Comstock Resources, Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. This is an annual filing, not a standalone fourth-quarter filing; unaudited Q4 data is also disclosed. Comstock is a U.S. oil and gas exploration and production company, concentrated in East Texas/North Louisiana and South Texas. Offshore operations were classified as discontinued after the 2008 Bois d’Arc transaction.
Key financial and operating metrics
| Metric | FY2010 | FY2009 |
|---|---|---|
| Oil and gas sales | $349.1 million | $292.6 million |
| Operating income (loss) | $(12.0) million | $(31.5) million |
| Net income (loss) | $(19.6) million; $(0.43) per share | $(36.5) million; $(0.81) per share |
| Cash flow from continuing operations | $311.7 million | $176.3 million |
| Capital expenditures | $545.7 million | $344.8 million |
| Cash and cash equivalents, year-end | $1.7 million | $90.5 million |
| Total debt, year-end | $513.4 million | $470.8 million |
- Net production rose 12% to 73.3 Bcfe (68.97 Bcf of gas and 715,000 barrels of oil). Average realized prices, including hedging, were $4.35/Mcf for gas and $68.35/barrel for oil; equivalent price was $4.77/Mcfe.
- Lease operating expense fell to $0.72/Mcfe from $0.82; gathering and transportation expense rose to $17.3 million from $8.7 million as Haynesville production expanded. DD&A was $213.8 million, or $2.91/Mcfe.
- Year-end current assets were $135.7 million versus current liabilities of $155.1 million. The company also held $84.6 million of marketable Stone Energy shares. Its $850 million revolving facility had a $500 million borrowing base, with $455 million available at year-end; the company reported compliance with covenants.
- Proved reserves were 1,051.0 Bcfe, 98% natural gas and 50% proved developed. The pre-tax PV-10 value was $797.6 million; the after-tax standardized measure was $606.1 million. Proved undeveloped reserves were 526.4 Bcfe, with estimated future development costs of about $1.1 billion.
- Q4 2010 sales were $72.7 million, operating loss was $29.4 million, and net loss was $20.6 million. Q4 included a $25.8 million loss on the Mississippi property sale and a $10.8 million gain on marketable securities.
Material changes versus prior periods
- Sales increased 19% from 2009, supported by 12% production growth and higher realized oil and gas prices. Operating cash flow increased by $135.4 million.
- Net loss narrowed from $36.5 million to $19.6 million, but remained a loss. The 2010 result included a $25.8 million pre-tax loss on the Mississippi property disposition; without that item, the filing does not present a directly comparable adjusted earnings figure.
- Production growth was driven primarily by Haynesville/Bossier drilling. Reserve additions included 402 Bcfe from that program and 10.1 Bcfe from initial Eagle Ford activity. The company drilled 78 wells (49.3 net), but service constraints left 35 Haynesville/Bossier wells awaiting completion at year-end.
- Debt increased $42.5 million year over year, while cash declined substantially. Capital spending increased $200.8 million.
Outlook, commentary, and risks
- Management budgeted approximately $522 million of 2011 exploration and development spending and planned about 67 wells: 45 Haynesville/Bossier wells and 22 Eagle Ford wells. The program was to be funded primarily from operating cash flow and credit-facility borrowings; activity could change with commodity prices.
- Management expected to complete the 2010 backlog of drilled, uncompleted wells during 2011. A separate estimate projected about $237.3 million of 2011 development spending for proved undeveloped reserves.
- The $172 million of 6⅞% senior notes mature in March 2012; management said it intended to refinance them, subject to credit-market conditions and prevailing rates. The $300 million of 8⅜% notes mature in 2017.
- Commodity prices are a major risk: the company had no oil or gas hedges outstanding at year-end and reported no production hedged for 2011 or later. Based on 2010 production, a $1/Mcf gas-price change was estimated to change annual cash flow by about $67 million.
- Other material risks include reserve-estimation uncertainty; drilling, completion-service and transportation availability; access to capital; hydraulic-fracturing and environmental regulation; and potential impairment if prices or project economics weaken. The company reported no legal proceedings management believed would materially affect its financial position or results.
- The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether 2011 drilling, completion timing, production growth and the $522 million capital program were achieved, and how they affected funding needs.
- Whether the 2012 senior-note refinancing was completed on acceptable terms, alongside borrowing-base redeterminations and covenant headroom.
- Whether commodity prices, particularly natural gas, supported operating cash flow and reserve economics; note the absence of forward hedging disclosed in this filing.
- Progress in converting the large undeveloped reserve base to producing reserves, including the estimated development cost and schedule.
- Reconciliation of the Mississippi sale loss, Q4 securities gains, and remaining Stone Energy investment value; cash and marketable securities are distinct liquidity resources.
- Potential exposure from transportation commitments, completion-service contracts, and changing environmental or hydraulic-fracturing requirements.