Comstock Resources Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Western Haynesville expansion: Comstock now holds nearly 525,000 net acres, has drilled 29 wells (24 producing), completed pilot cores and logs, and brought a new 400 MMcf/d gas treating plant online to support future growth.
  • Positive Sentiment: Lower drilling and completion costs: Second-quarter wells averaged $2,647 per completed lateral foot—substantially below the past three-year average—and frac costs fell as fuel use shifted to natural gas.
  • Positive Sentiment: Strong Q2 financials: Despite a 14% drop in production to 1.23 Bcfe/d, oil and gas sales rose 24% to $344 million, EBITDAX was $260 million, operating cash flow reached $210 million, and adjusted net income was $40 million.
  • Negative Sentiment: Production decline: Average quarterly output fell 14% year-over-year due to earlier rig reductions and deferred completions, though legacy Haynesville rigs were recently increased to stabilize volumes.
  • Neutral Sentiment: Non-core divestitures: Comstock plans to sell certain legacy assets in 2025 to accelerate debt reduction, leveraging high industry interest in drilling locations while retaining core development upside.
AI Generated. May Contain Errors.
Earnings Conference Call
Comstock Resources Q2 2025
00:00 / 00:00

There are 4 speakers on the call.

Speaker 1

Good day and thank you for standing by. Welcome to the Comstock Resources second quarter 2025 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Jay Allison, Chairman and CEO. Please go ahead.

Speaker 2

Thank you. Welcome to the Comstock Resources second quarter 2025 financial and operating results conference call. You can view a slide presentation during or after this call by going to our website at www.comstockresources.com and downloading the quarterly results presentation. There you'll find a presentation entitled Second Quarter 2025 Results. I have Jay Allison, Chief Executive Officer of Comstock Resources, and with me is Roland O. Burns, our President and Chief Financial Officer, Daniel S. Harrison, our Chief Operating Officer, and Ronald Eugene Mills, our Vice President of Finance and Investor Relations. Please refer to slide 2 in our presentations and note that our discussions today will include forward-looking statements within the meaning of securities laws. While we believe the expectations in such statements to be reasonable, there can be no assurance that such expectations will prove to be correct.

Speaker 2

Five years ago we made the decision to lease acreage and to drill an exploratory well in what we now call the Western Haynesville. Today our Western Haynesville footprint has grown to nearly 525,000 net acres and we have now drilled 29 wells with 24 of those currently producing. 10 are producing from the Haynesville Shale and 14 from the Bossier Shale. The Western Haynesville wells' vertical depths range from 14,000 ft to 19,200 ft with completed lateral lengths of 6,700 ft to 12,763 ft. Since we have put the first well online in 2022, we have made many changes to our drilling and completion design for this area. Both the Haynesville and Bossier shales in this area are rich and organic, contact very thick and have high pressure.

Speaker 2

This year we have drilled two pilot holes, taken logs and whole cores to increase our knowledge about the best ways to complete the wells in the future. To maximize the EURs of the wells as we develop our vast acreage position in the Western Haynesville, we are also building out our own midstream to support it. To that end we just put our new gas treating plant in operations which increased our treating capacity by 400 million cubic feet per day. In the second quarter we turned five new Western Haynesville wells to sales. These wells include the Elijah 1 to the north and the Belmire to the south which is 30 miles away. Both of these wells appear to be some of the best we have ever drilled.

Speaker 2

The second quarter wells were drilled and completed at an all-in cost of $2,647 per completed lateral foot, which is substantially less than the wells we completed in the last three years. Over the last three years, we have decided not to engage in the M&A market to build drilling inventory for the future. Instead, we have put resources into amassing the Western Haynesville land position and de-risking this new play. The path we've chosen is not an easy one in a public company setting, as future operating results are hard to predict and many of our actions are aimed at creating long-term value versus creating immediate short-term results that benefit the next quarter. In order to protect our balance sheet, we pulled back from drilling wells in our legacy Haynesville area, which still accounts for over 80% of our production.

Speaker 2

We now have four rigs working in our legacy Haynesville area, which will allow us to stabilize production there as we grow the Western Haynesville. So far this year, we have turned 21 wells to sales with an average lateral length of 11,803 ft at a per well initial production rate of 25 million cubic feet per day. As Dan will go over in a few minutes, we're excited about the horseshoe wells that we are adding to our drilling program that the added rig will focus on, as Roland will cover in a few minutes. The second quarter financial results benefited from the improved natural gas price we're seeing this year versus 2023. Our natural gas and oil sales grew to $344 million, and we generated $210 million of operating cash flow, or $0.71 per diluted share.

Speaker 2

Our adjusted net income for the quarter was $40 million, or $0.13 per share. We're also excited to announce that we're working with NextEra Energy, who leads the nation in the development of power generation, to explore the development of gas-fired power generation assets near our growing Western Haynesville area that can power potential data center customers. We believe our location, which is 100 miles from the Dallas Metroplex, is an ideal site with natural gas, water, and electrical grid infrastructure—resources that could support data center development. I will now turn it over to Roland to discuss the financial results we reported yesterday. Roland?

Speaker 3

Yeah, thanks Jay. On Slide 4, we covered the second quarter financial results. Our production in the second quarter averaged 1.23 Bcfe per day, which was 14% lower than the second quarter of 2024, reflecting our decision to drop rigs in early 2024 and our deferral of completion activity last year into this year. With the improvement in natural gas prices, our oil and gas sales in the quarter increased 24% to $344 million in the second quarter this year. Despite the lower production, EBITDAX for the quarter was $260 million and we generated $210 million of cash flow in the quarter. As Jay said, we reported adjusted net income of $40 million for the second quarter or $0.13 per diluted share compared to a loss in the second quarter of 2024. Slide 5 is the financial results for the first half of this year.

