations that are extremely valuable in a region with $4.50/MMBtu natural gas prices
> There is no reason that I can see for CRK to be trading for less than 2X operating cash flow per share. My valuation of 4X annualized CFPS actually seems very conservative to me.
> Jerry's children are going to be very rich when they inherit their share of CRK. < I wish my father had invested in an NFL team!
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Over three decades ago, I worked for a rich man in Tulsa that could have acquired the New Orleans Saints (when they were terrible) for less than $2 million. He had over $50 million in a Tulsa bank at the time. For selfish reasons (I would have loved to be the CFO for an NFL team), I urged him to buy the Saints. I can remember him saying that he knew nothing about football, so he declined the deal. I wanted to tell him that he knew nothing about the oil business either.

[SergioSays]

FERC announcement that Cheniere expansions approved for Sabine Pass and Corpus. Should be great for CRK, EOG and SBOW

[Fraser921]

> I wanted to tell him that he knew nothing about the oil business either.

[Fraser921]

Crk is presenting at a big Energy Conference Howard Weil

Stock is up about 2 % after market

NG is over 5 across the curve. Jerry Jones said "Touchdown!"

[Fraser921]

Hit 12 pre-market

Takeover? Strong NG? Conference?

All of the above?

[dan_s]

Another way to look at companies that have a lot of production hedged: As their hedged volumes decline and oil & gas prices increase, the companies have quarter-after-quarter of increasing revenues and operating cash flow locked in. CRK is a good example. < They have ~50% of this year's natural gas production hedged. ~24% with Swaps that lock in the price at $2.64 to $2.68 and ~26% hedged with collars that have floors at $2.61 to $2.64 and ceilings at $3.83 to $4.01. NONE of their gas is hedged with Swaps after 2022 and only 5% of Q1 2023 gas hedged with collars at $4.03.

Jerry Jones' control of Comstock is the only thing that I can think of, which justifies CRK's share price. IMO his ownership is a big plus.
> The Company does not have a debt problem. < The Wall Street Gang needs a Paradigm Shift on this point.
> The PV10 Net Asset value based on SEC oil & gas price guidelines ($3.60/MMBtu) was $14.86/share on 12/31/2021 just for their proved reserves (P1).
> Including P2 reserves and $4.75/MMBtu gas price, CRK's PV10 Net Asset value is probably over $25/share. < Just my back of the napkin guess.

If HH gas price stays over $5/MMBtu, CRK could be a triple for us. < Based on HH gas prices averaging $4.25 in 2022 and $4.00 in 2023, my valuation of CRK is $22/share.