Comstock Resources, Inc.

Thank you for standing by and welcome to Comstock Resources' fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to Jay Allison, Chairman and CEO. Please go ahead.

I like your tone. You kicked it off right, so thank you. Welcome to the Comstock Resources Fourth 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 results presentation. There you'll find a presentation entitled Fourth Quarter 2022 Results. I am 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. If you would, please refer to slide two in our presentations and 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, there could be no assurance that such expectations will prove to be correct. Good morning, everyone. Are you all having fun yet? Let me see that smile. I know you're all out there. I hope you are. The world of natural gas is ever-changing, and we do recognize that at Comstock. You know, realizing that natural gas prices have fallen over 70% since September of last year, we made the call to drop two rigs or 22% of our operated nine rigs to ensure we are positioned for a rebound in natural gas prices in the future. Now, most natural gas research analysts will tell you that they expect a substantial amount of the additional 11 BCF of feed gas needed by LNG shippers starting in 2025 and 2026 to come from the Hainesville area. Well, guess what? Comstock is the pure player in that region. Now, the question really is, who will be able to supply that natural gas when it is needed the most? I believe Comstock will be one of those elite producers in that region. Now, we increased our Hainesville Bozier Shale footprint by almost 100,000 net acres in 2022 without paying billions and billions of dollars or an M&A transaction. Thus, we avoided issuing millions and millions of shares of stock or incurring debt to acquire additional drilling inventory. Instead, we paid $550 per acre to grow our Hainesville-Bossier Shale footprint to 470,000 net acres, which provides us with thousands of future drilling locations. So how will we navigate the current natural gas market? That's the question. Well, last year we fortified our balance sheet. This year we plan to protect our balance sheet by adjusting our drilling program to ensure that it is funded by operating cash flow. We have the lowest cost structure among our peers, giving us industry-leading high margins. We have been very successful so far in delineating our Western Hainesville play. Results so far on both wells put us among the best wells ever drilled in the entire basin. Our 2023 budget allows us to continue to prove up to Western Hainesville with eight new wells being drilled. Now, we will tip our hat to the stellar 2022 results we had. We'll take our coats off and work toward achieving our 2023 goals. I know that everybody listening and those that listen to this recording, I know that you will all be cheering us on to success. Why? Because the world needs America's natural gas to solve its energy needs. Now we'll go back to the script, slide three, our 2022 accomplishments. On slide three, we highlight our major 2022 accomplishments. We significantly strengthen our balance sheet by using The $673 million of free cash flow we generated to what? To retire $506 million of debt. In November, we entered into a new five-year credit facility with 17 banks, which lowered our interest costs and increased our availability. We improved our leverage ratio to 1.1 times down from 2.4 times in 2021. And the $175 million in preferred stock that helped fund the Covey Park acquisition was converted into common stock at the end of November. This is a key point. The conversion of the preferred by Jerry Jones is a statement demonstrating his confidence in the future of the company and his belief that ownership of Comstock equity is the greatest potential for future appreciation. With another strong year, the drill bit in the Hainesville-Bossier shells, drilling 73 or 57 net wells. We drilled two very successful exploratory wells in our western Hainesville plate. The results so far on both wells put them among the best wells ever drilled in the Hainesville. We increased the average lateral length of the wells we drilled by 14% compared to 2021 to almost 10,000 feet. The wells we put on sales had an average IP rate of 26 million cubic feet per day, and our drilling activity added 1.1 TCFE approved reserve additions at a low finding cost of 95 cents per MCFE. Our SEC approved reserves grew 9% to 6.7 TCFE, and we replaced 216% of our 2022 production. Our 1P PV10 value totaled $15.5 billion. Highlighting our attractive cost structure, we achieved an 83% AVIDAX margin, which is one of the highest in the industry. In addition, we achieved a 28% return on average capital employed and a 62% return on average equity. In 2022, we added 98,000 net acres that is prospective for the Hainesville and Bossier shells for $54.1 million or $550 per acre. And we reinstated our quarterly common stock dividend at 12.5 cents per quarter in the fourth quarter. And on the environmental front, we achieved independent certification for 100% of our operated natural gas production under the MIQ methane standard for responsibly sourced gas. Now if you'll go over to slide four, it's the fourth quarter 2022 highlights. On slide four, we focused just on the fourth quarter highlights. During the quarter, we generated free cash flow from operations of $129 million. Our production increased 7% to 1.4 billion cubic feet of gas equivalent per day. Our oil and gas sales were $558 million. 47% higher than the fourth quarter of 2021. Our operating cash flow was $434 million, or $1.57 per diluted share. Adjusted EBITDAX increased to $478 million. Our net income for the fourth quarter was $288 million, or $1.05 per share. In the fourth quarter, we drilled 21 or 14-point net A operated Hainesville-Bossier horizontal wells, which had an average lateral length of 9,903 feet. Since our last update, we've connected 19 or 13.1 net operated wells to cells with an average initial production rate of 25 million cubic feet per day. We also announced our second successful exploratory well in our western Hainesville place, which had an initial production rate of 42 million cubic feet per day. We continue to further improve our balance sheet in the quarter with the additional retirement of $100 million of debt and the conversion of the preferred stock. We initiated a return on capital program with the reinstatement of our quarterly common dividend of 12.5 cents per share in December of 2022. I will now turn it over to Roland to discuss the financial results. Roland.