Speaker 3

Production averaged 1.26 Bcf per day in the first six months of the year, 15% lower than the same period in 2024, and oil and gas sales in the first six months of this year increased 22% to $749 million. EBITDAX in the first six months was $553 million and we generated $449 million of cash flow for the first half this year. Our adjusted net income is $94 million or $0.32 per diluted share compared to a loss in the same period of 2024. Slide 6 breaks down our natural gas price realizations for the year and the quarter. Our quarterly NYMEX settlement price for the second quarter averaged $3.44. However, the average Henry Hub spot price in the second quarter averaged a much lower $3.16.

Speaker 3

32% of our gas is sold in the spot market, so the appropriate NYMEX kind of reference price for our activity was about $3.35 for the second quarter. Our realized gas price for the second quarter was $3.02, reflecting a $0.42 basis differential compared to the NYMEX settlement price and a $0.33 differential compared to the reference price. We were 56% hedged in the second quarter. That improved our realized price to $3.06 and we earned a $4.4 million profit from third party marketing activity, which improved our realized price to $3.10. Slide 7 details our operating cost per Mcfe and our EBITDAX margin. Our operating cost per Mcfe averaged $0.80 in the second quarter, $0.03 lower than the first quarter rate and $0.04 lower than the second quarter of 2024. Our EBITDAX margin was 74% in the second quarter compared to 76% in the first quarter.

Speaker 3

Production and ad valorem taxes were down $0.01 from the first quarter rate due to lower natural gas prices, and our lifting cost improved by $0.02 in the quarter. Gathering and G&A cost remained unchanged in the second quarter compared to the first quarter. Slide 8, we recap our spending on drilling and other development activity. We spent $268 million on development activity in the second quarter, and for the first six months this year we've now drilled 16 wells, or 14.5 net wells, that target the Haynesville Shale. We've also drilled another three gross wells, or three net wells, that target the Bossier Shale for a total of 19 wells drilled so far this year. We turned 24, or 20.3 net operated wells, to sales which had an average IP rate of 27 million cubic feet per day.

Speaker 3

On slide 9, we recap what our balance sheet looks like at the end of the second quarter. We ended the quarter with $475 million of borrowings outstanding under our credit facility, having paid down $35 million during the second quarter. Our borrowing base is $2 billion under the credit facility, and the elected commitment still is $1.5 billion. Our last 12 months leverage ratio was improved to just three times and will continue to improve as we get away from the 2024 results, which are weighed down by low natural gas prices. At the end of the second quarter, we had approximately $1.1 billion of liquidity. I'll now turn it over to Dan to discuss the drilling and operating results.

Operator

Okay, thanks Roland. On slide 10, slide 10 here is just an overview of our latest acreage footprint in the Haynesville Bossier in East Texas and North Louisiana. We now have 1,105,000 gross and 826,741 net acres that are prospective for commercial development of the Haynesville and Bossier Shales. Over on the left is our Western Haynesville acreage footprint, which we have grown to nearly 525 net acres, and over on the right are 302,000 net acres in our legacy Haynesville area. We have 24 wells currently producing on our Western Haynesville acreage, which is virtually undeveloped compared to our legacy Haynesville area. With the high pay, thickness, and pressures we encounter in the Western Haynesville, we expect the Western Haynesville will yield significantly more resource potential per section than our legacy Haynesville. On slide 11 outlines our new development plan utilizing the horseshoe lateral concept.

Operator

The horseshoe well design concept combines two separate and adjacent shorter laterals into a longer single lateral, which results in a much more efficient use of capital. We realized 35% savings in our drilling costs when drilling a 10,000 foot lateral horseshoe well compared to a 5,000 foot sectional lateral well. Our drilling inventory in the legacy Haynesville now includes 149 horseshoe locations. We completed our first horseshoe well last year, the Sebastian 11 number 5. It had a 9,382 foot lateral, and we had an IP rate of 31 million cubic feet per day. To date this year, we've drilled two additional horseshoe wells. In 2025, we plan to drill a total of nine horseshoe wells, and we will drill 10 horseshoe wells in 2026. On slide 12 is our updated drilling inventory at the end of the second quarter.

Operator

Our total operated inventory consists of 1,538 gross locations and 1,222 net locations, which equates to a working interest of approximately 80%. Our non-operated inventory has 1,125 gross locations and 137 net locations, and this represents an average 12% working interest. The drilling inventory is split between the Haynesville and Bossier. Our drilling inventory is comprised of short laterals less than 5,000 feet. Our medium laterals are between 5,000 and 8,500 foot long laterals, between 8,500 foot and 10,000 foot, and our extra long laterals over 10,000 foot. Our gross operated inventory: we have 42 short laterals, 318 medium laterals, 573 long laterals, and 605 extra long laterals. The gross operated inventory is evenly split with 50% in the Haynesville and 50% in the Bossier. Over 75% of the gross operated inventory consists of laterals greater than 8,500 feet.

Operator

Our drilling inventory includes the 149 horseshoe locations, which are also split half and half between the Haynesville and the Bossier. The average lateral length in the inventory is now up to 9,686 feet. This is up 85 feet from the end of the first quarter. This inventory provides us with over 30 years of future drilling locations based on our current activity level.

Speaker 2

On.

