Comstock Resources, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2024 Comstock Resource Earnings Conference call. At this time, all participants 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 11 on your telephone. You will then hear an automated message advising your hand is raised. to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your speaker today, Jay Allison, Chairman and CEO. Please go ahead, sir.

Thank you and good morning, everyone. You know, what a fantastic morning here in Frisco, Texas with snowflakes coming down when I woke up. You know, I looked at the temperatures in Frisco. It was 15 degrees, feeling like a minus 2. I scrolled and looked at New York. It was 19, feeling like 5. Chicago, 4, feeling like a minus 4. And in Boston, it was 15, feeling like 2. So now let me tell you the story, the latest news about Comstock Resources, which is a pure natural gas company. We're excited to report today. the great success we've had to date in our Western Hainesville play in Texas. Over the past five years, we have been acquiring acreage in the Western Hainesville based on geologic data we put together, including well logs from the many producing vertical wells in the area. Today, we hold 518,000 net acres in our Western Hainesville area in addition to our 301,000 net acres in our legacy Hainesville area. This 518,000 net acres in the western Hainesville represents a massive footprint that is fairly contiguous, allowing us to drill two wells from a single pad to hold two separate units as we drill north and south from the same pad. Our initial western Hainesville well, the Circle M well, was turned to cells in April of 2022. We waited five months before we started our second well, evaluating the Circle M's performance. By the end of 2023, we had seven wells producing, and today we have 18 Western Hainesville wells producing. During our leasing phase, our hardworking land team never lost perspective or focus as they built our position. With acquisitions and grassroots leasing, we now have around 20,000 leases that make up the 518,000 net Western Hainesville acres. Fortunately, 80% of this acreage is HPP'd from our acquisitions of deep rights. That leaves us around 70 wells to be drilled over the next five years to HPP the entire footprint. At the beginning of our undertaking to de-risk the Western Hainesville well by well, We made sure that 100% of our team held no distorted view of reality. Reality is truth. There's an old cowboy saying, quote, if the horse is dead, dismount, end of quote. Well, our Western Hansel horse looks to be very much alive and potentially a triple crown winner, even a secretariat in the making. Given the success we saw, we decided to forego the M&A market and focus on organic growth. The challenge in the Western Anvil was not geological, as we are confident the shell is there. The challenge was drilling 10,000 foot horizontal wells at vertical depths of 19,000 feet, where temperatures can exceed 400 degrees. As we will report today, our operations team led by Dan Harrison has met the challenge with the first 18 successful wells. They've continued to get better and better as we hone in on the formula to drill and complete either Bossier or Haynesville wells in this area. We have substantially reduced the well cost, as Dan will review later today, which puts the returns from these wells superior to the returns we see in our legacy Hainesville area. We've been very cautious as we've developed our Western Hainesville footprint. 2020 and 2021 were mainly focused on leasing. In 2023, we reached out to Quantum Capital Solutions to help us fund the mid-spring build out for the new play. Quantum committed up to $300 million for the build out of the gathering and treating systems in the Western Hainesville. In 2024, we kept two rigs busy in the Western Hainesville and turned 11 new wells to cells. And now we have four rigs in the new play and we'll drill 20 more wells this year. The creation of the Western Hainesville opportunity is quite a feat for a company of our size. This could not have happened without the total support of Jerry Jones and his family who own 71% of Comstock. They saw the vision, they got in the weeds with us as we kept our focus to capture the prize of proving a vast natural gas reserves beneath our 518,000 net acre footprint. Today, we feel the land grab is over with us holding the 518,000 net acres. We also own and control our midstream system with Quantum as our partner. Our Western Hainesville well results look very promising at a time when America needs more natural gas to meet the growing demand for LNG, AI, and all the industrial growth along the Gulf Coast. Our Western Hainesville is located several hundred miles from the Gulf Coast where 100 billion plus of LNG facilities are located. Our location is why LNG companies, utilities, data centers, and industrial users are contacting us to be a future supplier. To have substantial natural gas reserves near the proximity of the growing demand on the Gulf Coast will serve us well in the next decade. The golden age of natural gas is here, and we're on the leading edge of technology to unlock the value of the Western Hainesville. Today is the very first day we've shown the location of our 518,000 net Western Hainesville acres as we have closed the large acquisitions we have been working on and captured much of the leases that we wanted. We also are providing specific well data on the first 18 wells as we now have a large enough sample size to evaluate the results. So now I'll open up this call with our standard introduction and disclaimer. If you would all go to slide one. Welcome to the Comstock Resources fourth quarter 2024 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 2024 Results. I am 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 presentations and note that our discussions