Comstock Resources - Q2 2023

Transcript

Operator (participant)

Hi, welcome to the Comstock Resources 2nd quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. To remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Mr. Jay Allison, Chairman and CEO. Please go ahead, sir.

Jay Allison (Chairman and CEO)

Thank you, Jonathan. I wish you controlled natural gas prices. We'd all be a little happier. I like your introduction. Welcome to the Comstock Resources second quarter 2023 financial and operating results conference call. You can view a slide presentation during or after this call by going to our website at www.comstockresources.com and downloading the quarterly results presentation. There, you'll find a presentation titled "Second Quarter 2023 Results." I'm Jay Allison, Chief Executive Officer of Comstock, and with me is Roland Burns, our President and Chief Financial Officer, Dan Harrison, our Chief Operating Officer, and Ron Mills, our VP of Finance and Investor Relations. I'll flip over to slide two. Please refer to slide two in our presentation. Note that our discussions today will include forward-looking statements within the meaning of securities laws.

While we believe the expectations in such statements to be reasonable, there can be no assurance that such expectations will prove to be correct. I wanna take the time to thank each of you that's listening today on this call and those who will listen later on. You know, as we all know, this year continues to be challenging as we've had weak natural gas prices coupled with a highly inflated drilling and completion cost. Looking beyond this year, we're very optimistic about natural gas. The growth in demand for natural gas, driven by the growth of LNG exports from the Gulf Coast, are expected to improve natural gas prices next year and the years beyond. The demand for LNG should grow from the 12 Bcf we export today to 21 Bcf by 2027 per day.

Beyond that, the total demand may hit 40 Bcf per day for LNG, not that many years out. You know, we're optimistic about the prospects of our Western Haynesville Play based upon the very early results of our first five wells, which Dan Harrison will talk to you about later, as we continue to move up the learning curve on drilling these deeper wells. We've also exceeded our expectations on growing our already expansive acreage position through our on-the-ground leasing efforts. The investments that we're making this year in the Western Haynesville will pay substantial dividends in the future as the demand for natural gas grows. We're making this investment this year to build on the foundation for the future.

At the same time, we've been mindful to protect the strong balance sheet and financial liquidity we created last year when we had stronger natural gas prices. For the next hour, we will go over the second quarter results, which were marked by very low natural gas prices and were a little noisy on the disruptions caused by violent storms in June that we had in East Texas. On slide three, if you'll flip there. On slide three, we summarize the highlights of the second quarter. The financial results were heavily impacted by the very low natural gas prices we realized in the quarter. Oil and gas sales, including hedging, were $285 million in the quarter. We generated cash flow from operations of $145 million, or $0.53 per share, and adjusted EBITDAX was $182 million.

With positive working capital contributions, we only had to borrow $20 million to cover the overspend in the quarter. Our adjusted net income was just over breakeven for the quarter. We drilled 21 or 17.2 net successful operated Haynesville and Bossier Shale horizontal wells in the quarter, with an average lateral length of 10,887 ft. Since the last conference call, we've connected 15 or 12 net operated wells to sales, with an average initial production rate of 21 million cubic ft equivalent per day. We're having great success in our Western Haynesville exploratory play in the early innings. Our fourth and fifth wells were recently turned to sales, with strong production rates, including our first well in the Haynesville Shale. The first four wells have been completed in the Bossier Shale.

We've also been very successful in adding to our extensive lease position. The low gas price environment is contributing to our success by keeping competitors away. I'll now turn it over to Roland to discuss the financial results. Roland?

Roland Burns (President and CFO)

Yeah, thanks, Jay. On slide four, we cover our second quarter financial results. Our production in the second quarter was 1.4 Bcfe per day, which was 2% higher as compared to the second quarter of 2022. Low natural gas prices significantly impacted our oil and gas sales in the quarter of $285 million, which were 53% lower than 2022's second quarter. EBITDAX was $182 million, and we generated $145 million of cash flow during the quarter. We reported adjusted net income of $1 million for the second quarter. As Jay said, just above the break-even level, as compared to $274 million in the second quarter of 2022. On slide five, we have the financial results for the first half of this year....

Our production in the first half of 2023 also averaged 1.4 Bcf per day, which was 6% higher as compared to the same period last year. Oil and gas sales in the first half of 2023 totaled $676 million, which were a third lower than the first half of 2022. EBITDAX was $476 million, and we generated $400 million of cash flow during the first six months. We reported adjusted net income of $93 million for the first six months of 2023, as compared to $409 million in the first six months of 2022. On Slide six, we show our natural gas price realizations in the quarter.

During the second quarter, the NYMEX settlement price averaged $2.10, and it was very close to the same daily average Henry Hub spot price in the quarter of $2.12. Our realized gas price during the second quarter averaged $1.81, reflecting a $0.29 differential to both the settlement price and our reference price. This differential returned to more normal levels in the quarter due to improvements in the Houston Ship Channel and Katy Hub prices following the restart of the Freeport LNG facility. In the second quarter, we were also 49% hedged, which improved our realized gas price to $2.25. We've been using some of our excess transportation in the Haynesville to buy and resell third-party natural gas.

This generated about $3 million of profits in the quarter and improved our average gas, gas price realization by another $0.03. On slide seven, we detail our operating cost per Mcfe produced and our EBITDAX margin. Our operating cost for Mcfe averaged $0.84 in the second quarter, $0.01 higher than the first quarter rate. The increased unit costs are related to the startup phase in our Western Haynesville area, which we'll see improve as we connect more sales to our own gathering and treating facilities in the future. Our gathering costs were flat at $0.36 during the quarter, our lifting costs were also unchanged at $0.27. Our production taxes increased $0.03 compared to the first quarter level. Our G&A costs came in at $0.06 per Mcfe, which is down $0.02 from the first quarter rate.

Our EBITDAX margin after hedging came in at 63% in the second quarter, down from 73% in the first quarter, due to the lower gas prices we experienced in the second quarter. On Slide eight, we recap our spending and our drilling and other development activity for the first half of this year. For the first six months, we spent a total of $647 million on development activities, including $590 million on our operated Haynesville and Bossier Shale drilling program. Spending on other development activity, including non-operated projects, installing production tubing, offset frack protection, and other workovers, totaled $57 million. In the first six months of this year, we drilled 39 or 30.9 net operated Haynesville and Bossier Shale wells and turned another 36 or 24.8 net operated wells to sales.

These wells had an average IP rate of 23 million cubic ft per day. Slide nine recaps our balance sheet at the end of the second quarter. We ended the quarter with only $20 million of borrowing, borrowings outstanding under our credit facility, giving us $2.2 billion in total debt. We ended the second quarter with financial liquidity of almost $1.5 billion. I'll now turn it over to Dan to discuss the operating results.

Dan Harrison (COO)

Okay. Thanks, Roland. Slide 10 is a breakdown of the current drilling inventory now that we have at the end of the second quarter. The drilling inventory is split between Haynesville and Bossier locations. It's divided into our four buckets. We have our short laterals up to 5,000 ft, medium laterals are between 5,000 and 8,000 ft, our long laterals at 8,000-11,000 ft, and our extra-long laterals out past 11,000 ft. Our total operated inventory now stands at 1,782 gross locations and 1,359 net locations. This equates to a 76% average working interest across the operated inventory.

