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Permalink Reply by Skip Peel - Mineral Consultant on July 1, 2015 at 2:55

CRK announced this morning that it has agreed to sell its oil and gas properties in and around Burleson County, Texas (CRK was pursuing East Texas Eagle Ford play) to a private company for ~$115 million, subject to customary adjustments.

The sale, which is subject to customary closing conditions, is expected to close in July and will have an effective date of May 1.

CRK intends to use the proceeds from the sale to partially fund its 2015 drilling program, to enhance its liquidity and/or for other corporate purposes.

The properties being sold are producing ~1,900 Bbls/d of oil and 5.5 MMcf/d of natural gas and had proven reserves (as of 12/31/14) of ~3.7 MMBbls of oil and 3.9 Bcf of natural gas.

CRK expects to realize a pre-tax loss on the divestiture of $100-$110 million.

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Permalink Reply by ardis bartle on July 7, 2015 at 5:04

Skip can you make a guess who purchased these assets?

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Permalink Reply by Skip Peel - Mineral Consultant on July 7, 2015 at 5:15

No, sorry ardis.  Other than a "private company" there is no announcement details at this time.  Often times private seller indicates a "non-operating" company such as an equity fund.  There are a lot of those funds out there looking for bargain priced reserves.  If the leasehold is HBP and the cost to hold the reserves is simply LOE, as opposed to servicing debt through cash flow, equity firms can sit on those reserves for longer than an operator could do so.  Here is an follow up article on the CRK sale announcement.

Comstock Resources: $115 Million Asset Divestiture Isn't All Bad

Jul. 6, 2015 4:36 AM ET  |  2 comments  |  About: Comstock Resources Inc. (CRK)

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CRK over the next 72 hours. (More...)

Summary

• Comstock Resources Inc. (CRK) is out with news that it’s divested its Burleson County assets to a private buyer at a total take of $115 million.
• The asset divestiture, it should be noted, will also force Comstock to record between a $100 to $110 million pre-tax write down – something investors have NOT reacted well to.
• But is it all bad news that came from this sale?
• Comstock essentially gets to cut its losses on an asset that was underperforming expectations.
• Comstock also does in fact, despite that gross write-down, get a cash infusion as well.

Comstock Resources Inc. (NYSE:CRK) is out with news that it's divested its Burleson County assets to a private buyer at a total take of $115 million. The assets are currently producing 1,900 barrels of oil per day and 5.5 mmcf per day of natural gas. In total the assets were contributing 3.7 million barrels of oil and 3.9 billion cubic feet of natural gas to Comstock's proved reserves, which will now need to be backed out to offset.

The asset divestiture, it should be noted, will also force Comstock to record between a $100 to $110 million pre-tax write down at closing - obviously something investors have NOT reacted well to. This blemish is made to look even worse considering the company sold Permian assets to finance purchase orders for these now abandoned Eagle Ford properties. The entire lifecycle of this property is something that Comstock and its shareholders would like to put behind themselves.

But is it all bad news that came from this sale?

Comstock essentially gets to cut its losses on an asset that was underperforming expectations, I believe it didn't get a good initial commodity read on - it's my speculation that the asset was much more gassy than the company had thought at prospecting, and an asset that had both geological and mechanical problems. Comstock, I think if you could get upper management to answer honestly, is most likely happy to be done with the asset. It's now somebody else's problem.

Comstock also does in fact, despite that gross write-down, get a cash infusion as well. If there's one certainty in today's oil and gas commodity environment (read: bloodbath) it's that liquidity is king. You take it when you can get it. If you have an asset that somebody wants, especially when you're trying to find stability - as Comstock is, you execute the offer. Just take a look at Chesapeake today.

So Comstock gets to trim its portfolio, refine its total focus, tighten up its geographical exposure and a cash infusion. That doesn't sound like the worst day at the office if you're asking a guy looking to enter a position. Now, I can see why shareholders from prices above are selling as the strategy shift announced at Q1/15 reporting coupled with this write-down are indicative that stability will have to be found before it can be expanded on but outside of a potential overhang on the stock I see no reason why as to not consider investing down at these levels for a long term contrarian play.

At this point with its dividend suspended, its bank debt refinanced, and the newly announced additions to hedging - "the Company announced that it has recently added approximately 10 MMcf per day of natural gas hedges at $3.20 per MMcf for the twelve months beginning on July 1, 2015 (SOURCE: Comstock Divestiture PR)", I see little reason to doubt shares find support soon. I just don't see another negative catalyst on the horizon outside of the stock having major technical trading issues currently.

Still, if Comstock can build a respectable support I'll be more than happy to step in. I'll be stalking a position until then.

Good luck everybody.

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Permalink Reply by ardis bartle on July 7, 2015 at 5:19

You are most kind!  Thanks for the additional insight. I am keeping my eye on this one!

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