Pure-play Haynesville producer Comstock Resources plans to grow production and capital spending over the next year as it looks to profit from higher gas prices in 2021 and possibly 2022, executives said on the company's Nov. 5 third-quarter earnings call.
With the addition of a fifth and sixth drilling rig in Q3 and a third completion crew in Q4, Comstock hopes to see high single-digit production growth next year. The move would lift output to an annualized range of 1.325 – 1.425 Bcf/d and generate upwards of $200 million in additional free cash flow, the company said.
In 2021, Comstock plans to add a seventh rig and boost capital spending by $75 million – a nearly 16% increase on the year that would lift its annualized capital expenditure to an estimated $525 to $575 million.
Comstock's aggressive production and spending plan contrasts sharply with many of its peer producers in Appalachia, like EQT and Southwestern, which have pledged to hold the line on growth next year.
"We should lean in to 2021," Comstock CEO Jay Allison said. "We have advantaged access to the demand market of the Gulf Coast [and] we're favorably exposed to Henry Hub," he said.
Following what Allison described as disappointing quarter, the chief executive said its critical for the company to correct course and provide an aggressive outlook for a comeback in Q4 and in 2021.
Quarterly results
In the third quarter, Comstock voluntarily curtailed an estimated 7% of its output, or about 80 MMcf/d, in response to historically weak gas prices. Additional shut-ins were prompted by hurricane activity and concerns over storage capacity. As a result, the company's quarterly production declined to a total 104.7 Bcfe – still a 4% increase compared to output in Q3 2019.
The addition of a third completion crew allowed Comstock to turn 15 wells to sales during the third quarter, lowering its drilled-but-uncompleted well count to 16, down from 21 in Q2.
The company's realized gas price averaged $1.96/MMBtu during the first nine-months of 2020, which was down 18% on the year and pulled sharply lower by an estimated 50% exposure to the cash market.
At the Henry Hub, cash prices averaged $1.82/MMBtu from January through September, according to data from S&P Global Platts.
Looking ahead to 2021, Comstock said that it plans to increase its percentage of hedged production to 60% to 70%. Executives said the company's plan to add a seventh rig in mid-2021 would also be contingent upon a similar level of hedging for calendar-year 2022.
In the third quarter, Comstock reported a net income loss of $131 million dollars, or 6 cents per diluted share. In the year-ago quarter, the company reported a net income loss of just $1.3 million – equivalent to net income gain of 17 cents per diluted share.
