Comstock Resources(US:CRK)2022-05-05 03:38Financial Data and Key Metrics Changes - In Q1 2022, the company generated $68 million of free cash flow, a 73% increase compared to Q1 2021 [10] - Adjusted net income for the quarter was $136 million, representing a 114% increase year-over-year [9] - EBITDAX for the quarter was $333 million, a 33% increase from the same quarter in 2021, driven by stronger natural gas prices [8][9] - Operating cash flow was $297 million, or $1.07 per diluted share, a 52% increase over Q1 2021 [9][10] - The leverage ratio improved to 1.9 times, down from 2.7 times in Q1 2021 [10][17] Business Line Data and Key Metrics Changes - Production increased by 3% to 1.3 BCFE per day compared to Q1 2021 [8] - The Haynesville drilling program saw 15 operative wells turned to sales, with an average initial production rate of 29 million cubic feet per day [8][22] - The company spent $224 million on development activities, with $187 million allocated to the Haynesville and Bossier Shale drilling program [15] Market Data and Key Metrics Changes - Natural gas prices reached a 13-year high, with an outlook of $8.54 per MCF [5][6] - The average realized gas price during Q1 was $4.55 per MCF, reflecting a 29¢ differential compared to the prior quarters [12] - The company was 61% hedged in Q1, which reduced the realized price to $3.53, still 27% higher than Q1 2021 [13] Company Strategy and Development Direction - The company plans to generate $800 million to $1 billion in free cash flow in 2022, prioritizing debt reduction and potential reinstatement of dividends [25][26] - The strategy includes targeting a leverage ratio below 1.5 times before initiating a return of capital program [18][26] - The company aims to sell more production directly to LNG shippers, leveraging its proximity to LNG export facilities [36][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in executing the 2022 plan despite inflationary pressures and tight service supply [33] - The company anticipates production growth of 4% to 5% year-over-year from its drilling program [25] - Management highlighted the importance of longer lateral lengths in drilling to improve capital efficiency and mitigate cost increases [21][28] Other Important Information - The company plans to redeem $244 million of its 2025 senior notes and expects to pay off $150 million remaining under its bank credit facility [27] - Financial liquidity at the end of Q1 was nearly $1.3 billion [18] Q&A Session Summary Question: Confidence in executing the 2022 plan amidst inflation - Management indicated strong relationships with suppliers and does not foresee significant additional risks beyond inflation [34] Question: Role in addressing European supply needs - The company is positioned as a material supplier of gas to LNG facilities, with 14% of current gas sold to LNG [36][37] Question: Managing costs and inflation - The company has implemented long-term contracts and a 100% gas-powered frack fleet to manage costs [41][42] Question: Non-operated activity impact on production - Management noted that while there are additional non-op costs, they do not expect significant production impacts [44] Question: Long-term contracts linked to international gas prices - The company is exploring opportunities for long-term contracts but emphasizes the need to own facilities for better pricing [76][77] Question: Production growth expectations - Management expects the highest growth in the third quarter, with a lag in seeing the benefits of investments made earlier in the year [80][81]