COMSTOCK RESOURCES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Jay Allison discussed natural gas demand driven by AI and LNG, Comstock's position in Western Haynesville with 450,000 net acres and 18 wells drilled.
• Roland Burns covered financial results, gas price realizations, operating costs, and drilling spending.
• Dan Harrison talked about Western Haynesville operations, first horseshoe well with high IP, cost per foot reduction, drilling inventory, and rig/frac crew activity.
• Jay Allison highlighted 2024 outlook, Western Haynesville acreage, hedge position, and liquidity.

Segment Performance:

• Production: Third quarter averaged 1.4 Bcfe per day, 2% higher than Q3 2023. Year-to-date averaged 1.5 Bcfe per day, 5% higher than same period 2023.
• Sales: Oil and gas sales including hedging were $305 million in Q3, down 3% from Q3 2023. Year-to-date $919 million, down 7% from 2023.
• Cash Flow: Q3 cash flow from operations $152 million, YTD $452 million.
• Gas Prices: Average realized gas price before hedging $1.90 in Q3, 28% hedged, improving to $2.28. Fourth quarter 50% hedged.
• Costs: Operating cost per Mcfe $0.77 in Q3, $0.07 improvement from Q2. EBITDAX margin improved to 67% in Q3 from 61% in Q2.

Guidance:

• Q4 production expected 1,325-1,375 million cubic feet per day.
• D&C CapEx guidance $225-275 million.
• 43 net wells expected to be turned to sales in 2024, up from original 38-39.
• Leasing CapEx $2-5 million per quarter, Pinnacle Gas Services CapEx $50-90 million.
• Cost guidance for LOE, GTC, production taxes, DD&A, and G&A.

Risks:

• Volatility in natural gas prices.
• Operational risks related to drilling in Western Haynesville, including faulting and lease line issues.
• Uncertainty in midstream capacity and M&A consolidation.

Question and Answer: Q: Hey good morning guys. Thanks for getting me on. I guess I'd like to start with the elephant in the room, which is the planned outspend for 4Q. To bring it up a little bit, I think we're all pleased to see that you guys have the waiver. But I think some of the market to that tripping the coming in will lead you back to more of a free cash priority. From our perspective, I think we get it, we see you trying to stabilize production and division for maybe a better 2025. Just hoping that you can kind of talk through your motivations to outspend through this soft pricing and then maybe articulate your plans to manage the balance sheet in 2025?

A: Yes, that's a good question. I think really that when we originally had the plan in place and by the time you kind of execute the plan, prices were a little bit stronger, and we figured it would really cover those expenditures planned for this year. And I think the only there's a little higher expenditure level only because the drilling days have been quicker and the Western Haynesville, so a lot of the completion work that was going to cross over -- some of that is going to cross over into 2025. It's kind of now expected to be mostly in the quarter. So on a -- other than looking at an individual quarter, I think if you looked at it on a longer period, there hasn't really been much change at all in the plans. It's just how the how the costs end up being reported. So our goal for 2025 is again to with a higher hedge level I think it will be easier to achieve and take some of the risk out of gas prices is to try to balance the capital we invest back into with the cash flow we generate through operations.

Q: Good morning guys. Thank you for taking my call. Well, first of all, the -- I'd like to start with the horseshoe results because they are certainly encouraging. And I think directionally, this is what the investment community wants to see. Now I do think that we need to rationalize how this translates into free cash flow generation. So my question and bearing in mind because you guys know this better than I do, that not all acreage is created equal. What's the geographical spread of the 64 locations that you think are candidates for this across your Haynesville locations?

A: Good question. So that is 64 just in the Haynesville. And you're right, all the start off. We're very happy with the results on the Sebastian well. We didn't -- we had no issues to drilling the well. I'm going to say maybe 2 extra days, if you compare that to just drilling a straight 10,000-foot lateral. Just didn't have any issues. And the frac it fracked, if you just -- if you didn't know that it was a horseshoe you well, you can't -- we couldn't tell any difference in fracking those straight 10,000-foot lateral and frac in the horseshoe. The well did frac really good again. So results look fantastic. So we're super excited about it. As far as the spread of the locations, I'd say they're pretty evenly kind of spread across if you look at that acreage position and just kind of from south to north, I think we've got them -- they're just pretty much all across the basin. So we've got them in the 16 B per thousand we got them in the [Indiscernible] type curve areas up to the 2. So I think kind of the answer for you is really is just spread out across all the acreage. Not really in any specific spot