misty energy
Comstock Resources (New York Stock Exchange:CRK) received an equity investment of just over $100 million from Jerry Jones and also issued $400 million in 6.75% unsecured bonds due 2029 at 93% of par. These moves help maintain Comstock liquidity ( The bulk of the credit facility borrowing comes at a time when low natural gas prices are leading to short-term cash burn).
Fitch recently downgraded Comstock's unsecured rating with a negative outlook, citing a weak natural gas price environment and increased unsecured debt.
I believe that the involvement of the Jones family reduces the risk of Comstock's debt (as they can bail out Comstock if necessary), but it also involves potential dilution at a relatively low price. There is a price to pay. Comstock stock is up 30% since I last looked, but investing in the stock (bit by bit) (over $8), bond issuance below par will slightly reduce Comstock's estimated value. I currently value Comstock at $10.25 per share, which is fairly close to the current stock price, which would result in a downgrade to Hold.
stock investment
Comstock announced a $100.45 million equity investment by Jerry Jones, who acquired 12.5 million shares of Comstock common stock at an average price of $8.036 per share. This price reflects his five business-day average closing price up to March 20th (date of announcement). The investment increases Jerry Jones' ownership in Comstock from 65% to 67%, with the proceeds helping to repay some of Comstock's credit facility debt. Comstock recently spent nearly $59 million to acquire Western Haynesville, increasing its credit facility debt.
The number of outstanding shares of Comstock was 278.4 million shares as of mid-February 2024, so this stock investment will bring the number of outstanding shares to approximately 291 million shares.
Additional unsecured notes
Comstock also issued an additional $400 million in 6.75% unsecured notes due 2029. These additional notes have a different CUSIP than the original 2029 notes and are issued under a separate indenture, but are otherwise similar to the original notes. Comstock currently has $1,623.9 million in outstanding 6.75% unsecured notes due 2029.
These bonds were issued at 93% of face value, so their effective yield to maturity is close to 8.5%.
Comstock has received net proceeds of approximately $365 million, less expenses and par discounts, and plans to use these proceeds to repay a portion of Comstock's credit facility.
Outlook for 2024
Current natural gas strips cost about $2.35 in 2024. At that commodity price, Comstock could generate $1.349 billion in revenue after hedging.
Comstock added a fourth quarter 2024 hedge, so approximately 32% of its 2024 natural gas production is now hedged at an average swap price of $3.55. Comstock may hedge about 27% of its natural gas production in the first three quarters, but expects to hedge about 45% to 50% in the fourth quarter of 2024.
|
type |
Barrel/MCF |
Realized $/Mcf per barrel |
Revenue ($ million) |
|
oil (barrel) |
50,000 |
$77.00 |
4 dollars |
|
Natural gas [MCF] |
538,075,000 |
$2.10 |
$1,130 |
|
net gas service |
$25 |
||
|
hedge value |
$190 |
||
|
total |
$1,349 |
Comstock is currently expected to have a cash burn of $131 million in 2024. Comstock's cash burn will decrease slightly as its equity investments help pay down a portion of its credit facility borrowings, resulting in lower short-term cash interest costs.
|
one million dollars |
|
|
Lease operating expenses |
$140 |
|
Production tax and other taxes |
$90 |
|
Collection and transportation |
$183 |
|
cash management expenses |
$32 |
|
cash interest |
$190 |
|
dividend |
$0 |
|
Capital investment and leasing |
$845 |
|
total expenses, total expenses, total expenses |
$1,480 |
Projected debt
Comstock began 2024 with $2.189 billion in notes outstanding, $480 million in credit facility debt and $17 million in cash.
Comstock is expected to have credit facility debt of $188 million (assuming no cash balance) and notes outstanding of $2,589 million at the end of 2024.
This assumes Comstock will spend $45 million on the lease transaction on top of the previously announced $58.7 million in Western Haynesville transaction in 2024.
Comstock is highly leveraged, but most of its debt doesn't mature until 2029 and 2030.
Estimated appraised value
I lower the estimated value of Comstock to long-term (2024 and beyond) NYMEX gas of $3.75 and $10.25 per share. This is a $0.25 per share reduction from the previous price and reflects the impact of Comstock issuing new shares at just over $8 per share, or 93% of par value.
Comstock has a significant amount of bonds (approximately $2.6 billion) maturing in 2029 and 2030. Nevertheless, with the involvement of the Jones family who can inject more capital, I don't really see Comstock's debt as a big immediate risk. Inject into Comstock as needed.
However, there is a risk that equity injections are often made at relatively low prices. In addition to the recent investment of just over $8 per share, the Jones family previously acquired 93.75 million shares (including conversion of preferred stock) for $475 million (just over $5 per share).
Additionally, the Jones family owns 67% of the company's stock, so it's possible that they may seek to take Comstock private at some point in the future.
In my opinion, Comstock's unsecured bonds (yielding over 8% to maturity) appear to be worth a lot, in part because of the Jones family's desire to protect their stock.
conclusion
Comstock has taken several steps to make its credit facility largely undrawn as it strengthens its position in western Haynesville and also combats the cash burn from low natural gas prices in 2024. . The Jones family invested just over $100 million in exchange for 12.5 million shares, and Comstock issued an additional $400 million in 6.75% unsecured bonds due 2029 at 93% par value.
These moves provide additional liquidity to Comstock, but reduce Comstock's estimated value slightly to $10.25 per share with long-term $3.75 NYMEX gas. Comstock stock is up 30% since I last looked, so I currently have a Hold rating on the company.