Operator

Slide 13, there's a chart outlining the average lateral length drilled. This is based on the wells that we have drilled to TD. The average lateral lengths were shown separately for our legacy Haynesville area and our Western Haynesville area. In the second quarter, we drilled eight wells to total depth in legacy Haynesville, and these had an average lateral length of 11,705 ft. The individual laterals ranged from 7,782 ft up to 15,190 ft. Record long laterals on our legacy Haynesville acreage still stands at 17,409 ft. In the second quarter, we drilled four wells to total depth in the Western Haynesville, and these wells had an average lateral length of 7,933 ft. The individual lengths range from 6,708 ft up to 8,836 ft. Our longest lateral drilled to date in the Western Haynesville still stands at 12,763 ft.

Operator

To date, we've drilled 122 wells with laterals longer than 10,000 ft, and we've drilled 47 wells with laterals longer than 14,000 ft. Slide 14 outlines the wells that were turned to sales on our legacy Haynesville acreage this year. For the year, we've turned 21 wells to sales on our legacy Haynesville acreage. The individual IPs for these wells ranged from 16 million a day up to 37 million a day, and our average IP was 25 million a day. The average lateral length for these wells was 11,803 ft, and the individual laterals range from 9,252 ft up to 17,409 ft. Four of our eight rigs that we have currently running are drilling on our legacy Haynesville acreage. Slide 15 outlines the five wells that have been turned to sales on our Western Haynesville acreage this year.

Operator

We discussed the 24 mile step out well, the Olajuwon number 1H, during our last quarter's conference call. Since we last reported earnings, we've turned four additional wells to sales. These four wells had an average lateral length of 11,044 ft and an average initial production rate of 35 million cubic feet a day. Four of our eight rigs are currently drilling on our Western Haynesville acreage. Slide 16 highlights the average drilling days and our average footage drilled per day in the legacy Haynesville area. In the second quarter, we drilled eight wells to total depth in the legacy Haynesville, and we averaged 28 days to total depth. This is two days slower than the prior quarter. In the second quarter, we averaged 921 ft per day on our legacy Haynesville.

Operator

This is a 10% decrease versus the first quarter of 2025 and a 7% decrease versus our 2024 full year average of 987 ft drilled per day. Now the additional drilling days and the lower daily footage that we had drilled in the second quarter compared to the first quarter were really the result of two wells in our East Texas area experiencing some drilling difficulties associated with some highly overpressured SWD zones. The best well drilled to date on our legacy Haynesville acreage averaged 1,461 ft per day and we drilled that well to TD in 14 days. Slide 17 highlights our drilling progress in the Western Haynesville. During the second quarter we drilled four wells to total depth in the Western Haynesville. This now gives us a total of 29 wells that we've drilled to total depth through the end of the second quarter.

Operator

Since we spud our initial well in 4Q 2021, we have seen significant improvement in our drilling times. Our first three wells drilled in 2022 averaged 95 days to reach TD. Our average drilling time dropped to 70 days in 2023 and dropped again to 59 days for the 2024 full year average. In the second quarter we averaged 58 drilling days for the four wells that we drilled to total depth. This is a decrease of one day compared to the 2024 full year average, but reflects an increase of three days compared to the first quarter. The increase in the drilling days compared to the first quarter can really be attributed to two things. The first one being one of our wells in the second quarter had to be sidetracked up in the vertical due to a downhole motor that we had come apart.

Operator

Secondly, all four of the wells drilled in the second quarter were over 1,500 ft deeper vertically than the wells we drilled in the first quarter. The additional drilling days in the second quarter is also a reflection of the lower footage drilled per day. Our fastest well drilled to date in the Western Haynesville still stands at 37 days and that well had a 12,045 ft lateral. Slide 18 is a summary of our D&C costs through the second quarter for our benchmark long lateral wells that are located in our legacy Haynesville area. These costs reflect all our legacy area wells that had laterals greater than 8,500 ft. The drilling costs are based on when the wells reached TD and our completion costs that we show here are based on when the wells are turned to sales.

Operator

During the second quarter we drilled seven of our benchmark long lateral wells to total depth. The second quarter drilling cost averaged $696 per foot, which is a 33% increase compared to the first quarter. Like I mentioned earlier, on our second quarter drilling efficiency, we incurred some additional drilling costs on a couple of our East Texas wells in the second quarter due to drilling difficulties that were associated with the localized, highly overpressured SWD zones. During the second quarter, we also turned eight wells to sales on our legacy Haynesville acreage. The second quarter completion cost came in at $724 a foot. This represents a 15% decrease compared to the first quarter.

Operator

The lower completion costs in the second quarter were partially driven by lower frac costs that we had associated with lower fuel costs, as we did have more of our fracs in the second quarter that utilized a higher percentage of natural gas for.

Speaker 2

Fuel.

Operator

We also experienced much better efficiency drilling out frac plugs in the second quarter. We currently have the four rigs running on the legacy Haynesville acreage, and as we look ahead, you know, we believe our D&C cost will remain relatively flat to slightly lower for the remainder of the year. On slide 19 is a summary of our D&C cost through the second quarter for all the wells drilled in the Western Haynesville. On the Western Haynesville acreage during the second quarter, we drilled four wells to total depth. These had an average lateral length of 7,933 ft. The second quarter drilling cost averaged $1,875.

Speaker 2

A foot.

