Zacks_Analysts' Blog : Comstock Posts Narrower Loss - Analyst Blog

Oil and natural gas firm Comstock Resources Inc. (CRK) posted better-than-expected fourth quarter and full year 2011 results buoyed by volume growth plus higher average realized prices.

The company reported adjusted loss per share of 7 cents in the quarter, narrower than the Zacks Consensus Estimate of a loss of 11 cents. Comstock’s performance also improved from the year-ago adjusted loss of 23 cents per share.

For full-year 2011, the company experienced a loss of 21 cents per share, narrower than the loss of 30 cents in the prior year (both adjusted for special items). The reported 2011 results were also better than our projected loss of 25 cents per share.

The company generated revenue of $114.5 million in the quarter, slightly above the Zacks Consensus Estimate of $111.0 million. Comparing year over year, revenue improved 57.7% from $72.7 million, aided by strong oil and gas sales.

Comstock generated revenues of $434.4 million in fiscal 2011, compared with $349.1 million in 2010.

Production

Comstock’s quarterly oil and gas production shot up 47.8% year over year to 25.5 billion cubic feet equivalent (Bcfe), of which 92% was natural gas. The improvement was driven by strong contribution from the company's Haynesville shale operations.

Natural gas production in the East Texas/North Louisiana operating region leaped 59.7% to 20.2 billion cubic feet (Bcf) while production from the South Texas properties dropped 15.0% from the year-earlier level to 2.7 Bcf.

Price Realizations Analysis

Average price realization per thousand cubic feet equivalent (Mcfe), before hedging, was $4.49 in the quarter, up 6.6% year over year. Average oil price realization was $100.18 per barrel (versus $74.75 per barrel in fourth quarter 2010) and average natural gas realization (before hedging) was $3.40 per Mcf (compared with $3.73 per Mcf in the year-earlier quarter).

Costs & Expenses

Gathering and transportation cost averaged 32 cents per Mcfe in the quarter, up 10.3% from the prior-year quarter, while total operating expenses increased 64.4% year over year to $168.0 million.

Cash Flow & EBITDAX

Comstock generated operating cash flow from continuing operations of $67.4 million, reflecting an increase of 8.0% from the year-earlier quarter. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense and other non-cash expenses) increased 75.2% year over year to $89.9 million.

Balance Sheet & Capital Expenditure

As of December 31, 2011, Comstock had approximately $8.5 million in cash and cash equivalents and $1,196.9 million in long-term debt. Debt-to-capitalization was 53.6%.

In 2011, Comstock incurred $565.8 million in exploration and development expenditure and $218.7 million on acquiring exploration fields. 

Guidance

Given the uptrend in crude oil prices and a weak natural gas scenario, Comstock targets to focus on the unconventional oil exploration in 2012 with 92% of the to-be drilled wells located in the oil-rich region.

Comstock expects to invest approximately 77% of the 2012 capital budget on Eagle Ford shale properties in South Texas and its Permian basin properties in West Texas.

Our Recommendation

We believe that Frisco, Texas-based Comstock enjoys a large acreage in the prolific Haynesville Shale play that renders a multi-year inventory of low-risk development drilling opportunities. Complemented with a low cost structure, the company remains well positioned to maintain a strong growth trajectory in the near-to medium term.

However, the company’s highly gas-weighted reserves/production profile, along with its exposure to the inherently cyclical and volatile energy sector remains key areas of our concern. Additionally, Comstock faces strong competition from Cabot Oil and Gas (COG) and Apache Corporation (APA). Hence, we see a limited upside from the current level and maintain our Neutral recommendation on the stock.