today will include forward-looking statements within the meeting 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. Now, if you would go over to slide four or slide three, which is our 2024 accomplishments. On slide three, we highlight our major 2024 accomplishments. Most importantly, we successfully navigated last year's very low natural gas prices. A realized gas price before hedging of $1.98 per MCF in 2024 represented a 30-year low if you exclude the 2020 COVID year. We acted early in 2024 to significantly reduce our capital spending by releasing two operated rigs and one frac spread. We also suspended our quarterly dividend to conserve cash flow. We increased our hedging program, which improved our 2024 realized gas price by 20%. It also safeguards our 2025 and 2026 drilling programs by targeting 50% of our expected production. We shored up our balance sheet by adding $100.5 million to an equity private placement with our majority stockholder and enhanced our liquidity with a $400 million senior note offering. During this year of low natural gas prices, we were also able to grow our Western Hainesville footprint. We more than doubled our acreage position to 518,000 net acres by acquiring 265,000 net acres at a cost of $4.01 per acre. We made terrific progress proving up our Western Hainesville exploratory play. We successfully turned 11 wells to cells with an average IP rate of 38 million cubic feet per day, and now have a total of 18 wells producing in the play. In the fourth quarter, we were able to significantly reduce our drilling and completion costs in the western Hainesville compared to the 2022 level. The drilling costs for lateral foot in our new play are down 33%, and the completion costs for lateral foot are down 28%. Overall, our 2024 drilling program delivered solid results and proved reserve growth despite the lower activity last year. We drilled 50 or 42.9 net wells, successfully operated Hainesville-Bossier wells with a strong average IP rate of 26 billion per day. Our 2024 drilling program replaced 107% of our 2024 production and drove 6% reserve growth with 899 BCF of drilling-related reserve additions and achieved an overall finding cost of $1 per MCFE. Despite suspending our quarterly dividend, we still deliver the highest 2024 total shareholder return among public E&P companies trading on a major exchange. If you would flip over to page four, the Hainesville Shell footprint. Slide four is an overview, first time ever, of our acreage footprint position in the Hainesville-Bossier Shell in East Texas and North Louisiana. Note that this map is to scale. It's not distorted. We have 1,099,000 gross and 819,000 net acres. that is perspective for commercial development of the Hainesville and Bossier Shills. On the left is our emerging western Hainesville, and on the right is our legacy Hainesville area. Since the beginning, our leasing program in the western Hainesville play in 2020, we have grown our acres position to 518,000 net acres. We still have around 1,300 net locations to drill on our 301,000 net acres. In the legacy Hainesville, which currently has 895 net producing wells, our legacy Hainesville acreage is 48% developed for the Hainesville shale and 8% developed for the Bossier shale. In comparison, our western Hainesville has only 18 net producing wells and is virtually undeveloped compared to our legacy Hainesville. We expect our Western Hainesville acreage to provide more inventory per acre versus the legacy Hainesville. Given the higher pay thickness and pressures we encounter in the Western Hainesville, we expect the Western Hainesville to yield significantly more resource potential per section than our legacy Hainesville. I will now turn it over to Roland to discuss the financial results reported today.

Roland? All right. Thanks, Jay. On slide five, we cover our fourth quarter financial results. Our production in the fourth quarter averaged 1.35 BCFE per day, which was 12% lower than the fourth quarter of 2023, reflecting our decision to drop two rigs early in 24 and have that frack holiday that we had in the third quarter. The only way we turned to sales in our legacy Hainesville area in the quarter was our horseshoe well that we discussed last quarter. So oil and gas sales in the quarter declined 5% to $336 million due to the lower production level, which was partially offset by better natural gas prices. EBITDAX for the quarter was $252 million, and we generated $223 million of cash flow during the quarter. We reported adjusted net income of $46 million for the fourth quarter, or 16 cents per share, In the fourth quarter, we recognized a $52 million tax benefit related primarily to R&D credits and other credits and also due to a reduction in the Louisiana state corporate tax rate. A higher provision for depreciation, depletion, and amortization accounted for the loss before income taxes in the quarter. The higher amortization rate resulted from the decrease to our approved undeveloped reserves, which were determined under SEC rules where you have to use the first-of-the-month average price looking back for the previous 12 months. Of course, that price was very low in 2024. On slide six, we recap the annual 2024 financial results. Production for the full year averaged 1.4 BCF per day, which is very comparable to the production we had in 2023. Natural gas prices that we realized in 2024 fell by 7%, resulting in our oil and gas sales decreasing 7% to $1.3 billion. EBITDAX in 2024 totaled $850 million, and we generated $675 million of cash flow. With weaker natural gas prices and a higher DDA expense, we reported an adjusted net loss of $69 million in 2024, or 24 cents per share, compared to the $133 million net income we had in 2023. On slide seven, we further break down our natural gas price realizations in the quarter and for the previous quarters. The quarterly NYMEX settlement price averaged $2.79 per MCF in the fourth quarter, and the average Henry Hub spot price in the quarter averaged $2.42. The 45% of our gas in the fourth quarter were sold in the spot market, so the appropriate market price reference price for our gas that quarter was $2.62. Our realized gas price during the fourth quarter averaged $2.32, reflected a 30-cent differential for the quarter. We were 51% hedged in the fourth quarter, so that improved our realized gas price to $2.70. We also had a 5-cent uplift to our overall gas price realization from purchasing third-party gas to utilize our available transport. On slide eight, we detail our natural gas hedge position that we have to protect cash flows this year and in 2026. We have approximately 50% of our gas production hedged for this year at an average price of $3.48 or better. 