Operator

Which represents a 36% increase compared to the first quarter. The dominant driver for the higher drilling cost in the second quarter was the shorter laterals. Our average lateral length in the second quarter was 7,933 ft, and this compares to an average lateral length of 10,728 ft for the wells we TD'd in the first quarter. We do plan on targeting much longer laterals in the Western Haynesville as we go forward. Also, one of our four wells drilled during the second quarter had to be sidetracked in the vertical downhole due to a motor that came apart during the second quarter. We also turned 6 wells to sales on our Western Haynesville acreage that had an average lateral length of 10,445 ft. We did not turn any wells to sales in the first quarter, so the second quarter completion cost averaged $1,305 a foot.

Operator

This is a 1% decrease compared to the fourth quarter of 2024. Our frac crews have continued to execute with very good efficiency, and during the second quarter, all but one of our six wells that we turned to sales were frac'd using a blended fuel of natural gas and diesel. We do currently have four of our rigs running in the Western Haynesville. We also have two full-time dedicated frac fleets, and both of these fleets do have the ability to run off a blend of natural gas and diesel. Now I'll turn the call back over to Jake.

Speaker 2

Thank you, Dan. Thank you, Roland. If you would please refer to slide 20 where we summarize our outlook for 2025. In 2025, we remain primarily focused on building our great asset in the Western Haynesville that will position us to benefit from the longer term growth in natural gas demand. We currently have four operated rigs drilling in the Western Haynesville and continue to delineate the new play. We expect to drill 19 or 18.9 net wells and turn 13 net wells to sales in Western Haynesville this year. We'll continue to build out our Western Haynesville midstream assets to keep up with the growing production from the area. Our new Marque gas treating plant started operations this month, which more than doubled our gas treating capacity in the legacy Haynesville. We are currently running four rigs to build production back up for 2026.

Speaker 2

We expect to drill 32 or 24 net wells and turn 32 or 26.8 net wells to sales in legacy Haynesville this year. Given the tremendous interest in acquiring properties in the Haynesville, we currently plan to divest certain non-core properties during 2025, which will allow us to accelerate deleveraging of our balance sheet. We continue to have the industry's lowest producing cost structure and expect drilling efficiencies to continue to work for driving down drilling and completion costs in 2025 in both the Western and legacy Haynesville areas with strong financial liquidity, as Roland reported, totaling almost $1.1 billion. We now have a few slides that show some guidance for the rest of the year. Please reach out to Ron if you want to discuss those slides.

Operator

Alright, Liz, we can go and open.

Speaker 2

Up to Q&A.

Speaker 1

As a reminder, if you'd like to ask a question at this time, please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Our first question comes from the line of Carlos Andres E. Escalante with Wolfe Research.

Operator

Hey, good morning team.

Speaker 3

Thank you for taking my question.

Operator

I guess I'll start out by asking a question on the Western Haynesville, particularly on the step out to the northwest which you point out in your map. This well seems to be a relative step out from your current PDP, and it seems to us like it's another positive confirmation of initial reservoir pressure and therefore productivity. It also looks like through state.

Speaker 3

Data that it might be a shallower well, and I think we should.

Operator

Expect some cooler bottom hole temperatures.

Speaker 2

We run those wells.

Speaker 3

All that to say.

Operator

If you can perhaps walk us through what your key takeaways and learnings from Gillian in that specific area have been, and obviously what it means for your underlying capital willpower cost trend.

Speaker 2

Dan, that's the Elijah one to the north, and you drop down to the Belmire, then to the left is the Jennings and then the Milne. Yeah, that'd be correct.

Operator

I think, Carlos, the well you're referring to, when you say to the northwest, if I'm just looking at the map here, that's probably our Jennings well. We drilled a two well pad up there and that well was shallower, definitely on the shallower part of the acreage versus some of these other ones we drill. Jay mentioned it earlier in his opening remarks, just the TV depth ranges. That particular well is the 14,000 foot bookend of those. He gave you 14,000 to 19,200. That's the 14,000 foot TVD well. Significantly, it's also our record fastest well that we drilled at 37 days to TD. It does make a big difference on where you're drilling on the acreage, the number of drilling days and also the cost. That well was also our cheapest, fastest, significantly cheaper really.

Operator

We've got a pretty good range here of depth, temperatures, drilling cost across the acreage.

Speaker 2

So.

Operator

Yeah, just kind of point that out.

Speaker 2

You know, we had to tube up some of the wells that were deep or hotter. Dan, you may talk about, you know, not having to tube some of these wells up.

Operator

We have just, due to the pressures on the initial wells we drill, of course, extremely high pressures. Everything that we flow up in the core flows, you know, we just flow the wells up the casing. We tube them up at a later date. We didn't do that down here just because the extremely high shut-in pressures, flowing pressures, we didn't want to be flowing at those kind of pressures up the production casing. When you get up in this area where these Jennings wells are, because they are shallower and we do have a little bit less pressure, we're comfortable flowing those up the casing. We did run tubing in those. In the future wells above, you know, we kind of are looking at a cutoff depth. Those are definitely above it.

Operator

We'll flow those wells or the wells in that depth range up the casing in the future and that'll drop our cost probably at least another $150 a foot. I think had we not run tubing in that well, I think we'd have been looking at a sub-$2,000 per foot well cost.

Speaker 2

I think another comment on the Elijah one, you know, we completed it a little different than we did the other wells, but we came down to the Belmire, which is 30 miles away, really about 33 miles away from the Elijah one. We completed it the same way that we completed the Elijah one. Both of those, as are reported, they're some of the two best wells we've ever drilled. We did tweak the completions, and I think that's the whole focus on the program. We think we've captured our 525,000 net acres, we've captured our reserve pool. Now what we're doing, which is what your question is, every 90 days we're reporting on how we're tweaking this to de-risk it to create this tremendous value for the natural gas that's needed for LNG, data, industrial demand, et cetera. The MEM well is a little different.

