Comstock Resources, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Comstock Resources Incorporated Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jay Allison, Chairman and Chief Executive Officer. Please go ahead.

Tina, thank you, and good morning, everyone. We know it's a crowded morning. The docket is crowded. Lots of burnings. Reports came out last night, and this is a primetime slot. So those of you that are participating right now, I think you have a few comments before we start the formal presentation. The last 60 days has stress-tested every business in the world. especially the oil and gas business. We as an industry are managing the ripple effect of the initial increased oil supply from the Saudi Arabia-Russian oil feud, which has been dialed back as of this month, coupled with the coronavirus pandemic that has reduced the demand for oil by 25% to 30%. Fortunately, however, Comstock is 98% natural gas. As an industry-leading low-cost structure in the Hainesville area, has industry-leading high margins, has hedged almost half the production expected for the next 12 months, and has meaningful free cash flow. Since we are 98% natural gas, we have already become a beneficiary of the corrected oil market as we see associated gas being shut in and a collapse in the rig count occurring. Roland Burns, our CFO, will report our strong first quarter results. And Dan Harrison, our COO, will tell you why our costs are down and should continue to be lower in the months ahead. Our numbers are solid because of our consistent stellar well results and the location of our natural gas fields being in proximity to the Gulf Coast market. Here's our report from the 207 employees at Comstock that made this quarter successful, even in a very difficult energy environment. Welcome to the Comstock Resources first quarter 2020 financial and operating results conference call. Today we'll review our first quarter 2020 earnings and drilling results. You can view a slide presentation during or after this call by going to our website at www.comstockresources.com and downloading the quarterly result presentation. There you'll find a presentation entitled First Quarter 2020 Results. I have Jay Allison, Chief Executive Officer of Comstock, and with me is Roland Burns, our President and Chief Financial Officer, Dan Harrison, our Chief Operating Officer, and Ron Mills, our VP of Finance and Investor Relations. Please refer to slide two in our presentation to note that our discussions today will include forward-looking statements within the meaning of securities laws. While we believe the expectations of such statements to be reasonable, the There could be no assurance that such expectations will prove to be correct. Now, if you'll turn over to slide three. On slide three, we cover some of the highlights for the first quarter. Most importantly, our natural gas operations in North Louisiana and East Texas have not been adversely impacted by the COVID-19 virus pandemic that has disrupted all of our lives. We've been able to maintain our normal operating activity and adjusted our processes to create a safe work environment for our employees and contractors. The collapse in oil prices will impact our oil properties in the Bakken and Eagleford, but have inversely had a positive impact on natural gas prices. We feel that the reduced activity in both gas and oil-directed drilling will create a healthy balance between supply and demand for natural gas. The one statement that has remained very consistent is that our Hainesville Bozer Shell drilling program continues to deliver strong results. Comstock and Covey Park had drilled and completed a combined 237 operated wells since 2015, which had an average IP rate of 23 million cubic day equivalent per day. We had drilled more than any other operator in the play during this period. Our drilling activity drove the 27% year-over-year growth from our Ainsville-Bossier property since the first quarter of last year on a combined basis. We have also been driving down our well cost in the same period. The first quarter well costs per lateral foot are 15% lower than what we averaged in the first quarter of 2019. Recent well costs have improved even further, and we expect our well costs to average about $1,100 per completed lateral foot in 2020. The strong natural gas production growth this quarter was offset by weak natural gas prices in the first quarter. For the quarter, we reported oil and gas sales of $271 million, which is a 105 increase over first quarter 19. We had adjusted EPIDACs of $202 million, up 108% over first quarter 2019. We also reported operating cash flow of $156 million, up 120% over first quarter 2019, or $0.55 per share, and adjusted net income for the quarter of $24 million, or $0.12 per share. Now I'll have Roland cover the financial results in more detail. Roland?

Thanks, Jay. On slide four, we show the combined Comstock and Cubby Park production from the Hainesville-Bossier shale since 2016. In the first quarter of this year, production from our Hainesville-Bossier wells is up 27% to almost 1.3 billion cubic feet per day as compared to about 1 billion cubic feet per day Comstock and Cubby Park combined produced in the first quarter of 2019. Production grew only slightly from the fourth quarter of last year due to the fact that our first quarter completions came online fairly late in the quarter, and we had a higher than normal shut-in rate this quarter, as we'll go over in a minute. We did put 11.5 net wells on production during the quarter. In the second quarter, we see the rate of our Hainesville, Bossier properties really staying relatively flat. with only about 4.5 net wells coming on production during the second quarter. Our completion activity is expected to pick back up in the third quarter, and we'll see some growth in the third quarter and fourth quarter of this year. Slide 5 recaps the production we had shut in for the quarter, and this was production was shut in principally for offset frack activity, either by us or by offset operators. Our first quarter shut-in volumes increased to 5% as compared to only 2% in the fourth quarter of last year. Offset operator activity, as well as our own completion activity, caused us to shut in production in some of our best