22% is in price swaps, and the remaining is the form of costless collars with a floor of $3.50 and a ceiling of $3.80. For 26, 59% of our hedge position is in collars with the same floor level of $3.50, but a higher ceiling price of $4.35. And then the remaining 41% of our 26 hedge position are in gas price swaps, which averaged $3.51 per MCF. On slide 9, we detail our operating cost per MCFE and our EBITDAX margin. Our operating cost averaged 72 cents in the fourth quarter, which was 5 cents lower than the third quarter rate. Our EBITDAX margin improved to 73% in the fourth quarter as compared to 67% in the third quarter. So our production and ad valorem taxes were down 3 cents in the quarter, primarily reflecting the lower statutory severance tax rate we have in Louisiana, which went into effect in the middle of the year. And our lifting cost in the quarter increased 3 cents, where our gathering costs were down 5 cents in the quarter. Overall, our G&A costs were unchanged at 5 cents in the fourth quarter. In slide 10, we recap our spending on drilling and other development activity that we had in the fourth quarter and for all of last year. We spent a total of $240 million on development activities in the fourth quarter, and we spent $902 million for the full year. In 2024, we drilled 32 or 25.8 net horizontal Hainesville wells and 18 or 17.1 net Bossier wells. We turned 48 wells or 42.9 net operated wells to sales, which had an average initial production rate of 26 million per day. On slide 11, we recap our approved reserves at the end of 2024, determined based on year-end NYMEX market prices, which have been adjusted for our differentials as compared to the much lower prices that we'd have to use for SEC purposes and to determine DD&A in the financial statements. Using year-end NYMEX prices, we were able to grow our approved reserves by 6%, even though we had reduced overall drilling activity last year. So our approved reserves totaled 7 TCFE. We added 899 BCF of drilling additions, which replaced 170% of what we produced last year of 528 BCFE. We spent $902 million on that drilling program, which gives us a finding cost right at a dollar for 2024. In addition to the approved reserves, there's an additional 2.1 TCFE approved undeveloped reserves, which are not included because they're not expected to be drilled within the next five-year period as required by SEC rules. Otherwise, they could be included in approved reserves. Then we also have another 2.4 TCFE of 2P or probable reserves and 6.9 TCFE of 3P or possible reserves give us the total reserve base of 18.4 TCFE on a P3 basis. This does not include the reserve potential for much of the Western Hainesville acreage. Slide 12 recaps our capitalization at the end of 2024. We ended the quarter with $415 million of borrowings outstanding under our credit facility, giving us $3 billion in total debt, including our outstanding senior notes. Our borrowing base is currently at $2 billion, and our elected commitment under our credit facility remains at $1.5 billion. With improved natural gas prices and the strong hedge position, we expect our leverage ratio to improve significantly as we start to report the 2025 financial results. At the end of the fourth quarter, we had approximately $1.1 billion of financial liquidity. On slide 13, we summarized the market hubs that we sell our natural gas at. Our proximity to the growing natural gas demand from LNG terminals, petrochemical, and industrial complexes along the Gulf Coast provides us with advantaged gas price realizations compared to most of our natural gas peers. 68% of our gas production is sold at Gulf Coast markets using our long-term transport agreements with the balance sold at the regional hubs at Perryville, Carthage, and Bethel. Selling directly to end users and having access to various Gulf Coast hubs provides That's the ability to take advantage of changing market conditions, you know, on a daily basis. And then starting this year, we have access to a storage facility near our Bethel plant, giving us greater operational flexibility and the ability to take advantage of seasonal pricing. On slide 14, we show the footprint of our midstream system in our western Hainesville area. In late 2023, we partnered with Quantum Capital Solutions to create Pinnacle Gas Services, to fund the needed expansion of our existing midstream assets in the Western Hainesville to handle the growing production from this area. So we contributed our Pinnacle Gathering and Treating System to the partnership, and then Quantum is contributing the capital to build out the Gathering and Treating System in this area. We currently have 246 miles of high pressure pipelines that run across the middle of our acreage, as you can see on slide 14. And we have a gas treating plant at Bethel at the north end of our system, and we're currently constructing a new 400 million a day treating plant at Marquet, Texas on our southern end. So I'll now turn it over to Dan to discuss our operations.