Comstock Resources, Inc. (CRK)

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Comstock Resources (CRK)

Q3 2012 Earnings Call

October 30, 2012 10:30 am ET

Executives

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

Analysts

Brian M. Corales - Howard Weil Incorporated, Research Division

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

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

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

Dan McSpirit - BMO Capital Markets Canada

Michael Kelly - Global Hunter Securities, LLC, Research Division

Raymond J. Deacon - Pritchard Capital Partners, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2012 Comstock Resources Inc. Earnings Conference Call. My name is Rachel and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I now would like to turn the call over to Mr. Jay Allison, President and Chief Executive Officer. Please proceed, sir.

Miles Jay Allison

Thank you, Rachel. Before I start the third quarter results, I'd like to kind of have an opening comment from the company. For those of us who really don't live on the East Coast, we're not directly hit by Superstorm Sandy, it's is really kind of somber morning, it's a strange morning. We've been doing this for 24 years and it's a strange morning not have your stock trading. As you know, Ron and I has spent a lot of times, in the past 23 years, on the East Coast region, marketing the Comstock story. So it really feels like our second home. So please note that all of our prayers at Comstock this morning are for those impacted by Superstorm Sandy. The 7.8 million people without power, those directly in the storm's path. It's comforting to know that Americans are strong and that the impacted region will rebound in short order.

So with that, I'll open it up with the third quarter 2012 results. If you go to the slide presentation, welcome to the Comstock Resources Third Quarter 2012 Financial and Operating Results Conference Call. You can view the 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 titled Third Quarter 2012 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 recent drilling results, review our 2012 third quarter financial results. Forward-looking statements, that's on 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 of such statements to be reasonable, there can be no assurance that such expectations will prove to be correct.

2012 third quarter highlights, if you'll refer to Page 3 of the presentation, will summarize our third quarter results. The financial results this quarter continue to be impacted by the very low natural gas prices that we receive for our production. The growing oil side of the company is helping mitigate the negative impact that the very weak natural gas prices are having on our financial results. For the third quarter, we reported revenues of $117 million, generated EBITDAX of $87 million and net operating cash flow of $71 million or $1.47 a share. We did have a net loss of $26 million or $0.56 per share. We were able to increase our oil production by 13 % from last quarter and 238% as compared to the third quarter of 2011. Oil comprised 16% of the third quarter production and 57% of the third quarter's revenues. We've had strong results in our 2012 drilling program, which Mark will go over in a moment. And we drilled 56 successful wells, including 49 successful oil wells in our Eagle Ford and Wolfbone programs. The increase in oil production and improving natural gas prices will have a positive impact on our future revenues and cash flow. Our cash flow is now able to cover most of our drilling expenditures and our bank borrowing base was increased to cover the one-year, $90 million advance our banks made to help us finance the Wolfbone acquisition at the end of last year. I'll now turn it over to Roland to cover of the financial results in more detail. Roland?

Roland O. Burns

Thanks, Jay. On Slide 4, we show our oil production on a daily basis by quarter. Our oil production this quarter grew by 238% to 7,200 barrels per day, as compared to the third quarter last year when we produced 2,100 barrels per day.

Our Eagle Ford shale properties in South Texas, shown in light blue on this chart, increased to 5,000 barrels per day and is our main engine for growth this year. We added 400 barrels per day in the Eagle Ford this quarter as compared to 4,600 barrels we averaged in the second quarter of this year.

The decrease in the rigs that we have drilling in our Eagle Ford program and the new joint venture, where KKR participates for 1/3 of our interest, has slowed our oil growth this quarter and for the upcoming fourth quarter.

We're adding another rig into our Eagle Ford program in late November, which will bring us to 3 rigs by December. This additional activity allows us to have strong production growth again in the region in the first quarter of next year.

Our Wolfbone properties in West Texas increased by 500 barrels this quarter to 1,900 barrels per day. We expect to see production from this region continue to increase each quarter as we go forward.

As we look to finish up this year, we're forecasting our oil production to grow approximately 190% to 200% of our last year's production to the total of 2.4 million to 2.5 million barrels in 2012. We expect to begin 2013 well-positioned to have another strong year of oil production growth.

Slide 5 shows our natural gas production on a daily basis. Our natural gas production decreased by 19% of the third quarter from last year to 220 million cubic feet of gas per day. The decrease is primarily attributable to 10 million a day of production that we sold with our May property divestitures, which closed in the second quarter, and declines from our Haynesville properties, which were at their peak production level in the third quarter of last year.

Production from our Haynesville and Bossier wells declined to 165 million per day this quarter. The remaining 25% of our gas production had only modest declines. Production from our Cotton Valley wells, which is shown in dark blue on our chart on Slide 5, averaged 27 million per day, and our South Texas gas production, which is shown in red, was 21 million cubic feet per day.

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