The non-operated inventory stands at 1,278 gross locations, and 166 net locations, which represents a 13% average working interest across the non-operated inventory. The success of our long lateral drilling program allows us to modify our drilling inventory where possible, to extend future laterals out into the 10,000-15,000 foot range. Breaking down the gross operated inventory, we have 313 short laterals, 291 medium-length laterals, 719 long laterals, and 459 extra-long laterals. Our gross operated inventory is split 52% in the Haynesville and 48% in the Bossier.

We now have 26% of our gross operated inventory or 459 locations in our extra-long lateral bucket, which is greater than 11,000 ft, and a full 2/3 of the gross operated inventory has laterals exceeding 8,000 ft. The average lateral length now stands at 8,947 ft. This is up slightly from the 8,928 ft we had at the end of the first quarter. Our inventory provides us with 25 years of future drilling locations based on existing activity. On slide 11 is a chart that outlines our progress to date on our average lateral length drilled, based on the wells that we have turned to sales.

During the second quarter, we turned 17 wells to sales with an average length of 11,244 ft, thanks to the continued success of our long lateral program. The individual well lengths range from 7,338 ft up to 15,552 ft, and our record long lateral still stands at 15,726 ft. During the second quarter, eight of the 17 wells we turned to sales had laterals exceeding 11,000 ft, including four that had laterals out past 14,000 ft. To date, we have drilled a total of 56 wells with laterals over 11,000 ft, and we've drilled 28 wells with laterals over 14,000 ft. During the second quarter, we also had 2 additional wells that turned to sales in our new Western Haynesville acreage.

The Dinkins number one well was completed in the lower section of, of the Mid-Bossier, while the McCullough Ingram number one is our first well completed in the Haynesville. These wells are our fourth and fifth new vintage wells, now completed and producing in the Western Haynesville. Based on our current schedule, we are planning to turn another 37 wells to sales by year-end. 17 of these wells will be extra long laterals that extend beyond 11,000 ft, and 13 of the wells will be over 14,000 foot long. Upon successful execution, our 2023 year-end average lateral length is expected to be approximately 11,000 ft. Slide 12 outlines our new well activity. We've turned to sales and tested 15 new wells since the time of our last call.

The individual IP rates range from 16 million a day up to 35 million cubic ft a day, with an average, average test rate of 21 million cubic ft a day. The average lateral length was 10,671 ft, with the individual laterals ranging from 7,338 ft up to 14,767 ft. Included this quarter, are the fourth and fifth new vintage wells on the Western Haynesville acreage. The Dinkins number one was completed in the lower section of the Mid-Bossier. It had a 9,565 foot long lateral, and we turned the well to sales in May. We tested the well with an IP rate of 34 million cubic ft a day. The McCullough Ingram number one well is our first well that we've completed in the Haynesville interval.

It had an 8,256 foot long lateral, and the well was turned to sales in June. The IP rate achieved to date is 35 million cubic ft a day, but we are still cleaning this well up, and as we are expected to achieve a higher IP rate in the very near future. Beyond these last two wells that we've turned to sales, we are currently in the process of completing our sixth and seventh wells on the Western Haynesville acreage. We expect to turn both of these wells to sales within the next couple of months. In addition, we are currently running one rig on our Western Haynesville acreage, but that will soon increase back to two rigs later this month.

Slide 13, summarizes our D&C costs through the second quarter for our benchmark long lateral wells that are on our legacy core, East Texas and North Louisiana acreage position. This covers all wells having laterals greater than 8,000 ft. During the quarter, we turned 15 wells to sales on our core East Texas and North Louisiana acreage. 13 of the 15 wells were our benchmark long lateral wells. In the second quarter, our D&C cost averaged $1,523 per foot, which is a 4% decrease compared to the First quarter, and still a 15% increase compared to our full year 2022 D&C cost. Our second quarter drilling costs came in at $653 a foot, which is a 2% decrease compared to the First quarter.

A portion of the drilling cost decrease is attributable to a longer average lateral length we had this quarter versus the first quarter. Our second quarter completion costs came in at $870 a foot, which is a 5% decrease compared to the first quarter. We have seen our service costs begin to decrease during the second quarter, following the drop in activity levels since the first of the year. We expect these service costs will continue to decline throughout the third and fourth quarter. At the end of June, we dropped a rig from the fleet, which has us currently running 6 rigs. However, later this month, we will be taking delivery of a new rig, which will take us back to 7 rigs, which is the level we plan to stay at through the end of the year.

Also, on the completion side, we are also running 3 frac crews, and we will stay at the 3 frac crew level through, through year-end. That's kind of a summary of the operations. I'll now turn the call back over to Jay.

Jay Allison (Chairman and CEO)

Okay, thank you, Dan. If you'll turn to slide 14, I'll direct you to slide 14, where we summarize our outlook for 2023. You know, we look back on this year and the future, we'll view it as a year where we built a foundation that will drive our future growth. Our business plan for this year is focused on positioning Comstock to benefit from the substantial growth in demand for natural gas in our region that is on the horizon, driven by the growth in LNG exports. To that end, we are working to prove up our new play in the Western Haynesville with a 2-rig program and complete our leasing program.

We currently only have one rig active in the Western Haynesville, as Dan mentioned, and we have leased approximately 90% of our targeted acres, so we're almost at the finish line. We're making big investments for the future this year. At the same time, we are managing our drilling activity level to prudently respond to the lower gas price environment we continue to experience, as Roland talked about earlier. We released two rigs on our legacy Haynesville footprint in late March and mid-April in order to pull in our activity in response to lower natural gas prices, and are currently operating six rigs as we await delivery of a new rig. We remain focused on maintaining the strong balance sheet we created last year.

Now, our industry-leading lowest cost structure is an asset in the current low natural gas price environment, as our cost structure is substantially lower than the other public natural gas producers. As stated, in our press release, we plan to retain the quarterly dividend of $0.125 per common share. Lastly, we will continue to [audio distortion], which totaled around $1.5 billion at the end of the second quarter. I'll now have Ron provide some specific guidance for the rest of the year. Ron?

Ron Mills (VP of Finance and Investor Relations)

Thanks, Jay. On slide 15, we provide the financial guidance for 2023. The third quarter D&C CapEx is expected to range between $240 million-$280 million, and our full year D&C CapEx guidance remains unchanged at the $950 million-$1.15 billion dollar range. While we're seeing signs of deflationary pressures on service costs, we believe most of those improvements will be seen in 2024. In terms of infrastructure and other spending, we continue to budget $15 million-$30 million during the third quarter and $75 million-$100 million to $125 million for the full year. In addition to what we spend on our drilling program noted above, we now anticipate spending $70 million-$85 million this year for leasing activity.

