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Comstock Stepping Up in Oil, Stepping Back from Gas

Frisco, TX-based Comstock Resources Inc. has joined the ranks of producers that are pulling back from natural gas drilling to direct more resources to oil.

Comstock said Monday it has re-evaluated its drilling plans in 2012 to further de-emphasize gas drilling and to reduce overall drilling expenditures in 2012. Under the revised 2012 drilling plan 92% of the net wells drilled in 2012 will be oil wells and 77% of the budget will be spent on oil projects.

In December Comstock was down to two rigs drilling for gas in the Haynesville Shale of North Louisiana. In 2010 it had seven operated rigs drilling in North Louisiana. Last year Comstock moved two rigs to its oil-focused Eagle Ford program in South Texas and released three rigs. It said it plans to move the remaining two gas-directed rigs to its newly acquired properties in West Texas in February and early March.

Comstock said it now plans to spend $458 million this year for drilling and completions and plans to drill 84 wells (60.6 net) as well as complete an additional 29 wells (19.1 net) that were drilled last year. Comstock plans to spend $158.3 million to drill 43 wells (33.8 net) on its new Delaware Basin properties in West Texas (see Shale Daily, Dec. 8, 2011) and to complete four wells (2.5 net) that were drilled before Comstock completed the acquisition. Comstock also plans to spend $165.2 million in its South Texas region to drill 24 (21.7 net) Eagle Ford horizontal wells in 2012 and $27.7 million to complete four wells (3.2 net) that were drilled in 2011.

In addition, Comstock plans to spend $45.4 million in its East Texas/North Louisiana operating region to drill 17 wells (5.1 net), all of which will be Haynesville or Bossier shale wells. Only three of these wells will be drilled by Comstock, with the remainder being drilled by other operators, the company said. Comstock will also spend $61.4 million to complete 20 (13.3 net) Haynesville or Bossier shale wells.

The decline in the futures prices for natural gas since the third quarter of 2011 is expected to result in certain of the company's conventional natural gas properties being impaired as of Dec. 31, 2011. Comstock said expects fourth quarter results to include an impairment of $61 million ($39.5 million after tax, or 86 cents/share).

Comstock's Eagle Ford Shale drilling program in South Texas and its Haynesville shale drilling program in North Louisiana were the primary drivers of the growth in production and proved reserves in 2011. The Eagle Ford added 9.3 million bbl of oil and 7.6 Bcf of natural gas, or 10.6 million boe, to proved reserves in 2011. The Haynesville Shale contributed 139.9 Bcfe to proved reserves. Proved reserve additions from activities outside the Haynesville and Eagle Ford were 24.8 Bcfe.

The company's proved oil and natural gas reserves as of Dec. 31 were estimated at 1,119 Bcf of gas and 32 million bbl of crude oil or 1,311 Bcfe, an increase of 25% as compared to Dec. 31, 2010.

Proved reserves were 85% natural gas and 15% crude oil. Proved oil reserves increased 661% in 2011 and now comprise 15% of total reserves as compared to 2010, when they represented 2% of proved reserves; 46% of the proved reserves were classified as proved developed, and 88% are operated by Comstock.

The company's 2011 production was 95.6 Bcfe, or 262 MMcfe per day, an increase of 31% over 2010 production. 95% of 2011 production was natural gas and 5% was oil. Production in the fourth quarter of 2011 was 25.5 Bcfe or 277 MMcfe/d. 92% of production in the fourth quarter was natural gas and 8% was oil. On Dec. 31 oil comprised 16% of the company's daily production, including its West Texas properties that were acquired on Dec. 29.

Comstock has entered into oil price swap agreements to hedge 1.7 million bbl of its expected 2012 crude oil production at an average price of $99.45/bbl. Comstock has also begun hedging some of its expected 2013 crude production and has 2,000 b/d hedged at an average price of $100.00/bbl.

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