Oil and natural gas firm Comstock Resources Inc. (CRK) reported disappointing third quarter 2010 results, with the company facing a loss per share of 10 cents, slightly wider than the Zacks Consensus Estimate of 8 cents.
However, Comstock performed much better compared with the prior-year quarter loss of 28 cents per share, due to reduced operating expenses along with improved oil and gas prices and higher volumes.
The company generated revenue of $79.7 million, lagging behind the Zacks Consensus Estimate of $86.0 million. On a year-over-year comparison, revenues jumped 18.2% from $67.4 million, riding on the back of higher oil and gas prices.
Volume Growth
Comstock recorded a total oil and gas quarterly production growth of 1.4% year over year to 17.2 billion cubic feet equivalent (Bcfe), of which 94% was natural gas. On a sequential basis, production dipped 14% on account of the delay in completion of drilling of Haynesville Shale wells.
Production in the East Texas/North Louisiana operating region upped 14.7% to 12.3 Bcfe while production from the South Texas properties came in at 3.6 Bcfe, an approximately 28.4% decrease from the year-earlier level.
Price Realizations Up
Average price realization per thousand cubic feet equivalent (Mcfe), before hedging, was $4.64, up 30.7% from the year-ago quarter. Average oil price realization was $64.97 per barrel and average natural gas realization (before hedging) was $4.24 per Mcf, compared with $57.96 per barrel and $3.17 per Mcf, respectively, in the year-earlier quarter.
Costs & Expenses
General and administrative cost averaged 29 cents per Mcfe in the quarter, up 3.6% from the prior-year quarter, while total operating expenses fell 1.7% year over year to $77.6 million.
Cash Flow & EBITDAX
Comstock generated an operating cash flow from continuing operations of $47.3 million, a decrease of 32.5% from the year-earlier quarter. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense and other non-cash expenses) increased 16.8% year over year to $54.6 million.
Balance Sheet
As of September 30, 2010, Comstock had approximately $4.4 million in cash and cash equivalents and $528.2 million in long-term debt. Debt-to-capitalization at the end of the quarter was 33.1%.
Outlook
Comstock targets to complete its previously announced sale of non-core oil and gas properties in Mississippi to privately held Petro Harvester in fourth quarter 2010.
For the full year, the company expects production to round up to approximately 73 Bcfe to 75 Bcfe, representing an 11% to 15% increase over 2009. The company also expects to witness a strong reserved growth in 2010, with the completion of the Haynesville Shale drilling program.
Our Recommendation
We believe that a major holding in the Haynesville Shale play and healthy financial position will allow Comstock to sustain its strong growth trajectory in the near to medium term.
However, the company’s gas inclined reserves/production profile and exposure to the unstable macro environment remain key areas of concern, in our view. We are maintaining our long-term Neutral recommendation on the stock.
Comstock currently retains a Zacks #4 Rank (short-term Sell rating).
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