Q2 2020 Comstock Resources Inc Earnings Call
Jenkins todays conference is scheduled to begin shortly please continue to stand by thank you for your patience.
[music].
All participants are in addition, only.
After the speakers presentation, there will be a question answer session.
So paid on that portion of the Cold you want me to press Star one on your telephone and please be advised of today's conference is being recorded if you require any firdapse just gets for stock into you know, it's my pleasure to turn the call to Jay Allison Chairman and Chief Executive Officer. Please go ahead.
Oh, Thank you and.
Hi, everyone. It's on the call welcome to the Gulf Resources second quarter, 2020 financial and operating results Conference call. You can do a slide presentation during or after this call by going through our website at www Dot com spark resource the dot com and downloading the quarterly result presentation there.
Ponder presentation titled Second quarter, 2200 results have Jay Olson, Chief Executive Officer Golf talk with me as 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 go to slide two it's a disclaimer. Please refer to slide two under presentations and noted our sketches today will include forward looking statements, but then immediate securities laws will we believe the expectations are at such statements can be reasonable there can be no assurance as such expectations will prove to be correct.
Before we hit spot freight on much from comments.
First of all her privileged to be able to talk every body you don't want H. revealed this call. This morning, you have an inbound call figure from someone that has proven to taking Craig great wealth, you take that coal that listen if your wise.
It appears ago Gulfmark resources received a phone call from Jerry Jones is family, which is why we as the contract management can report to coordinator results that we have today.
Every trade has a conductor and ours is Jerry Jones. He believed the natural gas in America. He believed that the Hazel Bolger Sheldon United States was a tier one natural gas why they put as big and dollars or the God because the April butcher as close proximity to the Gulf of Mexico.
Geological predictability.
It'll belted midstream pipeline, saying proven the historic well results. The second quarter 2020 was the stress test corridor for the energy sector into rebuild weakness is that all of us don't ever look forward to seeing it.
It's a vision said before turning it appears again always coming to fruition as shown in this quarterly report that Comstock has a best in class low cost structure, we're not margins or that you're one year ago for natural gas in America without the Jones's commitment we would not have had the second quarter results that we will give you look because.
I would not have been able to do the transaction. So there will report to you that we executed at all during Devaliya last quarter.
We're committed to you the owners of this company, who own either equity or data Comstock, there will continue to make wise decisions.
On how to spend your money.
The second quarter 2020 might go down as one of the most difficult 90 days in the history of oil and gas during that 90 days, we were laser focused on enhancing our financial strength.
In May we executed on an underwritten equity offering they gave us a financial ability to redeem the 210 billion series a convertible preferred stock.
Issued that we entered into as a part of the Coffee Park acquisition. Then in June we issued 500 bag. It in a senior notes offering that we used to repay borrowings under our revolving credit facility that greatly improved our financial liquidity is rather more report.
What is a company that's all 207 robust the border director say, thank you to the buyers the equity into the buyers of the bonds for trusting comps Archon management to continue to deliver industry, leading low cost are well economics. Your support daring trying times for the oil and gas industry is greatly appreciate it well.
Coming to you our financial backers of equity stake holders that we will continue to focus on free cash flow generation overgrowth focus on paying down our dad and strengthening our balance sheet at managing Comstock to the current low oil and natural gas price environment with our best in class cost structure, leading margins in depth of drilling ever.
George we're very well positioned for the future and in fact, we're eager to say water and photos of the next 18 months, because we see natural gas fundamental strength of being during that window of time.
We'll go to slide three.
Operationally the second quarter was a fairly quiet quarter for us as we released our completion crews in April and we reduced our operated drilling rigs down before.
As low natural gas prices have continued following the warm winter we had planned for the lower activity in the quarter to prioritize free cash flow generation.
We were very busy in the second quarter working to enhance our financial strength and the current volatile an uncertain environment, where hand, the discount rate not taking pandemic, we were able to complete the first upstream common equity offering since 2018 larger than $50 billion.
The offering was also the first natural gas common equity offering since 2016.
The offering allowed us to redeem our series a convertible preferred stock at its face value of $210 billion and avoid the potential dilution associated with this conversion we follow that all bring up with a 500 million dollar senior notes offering to pay down borrowings.
On our bank credit facility, we reduced our outstanding bank borrowings from 89% of availability to 57%, but bring up the bank credit facility, we increased our financial liquidity for $116 billion. It to ended the first quarter to 612 million dollar.
There is currently.
We further de risk our business plan by increasing.
Our 2021 hedge position by 182% during the second quarter, taking advantage of the improvement to natural gas futures and 2021.
On the operations fraud.
You're capturing a reduced drilling and completion costs, which Dan Harris will talk about momentarily.
Our second quarter drilling and completion costs per lateral foot are down 26% from second quarter 2019 cost, we expect well cost to decline further into second half of the year as Dan will grow over.
Third our completion activity in the quarter to better align new production with anticipated strong natural gas prices and late Twentytwenty add 2021, despite the very low oil and natural gas prices, we add the second quarter, we still generated 36 million dollar.
As in free cash flow, bringing our total free cash flow and 2020 to date to $51 million.
The lower oil and gas prices did limits of profits, we generated in the quarter, our oil and gasoline sales, including hedges were $233 million, that's 79% higher than sales in the second quarter of 29 chain.
Our adjusted EBITDAX came in at the 162 million, which was 74% higher than 29 payment.
Operating cash flow was 117 million or 53 cents per share and was 77% higher than 20 not team.
We did manage to have adjusted net income of $1.7 million are one penny per share for the quarter.