Our LOE is expected to average $0.24-$0.28 for both the quarter and the full year, while our gathering and transportation costs are expected to be in the $0.32-$0.36 range for the quarter and the year. Production and ad valorem taxes are expected to remain in the $0.12-$0.16 per Mcfe range, while our DD&A rate is expected to remain in the $1.05-$1.15 per Mcfe. Cash G&As is still expected to run around $7 million-$9 million in the third quarter, and a total of $32 million-$36 million for the full year, while the non-cash G&A represents roughly $2 million per quarter of that number.

Due to the increase in SOFR rates, the cash interest expense is now expected to total $40 million-$42 million for the third quarter and $160 million-$165 million for the year. Tax rate remains in the 22%-25% range, and we still expect to defer between 95% and 100% of our reported taxes this year. I'll now turn the call back over to Jonathan to answer questions.

Operator (participant)

Certainly. One moment for our first question. Our first question comes from the line of Charles Meade from Johnson Rice. Your question, please.

Charles Meade (Research Analyst)

Good morning, Jay and Roland, and the whole Comstock crew there.

Jay Allison (Chairman and CEO)

Good morning, Charles.

Charles Meade (Research Analyst)

Jay, I, I wanna, I wanna see if there's, there's some more detail you can offer on these on your Western Haynesville wells, and not just these two most recent ones, but in general. You know, 35 million a day, congratulations on that. That's a, that's a great start rate. There, there's more, there's more, more to find the well than just where it comes on, right? I mean, on, on the some of the best wells on the on the Louisiana side, I think, you know, we're delivering IPs of 40 or even 50 million a day.

What are the other data points, and I'm thinking decline, but there may be some other things that, that you can talk about that, that will help us contextualize what you're doing in the Western Haynesville with these kind of 35 to 40 IPs versus the, the best stuff we're seeing on the Louisiana side?

Jay Allison (Chairman and CEO)

Charles, I'll probably turn it over to Dan. I don't know how deep into the wheat you want to get. I think I'd start like this: I wanna go backwards and say, how many acres have we leased? I'll mention that at the end of the commentary, and that is, we're probably 90+% through leasing our acreage position, and we're very careful about disclosures on what we're doing until we've leased it all. All the acreage that we wanna lease, we've recognized, and we know the mineral owners, and You know, we're in discussions with them. So I think that's a good place to start, so we can get to the end of that in 2023.

I would just comment on the wells that we have drilled. Remember, that this play is unlike the play in Louisiana that you're referencing, that we've read about. We have a much bigger block, more contiguous. We have our own takeaway, so we don't have any infrastructure issues on the horizon. The wells that we've been drilling are the inferior wells. They're not the Haynesville wells. They are the Bossier wells. We, you know, typically, your Haynesville well will be 15%-20% better than your Bossier. Really, no one, to our knowledge, has drilled these wells to the depth that we've drilled them at, with the lateral length that we've drilled them at, with the heat that we've encountered, as effectively as we have.

That includes Circle M, which is a Bossier, the Casey Blackford, a Bossier, the Campbell, which has proved that we could drill extended laterals to 12,700 ft, that was a Bossier. Charles, you get to the Dinkins, which is a lower Bossier, so we're, you know, now we're delineating upper, lower. Same thing with the Haynesville, the McCullough Ingram, which is a Haynesville, which Dan had commented on, on McCullough Ingram. At the same time, we, we have completed the KZMS, and we have fracked it, and we've got stick pipe drilling out the, the fracks. We've got the Lanier that we're, we're, we're, we're completing right now, and then we're drilling the Glass.

I, I think it's-- I always say it's, it's, the early innings look really good, but it is early innings, and we're still trying to com-- wrap this, this present up under the tree before we disclose to the world what we're trying to do. Let, let me make those comments, and then I'll let Dan get a little deeper on that. Okay?

Dan Harrison (COO)

Yeah, Charles, so, you know, one of the things I want to just add to what Jay said is, we are being very conservative in how we're drawing the wells down. You know, obviously, they're at a lot deeper TVD here. Got a lot, got a lot better bottom hole pressure. You know, the productivity, is really good. You know, we're obviously not trying to get, just to get a super stellar IP rate on what the well could do right now, because we are really managing the wells based on the drawdown. You know, just trying to make sure that we produce them out according to the type curves that we got created. The wells look really good, and, the drawdowns look good. We, the pressure is...

I'll, I'll say this McCullough well that's in the Haynesville, is flowing with more pressure at the same choke size as what we've seen on any of our Bossier wells. We definitely are seeing a lot better deliverability on the Haynesville well versus the Bossier wells. We think it's gonna be pretty good. You know, looking forward into drilling into this play, the Haynesville is gonna always be our primary target. We, when we first started in the play, we knew it was gonna be tough drilling these wells due to the depth and the temperatures, and we did specifically target drilling to the Bossier interval, initially, just from a drilling standpoint, you know, just to give ourselves the best chance of success and get started.

We've made great progress, technically, drilling the wells and dealing with the temperatures. We turned our attention to drilling, you know, a little-- some of the deeper targets, been able to do that successfully, and you know, we think that'll bear out with a lot better wells, you know, in the Haynesville.

Charles Meade (Research Analyst)

That, that is great. Go ahead, I'm sorry.

Jay Allison (Chairman and CEO)

I want to go again. We, we, you know, we've circled the wagon. If, if, if this remaining 10% that we're trying to lease, if for some reason we don't get it, we've circled the wagon, started 3 years ago in August, and a very low cost that we paid for the acreage. You know, the drilling commitments are very normal. We go from 2-3, 3-4 rigs, and we can HPC all this footprint. Again, you know, with Western Haynesville, we did buy that infrastructure when we bought the Legacy, the Pinnacle plants, et cetera. So all of those things give us a tremendous competitive advantage. Even if we were to stop leasing today or stop buying today, we know, we think we're gonna get a big blue ribbon.

What we want to make sure is that, you know, we're accountable to you, and you trust us for where we're spending our money, and that we'll complete this journey by the end of this year, and we'll have more disclosure on these well results. Great question, and we try to answer it as clear as we could with the set of facts we have. Okay?

Charles Meade (Research Analyst)

That's great detail, Jay, and it makes sense that you guys are holding, holding some cards close right now. That makes sense. I'll just, you can count me among those eager to hear more when you want to offer more. Jay, you also kind of touched on the one question I want to follow up on, and that is the, the leasing and that your, you know, increased capital budget for leasing. It was a great data point that I hadn't heard from you before, I don't believe, that you're 90% done. Is your view, is your target changing, or is your view of what you want changing?

Does that, does that, you know, how, how does that play or not play into the increased, you know, lease acquisition budget?

Jay Allison (Chairman and CEO)

Well, I think when you, you look, you know, 3 years ago, 2 years ago, 1 year ago, you come up with a budget and, you know, as you dive into the, the geology, it's all based upon geology, right? You want to clean up maybe the middle, you find out there's some acreage that's, that's, that's open in the middle. You know, you add, you know, 4, 5, 6, 8 thousand acres in the middle, really to clean it up, to make all the acreage that you own more drillable, so you can extend your laterals. Again, as, as Dan Harrison said, we're trying to get these wells 10,000, 11,000 foot laterals, and not, not, not, not kind of spotty out there.

