Comstock Resources Inc. - Special Call

Comstock Resources Inc. (CRK)

December 06, 2011 10:30 am ET


Roland O. Burns - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Secretary, Treasurer and Director

Miles Jay Allison - Chairman, Chief Executive Officer and President

Mark A. Williams - Vice President of Operations


Jack N. Aydin - KeyBanc Capital Markets Inc., Research Division

Dan McSpirit - BMO Capital Markets U.S.

Kim M. Pacanovsky - McNicoll, Lewis & Vlak LLC, Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

John Freeman - Raymond James & Associates, Inc., Research Division

John M. Selser - Iberia Capital Partners, LLC

Daniel J. Morrison - Global Hunter Securities, LLC, Research Division

Brian M. Corales - Howard Weil Incorporated, Research Division



Good day, ladies and gentlemen, and welcome to the Comstock Resources call to discuss the acquisition of the Delaware Basin. My name is Lacey, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Jay Allison, President and CEO. Please proceed.

Miles Jay Allison

Lacey, thank you, and thank you to everyone that's listening in for short notice and, again, we woke up this morning, there's snow on the roof. We're in Dallas, Texas. Not -- to say today couldn't have arrived any quicker. I was ready to get this announcement out to the public.

In the last 4 business days, we canceled presentations at 2 conferences and numerous one-one-one appointments, including probably 7 or 8 today that we canceled on. We apologize for the cancellations, but now you know why we canceled that.

Late yesterday afternoon, we're pleased to announce the Delaware Basin acquisition of Eagle Oil & Gas Co. and partners for this $332.7 million with an effective date of November 1, 2011, and an estimated closing date at the end of this month, December 30, 2011. But prior to the announcement yesterday, we had spent the majority of this year focusing on the Permian Basin as a new oil basin for Comstock, and in fact, you'll see in the press release we had leased about 12,000 net exploratory acres in the Permian region so far this year in 2011, with acreage cost on that 12,000 acres of anywhere from $400 to $500 per acre. And although our producing and finding cost were among the lowest of any E&P company in the industry, at Comstock, we knew we needed to add an oil liquids component to our asset base to complement the 130,000 net acres in the Haynesville and Bossier shale play that we control in Louisiana and Texas, which as, is you know, about 6.5 Tcfe of dry gas upside. So in 2010, we started leasing acreage in the South Texas area, which is this Eagle Ford region. And this year, as you all know, we added another 10,000 net acreage to our Eagle Ford lease inventory to give us the 28,000 net acreage that we currently own, which is yielding excellent results, as Mark Williams, who's here with me today, will go over to you -- with you. And you'll see our press release with the results of our most recent 5 Hill wells in McMullen County, are paying from 801 to 1,120 barrels of oil equivalent per day on a 16/64 inch choke, which it states in our press release. But Comstock still needed to add a major acreage position in a premier oil basin, really that was accessible to us, that was environmentally friendly, that was a proven basin and in one in which our G&G team had experience in. So our focus turned over a year ago toward the Permian for the results that you see today.

Today, you see Comstock materially reducing our gas rig count from a high of 7 in 2010 to 1 rig by the early 2012. We're increasing our oil and liquids rig count to 3 in the Eagle Ford and adding the Permian as a new core area that will materially change Comstock, making us a much more balanced E&P company with a material oil story to tell in a major oil basin, the Permian Basin. And our goal in adding a new region was, one, we needed to operate; two, it hadn't had -- it had to have enough size for years and years and years of drilling; three, it had to be an oil basin; four, it had to have infrastructure in place for the producing properties; and five, really, it had to be materially de-risked by recent drilling activities if we were to use our bank credit line to purchase the properties. This acquisition satisfied all of those goals and more.

If you're following us on the slides, of course, Slide 2 is the risk statement. Everybody has seen that a gazillion times. If you look on Slide 3 and you look at the properties, the purchase says 68,000 gross acres, or about 44,000 net acres, so about a 75% NRI; about a 65% working interest. It's all in Reeves County, Texas. It's in the Delaware Basin. It's perspective for the Bone Spring-Wolfcamp development, and it is 86% operated. If you look at the reserves that we're buying, it's about 23 million barrels of oil equivalent. The resource potential we think it has about 178 million or 180 million barrels of upside. It's about 900-plus net vertical wells that we will drill. The additional upside we think is material, and Mark Williams will go over that in a moment, but it's horizontal development either in the Avalon, the Bone Springs or the Wolfcamp shales.

You can see the well count. The well count, in our opinion, de-risked the 44,000 net acres that we'll be closing out on the 10th of this month. There's 29 producing wells and there's 5 wells that are waiting to be completed. And then the current production, as you all know, is 1,400 barrels of oil equivalent.

On Page 4, we'll just show you our major properties, and we've added the West Texas region on the top left-hand side. Estimated proved reserves, you see this 139 Bcfe and 34 wells, and that complements our existing reserve basins, which is in East Texas, North Louisiana, South Texas. And then the other region, which is the bottom right-hand side, of course that -- that's probably a divestiture region sometime in the future. Company overview, the pro forma, you'll note that we're about 294 million a day equivalent of production. We're 91% operated, 88% natural gas.

With that, I want to turn it over to Mark Williams. He will go through Slides 5 through 12. Roland Burns, who is here, go through Slides 13 to 16. Turn it back over to Mark for a couple of slides, and we'll close it out with a summary then open it up for questions. Mark?

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