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COMSTOCK RESOURCES INC (CRK)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 showed sequential improvement in GAAP total revenues and margins despite persistently weak gas pricing; adjusted net loss was $0.17 per share and hedging lifted operating margin to 67% .
  • Pricing headwinds continued (realized gas price $1.90/Mcf unhedged; $2.28/Mcf after hedging), but operating costs fell to $0.77/Mcfe and cash flow from operations reached $152 million, aided by hedges and lower taxes and LOE .
  • Western Haynesville execution advanced: first “horseshoe” lateral well IP’d at 31 MMcf/d; latest Western Haynesville well costs improved to ~$2,814 per completed lateral foot, with five additional wells expected online late 2024–early 2025 .
  • Balance sheet/liquidity supported activity: bank group unanimously reaffirmed the $2.0B borrowing base and loosened leverage covenants; liquidity ended Q3 at ~$1.1B, and hedging is targeting ~50% of expected production through 2026 .
  • Stock-relevant catalysts: scaled horseshoe deployment, Q4 production and CapEx cadence, midstream capacity addition (new treating plant adding ~400 MMcf/d by Q2 2025), and higher hedge coverage into 2025–26 .

What Went Well and What Went Wrong

What Went Well

  • Horseshoe lateral concept validated; Sebastian 11 #5H delivered 31 MMcf/d IP and enables converting short laterals to longer, better-IRR projects with ~23% capex savings vs prior short-lateral development plans .
  • Western Haynesville well costs and drill days improved materially; latest single well at ~$2,814 per foot and drill-to-TD now ~51–56 days vs ~70–85 days previously .
  • Operating cost and margin improved; operating cost per Mcfe fell to $0.77 and hedged operating margin rose to 67% in Q3, supported by lower taxes/LOE and higher hedging .

What Went Wrong

  • Gas prices remained weak, depressing GAAP/adjusted earnings; realized price was $1.90/Mcf unhedged and $2.28/Mcf after hedging, resulting in adjusted net loss of $48.5M ($0.17/share) .
  • Free cash flow remained negative given higher Q4 completion cadence and midstream investments (free cash deficit from operations of ~$44M in Q3) .
  • Gathering costs ticked up due to prior-period transport adjustments and DD&A rose on lower PUDs under SEC price rules, pressuring GAAP results .

Financial Results

MetricQ1 2024Q2 2024Q3 2024Q3 2023
GAAP Total Revenues ($USD Millions)$335.8 $246.8 $304.5 $376.7
Diluted EPS (GAAP, $)-$0.05 -$0.43 -$0.09 $0.05
Adjusted EPS (Non-GAAP, $)-$0.03 -$0.20 -$0.17 $0.04
Unhedged Operating Margin (%)63% 50% 60% 64%
Hedged Operating Margin (%)68% 61% 67% 65%
Realized Gas Price ($/Mcf, unhedged)$2.06 $1.65 $1.90 $2.33
Realized Gas Price ($/Mcf, incl. hedging)$2.40 $2.12 $2.28 $2.41

Notes and context:

  • Q3 GAAP revenues improved QoQ to $304.5M from $246.8M, but were down YoY vs $376.7M given price weakness .
  • Adjusted EBITDAX was $201.7M in Q3 vs $166.7M in Q2 and $229.6M in Q1; adjusted loss per share was -$0.17 in Q3 .

Segment/Activity Breakdown and KPIs:

MetricQ1 2024Q2 2024Q3 2024
Nat Gas & Oil Sales incl. Hedging ($USD Millions)$336.0 $278.2 $305.0
Gas Services Revenue ($USD Millions)$47.8 $29.2 $50.8
Gas Services Margin ($USD Millions)-$0.9 -$2.3 -$1.8
Production (Bcfe/d)1.5 1.4 1.4
Operating Cost ($/Mcfe)$0.76 $0.84 $0.77
Wells Turned to Sales (Operated)18 12 11
Avg IP of Recent Wells (MMcf/d)25 21 21
D&C CapEx ($USD Millions)$256.2 $221.0 $184.4

Balance Sheet and Risk Management:

MetricQ1 2024Q2 2024Q3 2024
Liquidity ($USD Billions)~$1.3 ~$1.2 ~$1.1
Borrowings under Credit Facility ($USD Millions)$540 $325 $415
Total Debt (incl. senior notes, $USD Billions)$2.7 $2.9 $3.0
Hedge Coverage (%)~26% ~28% ~28%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Production (MMcfe/d)Q4 2024N/A1,325–1,375 New detail provided
D&C CapEx ($USD Millions)Q4 2024N/A$225–$275 New detail provided
LOE ($/Mcfe)Q4 2024Unchanged ranges referenced $0.24–$0.28 Specified range provided
Gathering/Transport ($/Mcfe)Q4 2024Unchanged ranges referenced $0.34–$0.40 Specified range provided
Production & Ad Valorem Taxes ($/Mcfe)Q4 2024Unchanged ranges referenced $0.14–$0.18 Specified range provided
DD&A ($/Mcfe)Q4 2024Higher vs normal through 2024 $1.40–$1.55 Quantified
Cash G&A ($USD Millions)Q4 2024Prior cadence unchanged $6–$8 (plus $3–$4 non-cash) Quantified
Cash Interest ($USD Millions)Q4 2024Increased with April notes $54–$56 (plus $3–$4 non-cash) Quantified
Effective Tax Rate / DeferralQ4 202422%–25% / ~100% deferral in 2024 22%–25% / ~100% deferral Maintained
Hedging Target2025–2026Targeting 50% Targeting ~50%; ~40% hedged for 2025 now Reiterated, progress update
Full-Year D&C CapEx ($USD Millions)FY 2024$750–$850 Maintained Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3)Trend
AI/Data center power demandManagement positioning CRK to supply LNG corridor; direct sales/customer diversification incl. data centers discussed CEO highlights “AI boom” driving “crazy demand” for U.S. gas; data centers require round-the-clock gas-fired power Intensifying
Hedging strategyBuilt positions with floors ~$3.50; near-term hedging ~26–28% and target 50% 2024–2026 Target ~50% hedge; ~40% hedged for 2025; plan to add opportunistically Building
Western Haynesville executionCosts trending down; pad drilling efficiencies; 12 producing wells; drill days ~54–56 13th well at ~$2,814/ft; drill-to-TD improved to ~51 days; 6 wells to sales by YE/early Jan Improving
Horseshoe lateralsConcept introduced with 23% cost savings vs short laterals; planned pilots First horseshoe IP 31 MMcf/d; 64 Haynesville horseshoe locations identified; IRR ~2–3x vs short laterals Scaling up
Midstream capacityPinnacle JV, planning for dedicated takeaway across footprint New Marquee treating plant (~400 MMcf/d) targeted by Q2 2025; offload capacity available in interim Capacity expanding
Macro gas price/rig countWeak prices; private operators cut rigs; sequencing activity to market Expect 2025 volatility; winter demand + declining supply could tighten; activity responsive to market Cautiously constructive
Covenants/liquidityBorrowing base reaffirmed; $1.2–$1.3B liquidity $2.0B base reaffirmed; leverage covenant loosened through 2025; ~$1.1B liquidity Supportive

Management Commentary

  • “Big oil sees AI boom driving crazy demand for U.S. natural gas... Natural gas-fired plants will be critical in supplying round-the-clock power to data centers.” — CEO Jay Allison .
  • “Our acreage in the emerging [Western Haynesville] play is now up to 453,881 net acres… most recent well costs down to ~2,814 per lateral foot.” .
  • “Operating cost per Mcfe averaged $0.77… margin improved to 67% in the third quarter.” — CFO Roland Burns .
  • “The Sebastian [horseshoe] well… achieved an IP rate of 31 MMcf/d… we will be pursuing additional horseshoe projects.” — COO Dan Harrison .
  • “Bank group unanimously reaffirmed our borrowing base of $2 billion… and approved an amendment to loosen the covenant leverage ratio.” — CFO Roland Burns .

Q&A Highlights

  • Q4 outspend rationale: Timing of faster drilling/completions pulled spending into Q4; plan to balance 2025 capital with higher hedge coverage to align with operating cash flow .
  • Western Haynesville costs and cadence: Latest single-well cost ~$2,814/ft; pad drilling yields 5–7% savings; more fulsome update expected early 2025 .
  • Midstream runway: Treating capacity tight near-term, offload arrangements in place; Marquee plant adds ~400 MMcf/d capacity by Q2 2025 to support growth .
  • Rig adds/2025 program: Timing contingent on winter and price strip; targeting ~50% hedge; flexibility to add/drop rigs on ~45-day notice .
  • Horseshoe economics: IRR ~2–3x vs short laterals; payouts less than half; potential to expand horseshoe locations (Haynesville 64 identified; Bossier under evaluation) .

Estimates Context

  • Wall Street consensus (S&P Global) was not retrievable at this time due to system limits; therefore, estimate comparisons for Q3 2024 EPS, revenue, and EBITDA are unavailable. Values would otherwise be retrieved from S&P Global consensus.

Key Takeaways for Investors

  • Execution alpha: Western Haynesville costs and cycle times continue improving; horseshoe lateral success provides a lever to convert stranded short laterals into high-IRR long laterals and expand inventory quality .
  • Margin defense: Hedging and cost discipline lifted hedged operating margin to 67% despite weak pricing; Q4 hedges (~50%) provide downside protection into winter .
  • Near-term FCF pressure vs longer-term growth: Q4 CapEx step-up (timing of completions) and midstream investments weigh on FCF now but set up volume growth around year-end/early January .
  • Infrastructure readiness: Marquee treating plant adds ~400 MMcf/d by Q2 2025; combined with Pinnacle JV and offload options, takeaway should not constrain Western Haynesville ramp .
  • Balance sheet support and covenants: $2.0B borrowing base reaffirmation and covenant relief provide flexibility through 2025; liquidity ~$1.1B buffers volatility .
  • 2025 program watch-items: Rig adds contingent on winter and price strip; expect dynamic hedging toward 50%; monitor LNG start-ups and data center power demand as potential demand step-ups .
  • Trading implications: Positive setup into Q4/Q1 with well turn-in-line cadence and hedging; stock likely sensitive to winter gas prices, horseshoe replication data, and midstream commissioning milestones .

Additional Context (Prior Quarters)

  • Q2 2024: GAAP revenues $246.8M; adjusted EPS -$0.20; hedged margin 61%; realized gas price $1.65/$2.12 (unhedged/hedged); D&C CapEx ~$221M .
  • Q1 2024: GAAP revenues $335.8M; adjusted EPS -$0.03; hedged margin 68%; realized gas price $2.06/$2.40; D&C CapEx ~$256M; added 198k net acres in Western Haynesville .
  • Q3 2023 (YoY reference): GAAP revenues $376.7M; diluted EPS $0.05; hedged margin 65% .

Press releases and logistics:

  • CRK announced Q3 earnings release timing (Oct 30 after market) and call at 10:00 a.m. CT on Oct 31; replay available for 12 months .