Comstock Resources, Inc. — Q1 2024 Form 10-Q
Business context and period. Comstock is a natural gas and oil producer, with operations focused on the Haynesville and Bossier shale areas. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. Dollar figures below are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $335.8 | $489.6 |
| Natural gas and oil sales | $288.0 | $380.0 |
| Operating income (loss) | $(12.8) | $145.6 |
| Net income (loss), consolidated | $(14.5) | $134.5 |
| Net income (loss) available to Comstock | $(16.3) | $134.5 |
| Diluted EPS | $(0.05) | $0.49 |
| Operating cash flow | $171.5 | $386.4 |
| Cash capital expenditures | $348.2 | $372.6 |
- Operating margin was approximately -3.8%, versus 29.7% a year earlier. Revenue fell about 31% and operating income swung to a loss.
- Natural gas production increased 10% to 139.4 Bcf (about 1.5 Bcf/day), while average realized gas price fell 31% to $2.06/Mcf. Including derivative cash settlements, realized price was $2.40/Mcf, versus $3.06/Mcf in Q1 2023.
- Derivative gains recognized in earnings were $39.3 million, compared with $66.4 million; realized net derivative gains were $48.0 million, compared with $10.4 million. These figures reflect different components of derivative results.
- DD&A rose to $190.7 million from $134.0 million; the rate increased to $1.37/Mcfe from $1.05, primarily due to lower estimated proved reserves associated with lower gas prices.
- Interest expense increased to $49.6 million from $38.3 million, mainly due to higher bank-facility borrowings and interest rates. The company recorded an $8.3 million income tax benefit, versus a $39.7 million provision.
- At March 31, cash was $6.4 million; current assets were $358.1 million and current liabilities $556.0 million. Long-term debt carrying value was $2.702 billion. Bank-facility borrowings were $540 million, with $1.5 billion in aggregate commitments and a $2.0 billion borrowing base. The company reported $966.4 million of liquidity, including unused facility capacity and cash, and said it was in compliance with its financial covenants.
- Operating cash flow declined 56%. Cash capital expenditures exceeded operating cash flow; financing included $100.5 million of common-stock proceeds and $60 million net borrowing on the bank facility. Cash decreased $10.2 million during the quarter.
Material changes, outlook, and notable items
- Gas-services revenue decreased 56% to $47.8 million, largely due to lower prices on purchased gas resold using excess transport capacity. Gas-services expense fell 52% to $48.7 million.
- In March, Comstock acquired approximately 189,000 net undeveloped Western Haynesville acres for $50 million. Q1 capital expenditures included $69.4 million of unproved-property acquisitions.
- The company drilled 16 gross (14.3 net) wells and completed 18 gross (16.3 net) Haynesville and Bossier operated wells in Q1. It expects to spend an additional $525–$625 million in the remaining nine months of 2024 on drilling, completion, infrastructure, and other activity. Management said timing of most capital spending is discretionary and that cash from operations and available borrowings should meet foreseeable needs for at least 12 months.
- On March 25, Comstock issued 12.5 million shares in a private placement to entities controlled by its majority stockholder, raising $100.5 million. The majority stockholder’s beneficial ownership rose to 67%; proceeds were used to pay down bank-facility borrowings. No Q1 dividend was paid; the company paid $0.125 per share in Q1 2023.
- On April 9, after quarter-end, Comstock issued $400 million principal amount of 6.75% senior notes due 2029 and received $365.2 million net proceeds, used to repay bank-facility borrowings. The bank borrowing base was redetermined on April 30 and remained $2.0 billion.
- At March 31, natural gas swaps covered about 137.6 Bcf for the remaining nine months of 2024 at an average $3.55/MMBtu, and about 109.5 Bcf in each of 2025 and 2026 at $3.51/MMBtu. Subsequent to quarter-end, the company added 2025–2026 collars and 2025 swaps. Management notes commodity-price volatility and says a 10% gas-price move would change swap fair value by approximately $84.6 million, before the offsetting effect on physical sales.
- Key risks include natural-gas price fluctuations, reserve and cost estimates, interest-rate exposure on variable-rate debt, borrowing availability, and potential limits on financing. The company estimated that $740.6 million of federal and $1.2 billion of state NOL carryforwards may expire unused; it is under Louisiana state tax examination. It reported no material changes to previously disclosed risk factors and no material litigation accrual.
Important facts for investors to verify
- Whether production growth and the hedge portfolio sufficiently offset weak realized gas prices and the resulting earnings and cash-flow pressure.
- Execution and funding of the remaining 2024 capital plan, including the effect of the April note issuance on revolver usage, interest costs, and liquidity.
- The quality and economic value of the newly acquired acreage, and the assumptions behind reserve estimates and the higher DD&A rate.
- The consequences of the majority stockholder’s increased 67% ownership, including governance and potential future related-party transactions.
- Borrowing-base and covenant headroom, variable-rate debt exposure, and the potential realizability or expiration of tax NOLs.