Zacks_Analysts' Blog : Comstock Loss Narrows - Analyst Blog

Oil and natural gas firm Comstock Resources Inc. (CRK) reported better-than-expected fourth quarter and full-year 2010 results.

The company faced an adjusted loss per share of 8 cents in the quarter, narrower than the Zacks Consensus Estimate of a loss of 19 cents. Comstock also performed better than the loss of 15 cents per share reported in the prior-year quarter, on lower production taxes and lease operating expense.

For full-year 2010, the company’s adjusted loss per share was 6 cents, as against our projection of a loss of 26 cents. Comstock had witnessed a loss of 81 cents per share in 2009.

The company generated revenue of $72.7 million in the fourth quarter, lagging the Zacks Consensus Estimate of $81.0 million. Revenues also fell 21.0% from $91.9 million in the prior-year quarter, hurt by reduced average price realized. Comstock generated total revenue of $349.1 million in 2010, up 19.3% year over year.

Volume Growth

Comstock recorded an oil and gas quarterly production decline of 9.4% year over year to 17.3 billion cubic feet equivalent (Bcfe), of which 94% was natural gas. The decrease in volume was the result of the effect of well shut-ins during the quarter.

Natural gas production in the East Texas/North Louisiana operating region dropped a modest 0.8% to 12.7 Bcfe while production from the South Texas properties came in at 3.1 Bcfe, down approximately 29.5% from the year-earlier level.

Price Realizations Analysis

Average price realization per thousand cubic feet equivalent (Mcfe), before hedging, was $4.21 in the quarter, down 6.4% from the year-ago quarter. Average oil price realization was $74.75 per barrel and average natural gas realization (before hedging) was $3.73 per Mcf, compared with $64.76 per barrel and $4.10 per Mcf, respectively, in the year-earlier quarter.

Costs & Expenses

Gathering and transportation cost averaged 29 cents per Mcfe in the quarter, up 16% from the prior-year quarter, while total operating expenses increased 8.8% year over year to $102.1 million.

Cash Flow & EBITDAX

Comstock generated operating cash flow from continuing operations of $44.9 million, reflecting a decrease of 33.6% from the year-earlier quarter. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense and other non-cash expenses) decreased 20.3% year over year to $51.3 million.

Balance Sheet & Capital Expenditure

As of December 31, 2010, Comstock had approximately $1.7 million in cash and cash equivalents and $513.4 million in long-term debt. Debt-to-capitalization at the end of the quarter was 32.5%.

During 2010, Comstock incurred $537 million spending in exploration and development activities with $396 million targeted toward drilling and $138 million spent on acquiring leases.     

Our Recommendation

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

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, which competes with peers such as Cabot Oil and Gas (COG) and Apache Corporation (APA), currently retains a Zacks #3 Rank (short-term Hold rating).