Comstock Resources, Inc. - 10-Q Summary (Q2 2009)
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Comstock Resources, Inc., an independent oil and natural gas exploration and production company. The report covers the three and six months ended June 30, 2009. The company's offshore operations were divested in August 2008 and are reported as discontinued operations. The company is a large accelerated filer based in Frisco, Texas.
Key Financial Metrics
| Metric (in thousands) | Q2 2009 | Q2 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Oil and Gas Sales | $64,875 | $172,022 | $133,226 | $299,743 |
| Net Income (Loss) | $(11,475) | $82,627 | $(17,132) | $123,722 |
| Operating Cash Flow | N/A | N/A | $69,445 | $200,730 |
| Capital Expenditures | N/A | N/A | $(179,125) | $(143,281) |
| Cash and Equivalents | $3,970 | $8,709 | $3,970 | $8,709 |
| Long-Term Debt | $315,000 | $210,000 | $315,000 | $210,000 |
| Net Production (Mmcfe) | 15,337 | 15,292 | 29,425 | 29,878 |
Note: Q2 2008 Net Income includes $12.2M from discontinued operations. Q2 2009 Net Loss is from continuing operations only.
Material Changes vs. Prior Period
- Revenue Decline: Oil and gas sales decreased 62% in Q2 2009 and 56% YTD 2009 compared to 2008. This was driven by a 69% drop in realized natural gas prices and a 53% drop in realized crude oil prices.
- Profitability: The company reported a net loss of $11.5M for Q2 2009 and $17.1M YTD 2009, contrasting with net income of $82.6M and $123.7M in the respective 2008 periods. The 2008 figures included significant income from discontinued offshore operations.
- Costs: Operating expenses decreased 25% in Q2 2009 due to lower production taxes. However, Depreciation, Depletion, and Amortization (DD&A) increased 14% due to higher drilling costs and reserve revisions.
- Debt: Long-term debt increased to $315 million from $210 million at year-end 2008, reflecting increased borrowings under the credit facility to fund capital expenditures.
Guidance, Outlook, and Risks
- Capital Expenditure Plan: Management expects to spend approximately $360 million on development and exploration projects for the full year 2009, funded by operating cash flow and credit facility borrowings.
- Liquidity: As of June 30, 2009, the company had a $850 million credit facility with a borrowing base of $550 million, of which $410 million was available. The company is in compliance with all financial covenants.
- Hedging: The company utilized natural gas swaps to hedge price risk. Realized hedging gains of $7.1 million (Q2) and $13.0 million (YTD) partially offset the decline in commodity prices. As of June 30, 2009, derivative instruments had a net asset fair value of $11.9 million.
- Risks: Results are highly dependent on volatile oil and natural gas prices. A $1.00 change in natural gas price would impact cash flow by approximately $23.0 million based on YTD 2009 production. The company also faces risks related to the borrowing base redetermination and potential inability to secure additional capital if assumptions change.
Investor Verification Checklist
- Commodity Price Sensitivity: Verify current natural gas and oil prices against the company's hedged volumes to assess future revenue stability.
- Borrowing Base: Confirm the status of the $550 million borrowing base and the $410 million availability, as this limits future capital flexibility.
- Capital Discipline: Monitor actual capital expenditures against the $360 million full-year guidance, given the significant cash burn in the first half.
- Reserve Revisions: Review the impact of downward reserve revisions mentioned in the DD&A increase on future production profiles.
- Discontinued Operations: Note that 2008 comparables include income from the sold offshore subsidiary (Bois d'Arc Energy), making year-over-year comparisons of net income misleading without adjustment.