If you go over to slide four.
On slide four we recap the exiting and senior notes offering we completed in the second quarter in May.
We issued 41.325 million shares and an underwritten equity offering which was priced at $5 per share will use the proceeds from the offering along with 13 negative cash for the balance sheet to redeem the 210 million series, a convertible preferred stock at its face the value.
What.
The series a convertible preferred stock was convertible into 52.5 million shares beginning on July 16 to 22 warning.
The offering was accretive to the company as we saved the company 11 bag in 175000 shares at awards have been issued its preferred stock converted the redemption saved us $21 billion per year by eliminating the 10% dividend we were paying.
In April and May we exchanged $5.6 billion over 7.5% senior notes due 2025 were certain holders for 767, a 96 newly issued shares of common stock. The exchange was done at market values above securities effect.
Definitely yet we issued the shares the exchange it had $7 in 30 cents per share.
In June.
We use proceeds from my 500 million dollar senior notes offering to repay U 441, bigoted borrowings under our revolving credit facility.
The offering to address our need to improve our financial liquidity, we're used to bank credit facility facility heavily yet well, we acquired coffee Park last July and we hit intended to term out a portion of the borrowings.
Todd financial liquidity was a primary reason for our credit rating that was downgraded in March but two of the agencies. The completion of the successful notes offering led to an upgrade to our writing about both moodys and S&P, yet I will now have Roland Burns summarize our financial results for the quarter. Thanks.
And.
Alright, Thanks Jay.
On slide five we combine cut Comstock and Covey parks production from the Haynesville Bowsher since 2016 and at the second quarter of 2020 production from our Haynesville Bowsher Wells was 1.2 billion cubic feet per day, and it was 9% higher than the 1.1 billion cubic feet per day.
That that Comstock and heavy part produced in the second quarter of 2019.
Low completion activity in the quarter cost production to declined slightly from the first quarter.
We only had 5.7 net wells turned to sales during the second quarter.
Given the continued weakness in gas prices since our last conference call. We've adjusted our completion schedule to allow us to continue to generate free cash flow despite low gas prices.
While we still plan to complete a similar number of wells as before the timing of a turning to wells to sales has moved to later in the year in order to align more of the new production to the winter months, when we expect natural gas prices to improve.
As a result, we expect our third quarter production to decline a little further.
We did add back to Frac crews at the beginning of the third quarter and we plan to add a third Frac crew later this year.
We plan to turned 25 net wells to sales in the last six months of this year much of the new production for these wells will be on late this year setting and setting this up for a strong exit rate and for some growth in 2021, but not in time to show growth in the third quarter.
Slide six recaps the production we had shut in for the quarter.
Display for offset Frac activity are not operated oil production experienced substantial curtailments in the second quarter, we had 23% of our oil production curtailed or shut in in the second quarter due to the very low oil prices.
4% of our natural gas production was also shut in in the second quarter as compared to 5% in the first quarter. This year.
Given our completion activity was low in the quarter.
We expected to shut in percentage to be closer to 2% to 3% in the second quarter.
But given the significant amount of offset operator completion activity.
The shut in activity came in at this 4%.
On slide seven we cover our hedging program.
During the first six months of 2020, we had 49% of our gas volumes hedged.
Which increased our realized gas price to $1.96 per Mcf from the dollar 59 per Mcf, we receive from selling our production.
We also had 90% of our oil volumes hedged and that increased our realized oil price to $42.59 per barrel versus the 30 $1.72 cents per barrel that we actually received.
Our realized hedge gains totaled $98.7 million in the first six months this year.
With improvement in futures natural gas prices that we saw in the second quarter, we have added substantially to our hedge book.
Since we last reported earnings we've added 10 million cubic feet today of natural gas swaps.
For the third quarter of this year and another 20 million of additional swaps for the fourth quarter.
And then we've also added 25 million up 25 million cubic feet of natural gas collars in the fourth quarter. This year.
Most substantially we added that 128 million cubic feet of natural gas collars in 2021, which protect us at.
And average for price of $2.47, but give us exposure to the higher prices that we are expecting for next year.
The rest of 2020, we have 608 million cubic feet of our gas.
Hedged in about 2892 barrels of our oil hedged.
The weighted average floor price of our remaining 2020 gas hedges as $2.61 per Mcf.
For 2021, we now have hedges covering 668 million cubic feet of our expected 2021 gas production and the weighted average floor protection price for those hedges as $2.51.
Our 2020 when gas has just increases to 864 million cubic feet per day at an average for price of $2.51 as certain swaptions are exercised.
In the fourth quarter of this year.
We are targeting to have 55% to 70% of our anticipated 2021 production hedged.
On slide eight we summarize our financial results for the second quarter of this year.
Our production for the second quarter totaled 119, Bcf, including 360000 barrels of oil.
This is a 163% higher than our production in the second quarter.
Last year, our oil and gas sales, including realized hedging gains were 232 billion.
Our $233 million, which was 79% higher than 2019.
Well prices in the quarter average 30 to $37, an 89 cents per barrel.
At our gas prices averaged $1.88.
<unk> cents per mcf, including our hedging.
Our natural gas price realization was down 18%.
Setting some of the substantial production growth we had in the quarter.
Adjusted EBITDAX came in at $162.1 billion, which was 74% higher.
In the second quarter of 29 team operating cash flow was 117.5 million, which was 77% higher.
We did report a net loss of $60 million for the quarter or 29 cents per share, but that loss was mainly attributable to $65.6 million unrealized loss.
From the mark to market of our hedge positions.