With this whole program, as you've seen, that's why we gave a whole slide on the lateral lengths, you know, the 5,000, 8,000, 10,000, 15,000 foot laterals. We're trying to groom this so that when you see all of it at one time, you can say, "Oh, now I see why you added a, you know, $2 million to clean up some, some spots in the middle that we didn't know would be available to lease." It's not that we've really extended the peripheral. We, we kind of understood that a long time ago. There's nothing that we're really trying to acquire on the peripheral of any material size that we have to own it all at all. It's just a cleanup, like a mop, cleaning things up.

Charles Meade (Research Analyst)

I appreciate the visual, Jay. Thanks for taking the questions.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Derrick Whitfield from Stifel. Your question, please.

Derrick Whitfield (Managing Director)

Thanks. Good morning, all.

Jay Allison (Chairman and CEO)

Good morning.

Roland Burns (President and CFO)

Good morning.

Derrick Whitfield (Managing Director)

Well, my first question, I wanted to focus on the trajectory of your 2023 guidance. If we assume the low side of your production guidance range, the implied guidance for Q4 projects an average rate of about 1.5 Bcf per day, which is up from 1.4 in Q3. Would it be fair to assume your exit rate for the year could meaningfully exceed 1.5 given the timing of your turn-in lines?

Ron Mills (VP of Finance and Investor Relations)

Derrick, it's Ron. The, the absolute exit rate, you know, we've never provided that. It depends on the actual timing of when, when those turn to sales occur. To, to average 1.5 or close to 1.5 for the quarter, if you, if you try to back, back into that number, you know, there's a chance that the exit rate can be above that to help create the average if you... In terms of an absolute exit rate, that's something that, that we wouldn't provide. Your, your math, we've given you the third quarter, you have the first half, so to back into what we would need to get to that, that low end of the range, your, your average for the fourth quarter is, is where it should be.

Jay Allison (Chairman and CEO)

Yeah, Derrick, I think we, you know, we more or less, more or less have seen the year unfold like we planned. I think the, the, I think there's been, you know, slower kind of hookups, especially, we have one, we have one area that's a month and a half, you know, behind and was really supposed to be online at the very end of the second quarter. You know, you take a lot out of the third when you take a month and a half away. You know, for these, these will probably be high volume wells, you know, and so, you know...

That's the only, that's a little setback, but, you know, I don't think that in the long run, it just pushes that, you know, yeah, that production out in the future, hopefully, where we get a higher price for it.

Derrick Whitfield (Managing Director)

Yep. Could certainly be fortuitous from the standpoint of timing. With my, my follow-up, I wanted to, I guess, ask a question about the Western Haynesville exploration program. With the understanding that you're still in the early stages of your learning curve, could you speak to what you've experienced in operational efficiency gains? Again, I understand you're drilling for different targets, and that's going to require different degree of caution and. Again, just to help us understand how you guys are, are tracking progress-wise.

Dan Harrison (COO)

Yeah, Derrick, this is Dan. I, I'd say, you know, we've made really great strides. Obviously, these aren't easy wells to drill. I think everybody realizes that. We, you know, accepted a pretty good challenge here, starting with these wells, but we have made really good progress. You know, the, the vertical part of the hole is, is got some difficulties associated with, with low circulation zones and, you know, it's got a really thick, Travis Peak, just which is some really hard and abrasive and slow drilling. We've made really good strides there, you know, as far as just shaving off a lot of days.

The KZMS and the Lanier, which are the last two wells we drilled, are, if you kind of look at where they're located, the KZMS, we've shaved off probably 20 days on that well. It's right over near the Circle M, the Campbell, and the Casey Black, and we drilled it 20 days less than where we started, just due to the strides in the vertical part of the hole. Really, and I kind of separated into those two buckets. The other part is just the lateral and just dealing with the temperatures at these TVD depths, and we've made, we've made really good strides there. We've shaved off a bunch of days in the lateral. We've gotten better at handling the temperatures.

We've just gotten much better at, you know, tweaking our bottom hole assemblies and motors that we're running in these high temperatures, getting better performance. We're getting longer runs. Really, just those two things coupled together, you know, faster up there in the vertical and that hard Travis Peak section and, you know, better motor performance and the temperature in the laterals is what's, you know, where we made our headway. So, like I said, we've the last well over on kind of that southwest end of the play, where we've got the Circle M, the Casey, the Campbell, the KZMS, and the McCullough, you know, this last well, we're 20 days faster.

Conversely, kind of over on the other side in Leon County, where we've got the Lanier and the Dinkins, the Lanier, we shaved off a bunch of days compared to the Dinkins. We're not done. We've got, we've got several things, kind of got a runway of some other things that we're gonna be doing, we think are gonna let us shave additional days off here in the near future.

Jay Allison (Chairman and CEO)

Derrick, I'd make a comment that before we disclosed all of this, we built a pretty big wall around this hundreds of thousands of acres that we've leased. Again, there's a few we need to pick up, not many. And it's gonna be really hard to be competitive with us if we're right, because of all the reasons that Dan gave. It's a play that you have to spend some money and have a big acreage position and be committed that we think will allow us to deliver that gas that you're gonna need in 2027, 2028, 2029. I wanna assure you, we're not drifting. You can see the answers that you give when you ask these great questions.

You can see our commitment, and you can see the well performance. I think you also have to know that we feel like we took great ownership in putting up a big fence around the play, as far as the part that we want, before we start disclosing everything, which you should do if you value it.

Derrick Whitfield (Managing Director)

That's great, guys. Sounds very, very encouraging.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Jacob Roberts from Tudor, Pickering, Holt & Company. Your question, please?

Jacob Roberts (Director of E&P Research)

Good morning.

Roland Burns (President and CFO)

Morning.

Jay Allison (Chairman and CEO)

Good morning.

Jacob Roberts (Director of E&P Research)

On the hedging front, we were hoping for the thoughts on the 2024 market for contracts and what percentage of protection you ultimately think will be appropriate for next year?

Roland Burns (President and CFO)

Jacob, this is Roland. We've started to put in some 2024 positions as we kinda show in our presentation. You know, we're not really ready to talk about our strategy yet. You can kinda see where we're starting out, you know, and then as we see opportunities, you know, that kinda meet our goals, you know, we'll continue to execute on our, you know, 2024 hedging program.

Jay Allison (Chairman and CEO)

You know, we typically hedge, you know, 40%. I still think that's probably a good, like, a good visual out there. We'll see what happens. You know, prices haven't come our way in, in a month or so. We did put the swap in at, you know, $3.50 gas for $130 million a day. We are very, you know, we wanna have that revenue stream, almost guaranteed with some type of hedge, if we could, particularly as we're, as we're, you know, we're de-risking the Western Haynesville. You need to know we've, we've got our eyes on that. We're looking at it, and we make decisions daily about it.

Jacob Roberts (Director of E&P Research)

Great. Thank you. My follow-up would be on the divestiture proceeds showing up this quarter. Could you provide some color on, on what that was and maybe the opportunity set for those types of transactions in the future?

