Comstock Resources (CRK) Q1 Results - May 10

[dan_s]

Comstock Resources is a former Sweet 16 company that I have followed closely for over a decade. Thanks to the support from their largest shareholder, Jerry Jones, they have more than tripled production. Comstock is being added to the Sweet 16 to replace Solaris Oilfield Infrastructure (SOI). There is nothing wrong with SOI and it should be one of my Top Picks in our Small-Cap Growth Portfolio heading into 2021.

Comstock is a "gasser" which should get a BIG revenue boost from rising natural gas and NGL prices in 2H 2020.

Financial Results for the Three Months Ended March 31, 2020

For the first quarter of 2020, Comstock reported net income available to common stockholders of $30.0 million or $0.15 per diluted share. Net income available to common stockholders as adjusted to exclude certain items not related to normal operating activities for the first quarter of 2020 was $23.6 million or $0.12 per diluted share. < Adjusted Net Income compares to my forecast of $4.6 million, $0.02/share.

Adjusted Net Income included $5.3 million in non-cash interest amortization resulting from adjusting debt assumed in the Covey Park acquisition to fair value; $2.5 million of non-cash accretion resulting from adjusting the preferred stock issued in connection with the Covey Park acquisition to fair value; and $16.5 million in unrealized hedging gains.

Comstock produced 122.8 billion cubic feet ("Bcf") of natural gas and 454,495 barrels of oil or 125.5 billion cubic feet of natural gas equivalent ("Bcfe") in the first quarter of 2020.
> Natural gas production averaged 1,349 million cubic feet ("MMcf") per day, an increase of 270% over natural gas production in the first quarter of 2019. The growth in natural gas production was primarily attributable to the Covey Park acquisition and the successful results from Comstock's Haynesville shale drilling activities in 2019 and 2020. < My forecast was 1,320 MMcfpd.
> Oil production in the first quarter of 2020 decreased to 4,994 barrels of oil per day from 9,005 barrels per day produced in the first quarter of 2019 due primarily to expected production declines from the Bakken Shale properties acquired in 2018. < My oil forecast was 6,000 BOPD.

Comstock's average realized natural gas price in the first quarter of 2020, including hedging, decreased to $2.04 per Mcf as compared to $2.87 per Mcf realized in the first quarter of 2019. The Company's average realized oil price in the first quarter of 2020, including hedging, increased to $46.31 per barrel as compared to $45.78 per barrel in the first quarter of 2019. < My forecast assumed realized natural gas prices including cash settlements received during Q1 of $1.90/mcf and a realized oil price of $45.00/bbl.

Oil and gas sales were $271.3 million (including realized hedging gains) in the first quarter of 2020 as compared to sales of $132.3 million in the first quarter of 2019. EBITDAX, or earnings before interest, taxes, depreciation, depletion, amortization, exploration expense and other noncash expenses, of $201.6 million in the first quarter of 2020 increased by 108% over EBITDAX of $96.9 million for the first quarter of 2019. The Company's operating cash flow generated in the first quarter of 2020 of $156.0 million increased 120% over operating cash flow of $70.8 million in the first quarter of 2019. < This is the BEST NEWS because my operating cash flow forecast was $120.5 million.

I am updating my forecast/valuation model for CRK. It will be on the EPG website early this afternoon.

[dan_s]

This is why I want more exposure to the Haynesville Shale Gas Play in the Sweet 16>
"Since its last operational update, Comstock reported on an additional twenty Haynesville shale wells. The average initial production rate of these wells was 24 MMcf per day. The wells had completed lateral lengths ranging from 4,574 feet to 9,885 feet, with an average completed lateral length of 8,758 feet. Each well was tested at initial production rates of 15 to 32 MMcf per day."