That was that that change and the value of our hedge positions as mostly driven by the higher future prices for natural gas that we've seen since the March 30, Onest balance sheet.
Adjusted net income excluding that mark to Mark hedging loss and then certain other unusual items was $1.7 billion or one cents per diluted share for the quarter.
On slide that we summarize our financial results for the first half of this year.
Production for the first six months was 244 Bcf fee, including 814000 barrels of oil.
That's a 194% higher than production for the first half of 2019 oil and gas sales, including realized hedging gains were $500 million to $4 million or 92% higher than the same period in 2019.
Or prices averaged $42.59 per barrel in gas prices averaged $1.96 per mcf, including hedging gains.
Overall, our natural gas price realization was down 23%.
In in 2020 versus 29 team.
Adjusted EBITDAX came in at $364 million are 91% higher than 2019, and operating cash flow was $273 million, which was a 100% higher than 2019.
We reported a net loss of $30 million for the first six months of 2020 or 15 cents per share, but again that was mainly due to the unrealized hedging loss from the second quarter. So excluding that.
Unrealized hedging loss for the Mark to market. It other unusual items. The net income for the first half year was $28 million or 14 cents per share.
On slide 10, we detail our operating cost per Mcf fee or operating cost averaged 54 cents in the second quarter as compared to the first quarter rate of 50 cents gathering costs were 22 cents.
Sure MCV production taxes averaged five cents and field level costs were 27 cents.
The taxes in the field level cost in the second quarter did include some prior period have alarm and franchise tax adjustments that we recorded in the second quarter.
On slide 11, we detail our corporate overhead cost per Mcf fee and our cash DNA costs per Mcf fee.
Average six cents in the second quarter, which is exactly unchanged from what we had in the first quarter.
On slide 12.
We show that our.
Our depreciation depletion and amortization per Mcf produced that averaged 87 cents in the second quarter, which is 1% lower than the 88 cents.
That we had in the first quarter.
On slide 13, we recap our second quarter and then first six months of 2020 capital expenditures, we spent $75 million on development activities in the second quarter.
All of which 61 billion was related to our operated Haynesville shale properties.
For the first six months this year, we spent $205 million, including 165 million spend our operated Haynesville shale program, we drilled 26 or 20.1 net operated horizontal haynesville well. So far this year. We also completed 15 or 9.6.
Net wells that we drilled in 2019.
We spent about $40 million on non operated or other activities. So far this year.
We generated operating cash flow of 273 million in the first six months. This year resulted in free cash flow of $51 million. After we pay the dividend on the preferred shares.
We continue to remain very responsive to the changing natural gas prices. They remain focused on generating significant free cash flow.
After dropping our operated rig count to four rigs in April which was down from six in January.
We've added back a bit operated rig this week and we plan to add a six rig.
By the end of the year.
We expect to spend approximately $400 million to $440 million. This year to drill 67 or 42.8 net haynesville wells.
As it turned 79 or 42.3 net haynesville wells to sales.
At the end of this year, we expect we expect to have 17 or 15.3 net drilled uncompleted wells the carryover into 2021, and we also think will be in various stages of drilling and six or five point.
Two net operated wells at the end of the year.
We remain focused on generating significant free cash flow as we look ahead and planning our capital expenditure activity and we're targeting to have $150 million to $200 million of annual free cash flow.
We set our spending as we set our drilling and completion activity for 2021.
Slide 14 shows our balance sheet that into the second quarter.
During the second quarter as Jay said, we're very active in the capital markets issuing 41.3 million shares of common stock to redeem the series a preferred stock.
And issuing $500 million of new unsecured notes to term out a portion of the borrowings outstanding under our credit facility.
We also completed some debt for equity exchanges totaling 5.6 million in exchange for 767.
96 newly issued common shares.
We currently have $800 million drawn on our revolving credit facility and we expect to pay it down further with the free cash flow, we're generating for the rest of 2021, and what will generate and 20.
Well.
Free cash flow after the rest of this year and then what we would generate in 2021.
For the quarter, ending cash position of $12 million, our current liquidity now stands at $612 million.
We have just under $2 billion of senior notes outstanding comprised of 619 billion of the 7.5% senior notes due in 2025, and then 1.35 billion of are not in three quarters senior notes due in 2026.
With no debt maturities until 2024 and as senior note maturities until 2025.
Our current leverage ratio right remains below.
Our covenant ratio of four times.
So we're very well positioned to continue to whether the current low oil and gas price environment.
Ill now turn it over to Dan to cover our second quarter drilling results in more detail.
Okay. Thanks Roland.
Overall slots, you're saying you're going to see the outlined at the current acreage position.
Well now standing at 305000 net acres.
There have been no material changes in our acreage position since we had last call.
We control the majority of the acreage we've got a 92% operated position that we have an average working interest on the acreage or 80%.
We currently have 2007 net future drilling locations identified on the acreage with 95% of the acreage currently held by production.
As a result, releasing our frac crews in early April was not or in any additional wells to sales since the time or last call.
Sorry, DMC will Cal still stands at 237 gross wells turned to sales as we re entered the play in 2015.
We're currently running four rigs and now we're in the process of moving in a fifth rig this week.
We also plan at a six rig sometime before year end.
Due to the Frac holiday. This started in early April our operated Doug well count increased to a maximum 20 wells by the end of the second quarter.
Currently have 16 operated ducs at this time.
We put two frac crews back to work at the end of June and we plan to add a third crew within the next couple of months as we prepare to drill down a number of Ducs and take advantage of the anticipated higher gas prices heading into the fall.
Okay.
