Comstock Resources, Inc. (CRK)

CRK 
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Comstock Resources (CRK)

Q3 2013 Earnings Call

November 05, 2013 11:00 am ET

Executives

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

Analysts

Donald P. Crist - Johnson Rice & Company, L.L.C., Research Division

Raymond J. Deacon - Brean Capital LLC, Research Division

Michael Kelly - Global Hunter Securities, LLC, Research Division

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

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

Marshall Carver

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Comstock Resources Earnings Conference Call. My name is Lisa, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host, Mr. Jay Allison, Chief Executive Officer. Please proceed, sir.

Miles Jay Allison

Thank you, Lisa. Before we start, I've got about 6 or 7 bullet points that I want to make sure that those that are attending the conference, if they leave early, they get these bullet points pertaining to the quarter. As you all know, this is the first quarter that we've had -- where we've had the Permian divestiture behind us. With the proceeds from the Permian sale, we have retired $735 million of debt, really, in the last 6 months. So the question is, what do we do with that? And the bullet points are, one, because of that, we've now been able to double our Eagle Ford rig count. We went from 3 rings to 6 rigs, as you know. And that allows our Eagle Ford oil production to grow anywhere from 33% to 36% over that production of 2012. The sale of the Permian also allowed us, really, to be 20% oil at the end of 2013 as far as production. And we should be 40% at the end of 2014 as far as oil production. It also allows Comstock to complete, I think, somewhere like 15 additional net wells in the Eagle Ford versus our initial projections at the beginning of this year. Now we've added 3 more even in this quarter. It has allowed us to repurchase some shares. We repurchased 1.3% of our outstanding shares. And I think the other thing that it does, we will spend $120 million to enter into 2 new oil basins. So the question is, are we having some science experiment? And the answer is, quite frankly, no. We're not looking to enter into a science experiment that will dilute to strong return currently being seen in the Eagle Ford but rather, invest in 2 areas, each of which we think have the potential to be another Eagle Ford. And we throw that $120 million out, so you'll know that we're not going to get in financial strait. That's the amount of money that we're investing in the future in 2 new plays. And you'll also note, after the divestiture of the Permian, our bank credit facility should increase to $1 billion, with $625 million initial borrowing base, and our year-end oil production should be greater than what we had projected as if we had kept the Permian. So all those are great points that I didn't want anyone to miss if they left the conference call early. So with that, welcome to the Comstock Resources' third 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 www.comstockresources.com and clicking Presentations. There you'll find a presentation entitled Third Quarter 2013 Results. I am Jay Allison, Chief Executive Officer of Comstock. And 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 third quarter operating and financial results. If you go to Slide 2, please refer to Slide 2 in our presentation 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.

Now Slide 3, our 2013 third quarter highlights summarizes our third quarter results. Our third quarter operating results were defined by continuing strong growth in our oil production and the prudent natural gas prices offset, in part, by declining natural gas production. Our oil and gas sales increased to $112 million in the third quarter. Our total EBITDAX was $82 million, and our total cash flow from operations was $63 million or $1.31 per share. Our Eagle Ford drilling program is providing strong oil production growth this year. Our oil production increased 14% from the second quarter and is up 30% over last year's third quarter. Oil made up 22% of our total production in the third quarter alone. We expect our oil production this year to grow 33% to 36% over 2012, as I stated earlier. In the first 3 quarters of 2013, we drilled 47 successful Eagle Ford wells and also completed 42 wells, which had an average oil initial production rate of 793 barrels of oil equivalent per day. Our results in our Eagle Ford program have improved considerably since last year. Our 2013 completions had 30-day initial rates that are 25% higher than the 30-day rates in 2012. While at the same time, our average well cost had decreased by 13% from 2012. We have a very strong balance sheet off the West Texas divestiture which closed in the second quarter. The divestiture allowed us to retire $735 million of debt this year, including the October 15 redemption of our 2017 bonds. At the end of the third quarter, our net debt has improved from 59% to only 35% of our total capitalization.

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