Domestic energy explorer
Comstock Resources Inc.
) has entered into an agreement to sell off its oil and gas
properties in Reeves and Gaines counties in West Texas. The
assets were sold to Houston-based oil and natural gas producer
Rosetta Resources Inc.
) for $768 million.
COMSTOCK RESOUR (CRK): Free Stock Analysis
EPL OIL&GAS INC (EPL): Free Stock Analysis
ROSETTA RESRCS (ROSE): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
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The sale - with an effective date of Jan 1, 2013 - is likely to
close on May 15. Comstock plans to use the proceeds to pay off
its outstanding debt and to increase its 2013 drilling fund for
the Eagle Ford shale.
Comstock also revised its capital spending budget for 2013 to
reflect the above divestiture and an increase in drilling
activity in its Eagle Ford shale in South Texas. This year,
Comstock plans to spend $422 million, which includes $410 million
on drilling activities and $12 million on exploratory leasehold.
Comstock will drill 82 wells in its current operations in South
Texas and East Texas/North Louisiana for about $347 million. Of
this, Comstock will spend $312 million in the Eagle Ford shale,
where it plans to drill 72 wells. The remainder will be used for
Comstock's natural gas properties mainly in East Texas and North
Comstock further informed that it is increasing the number of
rigs to be drilled to 6 from 3 in South Texas during the second
half of 2013.
Comstock carries a Zacks Rank #4 (Sell), implying that it is
expected to underperform the broader U.S. equity market over the
next 1 to 3 months.
Comstock's high natural gas exposure raises its sensitivity to
gas price fluctuations, compared to its more-diversified
independent peers with a balanced oil/gas production profile. The
company, which derives bulk of its reserves/production from
natural gas, has seen its sales and income drop drastically in
recent quarters on the back of a sharp drop in gas prices.
Following Comstock's debt-financed acquisition of producing
properties and acreage in the Delaware Basin, we remain worried
about its incremental leverage and reduction of liquidity.
However, there are certain other energy explorers like
EPL Oil & Gas, Inc.
Range Resources Corp.
) that offer tremendous value and are worth buying now. Both
these entities sport a Zacks Rank #1 (Strong Buy).