Overall slide 16. This is an updated breakdown of our Haynesville Bowser drilling inventory at the end of the second quarter.
Total gross operated inventory currently stands at 2520 locations with our net operated inventory at 1849 locations.
This represents an average of 73% working interest on the remaining operated inventory.
In addition to the operated inventory. We also have 1310 gross non operated locations with our net model operated inventory at 158 wells, which represents an average 12% working interest on the remaining non operated inventory.
As for the gross operated inventory. We currently have 538 short laterals 1005 medium laterals and 977 long laterals.
Our gross operated inventory actually increased approximately 6% in the second quarter and this was primarily due to closing on a few keytrade agent. We've actually had an award for sometime now.
Regarding the different pay benches, 56% of our gross operating locations are located in the Haynesville and the remaining 44% of the locations are located in the Bowser.
This inventory provides the company was over 30 years of drilling locations based on our forecasted activity levels for the near term.
On slide 17. This is assortments illustrates the progress we continue to make.
Driving down or DNC cost. These results tried to only our medium to long laterals, which have lateral links of greater than 6000 feet.
Our DSD costs continue to trend down in the second quarter was rebar lowest all ending see tell us to date at $1028 per se.
This reflects the DMC calls on the seven long lateral wells that were turned to sales in the second quarter all in the month of April.
Before we released our Frac crews.
This call says, 26% lower than the same quarter a year ago represents an 8% calls reduction.
From the previous quarter.
The main drivers continue to be the increase completion efficiencies and lower service costs associated with the historically low industry activity levels.
We are continuing to pump the smaller modified Frac design that we started up in early in the year is primarily on our infill and co develop locations and this has also been a factor in our or well calls.
Cited on our last call, we're maintaining a near term goal of reducing our DNC cost down to $1000 per foot.
And we feel confident where we'll be able to hold these calls at this level in the current service cost environment.
Our goal still did lever the highest return create the most value we can all the capital that's being deployed.
Summarizes the operations I'll turn it back over to Jay for some final comments. Thank you Dan. Thank you Roland I'll go over the outlook for everybody on the call turn it over for some guidance Ron and we'll open up the question. So I feel good 18 really I'd like to direct you to slide 18, where we summarize our outlook for the rest of this year.
And our this year, we're primarily focused on free cash flow generation as we stated over and over and managing the company to the current low oil and natural gas price environment.
What car natural gas prices remained relatively low.
The outlook for natural gas has improved substantially for late 2020 to 2021, driven by our expectations for significant declines in natural gas supply in 2020, and 2021 do a due to continued reduction in natural gas directed drilling and completion activities.
And last associated gas production from related activities and oil basins, resulting from the collapse of oil prices.
The strength.
We have.
It is our industry, leading low cost structure, and well economics with our industry, leading low cost structure, our haynesville drilling program generates economic returns.
Even at today's low natural gas prices.
Cut back the number wells, we're drilling and adjusted our completion schedule intentionally in order to generate free cash flows were used to pay down our debt and strengthening.
Our balance sheet, we still expect 33% to 5% pro forma production growth in 2020, even with the reduced activity and deferred completion schedule.
Importantly.
The lower volumes due to the adjusted completion schedule are just being deferred until later and Twentytwenty unit early 2021 than previously anticipated, we're proud to as free cash flow goals to 2020 over production growth, but have maintained adequate investment to grow our per day.
Auction all my longer term bases.
We've hedged almost half of our production over the remainder of 2020 and 64% of our production and 2021 and had strong financial liquidity of $612 million. Following our recent bond offering.
So now I'm going to turn it over to Ron to provide some specific guidance for the rest of Iran. Cheers. Thanks, Jay on Slide 19, we provide financial guidance for the rest of this year for our analysts. This updated guidance reflects the impact of the deferred completion schedule, which weve mentioned on the call.
And which is shifting the turned to sales schedule on a number of wells to the later this year and into 2021 as a result, the production impact associated with those deferred completions will show up later this year and in the early part of 2021.
Anticipate spending $400 million to $440 million on our drilling and completion activities.
And the associated impact on our 2020 production guidance as we now expect production to total 1.25 to 1.3 Bcf per day of which 97% to 9% is expected to be natural gas our cost items are unchanged from prior guidance with Ela, we expected to.
Average 23 to 27 cents per Mcf, the gathering and transportation costs expected to averaged 23 to 27 cents per Mcf the production taxes at six to eight cents per Mcf fee and DDNA at 85 to 95 cents gramps, yet we continue to anticipate cash DNA will average five to seven.
One cents per Mcf.
For the rest the call we'll take questions from the analysts who follow the company.
Thank you and nothing like that.
And then if you have a question relating to press star on your catalyst to withdraw your question same depressed uptown.
Okay.
Hey, somebody will be compiled acumera roster.
Our first question is from John Mcintosh with Johnson Rice. Please go ahead.
Good morning, Jay Rolling warning.
Just wanted to.
Give a little more color on back after the year Youre pretty clear about looking to push completions out and try to capture higher gas price, but net capex is fairly flat.
So thinking along the lines of your spending this year to bring volumes on next year just kind of.
How are you thinking about the trajectory for 2021 and died balancing cash flow and and Capex.
Well, we do we kind of mentioned this from where we're going to we're going to look at this free cash flow number of hundred 50 to 200 million plus and then we want to assure that reach and have that now we back into what our Capex budget should look like and also with that.
We do want to unit will want to have some growth I mean, we want to have 234, 5% growth.
And I just depends upon what our Capex budget is and that depends upon prices.
