Comstock Resources (CRK) Valuation Update - Feb 15

[dan_s]

For this and all of my forecast model updates I am going to base them on Henry Hub natural gas prices averaging $3.00/MMBtu for 2023 and $4.00/MMBtu for 2024. I am assuming $2.50 for Q1, $2.75 for Q2, $3.25 for Q3 and $3.50 for Q4. < These are close to the NYMEX Strip for HH futures contracts with DEC23 trading at $3.93 at the time of this post. It is my opinion that the front of the strip is oversold because the utilities are currently out of the futures market. They will return this summer because they must refill storage before the next winter heating season arrives.

All of you should listen carefully to Comstock's conference call from this morning. It will help you understand why this company has HUGE upside potential for us, with over 25 years of very high-quality / low-risk drilling inventory near the Gulf Coast gas market.

Key Points:
> Comstock's balance sheet is in GREAT SHAPE. It has no near-term debt issues and lots of cash on the balance sheet.
> $1.5 billion credit facility in place with zero drawn and they have no intention of drawing on it unless a very accretive acquisition becomes available.
> Cash on the balance sheet + 2023 operating cash of close to $1billion (even at the low gas prices above) will more than cover this year's capex.
> They are running 9 operated drilling rigs today and will drop down to 7 rigs after Q1. Frac crews will go from 4 to 3 this summer.
> Lowest cash expenses per mcfe in the industry. < $1.00/mcfe in Q4 including G&A, interest expense and current income taxes.
> Q4 wells had initial production rates that AVERAGED 26 MMcfepd, with some wells over 40 MMcfepd. < These are fantastic well results.
> Comstock now pays $0.125 dividend per quarter.
> 1,573 net horizontal development drilling locations (de-risked by drilling program). < Thousands more potential drilling locations.

My updated current valuation is $25.00 per share.

My updated forecast/valuation model will be updated on the EPG website early this afternoon.

[dan_s]

There were a lot of highly respected energy sector analysts on the CRK conference call, so it will be interesting to see their updated price targets.

[KGardiner]

Thanks Dan,

I think the new gas prices for FMV forecasting make a lot of sense.
Are you planning to make any changes in crude prices for 2023 and 2024 forecasting?

Kevin

[dan_s]

Here are WTI oil prices being used in my forecast models:
2023
Q1 > $80
Q2 > $85
Q3 > $85
Q4 > $90
2024 >> $90

We are draining the SPR to "dangerous levels".
OECD Petroleum Inventories are now at 28 Days of Consumption and forecast to go below 26 Days of Consumption this summer, a level never seen before.
30 Days of Consumption is considered "normal" to keep OECD economies running smoothly.
In my opinion, OPEC+ has very little untapped oil supply to bring to market. A few of the cartel members might have a bit more, but 2/3rd of the countries are now on terminal decline.