COMSTOCK RESOURCES INC Q1 FY2025 earnings call

• Opening comments emphasized exploration for drilling inventory as the holy grail for long-term shareholder value, highlighting the Western Haynesville play and the successful Olajuwon well in Freestone County.
• Financial results were improved due to higher natural gas prices, with oil and gas sales up 21%, EBITDAX at $293 million, and operating cash flow at $239 million.
• Drilling inventory details: 1.1 million gross and 822,000 net acres prospective in Haynesville and Bossier Shales; operated inventory at 1,527 gross locations and 1,197 net locations; average lateral length at 9,601 feet.
• Wells turned to sales: 13 on Legacy Haynesville with average IP rate 24 million cfd; 1 on Western Haynesville (Olajuwon 1H) with IP rate 41 million cfd.
• Greenhouse gas and methane emissions improved in 2024, with CO2 and methane emissions decreasing, and deployment of optical gas imaging and aircraft leak monitoring technology.
• Partnership with BKV Corporation to study carbon capture projects at Methylene Marquee natural gas treating facilities in Western Haynesville.

In the first quarter, Comstock Resources' natural gas and oil sales grew to $405 million. They generated $239 million of operating cash flow ($0.81 per diluted share) and adjusted EBITDAX of $293 million. Adjusted net income was $53.8 million ($0.18 per diluted share). Production averaged 1.28 Bcfe per day, 17% lower than Q1 2024. Natural gas price realizations: quarterly NYMEX settlement price averaged $3.65, Henry Hub spot average $4.27, with 37% of gas sold in the spot market. Operating cost per Mcfe averaged $0.83, EBITDAX margin improved to 76%. Drilling and development spending totaled $250 million, with 4 net horizontal Haynesville wells and 3 net Bossier wells drilled, and 11 net operated wells turned to sales.

For 2025, Comstock plans to focus on building the Western Haynesville asset. They expect to drill 20 wells and turn 15 wells to sales in the Western Haynesville, with midstream expenditures between $130 and $150 million funded by midstream partners. In the Legacy Haynesville, they aim to drill 20 net wells and turn 24.1 net wells to sales, funding drilling from operating cash flow depending on natural gas prices.

Potential risks include volatility in natural gas prices, impacts from tariffs, and uncertainties in the development of the carbon capture project with BKV Corporation, as well as the broader macroeconomic and industry-related uncertainties that could affect drilling and operational costs.

Q: Directionally speak to reservoir quality of Olajuwon well versus south wells and quantify delineated acreage?

A: Dan Harrison stated reservoir quality of Olajuwon well is as good as core area wells, and it greatly de-risks the northeast area of their footprint.

Q: Speak to structure of BKV partnership and value seen?

A: Roland Burns mentioned partnership with BKV for carbon capture project, seeing potential for low-carbon power generation near their Western Haynesville assets.

Q: When to expect another result in Western Haynesville area?

A: Dan Harrison said next well in that area will be spudded in Q4, with more wells fanning out in 2026.

Q: Concern about Permian gas and takeaway capacity?

A: Roland Burns noted Permian gas supply is expected to grow to meet demand, but weak oil prices may stall drilling interest there.

Q: Incremental costs for BKV agreement?

A: Dan Harrison said Comstock doesn't expect incremental costs, as BKV will handle capital outlays and receive tax credits, with a reduction in operating costs.