Oil and natural gas firm Comstock Resources Inc. (CRK) reported better than expected second quarter results backed by a rise in production volumes and higher commodity price realizations.
Loss per share came in at 4 cents, considerably narrower than the Zacks Consensus Estimate of 19 cents and the year-ago loss of 26 cents. Oil and gas sales were up 39.8% year over year to $90.7 million, in the process topping the Zacks Consensus estimate of $88.0 million.
Volume Growth
Comstock recorded a quarterly volume growth of 30.2% year over year to 20.0 billion cubic feet equivalent (Bcfe), of which 94% was natural gas. The company’s impressive operational performance continued to reflect the success of its enhanced onshore drilling programs (particularly that in the Haynesville shale natural gas play in East Texas/North Louisiana) and property acquisitions.
Production in the East Texas/North Louisiana operating region increased 62.0% to 14.6 Bcfe, while production from the South Texas properties came in at 4.0 Bcfe, an approximately 20.4% decrease from the year-earlier level.
Price Realizations Up
Average price realization per thousand cubic feet equivalent (Mcfe), before hedging, was $4.54, up 20.4% from the year-ago quarter. Average oil price realization was $67.37 per barrel and average natural gas realization (before hedging) was $4.09 per Mcf, compared with $49.24 per barrel and $3.38 per Mcf, respectively, in the year-earlier quarter.
Costs & Expenses
Oil and gas operating costs were up 28.5% from the second quarter of 2009 to $22.5 million, while overall operating expenses increased 15.9% year over year to $89.8 million.
Cash Flow & EBITDAX
Comstock generated an operating cash flow from continuing operations of $55.9 million, an increase of 32.8% from the year-earlier period. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense, and other non-cash expenses) increased 49.1% year over year to $62.9 million.
Capital Expenditure & Balance Sheet
During the second quarter of 2010, Comstock spent $150.5 million on its exploration and development activities. As of June 30, 2010, Comstock had approximately $42.7 million in cash and cash equivalents and $468.1 million in long-term debt. Debt-to-capitalization at the end of the quarter was 30.7%.
Our Recommendation
Comstock’s large acreage position in the prolific Haynesville Shale play provides a multi-year inventory of low-risk development drilling opportunities. Supplemented with a robust balance sheet, Comstock remains well positioned to maintain a strong growth trajectory in the near- to medium-term. However, the company’s highly gas weighted reserves/production profile and exposure to the inherently cyclical and volatile E&P sector offset these strengths and remain key areas of concern in our view. We believe that Comstock’s current valuation adequately reflects its fairly balanced risk/reward profile.
As such, Comstock shares are currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term Neutral recommendation.
Loss per share came in at 4 cents, considerably narrower than the Zacks Consensus Estimate of 19 cents and the year-ago loss of 26 cents. Oil and gas sales were up 39.8% year over year to $90.7 million, in the process topping the Zacks Consensus estimate of $88.0 million.
Volume Growth
Comstock recorded a quarterly volume growth of 30.2% year over year to 20.0 billion cubic feet equivalent (Bcfe), of which 94% was natural gas. The company’s impressive operational performance continued to reflect the success of its enhanced onshore drilling programs (particularly that in the Haynesville shale natural gas play in East Texas/North Louisiana) and property acquisitions.
Production in the East Texas/North Louisiana operating region increased 62.0% to 14.6 Bcfe, while production from the South Texas properties came in at 4.0 Bcfe, an approximately 20.4% decrease from the year-earlier level.
Price Realizations Up
Average price realization per thousand cubic feet equivalent (Mcfe), before hedging, was $4.54, up 20.4% from the year-ago quarter. Average oil price realization was $67.37 per barrel and average natural gas realization (before hedging) was $4.09 per Mcf, compared with $49.24 per barrel and $3.38 per Mcf, respectively, in the year-earlier quarter.
Costs & Expenses
Oil and gas operating costs were up 28.5% from the second quarter of 2009 to $22.5 million, while overall operating expenses increased 15.9% year over year to $89.8 million.
Cash Flow & EBITDAX
Comstock generated an operating cash flow from continuing operations of $55.9 million, an increase of 32.8% from the year-earlier period. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense, and other non-cash expenses) increased 49.1% year over year to $62.9 million.
Capital Expenditure & Balance Sheet
During the second quarter of 2010, Comstock spent $150.5 million on its exploration and development activities. As of June 30, 2010, Comstock had approximately $42.7 million in cash and cash equivalents and $468.1 million in long-term debt. Debt-to-capitalization at the end of the quarter was 30.7%.
Our Recommendation
Comstock’s large acreage position in the prolific Haynesville Shale play provides a multi-year inventory of low-risk development drilling opportunities. Supplemented with a robust balance sheet, Comstock remains well positioned to maintain a strong growth trajectory in the near- to medium-term. However, the company’s highly gas weighted reserves/production profile and exposure to the inherently cyclical and volatile E&P sector offset these strengths and remain key areas of concern in our view. We believe that Comstock’s current valuation adequately reflects its fairly balanced risk/reward profile.
As such, Comstock shares are currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term Neutral recommendation.
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