Speaker 2

You may want to talk about that.

Operator

Yeah. The Bend well was also one that we tweaked, and when Jay says we tweaked the completions, we just tightened up our stage spacing a little bit, which just gives us a little bit more intensity. Basically, we're fracking in just over a shorter distance. The Minwell was also a well on our shallow acreage, kind of similar to the Jennings. The production looks fantastic on it. It's only been on for probably a couple of months now, but low D&C costs, good results. Jay mentioned, we've had the Olajuwon, the Bellmire, and the Min are really the three that we've probably tweaked the most on the completions with the tighter stage spacing.

Speaker 2

It’s $38 million a day IP at a shallower depth. Yeah.

Operator

Looking at our, just even though they haven't been on long, when we look at the initial production rates and we look at the pressure decline just over that little short period, those three wells are three of our best looking wells.

Speaker 3

Terrific. Very helpful color, guys.

Operator

I guess taking a step back now.

Speaker 3

Looking at it from a more.

Operator

General perspective, considering that you started the year out guiding for 17 tills in the Western Haynesville and due to unforeseen issues, we're down to 13. What are the ramifications of this to your 2027 target of HVPing all your leases through 7D wells? Is that push to the right? Also, 1B question, what is the run rate for tills in the Western?

Speaker 2

Hazel?

Speaker 3

Yeah, go ahead.

Operator

I mean, I don't know the number right off the top of my head, but I'm going to say it's not a big, it's really not a big mover. I mean, we've got, obviously our drilling speeds are getting faster, so that's pulling wells forward. We have the one well that has the, you know, the midstream issue that we're waiting to get it connected. Of course, we've drilled two pilot holes also, so that pushes the dates back a little bit. Overall, in general, like you asked, in the general sense, it's not really pushing any of these wells back.

Speaker 3

No, I think that's more of a function of these wells could have come on in December, and now they're forecast to be January. You're talking about a month or so kind of delay as far as how they fall this year.

Operator

Yep, correct.

Speaker 3

Which could change again, based on.

Operator

Midstream issues. A little bit more randomness in that as far as if some of them are going to be delayed. Overall, our drilling times, I mean, you know, in the greater sense and over a longer term, our drilling times is what's going to really drive those cadence of those numbers.

Speaker 1

Our next question comes from the line of Derrick Lee Whitfield with Texas Capital Securities.

Operator

Good morning all, and thanks for your time.

Speaker 2

Morning.

Operator

Similarly, kind of taking a step back and looking at the Western Haynesville more holistically, you guys have had considerable exploration and delineation success and have drastically improved the commerciality of the play with limited missteps to date. To be clear, again, for the benefit of investors, the increase in capital allocation to the Legacy Haynesville is in no way an indication of change in relative value of the Western Haynesville and was part of a broader initiative to return the Legacy play to maintenance levels of spending in a more constructive gas environment. Do I have that part right?

Speaker 2

Yes. You know what? I didn't even think about that when you brought that up. I mean, we didn't add a rig in the legacy area because we have any doubts about the Western Haynesville at all. In fact, you're the very first person I've ever heard say that. I'm kind of shocked at that. I guess that's a common sense question. No, what we did is we said the strength of our legacy allowed us to want to drill the Circle M well even in 2021, 2022, and then, you know, when prices shot up in 2023, most of the acreage that we acquired in Western Haynesville was from free cash flow because prices were high. What got the Joneses and the shareholders in the game initially was the value and the predictability of our legacy acreage.

Speaker 2

When you start cutting the rig back from 9 to 8 to 7 to 6, 5 to 4 to 3, the predictability of our growth is not there. You've got to go ahead and add another rig in the core, which is the legacy, in order just to offset some of the risk that you may have and delays that you may have, which is why we de-risked this giant footprint in the Western Haynesville. Derek, in no way at all does it imply that we pulled anything back as far as the attitude about the Western Haynesville at all. That is a great question, but it never even came into my mind ever. I mean, like ever.

Speaker 3

I would add that it more reflects the fact that drilling and completion costs are down, and we can add this rig and stay in our original budget and the availability of those services with the lower oil prices. It also reflects our decision to sell some non-core properties. This is getting prepared to replace that production. It also reflects the excitement about the horseshoe wells and the ability to add a lot of those to the schedule, which are going to be in the legacy Haynesville. It probably more reflects opportunity that we see in those areas versus any doubts about putting the capital in the Western Haynesville.

Speaker 2

Yeah, I would say again, 50% of our gas is hedged for 2025, same in 2026. That's a risk adjustment. We've added a lot of horseshoe wells, 149. And we said, okay, we want to increase our budget in 2025. If we add this rig to drill wells and mainly it's to drill horseshoe wells. You saw the economics are incredible. Those are all new in the last year, that 149 list. We just said why don't we soften up the development of the Western Haynesville? Because like we said, it's exploration, exploitation, but we're scattered out. We're drilling 80 miles to the north and south and 20, 30 miles to the east and west because we're so comfortable with what we think we're finding and what we found.

Speaker 2

At the same time, when the geological group says we need to core some wells, it does cost some time and money. We said, okay, let's core all those wells and then we plan on really drilling one more pilot hole and coring it near the Elijah one maybe this year. You work that in the numbers too and that gives you a little bit more time to tie geologically everything together. No, if anything, we have never ever been more encouraged about what we're sitting on in the Western Haynesville period. As I was talking to the Joneses today, he said you need to broadcast for sure. We're not ever right now, in the foreseeable future, even thinking about issuing equity to grow this stuff at all, period. In other words, that'd be another question that might be out there. We're going to divest some non-core assets.

