Comstock Resources (CRK) Q2 Results - July 31

[dan_s]

Comstock Resources, Inc.
Mon, July 31, 2023 at 3:15 PM CDT

FRISCO, TX, July 31, 2023 (GLOBE NEWSWIRE) -- Comstock Resources, Inc. ("Comstock" or the "Company") (NYSE: CRK) today reported financial and operating results for the quarter ended June 30, 2023.

Highlights of 2023's Second Quarter

Weak natural gas prices have weighed heavily on the second quarter results.

Natural gas and oil sales, including realized hedging gains, were $285 million. < Compares to my forecast of $346.6 million. More than half of the miss was a $51 million decline in Gas Services revenues..

Operating cash flow was $145 million or $0.53 per diluted share. < Compares to my Adjusted Operating Cash Flow forecast of $203.7 million.

Adjusted EBITDAX for the quarter was $182 million.

Adjusted net income was just over break even for the quarter.

Solid results from Haynesville shale drilling program with 15 (12.0 net) operated wells turned to sales since the Company's last update with an average initial production of 21 MMcf per day.

Comstock continues to have success in its Western Haynesville exploratory play. Comstock's fourth and fifth well were recently turned to sales with strong initial production rates.

Financial Results for the Three Months Ended June 30, 2023

Comstock's natural gas and oil sales in the second quarter of 2023 totaled $285.2 million (including realized hedging gains of $55.5 million). Operating cash flow (excluding changes in working capital) generated in the second quarter of 2023 was $145.5 million, and net loss available to common stockholders for the second quarter was $45.7 million or $0.17 per share. The reported net loss in the quarter included a pre-tax $60.0 million unrealized loss on hedging contracts held for risk management. Excluding this item and certain other items, adjusted net income available to common stockholders for the second quarter of 2023 was $1.0 million, or $0.00 per diluted share.

Comstock's production cost per Mcfe in the second quarter averaged $0.84 per Mcfe, which was comprised of $0.36 for gathering and transportation costs, $0.27 for lease operating costs, $0.15 for production and other taxes and $0.06 for cash general and administrative expenses. Comstock's unhedged operating margin was 54% in the second quarter of 2023 and 63% after hedging.

Conclusion: Comstock is very close to a "Pure Gasser" since it has just 143 BOPD of oil production. This will be the worst quarter of the year. My short-term advice is to sell the gassers and move the money to companies that get the majority of their revenues from oil sales. Long-term outlook for Comstock will be fine and by this time next year, natural gas prices should be moving a lot higher. I will listen to the Company's conference call and update my forecast/valuation model by mid-week.

[Fraser921]

You referenced hedging gains, you meant hedging settlements, big difference.

In fact, CRK reported Unrealized loss on hedging contracts was 59,989

the other point you said "More than half of the miss was a $51 million decline in Gas Services revenues."

That's a pass through of 3rd party Ng and comes with little margin 3 m in q2 and 8 m in q1. You can almost argue it shouldn't be a revenue item They should just report the margin on the pass thru gas services

[dan_s]

That's just because they realized $55.5 million of cash settlements on their hedges. Ignore the "Unrealized gains and losses on hedges". Those are just non-cash adjustments to the book value of their hedges. GAAP accounting rules for hedges are extremely misleading.

[Fraser921]

Calling hedge settlements a gain is misleading too. They should just call it hedge settlements.
They need 4 bucks to make a fair return

[dan_s]

Note from Stifel this morning.

Comstock Resources, Inc. (CRK, $12.75, Buy; Target $14.00) - Noisy quarter with weather impacts, Western Haynesville continues to impress - Derrick Whitfield
- We view this release as neutral to slightly negative. The positives include: i) continued strong initial production rates from the Western Haynesville, with the fourth and fifth exploratory wells producing at 34 and 35 mmcfpd, and ii) a 3.5% q/q decrease in D&C costs. The negatives include: i) a slight production miss (0.9% below consensus), albeit weather impacts drove the miss, on higher than expected capex (1.8% above consensus), ii) an adjusted EBITDAX miss (3.7% below consensus), iii) lower than expected Q323 production guidance (4.6% below consensus) on higher than expected capex (4.7% above consensus), and iv) a 1.9% increase to FY23 capex guidance driven by increased leasing activity on FY23 volumes that are expected to be towards the low-end of the range. Net-net, the quarter was noisy with weather impacts; however, we see the continued strong performance from the Western Haynesville as mostly offsetting the miss on the quarter.