Roland Burns (President and CFO)

Yeah, those are just some non-operated interests that we sold. You know, like, like last year, you saw so as we see, just, you know, have opportunities to sell non-operated interests, you know, that are not part of our core, you know, we kind of execute on that. That, you know, that's a fairly, very immaterial, small part of the company, so I wouldn't say that there's a, a lot of, you know, potential for that in the future.

Jacob Roberts (Director of E&P Research)

Thanks. Appreciate your time.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Bertrand Donnes from Truist. Your question please.

Bertrand Donnes (Senior Analyst)

Good morning.

Jay Allison (Chairman and CEO)

Good morning.

Roland Burns (President and CFO)

Morning.

Bertrand Donnes (Senior Analyst)

Morning. The first question on LNG. I think I know the answer to this, but just wanted to get your thoughts on a few of your peers' LNG strategies. You know, some of them are taking full control of their volumes all the way to the destination, and some are going through third-party traders, and, you know, another segment wanna just retain a Henry Hub premium agreement. I'm just wondering what fits best with Comstock long term and, you know, or maybe the decision just comes down to where Jonathan moves gas prices.

Roland Burns (President and CFO)

Yeah, those are all great strategies, you know, and that's something we, we continue to evaluate, you know. We, we are already a big supplier to, to the LNG, and then we think that's gonna the share of gas that we produce that goes directly to LNG shippers is gonna continue to increase, especially with the big expansion coming in the next 2-3 years. We're still evaluating, you know, where does Comstock wanna be? Do we wanna get a the the highest kind of benchmark to Henry Hub price? Do we wanna participate, you know, in, you know, in, you know, international pricing? You know, we're, we're actively exploring that and in talks, you know, to, to, to, to come out with that.

Yeah, I don't think we have a, have a, an answer for you yet on which one we think is best. You know, we like you see our competitors all, all kind of approaching it in different ways.

Jay Allison (Chairman and CEO)

I do think, though, if you look at where our footprint is, you know, we're 200 or 300 miles away from where these, where this $100 billion of, of export shipping facilities are being built. You look at, at the majority of the new acreage is, is undedicated. That's, that's a good thing. You look at the relationships that we have with all the exporters, we deal with all of them. You look at the fact that we've been in this area probably 35 years, so, so they know us. Then you, you look at the liquidity we have, you look at the, at the volumes that we have produced and maybe will produce in the future, and you look at the demand out there, that's kind of how we started. We think, you know, there's about 12 Bcf a day of, of export LNG.

That doesn't include Mexico. You can see you're gonna have another 9 Bs between now and maybe 2025, 2026, 2027, and then that's where that extra 17 or 18 Bs might come from. We wanna position the company to have great float in the stock, great liquidity, great inventory, and these low costs that we currently have. Whatever, whatever is the best for an upstream company, I think we're gonna have, we're gonna have, we're gonna have, the ingredient to make it better, whether that's, like Roland said, seeing if we can capture some international prices, long-haul gathering. I think we're gonna have the flexibility to look at all those things. I can assure you, we're not gonna tie ourself into some type of a commitment that if prices dip, we get hurt. We're just not gonna do that.

We don't have to do that. So we're gonna protect, you, and the stakeholders and the analysts, and we're gonna run this thing right.

Bertrand Donnes (Senior Analyst)

All right, I appreciate that answer. Then, maybe on the D&C costs, I just-- you, you mentioned it in your prepared remarks. It seems like a portion of maybe that 4% decline quarter-over-quarter came from longer laterals in the quarter. Could you maybe talk about, you know, where the, the rest of that came from, and maybe specifically, which items you're seeing some deflation on and which items are, are holding their ground?

Dan Harrison (COO)

Yeah, I'd, I'd say, you know, a pretty good piece of it probably was the longer, the longer lengths. I mean, obviously, the longer we get, you know, our cost per foot comes down. We look at that every quarter. We look at what the average, you know, that group of wells averaged. You know, you know, back there on slide 13, when you look at that, that's the specific group of wells for the second quarter. You know, the benchmark wells that we report on, the average length for the second quarter was, was nearly 12,200 ft. We were at only 10,800 ft plus or minus in the first quarter. That, you know, obviously lends itself to, you know, cheaper D&C costs.

Really, I'd say just the other parts is we're starting to see the deflation, you know, things starting to turn around and come back down since the activity has dropped off at the first of the year. It's kind of slight, really, in the second quarter, but, you know, a lot of the stuff we reported on the second quarter wells drilling at the first of the year. Just kind of starting to turn the corner and come back the other way, which is why we'll see it continue to come down in the third quarter and fourth quarter when we report on those. Specific items, I'd say, you know, really, we haven't seen a lot of movement on pipe prices, but we have seen the rig rates come down.

We've seen the frac crews get cheaper and, just, you know, which is obviously just straight, straight tied to utilization.

Bertrand Donnes (Senior Analyst)

A lot of efficiencies to the frac crews you make.

Dan Harrison (COO)

Yeah, the efficiency, the frac crews have gotten better. I mean, specific to our crews that we're running. You know, just we've seen our stage counts per day have increased. We're, you know, just really happy with the crews. You know, just they've gotten faster, just more efficient. Even if you're paying the same price, you know, our cost per foot comes down if we can get the wells done faster, which leads us to get we just get production on faster. All of that stuff adds up to a really good answer.

Jay Allison (Chairman and CEO)

Yeah, the one thing I'd comment on, on that question is, you know, we've got the core, which is the 1,500 locations and the thousands of acres, hundreds of thousands, and then yet, you know, we focus on, a lot of this call is on, on the Western Haynesville. It's unusual to have. It's almost like two different companies, two different sets of assets. You manage both of them right, and if you do that, and, and you, you protect your balance sheet, then you can end up with something that you never dreamed you could end up with, particularly with, as you mentioned, LNG demand coming our way. That's where we are. I think we're, we're in the center of that scope, and it's a pretty, a really good place to be.

Bertrand Donnes (Senior Analyst)

Thanks, Dave. That's it for me.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Gregg Brody from Bank of America. Your question, please.

Gregg Brody (High Yield Research Analyst)

Hey, good morning, guys.

Jay Allison (Chairman and CEO)

Good morning.

Gregg Brody (High Yield Research Analyst)

Just on the... Sorry to cut off the, the reciprocation. Just on the Western Haynesville, just as you think about the capital required, to, to keep going there and expand, can you talk a little bit about how you're thinking about, potentially raising capital, for that to expand, into next year?

Roland Burns (President and CFO)

Gregg, this is Roland. I think the area that addition to, yeah, the drilling cost, which you've kind of outlined, you know, wanting to go from, you know, basically go to 3 rigs next year, that kind of keeps us on track to holding all our acreage. In addition to that capital, there'll be a need for building out our midstream assets, both treating and gathering. You know, not really so much for next year because we've made those investments and upgraded our Pinnacle plant to handle next year's volumes. As we look ahead, you know, there will be larger investments to make.

