Oil and natural gas firm Comstock Resources (CRK) announced a higher development and exploration budget for 2011, riding on the back of increased activity levels in Haynesville and Bossier shales. The company expects to incur an expenditure of approximately $522.0 million in 2011 for development and exploration program, 35.6% above than the initial estimated expenses for 2010.
With increased budget and drilling activities, the company expects to generate production in the range of 85 to 90 billion of cubic feet equivalent (Bcfe) in 2011, representing 17% to 20% increase over the 2010 level.
Comstock intends to emphasize on expansion and development of assets in Haynesville shale and Bossier shale in North Louisiana as well as the Eagle Ford shale properties in South Texas in the coming year. Of the six operated drilling rigs that are being used by the company, five are engaged in Haynesville or Bossier shale wells while the other one is drilling the fourth Eagle Ford shale well.
One of these rigs is slated for release in the first quarter of 2011. Comstock also plans to shift one of the Haynesville shale rigs to the Eagle Ford by mid-2011. The drilling venture of the Eagle Ford shale will be targeted toward growth of the company’s oil, condensate and natural gas liquids production in 2011.
Out of the projected expenditure budget, $110.2 million will be used for the completion of 25 (21.6 net) Haynesville or Bossier shale wells. In addition, Comstock guides toward drilling 45 (49.5 net) horizontal wells in Hayneville or Bossier shale and 22 net wells in Eagle Ford shale, totaling 67 wells (49.5 net) in 2011.
We believe that Comstock has ample resources to implement its drilling program and achieve the targeted guidance. Given the expected strong drilling activities, we hope to see an impressive reserve growth in 2011.
However, we expect the company shares to perform in line with its peers such as Cabot Oil and Gas (COG) and Apache Corporation (APA). Hence, we retain our long-term Neutral recommendation on the stock. We have a Zacks #3 Rank (short-term Hold recommendation) on the shares.
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