Comstock Resources, Inc. (CRK)

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Comstock Resources (CRK)

Q2 2013 Earnings Call

July 30, 2013 10:30 am ET


Miles Jay Allison - Chairman and Chief Executive Officer

Roland O. Burns - President, Chief Financial Officer and Director

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


Brian M. Corales - Howard Weil Incorporated, Research Division

Marshall Carver

Raymond J. Deacon - Brean Capital LLC, Research Division

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

Michael Kelly - Global Hunter Securities, LLC, Research Division

John Freeman - Raymond James & Associates, Inc., Research Division

Dan McSpirit - BMO Capital Markets Canada

Cameron Horwitz - U.S. Capital Advisors LLC, Research Division

Sean Sneeden

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

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



Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Comstock Resources Incorporated Earnings Conference Call. My name is Shaquanna, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Jay Allison, CEO of Comstock Resources. Please proceed, sir.

Miles Jay Allison

Thank you, Shaquanna, and thanks for everyone that's participating in the conference call.

Before we go over the 30 slides, I'd like to kind of make an introduction. I know if you go back and you've been a longtime stakeholder of the company, in 2010, Comstock produced very little oil. We were a pure natural gas company, with the Haynesville being our marquee asset. Today, that is quite different. Yes, we still own 130,000-plus net acres in the Haynesville/Bossier, which is really inventories until gas prices improve. But, today, we report the final results of the Permian acreage play, which we entered and exited, really, within a year, and how that event was a springboard for accelerating the other oil play that we're in, which is the Eagle Ford, that we entered into beginning of 2010. It's a rare occasion, on a quarterly conference call, that a company with an $816 million market cap, which is Comstock, can report on a quarterly call that it recognized a $231 million gain or $3.21 per share on the sale of an asset that it owned only for a year. But Comstock can report that news today. That single event allowed Comstock to do several things: One, reduce net debt-to-capital by almost 60% to 33%; two, provided Comstock with $764 million in liquidity; three, it accelerated the Eagle Ford drilling program from a 42 gross well program, which is what we had before the sale of the Permian, to a 72 gross well Eagle Ford program. We added almost 30 gross wells as a result of the Permian sale. And, finally, it allows our acquisitions group to focus, again, on the Eagle Ford and other oily plays in order to continue to create great wealth for the stakeholder, as it did with the sale of the Permian.

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

I am Jay Allison, Chief Executive Officer of Comstock. With me this morning are Roland Burns, our President and Chief Financial Officer; and Mark Williams, our Chief Operating Officer. During this call, we will discuss our 2013 second quarter operating and financial results.

Slide 2. 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.

Our 2013 second quarter highlights. Slide 3 summarizes our second quarter results. The most significant item in the quarter is the recognition of a gain of $231 million or $3.21 per share from the sale of our West Texas properties, which was completed on May 14, 2013. Excluding the sale, our second quarter operating results were defined by strong growth in our oil production and improved natural gas prices, offset in part by declining natural gas production. Our oil and gas sales, including gains from our hedging program, increased to $111 million in the second quarter. Our total EBITDAX was $89 million and our total cash flow from operations was $67 million or $1.43 per share.

Our Eagle Ford drilling program is providing strong oil production growth this year. Our oil production increased 26% from the first quarter and is up 21% over last year's second quarter. Oil made up 19% of our total production in the second quarter and is expected to average 20% this year. We expect our oil production this year to grow 28% to 34% over 2012.

In the first half of 2013, we drilled 25 successful Eagle Ford wells and also completed 25 wells, which had an average per well initial production rate of 796 barrels of oil equivalent per day. The 2013 completions have initial rates that are 23% higher than initial rates in 2012, while our drilling costs have decreased by 10%. We added 3 operated drilling rigs in June, to bring our total rigs drilling to 6, and plan to drill 47 more wells in the last half of this year.

We have a very strong balance sheet after the West Texas divestiture. We have $764 million in liquidity and our net debt decreased from 59% to 33% of our total capitalization.

Our West Texas divestiture, which is Slide 4. Please refer to Slide 4 in our presentation, which summarize the sale of our West Texas properties. On May 14, we completed the sale of our West Texas operations with Rosetta Resources and received proceeds of $824 million, including reimbursements for capital expenditures incurred since January 1. We reflected our West Texas properties as discontinued operations in our financial statements.

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 realized a gain of $231 million from 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 estimate the current tax liability for this year will only be around $1 million.

I will now turn it over to Roland to review our second quarter results in more detail. Roland?

Roland O. Burns

Thanks, Jay. Slide 5 shows our oil production from continuing operations by region on a daily basis for the last 2 years and the first 2 quarters of this year. And this slide is a little different than the past because it's only reflecting continuing operations and no longer reflects our discontinued West Texas operations.

And our oil production this quarter increased to 6,000 barrels per day and was up 1,200 barrels per day or 26% over the first quarter of this year. Oil production this quarter was also 20% higher than the second quarter of 2012.

Our Eagle Ford properties in South Texas averaged 5,800 barrels per day as compared to 4,500 barrels per day in the first quarter. With increased drilling in the second half of this year, we expect our oil production from continuing operations to grow at approximately 2.3 million to 2.4 million barrels in 2013, which is an increase of 28% to 34% over 2012.

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