FRISCO Aug 5, 2015 (Thomson StreetEvents) -- Edited Transcript of Comstock Resources Inc earnings conference call or presentation Wednesday, August 5, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jay Allison Comstock Resources, Inc. - Chairman, CEO * Roland Burns Comstock Resources, Inc. - President, CFO * Mack Good Comstock Resources, Inc. - COO ================================================================================ Conference Call Participants ================================================================================ * Kim Pacanovsky Imperial Capital - Analyst * Don Crist Johnson & Rice - Analyst * Gregg Brody BofA Merrill Lynch - Analyst * Chris Stevens KeyBanc Capital Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to Comstock Resources second quarter 2015 financial results conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call may be recorded. At this time I would like to hand the conference over to Mr. Jay Allison, Chairman and Chief Executive Officer. Sir, you may begin. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [2] -------------------------------------------------------------------------------- Thank you. And welcome to the Comstock Resources second quarter 2015 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 2015 results. I'm Jay Allison, Chief Executive Officer of Comstock and with me is Roland Burns, our President and Chief Financial Officer; and Mack Good, our Chief Operating Officer. During this call we will discuss our 2015 second quarter operating and financial results and our plan for the rest of this year. This has been a tough environment for the sector and for us as well with the severe decline in oil prices, but the one major bright spot, the positive spot we have to share today with our stakeholders is the excellent results in the Haynesville shale program which Mack will review during his call. Please refer to slide 2 in our presentation to note that our discussions today will include forward-looking statements within the meaning of Securities Laws. While we believe the expectations of such statements to be reasonable, there can be no assurance that such expectations will prove to be correct. If you'll turn to slide 3, our 2015 Q2 highlights. This slide provides an overview of the second quarter where low oil and gas prices continued to negatively impact our financial results. Our realized oil price fell by 43% and our average realized natural gas price declined by 46% in the second quarter. The 10% increase we had in our gas production was not enough to overcome these low price as our oil and gas sales fell by 50% to $77 million. EBITDAX came in at $48 million and cash flow from operations at $15 million, or $0.33 per share. Our operations in the first half of the year were focused on wrapping up our oil drilling program and restarting our Haynesville shale program with our improved completion design. Our first five extended lateral wells in Haynesville were excellent with an average IP rate of 23 million per day per well. Our first two refracs that are producing Haynesville shale oils were also successful. An added bonus, which Mack will talk about in a moment, is the uplift seven producing wells got from the newly drilled wells where we had a 15 million a day gain in production. We're very pleased with the first five wells which were producing above our 15.6 Bcf type curve. We've taken several steps to bolster our liquidity in this poor environment that we're in. In March we completed a $700 million bond offering which paid off our bank credit facility and added liquidity to our balance sheet. In July we sold our Burleson County properties for $115 million. We have no debt maturities until 2019 and have total liquidity pro forma for the sale of $283 million. In order to safeguard that liquidity we have significantly reduced our drilling expenditures for the remainder of 2015. Please refer to slide 4 in our presentation where we summarize our recent sale of our East Texas Eagle Ford properties. On July 22, we completed the sale of our East Texas Eagle Ford operations to a private firm for $115 million. We sold these properties to enhance our liquidity after we decided they were non-core due to disappointing drilling results. We would have been required to drill two or three wells next year to retain all the leases in the oil window. Proved reserves related to these properties were 3.9 million-barrels of oil equivalent. We received good value for the undrilled acreage in the oil window in this transaction. These properties produce 267,000 barrels of oil and 649 Mcf of gas in the first six months of 2015. This represents about 9% of our total oil and 2% of our total gas production. We did realize a loss of $112 million on this transaction for this quarter. I'll now turn it over to Roland Burns to review the second quarter results in more detail. Roland? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [3] -------------------------------------------------------------------------------- Thanks, Jay. On slide 5 we recap our oil production. Oil production averaged 10,200 barrels per day in the second quarter, which was a 17% decrease from the second quarter of last year. With the rapid fall in oil prices, we shut down our oil drilling program in late December and with little drilling activity planned for this year in oil, we expect oil production to decline further. In the second half of the year, taking into account the sale of our East Texas Eagle Ford properties, we're expecting oil production to average between 7,000 and 8,000 barrels per day. Slide 6 shows our natural gas production. With our new Haynesville well starting to some online, our gas production grew 10% from 2014 second quarter to 122 million cubic feet per day. Gas production was up 35% from the first quarter rate of 91 million per day. We expect our Haynesville production to continue growing in the next two quarters. For all of 2015, we estimate our gas production will average between 125 million to 150 million cubic feet per day. We recently added some natural gas hedges at $3.20 per Mcf starting in July for the next 12 months as detailed on slide 7. These hedges only cover 10 million per day of our gas production but it represents a start to the hedge position we're seeking to build for 2016 to support our Haynesville drilling program next year. On slide 8 we summarize our second quarter financial results. We had a 10% increase in gas production offset by a 17% decrease in our oil production in the quarter. This combined with 45% lower oil prices and 46% lower gas prices caused our revenues, cash flow and EBITDAX to decline. Revenues this quarter were down 50% to $77 million, EBITDAX was down to $48 million, and cash flow was $15 million or $0.33 per share. Lifting costs in the quarter were up 6% with additional cost that we had to add artificial after our oil production, but our DD&A was down 4% due to improvement in our DD&A rate this quarter. Our DD&A rate in the quarter