And then we risk adjust all that I mean, we were pretty comfortable with what.
Well results should look like so we really risk adjust the commodity price with the hedging.
Thats, 64% comes in but where we got you don't get paid to grow now you could go out a business. If you don't grow that you can impact your RBL. If you don't maintain it would still like to maintain that we'd like to pay it down.
But we'd like to maintain where we are possible and have a little drugs and have a lot of profits and the key is we should just two or three times.
You really are in a tad bird say to view the low cost operator, the highest margins period.
And and the last two and a half years, we've taken great strides to kind of take that pole position, if we're not in Nepal ordinary.
Where your oil or gas that we want to stay there.
I don't think our leverage is too high but I think we do need to pay down our debt.
Thank you need to have lower cost to capital.
And I think Thats, one of our goals because a few cure our cost of capital.
We really really or.
And to add an NGL enviable position.
Does that answer your question.
And maybe that to add to that you would I.
I think as we just as you look today at all those factors that Jay went over.
We kind of what we're looking toward kind of we think a six operated rig program fits all those parameters right now no things could be different.
Three months from now and so we might have a different answer and Thats. One reason and operations group is planned to bought into the year kind of being at that level.
So that would be a higher little bit higher activity levels supported by the stronger natural gas prices that are out there that we've already locked in with our hedging program.
And so we really see a very attractive year next year, that's a great balance of.
Little bit higher activity.
Yes, some growth in production at the same time very substantial free cash flow generation.
And.
We thank all the everything seems to be aligning up to that.
To that type of year next year, we get does a lot of the noise in the numbers I mean, you've got to the denim series a preferred we needed to get that noise out. The numbers was four shares when needed. We said that we did stretched on use of the RBL.
We did at intentionally though with the car purchase because we knew what we should look like post covey.
We do look like that so when we issued the bonds. We did take the tension also liquidity.
Then you can see even in a very strong this quarter.
But almost $2 million.
And it's a pretty hard quarter to have free cash flow wanted to have any profits to and you can see we are committed to hedging because we need to ready to be hedge whether we're at the top that we have or not we should have a we had should have a risk program for hedging.
So now we're going to I will start out was six rigs were probably keep postage rate for 2022 right now that's our goal we can change it.
We change that you on the fourth quarter above 19, we had nine rigs.
Worsen January 20, we had six we dropped down to five bore.
Yes.
So we definitely to toggle that much of these rig contracts, well well to well and again as you see the service calls coal collapsing because the service companies.
Our really into fatigue position, where these low prices.
We should.
Get these cost per foot down like Dan. It said, we're probably 14 $1500. In 2018 2019 were lower thousand now hopefully we can get those down so cost are coming our way commodity prices are coming our way if your gas and we do control we do control the rig count we've shown you that we.
Not telling you things, we haven't already done before so.
I think thats why in May and June the market Trust us for the bond offering any equity offerings.
And Dan I think that this quarter like Jay phrase the very beginning.
You really stress tested though company with these very low gas prices very low prices, we had no impairments.
I don't have any companies can say that this quarter that just shows you that the.
Our cost.
It's fundamentally low we still achieved a.
And EBITDAX margin of 73%, probably the highest I mean, the highest of any companies we track in the entire industry and even if you stripped the hedges way, where we started a 60% margin even if it is that you don't use your hedges. So I think that what you did see is that the company.
Ken, but we can withstand these low prices because of the really strong cost structure.
And you know settled allergy everybody went behind the current on Where's the boss see what's your beta.
He looked pretty good.
Yes, absolutely thanks to the color and yet it's clear that youre executing at a high level, despite a challenging challenging take but.
That gets better here in the back after going into next year like.
Thinking about.
A quick follow up.
Made a lot of progress on the balance sheet and congrats on getting off to deals and.
Well as it really challenging environment for Twoq.
Ultimately you talk about a long term leverage target of under two times what are some of the other levers you all good pull over.
To potentially expedite that de leveraging and indeed.
Like I said.
What you got done is.
Mark one quarter, but is there anything else you could look to do in the capital markets or maybe.
M&A still an option for de leveraging what are you seeing on that front. We're you know all the M&A fraud, we we are trying to position ourselves to be the funnel.
For companies that would like to be.
Have a transaction in the Haynesville bowsher area.
Now the markers that we've said or the low cost and the how margins.
And the quality of inventory, we have so anything that we would do.
We would have to de lever the company period, I mean, thats just we don't have to do anything right. Now we're really good shape, we would like to continue to grow that that opportunities there but.
But you know where we're not out aggressively seeking to get bigger for those sake or getting bigger we're not going to do that period. I think we will have some opportunities I think there'll be some decisions that will make an aboard and the johns's will make about whether we want to grow or not.
Correct.
We're in we're always in discussions with the opportunities that are out there and I'll tell you as you know we're very very transparent company we've got.
A respected management, because we've been theres really really hard times and we've not miss by so I think most of the other companies or would like to do something I'd like to deal with a Comstock top.
Culture.
I think thats, a big plus we have they know us.
I think Dan if we just stick to our.
Stick to our basic.
Plan here and stick to our knitting, we look ahead and just based on today's.
Commodity prices that are out there for the future.
You know by 2022, you know, we're we're under 2.5 times levers so FX a weekend stick to our game plan and be very disciplined and achieve it through organic growth it doesn't happen overnight.
But I think thats, that's an option to that so I think thats, that's really how we're looking at it and think that weve debt, we've taken the moves and the capital markets, we think to de risk the company.
To make sure you can withstand the volatility in the markets.
