Comstock Resources, Inc. (CRK)

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Comstock Resources (CRK)

Q1 2013 Earnings Call

April 30, 2013 10:30 am ET


Miles Jay Allison - Chairman, Chief Executive Officer and President

Roland O. Burns - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Secretary, Treasurer and Director

Mark A. Williams - Chief Operating Officer and Vice President of Operations


Brian M. Corales - Howard Weil Incorporated, Research Division

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Rehan Rashid - FBR Capital Markets & Co., Research Division

Jack N. Aydin - KeyBanc Capital Markets Inc., Research Division

Kim M. Pacanovsky - MLV & Co LLC, Research Division

Mark Lear - Crédit Suisse AG, Research Division

Dan McSpirit - BMO Capital Markets U.S.

Raymond J. Deacon - Brean Capital LLC, Research Division

Sean Sneeden

Daniel Katzenberg - Oppenheimer & Co. Inc., Research Division

Michael Kelly - Global Hunter Securities, LLC, Research Division

Amir Arif - Stifel, Nicolaus & Co., Inc., Research Division

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Arvinder Saluja - Moody's Corporation, Research Division



Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Comstock Resources, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to your host for today, Mr. Jay Allison, Chief Executive Officer. Please proceed.

Miles Jay Allison

Thank you, Stephanie. Welcome to the Comstock Resources First Quarter 2013 Financial and Operating Results Conference Call. You can view a slide presentation during or after this call by going to our website at and clicking Presentations. There, you'll find a presentation entitled First Quarter 2013 Results.

I'm Jay Allison, President of Comstock. And with me this morning are Roland Burns, our Chief Financial Officer; and Mark Williams, our Chief Operating Officer.

During this call, we will discuss our 2013 first quarter operating and financial results and discuss our pending sale of our West Texas properties to Rosetta Resources.

Please refer to Slide 2 in our presentations and note that our discussions today will include forward-looking statements within the meaning of securities laws. While we believe the expectations in such statements to be reasonable, there can be no assurance that such expectations will prove to be correct.

If you'd go to Slide 3, it's the 2013 first quarter highlights. I will summarize our first quarter results.

The declining natural gas production results from pulling all of our rigs out of the Haynesville last March and the improving oil and gas prices defined our first quarter results. We had oil and gas sales, including the gains from our hedging program, of $97 million from our continued operations. Our total EBITDAX was $81 million and our total cash flow from operations were $62 million or $1.28 per share. We reported a net loss from continuing operations of $24.5 million or $0.52 per share for the quarter. Given the activity that is planned in South Texas in our Eagle Ford shale program, we are expecting another strong year of oil production growth.

Oil made up 14% of our total production in the first quarter, excluding our West Texas properties, and it's expected to average 20% this year. We expect that oil production from our Eagle Ford shale properties will grow 28% to 34% over 2012, driven by our successful drilling program.

In the first quarter, we drilled 11 successful Eagle Ford wells and completed 10 wells, which had an average per well initial production rate of 845 barrels of oil equivalent per day. The 2013 completions have initial rates that are 32% higher than initial rates in 2012. We'll have a very strong balance sheet after the West Texas divestiture that we'll discuss today. We will have over $800 million in pro forma liquidity, and our pro forma net debt improves to 29% of our total capitalization.

Please refer to Slide 4 now in our presentation, where we summarize the pending sale of our West Texas properties. On March 15, we announced an agreement with Rosetta Resources to sell our properties in Reeves and Gaines County in West Texas for a sale price of $768 million, subject to customary purchase price adjustments and closing conditions. The sale will have an effective date of January 1, 2013, and is expected to close on May 14, 2013. The sale represents all of our assets in the Permian basin, so we will reflect these properties as discontinued operations in our financial results.

Proved reserves related to these properties were 26.8 million barrels of oil equivalent and 1,700 BOE per day of our 2012 production. We intend to use the proceeds from the sale to primarily reduce debt and to improve our balance sheet.

We expect to realize a gain of over $250 million on the transaction, which represents an outstanding return for our stockholders for the 1 year that we owned these properties. Despite the substantial gain from the sale, we expect the current tax liability for this year to be less than $2 million.

I will now turn it over to Roland Burns to provide the financial impact of this transaction and to review our first quarter results in more detail. Roland, it's yours.

Roland O. Burns

Thanks, Jay. On Slide 5 in the presentation, we break out our West Texas properties from our 2012 results. This slide breaks out the 2012 results so you can see the impact of this transaction going forward on our numbers.

And as Jay said, starting this quarter, we're reflecting the assets and the operating results of the West Texas properties as discontinued operations and we're excluding them from our continuing operations results.

The properties we're selling represented 22% [ph] of our oil production at 1,400 barrels per day in 2012, and less than 1% of our natural gas production at 2 million cubic feet of gas per day in 2012. These properties generated $47 million in revenues or 11% of our 2012 revenues.

Oil, as a percent of our total revenues, decreases to 47% without West Texas, as compared to 52% with it. Our average oil price realization before hedging improves to $101.09 per barrel as compared to $96.95 per barrel. Our average natural gas price realization decreases to $2.49 per Mcf as compared to $2.52. Lifting cost per Mcfe produced improves to $0.96 from $1.06. And DD&A per Mcfe improves to $3.77 as compared to $3.85.

$202 million of our $549 million in capital expenditures last year were spent on the Permian properties, and we sold 23% of our proved reserves in the transaction, including 52% of our oil reserves. 81% of the reserves that we sold were undeveloped. So after the sale, 75% of our total reserves are developed as compared to 62% before the sale.

Now looking at our first quarter 2013 results. On Slide 6, we show our oil production by region on a daily basis and we show it for the last 3 years and for the first quarter of 2013.

The West Texas oil production is shown on red on this chart, and it's also combined with other production that we have sold in the past. Total first quarter 2013 oil production increased to 6,700 barrels per day and was 600 barrels per day higher than the fourth quarter last year. Half the increase was in the discontinued West Texas properties being sold, which averaged 1,900 barrels per day in the first quarter. The other half was from our Eagle Ford properties in South Texas, which increased to 4,600 barrels per day.

In the fourth quarter last year and the first 2 months of the first quarter this year, we had many of our Eagle Ford Shale wells shut in due to artificial lift installation or for offset frac activity. We got all these wells back on production by the end of February.

And with the increased drilling that's now planned for the Eagle Ford in the second half this year, we expect our oil production from continuing operations to grow by approximately 28% to 34% over last year's pro forma continuing operations production. The total continuing operations oil production, we think, will average between -- will be around 2.3 million barrels to 2.4 million barrels of oil in 2013.

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