Comstock Ramps Haynesville Activity in Anticipation of Higher Natural Gas Prices
By Rich Nemec November 9, 2020 naturalgasintel.com
Haynesville Shale giant Comstock Resources Inc. “went back to work” in the third quarter to try to cash in on expected higher natural gas prices by accelerating seven well completions and by adding two horizontal drilling rigs, CEO Jay Allison said Thursday.
“We have advantaged access to the demand market of the Gulf Coast,” Allison said in a third quarter earnings call, as the Haynesville straddles North Louisiana and East Texas. With access to the Gulf Coast, there is the possibility the play could be a key supplier for liquefied natural gas (LNG) and pipeline exports.
“We need to lean into that market that we have,” he said. “You see LNG exports, I mean they are at an all-time high right now.”
Combined gas feed to the six U.S. LNG export terminals has been 10-10.4 Bcf/d each day since Oct. 31, according to NGI data, and some analysts forecast volumes to increase by another 1.5 Bcf/d in the coming weeks.
“November is the first month where we finally exited the period of very low natural gas prices brought on by the warm winter we had, as the November natural gas price closed at almost $3/MMBtu after hitting a low of $ 1.50 this summer,” Allison said. “The low production levels brought on by the actions of disciplined natural gas producers combined with the decline and associated gas resulting from low oil prices have caused 2021 futures natural gas prices to improve substantially.”
The Frisco, TX-based independent, majority controlled by Dallas Cowboys owner Jerry Jones and family, is leveraging its low production costs and proximity to the Gulf Coast by advancing completions initially set for 2021 to sell more gas in the higher priced winter months, management said.
CFO Roland Burns said the strategy would add about $30 million to 2020 capital spending but management expects to eventually earn an additional $15 million by having more gas to market in the first quarter.
The company is operating six rigs; it added two in 3Q2020. A third hydraulic fracturing crew was added in early September. Plans are to maintain three crews through the end of the year, management said.
Comstock completed 15 Haynesville wells in the third quarter, with average lateral lengths of 9,088 feet and average well production rates of 26 MMcf/d, management said. It reduced average well costs to under $1,000/lateral foot.
Comstock holds 309,000 net acres in the Haynesville and adjacent Bossier field, with a 91% operating interest.
The company had a “rocky” third quarter with a shut-in rate of 7%, compared to 4% in the second quarter, which was “partially self-inflicted” with curtailed activity in the first half of the year, Allison said. Comstock curtailed 12% of oil production in the quarter because of low prices.
The company plans to hedge 60-70% of oil and gas production in 2021.
In the first nine months of 2020 it hedged 50% of gas production, increasing its realized price to $1.96/Mcf versus $1.60 excluding hedges, management said. It hedged 86% of its oil production in the first nine months, increasing its realized price to $39.84/bbl versus $30.35 excluding hedges.
Third quarter gas production totaled 102.6 Bcf, up 5% on the year. Oil production was 354 million bbl, down by 41% from the previous year. The combined production was 104.7 Bcfe, or an average of 1,277 MMcf/d, up by 4% on the year.
The company expects fourth quarter production to average 1,150-1,250 MMcfe, 97-99% weighted to natural gas, with capital expenditures of $150-170 million. Management is forecasting 2021 output to average 1,325-1,425 MMcf/d, nearly all gas, with expenditures of $525-575 million.
Oil and gas sales totaled $212 million in the third quarter, down by 15% on the year.
Comstock reported a net loss of $130.9 million (minus 57 cents/share) in the third quarter, primarily attributed to a $155.6 million hedging loss. That compared with a net loss of $60 million (minus 28 cents/share) in 2Q2020 and a net loss of $1.3 million (minus 1 cent) in the year-ago period.
Do royalty owners get the "amount realized" from these hedges? I received $1.30 for July gas and $1.67 for August gas prior to deductions. Covey Park payed in line with NYMEX settlement prices. Thanks in advance.
Lessors do not get their royalty calculated on the hedge price.