And if we will just stick to our our plan will achieve our leverage go and that is our planet is something else comps as Sweden's that that makes us better company.
Then we would probably act on it.
Alright, great. Thanks, Joe. Thank you for the core sorry. Thank you for the color. Thank you are to following along.
Yes, Sir thank you.
Thank you. Our next question comes from Phillips, John John with capital One. Please go ahead.
Hey, guys. Thank you.
Now that the Companys scaled up in terms of size and now that you're trading liquidity has increased with the larger flow.
Sure you've been talking to potential investors there kick in kicking the tires now that comp Sox back on many folks is radar screens.
Based on those conversations what would you think it's the most sort of under underappreciated aspect to the Comstock story today.
Yes, it's a great question I think.
I think the Haynesville itself is kind of undiscovered everybody's had their third 2020 vision on the Appalachian and nobody has been asked to be educated on the Haynesville Bolger I think theres a select group of analysts your one level that you took your binoculars.
To the Gulf of Mexico, close to Mexico close to the LNG close industrial corridor or close to where the midstream pipelines are there is as mergers vision was and you said well, okay, but I don't have any opportunities there. So.
And what we did.
It is we created.
The opportunity where you could come look at the Haynesville. So one I think its education I don't think that we've we've exposure to the haynesville properly because it's in its infancy. So I think to Appalachian you've got down to 678 10 companies. There that are public you don't have.
That top of the landscape in the Haynesville I mean, we sell more haynesville, both Ferguson anybody were public.
The others are mainly private are there really small or.
They're not they're not a big player in the Haynesville. So I think education, one I think execution.
We've had some calls from some big fund managers, we did the the the road shows Telephonic road shows for both the equity in Boston I'd say Wow. So your cost structures like that while you do have those margins, which rolled on alluded to when you do compare that favorable to the Appalachian we didn't know that.
So, yes, I think over and over over kind of like we had to do with you what.
Got to say prove it.
While these companies that revenue going to goodwill, we we actually have proven that in particularly in this second quarter. When you have a wilsonville offload. These companies slot chapter 11, slaughter misery lot of paying a lot of impairments.
Thanks, Thats hedge our top cards are really really well well set.
We just need to get added broadcasted and again, you know, we didnt need more float.
We we I think the johns's.
Okay, I'll issues shares at $5 as a company and raise under.
Is that they were diluted down salvage admission tickets year percentages, but if you look through the percentages to say now we've got to have the flowed out there because you can't has a big institutional buyers without the float I think thats. The same thing with the denim shares you know when when denim initially got their 26 27 28 million shares I mean, just Providence.
What is I Didnt plan on Albinos until they died which at the grave.
Plateau monetizing those so I think at some point time, you're going to see that has real close.
And I think thats going to help us. So we've got to have more flow I think we built in we got to continue to give results when it's amazing during the last quarter. The the number of new research analysts that came out.
It's kind of hard to come out when things are pretty pretty pretty scary, but they did come out and we did get some really good ratings.
I looked at our bonds, if you are ball bonds.
And your bottom at 90 cents, whatever I mean, they're trying to want to one one or two years, you've made money you bought equity at $5. It's six and change you made money.
We're making money for all these people period and then we're protecting those in our base.
Base rate people, so I think that stores, because several well period this going to sell well we've got to deliver Dan Harris has got liberal nichol, she's got to be real efficient on operations.
We bought Ron Mills over here, we didnt have really how someone that was that connected with the with the endless rolled out there I think you super respected role has done a great job for 30 years.
We have to tell the story period, we've got to get our debt down little bit, but it's mainly our cost to capital we need to work into year. Two after we get caught a loan costs lower cost of funds.
So I hope that answers your question.
Yes, absolutely does you mentioned the Haynesville landscape.
As you last quarter about just big picture thoughts on industry consolidation in the Haynesville, maybe I'll ask it again, especially now that.
Chesapeakes can process of the pre packaged gentry.
We have ways number one limits and we look at past acquisitions.
First of all we look at rock quality.
And I do think we understand rock quality religion, Harrison County, Desoto parish Caddo parish.
To Sabine word for we do go rock quality.
When we looked at and I think that's where our M&A group and dietary leads that are these fabulous and he was.
He is a leader it covey.
I think thats, where data for comes down as are headed geologists to.
Yes, we've got really good groups out there to understand the rock.
No no most of the private equity backed companies, we know the management, we know the bankers.
And lot of it is what's your midstream cost.
Have you over drill.
What kind of farm transportation commitments for you have so we've looked at that all of those spend most of those companies could just be.
And you know, we we want to grow we want to have more acreage, but Midlands Rollins said, we're not we're not covered thing to do something that doesn't make this a much much much better company.
Now I think that some of those transactions were out there.
We're always willing to look when we look at them that opened onsen. If we can become better they can become better we de Levered everybody's happy then.
We will hopefully we're smart enough to figure it out to do them and then at the same time, we're smart enough to figure out not to do them.
Period, and I'll tell you, we always have a really good backstop.
Yes, sure Greg question.
If you pulled out a billion dollar severe pocket not somebody else's pocket or fund.
Going to protect your investment period. So we may have management, we might have a board we may have all those things.
The thing that we have that most downdraft none of them out.
We've got a man who voted check from his pocket period.
I'm, telling you that the phone call that we got to tune. It appears goes that's the difference.
And the trustworthiness or where you can go look versus some others. That's the big game changer, Verizon I think thats the attractive park.
Some of these opportunities that may come our way, thanks, I want to deal with that Comstock. So.
Not quite Jay Thanks.
No. That's it that's it from A.J.. Thank you very much appreciate it.
