Comstock Resources (CRK) Update - Dec 27
Posted: Mon Dec 27, 2021 1:29 pm
CRK is trading at $8.67 at the time of this post. First Call's price target is $13.21, slightly higher since my last update.
Despite lowering my forecast natural gas prices for Q4 2021 and the year 2022, my valuation for CRK remains at $20/share.
Why? Because they closed the sale of their Bakken oil producing assets on November 16th and natural gas prices are still much higher than they were a year ago.
> Sales proceeds from the Bakken Sale were $154 million, and the Company is generating over $100 million for FCF per quarter.
> A stronger balance sheet and with NO NEAR-TERM DEBT PROBLEMS, CRK deserves a higher cash flow multiple for valuation.
> I increased my valuation multiple from 4.0 to 4.5, which is still very low for a company of this quality.
> Comstock has over 1,900 net HZ drilling locations in the Haynesville Shale play that have OUTSTANDING well level economics at $3.00 natural gas price.
> With my forecast realized natural gas price at $3.30/mcf for 2022, Comstock should generate over $1.1 Billion of operating cash flow in 2022, which compares to $490 million in 2020 and $952 million in 2021.
> Even if Comstock's 2022 realized natural gas price were to be $2.50/mcf the Company would still generate free cash flow next year.
The only thing that I see which justifies today's share price is that some of the Wall Street Gang still has a perception that Comstock has a debt problem. It does not. In addition to lots of free cash flow from operations, Comstock's year-end reserve report is going to show a big increase in P1 reserves and net asset value.
The Haynesville still has a lot of upside and Jerry Jones' company is the best way to play it.
Despite lowering my forecast natural gas prices for Q4 2021 and the year 2022, my valuation for CRK remains at $20/share.
Why? Because they closed the sale of their Bakken oil producing assets on November 16th and natural gas prices are still much higher than they were a year ago.
> Sales proceeds from the Bakken Sale were $154 million, and the Company is generating over $100 million for FCF per quarter.
> A stronger balance sheet and with NO NEAR-TERM DEBT PROBLEMS, CRK deserves a higher cash flow multiple for valuation.
> I increased my valuation multiple from 4.0 to 4.5, which is still very low for a company of this quality.
> Comstock has over 1,900 net HZ drilling locations in the Haynesville Shale play that have OUTSTANDING well level economics at $3.00 natural gas price.
> With my forecast realized natural gas price at $3.30/mcf for 2022, Comstock should generate over $1.1 Billion of operating cash flow in 2022, which compares to $490 million in 2020 and $952 million in 2021.
> Even if Comstock's 2022 realized natural gas price were to be $2.50/mcf the Company would still generate free cash flow next year.
The only thing that I see which justifies today's share price is that some of the Wall Street Gang still has a perception that Comstock has a debt problem. It does not. In addition to lots of free cash flow from operations, Comstock's year-end reserve report is going to show a big increase in P1 reserves and net asset value.
The Haynesville still has a lot of upside and Jerry Jones' company is the best way to play it.