Speaker 2

We're going to use those dollars to pay down our debt, we'll delever that way for a while and then we'll let Dan and the group drill and complete these Western Haynesville wells. With the big land grab, Derek being behind us now, we do have probably $25 million or $30 million budgeted for land in 2025. Some of that's in the core, some of it's just a cleanup in the Western Haynesville, but that's where we're going. It is a different story. It's such an incredible story. Great question.

Operator

Understood and makes complete sense. As my follow up, wanted to see if you could offer some perspective on what you're seeing in the Western Haynesville that's leading you down the path of testing restricted choke management. I know it's been part of a broader optimization process in all plays, but I imagine there's a specific reason as to why you guys are approaching that in the second half from a testing perspective based on whether it's your data or competitive data, but some data, right? That's a good question.

Operator

One of the things we knew kind of early on coming into this play was obviously it's deep and it's hot, and just if you look across the acreage up in the core of the play, you can see that when you get in the deeper parts of the core, you need to probably be a little bit more disciplined on how you draw the wells down. Down here we're at the very end of that scale as far as with the depths and the pressures that we have. I think pressure dependent perm, what we've seen on the wells is that we, and we flow our wells in a lot of different ways. We got wells kind of all the way across the board trying to see what works.

Operator

What we see is a little bit more of a decline in year one, just basically choking them back, which is part of the reason our production is low. This was just self imposed. We've gotten more aggressive at choking the wells back, trying to maintain a real disciplined drawdown. That's in the results we see. When we model it out and we do look at competitor wells, the state data leads you to think that you should get a little better EURs if you flow them at basically more conservative rates. I do believe that you just got to find the right balance as far as when you're modeling the economics for return and payout versus the long term value in the PV10s. That's just what we're working through right now.

Speaker 2

I think, Derek, that's one reason we came up and adjusted the production. In other words, we said whatever we see every 90 days, we're going to tell you, we're going to tell you and we're going to adjust it accordingly. That's just what it's telling us to do. Like Dan said, if you can choke it back a little bit more and have a much higher EUR and the IRR looks fantastic and the payout looks good, et cetera, and you've got this inventory on 525,000 net acres. That's how we want to manage, is managing. Like we said, it's taken care of today, but it's also managing for long term.

Speaker 1

Our next question comes from Kaleinoheaokealaula Scott Akamine with BofA Securities.

Speaker 2

Hey, good morning guys. Jay, Roland. Morning.

Operator

Good morning. My first question.

Speaker 2

I want to ask you about the.

Operator

Non-core sales effort here.

Speaker 2

Can you talk a little bit about how you think about sizing a sale?

Speaker 3

That is, do you intend to minimize the associated PDP?

Operator

I would imagine that you'd want to keep that because that's gas torque, and if gas prices go up, then that's your pathway to deleveraging.

Speaker 2

On top of that, are.

Operator

there any metrics that you can point?

Speaker 2

To help us understand the value.

Operator

Of locations in this market?

Speaker 3

Yeah, that's a good question. I mean, I think that we are looking to. There's an opportunity, I think in this market in our basin to where before, I think the last several years until this year, basically that market was really around selling PDP and out there, those are the type buyers that dominated the acquisition space. It's changed a lot this year. There's a lot of interest in our basin and new players coming in that are very interested in drilling locations. With a higher gas price, some lower return projects in Haynesville now become very attractive and make a lot of money for folks. We have a very deep inventory in the legacy Haynesville, and some of it we just, in our particular circumstance for the next 10 years, we just can't get to any of that.

Speaker 3

Selling off some of that inventory that we view that we would not develop anytime soon can add a lot of NPV value to the company because we create value out of it. Yeah, I think we're focused on more of that than really selling a lot of production or producing reserves.

Speaker 2

Remember, as we de-risk the Western Haynesville, we had inventory. In other words, if we thought that we wouldn't potentially be adding material inventory in the Western Haynesville, we wouldn't be looking at divesting anything in our legacy. If you look at the legacy and you say you have 30, 40 years of inventory and the market tells you that there's a demand for some drilling inventory and they win and we win. If we sell and they buy, then we should take a hard look at it if it makes Comstock Resources a much better company and it launches somebody else into the area, mainly for LNG demand.

Operator

Got it.

Speaker 2

I appreciate that.

Operator

For my second question, I'm hoping that.

Speaker 3

You can talk about your coring program and what you're attempting to learn here.

Operator

Our kind of base case for the.

Speaker 2

Western Haynesville is basically 3,000 locations across.

Speaker 3

Three fairways, each with a different number of drilling horizons.

Operator

Does that kind of align with how?

Speaker 2

You guys see it and will this.

Operator

Program help confirm that case? Yes, I think you're kind of spot on there. We have, of course, there's two reasons to drill pilot holes out here for us. We've got kind of some tentative plans on where we want to drill our pilot holes across the entire footprint right now. Those will probably move around a little bit for various reasons. In some areas, we just need to drill a pilot hole just to get the logs because we don't have any kind of well control in that area and we need it to be able to steer our lateral and know where we're landing it in the zone. The secondary reason is basically to cut core and do all of that science work, get our TOCs, and basically let that help you back into what an original gas in place number looks like.

Operator

Also, to basically just get all of the mechanical properties and maybe it'll help us make some tweaks to our completions.