Thank you and our next question comes from Kashy, Harrison with Siemens and until please go ahead.
Hi, Good morning, everyone and thank you for taking my questions.
So in the in the prior presentation.
There was that there are some commentary on how a portion of the improvement in DNC costs was driven by.
Reductions in completion intensity and we can clearly see the benefit of that as.
Costs are at call. It 1000, and it seems like you're going to be below 1000, as you look to the second half the year.
I was just wondering if you could help us from modeling standpoint things through.
Based on the early data that you guys are looking at how to how to think about the impact to near term productivity.
From the lower completion intensity designs.
So this is Dan so we are continuing to monitor that the performance on those wells.
It's hard to.
It's pretty hard to it to extrapolate out really goody youre without getting probably six months of production on these wells.
Everything that we're looking at so far out now looks good I mean, we're just comparing what were what we're recovering on these.
Relatively downsize jobs to what we were getting on the larger jobs and where we have the infield locations in the co developed locations, where we you know complete.
Three or four wells you know side by side at the same time with me so far on the data we really haven't seen.
So that big of a difference to justify going back and continuing to pump the larger jobs. So.
That's kind of that's kind of where we're at this kind of still where we're headed we will continue to monitor the production and if we need to make some tweaks we will.
We've also made some some of our drilling holes were relatively flat really last year and into the first quarter.
I think we're starting to see some benefits a few things we're doing there. We you we only turn seven wells to sales in the second quarter, but we drilled we had the we had to 20 duct at the end of Q2, and if you just look at our drill cost.
Were down 10, 15% there since Q1, so I think that along with just holding the.
The completion costs flat, we're going to get to that thousand books are probably below.
Good.
And that's that's that's will service call stay in the same and Thats all I thought we'd reached the bottom of the barrel in Q1.
I mean, who saw this whole coded pandemic coming that's that's obviously.
Put more stress on the pressure bumpers, and so we know we've seen another step down in service calls freight costs basically.
From Q1 and to the into Q2 and going into Q3, so that was.
That was a little bit unexpected we kind of had these.
Cost targets in place really before that hit so.
That.
That will help help us maintained $1000 per foot.
That's helpful. Then get to know that it's still an empty NPV positive decision.
And then I guess this is a good segue into my next question.
At the six rig program that you all are thinking about for for next year and to the thousand dollars for foot I was wondering if you could just help us think through what that would imply from a capex standpoint based on based on what you know today.
Yes, I think if you're looking at that program and the just timing of when that those wells get completed et cetera.
Yes, I think we're we're targeting capex.
For next year.
Probably in the.
It probably kind of similar levels to this year, maybe slightly higher probably to for 52 to 475.
Okay and dollar area.
I think thats going to be kind of the overall cost of that program.
You could use it for 50 number going a little north or south that's going to be a good kind of middle of the road number.
Ron is that good.
Yes, yes, good that's good and that incorporates based on average one at least one incremental rig plus or minus one incremental rig versus what we're going to average this year I remember, we'll have to frac crews and we'll talk a little third Frac crew front and then so we don't have probably more than 15 ducs at any given.
They are that net debts and have a bringing more wells to sales will have kind of that carryover effect from the from 2020, but that's probably bring in 55 net wells to sales.
Yes, but for that program so it.
At Lonza pretty well.
Especially with the current.
Drilling complete cost that we can achieve they expected commodity prices. It really sets up for a really good 21 combination of all those factors. When you look at those costs too. If you look at the Comstock inventory the inventory when you blend of all that our drilling program has been you know 50 50, Comstock coffee maybe.
A little more toward comps locations and Gavi.
We drilled north South East West of our 305000 acreage footprint. So.
Both of those assets in those locations have complemented each other so when you look at these costs are not skewed toward one little focused area, I'm, a niche, which where we drilled everywhere.
It's important.
Got a leap that they'd like to they're all your wells in the that and maybe Elm Grove and the very top of our inventory, but that doesn't make sense you can't you'd have to be shut in the entire year tried to complete them. So having a large.
Footprint and having a lot of different areas I mean, a lot of that program planning as around how do you efficiently, bringing the wells on minimizing.
Downtime create kind of an overall best kind of.
Result, and we use the entire field it out at achieve that so we don't overly focus on one part of the acreage keep it at all.
Keep it at all spread out also gives you, though the lowest possible gathering costs, because you don't push any area too hard at one time. So I think on I think when you look at those numbers again, there hadn't been a management group, which includes government Comstock.
Has drilled uncompleted more these extended lateral has completed wells or we have had said 237. So we.
We've got a lot of experience here.
That's that's a lot of great detail.
Thank you.
Yes, great question.
Thank you. Our next question comes from Wells Fargo.
Check with choice. Please go ahead.
Hi, good morning.
Morning.
Can you just have any early indications as to second half non ops and 21 non of spend it seems like the you guys are slowing down a little bit but maybe into.
Maybe not quite at the pace at the some folks had initially thought.
I'm sorry, we missed the very first.
Yes, Yes, you came on strong or weak muted you a little bit now we brought you back out so [laughter].
Fair enough fair enough no just not non ops and for the back half and then also any thoughts on non ops spend and and okay, yes, not for Comstock, Yes, we have.
Yes, we do we take that Thats, a pretty light of out of activity for the rest of the year for our non op activity going because most of that.
Yes, they say.
Yes, they would be.
Circulating the if he's out so.
There was a lot of stuff.
Carried over from last year, especially in that first quarter.
Before they last year.
We do have a few projects that they're going to be completed.
