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Flush With Cowboy Cash, Comstock Heads for End Zone in Haynesville This Year

After executing a transformative deal last year with Dallas Cowboys owner Jerry Jones to return the company to profitability, Comstock Resources Inc. has unveiled plans to spend more on completions in 2019 and grow natural gas production by about 50%.

The Frisco, TX-based independent remains primarily focused on gassy targets in the Haynesville and Bossier shales, and it deployed a fourth rig last September. But throughout the reporting of its financial and operating results, Comstock management made references to the periods both before and after its Aug. 14 agreement with Jones and his children, who contributed $620 million in Bakken Shale properties in exchange for about 88.6 million shares, or an 84% stake, in the company.

"Jerry Jones is known as a man that can create tremendous wealth and businesses," CEO Jay Allison said during a quarter earnings call Thursday. Jones "changed Comstock. We are who we are today because of his belief, his investment. He saw quality Haynesville drill sites, and he recognized growth opportunities within the distressed Haynesville natural gas region."

Comstock plans to spend $364 million on drilling and completions (D&C) in 2019, up from the $267.1 million in 2018. Most of the capital from the new program, $339.8 million, will go toward the Haynesville and Bossier, where Comstock plans to drill 36.4 net wells with an average lateral length of 8,384 feet.

Of the remaining D&C budget, $15 million will go toward the Eagle Ford Shale to drill 1.9 net wells with an average lateral length of 8,925 feet. Another $9.2 million will be spent in the Bakken to drill 1.1 net wells with an average lateral of 9,400 feet.

CFO Roland Burns said Comstock could add a fifth rig in the near future to "accommodate some of the wells that we're drilling for lower working interest. Generally, that would probably be later in the year. Then we would hope that the 2020 program, based on where we are, the amount of cash flow we're producing for 2020 with the higher production levels, justify using more of a five rig program on Comstock's acreage."

During 2018, Comstock completed 24 net wells, including 17 in the Haynesville/Bossier and seven in the Bakken. Of the Haynesville wells that were completed, 4.2 net wells were drilled in 2017. The company said that in 2019, it fully expects to complete 5.1 net wells in the Haynesville that were drilled in 2018 but were not completed.

Comstock produced 36 Bcfe in 4Q2018, up 53.2% from the year-ago quarter. That included 30.9 Bcf of natural gas, which increased 39%, and 843,000 bbl of oil -- nearly quadruple the production from 4Q2017. The company attributed the increase in natural gas production to successful results from its Haynesville program, while the increase in oil came from producing properties in the Bakken acquired in the Jones deal.

For the full-year, production before the Jones agreement was 57 Bcfe, which included 55.2 Bcf of natural gas and 287,000 bbl of oil, while production after Jones was 53.3 Bcfe, including 45 Bcf and 1.39 million bbl. By comparison, Comstock reported 79.2 Bcfe of production in 2017. Combined production in 2018, both before and after the Jones deal, totaled 110.3 Bcfe, equating to a 39.2% increase from 2017.

The company completed two bolt-on acquisitions in the Haynesville last year. In July, Comstock acquired 12,085 net acres in Louisiana's Caddo and DeSoto parishes and Shelby County, TX, for $41.5 million. The acreage was purchased at a bankruptcy sale and was formerly held by Enduro Resource Partners LLC. The company also acquired 5,301 net acres in Texas' Harrison and Panola counties from Shelby Shale LLC for $20.5 million in December.

According to the investor presentation for 4Q2018, the company currently holds 87,000 net acres in the Haynesville, including 47,000 net acres prospective to the Bossier.

Comstock reported net income of $50.3 million (48 cents/share) in 4Q2018, compared with a year-ago net loss of  $42.3 million (minus $2.86). For 2018, the company reported a net loss of $92.8 million (minus $6.08) from Jan. 1 through Aug. 13, 2018, but it had net income of $64.1 million (61 cents) for the remainder of the year. By comparison, Comstock reported a net loss of $111.4 million (minus $7.61/share) in 2017.

Revenues totaled $153.5 million in 4Q2018, up from $73.2 million in the year-ago quarter. For the full year, revenues totaled $166.6 million before the Jones deal; an additional $223.6 million in revenues were recorded post-Jones. By comparison, revenues totaled $255.3 million in 2017.

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