Speaker 2

Now I would comment that remember, 80% of the Western Haynesville is HPP'd and some of the cores that we would probably drill would be in HPP acreage. The first ones will be, you know, in the acreage that we need to drill to continue to hold. Even if you look at the Elijah one, you've got a really good company that's a Japanese company that's filled a well there. They're completing their well now, I believe with the same frac crew we use to complete our wells. We would still like to core a well close to that Elijah one. We do have a 3D shoot in that area. That's the only area that we think we need to have a little bit more seismic work done. We've implemented that program too. This is proactive work.

Speaker 2

It costs money to do that and that is all in our budget too. That goes back to, you know, we didn't grow through M&A, we're growing, we own our asset base. We're just de-risking it, improving it up. As you do that to your first question, if there's something over in the legacy that you won't drill for a long time, that's good and you can get top dollar for it and both the buyer and the seller win. We should be shuffling that around too and protect our balance sheet. That's exactly what we're doing.

Speaker 1

Our next question comes from John Phillips Little Johnston with Capital One Securities.

Speaker 2

Hey, thanks for the time. Wanted to ask a follow up question on the non-core asset sale program.

Operator

Can you maybe just give us a

Speaker 2

Sense of what sort of order of magnitude we're talking about in terms of potential proceeds, and also would you expect any sort of tax leakage on those sales? Now, we really don't go into the details on what the divestiture would look like.

Speaker 3

I think next quarter hopefully we'll be able to kind of provide that. You know, we have an ongoing process, and we just don't think that's helpful to the process.

Speaker 2

Okay.

Speaker 3

We don't believe on the tax side, though, that there's any significant tax liability. Matter of fact, the passage of the one big beautiful bill is very supportive of our situation and ability to use, you know, have future deductions for things like interest, et cetera. That's actually going to be a real positive benefit, I think, on our tax rates going forward, especially the third quarter when that was adopted, making adjustments to that. I think we see that all very positive and probably reducing the future tax liability that we might have seen before the bill was passed.

Speaker 2

Okay, good. Your implied CapEx guidance for the second half of the year is relatively flat versus the first half of the year. That is despite your rig count going to 8 in the back half of the year from 7 in Q2 and something a little less than 7 on average in Q1. Despite, I guess, the outlook for 32 wells drilled in the second half versus 19 in the first half, what gives you guys confidence that CapEx won't increase in the second half of the year?

Operator

I think if you look at where we're at really today, just in the second quarter versus end of last year, our D&C costs are down probably on the order of 10% or so in that neighborhood. A lot of that is the pipe prices. We started seeing significant savings in. Our pipe price is mainly in the first quarter. We got a little bit in the fourth quarter. As long as those, hopefully the tariff issues don't send that the other way. As long as that continues, that's a big piece of that lower cost for the remainder of the year. The rest of it's just basically spread out. On vendor costs, the costs are just down a little bit.

Operator

I think some of that may be the slowdown in the Permian with the lower oil prices and just the fact that the rigs haven't really just exploded and taken off on the gas side. We just see it across all the services.

Speaker 3

There's also the cadence of completions, and when that actually occurs and what period is also a big factor, more so than when the wells are drilling. I think that's actually probably a little bit less activity, if you know, completion activity in the second half of the year. That was in the first budget.

Speaker 1

Our next question comes from Charles Arthur Meade with Johnson Rice & Company.

Speaker 2

Good morning, Jay, Roland and Dan.

Operator

The whole Comstock team there.

Speaker 2

Hello, Charles.

Operator

Jay, I believe you have talked in the past that you guys on the Elijah 1 Pickens well that you guys had a little bit of a different completion design there, and I wonder if you could give us an update on how that well is performing with that different completion design and if you've used that sort of design subsequently in any of these more recent wells. Hey, Charles. Yes, we have. The Elijah 1 was the first well that we made the tweak on, and basically we just went from 150 foot to 100 foot stages. We see on a lot of these wells, especially the deeper ones in this range, we are typically not quite at our frac design rate when we start out.

Operator

To basically address that, we decided to go to tighter stages, and we basically carried it out for the entire lateral on the Elijah 1. We wanted that to be. We didn't want to have a mixed bag along the lateral of how we completed it. The entire lateral was completed with 100 foot stages. We've done really two other wells since then, the Min 1H and the Bellmeyer. I think it is making a difference. It's early, we've only had the Elijah 1 on for about three and a half months, but it's still flowing at just a hair under the 27 million starting rate that we set it on, and the pressure drop per day looks really, really good. We're very encouraged by it. I think we'll be going more in that direction. Got it. Thank you for that detail.

Speaker 2

Roland on the.

Operator

I get that for good reasons you're a little reticent to talk about the divestiture program. I'm curious, when I look at your acreage map, to me, the most obvious sale for Comstock, you guys being really deep in inventory with the rest of the industry, at least in the Haynesville, really short on inventory, it would be in that Angelina River trend. Is that a reasonable inference or is that not the direction you're going?

Speaker 2

That's reasonable. I think for Einstein, that's a good guess, right?

Speaker 3

That's a reasonable look, you know. It's an area that, you know, we just haven't been active in but is active in the industry. Hopefully we'll have a good view of that at our next report and kind of really hoping that really lets us accelerate our deleveraging goals this year while still being able to invest into Western Haynesville.

Speaker 1

Our next question comes from Noel Parks with Tuohy Brothers Investment Research. You may be on mute. Our next question comes from Paul Michael Diamond with Citigroup.

Operator

Thank you. Good morning. Thanks for taking the call. Just wanted to touch a bit on the horseshoe lateral concept program.

Speaker 2

I know you guys have talked about 10 this year, 10 next.

Operator

Just want to get an understanding of how is what would cause you to move off that. If you started to see better results, would you lean in? Worse results, would you lean out?