Thanks, Jay. On slide five, we highlight the financial results for our recently completed fourth quarter. Pro forma for the sale of our Balkan properties, which we completed in October of 2021, our production increased 9% in the quarter to 1.4 BCFE per day as compared to the fourth quarter of 21. Our EBITDA in the quarter grew by 70% to $478 million. driven mainly by the stronger natural gas price environment and the production increase that we had. We generated $434 million of cash flow during the quarter, an 86% increase over 2021's fourth quarter. And our cash flow per share during the quarter was $1.57, up 67 cents from the fourth quarter of 21. We reported adjusted net income of $288 million for the fourth quarter, a 191% increase from the fourth quarter of 21, and our earnings per share came in at $1.05 as compared to $0.37 in the fourth quarter of 21. We generated $129 million of free cash flow from operations in the quarter. That's 22% higher than we did in the fourth quarter of 21. And as Jay mentioned, we retired $100 million of debt in the quarter, completely paying off our bank credit facility, which improved our leverage ratio for the year to 1.1 times. On slide six, we highlight how much Comstock's financial results have improved since 2019. Production growth has averaged 21% over the last three years. Our EBITDAX has gone from $614 million to $1.9 billion in an annual growth rate of 71%. Cash flow has grown from $468 million to $1.7 billion in an annual growth rate averaging 89% over the last three years. Our adjusted net income has grown from $122 million to $1 billion at an annual growth rate of 245%. And free cash flow from operations grew to $673 million from really none that we generated in 2019. And our leverage ratio has improved from 3.8 times in 2020 to 1.1 times this year. On a per share basis, cash flow has increased from $2.50 to $6.21, and adjusted earnings has increased from $0.75 per share to $3.73 per share. On slide seven, we provide a breakdown of our natural gas price realizations in the quarter. On the slide, we show the NYMEX contract settlement price and the average NYMEX spot price for each quarter. So during the fourth quarter, the quarterly NYMEX settlement price averaged $6.26 for MCF, and the spot price averaged $5.60. During the quarter, we nominated 81% of our gas to be sold at index prices tied to that contract settlement price, and then we sold the remaining 19% of our gas in the daily spot market. So the appropriate NYMEX reference price For ourselves in the fourth quarter, it would have been $6.13. We realized $5.57 in the quarter, which reflects a 56-cent differential from the NYMEX benchmark. This differential was wider than normal due to the wider regional differentials that we had in the Hainesville and the much weaker Houston Ship Channel and KD Hub prices that we incurred really since last summer due to the Freeport shutdown. About 7% of our gas is tied to those Gulf Coast markets. In the fourth quarter, we were also 47% hedged, which reduced our realized gas price to $4.19 for the quarter. We have been using some of our excess transportation that we have available to us in the Hainesville to buy and resell third-party gas. This generated about $22 million of profits in the quarter, and this improved our average price realization by 17 cents. Make it up for some of that wider differential. On slide eight, we detail our operating costs per MCFE and our EBITDAX margin. Our operating costs per MCFE averaged 76 cents in the fourth quarter, six cents lower than the third quarter rate, driven mostly by lower production taxes. Production taxes decreased seven cents, primarily due to the lower gas prices that we had during the quarter. Our gathering costs also decreased by 3% during the quarter, but our lifting costs increased by two cents. G and A costs came in at eight cents per MCFE, representing a two cent increase over the third quarter, but about the same rate that we had in the fourth quarter of 21. We generated an EBITDAX margin after hedging at 82 percent in the fourth quarter that's down from the 85 margin we had in the third quarter where we had the very high gas prices on slide nine we recap our spending on our drilling activities and our other development activity for all of 2022. last year we spent one billion dollars on development activities including $919 million that we spent on our operated Hainesville and Bossier shale drilling program. We spent another $47 million on non-operated wells. $45 million of that was in the Hainesville, $2 million was in the Eagleford. And we spent $66 million on other development activity, including infrastructure, installing production tubing, offset frack protection, and then other workovers. In 2022, we drilled 73 or 57 net operated horizontal Hainesville wells, and we turned 66 or 53.6 net operated wells to sales. These wells had an average IP rate of 26 million cubic feet per day. We also had an additional 1.8 net non-operated wells turned to sales. In slide 10, we show our oil and gas reserves. We grew our SEC proof reserves 9% in 2022 to 6.7 TCFE and replaced 216% of our 22 production. Our drilling activity in 2022 added 1.1 TCFE, which made up really substantially all of the reserve growth that we had in 22. Our filing costs for 2022 came in at 95 cents per MCFE. The present value at a 10% discount rate of our approved reserves was $15.5 billion based on the average first-of-the-month prices that we had in 2022. In addition to the 6.7 TCFE of SEC-approved reserves, we have an additional 2.7 TCFE of approved undeveloped reserves, which we don't include in our SEC reported reserves as they are currently not expected to be drilled within the five-year period required by SEC rules. We also have another 3.5 TCFE of 2P or probable reserves and 9.9 TCFE of 3P or possible reserves for total overall reserves of 22.8 TCFE on a P3 basis. Lot 11 recaps our balance sheet at the end of last year. We fully repaid our revolving credit facility in the fourth quarter and ended the year with $2.2 billion in long-term debt. Our leverage ratio was 1.1 times at the end of the year. And in November, we entered into a new revolving bank credit facility with a $2 billion borrowing base with $1.5 billion of elected commitments from 17 banks. The maturity of the revolving craft facility was extended three years to 2027. So we ended 2022 with financial liquidity of more than $1.5 billion. I'll now turn it over to Dan to discuss our operations in more detail.