Comstock Resources: More Than Meets the Eye

Back in April I argued that Comstock Resources (NYSE: CRK  ) was a hidden play on LNG exports from the Gulf Coast due to sizable reserves in the Haynesville shale with close proximity to the coast. The company, though, appears to have much more than natural gas resources based on the recent results of its first well in the East Eagle Ford shale.

Comstock Resources continues shifting toward oily production with added positions in the Eagle Ford and Tuscaloosa Marine Shale, or TMS. While total production isn't increasing that much due to a 30% year-over-year drop in natural gas produced during the first quarter, the higher realized prices along with more oil production dramatically improved results.

Eagle Ford growth
Comstock Resources has several positions in the Eagle Ford shale, including a recently added 9,000 net acres to the existing Burleson County position in the East Eagle Ford. The company recently completed the first well in the East Texas position with strong results. The well tested at a peak 24-hour average production rate of approximately 1,267 boe/d, comprised of roughly 80% oil. These numbers far exceed the results in the three months prior to the earnings report in early May where the 29 completed wells produced on average only 663 boe/d. In fact, the wells with the highest production only reached around 1,100 boe/d.

In total, the company owns 30,400 net acres in the Burleson County extension of the Eagle Ford. The oil exploration firm expects to complete the second well in July and expects to drill a total of 11 (9.2 net) wells by the end of the year. A few more well results similar to the production on the first well and Comstock will see some substantial production increases.

In a similar manner, Halcon Resources (NYSE: HK  ) has a big focus on the East Eagle Ford shale, or the El Halcon. The company has 100,000 acres in the play and averaged 10,400 Boe/d in early May. The average initial production rates of wells placed online during the first quarter was 802 Boe/d.

Developing oil play
For the first quarter, Comstock Resources saw oil production surge 119% to reach an average of 10,400 barrels per day. The company forecasts oil reaching 40% of total production for 2014. Naturally with oil more profitable than natural gas, the latest results were already shifted with 64% of revenue from oil.

The shift toward oil production is moving along on several fronts in the general area of the large Haynesville reserves. The company is now adding acreage to build positions in both the East Eagle Ford and TMS. Combined with the original developments in the Eagle Ford, Comstock has proved reserves in South Texas of 37.9 Mmboe. In total, the company owns 56,000 net acres in the Eagle Ford and East Eagle Ford with a resource potential of over 70 Mmboe. In addition, the company owns 52,200 net acres in the developing TMS play, which offers some potential to develop into a large oily play when drilling costs decline.

Halcon Resources recently reported a well in Wilkinson County, Miss. that generated strong 1,548 boe/d providing a good sign that Comstock Resources is on to a good play.

Sanchez Energy (NYSE: SN  ) is another oil exploration firm to watch with a position in the TMS and a full-scale development plan in the Eagle Ford boosted by the recent acquisition of 106,000 net acres in the play. In total, Sanchez Energy has 226,000 acres in the Eagle Ford and expects total company production to reach 55,500 boe/d in 2015 with over 70% of production oil.

Bottom line
With oil production expected to average around 13,000 Bbl/d over the last three quarters of 2014, Comstock Resources is on a strong growth path with the more valuable energy source. Unlike Halcon Resources and Sanchez Energy, Comstock has potential gas resources in the Haynesville approaching 6 Tcfe. The company appears very well positioned to benefit from the advantage resource while having the flexibility to dive back into natural drilling should the resource gain in value with the opening up of exports starting in 2015.

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