Domestic energy explorer
Comstock Resources Inc.
) reported weak third quarter 2012 results, hamstrung by
depressed natural gas prices.
The predominantly natural gas-focused exploration and production
firm reported adjusted loss per share of 50 cents in the quarter,
almost double the Zacks Consensus Estimate of a loss of 26 cents.
Comstock's performance also deteriorated considerably from the
year-ago adjusted loss of 1 cent per share.
Total revenues were down 1.9% year over year to $117.1 million,
missing the Zacks Consensus Estimate of $123.0 million.
Comstock recorded quarterly volume decline of 7.7% year over year
to 24.2 billion cubic feet equivalent (Bcfe), of which 84% was
natural gas. The downtrend reflects output shrinkage from its
East Texas/North Louisiana operations that made up three-fourths
of the total volume.
Production in the East Texas/North Louisiana operating region
decreased 18.7% to 17.8 Bcfe (99% gas). Elsewhere, output from
the South Texas, West Texas and Other properties came in at 4.7
Bcfe (41% gas, up 26.7% year over year), 1.2 Bcfe (16% gas, up
84.1% year over year) and 0.5 Bcfe (91% gas, down 21.6% year over
Average price realization per thousand cubic feet equivalent
(Mcfe), before hedging, was $4.70 in the quarter, up 3.3% year
over year. Average oil price realization (before hedging) was
$97.09 per barrel (versus $87.55 per barrel in third quarter
2011) and average natural gas realization was $2.46 per Mcf
(compared with $4.09 per Mcf in the year-earlier quarter).
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 saw its results suffer in the wake of a sharp drop in gas
Costs & Expenses
Gathering and transportation costs and lease operating costs came
in at $6.4 million (down 21.2% year over year) and $15.5 million
(up 23.8%) respectively, while total operating expenses increased
27.9% over the third quarter of 2011 to $137.3 million.
Cash Flow & EBITDAX
Comstock generated operating cash flow from continuing operations
of $83.8 million, reflecting a decrease of 15.9% from the
year-earlier quarter. Quarterly EBITDAX (earnings before
interest, taxes, depreciation, depletion, amortization,
exploration expense and other non-cash expenses) was down 7.9%
year over year to $86.7 million.
Capital Expenditure & Balance Sheet
During the third quarter of 2012, Comstock spent $90.4 million on
exploration/development drilling activities. As of September 30,
2012, Comstock had approximately $2.6 million in cash and cash
equivalents and $1,238.8 million in long-term debt.
Debt-to-capitalization at the end of the quarter was 55.1%.
Recommendation & Rating
Comstock's large acreage position in the prolific Haynesville
Shale play (in East Texas and North Louisiana) - where industry
Chesapeake Energy Corp.
Royal Dutch Shell plc
) are also leaseholders - provides a multi-year inventory of
low-risk development drilling opportunities. As a result,
Comstock remains well positioned to maintain a strong growth
trajectory in the near to medium term.
However, the company's highly gas-weighted reserves/production
profile, along with exposure to the inherently cyclical and
volatile exploration and production sector, offset these
strengths and remains the key areas of concern, in our view. We
believe that Comstock's current valuation adequately reflects its
fairly balanced risk/reward profile.
As such, we see the stock performing in line with the broader
market and maintain our long-term Neutral recommendation,
supported by a Zacks #3 Rank (short-term Hold rating).
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