Energy Prospectus

Comstock Resources, Inc.(NYSE: CRK) reported financial and operating results for the quarter ended September 30, 2021.

Highlights of 2021's Third Quarter

Free cash flow of $84 million was generated in the quarter.

Adjusted net income to common stockholders was $91 million for the quarter or $0.34 per diluted share. < Compares to my forecast of $104 million net income.

Production increased 25% to 1,424 MMcfe per day (98% natural gas). < Compares to my forecast of 1,404 MMcre per day

Revenues, including realized hedging losses, were $394 million, 86% higher than 2020's third quarter. < Compares to my forecast of $403 million

Adjusted EBITDAX was up 109% to $309 million.

Operating cash flow (excluding working capital changes) increased 30% to $255 million or $0.92 per diluted share. < Compares to my forecast of $268 million.

Third quarter capital spending was $167 million, including $5 million for leasing activities.


Third Quarter 2021 Financial Results

Revenues in the third quarter of 2021 totaled $394.0 million (after deducting realized losses on hedging of $117.1 million). Net cash provided by operating activities (excluding changes in working capital) generated in the third quarter was $255.4 million, and the Company reported a net loss available to common stockholders for the third quarter of $292.7 million ($1.26 per share). The net loss in the quarter was driven by a $392.9 million unrealized loss on hedging contracts held for risk management. The significant improvement in the outlook for natural gas prices generated the unrealized loss on the hedging contracts. Excluding this item and certain other unusual items, adjusted net income available to common stockholders for the third quarter of 2021 was $90.6 million, or $0.34 per diluted share.

Comstock's production cost per Mcfe in the third quarter was $0.65 per Mcfe, which was comprised of $0.27 for gathering and transportation costs, $0.20 for lease operating costs, $0.13 for production and other taxes and $0.05 for cash general and administrative expenses. Production cost was $0.59 per Mcfe in the second quarter of 2021 and $0.62 in the third quarter of 2020. Comstock's unhedged operating margin was 83% in the third quarter of 2021.

I will update my forecast/valuation model for CRK this weekend, but I don't see anything that will lower my valuation of $24.

New wells should increase production and revenues in Q4.

Comstock drilled 55 (45.2 net) operated horizontal Haynesville/Bossier shale wells in the first nine months of 2021 which had an average lateral length of 8,504 feet. Comstock also participated in an additional 26 (1.7 net) non-operated Haynesville shale wells in the first nine months of 2021. Comstock turned 68 (47.2 net) wells to sales in the first nine months of 2021 and currently expects to turn an additional 10 wells (8.8 net) to sales in the fourth quarter of 2021.

Since its last operational update in August 2021, Comstock has turned 15 (12.3 net) new operated Haynesville/Bossier shale wells to sales. These wells had initial daily production rates that averaged 22 MMcf per day. The completed lateral length of these wells averaged 7,925 feet.

Stifel's take

Comstock Resources, Inc. (CRK, $9.83, Buy; Target $13.00) - Delivers both an
in-line quarter and Q421 guide, investor focus now shifts to FCF profile - Derrick
Whitfield -
We view this release as neutral to slightly positive. The positives include: i)
an adjusted EBITDAX beat (2.5% above consensus) driven by better-than-expected
gas realizations, and ii) in-line total equivalent and gas production Q421 guidance. The
negatives include: i) a slight gas production miss (0.3% below consensus) on higher-
than-expected capex (9.2% above consensus). We caution investors to note that
management has been messaging higher Q321 capex since the Bakken divestiture
announcement on October 7. Additionally, Q421 capex guidance is 7.3% below
consensus. Relative to our production and capex estimates, Comstock delivered an
in-line quarter and provided in-line Q421 guidance. Net-net, we expect neutral to
slightly positive stock reaction Wednesday as Comstock delivered in-line production
despite elevated shut-ins (5.8% of production versus 4-5% historical rate) and as
investors begin to evaluate the company's 2022 and 2023 FCF profile at strip and
potential return of capital initiatives.