Comstock Resources Q3 Earnings Call Highlights

Key Points

• Comstock’s $1.65 billion SOCAR agreement would sell partial interests in Haynesville assets and Pinnacle Gas Services, with proceeds earmarked for debt repayment. The company expects pro forma net debt to fall from $3.4 billion to about $1.7 billion and leverage to improve from 3.2x to roughly 2x; the deal is expected to close by the end of 2026.
• Third-quarter production averaged 1.3 billion cubic feet equivalent per day, up 8% from the prior quarter and 9% year over year. Comstock reported $22 million in net income, including a hedge gain, and $6 million in adjusted net income.
• A drilling partnership with the Jones family is funding most costs for a 27-well program, with estimated spending of $300 million in 2026 and $150 million in 2027. Comstock said larger fracture treatments may improve well recoveries, though it needs more production data to confirm the gains.

Comstock Resources NYSE: CRK reported higher third-quarter production and said a $1.65 billion agreement to sell interests in its Haynesville assets to SOCAR would cut debt and support development of its Western Haynesville acreage.

Production averaged 1.3 billion cubic feet equivalent per day, up 8% from the second quarter and 9% from a year earlier. The natural gas producer also expects a separate drilling venture with the Jones family to help it generate free cash flow in the fourth quarter.

Comstock reported third-quarter net income of $22 million, or 8 cents per share, including a $35 million pretax unrealized gain on future hedges. Adjusted net income was $6 million, or 2 cents per share. Oil and gas sales after hedging totaled $359 million, while EBITDAX was $266 million and cash flow before working capital changes was $208 million.

SOCAR deal targets debt reduction

Under the definitive agreement, SOCAR will purchase a 20% interest in Comstock’s Legacy Haynesville assets, a 15% interest in its Western Haynesville assets and 15% of Comstock’s interest in Pinnacle Gas Services. The company expects the transaction to close by the end of 2026 and plans to use the proceeds to repay debt.

Chairman and CEO Jay Allison said pro forma net debt would decline to approximately $1.7 billion from $3.4 billion at the end of the third quarter. President and CFO Roland Burns said the company’s leverage ratio would improve to about 2 times on a pro forma basis, from 3.2 times for the last 12 months at quarter-end.

Comstock will remain the operator of the properties. SOCAR’s Western Haynesville interest will fall to 7.5% after five years and once it has achieved a 15% return on its investment in those upstream assets. The companies also plan to participate jointly in further Haynesville leasing and acquisitions.

Burns said potential liquefied natural gas marketing arrangements with SOCAR were still being developed. SOCAR is looking to buy U.S. offtake capacity, he said, and the economic details of potential opportunities could take roughly the next year to work out.

Drilling venture supports spending

The Jones family’s Arkoma III partnership began funding a 27-well venture on Sept. 1. It will cover 85% of drilling and completion costs for 18 Western Haynesville wells and 80% for nine Legacy Haynesville wells, with estimated spending of $300 million in 2026 and $150 million in 2027.

Comstock will first recover the $180 million it spent on the wells before the venture from their net revenues. Arkoma III will then receive net revenues until it recovers its costs and earns a 15% return, after which 50% of the interest in the wells reverts to Comstock.

For the third quarter, Comstock spent $383 million on development activities. It ended the period with more than $850 million of financial liquidity and $800 million outstanding under its upstream credit facility. The facility’s maturity was extended to November 2028 and will be extended to November 2031 after the SOCAR transaction closes, Burns said.

Western Haynesville costs and productivity

Comstock turned six Western Haynesville wells to sales in the third quarter, with an average initial production rate of 33 million cubic feet per day. It also brought 16 Legacy Haynesville wells online, averaging 25 million cubic feet per day.

Chief Operating Officer Dan Harrison said Western Haynesville drilling costs averaged $1,934 per lateral foot for wells drilled to total depth in the quarter, up 11% from the second quarter. Completion costs averaged $1,959 per foot, up 22%, reflecting factors including larger fracture treatments and higher service costs.

Harrison said early results from larger fracture treatments point to improved estimated ultimate recoveries, potentially by 10% or more, but cautioned that more production data is needed to determine the final figures. He also said the company is drilling its fourth well using a larger-hole lateral design and expects the approach to account for the majority of future wells over the longer term.

The company plans to deploy its first 10,000-psi rig in the Western Haynesville toward the end of the month and upgrade two more rigs in the second quarter of 2027. Harrison said higher pump pressures and flow rates should improve drilling speeds, though he could not yet quantify the expected gains.

For 2026, Comstock expects to drill 19 wells and turn 20 to sales in the Western Haynesville, alongside 52 wells drilled and 45 turned to sales in the Legacy Haynesville.

Dividend remains a longer-term consideration

Asked about restoring the dividend, Burns said Comstock’s target is to keep leverage below 1.5 times. Development of the Western Haynesville and related midstream and power relationships remains the priority, he said.

“If they’re all met and there’s a great gas price environment and our leverage can stay below our targets, then the dividend can come back,” Burns said. “But we’re not going to bring it back early.”

About Comstock Resources (NYSE:CRK)

Comstock Resources, Inc is an independent energy company engaged in the acquisition, development, production and exploration of oil and natural gas properties. The company's operations are focused primarily on unconventional resources, with natural gas serving as its principal product.

Comstock's core asset base is concentrated in the Haynesville and Bossier shale formations in East Texas and North Louisiana. These regions are among the major natural gas-producing areas in the United States, and the company uses horizontal drilling and hydraulic fracturing to develop its properties.

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