But I think the overall budget for non op is.
Yes for the remaining of the year is in the what 15 million dollar area 15 that.
$18 billion that total spend for the next that next six months.
Okay perfect.
Sorry.
Yes that acreage trades that thats part of that we.
We are those those actually help I think some of the staff, we actually spent money for on the first quarter.
We that do an exchange with and so it just.
So I think thats always the goal of the as the operators we.
To extent that we can figure out how to swap acreage back and forth. Just so we gave a bigger interest our own wells.
Everybody is motivated to do that they just take a long time to complete we did complete some.
Significant one really in the second quarter, just kind of help them overall location count get a little longer I think we increased our percentage a long laterals. It also helps eliminate like what we like to eliminating some of that not outspend.
You know the beauty of the story and you asked to non outside but the beauty is.
92% of of our production we operate and.
We've got 195% HBP. So it's a Don off plan, we do we do but some of that but so we're not we're not saying any radical non op operator out there drilling wells that that that in our.
Maybe if we don't seem to that happening right now.
Good.
Good to hear any had a jump back to the operated.
Maybe I'm a little bit latest party.
Currently cross over six months at least on state data can you talk to the Georgia sales it looks like its drilled on some of your more eastern acreage I mean did did did a b a b a month for for kind of five or six months I mean was there anything different in the completion or the flowback on on that well.
So now the George Mills is definitely on a tier one area over now growth, we put that well along up labels in November.
Last year, we held up we do have some limitations on the infrastructure over in that area.
We got one primary Gallagher that gathers all gas in that area being a tier one area that that that system is stay relatively full so.
Here and there is some wells were little bit limited.
As far as might be getting them absolute Max out owned but this will in particular, the George Mills, we paid that will at about 35 or 36 million today.
And so essentially that right. We stayed in that 30 to 35 range for several months.
I need to look at it in detail to give you exact but but thats Bcf a month is right for several months after we put it on line.
Okay perfect great great to see thank you. Thanks. Thank you.
Thank you and our next question is from National Parks with Coker and Palmer Your line is helping.
Good morning.
Good morning.
Right.
Top down a little late.
Sorry.
You touched.
We've been Lodgenet.
Okay.
We talk about your.
Proven and Oh, well cost per foot, you're bringing up from 14.
Down to 1000 could you kind of give some perspective on sort of what you already accomplished.
In lowering it to that degree and sort of what our where the challenges still remaining.
To drive it down further.
Pretty good confidence that you can go lower still.
Yes, so so we basically been on a downward trend for several quarters now that's pretty much been driven by our drilling costs than.
Relatively.
Fairly unchanged during that trend, so really that was pretty much almost entirely driven by.
You know the.
On the completion side.
Finally, the Frac call. So maybe just the Frac health we've seen for several quarters. You know just just a provider cost I mean does really well.
Plummeted since.
Back in probably mid 2018 timeframe.
Leave.
I think we've probably reached the bottom of the barrel here I mean kind of thought we were there in the first quarter like I said earlier, but.
I think we're probably there now I just don't see the Frac I'll, probably going much lower than we're at today.
I mean, obviously, we've done pretty good job I think today were very efficient.
No really from this point forward as far as getting that cost down a little bit further it's just really inefficiencies I mean, we're we have gone to the downsized frac job Thats, obviously part of the answer.
We'll continue to monitor performance on those make sure. We're just getting the maximum NPV that we can but it's all about efficiencies is just getting a little bit better from here forward to get to that thousand dollars a foot.
So a little piece of that will be the frac costs, because like I said it did step down again from Q1, just with the entire coded 19 pandemic just.
Now to basically destroying the demand activities.
The rig counts drop activity still up but.
From that is just getting better at what we day it's.
Saving a couple of days you know drilling the wells it's.
Couple of days less fracking the wells.
And also will sooner.
Minimizing any kind of problems that Scott just really worthy of the extra cost is the extra efficiencies or.
Great. Thanks, and just one other question thinking of the different regions.
Companies operate in over the years.
We.
Did actually have a transaction earlier in the week.
Hi Inn in North, Louisiana, and it got me wondering.
It is there anything out there any asset that could lower you back into.
Conventional play at this point given year your inventory already have in the Haynesville.
No we're not focused on the conventional so we probably would be to the company to ask about that we're just going to stick with what got US here. So we commented on that we filed the out of our core.
As yet another caller I'd like to add with Dan.
On your first question should remember he he's been here since 2008, so every single well that we've ever touching the haynesville from 2008, all the way through the day yet.
He sees these fourth tier and he's probably been involved in all that so I think thats really important when you ask the question somebody he needs to be given the authority.
Had TRID and I don't know if anybody.
I would have learned more authority then Dan would to give you those intrusion I think thats important so the little detail there.
Yes. Thank you.
I'll just add to that I mean, we've got a pretty good staff here and obviously you know are.
We've got got a lot of experienced speak loan or staff in lines will I mean, thats what creates the numbers that you see in fact, if we were to open the lineup to make it I'll give you they're all to answer but you.
We take too long.
Okay, well I look forward to at some other time. Thanks. Thanks for your time you back you know.
Thank you and this concludes our Kiani session for today I would like to turn the call back to Jay Allison for his final remarks.
Right again, where we time I think is the most valuable thing we all have.
And so we're we're very thankful that you spent the last hour with us.
And we're also very thankful to be positioned where we are an alternative we are very excited.
About what the next 18 months could bring to the company. So thank you Tom.
That's it.
And with that ladies and gentlemen, we thank you for participating in today's program you you may now disconnect.
Thank you.
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