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Comstock Results Miss Out Again

Zacks Equity Research

Domestic energy explorer Comstock Resources Inc. (CRK) reported weak fourth quarter 2012 results, hamstrung by continued depressed natural gas prices.

The predominantly natural gas-focused exploration and production firm reported adjusted loss per share of 55 cents in the quarter, almost double the Zacks Consensus Estimate of a loss of 30 cents. Comstock’s performance also deteriorated considerably from the year-ago adjusted loss of 7 cents per share.

Total revenues were down 6.9% year over year to $106.6 million, missing the Zacks Consensus Estimate of $119.0 million.

Volume Analysis

Comstock recorded a quarterly volume decline of 16.5% year over year to 21.3 billion cubic feet equivalent (Bcfe), of which 84% was natural gas. The downtrend reflects output shrinkage from its East Texas/North Louisiana operations that made up almost three-fourths of the total volume.

Production in the East Texas/North Louisiana operating region decreased 24.3% to 15.4 Bcfe (99% gas). Elsewhere, output from the South Texas, West Texas and Other properties came in at 4.2 Bcfe, 1.1 Bcfe and 0.5 Bcfe, respectively.

Price Realizations

Average oil price realization (before hedging) was $92.46 per barrel (versus $100.18 per barrel in the fourth quarter of 2011) and average natural gas realization was $3.05 per thousand cubic feet/Mcf (compared with $3.40 per Mcf in the year-earlier quarter).

Comstock’s high natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more-diversified independent peers with a balanced oil/gas production profile. The company saw its results suffer in the wake of a sharp drop in gas prices.

Costs & Expenses

Gathering and transportation costs and lease operating costs came in at $5.7 million (down 30.1% year over year) and $16.4 million (up 63.6%) respectively, while total operating expenses increased 24.2% over the fourth quarter of 2012 to $208.6 million.

Cash Flow & EBITDAX

Comstock generated operating cash flow from continuing operations of $36.5 million, reflecting a decrease of 45.8% from the year-earlier quarter. Quarterly EBITDAX (earnings before interest, taxes, depreciation, depletion, amortization, exploration expense and other non-cash expenses) was down 8.3% year over year to $82.4 million.

Capital Expenditure & Balance Sheet

During the fourth quarter of 2012, Comstock spent $86.5 million on exploration/development drilling activities. As of Dec 31, 2012, Comstock had approximately $4.5 million in cash and cash equivalents and $1,324.4 million in long-term debt. Debt-to-capitalization at the end of the quarter was 58.7%.

Stocks to Consider

Comstock currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at other domestic energy explorers like Cabot Oil & Gas Corp. (COG), Memorial Production Partners L.P. (MEMP) and Penn Virginia Corp. (PVA) as attractive investments. All these firms – sporting a Zacks Rank #1 (Strong Buy) – offer value and are worth accumulating at current levels.

Read the Full Research Report on COG

Read the Full Research Report on CRK

Read the Full Research Report on PVA

Read the Full Research Report on MEMP

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