Comstock Resources(US:CRK)2022-02-16 22:22Financial Data and Key Metrics Changes - In Q4 2021, the company generated $105 million of free cash flow from operating activities, increasing total free cash flow for 2021 to $262 million, with total free cash flow including acquisition and divestiture activity at $343 million [11][12] - Adjusted net income for Q4 was $99 million or $0.37 per diluted share, a 186% increase from Q4 2020 [18][20] - Operating cash flow for the quarter was $250 million or $0.90 per diluted share, with revenues increasing 37% to $380 million [12][18] - The leverage ratio improved to 2.2 times, down from 3.8 times in 2020 [14][30] Business Line Data and Key Metrics Changes - The company completed 215,000-foot Haynesville wells in Q4, achieving new corporate records with initial production (IP) rates of 48 and 41 million cubic feet equivalent per day [12][40] - The average lateral length increased to 11,443 feet in Q4, with a significant increase in drilling footage per day by 25% to 1,001 feet [7][34] - The company drilled 64 gross or 51.9 net wells in 2021, including four 15,000-foot laterals, with an average IP rate of 23 million cubic feet equivalent per day [14][15] Market Data and Key Metrics Changes - The average NYMEX settlement price for Q4 was $5.83, while the average Henry Hub spot price was $4.74, leading to a realized pricing of $5.22, reflecting a $0.25 differential from the reference price [22][23] - The company was 72% hedged in Q4, which reduced the final realized gas price to $3 per MCF [23] Company Strategy and Development Direction - The company plans to use free cash flow to pay off debt, including redeeming $244 million of 2025 bonds, with a target leverage ratio of 1.5 or less by the second half of 2022 [5][48] - The drilling inventory has increased in value, with a 25% increase in average lateral length from 6,840 feet to 8,520 feet, providing over 25 years of future drilling locations [6][46] - The company is focused on maintaining a low-cost structure and enhancing drilling returns through longer laterals [48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in executing the 2022 production plan, anticipating 4% to 5% production growth year-over-year and over $500 million of free cash flow at current commodity prices [47][50] - The company is working on certifying its natural gas production as responsibly sourced gas under the MiQ standard [49] - Management acknowledged challenges in the labor and service price environment but remains optimistic about operational execution [56][60] Other Important Information - The company significantly reduced its cost of capital by refinancing $2 billion of senior notes, saving $48 million in cash interest expense [13] - The company added 49,000 net acres to its acreage position in 2021 through leasing and acquisitions totaling $57.7 million [15] Q&A Session Summary Question: Confidence in executing the 2022 plan - Management expressed confidence in executing the 2022 plan, factoring in recent scheduling and cadence [56][60] Question: Return of capital plans - Management indicated that after achieving the debt reduction goal, they would consider establishing a sustainable dividend and potentially a share repurchase authorization [62][64] Question: Implications of adding rigs on production - Management noted that production growth is expected to be more weighted towards the second half of the year due to the transition to longer laterals [70][76] Question: Economics of Bossier vs. Haynesville - Management stated that while Haynesville wells generally have better economics, Bossier wells have flatter decline rates and lower RFPs [86] Question: Improvements in drilling and completion - Management highlighted that improvements in drilling performance are due to better practices and tool reliability, with longer laterals providing more significant benefits [88][90]