Comstock Resources, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Q1 2022 Comstock Resources Incorporated Earnings Conference Call. At this time, all participants' 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 any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, our chairman and CEO, Jay Allison. Thank you. Please go ahead.

Thank you. I know it's a busy day in the world of earnings for oil and gas, so if you're an analyst or stakeholder, thank you for the time that you're going to give us. Welcome to the Comstock Resources First Quarter 2022 Financial and Operating Results Conference Call. 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 will find a presentation entitled, quote, First Quarter 2022 Results. I'm Jay Allison, Chief Executive Officer of Comstock. 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 presentations and note that our discussion today will include forward-looking statements within the meaning of securities laws. While we believe the expectations in such statements to be reasonable, there could be no assurance that such expectations will prove to be correct. If you'll flip over to slide three. Hannah, what a great day. to have an earnings call. I mean, natural gas is at a 13-year high. Natural gas, I looked, is at $8.54, and the 12-month script is in the $8.40s. You know, we're sitting as a company on 1,600 drilling locations in the Hainesville-Bossier, which is a natural gas plate nearest the LNG export terminals. And yes, free cash flow is up to probably a billion dollars in 2022 at these prices, and with our hedges in place. And yes, Someone has to come out and tell you that the oil and gas patch has inflationary pressures, and we're doing that. At $8.54 natural gas price, it should be expected. If you look on three, we cover the highlights of the first quarter on slide three. In the first quarter, we generated $68 million of free cash flow from our operating activities. With the free cash flow, we reduced our debt by $85 million during the quarter. Our EBITDA for the quarter came in at $333 million, and we had operating cash flow of $297 million, or $1.07 per diluted share. Revenues after hedging were $408 million. Our adjusted net income for the quarter was $136 million, or 51 cents per diluted share. Our Hainesville drilling program is going very well, as demonstrated by the 15 operated wells that we turned to sell since our last operational update that Dan Harrison reviewed momentarily. The IP rates for these wells average 29 million cubic feet per day. So now I'll turn the call over to Roland Barnes to go over our financial results. Roland?

Thanks, Jay. On slide four, we compare some of the first quarter financial measures to the first quarter of 2021. Yeah, pro forma for the sale of our Balkan properties, which we completed last October, our production increased 3% to 1.3 BCFE a day. Our adjusted EVA DAX for the first quarter grew by 33% to $333 million, driven mostly by stronger natural gas prices, which was also supported by the fact that we were a little less hedged than last year. So we were only 52, we were only a about 60% hedge this quarter versus in the 70% area in the fourth quarter last year. We generated in the quarter $297 billion of cash flow, which was a 52% increase over the first quarter of 2021. And on a per share basis, that's $1.07, which was 75 cents higher than the first quarter of 2021. We reported adjusted net income for the quarter of $136 million, 114% higher than the first quarter of 21, and our earnings per share were 51 cents as compared to 25 cents in the first quarter of 21. We generated $68 million of free cash flow from operations in the quarter, 73% more than we generated in the first quarter of 21. The growth in our EBITDAX and the paydown of debt that we achieved in the first quarter drove a 30% improvement to our leverage ratio, which improved to 1.9 times, down from 2.7 times in the same quarter of last year. Improved natural gas prices were the primary factor driving the strong financial results in this quarter. On slide five, we break down our natural gas price realizations. On the slide, we show the NYMEX contract settlement price, and the average NYMEX spot price for each quarter, including this most recently completed first quarter. During the first quarter, there was another significant difference between the quarterly NYMEX settlement price, which was $4.95 per MCF, and the average Henry Hub spot price, which is $4.60. And this difference is probably due just to the high settlement price that the February contract had. During the quarter, We nominated 69% of our gas to be sold at index prices, which are more tied to the contract settlement price, and then we sold the remaining 31% in the spot market. Therefore, the appropriate NIMEX reference price for our sales in the first quarter would have been about $4.84 per MCF. Our realized gas price during the first quarter averaged $4.55, reflecting a $0.29 differential, which is more or less in line with prior quarters. In the first quarter, we were 61% hedged, so that reduced our realized price to $3.53. The first quarter realized price after hedging was still 27% higher than the first quarter, 21%, and it was 18% higher than the fourth quarter of last year, even though NYMEX prices were down in the quarter, and this was mainly due to the decrease in the percentage that we were hedged in this first quarter versus the fourth quarter of last year. We also generated third-party marketing income in the quarter of approximately $4 million using the spare capacity we had on some of our premium marketing contracts. This added another three cents to our overall natural gas price realization in the quarter. In slide six, we detail our operating costs per MCFE and our EBITDAX margin. Operating costs per MCFE averaged 69 cents in the first quarter, two cents higher than the fourth quarter rate. Our lifting costs in production and severance taxes both increased by 2 cents, while our gathering costs remained unchanged. Our G&A costs, though, came in 2 cents lower at 6 cents in the quarter. Our EBITX margin after hedging came in at 81% in the first quarter, improved from the 78% margin we had in the fourth quarter of last year. On slide 7, we recap our first quarter earnings. Spending on drilling and other development activity, we spent $224 million on development activities in the quarter, $187 million of that related to our operated Hainesville and Bossier Shale drilling program. We also spent another $14 million on non-operated wells and $23 million on other development activity, including a lot of work over work and tubing up that we did on older wells in the quarter. In the first quarter, we drilled 15 or 13.1 net-to-us operated horizontal Hainesville and Bossier wells, and we turned 20 or 14.6 net-operated wells to sales in the quarter. We had an additional 0.6 net non-operated wells that we turned to sales in the quarter also. Slide 8, we show our balance sheet at the end of the first quarter. We had $150 million drawn on our revolving credit facility at the end of the quarter. after repaying $85 million during the quarter. The reduction in debt and the growth in the EBITDAX we had in the quarter continue to drive substantial improvement to our leverage ratio, which we said earlier is down to 1.9 times in the first quarter, compared to 2.7 times in the first quarter of 21. We plan on retiring an additional $394 million of debt over the rest of this year, including redeeming our 2025 senior notes on May 15th. We've already issued the formal redemption notice for those notes. We're targeting to have our leverage below one and a half times levered in 2022, and these high gas prices are making that happen very, very quickly. We did end the first quarter with financial liquidity of almost $1.3 billion, and now I'll turn it over to Dan to kind of talk about our operations in the first quarter.