There, I think we're looking, we're exploring, you know, of kind of creating a midstream, kind of, separate entity that will kind of handle, you know, those capital needs in the future as we build that out, and, which also allow us to control, you know, the midstream and, and processing versus, you know, relying on a third-party company. You, you see a lot of the wells that are drilled in the Western Haynesville from here forward... you know, will be in our system. Only 1 is in it right now. Like, so it's just barely starting. But we see a lot of value in not only maximizing the value of the gas price we get, but also maximizing the, you know, the ability to control the timing, is to maintaining control. We might, you know, seek partners to partner with us in building out that. It's, you know, building out that infrastructure over the next 5 years.

Gregg Brody (High Yield Research Analyst)

You said build it out over the next 5 years. Do you think you'll seek out a partner, over the near term? Is there a timeline, that's how you're thinking about that?

Roland Burns (President and CFO)

There's not a near term, you know, you know, basically, the capital needed, you know, next year. Yeah, we kind of spent that. You know, we made some minor upgrades to what we bought last year in the Legacy acquisition. That was just a great purchase for us, which gives us the running room, you know, to grow our volumes, you know, to handle next year. As you look ahead, you know, the items beyond that have a lot longer lead time, longer construction time. We're planning for that.

We see those expenditures, you know, coming out in the future, but we're planning to want to create a structure so that is, you know, that that midstream cost doesn't, you know, burden our, our, you know, our, our, our drilling and completion budget, and that can be more like it's been in the past.

Jay Allison (Chairman and CEO)

Yeah, I think, again, the answer is, we, we're gonna do what it tells us to do. When we bought some acreage in the Pinnacle line and the high pressure, 145 mile high pressure line back in second quarter 2022, and we spent some money to repurpose it and upgrade it. You know, we have takeaway capacity within this 90% of the acreage, plus that we own, to produce that gas in 2023, 2024, and midway through 2025. As we de-risk this stuff over the next months and quarters and years, then we'll see what the, the need is to have a midstream, and it'll tell us what we need to do. We're not gonna ask permission to sell our gas to anybody, though. We want to control our midstream.

When we drill these wells, we want to take them to sales. We want to have a home for them. In the long haul, there is a home. Now, the question is, how do you get it there? We've got plenty of takeaway, between 2023, 2024, mid 2025.

Gregg Brody (High Yield Research Analyst)

Got it. Then just on the cost per well, how do you see that progressing? Obviously, we have some service cost deflation, but do you think we could see some, some material improvements next year, or, or do we need to get to a more of a development mode for that to happen?

Dan Harrison (COO)

This is Dan. You know, we'll definitely, when you get in development mode, you'll continue to see, obviously, efficiency gains and improvements, lower costs. We did, obviously, you know, right when we cranked up and got started in the plays, when we had all the inflation kicking in, just basically right as we started on the first well. We have made great strides, like I mentioned before, in just the number of days to get the wells drilled, so that's dropping the cost, and we do see the cost coming down into next year based on some other things that we've kind of got coming down the pipe.

You know, anytime you run more rigs and you start drilling more wells, and you just get more practice at doing anything, you get a little better at it, and we will get more efficient just in that regard.

Gregg Brody (High Yield Research Analyst)

That's really helpful. Just for the pesky credit analyst that, that stares at the accounting on, on some things. I know the working capital is a tough one to, to, to figure out, especially from our perspective. I was wondering if you had any insight on how to think about how that's gonna trend the rest of the year? Also just, I noticed an asset sale, about $41 million. I was, I was curious what you sold and if, if that's in your-- if, if that's in the updated guidance?

Roland Burns (President and CFO)

Sure, Gregg. On working capital, you know, I think the best way to trend it, since our activity level, you know, it reduced down from the level last year, but now it's fairly stable, you know, with the seven rigs. That means you're kind of that part of the working capital, the payables, probably stays consistent. You know, the other item driving working capital, obviously, is the prices, right? You know, we had the very, very low prices. You know, that's that, as those receivables, you know, get collected, you know, you see a big contribution from working capital this quarter. As gas prices improve, you know, as we go forward in the year, you know, you shouldn't-- you won't see more of that, you'll see the opposite.

You'll have, you know, it's really I think if you're really thinking about it, just think about, I think our, if our spending levels stay in fairly constant, the real change in working capital is just gonna be driven by gas prices. The higher gas prices go, the more, you know, we'll be giving back some of that working capital. The lower, if they go lower, obviously, you get some. That's, that's basically how I think you can see it, you know, play out the rest of the year. This year, obviously, the second quarter, the big contribution came because, you know, prices hit rock bottom.

Gregg Brody (High Yield Research Analyst)

Is, is there a ballpark figure in terms of how much you reverse? Is $100 million a good guess, or is it, or is it close to the 180 that?

Roland Burns (President and CFO)

Yeah, you have to tell me what the gas price is in the future, and I could give you a number. You know, if it modestly improves, you know, then it's gonna modestly do that. If gas prices dramatically improve, you know, to where they were last year, obviously, then it's a big number. I don't think it's, unless, unless it gets as big as it was last year, that's what you're seeing is all that flush through, you know, in the numbers. You know, on the, on the proceeds from sales, you know, last year, this year, we've any, any opportunity to sell non-operated, non-strategic properties, if they can meet the return criteria, you know, we, we... Yeah, we always look to do that.

Like we answered before, yeah, the whole non-operated, you know, part of our production and, and reserves is, is very small, so there's not a lot of material, you know, future, you know, stuff to do, but we're always open to doing that.

Gregg Brody (High Yield Research Analyst)

That's, that sales in your, in your guidance then?

Roland Burns (President and CFO)

Yeah. Yeah, I think, yeah, I think, I think plus, we've seen two things in our guidance. Not only, you know, did we choose to sell off some non-operated production, but we also see a, you know, a huge reduction in non-operated activity because of the Haynesville, you notice, you know, the rig counts down. A lot of the other operators have pulled back activity, especially the private ones. We just compared to last year, you know, just a lot lower non-operated activity going forward. I think that, again, will probably track, you know, how strong gas prices are to when that would come back. [crosstalk]

It's not a big part of our numbers anyway. You're really talking about, you know, a couple of percent here or there.

Gregg Brody (High Yield Research Analyst)

That's what it looked like. I appreciate the time and the insight, guys. I'll pass the mic back.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Noel Parks from Tuohy Brothers Investment Research. Your question, please.

Noel Parks (Managing Director)

Hi, good morning.

Roland Burns (President and CFO)

Morning.

Jay Allison (Chairman and CEO)

Morning.

Noel Parks (Managing Director)

Just a couple of things. Thinking about a couple of timing-related issues, and I apologize if you touched on these already, but we sort of have these couple of one-time, you know, corrections or, or changes or, or transitions ahead. We, we had this interest rate environment, now the highest it's been in a long time, and presumably at some point that reverses. Just, just thoughts on how cost of capital might be fitting into your scenarios about development pace. Also, we're kind of in this lull now where the new LNG capacity near term has been, has been limited, but it's going to ramp up, you know, sharply in a step function over the next, next few years.

I just wondered if, if the fact that we know that that's ahead, does it give you any thoughts on what sort of contract durations you might be looking at if you're trying to either do, you know, third party or direct sale or other types of LNG arrangements? Are you thinking about maybe like a, a mode for the transition years and then, and then thinking ahead to maybe something longer term, or you, you might try to do?

