Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Comstock Resources Inc (CRK, Financial) has a strong financial liquidity of $1.2 billion.
- The company has the industry's lowest cost structure, which is beneficial in the current low natural gas price environment.
- Comstock Resources Inc (CRK) has no bond maturities until 2029, providing financial stability.
- The company has a supportive major shareholder, the Jones family, who recently invested $100 million.
- The Western Haynesville play is showing promising results with each new well drilled, indicating potential for future growth.
Negative Points
- Natural gas prices are at all-time lows, heavily impacting financial results.
- The company reported an adjusted net loss of $58 million for the second quarter.
- Higher DD&A in the quarter due to the decline in proved undeveloped reserves.
- Operating costs per Mcfe increased to $0.84 in the second quarter.
- Production in the second quarter was impacted by very low natural gas prices, offsetting the production increase.
Q & A Highlights
Q: If I use the second quarter completed wells as a proxy for your drilling pace on wells under 5,000 feet, I'm getting a number that is roughly less than 10% per quarter. Bearing in mind your horseshoe concepts update, how do you see the allocation towards a potentially successful program going into the future quarters and future years?
A: This is Dan. I'll address the short laterals. We did have one short lateral that we reported here. With the success of the horseshoe concept, I think the majority of all the short wells in our inventory will convert to long laterals. However, there will be a few where we just have one short lateral left, bounded by other wells, where we have to drill short laterals. But a good chunk of the inventory will convert to 10,000s.
Q: I wanted to dig in a bit more on the Baker wells and some of the issues that you highlighted. Can you speak to any correlation between what occurred and the IP rates? Is there any impact to the EUR we might expect? And does this mean that region is something that might need to be avoided in the future?
A: Well, it's certainly out on the edge of our acreage footprint. We do know from past drilling in that area that the wellbore stability is a little bit more challenging. Normally, that area drills at a higher cost. We had significant drilling difficulties with two of the wells, requiring multiple sidetracks. It's definitely an outlier and a one-time event. We drilled it because the acreage was expiring.
Q: Can you give us a sense of where cost per foot is sitting on the drilling side of things now that you're done with the two two-well pads?
A: We see costs going down a little bit. We've seen a big movement in pipe prices recently. By the time we get to wells turned to sales in Q1, we expect significant savings on pipe costs. Our D&C costs should come down in Q3 and further into Q4 and Q1.
Q: What are your thoughts on the productivity of horseshoe wells? Do you get the full amount that you would have gotten from the two shorter laterals, or do you lose some recoveries?
A: We expect the performance to be the same as a 10,000-foot well. The only difference is the completed length across the section line. On a per-unit basis, we expect the performance to be totally the same.
Q: How do you think about both acquisitions or potential proceeds from divestitures as we make our way over the course of next year? Are there opportunities to optimize on a smaller scale or even medium to larger-sized bolt-on?
A: We have incoming opportunities all the time. Our real focus right now is to end the outspend and get our production going up. We are committed to managing and protecting our balance sheet. Our goal is to prove that we created great wealth when the market comes to us with this great gas demand.
Q: What is the breakeven in your mind for Henry Hub equivalent for the Western Haynesville?
A: The Western Haynesville is evolving as we work down the drilling and completion costs. We see the cost being comparable to our traditional Haynesville. The reserves are double, and the declines are different. The returns are very comparable, especially with the cost efficiencies we are achieving.
Q: How do you see the allocation towards a potentially successful horseshoe well program going into future quarters and years?
A: This is the first of many to come. The public wants to see more of them drilled and derisked. We feel really good about significantly reducing the short laterals in our inventory and having more 10,000s. Our efficiencies will be way up.
Q: Is there any situation which would result in the Frack Holiday extending into 4Q? Or are there any other changes you would consider this year to activity levels?
A: The Frack Holiday is set, and we don't see it extending further into Q4 based on what we know today. We are not contractually obligated with frac crews, so we can adjust if the outlook changes.
Q: What are your expectations heading into the fourth quarter? Should 4Q CapEx look more like second quarter of '24 CapEx?
A: There's no change in the expectation of fourth quarter '24 production being down about 10% year over year. The CapEx level in the fourth quarter will return to levels similar to the second quarter, driven by the Frack Holiday in the third quarter.
Q: How do you think about the dividend today and in the future?
A: We are not talking about a dividend until we get deleveraged and generating good free cash flow. Our first priority is debt reduction to get the leverage ratio back to levels seen in '22.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