was $5.43 per Mcfe which improved 14% from the first quarter rate of $6.35. Our G&A costs were down 25% this quarter to $7 million. During the second quarter we incurred a loss on the sale of oil and gas properties of $112 million related to the East Texas Eagle Ford sale, and we had impairments on oil and gas properties and evaluated leases of $25 million. We also had unrealized hedging gains of $600,000 and a net gain on extinguishment of debt of $7.3 million. Including these charges, we had $135 million loss, or $2.93 per share this quarter. If you exclude these items, we had a net loss of $51 million, or $1.11 per share. Slide 9 summarizes the financial results for the first half of this year. For the first half of this year, oil production was down 4% and our gas production was down 9% from 2014. This combined with the 50% lower oil prices and 47% lower gas prices caused our revenues, cash flow and EBITDAX to be lower. Revenues for the first six months were down 52% to $144 million. EBITDAX was $88 million and cash flow was $35 million, or $0.76 per share. Lifting costs for the first half of this year were down about 5% with the lower sales numbers and our DD&A rate was just down slightly. Our general and administrative costs decreased 16% in the first half of this year to a total of $15 million. And we had the unusual items for the first six months, we had the loss on the sale of $112 million, total impairments of properties and unevaluated leases of $66 million, and we had drilling rig termination fees we paid at $1.8 million. We also had an unrealized hedging gain of $600,000 and a net gain on extinguishment of debt of $4.5 million. With these charges, we had a $214 million loss, or $4.64 per share, for the first six months of this year, and without these items we had a net loss of $100 million, or $2.18 per share. On slide 10 we detail our capital expenditures so far this year. We spent $169 million on drilling and exploration activities, excluding $7 million that we spent on acreage. Spending in the second quarter fell to $48 million as compared to the $121 million we spent in the first quarter. We expect spending to decline further in the second half of this year to a total of $68 million. As shown on slide 11, our budget remains unchanged for a total of $248 million to be spent on drilling, exploration and acreage acquisitions. As Mack will explain in a few minutes, we currently plan to do fewer refracs but may substitute another new well in our Haynesville program for the amount that is budgeted for the refracs. Slide 12 recaps our balance sheet at the end of the second quarter. We had $130 million of cash on hand and about $1.4 billion of total debt outstanding on June 30. The pro forma for the sale of the East Texas Eagle Ford assets in Burleson County we would have cash of $233 million. On that basis our net debt would represent 56% of our total booked capitalization. We no longer have a bank facility that is limited to a borrowing base and we're not subject to any upcoming redeterminations for the next several years. We do have a 4-year, $50 million bank commitment. Our total liquidity pro forma for the sale is about $283 million. We have retired $16.8 million in face amount of our 9.5% bonds so far in the first six months of this year for a cash payment of $7.8 million, and we recognized a gain of $9 million on these repurchases. We'll continue to repurchase some of our debt this year at attractive prices, but will balance that opportunity with maintaining adequate liquidity to get through this down cycle. Our first debt maturities do not come due until 2019 giving us a long runway to survive this cycle. I'll now hand it over to Mack Good. -------------------------------------------------------------------------------- Mack Good, Comstock Resources, Inc. - COO [4] -------------------------------------------------------------------------------- Thanks, Roland and good morning, everybody. As you and Jay have already indicated today, we're currently focusing on executing our Haynesville high deliverability gas projects. I think that our first and second quarter results confirm that our you new drilling and completion approach is the right one. It's definitely providing both repeatable and predictable results. Slide 13 shows the location of 69,000 net acres in Haynesville and Bossier shales. It also shows that we have nine new Haynesville wells planned for the year, along with 14 refracs. I'll talk more about the refracs in a minute. During first quarter of this year, as everybody knows, we completed our previously drilled Eagle Ford oil projects and we quickly moved toward executing the first of our extra long lateral Haynesville gas well projects. Slide 14 summarizes why we're focused on Haynesville. As part of this effort, we significantly changed the previous completion design strategy that we and everybody else had commonly used in the past on the shorter lateral length Haynesville wells. We did this so we could better place more proppant per foot of lateral length, better stimulate the reservoir and improve gas recovery rates and EURs. In fact, we announced the results from our first two wells in the first quarter confirming that we were on to something. Both of these first quarter wells had a lateral length over 7,400 feet long and an initial production rate over 20 million a day. As evidence of the many opportunities we have in the Haynesville, we've mapped 704 Haynesville locations on our acreage including 91 with extended laterals. In addition, we have 532 Bossier locations including 108 with extended laterals. Last but not least, we have also prioritized 186 refrac candidates within our Haynesville and Bossier assets. As of today, we have drilled and completed five horizontal Haynesville shale wells this year using our new design as shown on slide 15. Each have lateral lengths of at least 7,400 feet and each received a 30 stage fracture treatment using a total of over 20 million pounds of proppant, and each of these new wells have delivered over 20 million a day initial production rates. Our current total drill and completion cost for our extended lateral Haynesville wells is around $10 million. And we believe that we're going to be able to lower this to $9.5 million in the very near future. During the second quarter we continued our Haynesville success by completing three additional wells at DeSoto Parish, Louisiana and within our Logansport field areas shown on slide 16. Just like our first two wells in the first quarter, these three wells also have lateral lengths over 7,400 feet long and IP rates over 20 million a day. Just to summarize things for everybody, I'll quickly give you the stats on these three wells we completed in the second quarter. We drilled the Boggess 5-8 #1 well to a vertical depth of 11,306 feet with a 7,430-foot lateral, and it tested at an IP rate of 21 million a day. After that we drilled the Horn 8-17 #2 well to a vertical depth of 11,216 feet with a 