Roland Burns (President and CFO)

Yeah, those are a good Well, the first question, you had, you know, the, the rising cost of capital and, you know, interest rates. I mean, I, I think that's where we're so, we're so thankful that we, you know, locked in a lot of our interest rates last year. You know, and, and, and don't really see having to go back into the debt markets to, you know, in any significant way, you know, to have to bear those higher interest costs. That's, that's, that's a, that's, that's a, a good issue for us.

Then if you look ahead to, you know, you know, the, the pull from the LNG demand, obviously, that's a big part of, you know, our long-term thinking and to why we want to, you know, control our midstream and create a lot of abilities to connect, to increase our sales to the, the LNG shippers and, and talks with them. I think if, if you look at contact duration, I think, you know, we can point to our most recent deal that we're about to finish up, is a, a new 3-year supply contract with one of the large LNG shippers. Early on, we did a 10-year, so, you know, so, you know, so we're not afraid of the longer-term durations as long, you know, as long as they're, you know, happy to commit to buy it.

We, we found them to be great customers, always taking exactly what they, they ask for. So we see their- them as being a growing part of our market. And I think it would really, we, we'll, we'll be happy to sign longer term contracts if they are, you know, they're the buyer. Because we, we obviously have the ability to get the gas to them and to, and to guarantee them a, you know, a gas supply for as long as they want to contract for it.

Noel Parks (Managing Director)

Great. Thanks. One question, you know, with this consolidation we've had in the Haynesville, and you were, of course, early, early to that with Covey Park, and then had a lot of other deals following the years after. I'm just curious, you've done a lot with pushing sort of what the limits are-- of the technology are at, in, you know, what still can be achieved and, you know, can be gotten out of the rock. I'm just wondering, are any of the other entrants, are you aware of any of them, you know, struggling to make technical progress?

Wondering whether that sets up the possibility for maybe some of them looking to, to exit or, or maybe trim their positions, you know, on the idea that maybe it was a little harder to work the hands-on than they might have thought from the outside.

Roland Burns (President and CFO)

I don't think so. I mean, we've seen our, our other peers in the Haynesville, you know, do really well. I mean, I think, you know, we're probably pushing the leading edge, you know, for the Western Haynesville, you know, and maybe one of our- one of the com- one of them is there with us. I think generally, you know, I, I mean, I don't think we see that observation.

Jay Allison (Chairman and CEO)

Yeah, Noah, I'll tell you, we're the biggest cheerleader for all of them. I mean, we want, whether you're an oil company and a farm unit, or you're a gas company in Appalachia, you're a, you know, a gas company in the Haynesville Bossier. Look, we got to cheer for each other, so we, we, we, we hope everybody does really good. We think they will do good.

Noel Parks (Managing Director)

Great. Thanks a lot.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Paul Diamond from Citi. Your question, please.

Paul Diamond (Equity Research Analyst)

Hi, good morning, all. Thanks for taking my call. Just a quick one. You talked a bit about the kind of your development cadence in Western Haynesville. Just wanted to see if there was any, you know, in your ideal over the next several years, any ideal on how the breakdown sits between targeting Haynesville versus the Bossier?

Dan Harrison (COO)

Yes, this is Dan. We, we, It's a good question. We, we, you know, stated earlier, I don't know if you really heard me, but we stated earlier, obviously, you know, our, our, our target really is to drill the Haynesville where we can. It's, being a little bit deeper and being that this, you know, there are-- this is a kind of a high-temperature play. You know, we look at that really closely just to make sure, you know, we're comfortable with the target that we're going to chase on any particular well, which is why we targeted the Bossier initially, when we put our first rig out here. We drilled our first four wells to the Bossier, you know, kind of, got, got kind of everything settled down a little bit.

We made some progress dealing with the temperatures. Then we obviously, with our fifth well, we targeted the Haynesville. Didn't have any problems getting that drilled. We, the next two wells, we've targeted Bossier wells. Those are the two, those are the two wells that we're completing now. Then after that, we're going to. We got several wells in a row where we're going to be drilling Haynesville. If you just kind of look, so if you just take a long-term view out through the end of 2025, right now, we're about 50/50 on what we're targeting, Bossier versus Haynesville. I will say that that was a smaller percentage of Haynesville, you know, several months ago.

I think, I think as we continue to make progress and get better at dealing with these temperatures and get our days down on the wells, I think we'll see some of these wells that are on our list as Bossiers today, will probably, will become, you know, probably become Haynesville targets, in the future. Today, you know, just a, a, a snapshot today, looking out for the next, you know, 2.5 years to the end of 2025, we're about half and half.

Paul Diamond (Equity Research Analyst)

Understood. Thanks for the clarity. Just one quick follow-up. How do you guys think about the potential or the timing and potential for a return of activity, given the current resiliency, kind of strength of 2024 and beyond curve?

Roland Burns (President and CFO)

I think everybody's waiting to see what really materializes. You know, I think there's a, in the gas market, you know, we're, we're really, you know, still focused on the inventory levels and, and, you know, weather is a huge factor this summer and next, and, and upcoming winter will be a huge factor, you know, in determining, you know, what prices really do. I think, you know, the basin is on hold, waiting to kind of see, you know, what happens, I think, over the next, as this year plays out, because that'll set the stage for, for next year, along with, you know, the demand pull, how quickly do those projects start to pull the demand? You know, were they, were they early or are they late?

There's a lot of factors to really drive the, the return of activity. I, I think most operators are just wait and see right now.

Jay Allison (Chairman and CEO)

You know, we go overall, you know, we asked Ron to do this. You know, what, what it's at, you know, woulda, coulda, shoulda, what if Freeport had not gone offline for all those months? I mean, we, we do this every Thursday. You know, gas storage right now, in the five-year average, we got a surplus of 13% above the normal five-year average. If Freeport, if that 2 Bs hadn't been injected into storage, would have been exported, if you look at the number where we would be today on the five-year average, we'd have a deficit of about 8.8%.

so I still think the gas market's a little bit misunderstood because I think we're doing the right thing, but all of a sudden, you take 2 Bcf a day, that's exportable, and it's, it's now being injected into storage, it changes things. To have a $2.50-$2.60 gas price right now is pretty remarkable.

Paul Diamond (Equity Research Analyst)

Understood. Thanks for the clarity and your time.

Operator (participant)

Thank you. One moment for our next question. Our next question comes in the line of Phillips Johnston from Capital One Securities. Your question, please.

Phillips Johnston (Senior E&P Analyst)

Hey, guys, thanks. Just one question for me in the interest of time, I guess, but it's a follow-up on Charles's question on the productivity of the Western Haynesville wells. Jay, I hope this isn't pushing too far, but if I'm not mistaken, Netherland, Sewell booked a Circle M well at roughly 3.5 Bcf per 1,000 foot, which obviously is much higher than your legacy Haynesville wells. Would you say that all five of the wells that you've now brought online at Play are tracking to a similar EUR, or do you think there's a fair amount of variability?

