Zacks_Analysts' Blog : Comstock Registers Higher Reserves - Analyst Blog

Frisco, Texas-based Comstock Resources’ (CRK) proved oil and natural gas reserves leaped 45% year over year to 1,051 billion cubic feet equivalent (Bcfe), comprising 1,026 billion cubic feet (Bcf) of natural gas and 4.2 million barrels of crude oil at year-end 2010. As of December 31, 2009, the company held a total proved reserve of 726 Bcfe.

At 2010 end, natural gas accounted for the lion’s share, with 98% of the total reserve. Comstock reported that 50% of the reserves were developed, of which the company operates 92%. The company aims to drill its proved undeveloped reserves within five years starting from the first year in which the reserves were included as proved reserves.

Using a present value methodology, the proved reserves are estimated to be of worth approximately $797.6 million. As part of its long-term growth strategy, Comstock has disposed its Mississippi assets, resulting in reduction of proves reserves by 28 Bcfe.

For full-year 2010, Comstock incurred a total capital expenditure of $537 million ($402 million for drilling program and $135 million for lease acquisition).

Comstock generated total production of 73.3 Bcfe (94% natural gas and 6% oil) or 200.7 million cubic feet equivalent (MMcfe) per day in 2010, up 12% from the prior-year level. For the fourth quarter of 2010, volumes totaled 17.3 Bcfe or 187.6 MMcfe per day.

The increase in reserves and production was attributable to extensive and successful drilling activity across Haynesville shale, which contributed about 93.3% of 2010’s total discoveries. South Texas’ Eagle Ford shale became operational toward the end of 2010 and accounted for 10 Bcfe of proved reserves.

Comstock remains well positioned to maintain a strong growth trajectory in the near to medium term, courtesy its exposure to a fertile acreage in U.S. and a healthy financial position. 

However, we expect the company’s 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. This corroborates with Comstock’s Zacks #3 Rank (short-term Hold recommendation).