Speaker 3

Just kind of how to think about.

Operator

How about the strategy there. Paul, I think we're encouraged, excited about the horseshoe wells we've had. We put our first one on last year. We essentially see it as no different than a 10,000 foot straight well. A lot of our horseshoe wells that we have in the inventory are still in some of our better type curve areas than just our regular straight wells that we're drilling. That's one big thing that we like about them. We've drilled three to date. We just TD'd our third one here probably just last week. We've had zero problems drilling them. I've said before, add maybe two days to a 10,000 foot straight well. Just add two days to bend it around and make it a horseshoe. Zero issues drilling, zero issues completing that first one. We'll complete these next ones here probably in the next, over this next quarter.

Operator

Really, there's nothing we don't like about them right now. Understood. Appreciate the clarity and just do a quick follow up. You announced the NextEra agreement. Just want to get an understanding of how you guys are thinking about potential scale structures, duration, timing, if any of that is on the books yet, or is it still just an agreement to look into it together?

Speaker 2

We've done business with NextEra Energy for at least 10 years and we've got a big footprint and most of our Western Haynesville is undedicated. It is 100 miles away from both Houston and the Dallas Metroplex. If we can collaborate, which we've done, in agreement with the largest natural gas play in the United States next year, it does bring experience in power generation development and operating natural gas power generation facilities in what we think is an area that will need some data centers. We've been working with them for months and we said, let's just see if we can't go forward on this. We don't go into any more details of our customers, but we do think that we have a really good site for a data center near the Western Haynesville area. I don't think we could pick a better partner.

Speaker 1

Our next question comes from Jacob Phillip Roberts with Tudor Pickering Holt & Co. Securities. Hold.

Speaker 2

Good morning. Morning.

Operator

I wanted to, when we look at.

Speaker 2

2026, I think at current strip prices we'd see you guys in $100 million, $150 million of free cash flow next year. Just curious, if pricing were to retrench to $3.75, can you give us your thoughts on potentially outspending cash flow to execute growth? Is there a price where we might see you guys reduce activity like we have in the past? I apologize for the long question, but I'm wondering if that relative capital allocation has changed given the development of the Western Haynesville over the last 18 months.

Speaker 3

It's real early for us still to be talking about our 2026 activity, which we haven't announced yet. I think that we really like where the company is now with the Balance program and both the Legacy and the Western Haynesville. We'll be reaping the benefit of the higher production from the money we're spending this year because it takes almost nine months really to get production when you kind of add a rig line. I don't think we'll see any case where we'd be outspending. We would adjust activity level. We're very bullish about how 2026 will look for the company, both plays. We'll be setting our budget later this year. It's usually late in the fall when we kind of gauge our activity.

Speaker 3

We have lots of flexibility in how we do that activity, especially in the core where we have a lot of well to well rig contract so that we always have the ability to flex activity based on the outlook that we see. We're still very bullish about 2026 and what you see in the futures market and the demand. We know that's coming on. Even with our direct talks about providing long term supply to some of the really large users, a lot of that is starting to crank into 2026.

Speaker 2

Okay, thank you. I wanted to circle back to some of the Koch management in the Western Haynesville. I'm just trying to understand in terms of trying different things or experimenting different ways, how should we be thinking about the timeline on that? Data before you're able to make a decision as to what the optimal approach is. Is it, you choke now and it's 14 months later that you're able to say this was good or bad? Just kind of any color around that would be great.

Operator

That's a really good question on the timeline because it is a longer timeline since you definitely can't get quick answers. We've flowed them several different ways. We've been really aggressive on some more of the wells of late. We've been very proactive as far as starting to choke them back and basically bring the rates back down a little bit. Just based on early modeling stuff we've done, we're definitely expecting a little bit better EURs with the conservative drawdown. We haven't done one yet that's really conservative. That's probably the next test that we're looking at here in the near future, flowing one at a much lower rate straight out of the gate.

Operator

As far as the timeline to get that data, you're probably talking a minimum of a year to get an idea what it's going to do, and maybe even 18 months to two years to really start dialing in on an exact answer.

Speaker 3

You have your daily, you have your feedback of the drawdowns as you produce. That's giving you clues, I guess. Are you on the right path?

Speaker 2

Yeah.

Operator

There have been some other industry operators out there that have drilled a few wells that have some state data out there that's in our data set we're looking at. I think we're on the way to getting there.

Speaker 2

But.

Operator

You do kind of have to wait and let them play out a little bit, see where they're headed.

Speaker 1

That concludes today's question and answer session. I'd like to turn the call back to Jay Allison for closing remarks.

Speaker 2

Again, thank you for your hour plus time. I want to conclude it in that one. We and the Joneses in particular, but all of us, we want to protect the balance sheet. That's number one. Number one, number one. I think that we can deliver this non-core asset sale if it's a win-win for us and for the buyer. We'll use those proceeds to delever over and over and over. We have never been more positive about the Western Haynesville. We just want you to know how we're managing it every 90 days. We do have that 525,000 net acres, 80% of it's HPP, and we commit to you that we're managing it. At the same time, you know, NextEra comes in and we are really excited to work with them on potential data center area. We want to grow our inventory.

Speaker 2

We're going to grow it organically, not with M&A. When this LNG demand keeps growing and growing and growing, as other companies have said, the Haynesville needs to supply most of that growth, and we want to be a big part of that. Again, thank you for your patience. We always try to be very transparent with you and where we're going. We'll report again in 90 days. Thank you.

Speaker 1

This concludes today's conference call. Thank you for participating. You may now disconnect.

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