Jay Allison (Chairman and CEO)

I think it's a really good question, number one. I think it's a fair question. I think that if you have produced a well for eight months and, you know, Netherland is exemplary reservoir engineers, and they come in with a 3.5 Bcf, I think that's a good starting point. As we said, we're in the early innings. I think we, we need to get the rest of these wells producing, and see what that, that real EUR is, per 1,000. The starting point, is, is, is we were very pleased with the starting point. We've got, as you know, you go back, you say, well, are they competitive and economic?

That's where you go to Dan and the group and say, well, you know, this is a big boy game, so can you really get these costs down and keep the EUR for the OR, or, or toggle one way or the other, and deliver a brand new region that is competitive with the best of your Texas, Louisiana, Haynesville, Bossier? That's where you have to have a big footprint, you have to have commitment, and you have to have an A+ operations completion group, that's committed and dedicated to doing this for years after years after years, within a budget that protects, you know, both the bondholders, the equity owners, the banks, everybody, including the largest stockholder. We're, we're trying to thread that needle. I think we've done it.

Phillips Johnston (Senior E&P Analyst)

Okay, great. Thanks, Jay. Sounds good.

Jay Allison (Chairman and CEO)

Sir, thank you. That's a good question. I appreciate your question.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Leo Mariani from Roth MKM. Your question, please.

Leo Mariani (Managing Director and Senior Research Analyst)

Hey, guys, wanted to follow up a little bit on activity levels here. It sounds like you're going back to seven rigs, kind of the end of this month here and kind of run that, you know, through the end of the year. You know, just looking at 2024, I mean, obviously, you know, no one knows how it turns out exactly at this point, but strip prices have been pretty constant around $3.50± a small amount, you know, in 2024, you know, at this point in time. As you guys look to next year, does seven rigs kind of feel like a pretty reasonable place to kind of start the year?

You think you can grow production, you know, with seven rigs, given that, you know, you guys were running more, obviously, you know, earlier this year?

Jay Allison (Chairman and CEO)

Well, I think your comment, the strip for 2024 is at $3.50, and the strip for 2025 is just shy of $4. Those are, those are, those are really good prices for our cost structure. I think that what we've not done is contracted a bunch of rigs on long-term commitment. If we need to add a rig or get rid of a rig or two, we can do that. You know, our goal is to keep, 2024 pretty confident at seven. We would have probably four in the core and three, in the Western Haynesville. All that is subjective, and we'll figure out in the fourth quarter if we want to change any of that.

Leo Mariani (Managing Director and Senior Research Analyst)

Okay. Do you guys think that's a, a level of activity that kind of lends itself to some kind of modest growth in production with that kind of seven rigs?

Jay Allison (Chairman and CEO)

I think right now, again, you've got to, you've got to take out a little bit of the lumpiness that we've had in the performance, which is shutting in some of the Western Haynesville wells while you complete the others. You've got to model that lumpiness, and then, of course, you always have to model in, do you have other shut-ins because of rig activity in your core, and you got a little weather delay. No, I think overall, I think that's right now, that's the appetite we have.

Roland Burns (President and CFO)

Yeah. As we get more production from the longer laterals in the Western Haynesville wells with a, we think, a lower decline profile than our, our core Haynesville, you know, that will hopefully reduce the need for, you know, more rigs, you know, in order to maintain production and grow modestly. So, as we get into the fourth quarter, is usually when we kind of set the budget, you know, usually November, December for next year. A lot of things will weigh in on that. We'll also be just seeing kind of where we see that coming out and do we...

seven is a great-- that's how we would kind of be looking at it now, as we're just looking ahead, and we'd adjust that based on a lot of factors, including, you know, does the gas price environment of $3.50 still there, or has it changed? you know, and how we see the, the well performance, you know, maintaining that production.

Leo Mariani (Managing Director and Senior Research Analyst)

Okay. That's helpful for sure. Just wanted to also ask a little bit on the Western Haynesville here. If I heard you right, I think you guys were saying that there's still fairly limited competition for, for acreage over there, but maybe I didn't hear that correctly. Maybe just if you can speak a little bit to kind of leasing competition, and then just maybe talk about others that are sort of drilling in and around there. Just wanted to ask about kind of what the plan is to prove up, you know, the position. I think you've got, you know, five wells in at this point in time.

You know, do you think that, you know, I'll just make something up, and you guys can correct me if I'm wrong, but, you know, is it sort of by kind of mid-next year? Do you feel like you've kind of tested most of the acreage, or you've at least drilled the, you know, the four corners and kind of the middle parts of this thing, where you'll have a really good look at it? Just kind of any timeline you can kind of provide to sort of, you know, proving it up. I mean, it seems like you guys are five for five on the wells with, you know, no, no issues at this point in time. Maybe just talk about your, you know, timeline to kind of get all this position proved up.

Jay Allison (Chairman and CEO)

Well, in our crystal ball, we would, again, 90%+ of this acreage is leased. You know, we, we wouldn't be happy, but if we couldn't lease another acre, it wouldn't be the end of the world for us. I mean, we've leased hundreds of thousands of acres, okay? You know, you don't want to get greedy, but we'd like to go ahead and get this remaining, you know, dribble that we have out there. I think it'd be a win for everybody. By the end of 2023, we should have this, reportable. When you ask the question, we can answer it, you know, with a little firmer answer.

Then I think as far as the drilling program, our, our, our goal is to de-risk this whole acreage, you know, by maybe the end of 2024, early 2025, as you extend, as you extend these wells from footprint to footprint, whether we're going north, south, east, and west, geologically. In some of these wells in 2024, you'll drill, you'll, you'll drill two wells per pad site. We've got a just this, this, this abundance of acreage, so we can do that. I think we'll call for the store coming down there, and some of them will be Bossier, some will be Haynesville.

The further we get down the road, I think, I think, the more clarity we can give you, the more comfort or discomfort, whatever you choose to have, we can give you. But that's, you have to trust, what we're doing right now.

Leo Mariani (Managing Director and Senior Research Analyst)

Okay, that's, that's helpful, Caller. Then just, you know, lastly, in terms of some of the early wells, you know, in play, you're obviously starting to build up some pretty good production history. Are you seeing those wells holding there pretty flat, with fairly limited pressure, drawdowns on some of those first couple wells?

Jay Allison (Chairman and CEO)

You know what? We expected, we've demonstrated that we keep drilling these wells, obviously, we're not totally displaced with what we've seen, and we're gonna continue to drill the wells. That's about all the comment we can make right now.

Leo Mariani (Managing Director and Senior Research Analyst)

Okay, thanks.

Operator (participant)

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Jay Allison for any further remarks.

Jay Allison (Chairman and CEO)

Okay, Jonathan, again, I mean, you know, in conclusion, kind of a broad view, but, you know, America and the world, they need success in adding natural gas reserves and inventory, which we are attempting to deliver. Management, which you talked to some of us today, there's 244 people that are here under the Comstock umbrella. All, all of the employees, management, our board, and our major stockholder, you know, we really do want to thank all of you for your encouragement and support as we report early results. You know, we want to thank you for your time that you've given us this morning. Thank you.

Operator (participant)

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.