Comstock Resources, Inc.

Thank you for standing by, and welcome to the Comstock Resources second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Jay Allison, Chairman and CEO. Please go ahead, sir.

Thank you, Jonathan. I wish you controlled natural gas prices. We'd all be a little happier. I like your introduction. Welcome to the CompSoc Resources Second Quarter 2023 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 Second Quarter 2023 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 Investment Relations. I'll flip over to slide two. Please refer to slide two In our presentation, 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 can be no assurance that such expectations will prove to be correct. I want to take the time to thank each of you that's listening today on this call and those who will listen later on. You know, as we all know, this year continues to be challenging. as we've had weak natural gas prices coupled with a highly inflated drilling and completion cost. Looking beyond this year, we're very optimistic about natural gas. The growth in demand for natural gas driven by the growth of LNG exports from the Gulf Coast are expected to improve natural gas prices next year and the years beyond. The demand for LNG should grow from the 12 BCF we export today to 21 BCF by 2027 per day. And beyond that, the total demand may hit 40 BCF per day for LNG not that many years out. So, you know, we're optimistic about the prospects for Western Hainesville plate based upon the very early results of our first five wells, which Dan Harris will talk to you about later, as we continue to move up the learning curve on drilling these deeper wells at We've also exceeded our expectations on growing our already expansive acreage position through our on-the-ground leasing efforts. The investments that we're making this year in the Western Hainesville will pay substantial dividends in the future as the demand for natural gas grows. We're making this investment this year to build on the foundation for the future. At the same time, we've been mindful to protect the strong balance sheet and financial liquidity we created last year when we had stronger natural gas prices. So for the next hour, we will go over the second quarter results, which were marked by very low natural gas prices and were a little noisy on the disruptions caused by violent storms in June that we had in East Texas. On slide three, if you'll flip there. On slide three, we summarized the highlights of the second quarter. The financial results were heavily impacted by the very low natural gas prices we realized in the quarter. Oil and gas sales, including hedging, were $285 million in the quarter. We generated cash flow from operations of $145 million, or 53 cents per share, and adjusted EBITDAX was $182 million. With positive working capital contributions, We only had to borrow $20 million to cover the overspend in the quarter. Our adjusted net income was just over break-even for the quarter. We drilled 21 or 17.2 net successful operated Hainesville and Bossier shale horizontal wells in the quarter with an average lateral length of 10,887 feet. Since the last conference call, we've connected 15 or 12 net operated wells to cells with an average initial production rate of 21 million cubic feet equivalent per day. We're having great success in our Western Hainesville exploratory play in the early innings. Our fourth and fifth wells were recently turned to cells with strong production rates, including our first well in the Hainesville shell. The first four wells have been completed in the Bossier shell. We've also been very successful in adding to our extensive lease position. The low gas price environment is contributing to our success by keeping competitors away. I'll now turn it over to Roland to discuss the financial results. Roland?

Yeah, thanks, Jay. On slide four, we cover our second quarter financial results. Our production in second quarter was 1.4 BCFE per day, which was 2% higher as compared to the second quarter of 2022. Low natural gas prices significantly impacted our oil and gas sales in the quarter of 285 million, which were 53% lower than 2022's second quarter. EBITDAX was 182 million, and we generated 145 million of cash flow during the quarter. We reported adjusted net income of $1 million for the second quarter. as Jay said, just above the break-even level as compared to $274 million in the second quarter of 2022. On slide five, we have the financial results for the first half of this year. Our production in the first half of 2023 also averaged 1.4 BCF per day, which was 6% higher as compared to the same period last year. Oil and gas sales in the first half of 2023 totaled $676 million, which were a a third lower than the first half of 2022. EBITDAX was $476 million and we generated $400 million of cash flow during the first six months. We reported adjusted net income of $93 million for the first six months of 2023 as compared to $409 million in the first six months of 2022. On slide six, we show our natural gas price realizations in the quarter. During the second quarter, The NYMEX settlement price averaged $2.10, and it was very close to the same daily average Henry Hub spot price in the quarter of $2.12. Our realized gas price during the second quarter averaged $1.81, reflected a 29-cent differential to both the settlement price and our reference price. This differential returned to more normal levels in the quarter due to improvements in the Houston Ship Channel and Katy Hub prices following the restart of the Freeport LNG facility. In the second quarter, we were also 49% hedged, which improved our realized gas price to $2.25. We've been using some of our excess transportation in the Hainesville to buy and resell third-party natural gas. This generated about $3 million of profits in the quarter and improved our average gas price realization by another $0.03. On slide seven, we detail our operating cost per MCFE produced in our EBITDAX margin. Our operating cost per MCFE averaged 84 cents the second quarter, one penny higher than the first quarter rate. The increased unit costs are related to the startup phase in our Western Hainesville area, which we'll see improve as we connect more of sales to our own gathering and trading facilities in the future. Our gathering costs were flat at 36 cents during the quarter, and our lifting costs were also unchanged at 27 cents. Our production taxes increased 3 cents compared to the first quarter level. Our G&A cost came in at 6 cents per MCFE, which is down 2 cents from the first quarter rate. Our EBITDAX margin after hedging came in at 63% in the second quarter, down from 73% in the first quarter due to the lower gas prices we experienced in the second quarter. On slide 8, we recap our spending on our drilling and other development activity for the first half of this year. So the first six months, we spent a total of $647 million on development activities, including $590 million on our operated Hainesville and Bossier Shell drilling program. Spending on other development activity, including non-operated projects, installing production tubing, offset frack protection, and other workovers, totaled $57 million. In the first six months of this year, we drilled 39 or 30.9 net operated Hainesville and Bossier shell wells and turned another 36 or 24.8 net operated wells to sales. These wells had an average IP rate of 23 million cubic feet per day. Slide nine recaps our balance sheet at the end of the second quarter. We ended the quarter with only $20 million of borrowings outstanding under our credit facility given us $2.2 billion in total debt. We ended the second quarter with financial liquidity of almost $1.5 billion. I'll now turn it over to Dan to discuss the operating results.