7,400-foot lateral, and it also tested with an IP of 21 million a day. Our third well, the Harrison 30-19 #1 well was drilled to a vertical depth of 11,405 feet with a 7,437-foot lateral, and it tested with an IP rate of 24 million a day. During the second quarter we also continued to investigate the refrac potential within our Haynesville well inventory. We performed our second refrac by retreating the Bagley A4 using around 4 million pounds of proppant and diverting material to restimulate the well, and this well IP'd at 3 million a day which was a 6-fold increase over its production before the refrac. We'll continue to monitor this well's performance in order to gain an estimate of the incremental EUR benefit on the well. On slide 17 we plot our 15.6 Bcf type curve for our extended lateral Haynesville shale wells. As you can see, all of our wells are producing above this type curve so we're obviously very pleased with the results. Not reflected in the EURs assigned to the new wells is the increased production and pressure increase seven offset wells near our first four new Haynesville gas wells. The offset well production currently amounts to an additional 15 million a day. So far each offset well's production profile is following its original decline, but at a much higher rate and pressure. We will continue to monitor the offset well production in order to evaluate the long-term EUR benefits to each well. We will also see if wells near our fifth well ares positively impacted and we expect them to be. As for refracs, the efforts by numerous operators and service providers to refrac wells in both the Haynesville and Eagle Ford this year is definitely providing a slow but steady improvement in both refrac candidate selection methods and refrac treatment designs. We believe that a large number of our wells in both our Haynesville and Eagle Ford plays would benefit from a refrac. Given the prevailing low oil prices and the fact that we are seeing significant offset Haynesville well production boosts from our new completions, we've decided to postpone our refrac projects. As a result of postponing our refrac program, we have the option to use the amount budgeted for these projects to drill an additional well as Roland mentioned earlier. With that I'll turn it back over to Jay. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [5] -------------------------------------------------------------------------------- Mack, thank you. Roland, thank you. If you would go to slide 18. Our plan for 2015. I'll summarize our plan for the rest of the year. We're still on the exact same path that we presented with our last conference call as our Haynesville program is exceeding our expectation as Mack just showed you. Our achieved results are demonstrating that our improved completion design has substantially improved the economics of the Haynesville play. We have a vast resource play in the Haynesville with over 6 Tcf of reserve potential and over 1,200 mapped drilling locations. The play is near the Gulf Coast market which offers premium price realizations compared to other regions of the country, and unlike most Haynesville operators, we're not burdened by expensive above market gathering and firm transportation obligations. We have a good inventory of oil projects to pursue once oil prices improve and stabilize, including 105 future operated Eagle Ford shale locations and 327 future operated Tuscaloosa Marine shale locations. We'll continue to maintain a low cost structure as we have one of the lowest overall cost structures in the industry, and are working to lower our drilling and overhead costs wherever we can. We will continue to safeguard our balance sheet, and with the recent closed sale of our East Texas Eagle Ford properties, we have $283 million of liquidity and have significantly reduced our spending for the rest of the year to conserve this liquidity. For the rest of the call we'll take questions only from the research analysts who follow the Company. Sayid, I'll turn it back over to you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) Our first question comes from Kim Pacanovsky from Imperial Capital. Your line's open. Please go ahead. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [2] -------------------------------------------------------------------------------- Hey, good morning everyone. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [3] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [4] -------------------------------------------------------------------------------- Well, it was a bold move to return to the Haynesville and I know there were a lot of doubters out there, but you're starting to see dividends now so congratulations on that. I you just wanted to talk about the uplifted offset wells. If they do indeed continue to behave with the normal decline and just say you assume maybe the credit of one offset per virgin well, what would the IRRs look like at -- I'm sure you modeled this out, pick a $10 million cost and $3 gas price? How does that improve the IRR of the new drill well? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [5] -------------------------------------------------------------------------------- Kim, if you just look at the production boost from the seven wells and assume what you just mentioned, we're looking at a $10 million cost. We're looking at around -- at $2.50 gas we're looking about a 30% rate of return and at $3 gas close to 48%. And that's at a $2.50 rate. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [6] -------------------------------------------------------------------------------- Okay. Great. Not too shabby. And are your IRRs fully loaded? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [7] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [8] -------------------------------------------------------------------------------- Yes. Okay. Good. And then on the cash, the cash actually dropped more than I had anticipated this quarter and I missed, Roland, what you said about what was spent on repurchasing the bonds. But can you just go through that and also if there's been a change on the payables. -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [9] -------------------------------------------------------------------------------- Yes, Kim. The question on the changing cash, I think this quarter is when we saw pretty significant change in working capital and as we went from a much larger four to five rig drilling program to a one rig program, there's a big, big change in the accrued costs related to that program which we saw almost all of that happen this quarter. So that was about $57 million of working capital turnaround, which is most of the $60 million we expected with the change in the capital program. So I think this quarter saw most of that velocity in spending run through on the cash balance. We did spend, as you point out, a few dollars on repurchasing some bonds also in the quarter. But the biggest change -- -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [10] -------------------------------------------------------------------------------- What was that amount, Roland? What was the amount repurchased -- or the amount you spent, actually? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [11] -------------------------------------------------------------------------------- That we spent. We spent about $7 million in the second quarter of cash to retire about $16 million of bonds. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [12] -------------------------------------------------------------------------------- Okay. Great. And I'm just going to sneak one more in. As you start to move east in your acreage, what are the expectations for how these wells will behave as you move further east in the acreage? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [13] -------------------------------------------------------------------------------- We anticipate the same level of performance, Kim. There's no reason based on the geological mapping that we have to believe they would perform otherwise. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [14] -------------------------------------------------------------------------------- Great. All right. That's all I have. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [15] -------------------------------------------------------------------------------- Thank you, ma'am. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Thank you. Our next question comes from Don Crist from Johnson Rice. Your line's open. Please go ahead. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [17] -------------------------------------------------------------------------------- Good morning, guys. How are you? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [18] -------------------------------------------------------------------------------- Hi, Don. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [19] -------------------------------------------------------------------------------- I'll just start on the bond repurchases. What is your appetite going forward? I mean, I know you have $233 million pro forma and you want to keep some liquidity going into 2016, but what is your appetite given that your bonds are trading pretty low right now to repurchase more of those? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [20] -------------------------------------------------------------------------------- That's a good question. That's a balancing act that we have to do. It's a great opportunity to retire debt at the -- where the bonds are trading for. Of course, the bonds are hard to get so it's not easy to execute on. It's very small volume in the bonds. But with the sale, we think we can get a little more aggressive on that. We'll have to balance that with trying to target to end the year with -- our goal is to end the year with $200 million of liquidity, or mostly $200 million of cash. So we'll, as the year progresses, decide how much of the sales proceeds we can use toward retiring additional bonds. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [21] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [22] -------------------------------------------------------------------------------- We'll do some, but again, also target to keep getting liquidity at the end of the year. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [23] -------------------------------------------------------------------------------- Right. And just to touch on the refrac program, it's been an excellent program but I know you've run into some challenges with working interest partners, et cetera, trying to come up with capital to fund that program on their part. But looking towards 2016, would you -- given the current environment and where it is on commodity prices, assuming they stay where they're at today, could you drop your operated rig and go to a refrac program solely to conserve capital and further protect your balance sheet? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [24] -------------------------------------------------------------------------------- Well, I think we have that option. That's certainly the case. We have so many refrac candidates that offers that opportunity up. But on the other hand, with one rig, several offsets that are positively impacted by the completion, so in effect you get that free benefit from a refrac. So again, I think it will be a mixture of taking advantage of the opportunities in front of us, rather than all of one and none of the other. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [25] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [26] -------------------------------------------------------------------------------- Don, the four wells Mack talked about where you have seven offset wells that have a 15 million net production increase, that's almost like a free well. Our IP rates come in at 20-plus million, a little north of that, and then we pull them back to this 15.5 Bcf type curve, it's almost like after that fourth well with those seven offset wells being materially impacted, you get a free well which goes back to Kim's economics. We didn't know that going into first quarter. We really didn't know it going into the second quarter, and as we compared our results with some other operators in the area, you find out that those results are real. So when we go into a 2016 budget, we'll factor that in too. The problem with the refracs which we're big proponents of refracs both in the Haynesville and in our South Texas Eagle Ford is that when oil and or gas prices are lower it's a little hard to do that because the (inaudible) from the non-operators is dried up and it's really hard to get consents. So it's not an issue of whether they work. We're two out of two. I think some other companies in the Haynesville area have reported they've had great success. So it's not a question of success. I think they work better if prices are a little higher, just because you can get the consents from the non-operators. -------------------------------------------------------------------------------- Mack Good, Comstock Resources, Inc. - COO [27] -------------------------------------------------------------------------------- Just to add something real quick to what Jay just mentioned. We're not solely focused on the Haynesville refrac program. We also have opportunities in the Eagle Ford and, of course, at low oil prices the economics are not quite as appealing as we would like them to be. So once we get a little help in the marketplace you'll see us in the Eagle Ford doing some refracs. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [28] -------------------------------------------------------------------------------- Okay. And one more if I could sneak it in. Can you tell me what your current AFEs are on your most recent refrac and the new drill wells right now in Haynesville? -------------------------------------------------------------------------------- Mack Good, Comstock Resources, Inc. - COO [29] -------------------------------------------------------------------------------- Yes, refracs AFEs are around $2 million in the Haynesville, and the drill and complete on our 7,500-foot laterals is around $10 million. And we anticipate being able to move that down toward the $9.5 million range toward the end of our program this year. -------------------------------------------------------------------------------- Don Crist, Johnson & Rice - Analyst [30] -------------------------------------------------------------------------------- All right. Thank you. That's all I've got. Thanks. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [31] -------------------------------------------------------------------------------- Thank you, Don. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) Our next question comes from Gregg Brody from Bank of America. Your line is open. Please go ahead. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [33] -------------------------------------------------------------------------------- Good afternoon, guys. Nice work on the Haynesville wells. I was curious, you've laid out -- there's 90 prospective extended laterals in DeSoto. How many of those do you think you've derisked with the five wells you've drilled and how do you expect to derisk the remaining over the next year or two? And maybe you can talk about the Bossier wells as well, if you can go after those? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [34] -------------------------------------------------------------------------------- Well, we haven't completed our planning for Y16 because of the variables involved, but certainly we have a number of opportunities there in Y15. We're currently drilling our sixth well. We'll be on our seventh well by the end of the month. We have a short lateral Haynesville well planned for the ninth well, and as mentioned, we have an optional tenth well that we're considering. We can drill either a short lateral, long lateral Haynesville well or look at a long lateral Bossier well. So we're evaluating those cases. Back to Y16. Right now we're looking at the same kind of program in Y16, perhaps pared down a little bit, but we haven't firmed anything up. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [35] -------------------------------------------------------------------------------- Do you think -- is there a way to quantify what you've derisked? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [36] -------------------------------------------------------------------------------- Well, a lot of the derisking -- and you're talking about the extra long lateral Haynesville wells? -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [37] -------------------------------------------------------------------------------- Yes, so the 90 listed there and then on the Bossier you have 108, right? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [38] -------------------------------------------------------------------------------- A number of the -- the Haynesville's largely been derisked by the short lateral wells we've previously drilled. We have significant geological mapping, significant hard data from wells that have already been completed. So going into the program in Y15, the extra long lateral program, we were extremely confident that we were going to see the type curve achievements that we've seen, and in fact, as shown earlier, we're exceeding those expectations. So largely -- just to be real quick with the answer, we derisked the Haynesville previously and now we're taking advantage of the technological enhancements and drilling the longer lateral and completion techniques. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [39] -------------------------------------------------------------------------------- That's helpful. And then just coming back to the bond buybacks, could you remind us what the governor is for your -- what's the limitation today on buying back bonds and did you get any amendments from your bank lenders to do up to a certain amount? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [40] -------------------------------------------------------------------------------- Yes, Gregg, the only limiter is probably in our new credit facility as common bank facility has limitations on lots of transactions that you just get permission for including the sale. So we obviously got permission to complete the Burleson divestiture in the bank, with the bank amendment, and we also increased the amount that we could spend on debt retirement of any type to $50 million. If we looked at other types of transactions we simply would go to the banks and ask permission. But that's kind of where we are right now. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [41] -------------------------------------------------------------------------------- And that's $50 million of total spending or face value? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [42] -------------------------------------------------------------------------------- No, of total spending. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [43] -------------------------------------------------------------------------------- And your second lien bonds don't restrict that in any way? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [44] -------------------------------------------------------------------------------- No, that's correct. They obviously don't restrict buying themselves back, yes. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [45] -------------------------------------------------------------------------------- Great. Thank you for the clarification. I'm going to hop off. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [46] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Thank you. Our next question comes from Chris Stevens from KeyBanc. Your line's open. Please go ahead. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [48] -------------------------------------------------------------------------------- Hey, guys. Great job out there on the Haynesville. I was hoping you guys could maybe quantify some of the efficiency gains that you're seeing out there. What was the spud to TD on the latest well? How does that compare to the first well? And then as we get into 2016, how many wells do you think you could drill at the one rig program? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [49] -------------------------------------------------------------------------------- You wanted to know the TD on the last well that we drilled? Is that right? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [50] -------------------------------------------------------------------------------- The drilling time. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [51] -------------------------------------------------------------------------------- The drilling time. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [52] -------------------------------------------------------------------------------- Yes, the drilling times. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [53] -------------------------------------------------------------------------------- Okay. I'm sorry. I misheard your question. We've been seeing -- right now, we're pretty efficient. We're seeing spud to spud in 33 days, 32 days, meaning spud one well, drill it to the 7,500-foot or so lateral TD, rig down -- set casing rig down, move to the next location and about 34 days is the interval. So we've pretty much got it down at this point. And the second part of your question was what? -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [54] -------------------------------------------------------------------------------- Just how many wells do you think you could drill in 2016 with the one rig program? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [55] -------------------------------------------------------------------------------- About 10. One rig could drill 10 to 11 wells. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [56] -------------------------------------------------------------------------------- Okay. When your rig comes off the contract how much do you expect to save on your well cost? Is that already factored in at this point on the $9.5 million? Is that what gets you there? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [57] -------------------------------------------------------------------------------- No. Actually, that isn't factored in the $9.5 million. What we're looking at there is some savings on pipe and a little more savings on the frac side of the cost equation. The rig rolls off contract in mid-November and the savings on subsequent wells based on current rig rates is around $250,000 to $300,000 a well. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [58] -------------------------------------------------------------------------------- Okay. And are you trying any other differences in the completion design out in the Haynesville? Are you trying to increase the amount of proppant or anything like that? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [59] -------------------------------------------------------------------------------- Well, the first five wells that we've completed we've stayed with the program because we wanted to really measure the impact of our design. We didn't want to deviate too much from it. Now we're considering -- right now it's 3,000 pounds of proppant per foot of lateral length, which is pretty high. But we have talked about increasing the proppant loading just a little bit to see if there's an impact there. We've talked about the possibility of drilling a 10,000-foot lateral in certain cases. That's probably a next year project when we dive into that. We like the fluid system that we're pumping. We like the overall completion strategy of about 250 feet per stage with five clusters. You've heard all of this before. We think we're getting the right kind of proppant loading and the right kind of stimulation on the reservoir along that 7,500 foot lateral length. So we don't want to deviate too much. It's the old song, if it's not broke don't try to fix it. We're doing really well with the program we've got now, but that does not mean we won't make some change as we get a little more information coming at us. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [60] -------------------------------------------------------------------------------- Right. Yes, the well results have been good so far. If I could just add one more in here. The transportation expense out in the Haynesville, what's the cost on the incremental volumes at this point? And I guess what's good to use on a go forward basis? Thanks. -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [61] -------------------------------------------------------------------------------- We're in the process of finalizing some new -- actually maybe terminating early some transportation arrangements. But they're not 100% final yet. We're hoping to have a lot of that in place by the fourth quarter. But generally, we're targeting transportation cost in the neighborhood of $0.15 to $0.20 versus our historical $0.35 that we've incurred. One thing we've always had enough volume so we haven't had to pay for unused transportation because of the way we structured our deals. But as they expire, the market is really low now, it's really a buyer's market for gathering and transportation services in the Haynesville. So we're able to take advantage of that to lower our cost structure. So I think -- given if we're successful in getting some of those in place earlier, we can see those rates maybe show up in the fourth quarter. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [62] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Operator [63] -------------------------------------------------------------------------------- Thank you. We have a follow-up question from Kim Pacanovsky from Imperial Capital. Your line's open. Please go ahead. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [64] -------------------------------------------------------------------------------- Hi again. Just wondering if you have any information on Chesapeake's 10,000-foot lateral well? I wasn't on the call this morning so I'm just wondering if you have any update on that, and also if you could tell us where that location is? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [65] -------------------------------------------------------------------------------- Kim, I don't have any information about it and the specific location of the 10,000-foot lateral is to our east. But I can't tell you specifically how far to the east. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [66] -------------------------------------------------------------------------------- Okay. And then just a follow-up on the G&A. What are some of the reasons for the large improvement in the G&A expense? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [67] -------------------------------------------------------------------------------- Well, Kim, this is Roland. I think it's mostly lower personnel cost. We're continuing to trim staffing. Pretty much -- obviously have a hiring freeze and -- -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [68] -------------------------------------------------------------------------------- What's the year-over-year employee count, Roland? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [69] -------------------------------------------------------------------------------- I think overall we're down -- I think in total in the neighborhood of eight to nine people. We'll continue to evaluate our staffing I think as we go forward with a smaller CapEx program. We might see additional reductions there. Definitely as we have retirements and other attrition, we're not replacing that. So I think depending on the environment and what type of program we run, but we're targeting to continue to see G&A be reduced. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [70] -------------------------------------------------------------------------------- We had 130, 135 employees at the beginning and we probably have 120-plus. We're probably down 10. -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [71] -------------------------------------------------------------------------------- Yes, we're down about 10 people. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [72] -------------------------------------------------------------------------------- Yes, that's about right. Which percentage wise is a lot and we continue to look at that. -------------------------------------------------------------------------------- Kim Pacanovsky, Imperial Capital - Analyst [73] -------------------------------------------------------------------------------- Okay. Great. That's all I have. Thanks, guys. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [74] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [75] -------------------------------------------------------------------------------- Thank you. Our next question comes from Gregg Brody from Bank of America. Your line's open. Please go ahead. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [76] -------------------------------------------------------------------------------- Hey, guys. Just a couple follow-ups if you don't mind. Just on the side fracking that's taking place, are you -- what are you looking for to understand how that may impact the well over time? Are there any analogies that you could think of that you could explain to us that will help us understand what to expect in terms of their risk to the well performing differently than you would think? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [77] -------------------------------------------------------------------------------- Well, I can tell you what we've seen. What we've seen is that every well that we shut in prior to the frac that we bumped on the new Haynesville extra long lateral well, without exception, every well offset to that new well has benefited from the frac depending on the distance away from the new well. And you have to keep in mind that every well that we're talking about has a horizontal lateral, and so the lateral length of the offset well is shorter than the lateral length of the new well. So there's overlap. Meaning only part of the old offset well lateral is covered within the frac envelope of the extra long lateral length. Does that make any sense? -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [78] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [79] -------------------------------------------------------------------------------- Okay. So when we frac the new well, only part of the old well is subject to the impact of the new frac. And again, depending on distance. So we've been able to pretty accurately predict now after the fifth well, we've been pretty accurate at being able to predict which wells are going to be impacted the most and we've developed ranges internal to Comstock, ranges of expectation, on the boosted production per offset well. And so far, as I mentioned earlier in my presentation, the offset wells are producing above their original declines at higher rates and higher pressures. So we continue to monitor the overall performance profile of those offset wells to determine just how they're going to extrapolate out over time. Right now it's a very low risk opportunity to get additional production from the offset wells. Now, the further away the offset well is from the new frac, the less the impact -- obviously that makes sense. What we think is happening is we are repressurizing the reservoir with the new frac. We're also reconnecting the old fracture system in the offset wells and that's what, simply put, is giving the old well the opportunity to benefit. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [80] -------------------------------------------------------------------------------- When you mentioned the returns that you were talking about, you said $10 million per well, were you effectively saying that drilling the extended lateral I've added this range of side-frac production on and that's the return you're coming up with or is it something else? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [81] -------------------------------------------------------------------------------- Well, what the assumptions was that we're getting 15 million a day of free production basically without cost. So if you add that back into the five wells, you get the additional benefit. The other way we look at it, we haven't added that in, in a specific way. We've kept that on the side because we want to evaluate, totally evaluate or better evaluate, the boosted production before we make an assignment, an allocated assignment of the offset well production to the new well EURs. But obviously we're getting additional production, it's been over 100 days on some of the offset wells, the performance appears to be holding steady. So obviously we're getting that economic benefit. But until we get a little more production data, we don't want to assign the economic benefit over to the new wells. Not yet, anyway. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [82] -------------------------------------------------------------------------------- All right. And your -- the cost highlights that you have in your presentation for the year I think it's $145 million for lifting cost. Does that assume the benefits of these side-fracs or is there potential upside to lowering that number as a result of that? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [83] -------------------------------------------------------------------------------- There's potential to lower the number, that's for sure. Just depends on the level of the impact. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [84] -------------------------------------------------------------------------------- Got it. And is any of that reflected in this number today or is it not? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [85] -------------------------------------------------------------------------------- I don't believe so. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [86] -------------------------------------------------------------------------------- Thank you very much for the explanation. Good to hear your voice back. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [87] -------------------------------------------------------------------------------- Yes, sir. Thank you. Appreciate it. -------------------------------------------------------------------------------- Operator [88] -------------------------------------------------------------------------------- Thank you. Our next question comes from Chris Stevens from KeyBanc. Your line's open. Please go ahead. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [89] -------------------------------------------------------------------------------- Thanks for letting me follow up here. Obviously, the opportunity in the Haynesville, the resource is very large out there. I was hoping maybe you could just quantify a little bit the opportunity in the Cotton Valley out there on that acreage, and is that something you could monetize while keeping the Haynesville rights? -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [90] -------------------------------------------------------------------------------- Well, we like the Cotton Valley a lot. Obviously, a number of wells were drilled through the Cotton Valley, completed in the Cotton Valley and held to production. They gave us the Haynesville -- held the leases, pardon me, that gave us the opportunity to access the Haynesville. In terms of drilling horizontal wells, that's an in-house assessment that's ongoing right now. Given the current market environment and our trying to be very careful with our liquidity, we haven't posited Cotton Valley opportunity. We feel like the bigger returns is on the Haynesville extra long lateral wells that we're drilling. But to try to answer your question, we believe there's significant Cotton Valley opportunity within our Haynesville area holdings that we can access later. As far as divesting them, that's always a continuing evaluation depending on a lot of different factors. But certainly one of the -- just as an operator, I don't particularly like the idea of having someone on top of me while I'm out trying to drive wells through the Haynesville 7,500-foot, 10,000-foot lateral lengths. We like the Cotton Valley. It's held by production. So to sell that while we're taking advantage of Haynesville is down on my list, but I've learned never to say never. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [91] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Mack Good, Comstock Resources, Inc. - COO [92] -------------------------------------------------------------------------------- We do have 20-plus million a day of Cotton Valley gas. We have (inaudible) and Cotton Valley. We think it's very valuable. It is -- it's very marketable. We have requests all the time from companies wanting to buy it. -------------------------------------------------------------------------------- Gregg Brody, BofA Merrill Lynch - Analyst [93] -------------------------------------------------------------------------------- That's right. -------------------------------------------------------------------------------- Mack Good, Comstock Resources, Inc. - COO [94] -------------------------------------------------------------------------------- And we've perpetually said no. We do have about 20 million a day of gas in South Texas which is very valuable also. We've got the TMS that's upside. Then of course we've got a very good inventory slate in our South Texas Eagle Ford. And, as you know, we drilled those wells on [80] in South Texas Eagle Ford, a lot of operators are drilling those wells on [40s]. We haven't done that either. There is a lot of upside plus you can add the 1,200 locations in the Haynesville Bossier. So even though the world of energy's pretty terrible, particularly if you're a micro cap, small cap E&P Company, we're riding the wave as strong as we can. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [95] -------------------------------------------------------------------------------- Okay. And just thinking about our borrowing base, as you go and you're developing this economic resource in the Haynesville, how do we think about the growth in what your borrowing base could be through next year? -------------------------------------------------------------------------------- Roland Burns, Comstock Resources, Inc. - President, CFO [96] -------------------------------------------------------------------------------- Chris, we don't have a borrowing base at all. So we don't have that type of facility in place. I think over time we can put one of those in place. So I think as you grow the reserves into next year's environment and that may be something we look to do to do some refinancing of our other debt. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [97] -------------------------------------------------------------------------------- Again, we always said, if you remember, in 2012 we had about 500 Bcf of Haynesville reserves that were on the books. They were future reserves that we would drill based upon our drilling program. When natural gas hit $1.90 in May of 2012, of course at the end of 2012, we took them off. We didn't lose any of the acreage. So as Mack is derisking the extended lateral Haynesville today into just a normal lateral well in Haynesville and then maybe a Bossier well. I do think we have some pretty meaningful reserves that we can add back on the books at a materially different economic cost. So those are all good things. -------------------------------------------------------------------------------- Chris Stevens, KeyBanc Capital Markets - Analyst [98] -------------------------------------------------------------------------------- All right. Appreciate the time, guys. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [99] -------------------------------------------------------------------------------- Yes, sir. Thank you. -------------------------------------------------------------------------------- Operator [100] -------------------------------------------------------------------------------- Thank you. Showing no further questions at this time. I'd like to hand the conference back over to Mr. Allison for closing remarks. -------------------------------------------------------------------------------- Jay Allison, Comstock Resources, Inc. - Chairman, CEO [101] -------------------------------------------------------------------------------- Thank you, Sayid. And again, there's a lot of competitive companies today that you could have listened to, so to all the listeners here I thank you for listening and to be supportive of Comstock and asking really good questions. Again, I think the extended lateral Haynesville results have exceeded our type curve. We were pleased to report that. Our Haynesville refracs are really working. The balance sheet is as strong as it's been all year long. We do have an excellent natural gas inventory in the Haynesville with 1,200 locations in Haynesville Bossier. And as someone had asked, we also have Cotton Valley assets. And we have deep gas in South Texas. And in the future when oil prices come up we've got a very good inventory of oil projects in our South Texas Eagle Ford, and no one mentioned it, but in the future we do have the TMS that we've held. We've got 81,000 or 82,000 acres there. So with that, I thank you for your time, and again, we'll give you our best day's work every day. Thank you. -------------------------------------------------------------------------------- Operator [102] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.
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