The management team for Comstock Resources Inc., the largest exploration and production (E&P) firm focused on the gassy Haynesville Shale, on Tuesday signaled it would consider taking stakes in a liquefied natural gas (LNG) export facility.
Citing the Haynesville’s proximity to Gulf Coast LNG export terminals, CEO Jay Allison told analysts during a call to discuss first quarter earnings that Comstock currently sells about 14% of its gas to LNG facilities.
CFO Roland Burns said the company is “in constant talks” to sell more production directly to LNG shippers.
Comstock is “looking to develop long-term relationships with them and continue to tie more and more of our gas to the Gulf Coast indexes versus the regional hubs of Carthage and Perryville,” he said.
Management also confirmed the company is exploring the possibility of acquiring an LNG export terminal ownership stake.
“But as far as participating in international pricing, I think that’s something we’re exploring, but I think you actually have to own the facilities,” said Burns. “Because you…physically need to be able to participate in that market to do that the right way, we don’t want to try to do that through derivatives and have unusual price changes cause us not to be correlated with our physical sales.”
With “equity in these facilities…then you would have the ability to use some of the capacity you own to maybe actually sell in the different markets,” he added.
Allison said LNG facility ownership was “the logical next step for us to look at as we have been looking at it.”
D&C Spending Rises
The Frisco, TX-based independent noted it also increased its 2022 drilling and completion (D&C) cost projection. Allison said the company is “experiencing cost increases for our drilling program this year given the high activity level in the Haynesville…”
The company in February projected $750-800 million in D&C costs for the year but now estimates it may need $875-925 million.
“The cost increase is primarily due to the higher cost of services that have arisen during the first quarter, the sharp increase in commodity prices, and demand for services in the last couple of months,” said COO Dan Harrison.
D&C costs totaled $223.8 million in 1Q2022, averaging $1,124/foot versus $1,040 in 2021.
“This is an 8% increase compared to our full year 2021 D&C cost and a 9% increase versus the fourth quarter of last year,” Harrison said. “Our drilling costs increased 13% in the quarter to $450 a foot, while our completion costs increased 5% up to $673 a foot.”
The company, which projects spending $225-275 million on D&C in 2Q2022, plans to drill more extra-long lateral wells of 11,000-plus feet in length “to play a key role in minimizing the impact of inflation,” he said. In 2022 “we anticipate drilling 24 extra-long laterals,” with 15 “exceeding 14,000 feet,” he said. Management views “these longer laterals as a means for us to further improve our efficiencies to alleviate some of these cost increases.”
The company drilled 15 operated horizontal Haynesville/Bossier shale wells in 1Q2022 with a 9,858-foot average lateral length, 12% higher on average quarter/quarter. Comstock’s record lateral length is 15,291 feet, and it anticipates a 10,250-foot average lateral length by the end of this year.
“Our 2022 wells will have an average lateral length being approximately 16% longer than last year,” said Investor Relations chief Ronald Mills.
The company turned 15.2 net wells to sales in the first quarter, with a 29 MMcf/d average initial production rate for the 15 operated wells. It also participated in 14 nonoperated Haynesville wells. It expects to turn another 14 to sales during 2Q2022.
Harrison said Comstock is running seven drilling rigs and has three hydraulic fracturing crews working across its acreage.
Allison said Comstock expects the 2022 drilling program “to generate 4-5% production growth” year/year. The drilling inventory includes about 1,600 locations. The company holds about 372,000 net Haynesville/Bossier acres.
Production for 1Q2022 was 1.28 Bcf/d, nearly flat year/year. The output in the year-ago quarter included Bakken Shale acreage since divested. Haynesville output accounted for nearly all the production in 1Q2021 at 1.24 Bcf/d.
Management said 61% of 1Q2022 production was hedged, down from 70% year/year and from 72% quarter/quarter. The 1Q2022 realized natural gas price after hedging was $3.53/Mcf; the unhedged realized price was $4.55/Mcf.
Comstock issued production guidance of 1.31-1.375 Bcf/d for 2Q2022 and 1.39-1.45 Bcf/d for the year. For this year, about 50% of Comstock’s output is hedged, management said.
Harrison said “we’ve become less hedged every quarter and we’re participating more in the higher prices…And then in ‘23, we are participating almost fully in the futures prices.”
The company posted a $111.4 million net loss (minus 50 cents/share) for 1Q2022, compared with a $134.1 million net loss (minus 60 cents) for 1Q2021. The 1Q2022 loss included a pre-tax $320.3 million unrealized loss on hedging, management said. Comstock reported $407.7 million in 1Q2022 revenue, including $117.2 million in hedging losses.
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